Income Tax Appellate Tribunal - Mumbai
Acit Central Circle 8(3), Mumbai vs Vivah Classique, Mumbai on 26 November, 2025
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "F" MUMBAI
BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER)
AND
SHRI RAJ KUMAR CHAUHAN (JUDICIAL MEMBER)
ITA No. 4050/MUM/2025
Assessment Year: 2014-15
ACIT Central Circle 8(3), Vivah Classique,
Room No. 676, Aayakar Bhavan, Office No. 27 2nd floor, 109,
Churchgate Vs. Shaikh Memon Street Zaveri
Mumbai-400020. Bazar,
Mumbai-400 002.
PAN NO. AAEFV 6382 J
Appellant Respondent
Assessee by : Ms. Riddhisha Jain (Virtually
Appeared)
Revenue by : Mr. Vivek Perampurna, CIT-DR
(Virtually Present)
Date of He aring : 17/09/2025
Date of pronouncement : 26/11/2025
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 Vivah Classique 2 ITA No. 4050/MUM/2025 the Assessing Officer by holding that the loss incurred by the assessee in currency derivative trading on BSE is genuine, without appreciating the fact brought out by the Assessing Officer that the said loss arose out of pre rranged and fictitious reversal pre- arranged transactions aimed solely to create artificial losses to evade taxes?"
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/-
8,50,66,837/ made by the Assessing Officer in respect of alleged losses in currency derivative trades on USE (United Stock Exchange), without properly considering the findings of the Project Falcon investigation, which identified such transactions as suspicious and indicative of tax evasion through circular and reversal trading?"
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 the basis that the transactions were routed through recognized exchanges and brokers, whil whilee failing to appreciate that genuineness of transactions under the Income Tax Act requires examination of surrounding circumstances and intent, particularly in light of the evidence from third-party third party statements and patterns of reversal trades highlighted by the Assessing Officer?"
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 Rs. 37,01,176/-
37,01,176/ on account of estimated commission payments allegedly incurred for arranging fictitious trades, despite adequate circumstantial evidence indicating the involvement of entry operators and accommodation entry providers, and without conducting any proper verification of the commission flow.?"
5. "Whether on the facts and circumstances of the case, the order of the Ld. CIT(A) failed to appreciate that acceptance of profits in similar trades in earlier or same assessment years does not bar the revenue from disallowing losses in transactions that are clearly found to be and not arising fr from om genuine trading activity?
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 that are distinguishable on facts and merits applicable to the present case, which involves specific specific findings based on a systemic investigation (Project Falcon) and tangible evidence of fictitious transactions?"
Vivah Classique 3 ITA No. 4050/MUM/2025
2. Briefly stated facts of the case are that assessee is a 'partnership firm' engaged in the business of manufacturing of gold medallions/jewellary, /jewellary, trading of cut and polished diamonds and diamond studded gold jewellary from its units located at Surat SEZ, Sachin, Surat, (Gujrat). During the year under consideration, the assessee, in addition to jewellary business also earned profit as well wel as incurred losses out of trading in currency derivatives.
2.1 For the year under consideration, the assessee filed return of income on 28/11/2014 declaring total income at ₹59,64, 59,64,720/-. The scruti return of income filed by the assessee was selected for scrutiny and scrutiny assessment was completed under section 143(3) 143(3 of the Income-tax ( short 'the Act')) on 27/12/2016, accepting tax Act, 1961 (in the returned income.
2.2 Subsequently, the Assessing Officer received information from the Investigation Wing of the Income tax Department, Mumbai, Income-tax which revealed that, pursuant to inquiries conducted by the Securities and Exchange Board of India (SEBI) and survey operations carried ed out under section 133A of the Act at five premises in Mumbai, Kolkata, and other approximately thirty--five locations, it was found that several brokers were engaged in facilitating accommodation entries through the creation of artificial n stock exchange transactions. Based on the profits and losses in findings of the said investigation, it was alleged that the assessee was one of the beneficiaries, having purportedly booked artificial Vivah Classique 4 ITA No. 4050/MUM/2025 losses amounting to ₹17,51,14,258/- during the year under consideration. Relying ying upon this information, the Assessing Officer recorded reasons to believe that the assessee had obtained accommodation entries in respect of losses on currency derivatives aggregating to ₹17,51,14,258/ 17,51,14,258/-,, thereby resulting in escapement of able to tax due to the assessee's failure to make a full income chargeable and true disclosure of all material facts necessary for assessment. Consequently, after obtaining the requisite prior approval from the competent authority, the Learned Assessing Officer issued notice notic under section 148 of the Income tax Act on 31.03.2021, thereby Income-tax initiating reassessment proceedings.
2.3 In response, the assessee filed return of income on 16/02/2022 declaring total income at ₹ 59,64,720/ 720/- i.e. the total income which was declared in the original return of income. Thereafter,, following due procedure under the law, the Assessing Officer completed the reassessment proceeding on 24/03/2022, thereby disallowing the loss incurred on account of the currency derivative amounting to be Rs.17,51,14,258/-.. Further Assessing Officer also was of the view that assessee incurred commission expenses at the rate of the 2% for obtaining said accommodation entry, which was worked out ₹37,01,176/-.. In this manner total addition of ₹18,50,59,961/ 59,961/- was made in reassessment order.
