ACIT CENTRAL CIRCLE 8(3), MUMBAI vs. VIVAH CLASSIQUE, MUMBAI

ORDER PER OM PRAKASH KANT, AM

This appeal by the Revenue is directed against order dated 08/04/2025 passed by the Learned Commissioner of Income-tax (Appeals)-50, Mumbai [in short the ‘Ld. CIT(A)’] for assessment year 2014-15, raising following grounds:

1. "Whether on the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 9,99,91,948/- made by the Assessing Officer by holding that the loss incurred by the the Assessing Officer by holding that the loss incurred by the the Assessing Officer by holding that the loss incurred by the assessee in currency derivative trading on BSE is genuine, without assessee in currency derivative trading on BSE is genuine, without assessee in currency derivative trading on BSE is genuine, without appreciating the fact brought out by the Assessing Officer that the appreciating the fact brought out by the Assessing Officer that the appreciating the fact brought out by the Assessing Officer that the said loss arose out of pre said loss arose out of pre- arranged and fictitious reversal rranged and fictitious reversal transactions aimed solely to create artificial losses to evade transactions aimed solely to create artificial losses to evade transactions aimed solely to create artificial losses to evade taxes?" 2. "Whether on the facts and circumstances of the case, the Id. 2. "Whether on the facts and circumstances of the case, the Id. 2. "Whether on the facts and circumstances of the case, the Id. CIT(A) erred in deleting the addition of Rs. 8,50,66,837/ CIT(A) erred in deleting the addition of Rs. 8,50,66,837/ CIT(A) erred in deleting the addition of Rs. 8,50,66,837/- made by the Assessing Officer the Assessing Officer in respect of alleged losses in currency in respect of alleged losses in currency derivative trades on USE (United Stock Exchange), without derivative trades on USE (United Stock Exchange), without derivative trades on USE (United Stock Exchange), without properly properly properly considering considering considering the the the findings findings findings of of of the the the Project Project Project Falcon Falcon Falcon investigation, which identified such transactions as suspicious investigation, which identified such transactions as suspicious investigation, which identified such transactions as suspicious and indicative of tax evasion through and indicative of tax evasion through circular and reversal circular and reversal trading?" 3. "Whether on the facts and circumstances of the case, the order 3. "Whether on the facts and circumstances of the case, the order 3. "Whether on the facts and circumstances of the case, the order of the Ld. CIT(A) erred in holding the trades as genuine solely on of the Ld. CIT(A) erred in holding the trades as genuine solely on of the Ld. CIT(A) erred in holding the trades as genuine solely on the basis that the transactions were routed through recognized the basis that the transactions were routed through recognized the basis that the transactions were routed through recognized exchanges exchanges and and brokers, brokers, whil while failing e failing to to appreciate appreciate that that genuineness of transactions under the Income Tax Act requires genuineness of transactions under the Income Tax Act requires genuineness of transactions under the Income Tax Act requires examination of surrounding circumstances and intent, particularly examination of surrounding circumstances and intent, particularly examination of surrounding circumstances and intent, particularly in light of the evidence from third in light of the evidence from third-party statements and patterns of party statements and patterns of reversal trades highlighted by reversal trades highlighted by the Assessing Officer?" 4. "Whether on the facts and circumstances of the case, the order 4. "Whether on the facts and circumstances of the case, the order 4. "Whether on the facts and circumstances of the case, the order of the Ld. CIT(A) erred in law and in facts in deleting the addition of the Ld. CIT(A) erred in law and in facts in deleting the addition of the Ld. CIT(A) erred in law and in facts in deleting the addition of Rs. 37,01,176/ of Rs. 37,01,176/- on account of estimated commission payments on account of estimated commission payments allegedly incurred for arranging allegedly incurred for arranging fictitious trades, despite adequate fictitious trades, despite adequate circumstantial evidence indicating the involvement of entry circumstantial evidence indicating the involvement of entry circumstantial evidence indicating the involvement of entry operators and accommodation entry providers, and without operators and accommodation entry providers, and without operators and accommodation entry providers, and without conducting any proper verification of the commission flow.?" conducting any proper verification of the commission flow.?" conducting any proper verification of the commission flow.?" 5. "Whether on the facts and circumstances 5. "Whether on the facts and circumstances of the case, the order of the case, the order of the Ld. CIT(A) failed to appreciate that acceptance of profits in of the Ld. CIT(A) failed to appreciate that acceptance of profits in of the Ld. CIT(A) failed to appreciate that acceptance of profits in similar trades in earlier or same assessment years does not bar similar trades in earlier or same assessment years does not bar similar trades in earlier or same assessment years does not bar the revenue from disallowing losses in transactions that are the revenue from disallowing losses in transactions that are the revenue from disallowing losses in transactions that are clearly found to be and not arising fr clearly found to be and not arising from genuine trading om genuine trading activity? 6. "Whether on the facts and circumstances of the case, the order 6. "Whether on the facts and circumstances of the case, the order 6. "Whether on the facts and circumstances of the case, the order of the L.d. CIT(A) erred in placing reliance on judicial precedents of the L.d. CIT(A) erred in placing reliance on judicial precedents of the L.d. CIT(A) erred in placing reliance on judicial precedents that are distinguishable on facts and merits applicable to the that are distinguishable on facts and merits applicable to the that are distinguishable on facts and merits applicable to the present case, which involves s present case, which involves specific findings based on a systemic pecific findings based on a systemic investigation investigation investigation (Project (Project (Project Falcon) Falcon) Falcon) and and and tangible tangible tangible evidence evidence evidence of of of fictitious transactions?" transactions?"

2. Briefly stated facts of the case are that assessee is a stated facts of the case are that assessee is a stated facts of the case are that assessee is a ‘partnership firm’ engaged in the business of manufacturing of gold engaged in the business of manufacturing of gold engaged in the business of manufacturing of gold medallions/jewellary, trading of cut and polished diamonds and /jewellary, trading of cut and polished diamonds and /jewellary, trading of cut and polished diamonds and diamond studded gold diamond studded gold jewellary from its units located located at Surat SEZ, Sachin, Surat, (Gujrat). Sachin, Surat, (Gujrat). During the year under consideration, the During the year under consideration, the assessee, in addition to assessee, in addition to jewellary business also earned profit as wel business also earned profit as well as incurred losses out of trading in currency derivatives. as incurred losses out of trading in currency derivatives. as incurred losses out of trading in currency derivatives.

2.1 For the year under consideration, the assessee filed return of For the year under consideration, the assessee filed return of For the year under consideration, the assessee filed return of income on 28/11/2014 declaring total income at ₹59,64, income on 28/11/2014 declaring total income at 59,64,720/-. The return of income filed by the assessee was selected for scrutiny and return of income filed by the assessee was selected for scruti return of income filed by the assessee was selected for scruti scrutiny assessment was completed under section 143(3) of the scrutiny assessment was completed under section 143(3 scrutiny assessment was completed under section 143(3 Income-tax Act, 1961 ( tax Act, 1961 (in short ‘the Act’) on 27/12/2016, accepting ) on 27/12/2016, accepting the returned income. the returned income.

2.2 Subsequently, the Assessing Officer received information from Subsequently, the Assessing Officer received information from Subsequently, the Assessing Officer received information from the Investigation Wing of the Income the Investigation Wing of the Income-tax Department, Mumbai, tax Department, Mumbai, which revealed that, pursuant to inquiries conducted by the which revealed that, pursuant to inquiries conducted by the which revealed that, pursuant to inquiries conducted by the Securities and Exchange Board of India (SEBI) and survey Securities and Exchange Board of India (SEBI) and survey Securities and Exchange Board of India (SEBI) and survey operations carried out under section 133A of the Act at ed out under section 133A of the Act at ed out under section 133A of the Act at approximately thirty- -five premises in Mumbai, Kolkata, and other five premises in Mumbai, Kolkata, and other locations, it was found that several brokers were engaged in locations, it was found that several brokers were engaged in locations, it was found that several brokers were engaged in facilitating accommodation entries through the creation of artificial facilitating accommodation entries through the creation of artificial facilitating accommodation entries through the creation of artificial profits and losses in stock exchange transactions. Based on the n stock exchange transactions. Based on the n stock exchange transactions. Based on the findings of the said investigation, it was alleged that the assessee findings of the said investigation, it was alleged that the assessee findings of the said investigation, it was alleged that the assessee was one of the beneficiaries, having purportedly booked artificial was one of the beneficiaries, having purportedly booked artificial was one of the beneficiaries, having purportedly booked artificial losses amounting to ₹17,51,14,258/- during the year under losses amounting to during the year under consideration. Relying upon this information, the Assessing Officer ying upon this information, the Assessing Officer ying upon this information, the Assessing Officer recorded reasons to believe that the assessee had obtained recorded reasons to believe that the assessee had obtained recorded reasons to believe that the assessee had obtained accommodation entries in respect of losses on currency derivatives accommodation entries in respect of losses on currency derivatives accommodation entries in respect of losses on currency derivatives aggregating to ₹17,51,14,258/ 17,51,14,258/-, thereby resulting in escapement of , thereby resulting in escapement of income chargeable to tax due to the assessee’s failure to make a full able to tax due to the assessee’s failure to make a full able to tax due to the assessee’s failure to make a full and true disclosure of all material facts necessary for assessment. and true disclosure of all material facts necessary for assessment. and true disclosure of all material facts necessary for assessment. Consequently, after obtaining the requisite prior approval from the Consequently, after obtaining the requisite prior approval from the Consequently, after obtaining the requisite prior approval from the competent authority, the Learned Assessing Officer issued notice competent authority, the Learned Assessing Officer issued notic competent authority, the Learned Assessing Officer issued notic under section 148 of the Income under section 148 of the Income-tax Act on 31.03.2021, thereby tax Act on 31.03.2021, thereby initiating reassessment proceedings. initiating reassessment proceedings.

