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Facts
A search and seizure operation was conducted on the premises of a group of jewelers, including the assessee. During the operation, documents relating to mock trading of options were seized. The assessee claimed to have acted as a broker for these transactions, receiving brokerage at Rs. 500 per crore.
Held
The Tribunal held that the transactions were indeed mock trading of options and not actual money transactions. However, the assessee's claimed brokerage rate of Rs. 500 per crore was not substantiated. The Tribunal estimated the brokerage income at 1% of the transaction value, restricting the addition.
Key Issues
Whether the seized documents represent actual monetary transactions or mock trading, and if it's mock trading, what is the appropriate method to estimate the brokerage income.
Sections Cited
132, 133A, 143(2), 68, 115BBE
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”B-Bench” JAIPUR
Before: SHRIGAGAN GOYAL, AM& SHRI NARINDER KUMAR, JM
vkns'k@ORDER
The first mentioned appeal-ITA No. 938/JPR/2025- has been filed by the assessee, feeling aggrieved by the order dated 12.04.2025, passed by Learned CIT(A), relating to the assessment year 2018-19, whereby the appeal filed by the assessee against assessment order dated 26.12.2019, has been partly allowed and addition of Rs. 2,76,73,604/-, made as business income on account brokerage of mock transactions came to be restricted to Rs. 5,48,526/-.
Second mentioned appeal-ITA No. 955/JPR/2025- has been filed by the department because of the deletion of the remaining amount of addition, as notice above.
Since common issues arising out of same facts are involved, both the appeals have been argued together, and as such, same are being disposed of by this common order.
Arguments heard. Files perused.
Search & Seizure action by the department
As is available from the assessment order dated 26.12.2019, a search and seizure action, u/s 132 of the Act and /or survey action u/s & 955/JPR/2025 Pradeep Jain, Jaipur 133A of the Act was carried out, on 02.08.2017, by the income tax department on the members of Kiran Fine Jewellers Group, on which the assessee is one of the members.
On 31.10.2018, the assessee filed return of income for the previous year i.e. 2017-18, relating to the assessment year under consideration, declaring total income of Rs. 26,16,130/-.
Notice u/s 143(2) of the Act, dated 08.08.2019 was issued and served upon the assessee. In response thereto, on behalf of the assessee, informations/details are stated to have been furnished to the Assessing Officer.
Recovery of incriminating material on search action
Case of the department is that during search and seizure operation at the premises of Shri Ajay Gangwal at F-32, Azad Marg, C-Scheme, Jaipur, various incriminating documents were seized, as per inventory Annexure-A consisting on Exhibit- 1 to 17.
Out of said documents, Exhibit-11 to 13 are stated to have been found from the chamber of the assessee.
& 955/JPR/2025 Pradeep Jain, Jaipur During search proceedings, the assessee is stated to have accepted that Exhibit-11 pertained to him. In his statement recorded during search and seizure action, the assessee described the nature of transaction recorded therein. In particular, in reply to question no. 5, the assessee is stated to have disclosed that Exhibit-11 contained details of share trading.
Further, it is case of the department that show cause notice dt 09.12.2019, was issued and the assessee submitted the following reply:-
“1 During the course of search proceedings, a diary was seized and inventoried as Annexure-A Exhibit-11. During the course of post search enquiry the A.R. of you in his submission in respect of these pages has submitted that "The transactions noted on page no. 10 to 11,13,14,15,16,17,18,19,21,22,25,29,30,31,33,34,37are unaccounted share business transactions of the assessee. Further on page No. 12,20,23,24,26,27,28,32,35,36 these are mixed transactions of shares and unrecorded cash.. The said transactions are exposures in the derivative market which are automatically squared off on the date of expiry of such derivatives instruments." Please explain the transaction mentioned in the aforsadi dairy and get verified from your regular books of accounts. Failing to which you are requested to show cause as to why the transaction should not be considered as unrecorded transaction of Share Business Transactions and the difference of debit and credit balances at Rs. 2,76,73,604/- (total debit balance is Rs. 4,12,63,105/- and credit balance is Rs. 1,35,89,501/-) should not be considered "as your undisclosed income and added back to the relevant year.”
