ITAT Upholds ₹5.48 Lakh Brokerage Addition, Finds Seized Records Reflected Mock Trading, Not Unexplained Income [Read Order]
The ITAT noted that the seized records matched option trading patterns and that no contrary evidence was brought by the Assessing Officer
ITAT
ITAT
The Jaipur Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the Commissioner of Income Tax (Appeals)[CIT(A)]’s decision restricting the addition to ₹5.48 lakh as brokerage income, holding that the seized records reflected mock trading and not unexplained income.
Pradeep Jain,appellant-assessee, filed an appeal against the CIT(A)’s order for AY 2018-19, where the addition of Rs. 2.76 crore on brokerage from mock transactions was reduced to Rs. 5.48 lakh. The department also appealed against the deletion of the remaining amount. Both appeals were heard together as they involved common issues.
A search and seizure action under Section 132, and/or a survey under Section 133A of the Act, was carried out on 02.08.2017 by the Income Tax Department on members of the Kiran Fine Jewellers Group, which included the assessee.
The assessee filed the return of income on 31.10.2018 for AY 2018-19, declaring a total income of Rs. 26,16,130. A notice under Section 143(2) dated 08.08.2019 was issued and served, and the appellant furnished the required details to the Assessing Officer.
During the search, various documents were seized from the premises of Shri Ajay Gangwal, one of which (Exhibit-11) was found from the assessee’s chamber. In his statement during the search, the assessee admitted that Exhibit-11 related to share trading.
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The department issued a show cause notice on 09.12.2019, referring to unaccounted transactions of Rs. 2.76 crore, which were treated as undisclosed income. In response, the appellant stated that the transactions in Exhibit-11 represented mock trading of options for clients, where he acted only as a broker and earned brokerage at Rs. 500 per crore.
The Assessing Officer (AO) rejected the explanation, holding that there was no proof of brokerage activity, client details, or supporting documents, and concluded that the difference of Rs. 2,76,73,604 represented unexplained cash credits. The amount was taxed under Section 68 read with Section 115BBE at 60%.
On appeal, the CIT(A) accepted that the transactions were mock trades and not actual money dealings, noting that the records and statements supported this claim. The CIT(A) held that the appellant acted as a middleman and estimated brokerage income at 1% of Rs. 5.48 crore, i.e., Rs. 5,48,526, and deleted the remaining addition.
The department appealed against the deletion, while the assessee challenged the sustenance of the remaining addition.
The assessee counsel argued that the CIT(A) wrongly estimated brokerage income at 1% of the transaction value without proper basis. The departmental representative argued that the Assessing Officer had given enough opportunity to prove that the appellant acted only as a middleman, which was not done. Hence, the CIT(A) erred in restricting the addition instead of upholding the full amount.
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The two member bench Narinder Kumar (Judicial Member) and Gagan Goyal (Accountant Member) noted that the search and seizure of incriminating material was not in dispute. The assessee had claimed that the transactions in Exhibit-11 related to mock trading of options carried out for clients, for which brokerage of Rs. 500 per crore was received.
However, the Assessing Officer was not satisfied with this explanation and treated the amount as unexplained cash credit under Section 68.
The appellate tribunal observed that the CIT(A) had examined the seized records and found that the details matched option trading transactions, with values consistent with prevailing market rates. The CIT(A) also noted that the AO rejected the assessee’s documents without identifying any defects or presenting contrary evidence.
Regarding the rate of brokerage, the tribunal agreed with the CIT(A) that the assessee had failed to provide any documentary proof of earning brokerage at Rs. 500 per crore. Considering general market practice, the CIT(A) rightly estimated the brokerage at 1% of the transaction value.
The bench found no error in the CIT(A)’s order, which restricted the addition to Rs. 5,48,526 as brokerage income from mock trading and deleted the remaining addition. Both appeals, filed by the assessee and the department, were dismissed.
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