3. On further appeal by the assessee, the Ld. CIT(A) though upheld the validity of the reassessment proceeding, deleted the Vivah Classique 5 ITA No. 4050/MUM/2025 disallowance of losses in currency derivative on merit. Aggrieved, derivative the Revenue is in n appeal before the Income-tax tax Appellate Tribunal ( in short the 'Tribunal ribunal'),, challenging the deletion of said disallowance on merit.
3.1 All the grounds raised by the Revenue pertain to the deletion Revenue of disallowance of currency derivative by the Ld. CIT(A). In the raised that the Ld. CIT(A) has not appreciated grounds it is mainly raise the facts brought on record by the Assessing Officer and the third-party, statements and patterns of evidences obtained from the third reversal trades highlighted by the Assessing Officer including the finding nding of the "Project Falcon" investigation.
4. Briefly stated facts qua the issue in dispute are that the assessee reported detai ls of currency derivative loss/profit in details transactions carried out on the different exchanges, which are summarised as under:
Sr. No. Name of Exchange Profits/(Losses) 1 United stock exchanges of India (8,50,66,837) 2 Bombay stock exchange (9,99,91,949) 3 National Stock Exchange 7,86,41,897 Total currency derivatives Profit (10,64,16,889) (Loss)
5. Before the Assessing Officer, the assessee submitted the following contentions:
Vivah Classique 6 ITA No. 4050/MUM/2025
(i) That all currency derivative transactions undertaken by the assessee were genuine, genuine, having been executed on the recognized stock exchange platforms where transactions occur through an matching system without any direct interface anonymous order-matching between the buyer and the seller, and that all payments and receipts were routed entirely through regular banking channels.
(ii) That the transactions were carried out through duly registered brokers,, and complete particulars thereof, including documentary evidence in the form of contract notes, brokers' ledgers, demat statements, and bank statements, had been duly furnished before the Assessing Officer.
(iii) That the assessee had not only incurred losses losse but had also earned profits from trading in currency derivatives during the relevant period, thereby demonstrating the bona fide nature of the transactions.
(iv) That the losses were incurred in the ordinary course of business,, trading in currency derivatives being an inherently risk segment, capable of yielding both substantial volatile and high-risk gains and corresponding losses. The assessee, acting under genuine commercial expectations of profit, unfortunately made certain neous trading decisions which resulted in losses.
erroneous Vivah Classique 7 ITA No. 4050/MUM/2025
(v) That there was no collusion, connivance, or understanding between the assessee and any of its brokers in respect of the impugned transactions.
(vi) That neither the stock exchange nor the Securities and an Exchange Board of India (SEBI) had, at any point, found or reported any irregularity or impropriety on the part of the assessee or its brokers in relation to the said transactions.
5.1 The assessee further requested that the Assessing Officer furnish copies ies of the information, materials, and evidences relied upon for initiating the reassessment proceedings, including the details and findings gathered by the Investigation Wing, Mumbai. However, no such information or material was provided to the assessee despite espite specific requests.
5.2 The assessee also objected to what was described as a selective or partial consideration of facts by the Assessing Officer. It was submitted that, during the year under consideration, the assessee had undertaken numerous trans transactions actions in currency derivatives, some of which had resulted in profits and others in losses. However, the Assessing Officer, in forming his conclusions, chose to consider only those transactions which reflected losses, profit-making transactions, thereby engaging while disregarding the profit in impermissible "cherry picking" of facts to suit the inference "cherry-picking"
already drawn.
Vivah Classique 8 ITA No. 4050/MUM/2025 5.3 The Learned Assessing Officer, however, did not accept the contentions advanced by the assessee. He placed reliance upon the observations of the Whole Whole-Time Time Member of the Securities and Exchange Board of India (SEBI), who had noted a recurring pattern of transactions wherein certain loss-making loss making entities repeatedly sold liquid stock options to a specific set of counterparties at prices substantially lly lower than their theoretical or intrinsic value, followed by reversal trades with the same counterparties after a short interval, resulting in significant differences between the purchase fur and sale values of such stock options. The Assessing Officer further referred to the judgment of the Hon'ble Supreme Court dated 08.02.2018 in the case of Rakhi Trading Pvt. Ltd.,, wherein similar reversal trade transactions were held to be manipulative and deceptive in nature, designed not for genuine trading purposes but with the intent to create artificial losses or gains.
5.4 The relevant finding of the learned Assessing Officer is reproduced as under:
"6.
6. Artificial Trading in Illiquid stock/Currency options The existing system of trading on exchanges (BSE & NSE) is de- mutualised i.e. the buyers and sellers don't know each other's identity and transactions between same parties are a rarity. 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 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 sale were carried out between the same set of parties.
6.1 The SEBI undertook preliminary examination in the matter, inte inter alia, on the following parameters:
Vivah Classique 9 ITA No. 4050/MUM/2025
(a) Identifying top entities making significant loss/profit by buying and selling equal units of stock options of scrip.
(b) Identifying if trades happened at unreasonably low or high price / out of sync with the underlying underl price.