In his reply, the assessee also stated that transactions recorded on Exhibit-11, related to offline record of Mock trading transactions of purchase and sales of OPTIONs by some of his client, in respect of which
The Assessing Officer considered the above said reply of the assessee and arrived on the following conclusion:-
“(a) Nothing was brought on record to show that assessee acted merely as broker, the claim put forward by the assessee is baseless as neither assessee was registered as a broker on any derivative/stock exchange nor did any documents was found during the search or furnished during the course of assessment proceedings. (b) Assessee failed to produce persons whose names were appearing on these page further, assessee failed to furnish the whereabouts of these persons. Had the assessee actually acted as broker, he would have definitely knew the name and whereabouts of his clients. (c) The assessee furnished affidavit of sh. Deepesh Sogani, Shri Prashant Rathi and Shri Ashui Patni on 19.12.2019 stating that affidavit of remaining parties will be submitted as same received. However no such affidavit were furnished. The affidavit so furnished as also furnished at fag end of the timbering as sanctity of the same cannot be verified at this stage. It will be worthwhile to mention here that assessee has been non compliant throughout the assessment proceeding. (d) Assessee further contested that the transaction were settled on a particular date however, no contract note / documents etc. was found during the search or furnished during the course of assessment proceedings. (e) The claim of assessee that 95L written on Page No. represent 95 lots is also baseless, as on various other pages complete figures were reported and none of them was a round figure. Further, these pages contain only financial figures and none of the page contained any LOT or quantitative detail. (f) The claims put forward by the assessee seems to be after thought and cooked up story and even farfetched from reality and human probabilities.”
Consequently, the Assessing Officer concluded that difference in the transactions recorded on the above said pages remained unexplained cash credit in the books of the assessee. Accordingly, the Assessing Officer made addition of Rs. 2,76,73,604/-, being the difference in the figure of Rs. 4,12,63,105/- and the figure of Rs. 1,35,89,501/-. While resorting to the provisions of section 68 of the Act, the Assessing Officer held the assessee liable to pay tax on the said amount @ 60% as per provisions of section 115BBE of the Act.
It may be mentioned here that when the assessee challenged the above said addition, Learned CIT(A), n came to be restricted only to Rs. 5,48,526/- i.e. 1% of Rs. 5,48,52,606/-, thereby deleting the rest of the addition made by the Assessing Officer.
In this regard, observations made by Learned CIT(A) on the said addition need to be reproduced.
The observations available from page 29 to 32 of the impugned order, read as under:-
“Having perused the assessment order and the submissions of the appellant and the material placed on record of appeal, from perusal of the seized record the & 955/JPR/2025 Pradeep Jain, Jaipur fact which emerges is that almost all the transactions, which claimed to be mock Trading of purchases & sales of Options in derivative market (call/put options) in the F&O segment (hereinbelow referred as option trading), are written in fraction figures (i.e the amounts are written 41,863/-, 15,928 etc.) and almost all the transactions which claimed to be money transactions are written in round figure (i.e. the amounts are written 25,000/-, 5,00,000/-, etc.). If the transactions, which claimed to be option trading, would the money transaction than it is hard to be believe that almost all such transactions would be in fraction figures. Another important fact, which emerges from the seized record is that in the particular's column, beside the transactions, which claimed to be mock Trading of purchases & sales of Options in derivative market (call/put options) in the F&O segment, either the month has been written or description of the option trading is written or the column has been left blank. In the case of almost all the money transaction, the word mode of money transaction i.e. Cash etc. has been written. This shows that the nature of both the noting are different. For making the addition the AO himself, considered both the transaction in different manner. The claim of the appellant that he carried out mock transactions for others is evident from the statement of the appellant, which recorded u/s 132(4) of the Act, wherein he categorically said that the exhibit contains the noting of mock trading did by him for different persons and it was also said that in such transactions, there was no receipt/payment of funds. If the seized record is analysed in the light of search statement of the appellant, which in absence of any contrary material always have the evidentiary value, then it explicitly reveals that the transactions, which considered by AO as unexplained cash credits are noting regarding the mock transactions of option trading by different parties through appellant. Since, option trading is settled through reversal or squareoff without physical delivery, therefore the value of such transactions, as written in the seized record cannot be considered as actual amount receivable/payable by the appellant, as upon settlement/squared off of transactions, only profit/loss earned by the concerning party is actually the amount receivable/payable by the appellant. From perusal of the seized record its reveals that in several cases, the mobile number of the concerning person, on whose behalf the appellant did the mock trading, has been written. No contrary evidence from them has been mentioned in the assessment order. Nothing has been mentioned in the assessment order that any query was raised asking for the address etc. of the parties. During the assessment proceedings the appellant submitted the sworn affidavit of some of the persons. wherein they confirmed the fact of option trading. There is no contra & 