Sections 44AB, 271B—Value of transactions of online trading in commodities through MCX without taking delivery do not constitute turnover for computing the limits u/s. 44AB of the Act. There is no element of turnover where there is no physical delivery of commodities given or taken.
Facts:
The assessee company, a member of Multi Commodity Exchange of India (MCX) was engaged in online business of trading in commodities. The transactions carried on by the assessee were speculative in nature. The bills issued by the Exchange on a daily basis represented mark to market bills and not actual sales/purchase turnover. The transactions were without taking delivery. The entire transaction was squared off at the end of the day or was carried forward to the subsequent day. The net amount, as per contract notes, was either debited or credited to the account of the assessee.
The Assessing Officer (AO), considering the value of the transactions carried out by the assessee on MCX to be the sales figure, invoked section 271B for violation of section 44AB. He held that the turnover of the assessee was more than Rs. 40 lakh, being the limit prescribed u/s. 44AB for getting the accounts audited and obtaining and furnishing the report as required by the Act.
Aggrieved, the assessee preferred an appeal to CIT(A) who upheld the action of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal where it placed reliance on the following decisions:
Banwari Sitaram Pasari HUF vs. ACIT (29 Taxmann 137) (Pune ITAT)
Growmore Exports Ltd. vs. ACIT (72 TTJ 691) (Mum ITAT)
CIT vs. Growmore Exports Ltd. (Appeal No. 18 to 20 of 2001) (Mum HC).
Held:
The Tribunal noted that the Pune Bench of ITAT has in the case of Banwari Sitaram Pasari (supra), following the decision of Mumbai Bench of the Tribunal in the case of Growmore Exports Ltd. (supra) held that the transaction of buying and selling of commodities where no physical delivery is taken or given is a speculative activity and there is no element of turnover in such transactions.
The Tribunal also noted that the view taken by the Tribunal in the case of Growmore Exports Ltd. has been confirmed by the Bombay High Court vide decision dated 19-12-2007 and speaking order has been passed in the connected case of CIT vs. Harsh Estate Pvt. Ltd. where the Court has observed as under:
“In other words the finding by the Commissioner (Appeals) that the purchase was coupled with delivery has been reversed by the order of ITAT. Nothing has been brought to our attention from the record that the said finding of reversal is perverse warranting this court to take a view different from the view of the Tribunal. We, therefore, proceed on the footing that though there was transaction of shares it was not coupled with delivery. Once there was no delivery, the sale price of the shares could not have been considered as the turnover but only the difference between the price at which the shares were purchased and consequently sold by the broker…
Considering the findings on merits namely that there was no delivery and consequently the sales prices of the shares could not have been considered, it is not necessary to go into the other aspects. In the light of the above, we find no merit in this appeal which is accordingly dismissed.”
The Tribunal considering the above mentioned decisions held that the value of sale transaction of commodity through MCX without delivery cannot be considered as turnover for the purpose of section 44AB. It deleted the penalty levied u/s. 271B.
The appeal filed by the assessee was allowed.