(c) Examining contribution of trades of the entities to total traded volume in the contract on those days.
(d) Identifying the quantum of such reversal transactions.
6.2 The entities who made a loss or profit of more than 5 crore (hereinafter referred r making entities" /"profit-making to as "loss-making /"profit entities", respectively) in the stock option segment on account of reversal transactions were shortlisted. The following was, inter alia, observed in the examination:
(a). The loss--making entities were trading rading mainly in options on individual stocks which were thinly traded. The trades by these loss-making making entities, in many cases, contributed to 70% to 100% of total traded volume for the contracts on those days. -
(b). On majority of occasions, the quantit quantity y of stock options bought and sold by the loss loss-making making entities for a contract was identical;
however, there was a significant difference in the sell value and buy value of the transactions resulting into significant loss to the loss-making making entities.
(c) Substantial bstantial number of transactions was squared up and a major percentage of transactions thereof were trade reversals i.e. if the stock options were sold first to an entity, they would be bought back in exact quantity from the same entity or vice versa.
(d) As the first leg of these reversal trades, these loss loss-making entities were mainly seen selling stock options without any corresponding offsetting position in the underlying scrip. In many cases, these options were sold at unreasonably low prices, even beloww the intrinsic value of the option. Theoretically, the price of an option is a combination of its intrinsic value and time value. The former is a function of difference between option strike price and the underlying price and the latter being a function ooff time remaining till expiry of the option contract. It is well understood that in normal conditions, the minimum price which the option seller would demand to take the risk of writing the option would be equivalent to the intrinsic value of the option, bu making entities but here the loss-making were selling options much below their intrinsic value.
Vivah Classique 10 ITA No. 4050/MUM/2025
(e) In the second leg of the reversal trades, the options once sold by an entity at unreasonably low prices were subsequently bought back on the same day or on the next trading day at substantially higher prices when compared to the first leg sell price.
(1) In certain instances, variations to the above pattern were seen loss making entities incurring loss by which interalia included loss-making buying the options first instead of se selling them.
(g) Further, during the period when stock options position was kept 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 the reversal trade.
(h) The trading done
d by loss-making
making entities in stock options in the above manner, accounted for significant proportion of their overall trading on that segment.
(i). The loss-making profit making entities making entities as well as the profit-making were seen trading repeatedly in deep in in-the-money money options and deep out-of-the money options on individual stocks, which were the-money thinly traded.
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:
"(i). The repeated sell of illiquid stock optio ns by the loss-making options loss entities to a set of entities at a price far lower than the theoretical price / intrinsic value and subsequent reversal trades with the same set of entities within a short span of time with a significant value of stock options, in itself, exhibits difference in buy and sell value abnormal market behaviour and defies economic rationality, especially when there is absolutely no corresponding change in the underlying price of the scrip. On the other hand, trading behaviour of profit-making making enti entities ties exhibited through opening specific trading accounts and operating them exclusively to execute reversal trades in illiquid stock options with a set of entities clearly indicates their role in facilitating loss making entities in executing their ulterior loss-making ulterio motive.
(ii). Considering the facts and circumstances discussed herein above, |, prima-facie, prima making entities were find that the loss-making deliberately making repeated loss through their reversal trades in stock options which does not make any economic sense, and the making entities were facilitating them by becoming their profit-making counterparties and were acting in concert with a common object of non genuine trades. The intended execution of these suspicious and non-genuine Vivah Classique 11 ITA No. 4050/MUM/2025 reasons for executing such trades by these entitie entities could be showing artificial volume and trading interest in these instruments 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 that the rationale for such transactions is not genuine and legitimate as the behaviour exhibited by these entities defies the logic and basic economic sense. No reasonable and rational investor will keep making repeated toss and still continue its trading endeavours. On the other hand, an entity/scheme entity/scheme may not forever be able to make only profit and become equivalent to an assured profit maker / scheme. I am of the considered view that the scheme, plan, device and artifice employed in this case of executing reversal trades in illiquid stock options contracts at irrational, unrealistic and unreasonable prices, apart from being a possible case of tax evasion or portrayal of artificial net worth to certain entities, which could be seer, by the concerned law enforcement agencies separately, is prima facie, facie, also a fraud on the securities market non genuine/ manipulative transactions in inasmuch as it involves non-genuine/ securities and misuse of the securities market.
(iii). In my view, the acts of the loss-making loss making entities and the profit-
profit making entities discussed here inabove prima facie show a scheme, hereinabove plan, device and artifice on their part for some ulterior motive. These prima facie, used and employed a pre meditated entities have, prima-facie, manipulative device or contrivance while dealing in securities n genuine and deceptive transactions.
market and indulged in non-genuine genuine and deceptive transactions of these entities are, The non-genuine prima-facie, facie, covered under the definition of 'fraud' and their dealings as discussed herein above were, fraudulent' as defined under regulation 2(1)(c) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ("PFUTP Regulations") and prohibited under the provisions of 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."
