The Income Tax Appellate Tribunal (ITAT), Mumbai, categorically ruled that tax authorities cannot treat fair and genuine futures and options (F&O) and commodity trading profits as bogus or simply accommodation entries merely on the basis of an investigative report.
Subsequently, the tribunal dismissed the Revenue’s appeal in the case of a Mumbai resident, Rakhi Vipul Jogi, explaining the aspects in detail and upholding the cancellation of a reassessment in which her profits were treated as unexplained income. Keeping these basics in mind, let us discuss the case and its core facts in detail.
AO is mandated to verify investigative inputs independently
Jogi had declared a total income of ₹7.36 lakh for the Assessment Year 2012-13. Her return was initially processed under Section 143(1) of the Income Tax Act, 1961. Then, in 2019, thereopened the case again based on information from the investigation wing, Kolkata, regarding the alleged misuse of the National Multi-Commodity Exchange platform.
The AO found that Jogi made purchases worth ₹2.77 crore and subsequently sold goods worth ₹2.782 crore through her broker, Star Commodities. Thus, earning a profit of ₹8.07 lakh. This profit was treated as ‘an accommodation’ entry, with an additional ₹24,225 added as estimated commission. Sections 68 and 69C of the were involved. Furthermore, the AO also treated a ₹50 lakh property purchase as an unexplained investment.
Still, it is vital to keep in mind that the Commissioner of Income Tax (Appeals) quashed the reassessment, noting that neither Jogi nor her broker appeared in the lists cited by the investigation department. The ITAT clearly agreed.
ITAT stresses building a connection with the taxpayer
The tribunal clarified that information from the investigation wing can serve as a basis for reopening an assessment. Even then, the AO must independently examine that information, build open communication and try to establish a direct connection between the material and the taxpayer.
The ITAT bench laid down the fundamental principle in clear terms: “It is well settled that information received from the Investigation Wing may constitute tangible material for initiating reassessment proceedings; however, the Assessing Officer is required to apply his own mind to such information and establish a live nexus between the material available and the formation of a belief that income chargeable to tax has .
What was the core finding of the case?
In this case, the tribunal found no meaningful evidence identifying the alleged shell entity through which Jogi supposedly obtained accommodation entries. Therefore, since the reassessment itself was invalid, the related tax additions and calculations also did not survive.
This ruling offers an important safeguard for retail traders: Genuine and fair exchange-traded profits cannot be labelled bogus without specific evidence linking the taxpayer to alleged manipulation.
In summary, for retail F&O and , the ruling clarifies that exchange-traded profits cannot be treated as accommodation entries merely because a broker or platform is under investigation. The AO must independently establish the taxpayer’s specific link to the alleged manipulation.
Disclaimer: This article is for informational purposes only and should not be construed as legal or tax advice. Readers should consult a qualified tax professional before acting on the information.