On 3^rd December 2019, the Income Tax Department carried out search and survey operations on certain share-brokers/traders who were involved in facilitating accommodation of profits/loss through reversal trades in illiquid stock optionsin Equity Derivative Segment and alsoCurrency Derivative Segment on Bombay Stock Exchange (BSE).  Over 39 locations spread across Mumbai, Kolkata, Kanpur, Delhi, NOIDA, Gurugram, Hyderabad andGhaziabad were covered.

The search/survey action has unravelled the entire modus-operandi which has been adopted by the share-brokers/traders to trade into the illiquid stock options in Equity Derivative Segment and thereby generate artificial losses/profit by executing reversal trades in a very short span of time. By this contrived methodology, the unscrupulous entities have secured desired profits/losses, which is estimated to be more than ₹ 3500 Crore. The search/survey action has also resulted into identification of the wrongful long-term capital gains taken in at least 3 penny stocks listed on the BSE, where the manipulated profits utilized by the beneficiaries aggregate to around ₹ 2000 Crore. 

The search action has resulted into seizure of unaccounted cash of ₹ 1.20 Crore. The number of beneficiaries who have been benefitted by these manipulated transactions could be to the tune of a few thousand scattered across India and efforts are being made to identify them as also the corresponding quantum of income evaded. Incriminating evidence recovered during the course of actions is also being examined for determination of contravention of the various direct tax laws.

Search and survey operations uncover derivative trade reversal schemes creating artificial profits and losses, prompting tax inquiries. Search and survey operations targeted share brokers and traders using rapid reversal trades in illiquid stock options and currency derivatives to manufacture artificial profits and losses; the probe uncovered manipulated long term capital gains in certain penny stocks, resulted in seizure of unaccounted cash, recovery of incriminating evidence, and ongoing efforts to identify beneficiaries and quantify possible direct tax contraventions.