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 holding as under: "Considering the reversal transactions, quantity, and sale, parties being persistent in number of such price and time and trade transactions with huge price variations, it will be too naive to screen based trading and hold that the transactions are through screen-based over looking the prior hence anonymous. Such conclusion would be over-looking meeting ng of minds involving synchronization of buy and sell order and not negotiated deals as per the board's circular. The impugned transactions are manipulative/deceptive device to create a desired loss and/or profit. Such synchronized trading is violative of transparent norms of trading in securities. If the findings of SAT are Vivah Classique 12 ITA No. 4050/MUM/2025 to be sustained, it would have serious repercussions undermining the integrity of the market and the impugned order of SAT is liable to be set aside."
above discussion that such artificial 6.5 Thus, it is clear from the above and synchronized reversal trades in BSE Stock/Currency Options genuine transactions which are carried out with a view to are non-genuine obtain accommodation entries of profits/losses. There is prior meeting of minds between the transacting parties which violates the de mutualisation of exchange trading system and are principle of de-
therefore non--genuine.
6.6 The chief characteristics of reversal trades that emerge from the orders of SEBI and later confirmed by the Hon'ble Apex Court Cou are as under:
1. Almost identical purchase and sale quantity.
2. Huge Variation in purchase price and sale price of options without any significant change in the price of underlying asset.
3. Trades carried out between same party and counter-party counter i.e. if A purchased X qty from B, then A sells X qty to B only.
4. Time gap between purchase and sale transaction lasts few seconds and not more than an hour.
5. Synchronised trading in the illiquid stock/currency option which are thinly traded artificial trades, in many cases, contribute to 70% to 100% of
6. The artificial total traded volume for the contracts on those days.
6.7 Another significant characteristics of the trades carried out by the assessee is that on the days when the assessee has traded, few people traded in that contract. This implies that the substantial volume of trade on the trade day is due to the transaction of the assessee with its counter-party.
counter party. Such trading is not possible under normal circumstances as there are so many clients trading on the ange platform at any given moment and under the de-
exchange de mutualised system, nothing is known about the person on the 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 essee exhibit all the traits of reversal trades which have been assessee declared by the market. Regulator SEBI and the Hon'ble Apex Court as non- genuine trades and therefore any loss claimed on this account is disallowable.
Vivah Classique 13 ITA No. 4050/MUM/2025 6.8 Upon analysis of the trades of the assessee as per the BSE 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 in a contract with subsequent sell or buy positions with the same counterparty in a rapid reversal of trades.
6.9 The whole time member, SEBI in his concluding remarks against the brokers has held as under
"(i). The magnitude in which these stock brokers have facilitated the trading to their clients and the facts and circumstances in the instantt matter prima-facie prima facie suggest that it is not only a matter of 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 profit as per their desire. By the sheer number of reversal reve instances at each Trading Member level, am also not willing to accept that thousands of trades entered by trading members ended up becoming reversal trades 'by chance' or because of the 'illiquid nature of the contract' the stock brokers to facilitate the loss-
(ii). In my view, the acts of the loss
making entities and the making
profit-making entities discussed
hereinabove prima-facie
prima facie show a scheme, plan, device and artifice on their part for some ulterior motive. These brokers have, prima-
prima facie, clients to use and employ a pre facilitated their clients pre-meditated manipulative device or contrivance while dealing in securities non genuine and deceptive transactions. market and indulged in non-genuine The act of the stock broker to be part of the scheme by facilitating execution of non-genuine non ine and deceptive transactions for their clients facie, covered under the definition of 'fraud' and their is, prima-facie, dealings as discussed herein above are fraudulent as defined under regulation 2(1)(c) of the 'prohibition of Fraudulent and Unfair ctices relating to Securities Market) Regulation,.." Trade Practices 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 "Nobody intentionally trades for a loss. An intentional trading for loss per se, is not genuine dealing in securities. Trading is always with the aim to make profits. But if one party consistently makes loss and that too in pre-planned pre planned and rapid reverse trades, it is not genuine, it is an unfair trade practice. It is therefore cle clear from the above discussion that the losses incurred by the assessee at the fag end of the year under consideration was deliberately incurred in order to avoid tax as the assessee was having positive income in this assessment year...
Vivah Classique 14 ITA No. 4050/MUM/2025 6.11 The orders of thethe market regulator SEBI on reversal trades declaring them as non non- genuine, the order of SEBI against the brokers on their role in facilitating reversal trades, similarities in the trades of the assessee and reversal trades and finally the order of the Hon'ble ble Supreme Court in the case of Rakhi Trading stamping non genuine trades leave no room for any doubt reversal trades as non-
non genuine.
that the losses incurred by the assessee are non-genuine.
