Pradeep Jain Vs DCIT (ITAT Jaipur)
Conclusion: Since the transactions in seized records were only notional mock trading entries and not unexplained cash credits, only brokerage income at 1% of transaction value was taxable.
Held: During search proceedings under section 132, certain loose papers (Exhibit-11) containing notings of transactions were found from assessee’s chamber, AO treated the difference in debit and credit balances (₹2.76 crore) as unexplained income under section 68, holding that assessee failed to prove that the transactions were only mock trades done for clients. Assessee contended that the entries represented offline mock trading of options in the derivatives segment on behalf of clients, for which he earned only brokerage. CIT(A), after detailed examination of seized material, statements recorded under section 132(4), supporting affidavits, and rate charts from NSE, held that the entries were not real money transactions but notional option trade values; only brokerage income could be taxed. Since the assessee failed to prove brokerage at ₹500 per crore, CIT(A) adopted 1% of transaction value as per general market practice, sustaining addition of ₹5,48,526 and deleting the balance. It was held that CIT(A) had examined the seized records and found that the details matched option trading transactions, with values consistent with prevailing market rates. TCIT(A) also noted that the AO rejected the assessee’s documents without identifying any defects or presenting contrary evidence. CIT(A)’s findings was upheld that the seized documents reflected mock option trading and not actual unaccounted money transactions. The estimation of brokerage at 1% was reasonable in the absence of corroborative evidence from the assessee. Consequently, addition restricted to ₹5,48,526 was sustained, and both appeals – by the assessee and the Revenue – were dismissed.
