share Trading Audit

This query is : Resolved

M.K.Patel

M.K.Patel (Querist)
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05 September 2008 Dear Sir/Medam

I want to Know For F.Y.2007-08 that following situation liable to audit.

1) Business : Share Trading

2) F & O Turnover : Difference Between Shares & Purchase Rs. 230000 and Script Turnover Rs. 50,20,0000

3) Intraday Trading : Difference Between Sale & Purchase Rs. 125000 and Script Turnover 60 Lakhs

4) Deliveryu Based Turnover : Delivery Based Turnover we show as a investment profit caculate as a capital gain. Rs. 48660

Please give me answer that we liable to audit.

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)
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09 September 2008 In case of F&O trading all positive and negative results of the trading are summed up to arrive at the figure of Turnover. You have taken the difference of Positive and Negative figures. However, it is presumed that the value of trades being Rs. 50,20,000, the total of positive and negative results will also be near to Rs 2,30,000. It is the profit or loss from Future and Options which is to be summed up contract wise to analyse the limit of Turnover in terms of Section 44AB for the purpose of Tax Audit.

In the instant case, the profit of Rs 230000 (as per presumption) will be included in Turnover. The text of my detailed reply to a querist in this regard is reproduced herein below which may be of help to u:

In case of derivative trading-Futures and Option- the difference on which the contract is purchased or sold is important. Although the value of contract is number of contract multiplied with the shares price , yet what is actually given or taken is differential amount in contract. For example if you purchase a future contract for Rs 105 for a share having a lot of 100,you pay nothing at the time of buying a contract, yet at the time of expiry if contract , you are either gainer or loser which is determined whether there is positive or negative difference. So , for the purpose of determining the turnover in case of future and options , for the purpose of 44AB , based on the guidance note of ICAI , following items should be considered to constitute turnover
• The total of positive and negative differences , plus
• Premium received on sale of options is also to be included in turnover ,plus
• In respect of any reverse trades entered, the difference thereon

Similarly the intraday jobbing may be analysed. In the given case the turnover, as such, is less than Rs 40 lacs and there is no requirement for Tax Audit u/s 44AB.