6.12 It is pertinent to mention that applying the above characteristics it is clearly inferred that the assessee M/s. Vivah Classique, has done manipulative trades in currency derivative segment. The assessee by carrying out these manipulative, synchronized and artificial trades has booked bogus loss of Rs. 9,99,91,949/ on BSE Currency 9,99,91,949/- urrency Derivative segment and Rs. 8,50,66,837/ on USE Currency Derivative segment. The impugned 8,50,66,837/-on trades done by the assessee are analysed as follows:
Reversal trades on BSE Currency Derivative Segment:
Observations/Findings emerging from the sample trade charts above: -
It can be observed from the data available that assessee, Vivah Classique, bought and sold the same quantity to the counterparty. For instance, in above table, one can see that buy quantity is 2500 and the same 2500 quantity is reversed bu selling it back to M/s. Yashashvi Vyapar Vitt Private Limited on 18.03.2014 wherein Counter party member was M/s. Vedica Vanijya Pvt. Ltd., an identified share broker involved in the accommodation entry of bogus profit/loss through options trade. Yashashvi Yashashv Vyapar Vitt Private Limited is a client of M/s. Vedica Vanijya Pvt. Ltd., Kolkata based share broking entity. M/s. Vedica Vanijya Pvt. Ltd.is controlled and managed by Sanjay Kumar Periwal. Sanjay Kumar Vivah Classique 15 ITA No. 4050/MUM/2025 Periwal's statement was recorded u/s 131 of the Income-tax Inc Act-
1961, during Project Falcon action. He has admitted that he has facilitated the manipulation in share market, F&O segment for artificial generation of targeted profit loss to various entities. Also, the USD/INR contracts have been purchased on higher rates and sold immediately on lower rates. Like the trade emerging from the table above is bought on average rate of Rs. 2700/- 2700/ and immediately sold back on average rate Rs. 1200/-.1200/ . However,, at that time USD was actually priced around Rs. 60/-.
60/ Reversal versal trades on USE Currency Derivative Segment:
Price difference & Trade Reversal Vivah Classique 16 ITA No. 4050/MUM/2025 Observations/Findings emerging from the sample trade charts above: -
It can be observed from the data available that assessee, Vivah Classique, bought and sold the same quantity to the counterparty. 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. Maruti Ispat and Energy Pvt Ltd. on 20.03.2014 wherein wherein Counter party member was M/s. XPRO Securities, an identified share broker involved in the accommodation entry of bogus profit/loss through options trade. Maruti Ispat And Energy Pvt Ltd.is a client of M/s. XPRO Securities, Kolkata based share broking entity. XPRO Securities is co controlled ntrolled and managed by Sunil Kayan.
Sunil Kayan's statement was recorded u/s 131 of the Income-tax Income Act- 1961, during Project Falcon action. He has admitted that he has facilitated the manipulation in share market, F&O segment for artificial generation of targeted profit loss to various entities. Also, the USD/INR contracts have been purchased on higher rates and sold immediately on lower rates. Like the trade emerging from the table above is bought on average rate of Rs. 2487.50/ 2487.50/- and immediately sold back on average rate Rs. 245/-.. However,, at that time USD was actually priced around Rs. 60/-."
5.5 Officer in view of the observations The Assessing Officer, observation of the SEBI in reversal trade of the stock options and observations observation of the Vivah Classique 17 ITA No. 4050/MUM/2025 Hon'ble Supreme Court in the case of Rakhi Trding Private Limited concluded that option trade in currency derivative by the assessee was manipulative. Then the Assessing Officer referred the sample of the option trading of currency derivative carried out by the assessee on Bombay stock exchange ex (BSE) and observed that assessee purchased and sold 2500 quantity to M/s Yashashvi vypar Vitt Private Limited ited through a stockbroker M/s Vedica Vanijya P ltd, who according to the Assessing Officer was an identified share accommodation entry of bogus profit/loss broker involved in the accommodation through options trade. The Assessing Officer mentioned that M/s Vedica Vanijya P ltd is a entity controlled and managed by Sanjay Kumar Periwal whose statement was recorded recorded under section 131 of the Act during 'Project Falcon' action wherein he had admitted that roject F he facilitated the manipulation in share market, F &O segment for artificial generation of targeted profit loss to various entities.
5.6 Similarly, the Assessing Officer referred to sample data of ive trading carried out by the assessee on United currency derivative stock exchange (USE) and mentioned that the assessee purchased purchase and sold 1500 quantity to M/s Maruti Ispat and Energy Pvt.
ited through a stockbroker M/s XPRO Securities, who according Limited to the Assessing Officer ficer was an identified share broker involved in the accommodation entry of bogus profit/loss through options trade. The Assessing Officer mentioned that M/s XPRO Securities is a entity controlled and managed by Snil Kayan whose statement Vivah Classique 18 ITA No. 4050/MUM/2025 was recorded underr section 131 of the Act during 'Project 'P Falcon' action wherein he had admitted that he facilitated the manipulation in share market, F &O segment for artificial generation of targeted profit loss to various entities.
5.7 In view of the above observations, the Assessing Officer held the losses on the currency derivative transactions amounting to Rs.17,51,14,258/- on the BSE and USE as accommodation entries obtained by the assessee and disallowed the same. The Assessing cer also presumed that assessee had paid commission at the Officer taining such accommodation entries which was rate of the 2% for obtaining worked out to ₹37,01, 37,01,176/-.