2.3 In response, the assessee filed return of income on In response, the assessee filed return of income on In response, the assessee filed return of income on 16/02/2022 declaring total income at ₹ 59,64,720/ 16/02/2022 declaring total income at 720/- i.e. the total income which was declared in the income which was declared in the original return of income. original return of income. Thereafter, following due procedure under the law, the Assessing , following due procedure under the law, the Assessing , following due procedure under the law, the Assessing Officer completed the reassessment proceeding on 24/03/2022, Officer completed the reassessment proceeding on 24/03/2022, Officer completed the reassessment proceeding on 24/03/2022, thereby disallowing the loss incurred on account of the currency the loss incurred on account of the currency the loss incurred on account of the currency derivative amounting to be derivative amounting to be Rs.17,51,14,258/-. Further Assessing . Further Assessing Officer also was of the view that assessee incurred commission Officer also was of the view that assessee incurred commission Officer also was of the view that assessee incurred commission expenses at the rate of the 2% for obtaining said accommodation expenses at the rate of the 2% for obtaining said accommodation expenses at the rate of the 2% for obtaining said accommodation entry, which was worked out ₹37,01,176/-. In this manner total entry, which was worked out . In this manner total addition of ₹18,50,59,961/ 59,961/- was made in reassessment order. reassessment order.

On further appeal by the assessee, the Ld. CIT(A) though 3. On further appeal by the assessee, the Ld. CIT(A) though On further appeal by the assessee, the Ld. CIT(A) though upheld the validity of the reassessment proceeding, deleted the upheld the validity of the reassessment proceeding, deleted the upheld the validity of the reassessment proceeding, deleted the disallowance of losses in currency deriv disallowance of losses in currency derivative on merit. Aggrieved, ative on merit. Aggrieved, the Revenue is in appeal before the n appeal before the Income-tax Appellate Tribunal ( tax Appellate Tribunal ( in short the ‘Tribunal ribunal’), challenging the deletion of said disallowance , challenging the deletion of said disallowance on merit.

3.1 All the grounds raised by the R All the grounds raised by the Revenue pertain to the deletion evenue pertain to the deletion of disallowance of currency derivative by the Ld. CIT(A). In the of disallowance of currency derivative by the Ld. CIT(A). In the of disallowance of currency derivative by the Ld. CIT(A). In the grounds it is mainly raise is mainly raised that the Ld. CIT(A) has not appreciated that the Ld. CIT(A) has not appreciated the facts brought on record by the Assessing Officer and the the facts brought on record by the Assessing Officer and the the facts brought on record by the Assessing Officer and the evidences obtained from the third obtained from the third-party, statements and patterns of statements and patterns of reversal trades highlighted by the Assessing Officer including the reversal trades highlighted by the Assessing Officer reversal trades highlighted by the Assessing Officer finding of the “Project Falcon” investigation. nding of the “Project Falcon” investigation.

Sr. No. Name of Exchange Name of Exchange Profits/(Losses) Profits/(Losses) 1 United stock exchanges of India United stock exchanges of India (8,50,66,837) (8,50,66,837) 2 Bombay stock exchange (9,99,91,949) (9,99,91,949) Bombay stock exchange 7,86,41,897 7,86,41,897 3 National Stock Exchange National Stock Exchange Total currency derivatives Profit Total currency derivatives Profit (10,64,16,889) (10,64,16,889) (Loss) 5. Before the Assessing Before the Assessing Officer, the assessee submitted the Officer, the assessee submitted the following contentions: following contentions:

(i) That all currency derivative transactions undertaken by the That all currency derivative transactions undertaken by the That all currency derivative transactions undertaken by the assessee were genuine assessee were genuine, having been executed on the recognized , having been executed on the recognized stock exchange platforms where transactions occur through an stock exchange platforms where transactions occur through an stock exchange platforms where transactions occur through an anonymous order-matching system without any direct interface matching system without any direct interface matching system without any direct interface between the buyer and the seller, and that all payments and between the buyer and the seller, and that all payments and between the buyer and the seller, and that all payments and receipts were routed entirely through regular banking channels. receipts were routed entirely through regular banking channels. receipts were routed entirely through regular banking channels. (ii) That the transactions were carried out through duly That the transactions were carried out through duly That the transactions were carried out through duly registered brokers, and , and complete particulars thereof, including complete particulars thereof, including documentary evidence in the form of contract notes, brokers’ documentary evidence in the form of contract notes, brokers’ documentary evidence in the form of contract notes, brokers’ ledgers, demat statements, and bank statements, had been duly ledgers, demat statements, and bank statements, had been duly ledgers, demat statements, and bank statements, had been duly furnished before the Assessing Officer. furnished before the Assessing Officer. (iii) That the assessee had not only incurred losse That the assessee had not only incurred losses but had also That the assessee had not only incurred losse earned profits from trading in currency derivatives during the from trading in currency derivatives during the from trading in currency derivatives during the relevant period, thereby demonstrating the bona fide nature of the relevant period, thereby demonstrating the bona fide nature of the relevant period, thereby demonstrating the bona fide nature of the transactions. (iv) That the losses were incurred in the ordinary course of That the losses were incurred in the ordinary course of That the losses were incurred in the ordinary course of business, trading in currency derivatives being an inherently , trading in currency derivatives being an inherently , trading in currency derivatives being an inherently volatile and high-risk segment, capable of yielding both substantial risk segment, capable of yielding both substantial risk segment, capable of yielding both substantial gains and corresponding losses. The assessee, acting under genuine gains and corresponding losses. The assessee, acting under genuine gains and corresponding losses. The assessee, acting under genuine commercial expectations of profit, unfortunately made certain commercial expectations of profit, unfortunately made certain commercial expectations of profit, unfortunately made certain erroneous trading decisions which resulted in losses. neous trading decisions which resulted in losses. neous trading decisions which resulted in losses.

(v) That there was no collusion, connivance, or understanding That there was no collusion, connivance, or understanding That there was no collusion, connivance, or understanding between the assessee and any of its brokers between the assessee and any of its brokers in respect of the in respect of the impugned transactions. impugned transactions. (vi) That neither the stock exchange nor the Securities an That neither the stock exchange nor the Securities an That neither the stock exchange nor the Securities and Exchange Board of India (SEBI) Exchange Board of India (SEBI) had, at any point, found or had, at any point, found or reported any irregularity or impropriety on the part of the assessee reported any irregularity or impropriety on the part of the assessee reported any irregularity or impropriety on the part of the assessee or its brokers in relation to the said transactions. or its brokers in relation to the said transactions.

5.1 The assessee further requested that the Assessing Officer The assessee further requested that the Assessing Officer The assessee further requested that the Assessing Officer furnish copies of the information, materials, and evidences relied ies of the information, materials, and evidences relied ies of the information, materials, and evidences relied upon for initiating the reassessment proceedings, including the upon for initiating the reassessment proceedings, including the upon for initiating the reassessment proceedings, including the details and findings gathered by the Investigation Wing, Mumbai. details and findings gathered by the Investigation Wing, Mumbai. details and findings gathered by the Investigation Wing, Mumbai. However, no such information or material was provided to the However, no such information or material was provided to the However, no such information or material was provided to the assessee despite specific requests. espite specific requests.

5.2 The assessee also objected to what was described as a The assessee also objected to what was described as a The assessee also objected to what was described as a selective or partial consideration of facts by the Assessing Officer. It selective or partial consideration of facts by the Assessing Officer. It selective or partial consideration of facts by the Assessing Officer. It was submitted that, during the year under consideration, the was submitted that, during the year under consideration, the was submitted that, during the year under consideration, the assessee had undertaken numerous trans assessee had undertaken numerous transactions in currency actions in currency derivatives, some of which had resulted in profits and others in derivatives, some of which had resulted in profits and others in derivatives, some of which had resulted in profits and others in losses. However, the Assessing Officer, in forming his conclusions, losses. However, the Assessing Officer, in forming his conclusions, losses. However, the Assessing Officer, in forming his conclusions, chose to consider only those transactions which reflected losses, chose to consider only those transactions which reflected losses, chose to consider only those transactions which reflected losses, while disregarding the profit while disregarding the profit-making transactions, thereby engaging transactions, thereby engaging in impermissible “cherry in impermissible “cherry-picking” of facts to suit the inference picking” of facts to suit the inference already drawn.

5.3 The Learned Assessing Officer, however, did not accept the The Learned Assessing Officer, however, did not accept the The Learned Assessing Officer, however, did not accept the contentions advanced by the assessee. He placed reliance upon the contentions advanced by the assessee. He placed reliance upon the contentions advanced by the assessee. He placed reliance upon the observations of the Whole the Whole-Time Member of the Securities and Time Member of the Securities and Exchange Board of India (SEBI), who had noted a recurring pattern Exchange Board of India (SEBI), who had noted a recurring pattern Exchange Board of India (SEBI), who had noted a recurring pattern of transactions wherein certain loss of transactions wherein certain loss-making entities repeatedly sold making entities repeatedly sold liquid stock options to a specific set of counterparties at prices liquid stock options to a specific set of counterparties at prices liquid stock options to a specific set of counterparties at prices substantially lower than their theoretical or intrinsic value, followed lly lower than their theoretical or intrinsic value, followed lly lower than their theoretical or intrinsic value, followed by reversal trades with the same counterparties after a short by reversal trades with the same counterparties after a short by reversal trades with the same counterparties after a short interval, resulting in significant differences between the purchase interval, resulting in significant differences between the purchase interval, resulting in significant differences between the purchase and sale values of such stock options. The Assessing Officer further and sale values of such stock options. The Assessing Officer fur and sale values of such stock options. The Assessing Officer fur referred to the judgment of the Hon’ble Supreme Court dated referred to the judgment of the Hon’ble Supreme Court dated referred to the judgment of the Hon’ble Supreme Court dated 08.02.2018 in the case of 08.02.2018 in the case of Rakhi Trading Pvt. Ltd., wherein similar , wherein similar reversal trade transactions were held to be manipulative and reversal trade transactions were held to be manipulative and reversal trade transactions were held to be manipulative and deceptive in nature, designed not for genuine trading purposes but deceptive in nature, designed not for genuine trading purposes deceptive in nature, designed not for genuine trading purposes with the intent to create artificial losses or gains. with the intent to create artificial losses or gains.

