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Query Answer
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my client during the financial year 2010-11 deposited cash exceeding 10,00,000/-.he has Commodity future and option loss of 10,00,000/-

1. Whether we can show cash balance of 20,00,000/- as he has saving of 35 years in government service and he has also retirement benefit of 6,00,000 in year 2005-06.

2. He has received cash in year 2005-06 from his sister in cash. Consequence regarding above transaction.

3. He is dealing in future option transaction in commodity market and in shares in cash market. Can we consider commodity transaction as ordinary business transaction or speculative business transaction?

4. In case of Future and option, we have to booked day wise profit or loss. in this case how to show in income tax return sales and profit or loss.

Reply

1. As per my view saving of money is not a valid ground for showing huge amount of cash in hand, the amount of cash in hand should match with withdrawal from bank account which is reflected in bank account statement of related previous year.

2. Section 56(2) (vii) introduced in Finance Act, 2009 with prospective effect so the assessee will not face any consequences for this transaction. 

3. As per Section 43(5) of Income Tax Act, 1961, speculative transaction is a transaction which contain following feature—

a) contract for the purchase or sale of any commodity, including stocks and shares,
b) which periodically or ultimately settled
c) without actual delivery or transfer of the commodity or scrips

There are few exceptions as well where transactions are not treated as speculative transaction—
a)  a contract in respect of raw materials or merchandise to guard against loss

(b)  a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or

(c)  a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; 

(d)  an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognized stock exchange;

(e)  an eligible transaction in respect of trading in commodity derivatives carried out in a recognized association, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013)

If commodities transaction stated in the query is falling in any exceptional transaction, the assessee can treat such transaction as a ordinary transaction otherwise it will be considered as speculative transaction.

4.  Calculation of turnover in case of F&O Trading—

Turnover can be calculated, in the manner explained below—
a) The total of positive and negative or favorable and unfavorable differences shall be taken as turnover. 
b) Premium received on sale of options is to be included in turnover.
c) In respect of any reverse trades entered, the difference thereon shall also form part of the turnover.

The assessee has to report net profit or loss i.e. (Turnover - expenses) from F&O transaction in income tax return under business head.

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