6. CIT(A) the assessee relied on the submission Before the Ld. CIT(A), Regarding the SEBI report on made before the Assessing Officer. Regarding reversal trading stock options, it was submitted that period of examination by the SEBI pertains to 0 1/04/2014 to 01/04/2014 t 30/09/2015, whereas the transactions carried out by the assessee pertain to financial year 2013-14 14 and therefore said investigation report was said not applicable to the facts of the assessee. Further it was submitted that said report was in respect of the stock options trading and not in relation to currency options trading. He further submitted that th there was no finding in the 'Project Falcon' report that either the assessee or its brokers was directly or indirectly involved in manipulation activities. There was no finding of the SEBI or any other regulatory authority against the assessee. Merely for the Vivah Classique 19 ITA No. 4050/MUM/2025 essee incurred losses in the currency derivative reason that the assessee carried out in the expectation of profit but due to judgmental mistake resulted into losses, the Assessing Officer cannot disallow mainly on the basis that reversal trade manipulation was carried out by some other persons. The Ld. CIT(A) after considering submission of the assessee, in his detailed finding rejected the conclusion of the Assessing Officer. The relevant finding of the Ld. CIT(A) is reproduced as under:
"22.
22. I have considered the assessment orde r, submission of order, appellant and facts available on record. The assessee is engaged in the business of manufacturing gold jewelry and also engaged in the import and export of polished diamonds and diamond-studded studded gold jewelry from its SEZ unit. The appellant has also carried out trading in currency derivative segments in the A.Y under consideration. In the earlier years the appellant has also carried out hedging of dollars. In the A.Y under consideration, the appellant has shown total loss of Rs. 10,64,16,889 from this currency derivative transaction. The 10,64,16,889/-
details of which are as under:
Sr.No Name of Exchange Profits/(Losses) 1 United stock exchange of India (8,50,66,837) 2 Bombay Stock Exchange (9,99,91,949) 3 National Stock Exchange 7,86,41,897 Total currency derivatives Profit(Loss) 10,64,16,889
23. From the above, it is seen that the appellant has earned a profit of Rs. 7,86,41,897/-
7,86,41,897/ from the transactions carried out at the National Stock Exchange and also suffered loss of Rs. 18,50,58,786/ on transactions carried out at the United Stock 18,50,58,786/-
Exchange and Bombay Stock Exchange. From this fact, it is evident that the appellant has earned a profit as well as suffered loss from the currency derivative transaction. However, the AO has accepted the profit whereas doubted the loss derived from the currency derivative transaction.
Vivah Classique 20 ITA No. 4050/MUM/2025
24. From the assessment order, it is evident that the AO has relied on the findings of the investigation unit carried out under Project Falcon to hold the alleged transactions as fictitious.
fictitious. The AO has not carried out any independent inquiries during the assessment proceedings. The AO, after analyzing the derivative transactions, pointed out certain transactions to shows that equal quantities have been purchased and sold to the same party, and hence the alleged transactions are nothing but manipulated transactions of reversal of trade. The AO also noted that one of the parties involved is M/s Vedhika Vanijya Pvt Ltd, which is controlled by Shri Sanjay Kumar Periwal, who has admitted in the statement recorded under section 131 that he has facilitated the manipulation in the share market and derivatives segment. Therefore, the AO held that all the derivative transactions carried out by the appellant on USE and fictitious transactions due to the reversal BSE showing loss are fictitious of trade.
25. In this regard, the appellant has furnished that while trading on the stock exchange, the purchaser or seller is not aware about the counter parties; therefore, the allegation of he same party is factually incorrect.
reversal of trade with tthe Regarding the observations/conclusions of the AO that the appellant has carried out identical purchase and sale quantities and there is a huge variation in purchase and sale prices, the appellant has furnished detailed submissions, which is reproduced as under:
Sr Chief Appellant Company Reply
No Characteristic
defined by learned
AO
1. Almost identical The Appellant company has dealt in equity / Currency / purchase and sale commodities derivative. The /AO's observations that all the quantity transactions are ot identical purchase and sale quantity is not correct.
We enclose herewith the contract note /M2M bills of the 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 settled on 14th March 2014, 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 on 13th March 2014.
JPYINR 28 Jan 2015 Contract of 12th March 2014 was settled on 73 ,h March 2014) Vivah Classique 21 ITA No. 4050/MUM/2025
2. Huge variation Contentions of huge variation in the purchase price of options of purchase price and majority^ transactions is not correct and purely based on sale price o options conjecture & surmises. We give herein below the summary of without any scan alleged bogus loss for which the learned] AO has made the changes in the addition giving % of change in price -
price of underlying
asset. % change USE BSE Total
Less than (69) (191.636) (191,705)
0.50%
0.50% to Nil (891,348) (891,348)
1.00%
1.00% to NIL (24,761,493) (24,761,493)
10.00%
\l 0.00% to (49.427,668) (61,967,648) (111,395,316)
50.00%
50.00% to (48,179,577) (12,968,654) (61,148,231)
100.00%
100.00 & -
above
Total (97.607,314) (100.780,778) (198,388,093)
less profit in 12,540,478 788,829 13,329,307
trade
Net Loss (85,066,836) (99,991,949) (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 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 purchase price and sale price of option is not ot tenable in the case of Appellant Company.
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 circumstances can even reduce to "Zero" on expiry.