5.4 The relevant finding of the learned Assessing Officer is The relevant finding of the learned Assessing Officer is The relevant finding of the learned Assessing Officer is reproduced as under: reproduced as under:

“6. Artificial Trading in Illiquid stock/Currency options 6. Artificial Trading in Illiquid stock/Currency options The existing system of trading on exchanges (BSE & NSE) is The existing system of trading on exchanges (BSE & NSE) is The existing system of trading on exchanges (BSE & NSE) is de- mutualised i.e. the buyers and sellers don't know each other's mutualised i.e. the buyers and sellers don't know each other's mutualised i.e. the buyers and sellers don't know each other's identity and transactions between same parties are a rarity. identity and transactions between same parties are a rarity. identity and transactions between same parties are a rarity. However, it was observed by SEBI that a large number of people However, it was observed by SEBI that a large number of people However, it was observed by SEBI that a large number of people were trading in BSE Stock Options during the period 01.04.2014 to were trading in BSE Stock Options during the period 01.04.2014 to were trading in BSE Stock Options during the period 01.04.2014 to 30.09.2015 in which one set of parties incurred huge losses and the 30.09.2015 in which one set of parties incurred huge losses and the 30.09.2015 in which one set of parties incurred huge losses and the other set earned huge profits and the transaction of purchase and other set earned huge profits and the transaction of purchase and other set earned huge profits and the transaction of purchase and sale were carried out between the same set of parties. sale were carried out between the same set of parties. 6.1 The SEBI undertook preliminary examination in the matter, inte 6.1 The SEBI undertook preliminary examination in the matter, inte 6.1 The SEBI undertook preliminary examination in the matter, inter alia, on the following parameters: alia, on the following parameters:

(a) Identifying top entities making significant loss/profit by buying (a) Identifying top entities making significant loss/profit by buying (a) Identifying top entities making significant loss/profit by buying and selling equal units of stock options of scrip. and selling equal units of stock options of scrip. (b) Identifying if trades happened at unreasonably low or high price (b) Identifying if trades happened at unreasonably low or high price (b) Identifying if trades happened at unreasonably low or high price / out of sync with the underl / out of sync with the underlying price. (c) Examining contribution of trades of the entities to total traded (c) Examining contribution of trades of the entities to total traded (c) Examining contribution of trades of the entities to total traded volume in the contract on those days. volume in the contract on those days. (d) Identifying the quantum of such reversal transactions. (d) Identifying the quantum of such reversal transactions. (d) Identifying the quantum of such reversal transactions. 6.2 The entities who made a loss or profit of more than 5 crore 6.2 The entities who made a loss or profit of more than 5 crore 6.2 The entities who made a loss or profit of more than 5 crore (hereinafter r (hereinafter referred to as "loss-making entities" /"profit making entities" /"profit-making entities", respectively) in the stock option segment on account of entities", respectively) in the stock option segment on account of entities", respectively) in the stock option segment on account of reversal transactions were shortlisted. The following was, inter alia, reversal transactions were shortlisted. The following was, inter alia, reversal transactions were shortlisted. The following was, inter alia, observed in the examination: observed in the examination: (a). The loss- -making entities were trading mainly in options on rading mainly in options on individual stocks which were thinly traded. The trades by these individual stocks which were thinly traded. The trades by these individual stocks which were thinly traded. The trades by these loss-making entities, in many cases, contributed to 70% to 100% of making entities, in many cases, contributed to 70% to 100% of making entities, in many cases, contributed to 70% to 100% of total traded volume for the contracts on those days. total traded volume for the contracts on those days. - (b). On majority of occasions, the quantit (b). On majority of occasions, the quantity of stock options bought y of stock options bought and sold by the loss and sold by the loss-making entities for a contract was identical; making entities for a contract was identical; however, there was a significant difference in the sell value and however, there was a significant difference in the sell value and however, there was a significant difference in the sell value and buy value of the transactions resulting into significant loss to the buy value of the transactions resulting into significant loss to the buy value of the transactions resulting into significant loss to the loss-making entities. making entities. (c) Substantial number of transactions was squared up and a major bstantial number of transactions was squared up and a major bstantial number of transactions was squared up and a major percentage of transactions thereof were trade reversals i.e. if the percentage of transactions thereof were trade reversals i.e. if the percentage of transactions thereof were trade reversals i.e. if the stock options were sold first to an entity, they would be bought back stock options were sold first to an entity, they would be bought back stock options were sold first to an entity, they would be bought back in exact quantity from the same entity or vice versa. in exact quantity from the same entity or vice versa. (d) As the first leg of these reversal trades, these loss As the first leg of these reversal trades, these loss As the first leg of these reversal trades, these loss-making entities were mainly seen selling stock options without any entities were mainly seen selling stock options without any entities were mainly seen selling stock options without any corresponding offsetting position in the underlying scrip. In many corresponding offsetting position in the underlying scrip. In many corresponding offsetting position in the underlying scrip. In many cases, these options were sold at unreasonably cases, these options were sold at unreasonably low low prices, even below the intrinsic value of the option. Theoretically, the price of an w the intrinsic value of the option. Theoretically, the price of an w the intrinsic value of the option. Theoretically, the price of an option is a combination of its intrinsic value and time value. The option is a combination of its intrinsic value and time value. The option is a combination of its intrinsic value and time value. The former is a function of difference between option strike price and the former is a function of difference between option strike price and the former is a function of difference between option strike price and the underlying price and the latter being a function o underlying price and the latter being a function of time remaining till f time remaining till expiry of the option contract. It is well understood that in normal expiry of the option contract. It is well understood that in normal expiry of the option contract. It is well understood that in normal conditions, the minimum price which the option seller would conditions, the minimum price which the option seller would conditions, the minimum price which the option seller would demand to take the risk of writing the option would be equivalent to demand to take the risk of writing the option would be equivalent to demand to take the risk of writing the option would be equivalent to the intrinsic value of the option, bu the intrinsic value of the option, but here the loss-making entities making entities were selling options much below their intrinsic value. were selling options much below their intrinsic value.