955/JPR/2025 Pradeep Jain, Jaipur material mentioned in the assessment order regarding the affirmation made in such affidavits. The affidavits reiterate what is already coming out of the seized material. Similarly the transactions such as 95L are not having any mention of word 'cash' etc. For the same party 'Ashu Patni' the transaction of 95L is mentioned on page 48 (printed page number) of diary and for the same party the loan transactions are recorded on page 77 (printed page number) which is having details of "naam", "jama", "next due", "rate" etc. The page 48 details are devoid of such particulars. Also, considering the facts of the case, being written at two different accounts mean different nature of transactions. The details of mock transactions of option trading conducted on behalf of other is also directly evident from some of the noting of the seized record itself, therefore similar type of noting cannot be treated as other transactions. To this effect the attention was drawn by the appellant on page 17 and 20 of the seized Exhibit-11. From perusal of such pages, it is evident that these seized papers comprise the explicit references of option trading and the rate and value mentioned thereon is in commensurate with the prevailing rate of such option on the noted date as per the rate chart submissions of the appellant before the Id. AO and in the appeal. During the course of assessment proceeding, to substantiate his claim, the appellant submitted the following details/documents: - (i) chart comprising the working of amount debited/credited in account of various parties on account of value of purchase/sale of call/put option in F&O segment to show that the amount debited in account of party is value of call/put purchased by client and the amount credited in account of such party is value of call/put sold by the client. ii) the record of mock trading offline maintained by the appellant in the trading software to show that the transactions and amount are matching form the amount mentioned in the seized record. ⅲ) copy of Historical Price data of each type of transaction, from the website of NSE exchange to show that the rate of the transactions, as mentioned by the appellant in the working submitted before AO, is in commensurate with the rate prevailing as on the date when the transaction was carried out. Thus, from the above, the appellant was able to corroborate that the noted transaction is transaction value of option trading, carried out by various parties through the appellant and the same is not the amount actually receivable and payable by the appellant. The Id. AO without pointing out any defects in the & 955/JPR/2025 Pradeep Jain, Jaipur working/documents filed by the appellant and without any contrary evidence, rejected the same. In view of above discussion, it is apparent that transactions of Rs. 4,12,63,105/- (debit) and Rs. 1,35,89,501/- (credit) are not money transactions but the same is transaction value of mock Trading of purchases & sales of Options in derivative market (call/put options) in the F&O segment, which is not receivable/payable and are notional entries and that the actual amount payable or receivable is worked out at the time of the settlement/closure of the F&O transaction and thus these notings cannot be considered as unexplained cash credits in the hands of the appellant. Mock trading is not formal trading and transactions are not recorded on stock exchange and there is no precondition of being a registered broker. This kind of trading is not recognised by stock exchange. These noted transactions are mock trading of option carried out by different parties through the appellant in a parallel setup outside the formal setup and being the role of the appellant was a middleman in such transaction and also performed the role of the exchange as the transactions are mock and not recorded formally on the recognized exchange. The appellant claimed that his interest in such transaction was to earn the brokerage income which was Rs. 500/- per Crore. However, the appellant failed to substantiate the rate of brokerage with the documentary evidence, therefore this cannot be adopted for working out the brokerage income of the appellant in such transactions. If by considering this rate as correct, the brokerage is compute, then the amount of brokerage is works out to Rs. 2,743/-, and it cannot be believed that for this meager amount any prudent person, would take the risk of involving in huge mock transactions. As per general practice in the market in unaccounted transactions, the prevailing rate of brokerage can be 1% of the transaction value for the mock trading and applying this rate, the brokerage earned by the appellant in these transactions is estimated to Rs. 5,48,526/-, which is 1% of 5,48,52,606/- (4,12,63,105+1,35,89,501). Thus, the addition made in the assessment order is restricted to Rs. 5,48,526/- as business income on account of brokerage on mock transactions. And the remaining addition out of Rs. 2,76,73,604/- is hereby directed to be deleted. Further, the treatment of remaining entries which are 'cash' entries, for example entry on 18.07.2017 in account of Amit Sharma on Page 12 of seized material, have rightly been considered by the Id. AO in the peak calculation.”
& 955/JPR/2025 Pradeep Jain, Jaipur 12. As already noticed above, the department has challenged the above said order by which Learned CIT(A) has restricted the addition to Rs. 5,48,526/-.
On the other hand, the assessee-appellant has challenged even the said remaining amount of addition, even after Learned CIT(A) has deleted the addition as regards the remaining amount .
Contentions
Ld. AR for the assessee has contended that Learned CIT(A) fell in error by estimating brokerage income @ 1% of the transaction value, without any reasonable basis.
On the other hand, Ld. DR for the department-appellant in the other appeal has also challenged the addition restricted in the manner indicated above. The contention is that the Assessing Officer had provided sufficient opportunity to the assessee to establish his claim that he acted merely as a middle man.
