The Income Tax Appellate Tribunal, Mumbai, delivered a significant ruling on September 3, 2026, establishing that tax authorities cannot automatically treat exchange-traded profits as accommodation entries without proper evidence. According to reports from The Economic Times and Mint, the tribunal categorically ruled that genuine F&O and commodity trading profits cannot be treated as bogus or simply accommodation entries merely on the basis of an investigative report. The ruling provides crucial protection for retail investors who trade in F&O and commodity derivatives and face reassessment based on broad investigation wing reports.
The case involved Rakhi Vipul Jogi, a Mumbai resident who filed her return for Assessment Year 2012-13 declaring a total income of ₹7,36,940. As reported by The Economic Times and Mint, the Income Tax Officer reopened the assessment under Section 147 on March 29, 2019, based on information from the Investigation Wing, Kolkata, about alleged misuse of the National Multi Commodity Exchange platform. The investigation referred to transactions involving purchases of ₹2,77,12,725 and sales of ₹2,78,29,475 by the assessee, resulting in a profit of ₹8,07,420. During reassessment, the AO treated Jogi's F&O/commodity transactions through M/s Star Commodities as accommodation entries, making additions of ₹8,07,420 under Section 68 and ₹24,225 under Section 69C. Additionally, the AO treated a ₹50 lakh property purchase as an unexplained investment.
The Commissioner of Income Tax (Appeals) quashed the reassessment as 'bad in law', holding that the reopening was based on borrowed satisfaction. According to The Economic Times and Mint, 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, which held that reopening based on mechanical reliance on an investigation report without independent application of mind constitutes jurisdictional error. The revenue appealed, arguing that the Supreme Court in ACIT v. Rajesh Jhaveri Stock Brokers had held that a return processed under Section 143(1) can be reopened, but the tribunal remained unconvinced. The ITAT bench emphasized that information 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 a belief that income chargeable to tax has escaped assessment.
The ITAT bench emphasized that while investigation wing information may constitute tangible material for initiating reassessment proceedings, the assessing officer must independently establish a live nexus between available material and the formation of belief that income has escaped assessment. As reported by The Economic Times and Mint, the tribunal noted that while the AO's reasons contained transaction values, 'the material brought on record does not identify the particular shell/dummy entity through which the assessee allegedly obtained the accommodation entry'. The tribunal also observed that neither the assessee's name nor that of her broker M/s Star Commodities was found in the lists of entities referred to in the assessment order. In this case, the tribunal found no meaningful evidence identifying the alleged shell entity through which Jogi supposedly obtained accommodation entries, therefore since the reassessment itself was invalid, the related tax additions and calculations also did not survive.
Since the reassessment itself was quashed, the tribunal held that 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'. According to The Economic Times and Mint, this 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. Additionally, eligible F&O trading expenses such as brokerage, exchange charges, internet costs, professional fees and trading software subscriptions can be deducted while calculating business income, potentially reducing taxable income significantly. For retail F&O and commodity traders, the ruling clarifies that exchange-traded profits cannot be treated as accommodation entries merely because a broker or platform is under investigation, with the AO required to independently establish the taxpayer's specific link to the alleged manipulation.