(e) In the second leg of the reversal trades, the options once sold by (e) In the second leg of the reversal trades, the options once sold by (e) In the second leg of the reversal trades, the options once sold by an entity at unreasonably low prices were subsequently bought an entity at unreasonably low prices were subsequently bought an entity at unreasonably low prices were subsequently bought back on the same day or on the next back on the same day or on the next trading day at substantially trading day at substantially higher prices when compared to the first leg sell price. higher prices when compared to the first leg sell price. (1) In certain instances, variations to the above pattern were seen (1) In certain instances, variations to the above pattern were seen (1) In certain instances, variations to the above pattern were seen which interalia included loss which interalia included loss-making entities incurring loss by making entities incurring loss by buying the options first instead of se buying the options first instead of selling them. (g) Further, during the period when stock options position was kept (g) Further, during the period when stock options position was kept (g) Further, during the period when stock options position was kept open, there was no significant change in the price of the underlying open, there was no significant change in the price of the underlying open, there was no significant change in the price of the underlying scrip to justify the difference between the prices of the two legs of scrip to justify the difference between the prices of the two legs of scrip to justify the difference between the prices of the two legs of the reversal trade. the reversal trade. (h) The trading d (h) The trading done by loss-making entities in stock options in the making entities in stock options in the above manner, accounted for significant proportion of their overall above manner, accounted for significant proportion of their overall above manner, accounted for significant proportion of their overall trading on that segment. trading on that segment. (i). The loss-making entities as well as the profit making entities as well as the profit-making entities making entities were seen trading repeatedly in deep in were seen trading repeatedly in deep in-the-money options and money options and deep out-of-the the-money options on individual stocks, which were money options on individual stocks, which were thinly traded. thinly traded. 6.3 It was held by the whole time member of SEBI in his order no. 6.3 It was held by the whole time member of SEBI in his order no. 6.3 It was held by the whole time member of SEBI in his order no. WTM/ RKA /ISD/ 106/2015 date 20.08.2015 that: WTM/ RKA /ISD/ 106/2015 date 20.08.2015 that: "(i). The repeated sell of illiquid stock optio "(i). The repeated sell of illiquid stock options by the loss ns by the loss-making entities to a set of entities at a price far lower than the theoretical entities to a set of entities at a price far lower than the theoretical entities to a set of entities at a price far lower than the theoretical price / intrinsic value and subsequent reversal trades with the price / intrinsic value and subsequent reversal trades with the price / intrinsic value and subsequent reversal trades with the same set of entities within a short span of time with a significant same set of entities within a short span of time with a significant same set of entities within a short span of time with a significant difference in buy and sell val difference in buy and sell value of stock options, in itself, exhibits ue of stock options, in itself, exhibits abnormal market behaviour and defies economic rationality, abnormal market behaviour and defies economic rationality, abnormal market behaviour and defies economic rationality, especially when there is absolutely no corresponding change in the especially when there is absolutely no corresponding change in the especially when there is absolutely no corresponding change in the underlying price of the scrip. On the other hand, trading behaviour underlying price of the scrip. On the other hand, trading behaviour underlying price of the scrip. On the other hand, trading behaviour of profit-making enti making entities exhibited through opening specific trading ties exhibited through opening specific trading accounts and operating them exclusively to execute reversal trades accounts and operating them exclusively to execute reversal trades accounts and operating them exclusively to execute reversal trades in illiquid stock options with a set of entities clearly indicates their in illiquid stock options with a set of entities clearly indicates their in illiquid stock options with a set of entities clearly indicates their role in facilitating loss role in facilitating loss-making entities in executing their ulterio making entities in executing their ulterior motive. (ii). Considering the facts and circumstances discussed herein (ii). Considering the facts and circumstances discussed herein (ii). Considering the facts and circumstances discussed herein above, |, prima above, |, prima-facie, find that the loss-making entities were making entities were deliberately making repeated loss through their reversal trades in deliberately making repeated loss through their reversal trades in deliberately making repeated loss through their reversal trades in stock options which does not make any economic sense, stock options which does not make any economic sense, stock options which does not make any economic sense, and the profit-making entities were facilitating them by becoming their making entities were facilitating them by becoming their making entities were facilitating them by becoming their counterparties counterparties and were acting in concert with a common object of acting in concert with a common object of intended execution of these suspicious and non intended execution of these suspicious and non-genuine trades. The genuine trades. The reasons for executing such trades by these entitie reasons for executing such trades by these entitie reasons for executing such trades by these entities could be showing artificial volume and trading interest in these instruments showing artificial volume and trading interest in these instruments showing artificial volume and trading interest in these instruments or tax evasion or portraying artificial increase in net worth of a or tax evasion or portraying artificial increase in net worth of a or tax evasion or portraying artificial increase in net worth of a private company/individual. Be as it may, it is amply clear to me private company/individual. Be as it may, it is amply clear to me private company/individual. Be as it may, it is amply clear to me that the rationale for such transactions is that the rationale for such transactions is not genuine and not genuine and legitimate as the behaviour exhibited by these entities defies the legitimate as the behaviour exhibited by these entities defies the legitimate as the behaviour exhibited by these entities defies the logic and basic economic sense. No reasonable and rational investor logic and basic economic sense. No reasonable and rational investor logic and basic economic sense. No reasonable and rational investor will keep making repeated toss and still continue its trading will keep making repeated toss and still continue its trading will keep making repeated toss and still continue its trading endeavours. On the other hand, an entity/sc endeavours. On the other hand, an entity/scheme may not forever heme may not forever be able to make only profit and become equivalent to an assured be able to make only profit and become equivalent to an assured be able to make only profit and become equivalent to an assured profit maker / scheme. I am of the considered view that the scheme, profit maker / scheme. I am of the considered view that the scheme, profit maker / scheme. I am of the considered view that the scheme, plan, device and artifice employed in this case of executing reversal plan, device and artifice employed in this case of executing reversal plan, device and artifice employed in this case of executing reversal trades in illiquid stock options trades in illiquid stock options contracts at irrational, unrealistic and contracts at irrational, unrealistic and unreasonable prices, apart from being a possible case of tax unreasonable prices, apart from being a possible case of tax unreasonable prices, apart from being a possible case of tax evasion or portrayal of artificial net worth to certain entities, which evasion or portrayal of artificial net worth to certain entities, which evasion or portrayal of artificial net worth to certain entities, which could be seer, by the concerned law enforcement agencies could be seer, by the concerned law enforcement agencies could be seer, by the concerned law enforcement agencies separately, is prima faci separately, is prima facie, also a fraud on the securities market e, also a fraud on the securities market inasmuch as it involves non inasmuch as it involves non-genuine/ manipulative transactions in genuine/ manipulative transactions in securities and misuse of the securities market. securities and misuse of the securities market. (iii). In my view, the acts of the loss (iii). In my view, the acts of the loss-making entities and the profit making entities and the profit- making entities discussed here making entities discussed hereinabove prima facie show a scheme, inabove prima facie show a scheme, plan, device and artifice on their part for some ulterior motive. These plan, device and artifice on their part for some ulterior motive. These plan, device and artifice on their part for some ulterior motive. These entities have, prima entities have, prima-facie, used and employed a pre meditated facie, used and employed a pre meditated manipulative device or contrivance while dealing in securities manipulative device or contrivance while dealing in securities manipulative device or contrivance while dealing in securities market and indulged in n market and indulged in non-genuine and deceptive transactions. genuine and deceptive transactions. The non-genuine and deceptive transactions of these entities are, genuine and deceptive transactions of these entities are, genuine and deceptive transactions of these entities are, prima-facie, covered under the definition of 'fraud' and their facie, covered under the definition of 'fraud' and their facie, covered under the definition of 'fraud' and their dealings as discussed herein above were, fraudulent' as defined dealings as discussed herein above were, fraudulent' as defined dealings as discussed herein above were, fraudulent' as defined under regulation 2(1)(c) under regulation 2(1)(c) of the SEBI (Prohibition of Fraudulent and of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, Unfair Trade Practices relating to Securities Market) Regulations, Unfair Trade Practices relating to Securities Market) Regulations, 2003 ("PFUTP Regulations") and prohibited under the provisions of 2003 ("PFUTP Regulations") and prohibited under the provisions of 2003 ("PFUTP Regulations") and prohibited under the provisions of section 12A(a), (b) and (c) of the SEBI Act, 1992 and regulations section 12A(a), (b) and (c) of the SEBI Act, 1992 and regulations section 12A(a), (b) and (c) of the SEBI Act, 1992 and regulations 3(a), (b), (c) and (d) and 4(1) and 4(2)(a) thereof." ) and (d) and 4(1) and 4(2)(a) thereof." 6.4 The Hon'ble Apex Court in a historic judgment in the case of 6.4 The Hon'ble Apex Court in a historic judgment in the case of 6.4 The Hon'ble Apex Court in a historic judgment in the case of Rakhi Trading Pvt Ltd. on 08.02.2018 upheld the findings of SEBI Rakhi Trading Pvt Ltd. on 08.02.2018 upheld the findings of SEBI Rakhi Trading Pvt Ltd. on 08.02.2018 upheld the findings of SEBI holding as under: "Considering the reversal transactions, quantity, holding as under: "Considering the reversal transactions, quantity, holding as under: "Considering the reversal transactions, quantity, price and time an price and time and sale, parties being persistent in number of such d sale, parties being persistent in number of such trade transactions with huge price variations, it will be too naive to trade transactions with huge price variations, it will be too naive to trade transactions with huge price variations, it will be too naive to hold that the transactions are through screen hold that the transactions are through screen-based trading and based trading and hence anonymous. Such conclusion would be over hence anonymous. Such conclusion would be over-looking the prior looking the prior meeting of minds involving synchronization of buy and sell order ng of minds involving synchronization of buy and sell order ng of minds involving synchronization of buy and sell order and not negotiated deals as per the board's circular. The impugned and not negotiated deals as per the board's circular. The impugned and not negotiated deals as per the board's circular. The impugned transactions are manipulative/deceptive device to create a desired transactions are manipulative/deceptive device to create a desired transactions are manipulative/deceptive device to create a desired loss and/or profit. Such synchronized trading is violative of loss and/or profit. Such synchronized trading is violative of loss and/or profit. Such synchronized trading is violative of transparent norms of trading in securities. If the findings of SAT are transparent norms of trading in securities. If the findings of SAT are transparent norms of trading in securities. If the findings of SAT are to be sustained, it would have serious repercussions undermining to be sustained, it would have serious repercussions undermining to be sustained, it would have serious repercussions undermining the integrity of the market and the impugned order of SAT is liable the integrity of the market and the impugned order of SAT is liable the integrity of the market and the impugned order of SAT is liable to be set aside." to be set aside." 6.5 Thus, it is clear from the abo 6.5 Thus, it is clear from the above discussion that such artificial ve discussion that such artificial and synchronized reversal trades in BSE Stock/Currency Options and synchronized reversal trades in BSE Stock/Currency Options and synchronized reversal trades in BSE Stock/Currency Options are non-genuine transactions which are carried out with a view to genuine transactions which are carried out with a view to genuine transactions which are carried out with a view to obtain obtain obtain accommodation accommodation accommodation entries entries entries of of of profits/losses. There is prior profits/losses. profits/losses. meeting of minds between the meeting of minds between the transacting parties which violates the transacting parties which violates the principle of de principle of de- mutualisation of exchange trading system and are mutualisation of exchange trading system and are therefore non- -genuine. 6.6 The chief characteristics of reversal trades that emerge from the 6.6 The chief characteristics of reversal trades that emerge from the 6.6 The chief characteristics of reversal trades that emerge from the orders of SEBI and later confirmed by the Hon'ble Apex Cou orders of SEBI and later confirmed by the Hon'ble Apex Cou orders of SEBI and later confirmed by the Hon'ble Apex Court are as under:

1. 1. Almost identical purchase and sale quantity.

1. Almost identical purchase and sale quantity.

2. Huge Variation in purchase price and sale price of options 2. Huge Variation in purchase price and sale price of options 2. Huge Variation in purchase price and sale price of options without any significant change in the price of underlying asset. without any significant change in the price of underlying asset. without any significant change in the price of underlying asset.

3. Trades carried out between same party and counter 3. Trades carried out between same party and counter 3. Trades carried out between same party and counter-party i.e. if A purchased X qty from B, then A sells X qty to B only. purchased X qty from B, then A sells X qty to B only.

4. Time gap between purchase and sale transaction lasts few 4. Time gap between purchase and sale transaction lasts few 4. Time gap between purchase and sale transaction lasts few seconds and not more than an hour. seconds and not more than an hour.

5. Synchronised trading in the illiquid stock/currency option which 5. Synchronised trading in the illiquid stock/currency option which 5. Synchronised trading in the illiquid stock/currency option which are thinly traded are thinly traded 6. The artificia 6. The artificial trades, in many cases, contribute to 70% to 100% of l trades, in many cases, contribute to 70% to 100% of total traded volume for the contracts on those days. total traded volume for the contracts on those days. 6.7 Another significant characteristics of the trades carried out by 6.7 Another significant characteristics of the trades carried out by 6.7 Another significant characteristics of the trades carried out by the assessee is that on the days when the assessee has traded, the assessee is that on the days when the assessee has traded, the assessee is that on the days when the assessee has traded, few people traded few people traded in that contract. This implies that the substantial in that contract. This implies that the substantial volume of trade on the trade day is due to the transaction of the volume of trade on the trade day is due to the transaction of the volume of trade on the trade day is due to the transaction of the assessee with its counter assessee with its counter-party. Such trading is not possible under party. Such trading is not possible under normal circumstances as there are so many clients trading on the normal circumstances as there are so many clients trading on the normal circumstances as there are so many clients trading on the exchange platform at any given moment and under the de ange platform at any given moment and under the de ange platform at any given moment and under the de- mutualised system, nothing is known about the person on the mutualised system, nothing is known about the person on the mutualised system, nothing is known about the person on the opposite side unless, there is a prior meeting of minds. So, in view opposite side unless, there is a prior meeting of minds. So, in view opposite side unless, there is a prior meeting of minds. So, in view for foregoing discussion, it is clear that the trades carried out by the for foregoing discussion, it is clear that the trades carried out by the for foregoing discussion, it is clear that the trades carried out by the assessee exhibit all the traits of reversal trades which have been essee exhibit all the traits of reversal trades which have been essee exhibit all the traits of reversal trades which have been declared by the market. Regulator SEBI and the Hon'ble Apex Court declared by the market. Regulator SEBI and the Hon'ble Apex Court declared by the market. Regulator SEBI and the Hon'ble Apex Court as non- genuine trades and therefore any loss claimed on this genuine trades and therefore any loss claimed on this genuine trades and therefore any loss claimed on this account is disallowable. account is disallowable.