Vivah Classique 22 ITA No. 4050/MUM/2025 3 Trader carried out between same t First of all, while placing the trades on the Exchange party and counter 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 d AO. Purchased X qty From B then Sells X Further the total trade / loss value of transactions through qty. to only broker namely Trinay Securities Trading Limited and GRD securities limited is of Rs.8.50 crores and 9.99 crore respectively out of which the learned AO has alleged loss transactions having value of Rs. 7.04 crore and 6.28 crore respectively. Hence the remaining transactions having sale value of Rs. 1.46 crore and Rs. 3.71 crore respectively are the transactions where the counter parties are not the same party.
Hence this observation of Ld AO is also squarely not apply to the transactions carried out by the appellant company.
4 Time gap between This Characteristic is also grossly not applicable to the
purchase and sale Appellant Company as there are transactions where in the time
transaction lasts gap is more but those transactions are ignored/ not looked upon
few seconds and by the learned AO.
not more an one
hour.
5 Synchronized The Appellant Company has traded in the Future and options of
trading in illiquid /currencies derivatives too i.e. USD, EURO,JPY which are the stock/currency prime currencies of the Derivatives and cannot be said to be options which are illiquid currencies for the purpose of trading. The Currency wise thinly traded breakup of the Alleged Disallowed Loss of Rs. 18,50,58, 785/-
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 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.
26. I have gone through the various bills furnished by the appellant and ledger account of the brokers and the details of derivative transactions. On verification of the same, it is observed that the findings of the AO that all the quantity of purchase and sale to the parties are identical, is factually incorrect. The AO only considered the quantity of trades with M/s Yashasvi Vyapar Pvt Ltd, Maruti Ispat and Energy Pvt ltd etc, but ignored other transactions wherein the facts are basis of few transactions, the A.O different. Merely on the basis concluded that entire transactions are reversal of trade. Further, Vivah Classique 23 ITA No. 4050/MUM/2025 on perusal of these transactions, it is observed that most of the transactions were not squared off on the same day but were settled after 1 to 2 days. Thu Thus, s, the conclusion of A.O that the time gap between purchase and sales is less than a day is also factually incorrect for all the transactions. Regarding the variation in purchase and sale prices, the AO cherry cherry-picked certain transactions to demonstrate that that there is a huge variation in purchase and sale prices. It is observed from the details furnished by the appellant that loss of Rs. 2,47,61,493/ 2,47,61,493/-
is incurred in the transactions where the variation in purchase and sale price of the options is less than 10%.
10%. Therefore, this contention is also found to be factually incorrect.
27. Regarding the allegation of the AO that the trades are carried out between the same party (i.e., the purchase and sale transaction is carried out with the same party, which is predetermined), the AO also stated that M/s Vedika Vanijya Pvt Ltd, which is a share broker, is involved in providing such accommodation entries. In this regard, the appellant submitted that while placing the trade on the exchange platform, it is not ble to know the counterparty. I find substantial force in the possible appellant's submission that on the exchange platform, it is not possible to know the counterparties with whom the person is trading. There is no such finding stated by the A.O that the appellant or the stock broker of the appellant was involved in such organized activity and the transactions carried out by the pre determined. Therefore, without any concrete appellant were pre-
evidence against the appellant of having direct nexus with such organized trading, it cannot be held that the appellant was aware of the counterparties of trade and hence such transactions are fictitious.
28. From the above, it is evident that the appellant has traded in the derivative segment and has earned profits as well as ncurred losses. It is also a fact that the profit derived from such incurred transactions has been accepted by the A.O. Therefore, the losses incurred from the same cannot be held to be fictitious transactions merely on certain assumptions. Being a trader inherentlyy carries the risk of significant losses sometimes in particular scrips, which are typical in a trader's normal course of business. These losses are a direct outcome of market volatility and are part of the trading process.
transactions are carried out through the
29. Further, all the transactions brokers on the exchange platform and through the banking channels. The appellant has furnished all the documentary evidence to substantiate the derivative transactions. The AO Vivah Classique 24 ITA No. 4050/MUM/2025 has not found any fault with these documentary evidences. evi Further, during the assessment proceedings, the AO has not conducted any independent inquiry and relied mainly on the findings of the investigation unit's report titled as Project Falcon. The A.O cherry cherry-picked picked certain transactions and concluded that tha these transactions are covered by the decision of the Hon'ble Supreme Court in the case of Rakhi Trading. As discussed 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 ons shows that the observations are factually incorrect. transactions Therefore, in the facts of the case, the decision of the Hon'ble Supreme Court in the case of Rakhi Trading is not applicable. Further, the reliance on the order of SEBI is also incorrect, as the period iod of investigation before SEBI was from 01.04.2014 to 30.09.2014, whereas in the appellant's case, the transactions pertain to the period 01.04.2013 to 31.03.2014."