As regards transactions pertaining to unexplained cash credit, the assessee failed to establish his said claim. Ld. DR has therefore urged that learned CIT(A) having failed to take into consideration the said failure on & 955/JPR/2025 Pradeep Jain, Jaipur the part of the assessee, fell in error in restricting the addition. Having so urged, Ld. DR has contended that by submitting thatthe relief on the assessment order and the reasons recorded therein.
Discussion
As noticed above, the factum of seizure and search actionon the above said premises and the concerned Assessing Officer of the incriminating material is not much in dispute.
As claimed by the assessee, in reply to the show cause notice, the assessee disclosed that the transactions recorded on Exhibit-11 related to offline record of mock trading transactions of purchase and sales of OPTION of some of his clients, who used to pay him only brokerage of Rs. 500 per Crore transaction, he having acted merely as a broker.
In this situation, it was for the assessee to establish his claim that he had acted merely as a broker. However, for the reasons recorded in para 6.5 of the assessment order, the Assessing Officer was not convinced with the said claim of the assessee, and accordingly, he concluded thatsaid undisclosed income of the assessee be treated as covered by Section 68 of the Act.
& 955/JPR/2025 Pradeep Jain, Jaipur 18. While dealing with the abovesaid claim and contention raised in the appellate proceedings also that he acted merely as a broker for the said transactions , Learned CIT(A) referred to the observations made by the Assessing Officer, and went on to record his own findings that details of Mock of OPTIONS trading as available on record revealed specific references of OPTIONS trading, and further that rate and value mentioned thereon were commensurate with the prevailing rate of such OPTIONS, on the given date, as per rate chart, admittedly submitted by the assessee- appellant.
Learned CIT(A) further recorded the finding that the subject transactions were of the value of OPTIONS trading, carried out of various parties through the appellant. He also recorded that the said transaction value was not amount actually receivable by the appellant. While so observing, Learned CIT(A) recorded in the decision part of the impugned order that the Assessing Officer rejected the documents submitted by the appellant, without pointing out any defects therein, and without any evidence contrary to it available with the department. Learned DR for the department has not brought to our notice any material to rebut said findings recorded by Learned CIT(A).
As regards the rate of brokerage, Learned CIT(A) did not believethe version/claim of the assessee that his interest in such transactions was to earn brokerage income @ Rs. 500 per Crore.
As to why said claim was not accepted, Learned CIT(A) recorded the reason that the assessee had failed to produce any documentary evidence in proof of rate of brokerage at which he is said to have received brokerage regarding said transactions. We are of the opinion that Learned CIT(A) rightly observed so in view of the reasons recorded in para 5 of the impugned order.
While estimating the rate of brokerage, Learned CIT(A) observed that as per general practice in the market as regards unaccounted transactions, the prevailing rate of brokerage could be 1% of the transaction value, in case of mock trading.
In the course of arguments, this Bench enquired from Ld. AR for the appellant and Ld. DR for the department as to on which ground/basis, this rate of brokerage of 1% of the transaction value, in case of mock trading is being challenged by them. In response, neither Ld. AR for the appellant nor & 955/JPR/2025 Pradeep Jain, Jaipur ld. DR for the department has put forth any submission. Ld. AR for the assessee has not brought to our notice that the prevailing rate of brokerage during the relevant period was even less than the said rate opted by Learned CIT(A).
In the given situation, when the assessee failed to lead any documentary evidence in the assessment proceedings or in the assessment proceeding or in the appellate proceedings, as regards rate of brokerage paid to him, Learned CIT(A) was justified in estimating the same in view of general practice in the market.
Conclusion
In view of the above discussion, we do not find any illegality or irregularity in the impugned order passed by Learned CIT(A) whereby he restricted the addition, under consideration, only to Rs. 5,48,526/- treating the same as business income of the assessee on account of brokerage on mock trading transactions, and thereby deleted the remaining addition.
Consequently, both the appeals i.e. filed by the assessee and preferred by the department deserve to be dismissed.
In view of the above findings, both these appeals are hereby dismissed.
File be consigned to the record room after the needful is done by the office. Copy of the common order be also placed on the record of the connected appeal. Order pronounced in the open court on07/10/2025.
Sd/- Sd/- ¼xxu xks;y½ ¼ujsUnz dqekj½ (GAGAN GOYAL) (NARINDER KUMAR) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 07/10/2025 *Santosh आदेश की प्रतिलिपिअग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू The Appellant- Pradeep Jain, Jaipur. 1. 2. izR;FkhZ@ The Respondent- DCIT, Central Circle-2,Jaipur. 3. vk;djvk;qDr@ Theld CIT 4. विभागीय प्रतिनिधि] आयकरअपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZQkbZy@ Guard File & 955/JPR/2025) vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेजज. त्महपेजतंत