6.8 Upon analysis of the trades of the 6.8 Upon analysis of the trades of the assessee as per the BSE assessee as per the BSE master data, it is seen that all the trades are reversal trades which master data, it is seen that all the trades are reversal trades which master data, it is seen that all the trades are reversal trades which are those trades in which an entity reverses it's buy or sell positions are those trades in which an entity reverses it's buy or sell positions are those trades in which an entity reverses it's buy or sell positions in a contract with subsequent sell or buy positions with the same in a contract with subsequent sell or buy positions with the same in a contract with subsequent sell or buy positions with the same counterparty in a rapid counterparty in a rapid reversal of trades. 6.9 The whole time member, SEBI in his concluding remarks against 6.9 The whole time member, SEBI in his concluding remarks against 6.9 The whole time member, SEBI in his concluding remarks against the brokers has held as under the brokers has held as under "(i). The magnitude in which these stock brokers have facilitated the "(i). The magnitude in which these stock brokers have facilitated the "(i). The magnitude in which these stock brokers have facilitated the trading to their clients and the facts and circumstances in the trading to their clients and the facts and circumstances in the trading to their clients and the facts and circumstances in the instant matter prima t matter prima-facie suggest that it is not only a matter of facie suggest that it is not only a matter of negligence on the part of stock brokers but also of their connivance negligence on the part of stock brokers but also of their connivance negligence on the part of stock brokers but also of their connivance to be a part of the scheme to facilitate their clients to make loss or to be a part of the scheme to facilitate their clients to make loss or to be a part of the scheme to facilitate their clients to make loss or profit as per their desire. By the sheer number of reve profit as per their desire. By the sheer number of reversal instances profit as per their desire. By the sheer number of reversal instances at each Trading Member level, am also not willing to accept that at each Trading Member level, am also not willing to accept that at each Trading Member level, am also not willing to accept that thousands of trades entered by trading members ended up thousands of trades entered by trading members ended up thousands of trades entered by trading members ended up becoming reversal trades 'by chance' or because of the 'illiquid becoming reversal trades 'by chance' or because of the 'illiquid becoming reversal trades 'by chance' or because of the 'illiquid nature of the contract' nature of the contract' (ii). In my view, the acts of t (ii). In my view, the acts of the stock brokers to facilitate the loss he stock brokers to facilitate the loss- making entities entities and the profit-making making entities entities discussed discussed hereinabove prima hereinabove prima-facie show a scheme, plan, device and artifice on facie show a scheme, plan, device and artifice on their part for some ulterior motive. These brokers have, prima their part for some ulterior motive. These brokers have, prima their part for some ulterior motive. These brokers have, prima- facie, facilitated their cl facilitated their clients to use and employ a pre ients to use and employ a pre-meditated manipulative device or contrivance while dealing in securities manipulative device or contrivance while dealing in securities manipulative device or contrivance while dealing in securities market and indulged in non market and indulged in non-genuine and deceptive transactions. genuine and deceptive transactions. The act of the stock broker to be part of the scheme by facilitating The act of the stock broker to be part of the scheme by facilitating The act of the stock broker to be part of the scheme by facilitating execution of non execution of non-genuine and deceptive transactions for their clients ine and deceptive transactions for their clients is, prima-facie, covered under the definition of 'fraud' and their facie, covered under the definition of 'fraud' and their facie, covered under the definition of 'fraud' and their dealings as discussed herein above are fraudulent as defined dealings as discussed herein above are fraudulent as defined dealings as discussed herein above are fraudulent as defined under regulation 2(1)(c) of the 'prohibition of Fraudulent and Unfair under regulation 2(1)(c) of the 'prohibition of Fraudulent and Unfair under regulation 2(1)(c) of the 'prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulation,.." ctices relating to Securities Market) Regulation,.." ctices relating to Securities Market) Regulation,.." 6.10 In the case of Rakhi Trading Pvt Ltd delivered on 08/02/2018 6.10 In the case of Rakhi Trading Pvt Ltd delivered on 08/02/2018 6.10 In the case of Rakhi Trading Pvt Ltd delivered on 08/02/2018 in CA No. 1969 of 2011, the Hon'ble Apex Court has held that in CA No. 1969 of 2011, the Hon'ble Apex Court has held that in CA No. 1969 of 2011, the Hon'ble Apex Court has held that "Nobody intentionally trades for a loss. An intentional trading for "Nobody intentionally trades for a loss. An intentional trading for "Nobody intentionally trades for a loss. An intentional trading for loss per se, is not genuine dealing in securities. Trading is always se, is not genuine dealing in securities. Trading is always se, is not genuine dealing in securities. Trading is always with the aim to make profits. But if one party consistently makes with the aim to make profits. But if one party consistently makes with the aim to make profits. But if one party consistently makes loss and that too in pre loss and that too in pre-planned and rapid reverse trades, it is not planned and rapid reverse trades, it is not genuine, it is an unfair trade practice. It is therefore cle genuine, it is an unfair trade practice. It is therefore cle genuine, it is an unfair trade practice. It is therefore clear from the above discussion that the losses incurred by the assessee at the fag above discussion that the losses incurred by the assessee at the fag above discussion that the losses incurred by the assessee at the fag end of the year under consideration was deliberately incurred in end of the year under consideration was deliberately incurred in end of the year under consideration was deliberately incurred in order to avoid tax as the assessee was having positive income in order to avoid tax as the assessee was having positive income in order to avoid tax as the assessee was having positive income in this assessment year... this assessment year...

6.11 The orders of th 6.11 The orders of the market regulator SEBI on reversal trades e market regulator SEBI on reversal trades declaring them as non declaring them as non- genuine, the order of SEBI against the genuine, the order of SEBI against the brokers on their role in facilitating reversal trades, similarities in the brokers on their role in facilitating reversal trades, similarities in the brokers on their role in facilitating reversal trades, similarities in the trades of the assessee and reversal trades and finally the order of trades of the assessee and reversal trades and finally the order of trades of the assessee and reversal trades and finally the order of the Hon'ble Supreme Court in the case of Rakhi Trading stamping ble Supreme Court in the case of Rakhi Trading stamping ble Supreme Court in the case of Rakhi Trading stamping reversal trades as non reversal trades as non- genuine trades leave no room for any doubt genuine trades leave no room for any doubt that the losses incurred by the assessee are non that the losses incurred by the assessee are non-genuine. genuine. 6.12 It is pertinent to mention that applying the above 6.12 It is pertinent 6.12 It is pertinent to mention that applying the above to mention that applying the above characteristics it characteristics it is clearly inferred that the assessee M/s. Vivah is clearly inferred that the assessee M/s. Vivah Classique, has done manipulative trades in currency derivative Classique, has done manipulative trades in currency derivative Classique, has done manipulative trades in currency derivative segment. The assessee by carrying out these manipulative, segment. The assessee by carrying out these manipulative, segment. The assessee by carrying out these manipulative, synchronized and artificial trades has booked bogus loss of Rs. synchronized and artificial trades has booked bogus loss of Rs. synchronized and artificial trades has booked bogus loss of Rs. 9,99,91,949/ 9,99,91,949/- on BSE Currency Derivative segment and Rs. urrency Derivative segment and Rs. 8,50,66,837/ 8,50,66,837/-on USE Currency Derivative segment. The impugned on USE Currency Derivative segment. The impugned trades done by the assessee are analysed as follows: trades done by the assessee are analysed as follows: Reversal trades on BSE Currency Derivative Reversal trades on BSE Currency Derivative Segment:

Observations/Findings emerging from the sample trade Observations/Findings emerging from the sample trade Observations/Findings emerging from the sample trade charts above: - It can be observed from the data available that assessee, Vivah It can be observed from the data available that assessee, Vivah It can be observed from the data available that assessee, Vivah Classique, bought and sold the same quantity to the counterparty. Classique, bought and sold the same quantity to the counterparty. Classique, bought and sold the same quantity to the counterparty. For instance, in above table, one can see that buy quantity is 2500 For instance, in above table, one can see that buy quantity is 2500 For instance, in above table, one can see that buy quantity is 2500 and the same 2500 quantity is reversed bu and the same 2500 quantity is reversed bu selling it back to M/s. selling it back to M/s. Yashashvi Vyapar Vitt Private Limited on 18.03.2014 wherein Yashashvi Vyapar Vitt Private Limited on 18.03.2014 wherein Yashashvi Vyapar Vitt Private Limited on 18.03.2014 wherein Counter party member was M/s. Vedica Vanijya Pvt. Ltd., an Counter party member was M/s. Vedica Vanijya Pvt. Ltd., an Counter party member was M/s. Vedica Vanijya Pvt. Ltd., an identified share broker involved in the accommodation entry of identified share broker involved in the accommodation entry of identified share broker involved in the accommodation entry of bogus profit/loss through options trade. Yashashv bogus profit/loss through options trade. Yashashvi Vyapar Vitt bogus profit/loss through options trade. Yashashvi Vyapar Vitt Private Limited is a client of M/s. Vedica Vanijya Pvt. Ltd., Kolkata Private Limited is a client of M/s. Vedica Vanijya Pvt. Ltd., Kolkata Private Limited is a client of M/s. Vedica Vanijya Pvt. Ltd., Kolkata based share broking entity. M/s. Vedica Vanijya Pvt. Ltd.is based share broking entity. M/s. Vedica Vanijya Pvt. Ltd.is based share broking entity. M/s. Vedica Vanijya Pvt. Ltd.is controlled and managed by Sanjay Kumar Periwal. Sanjay Kumar controlled and managed by Sanjay Kumar Periwal. Sanjay Kumar controlled and managed by Sanjay Kumar Periwal. Sanjay Kumar

