Loss in derivative trading

This query is : Resolved

Amit Kumar Agarwal (Querist)
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03 August 2011 If a person is engaged in Derivative Trading. During the Year his total of Favourable Transaction (Profit) is Rs. 30 Lacs. Total of unfavourable Transactions (Loss) is Rs. 35 Lacs. Thus net loss comes to Rs. 5 Lacs. However, because sum of profit and loss is more than 60 Lacs tax audit is compulsary. How, will this data be shown in ITR-4. If we show turnover of Rs. 65 Lacs than how we will show expenses of 70 Lacs. ITR -4 does not accept negative figure as turnover so we cant enter turnover as -5 lacs.

rajiv

rajiv (Expert)
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03 August 2011 in my view, you should show, Rs.30 lacs against sales in ITR form, and Rs.35 lacs against purchases. i am keeping this query open to experts.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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03 August 2011 In ITR4 you have tried much.
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We have to leave certain things behind while filling up the ITR 4 as it is not technically fit to present these kind of data.
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ITR 4 is the lengthiest tax return which
helps more to the assessee and harasses to the department officers and tax consultants.
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According to the creators of ITR 4, sales or gross receipts can't be negative. But in practical these can be. These happens when the business passes through bad patches.
Example- FY 2010-11
Sales 5 crore.
Drs 3.00 Cr.

FY 2011-12
Sales 1.00 Cr.
Sales Return from Drs of Last Yr. 1.75 cr.
(Due to sub standard quality of goods sold)
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In such a situation What we can do while filing ITR 4?
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Whatever we do, we should be in a position to explain the things at the time when we would be asked? But, technically we have to do something wrong.
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I therefore advise to do something, which is more practicable.
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We haven't met on any day with any derivative personally. The profits and losses are to be redefined as sales and purchase. On sales we generate revenue or income. So Sales are represented by profits. On the similar analogy losses represents the purchases.
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Let the AO remain questioning ?
As he also does not have any solution or alternate method of presentation for it.
If he would have, that can not be like that -it can't be challenged.
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We would have met with our obligation of tax audit, and such can not be penalised.
But we have to redefine the things according to the need of the objective.
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It is not always important to show our turnover in case of derivatives so please do not stick with that aspect only.

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Amit Kumar Agarwal

Amit Kumar Agarwal (Querist)
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03 August 2011 But Sir if we show turnover as 30 Lacs and purchase as 30 Lacs, while processing ITR-4, AO will consider the case as one not covered under Sec. 44AB. As such the time limit of filing would be 31st July and not 30th Sep. In such case he may not allow losses to be carried forward if return is filed after 31st July, though before 30th Sep, considering it to be a late return.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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03 August 2011 ITO will have to see first whether the case was under tax audit or not ?

In our ITR Auditor's Name as well as date of Audit Report will be entered.
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He can say that your case is covered under tax audit but he generally does not say
that tax audit is not required where tax audit has been carried out.
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Before disallowing the claim he has to apply his mind and for making that applicable an opportunity of being heard can not be ruled out.
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In CPC also you can mention the facts while making a rectification application.
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