Speculation in Sec. - Tax Audit + Business V/s. Non Busuness

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Maqbulhusen Malaiwala (Querist)
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30 December 2010 I have one query.

My client has transacted in Trading of Shares during the year which are of two type:

1. Delivery based - Short Term
2. Intraday Trading - Speculation

My question are:
-x-x-x-x-x-x-x-x
1. What is the limit for Tax Audit for Intraday Trading
2. What is the criteria to treat Intraday Trading as Income from Speculation Business / Only as Speculation Income / loss, as Speculation Loss in business is carried forward for a period of 8 years, whereas Speculation Loss - non business is carried forward for only 4 years.

Dear Experts pls. cite the case, if available.

Thanks in advance & Regards
Maqbulhusen Malaiwala

chetan soni

chetan soni (Expert)
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30 December 2010 A speculation business means any business in which a contract for the purchase and sale of any commodity including stock and shares are periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity but does not include a business in which a contract in respect of raw materials or merchandise is entered into by a person in the course of a manufacturing or mercantile business to guard against loss through future price fluctuations for the purposes of fulfilling the person's other contracts for the actual delivery of the goods to be manufactured or merchandise to be sold.

Now in your case the intraday trading of shares will be speculation business & same will be table under business income. Now Sec. 44AB states the any person having income derived from business whose trunover exceeds Rs. 40L for AY10-10 & Rs. 60L for AY 11-12 needs to get his accounts audited under sec. 44AB.

Hence if the total trunover of intraday exceeds the limits mentioned above then you need to do the accounts audited.
Trunover means purchase or sell as the case may be. If the purchase value exceeds the limit then also the tax audit is applicable.

Maqbulhusen Malaiwala

Maqbulhusen Malaiwala (Querist)
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30 December 2010 Dear Mr. Soni, I've my own doubts about Audit limit & further my question is not answered fully as to when the same is to be treated as business / non business

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Maqbulhusen Malaiwala

Maqbulhusen Malaiwala (Querist)
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30 December 2010 Dear Mr. Soni, I've my own doubts about Audit limit & further my question is not answered fully as to when the same is to be treated as business / non business

chetan soni

chetan soni (Expert)
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30 December 2010 I have clearly mentioned that the intraday trading is speculative transactions & same needs to be showed under income under business income as speculative income & losses of such income will be carried forward upto 4 years.

Now Sec. 44AB states the any person having income derived from business whose trunover exceeds Rs. 40L for AY10-10 & Rs. 60L for AY 11-12 needs to get his accounts audited under sec. 44AB.

Maqbulhusen Malaiwala

Maqbulhusen Malaiwala (Querist)
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30 December 2010 From somewhere I've heard that, in case of Speculation Profit/Loss net Profit/Loss is to be considered for the purpose of tax audit & not sale/purchase value.

i.e. if, Profit/Loss exceeds Rs.40/60 Lacs only then Tax Audit is applicable, not otherwise.

Pls. be sure.

chetan soni

chetan soni (Expert)
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02 January 2011 Kindly go through this link

http://law.incometaxindia.gov.in/DIT/File_opener.aspx?page=ITAC&schT=&csId=1d038a7c-3052-4c92-ab08-cda5089346e3&rdb=sec&yr=75996b99-a798-4098-bca8-e66ee23fe426&sec=44ab&sch=&title=Taxmann%20-%20Direct%20Tax%20Laws

This will resolve your all doubts. The very first line of the section cleares all.