Periwal's statement was recorded u/s 131 of the Inc Periwal's statement was recorded u/s 131 of the Inc Periwal's statement was recorded u/s 131 of the Income-tax Act- 1961, during Project Falcon action. He has admitted that he has 1961, during Project Falcon action. He has admitted that he has 1961, during Project Falcon action. He has admitted that he has facilitated the manipulation in share market, F&O segment for facilitated the manipulation in share market, F&O segment for facilitated the manipulation in share market, F&O segment for artificial generation of targeted profit loss to various entities. Also, artificial generation of targeted profit loss to various entities. Also, artificial generation of targeted profit loss to various entities. Also, the USD/INR contracts have been purchased on the USD/INR contracts have been purchased on higher rates and higher rates and sold immediately on lower rates. Like the trade emerging from the sold immediately on lower rates. Like the trade emerging from the sold immediately on lower rates. Like the trade emerging from the table above is bought on average rate of Rs. 2700/ table above is bought on average rate of Rs. 2700/ table above is bought on average rate of Rs. 2700/- and immediately sold back on average rate Rs. 1200/ immediately sold back on average rate Rs. 1200/-. However,, at . However,, at that time USD was actually priced around Rs. 60/ that time USD was actually priced around Rs. 60/-. Reversal trades on USE Currency Derivative Segment: versal trades on USE Currency Derivative Segment: versal trades on USE Currency Derivative Segment: Price difference & Trade Reversal

Observations/Findings emerging from the sample trade charts Observations/Findings emerging from the sample trade charts Observations/Findings emerging from the sample trade charts above: - It can be observed from the data available that assessee, Vivah It can be observed from the data available that assessee, Vivah It can be observed from the data available that assessee, Vivah Classique, bought and sold the Classique, bought and sold the same quantity to the counterparty. same quantity to the counterparty. For instance, in above table, one can see that buy quantity is 1500 For instance, in above table, one can see that buy quantity is 1500 For instance, in above table, one can see that buy quantity is 1500 and the same 1500 quantity is reversed bu selling it back to M/s. and the same 1500 quantity is reversed bu selling it back to M/s. and the same 1500 quantity is reversed bu selling it back to M/s. Maruti Ispat and Energy Pvt Ltd. on 20.03.2014 wherein wherein Maruti Ispat and Energy Pvt Ltd. on 20.03.2014 wherein wherein Maruti Ispat and Energy Pvt Ltd. on 20.03.2014 wherein wherein Counter party member was Counter party member was M/s. XPRO Securities, an identified M/s. XPRO Securities, an identified share broker involved in the accommodation entry of bogus share broker involved in the accommodation entry of bogus share broker involved in the accommodation entry of bogus profit/loss through options trade. Maruti Ispat And Energy Pvt Ltd.is profit/loss through options trade. Maruti Ispat And Energy Pvt Ltd.is profit/loss through options trade. Maruti Ispat And Energy Pvt Ltd.is a client of M/s. XPRO Securities, Kolkata based share broking a client of M/s. XPRO Securities, Kolkata based share broking a client of M/s. XPRO Securities, Kolkata based share broking entity. XPRO Securities is co entity. XPRO Securities is controlled and managed by Sunil Kayan. ntrolled and managed by Sunil Kayan. Sunil Kayan's statement was recorded u/s 131 of the Income Sunil Kayan's statement was recorded u/s 131 of the Income Sunil Kayan's statement was recorded u/s 131 of the Income-tax Act- 1961, during Project Falcon action. He has admitted that he 1961, during Project Falcon action. He has admitted that he 1961, during Project Falcon action. He has admitted that he has facilitated the manipulation in share market, F&O segment for has facilitated the manipulation in share market, F&O segment for has facilitated the manipulation in share market, F&O segment for artificial generation of artificial generation of targeted profit loss to various entities. Also, targeted profit loss to various entities. Also, the USD/INR contracts have been purchased on higher rates and the USD/INR contracts have been purchased on higher rates and the USD/INR contracts have been purchased on higher rates and sold immediately on lower rates. Like the trade emerging from the sold immediately on lower rates. Like the trade emerging from the sold immediately on lower rates. Like the trade emerging from the table above is bought on average rate of Rs. 2487.50/ table above is bought on average rate of Rs. 2487.50/ table above is bought on average rate of Rs. 2487.50/- and immediately sold back immediately sold back on average rate Rs. 245/-. However,, at that . However,, at that time USD was actually priced around time USD was actually priced around Rs. 60/-.” 5.5 The Assessing Officer Assessing Officer, in view of the observation view of the observations of the SEBI in reversal trade of the stock options and observations of the in reversal trade of the stock options and observation in reversal trade of the stock options and observation Hon’ble Supreme Court in the case Hon’ble Supreme Court in the case of Rakhi Trding Private Limited of Rakhi Trding Private Limited concluded that option trade in currency derivative by the assessee concluded that option trade in currency derivative by the assessee concluded that option trade in currency derivative by the assessee was manipulative. Then the Assessing Officer referred the sample of was manipulative. Then the Assessing Officer referred the sample of was manipulative. Then the Assessing Officer referred the sample of the option trading of currency derivative carried out by the assessee the option trading of currency derivative carried out by the assessee the option trading of currency derivative carried out by the assessee on Bombay stock ex on Bombay stock exchange (BSE) and observed that assessee and observed that assessee purchased and sold 2500 quantity to M/s Yashashvi vypar Vitt and sold 2500 quantity to M/s Yashashvi vypar Vitt and sold 2500 quantity to M/s Yashashvi vypar Vitt Private Limited through a stockbroker M/s ited through a stockbroker M/s Vedica Vanijya P ltd, Vedica Vanijya P ltd, who according to the Assessing Officer was an identified share who according to the Assessing Officer was an identified share who according to the Assessing Officer was an identified share broker involved in the accom broker involved in the accommodation entry of bogus profit/loss modation entry of bogus profit/loss through options trade. The Assessing Officer mentioned that M/s through options trade. The Assessing Officer mentioned that M/s through options trade. The Assessing Officer mentioned that M/s Vedica Vanijya P ltd is a entity controlled and managed by Sanjay is a entity controlled and managed by Sanjay Kumar Periwal whose statement was rec Kumar Periwal whose statement was recorded under section 131 of orded under section 131 of the Act during ‘Project F roject Falcon’ action wherein he had admitted that action wherein he had admitted that he facilitated the manipulation in share market, F &O segment for he facilitated the manipulation in share market, F &O segment for he facilitated the manipulation in share market, F &O segment for artificial generation of targeted profit loss to various entities. artificial generation of targeted profit loss to various entities. artificial generation of targeted profit loss to various entities.

5.6 Similarly, the Assessing Officer referred to sample data of Similarly, the Assessing Officer referred to sample data of Similarly, the Assessing Officer referred to sample data of currency derivative trading carried out by the assessee on United ive trading carried out by the assessee on United ive trading carried out by the assessee on United stock exchange (USE) and mentioned that the assessee purchased stock exchange (USE) and mentioned that the assessee purchase stock exchange (USE) and mentioned that the assessee purchase and sold 1500 quantity to M/s Maruti Ispat and Energy Pvt. and sold 1500 quantity to M/s Maruti Ispat and Energy and sold 1500 quantity to M/s Maruti Ispat and Energy Limited through a stockbroker M/s ited through a stockbroker M/s XPRO Securities, who according XPRO Securities, who according to the Assessing Officer was an identified share broker involved in ficer was an identified share broker involved in ficer was an identified share broker involved in the accommodation entry of bogus profit/loss through options the accommodation entry of bogus profit/loss through options the accommodation entry of bogus profit/loss through options trade. The Assessing Officer mentioned that M/s XPRO Securities is trade. The Assessing Officer mentioned that M/s XPRO Securities is trade. The Assessing Officer mentioned that M/s XPRO Securities is a entity controlled and managed by Snil Kayan whose statement a entity controlled and managed by Snil Kayan whose statement a entity controlled and managed by Snil Kayan whose statement was recorded under section 131 of the Act during ‘P r section 131 of the Act during ‘P r section 131 of the Act during ‘Project Falcon’ action wherein he had admitted that he facilitated the manipulation action wherein he had admitted that he facilitated the manipulation action wherein he had admitted that he facilitated the manipulation in share market, F &O segment for artificial generation of targeted in share market, F &O segment for artificial generation of targeted in share market, F &O segment for artificial generation of targeted profit loss to various entities. profit loss to various entities.

5.7 In view of the above observations, the Assessing Officer held In view of the above observations, the Assessing Officer held In view of the above observations, the Assessing Officer held the losses on the currency derivative transactions amounting to the losses on the currency derivative transactions amounting to the losses on the currency derivative transactions amounting to Rs.17,51,14,258/- on the BSE and USE as accommodation entries on the BSE and USE as accommodation entries on the BSE and USE as accommodation entries obtained by the assessee and disallowed the same. The Assessing obtained by the assessee and disallowed the same. The Assessing obtained by the assessee and disallowed the same. The Assessing Officer also presumed that assessee had paid commission at the cer also presumed that assessee had paid commission at the cer also presumed that assessee had paid commission at the rate of the 2% for obtaining such accommodation entries taining such accommodation entries which was taining such accommodation entries worked out to ₹37,01, 37,01,176/-.