6.1 Thereafter the Ld. CIT(A) relied on the decision of the coordinate bench of the Tribunal in following cases:
Aban Realty and Infrastructure vs. ACIT (ITA No. 3647 and 3648/Mum/2024) M/s Kundan Rice Mills vs. ACIT (ITA No. 853/Del/2020) ACIT 19(1) vs. Adihemshree Financial, ITAT, Mumbai (ITA no. 933, to 936/ Mum/2024) Textile Mills Ltd vs. ACIT CC-8(2), Raigarh Jute & Textile CC ITAT, Kolkata (ITA no. 2286/Kol/2019) Samrat Finvestors Private Limited vs. ITO, Ward Ward-
10(2), ITAT, Kolkata (ITA no. 840/Kol/2023)
7. We have carefully heard the rival submissions advanced by the respective parties and have also perused the material available on record. The issue arising for our adjudication is whether the deletion of disallowance of currency derivative trading loss by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is justified in law and on facts.
Vivah Classique 25 ITA No. 4050/MUM/2025 7.1 Before us, the learned Departmental Representative supported the findings and reasoning of the learned Assessing Officer, whereas the learned counsel for the assessee placed reliance upon the order of the learned CIT(A) and the material considered therein.
the Upon a meticulous examination of the record, it emerges that the Assessing Officer based the disallowance primarily on the observations of the Securities and Exchange Board of India (SEBI) pertaining to trading in stock options for the period 01.04.2014 to 30.09.2014,, wherein SEBI had found certain reversal trades to be of a manipulative nature. However, in the present case, the transactions undertaken by the assessee relate to currency derivative options and not to stock options, and further, the period under consideration does not coincide with the period of SEBI's investigation. Consequently, the mere reliance on SEBI's findings concerning an entirely different class of instruments and time frame cannot, in law, justify the conclusion that th the assessee's transactions were manipulative or fictitious.
7.2 The Assessing Officer has further referred to the report of the Investigation Wing, Mumbai, arising from surveys conducted under Project Falcon, wherein certain parties were found to be engaged in the business of providing accommodation entries in the form of artificial profits or losses. The Assessing Officer, however, neither supplied to the assessee the detailed statements of such parties nor afforded any opportunity of cross-examination, cross examination, even eve though those Vivah Classique 26 ITA No. 4050/MUM/2025 statements were the sole foundation for drawing an adverse inference against the assessee. It is well settled that any addition based on third-party party statements, without confronting the assessee cross-examination,, is contrary to the or granting an opportunity of cross principles of natural justice, as enunciated by the Hon'ble Supreme Court in Andaman Timber Industries v. CCE (supra).
7.3 We further find that the Assessing Officer has merely observed that the assessee executed certain reversal trade trades in currency derivatives with counterparties who happened to be clients of brokers found involved in accommodation entry activities. However, in transactions carried out through the recognised stock exchanges, all trades are executed on an anonymous electronic elect platform without any direct interface between the buyer and the seller. In such a regulated and faceless environment, the possibility of any concerted meeting of minds between counterparties is remote unless there exists cogent evidence to establish a nexus or prior understanding. No such evidence has been brought on record by the Assessing Officer or the Investigation Wing to show that the assessee had any contact or collusion with the counterparty traders.
7.4 It is also not the case of the Department Department that the brokers through whom the assessee executed the impugned trades were themselves found to be tainted or involved in any accommodation entry racket. This factual assertion made by the learned counsel for Vivah Classique 27 ITA No. 4050/MUM/2025 the assessee has not been controverted by the t learned Departmental Representative before us.
7.5 In our considered opinion, the findings of SEBI in respect of reversal trades in stock options for a distinct period cannot be mechanically extrapolated to the assessee's case involving currency derivative ive transactions in a different assessment year, without any contemporaneous or corroborative evidence. Such extrapolation amounts to conjecture and cannot form the legal basis for disallowance of a genuine trading loss. The observations of the fficer are, at best, in the nature of unsubstantiated Assessing Officer allegations, unsupported by any documentary evidence demonstrating that the assessee was a participant or beneficiary in any accommodation entry arrangement.
7.6 The Assessing Officer has also failed to investigate the crucial aspect as to how, if at all, any funds allegedly circulated between called "profit seeker" and "loss giver" entities. No inquiry into the so-called fund flow or bank trail has been made to substantiate the The reasoning adopted in the hypothesis of fictitious loss. The assessment order, being speculative in nature and bereft of evidentiary foundation, resembles more a report or commentary than a judicial finding. Such an order, based on suspicion, cannot stand the test of law.
Vivah Classique 28 ITA No. 4050/MUM/2025 7.7 he foregoing discussion, we find ourselves in In view of the agreement with the well-reasoned well reasoned conclusion of the learned CIT(A) in deleting the disallowance of the currency derivative trading loss. The action of the Assessing Officer, founded on presumptions and general observations bservations drawn from unrelated investigations, cannot be sustained. Accordingly, the order of the learned CIT(A) calls for no interference.
7.8 The grounds of the appeal of the Revenue accordingly dismissed.
9. In the result, the appeal of the Revenue is dismissed.
Order pronounced /11/2025.
nced in the open Court on 26/11
Sd/-
Sd/ Sd/-
(RAJ KUMAR CHAUHAN)
CHAUHAN (OM
OM PRAKASH KANT)
KANT
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai;
Dated: 26/11/2025
Rahul Sharma, Sr. P.S.
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. CIT
4. DR, ITAT, Mumbai
5. Guard file.
BY ORDER,
//True Copy//
(Assistant Registrar)
ITAT, Mumbai