Stock brokers may have to open their books to the tax man. The income-tax department is scrutinising several cases where brokers had claimed capital gains or losses, drawing on the powers it has under Section 143 (3) of the Income Tax Act.
Taxmen are denying brokers the benefit of capital gains or losses unless the transactions are routed through recognised stock exchanges. The income-tax department is examining more than 150 such cases.
The nub of the problem is that the Union Budget 2003 had exempted capital gains, arising from transactions in shares contained in the BSE-500 index, purchased after March 1, 2003, and sold after 12 months or more, from capital gains tax.
The income-tax department is now insisting that brokers produce the details of the transaction, including the date, and the quantity of shares bought and sold or vice versa.
Senior income-tax officials also indicated that they suspected a number of brokers were making "accommodation trades" just to book short-term losses in their books.
They can legitimately set this off against short-term gains. The department feared that brokers were suppressing capital gains, a senior income-tax official told Business Standard.
In another move, the income-tax department has started examining call contracts in the derivatives segment in the current month as it suspects these transactions may be "accommodation transactions" between two parties in order to claim fictitious capital gains or losses.