“22. I have considered the assessment orde 22. I have considered the assessment order, submission of r, submission of appellant and facts available on record. The assessee is appellant and facts available on record. The assessee is appellant and facts available on record. The assessee is engaged in the business of manufacturing gold jewelry and also engaged in the business of manufacturing gold jewelry and also engaged in the business of manufacturing gold jewelry and also engaged in the import and export of polished diamonds and engaged in the import and export of polished diamonds and engaged in the import and export of polished diamonds and diamond-studded gold jewelry from its SEZ unit. The appellant studded gold jewelry from its SEZ unit. The appellant studded gold jewelry from its SEZ unit. The appellant has also carried out trading in currency derivative segments in has also carried out trading in currency derivative segments in has also carried out trading in currency derivative segments in the A.Y under consideration. In the earlier years the appellant the A.Y under consideration. In the earlier years the appellant the A.Y under consideration. In the earlier years the appellant has also carried out hedging of dollars. In the A.Y under has also carried out hedging of dollars. In the A.Y under has also carried out hedging of dollars. In the A.Y under consideration, the appellant has shown total loss of Rs. consideration, the appellant has shown total loss of Rs. consideration, the appellant has shown total loss of Rs. 10,64,16,889 10,64,16,889/- from this currency derivative transaction. The from this currency derivative transaction. The details of which are as under: details of which are as under: Sr.No Name of Exchange Name of Exchange Profits/(Losses) 1 United stock exchange of India (8,50,66,837) United stock exchange of India 2 Bombay Stock Exchange (9,99,91,949) Bombay Stock Exchange 3 National Stock Exchange 7,86,41,897 National Stock Exchange Total currency derivatives Profit(Loss) 10,64,16,889 Total

Sr Chief Appellant Company Reply No Characteristic defined by learned defined by learned AO 1. Almost identical The Appellant company has dealt in equity / Currency Currency / purchase and sale purchase and sale commodities derivative. The /AO’s observations that all the observations that all the quantity transactions are ot identical purchase and sale quantity is not transactions are ot identical purchase and sale quantity is not correct. We enclose herewith the contract note /M2M bills of the We enclose herewith the contract note /M2M bills of the currency derivative transactions which were not squared up on currency derivative transactions which were not squared up on the same day but settled on other days as per Ex A (e.g. EURINR 26 Mar 2014 contract of 12th March 2014 was March 2014 was settled on 14th March 2014, EURINR 28 Jan 2015 Contract of 12th March 2014 was settled EURINR 28 Jan 2015 Contract of 12th March 2014 was settled on 14 1 March 2014 JPYINR 26 Jun 2014 Contract of 12th March 2014 was settled March 2014 was settled on 13th March 2014. JPYINR 28 Jan 2015 Contract of 12th March 2014 was settled JPYINR 28 Jan 2015 Contract of 12th March 2014 was settled on 73 ,h March 2014)

Less than (69) (191.636) (191,705) (191,705) 0.50% 0.50% to Nil (891,348) (891,348) (891,348) 1.00% 1.00% to NIL (24,761,493) (24,761,493) (24,761,493) 10.00% \l 0.00% to (49.427,668) (61,967,648) (111,395,316) (111,395,316) 50.00% 50.00% to (48,179,577) (12,968,654) (61,148,231) (61,148,231) 100.00% 100.00 & - above

Total (97.607,314) (100.780,778) (198,388,093) (198,388,093) less profit in 12,540,478 788,829 13,329,307 13,329,307 trade

Net Loss (85,066,836) (99,991,949) (185,058,786) (185,058,786) Disallowed

From the above chart it can be seen that Loss of Rs.24,761,493/- (13.38% of total Loss) is incurred in the (13.38% of total Loss) is incurred in the transactions where the variation in purchase price and sale transactions where the variation in purchase price and sale price of option is less than 10.0%

Hence the characteristic that there are huge variations in Hence the characteristic that there are huge variations in purchase price and sale price of option is not tenable in the case ot tenable in the case of Appellant Company.

Further it will not be out of place to submit here that in case of Further it will not be out of place to submit here that in case of Option, the price of the Option can change drastically or in some Option, the price of the Option can change drastically or in some circumstances can even reduce to “Zero" on expiry.

3 Trader carried out Trader carried out between same t First of all, while placing the trades on the Exchange t First of all, while placing the trades on the Exchange party and counter party and counter Platform, we do not know the Counter party. We fail to Platform, we do not know the Counter party. We fail to party i.e if A understand how the same are derived by the Learned AO. d AO. Purchased X qty Purchased X qty From B then Sells X From B then Sells X Further the total trade / loss value of transactions through Further the total trade / loss value of transactions through qty. to only broker namely Trinay Securities Trading Limited and GRD broker namely Trinay Securities Trading Limited and GRD securities limited is of Rs.8.50 crores and 9.99 crore securities limited is of Rs.8.50 crores and 9.99 crore respectively out of which the learned AO has alleged loss respectively out of which the learned AO has alleged loss transactions having value of Rs. 7.04 crore and 6.28 crore value of Rs. 7.04 crore and 6.28 crore respectively. Hence the remaining transactions having sale respectively. Hence the remaining transactions having sale value of Rs. 1.46 crore and Rs. 3.71 crore respectively are the value of Rs. 1.46 crore and Rs. 3.71 crore respectively are the transactions where the counter parties are not the same party. transactions where the counter parties are not the same party. Hence this observation of Ld AO is also squarely not apply to is also squarely not apply to the transactions carried out by the appellant company. the transactions carried out by the appellant company. 4 Time gap between Time gap between This Characteristic is also grossly not applicable to the This Characteristic is also grossly not applicable to the purchase and sale purchase and sale Appellant Company as there are transactions where in the time as there are transactions where in the time transaction lasts transaction lasts gap is more but those transactions are ignored/ not looked upon gap is more but those transactions are ignored/ not looked upon by the learned AO. few seconds and few seconds and not more an one hour. 5 Synchronized The Appellant Company has traded in the Future and options of Future and options of trading in illiquid trading in illiquid /currencies derivatives too i.e. USD, EURO,JPY which are the /currencies derivatives too i.e. USD, EURO,JPY which are the stock/currency prime currencies of the Derivatives and cannot be said to be prime currencies of the Derivatives and cannot be said to be options which are options which are illiquid currencies for the purpose of trading. The Currency wise illiquid currencies for the purpose of trading. The Currency wise thinly traded breakup of the Alleged Disallowed Loss of Rs. 18,50,58, 785/ 18,50,58, 785/- is as under- Currency USE BSE Total

USD (93,402,983) (91,222,454) (184,625,437) EURO 163,202 163,202 JPY 8,336,146 (8,932,697) (596,551) Total (85,066,837) (99,991,948) (185,058,785)

The Appellant Company has dealt in all the aforesaid currencies aforesaid currencies and accordingly it cannot be said that it has dealt in illiquid and accordingly it cannot be said that it has dealt in illiquid currency options. Hence this observation of the Ld AO is without any valid reason. Hence this observation of the Ld AO is without any valid reason.

has not found any fault with these documentary evi has not found any fault with these documentary evi has not found any fault with these documentary evidences. Further, during the assessment proceedings, the AO has not Further, during the assessment proceedings, the AO has not Further, during the assessment proceedings, the AO has not conducted any independent inquiry and relied mainly on the conducted any independent inquiry and relied mainly on the conducted any independent inquiry and relied mainly on the findings of the investigation unit's report titled as Project Falcon. findings of the investigation unit's report titled as Project Falcon. findings of the investigation unit's report titled as Project Falcon. The A.O cherry The A.O cherry-picked certain transactions and concluded tha picked certain transactions and concluded that these transactions are covered by the decision of the Hon'ble these transactions are covered by the decision of the Hon'ble these transactions are covered by the decision of the Hon'ble Supreme Court in the case of Rakhi Trading. As discussed Supreme Court in the case of Rakhi Trading. As discussed Supreme Court in the case of Rakhi Trading. As discussed above this conclusion of the A.O is incorrect as the findings of above this conclusion of the A.O is incorrect as the findings of above this conclusion of the A.O is incorrect as the findings of the AO are based on only a few transactions. Majority of the the AO are based on only a few transactions. Majority of the the AO are based on only a few transactions. Majority of the transactions shows that the observations are factually incorrect. ons shows that the observations are factually incorrect. ons shows that the observations are factually incorrect. Therefore, in the facts of the case, the decision of the Hon'ble Therefore, in the facts of the case, the decision of the Hon'ble Therefore, in the facts of the case, the decision of the Hon'ble Supreme Court in the case of Rakhi Trading is not applicable. Supreme Court in the case of Rakhi Trading is not applicable. Supreme Court in the case of Rakhi Trading is not applicable. Further, the reliance on the order of SEBI is also incorrect, as Further, the reliance on the order of SEBI is also incorrect, as Further, the reliance on the order of SEBI is also incorrect, as the period of investigation before SEBI was from 01.04.2014 to iod of investigation before SEBI was from 01.04.2014 to iod of investigation before SEBI was from 01.04.2014 to 30.09.2014, whereas in the appellant's case, the transactions 30.09.2014, whereas in the appellant's case, the transactions 30.09.2014, whereas in the appellant's case, the transactions pertain to the period 01.04.2013 pertain to the period 01.04.2013 to 31.03.2014.” 6.1 Thereafter the Ld. CIT(A) relied on the decision of the Thereafter the Ld. CIT(A) relied on the decision of the Thereafter the Ld. CIT(A) relied on the decision of the coordinate bench of the coordinate bench of the Tribunal in following cases:

 Aban Realty and Infrastructure vs. ACIT (ITA No. Aban Realty and Infrastructure vs. ACIT (ITA No. Aban Realty and Infrastructure vs. ACIT (ITA No. 3647 and 3648/Mum/2024) 3647 and 3648/Mum/2024)  M/s M/s M/s Kundan Kundan Kundan Rice Rice Rice Mills Mills Mills vs. vs. vs. ACIT ACIT ACIT (ITA (ITA (ITA No. No. No. 853/Del/2020) 853/Del/2020)  ACIT ACIT ACIT 19(1) 19(1) 19(1) vs. vs. vs. Adihemshree Adihemshree Adihemshree Financial, Financial, Financial, ITAT, ITAT, ITAT, Mumbai (ITA no. 933, to 936/ Mum/2024) Mumbai (ITA no. 933, to 936/ Mum/2024)  Raigarh Jute & Textil Raigarh Jute & Textile Mills Ltd vs. ACIT CC e Mills Ltd vs. ACIT CC-8(2), ITAT, Kolkata (ITA no. 2286/Kol/2019) ITAT, Kolkata (ITA no. 2286/Kol/2019)  Samrat Finvestors Private Limited vs. ITO, Ward- Samrat Finvestors Private Limited vs. ITO, Ward Samrat Finvestors Private Limited vs. ITO, Ward 10(2), ITAT, Kolkata (ITA no. 10(2), ITAT, Kolkata (ITA no. 840/Kol/2023) 840/Kol/2023) 7. We have carefully heard the rival submissions advanced by the We have carefully heard the rival submissions advanced by the We have carefully heard the rival submissions advanced by the respective parties and have respective parties and have also perused the material available on also perused the material available on record. The issue arising for our adjudication is whether the record. The issue arising for our adjudication is whether the record. The issue arising for our adjudication is whether the deletion of disallowance of currency derivative trading loss by the deletion of disallowance of currency derivative trading loss by the deletion of disallowance of currency derivative trading loss by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is justified learned Commissioner of Income Tax (Appeals) [CIT(A)] is justified learned Commissioner of Income Tax (Appeals) [CIT(A)] is justified in law and on facts.

