| Question And Answer | |
|---|---|
| Subject: | Tax Audit F & O Trading |
| Category: | Income-Tax |
| Querist: | CA. Ankit Tantia |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | F&O, futures and options, Speculation income, Tax Audit, Turnover |
| Date: | December 22, 2021 |
How to Prepare Trading & Profit & Loss Account for F &O Trading in Case of Tax Audit
Futures and options (Non-speculative transactions)
In Normal scenario, turnover for Futures & Options is determined as follows –
- The total of favorable and unfavorable differences shall be taken as turnover
- Premium received on sale of options is also to be included in turnover
- In respect of any reverse trades entered, the difference thereon should also form part of the turnover.
For understanding the above Turnover is taken as “Calculated Turnover”.
My question is when an assessee opts for Tax Audit in F & O Trading; Turnover to be credited in Trading & Profit & Loss Account shall be
- Normal Turnover or
- Calculated Turnover.
If we have to go for Option (1), Normal Turnover shall be credited in the Trading & Profit & Loss Account and normal Purchase value along with all the expenses such as Securities Transaction Tax, Stamp Duty, Brokerage, Exchange Transaction Charges, GST, SEBI Turnover Fees etc. shall be debited in the Trading & Profit & Loss Account , the balance being the Net profit/Loss.
But if we have to go for Option (2), Calculated Turnover shall be credited in the Trading & Profit & Loss Account.
But how to account for the difference in Turnover (Normal Turnover Vs Calculated Turnover) .
- Suppose Normal Turnover (Sell value) in case of F&O Trading is Rs. 250.00 Lacs and Calculated Turnover comes at Rs. 50.00 Lacs
- Now, since we have to credit Rs. 50.00 Lacs in the Trading & P & L A/c (Calculated Turnover), How to adjust the difference of Rs. 200 Lacs (250 – 50)?
- Shall the difference be adjusted with the normal purchase value?
- Whether all the expenses such as Securities Transaction Tax, Stamp Duty, Brokerage, Exchange Transaction Charges, GST, SEBI Turnover Fees etc. shall be debited in the Trading & Profit & Loss Account?
It is pertinent to understand that the books of accounts are not conclusive for determining the tax liability of a taxpayer. Reliance is placed on the decision of the Hon’ble Supreme Court in the case of viz, Kedarnath Jute Mfg. Co. Ltd. vs CIT [1971] 82 ITR 363 (SC), CIT vs India Discount Co. Ltd [1970] 75 ITR 191 (SC), Sutlej Cotton Mills Ltd. vs CIT [1979] 116 ITR 1 (SC), Tuticorin Alkali Chemicals & Fertilizers Ltd. vs CIT 227 ITR 172 (SC), and CIT vs Shoorji Vallabhdas & Co. [1962] 46 ITR 144 (SC).
Further, the Guidance note on Tax Audit under section 44AB of the Income-tax Act, 1961 provides clarity on preparation of tax Audit report in the case of Derivatives Future & Options.