ACIT Vs Vivah Classique (ITAT Mumbai)
No Cherry-Picking Allowed: ITAT Disapproves AO’s Selective Reliance on Loss-Only Trades in Currency Derivatives
Revenue appealed against the CIT(A)’s order deleting the total disallowance of ₹17,51,14,258/- relating to alleged bogus losses in currency derivative trades on BSE & USE, along with notional commission of ₹37,01,176/-, assessed by AO pursuant to Project Falcon findings.
Assessee, a partnership firm engaged in jewellery & diamond business, had reported profits & losses from currency derivative trades routed through recognized exchanges, supported by contract notes, broker ledgers, demat & bank statements. AO reopened the assessment on the basis of Investigation Wing information alleging accommodation entries & pre-arranged reversal trades. AO relied heavily on SEBI’s order (WTM/RKA/ISD/106/2015), brokers’ statements recorded u/s 131, & the Supreme Court judgment in Rakhi Trading Pvt Ltd, concluding that trades exhibited all characteristics of artificial reversal trades with pre-arranged counterparties, identical quantities, huge price variation without corresponding change in underlying, rapid buy-sell sequences & linkage with tainted brokers such as Vedica Vanijya Pvt Ltd & XPRO Securities. AO therefore held the entire loss as non-genuine & added estimated commission @2%, making a total addition of ₹18.50 Cr.
CIT(A), while upholding the reopening, deleted the addition holding that AO failed to provide underlying investigation material despite specific request, relied selectively on loss-making trades ignoring profit-making trades in the same segment, and made additions purely on general Project Falcon theory without direct nexus to Assessee’s specific transactions. CIT(A) also noted that trades were executed on recognized exchanges through registered brokers under anonymous order-matching mechanism, with full documentary trail & banking channel payments.