7.1 Before us, the learned Departmental Representative supported Before us, the learned Departmental Representative supported Before us, the learned Departmental Representative supported the findings and reasoning of the learned Assessing Officer, whereas the findings and reasoning of the learned Assessing Officer, whereas the findings and reasoning of the learned Assessing Officer, whereas the learned counsel for the assessee placed reliance upon the order the learned counsel for the assessee placed reliance upon the order the learned counsel for the assessee placed reliance upon the order of the learned CIT(A) and the material considered therein. of the learned CIT(A) and the material considered the of the learned CIT(A) and the material considered the Upon a meticulous examination of the record, it emerges that the Upon a meticulous examination of the record, it emerges that the Upon a meticulous examination of the record, it emerges that the Assessing Officer based the disallowance primarily on the Assessing Officer based the disallowance primarily on the Assessing Officer based the disallowance primarily on the observations of the Securities and Exchange Board of India (SEBI) observations of the Securities and Exchange Board of India (SEBI) observations of the Securities and Exchange Board of India (SEBI) pertaining to trading in pertaining to trading in stock options for the period for the period 01.04.2014 to 30.09.2014, wherein SEBI had found certain , wherein SEBI had found certain reversal trades reversal trades to be of a manipulative nature. However, in the present case, the of a manipulative nature. However, in the present case, the of a manipulative nature. However, in the present case, the transactions undertaken by the assessee relate to currency transactions undertaken by the assessee relate to transactions undertaken by the assessee relate to derivative options and not to stock options, and further, and not to stock options, and further, the period under consideration does not coincide with the period of period under consideration does not coincide with the period of period under consideration does not coincide with the period of SEBI’s investigation. Consequently, the mere reliance on SEBI’s SEBI’s investigation. Consequently, the mere reliance on SEBI’s SEBI’s investigation. Consequently, the mere reliance on SEBI’s findings concerning an entirely different class of instruments and findings concerning an entirely different class of instruments and findings concerning an entirely different class of instruments and time frame cannot, in law, justify the conclusion that the assessee’s time frame cannot, in law, justify the conclusion that th time frame cannot, in law, justify the conclusion that th transactions were manipulative or fictitious. transactions were manipulative or fictitious.

7.2 The Assessing Officer has further referred to the report of the The Assessing Officer has further referred to the report of the The Assessing Officer has further referred to the report of the Investigation Wing, Mumbai, arising from surveys conducted under Investigation Wing, Mumbai, arising from surveys conducted under Investigation Wing, Mumbai, arising from surveys conducted under Project Falcon, wherein certain parties were found to be engaged wherein certain parties were found to be engaged in wherein certain parties were found to be engaged the business of providing accommodation entries in the form of the business of providing accommodation entries in the form of the business of providing accommodation entries in the form of artificial profits or losses. The Assessing Officer, however, neither artificial profits or losses. The Assessing Officer, however, neither artificial profits or losses. The Assessing Officer, however, neither supplied to the assessee the detailed statements of such parties nor supplied to the assessee the detailed statements of such parties nor supplied to the assessee the detailed statements of such parties nor afforded any opportunity of cross afforded any opportunity of cross-examination, eve examination, even though those statements were the sole foundation for drawing an adverse statements were the sole foundation for drawing an adverse statements were the sole foundation for drawing an adverse inference against the assessee. It is well settled that any addition inference against the assessee. It is well settled that any addition inference against the assessee. It is well settled that any addition based on third-party statements, without confronting the assessee party statements, without confronting the assessee party statements, without confronting the assessee or granting an opportunity of cross or granting an opportunity of cross-examination, is contrary to the , is contrary to the principles of natural justice, as enunciated by the Hon’ble Supreme principles of natural justice, as enunciated by the Hon’ble Supreme principles of natural justice, as enunciated by the Hon’ble Supreme Court in Andaman Timber Industries v. CCE Andaman Timber Industries v. CCE (supra).

7.3 We further find that the Assessing Officer has merely observed We further find that the Assessing Officer has merely observed We further find that the Assessing Officer has merely observed that the assessee executed certain reversal trades in currency that the assessee executed certain reversal trade that the assessee executed certain reversal trade derivatives with counterparties who happened to be clients of derivatives with counterparties who happened to be clients of derivatives with counterparties who happened to be clients of brokers found involved in accommodation entry activities. However, brokers found involved in accommodation entry activities. However, brokers found involved in accommodation entry activities. However, in transactions carried out through the recognised stock exchanges, in transactions carried out through the recognised stock exchanges, in transactions carried out through the recognised stock exchanges, all trades are executed on an anonymous electronic platform all trades are executed on an anonymous elect all trades are executed on an anonymous elect without any direct interface between the buyer and the seller. In without any direct interface between the buyer and the seller. In without any direct interface between the buyer and the seller. In such a regulated and faceless environment, the possibility of any such a regulated and faceless environment, the possibility of any such a regulated and faceless environment, the possibility of any concerted meeting of minds between counterparties is remote concerted meeting of minds between counterparties is remote concerted meeting of minds between counterparties is remote unless there exists cogent evidence to establish unless there exists cogent evidence to establish a nexus or prior a nexus or prior understanding. No such evidence has been brought on record by understanding. No such evidence has been brought on record by understanding. No such evidence has been brought on record by the Assessing Officer or the Investigation Wing to show that the the Assessing Officer or the Investigation Wing to show that the the Assessing Officer or the Investigation Wing to show that the assessee had any contact or collusion with the counterparty assessee had any contact or collusion with the counterparty assessee had any contact or collusion with the counterparty traders.

7.4 It is also not the case of the Departme It is also not the case of the Department that the brokers nt that the brokers through whom the assessee executed the impugned trades were through whom the assessee executed the impugned trades were through whom the assessee executed the impugned trades were themselves found to be tainted or involved in any accommodation themselves found to be tainted or involved in any accommodation themselves found to be tainted or involved in any accommodation entry racket. This factual assertion made by the learned counsel for entry racket. This factual assertion made by the learned counsel for entry racket. This factual assertion made by the learned counsel for the the the assessee assessee assessee has has has not not not been been been controverted controverted controverted by by by the t t learned Departmental Representative before us. Departmental Representative before us.

7.5 In our considered opinion, the findings of SEBI in respect of In our considered opinion, the findings of SEBI in respect of In our considered opinion, the findings of SEBI in respect of reversal trades in stock options for a distinct period cannot be reversal trades in stock options for a distinct period cannot be reversal trades in stock options for a distinct period cannot be mechanically extrapolated to the assessee’s case involving currency mechanically extrapolated to the assessee’s case involving mechanically extrapolated to the assessee’s case involving derivative transactions ive transactions in a different assessment year, without any in a different assessment year, without any contemporaneous or corroborative evidence. Such extrapolation contemporaneous or corroborative evidence. Such extrapolation contemporaneous or corroborative evidence. Such extrapolation amounts to conjecture and cannot form the legal basis for amounts to conjecture and cannot form the legal basis for amounts to conjecture and cannot form the legal basis for disallowance of a genuine trading loss. The observations of the disallowance of a genuine trading loss. The observations of the disallowance of a genuine trading loss. The observations of the Assessing Officer are, at best, in the nature of unsubstantiated fficer are, at best, in the nature of unsubstantiated fficer are, at best, in the nature of unsubstantiated allegations, allegations, allegations, unsupported unsupported unsupported by by by any any any documentary documentary documentary evidence evidence evidence demonstrating that the assessee was a participant or beneficiary in demonstrating that the assessee was a participant or beneficiary in demonstrating that the assessee was a participant or beneficiary in any accommodation entry arrangement. any accommodation entry arrangement.

7.6 The Assessing Officer has also failed to The Assessing Officer has also failed to investigate the crucial investigate the crucial aspect as to how, if at all, any funds allegedly circulated between aspect as to how, if at all, any funds allegedly circulated between aspect as to how, if at all, any funds allegedly circulated between the so-called “profit seeker” and “loss giver” entities. No inquiry into called “profit seeker” and “loss giver” entities. No inquiry into called “profit seeker” and “loss giver” entities. No inquiry into fund flow or bank trail has been made to substantiate the fund flow or bank trail has been made to substantiate the fund flow or bank trail has been made to substantiate the hypothesis of fictitious loss. T hypothesis of fictitious loss. The reasoning adopted in the he reasoning adopted in the assessment order, being speculative in nature and bereft of assessment order, being speculative in nature and bereft of assessment order, being speculative in nature and bereft of evidentiary foundation, resembles more a report or commentary evidentiary foundation, resembles more a report or commentary evidentiary foundation, resembles more a report or commentary than a judicial finding. Such an order, based on suspicion, cannot than a judicial finding. Such an order, based on suspicion, cannot than a judicial finding. Such an order, based on suspicion, cannot stand the test of law. stand the test of law.

7.7 In view of the foregoing discussion, we find ourselves in he foregoing discussion, we find ourselves in he foregoing discussion, we find ourselves in agreement with the well agreement with the well-reasoned conclusion of the learned CIT(A) reasoned conclusion of the learned CIT(A) in deleting the disallowance of the currency derivative trading loss. in deleting the disallowance of the currency derivative trading loss. in deleting the disallowance of the currency derivative trading loss. The action of the Assessing Officer, founded on presumptions and The action of the Assessing Officer, founded on presumptions and The action of the Assessing Officer, founded on presumptions and general observations drawn from unrelated investigations, cannot bservations drawn from unrelated investigations, cannot bservations drawn from unrelated investigations, cannot be sustained. Accordingly, the order of the learned CIT(A) calls for be sustained. Accordingly, the order of the learned CIT(A) calls for be sustained. Accordingly, the order of the learned CIT(A) calls for no interference.

7.8 The grounds of the appeal of the The grounds of the appeal of the Revenue Revenue accordingly dismissed.