Income Tax Dept can't treat genuine F&O and commodity trading profits as bogus without proof: ITAT

The Income Tax Appellate Tribunal, Mumbai, on Thursday, September 3, 2026, dismissed the revenue's appeal after upholding the quashing of a reassessment that treated a Mumbai woman's genuine F&O and commodity derivatives profits as accommodation or fake entries, ruling that the assessing officer had failed to establish any nexus between the assessee and the investigation wing's findings about misuse of a commodity exchange platform.

The order may serve as a significant safeguard for retail investors who trade in F&O and commodity derivatives and face reassessment based on broad investigation wing reports.

The ITAT order came in the case of Rakhi Vipul Jogi, a Mumbai resident who had filed her return for Assessment Year 2012-13 declaring a total income of ₹7,36,940, which was processed under Section 143(1). The Income Tax Officer reopened the assessment under Section 147 on March 29, 2019, on the basis of information from the Investigation Wing, Kolkata, about alleged misuse of the National Multi Commodity Exchange platform for providing accommodation entries through contrived transactions.

The information referred to transactions of the assessee involving purchases of ₹2,77,12,725 and sales of ₹2,78,29,475 by the assessee.

During reassessment, the AO observed that Jogi had undertaken F&O/commodity transactions through M/s Star Commodities and earned a profit of ₹8,07,420. Treating these as accommodation entries, he made an addition of ₹8,07,420 under Section 68 and a further addition of ₹24,225 under Section 69C, being 3% of the alleged accommodation entry towards estimated commission.

The AO also noticed the purchase of an immovable property for ₹50 lakh and, for want of a satisfactory explanation, treated it as unexplained investment under Section 69. The total assessed income was fixed at ₹66,68,584.

However, the Commissioner of Income Tax (Appeals) quashed the reassessment as "bad in law", holding that the reopening was based on borrowed satisfaction. Neither the assessee nor her broker, Star Commodities, appeared in any of the lists or annexures referred to in the assessment order. The CIT(A) relied on two Bombay High Court rulings, in PCIT v. Shodiman Investments (P.) Ltd. and Sociedade de Fomento Industrial (P.) Ltd. v. ACIT, both of which held that reopening based on mechanical reliance on an investigation report, without an independent application of mind, is a jurisdictional error.

The revenue appealed to the ITAT, arguing that the AO had referred to the actual transaction values before recording his reasons and that the Supreme Court in ACIT v. Rajesh Jhaveri Stock Brokers had held that a return processed under Section 143(1) can be reopened. However, the tribunal was unconvinced.

The ITAT noted that while the reasons recorded by the AO contained the quantum of purchases and sales, "the material brought on record does not identify the particular shell/dummy entity through which the assessee allegedly obtained the accommodation entry".

Further, "neither the name of the assessee nor that of her broker, M/s Star Commodities, was found in the lists of entities/persons referred to in the assessment order".

The ITAT bench laid down the 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 belief that income chargeable to tax has escaped assessment".

Since the reassessment itself was quashed, the tribunal held that the merit additions, including the ₹8,07,420 F&O profit addition and the ₹50 lakh property addition, "do not survive for adjudication and are rendered academic". The revenue's appeal was dismissed.

For the growing number of retail investors trading in F&O and commodity derivatives, the ruling establishes that tax authorities cannot automatically treat exchange-traded profits as accommodation entries merely because a broker or platform appears in an investigation report. The AO must independently demonstrate, with specifics, how the particular taxpayer was connected to the alleged manipulation.