Crypto scrutiny in India has become extremely common, especially where the tax return shows modest income but the exchange trade volume appears disproportionately high. I recently handled a case where a client with a simple salary profile was flagged because his crypto turnover on CoinDCX touched ₹11.68 crore in a single financial year.
But here’s the real story —
He wasn’t a high-net-worth investor.
He wasn’t deploying large capital.
He was simply rotating the same funds repeatedly across 6000+ trades,
creating a large “turnover” despite very small actual investment.
After a detailed response and clear documentation, the
assessment closed with NIL additions under Section 143(3).
(Outcome reflected in the final assessment order)
Here’s how the case unfolded.
1. Why the Case Was Picked for Scrutiny
The client’s ITR showed:
- Salary
income of about ₹20 lakh
- Crypto
profits of ₹27.54 lakh disclosed in Schedule VDA
However, the CoinDCX trade volume for the year was ₹11.68
crore — automatically triggering CASS scrutiny, because such a huge
transaction figure did not align with his salaried background.
The 142(1) notice sought full clarity on:
- Nature
of activity,
- Cost
of acquisition & sale details,
- Bank
trail for crypto trades,
- Crypto
tax calculations,
- Complete
trade statements.
2. The Core Issue: High Turnover, Low Capital — A Common
Crypto Pattern
Like many retail crypto traders, the client:
- Used
a small capital base,
- Made
frequent buy-sell trades,
- Rotated
the same money dozens of times per day,
- Executed
6000+ trades in the year,
- Resulting
in an inflated turnover of ₹11.68 crore,
- Despite
having no large new investment and no unexplained money.
This mismatch between actual capital vs. exchange
turnover is one of the biggest reasons crypto users get scrutiny today.
3. My Response: Present the Complete Picture Clearly and
Simply
In the detailed reply filed via the e-proceedings portal
(reference response letter)
Final_Response_Notice_142(1)_Te…
, I clarified every point raised in the notice.
✔ Nature of Activity
Explained that the client was only involved in speculative
crypto trading on CoinDCX — no business income, no other activity.
✔ Crypto Tax Computation
Submitted
I provided a full crypto tax computation showing:
- Exact
cost of acquisition
- Sale
values
- Profitable
trades totalling ₹27.54 lakh
- Compliance
with Section 115BBH (no set-off of losses)
- A
consolidated VDA entry in the ITR due to 6000+ trades
✔ Complete Trade Report
Submitted
I included the full CoinDCX trade statement to show all
buy/sell transactions transparently.
✔ Salary Details Submitted
Form 16 and computation established that the client’s primary
and only stable income source was salary.
✔ Bank Trail Submitted
HDFC bank statements were provided to show:
- The actual
amount deposited into the exchange,
- Which
was much smaller than the ₹11.68 crore turnover,
- Proving
that the turnover was created purely by rotation and high-frequency
trading, not by fresh capital inflow.
4. The Key Insight That Resolved the Case
Once the AO understood the difference between:
Turnover vs. Investment
₹11.68 crore turnover did not mean ₹11.68 crore of
investment.
Frequency vs. Capital
6000+ trades dramatically inflated the numbers.
Profit vs. Loss Rules
Only the profit of ₹27.54 lakh was taxable, and it
was correctly reported in the ITR.
the assessment became straightforward.
There was no unexplained money,
no mismatch,
no undisclosed asset —
only high-frequency rotation of limited capital.
5. Final Outcome — Assessment Accepted as Filed
After reviewing all submissions, the AO completed the order
with:
✔ No additions
✔ No disallowances
✔ No mismatch
✔ No penalty**
Exactly as reflected in the final order under Section
143(3).
Lessons for Crypto Traders
- High
turnover does not mean high tax liability.
- Rotation
of the same capital can create crores of turnover.
- Exchanges
do not separate rotation from actual investment.
- AIS
often misinterprets high-frequency trading.
- A
clear crypto tax computation + trade report + bank trail resolves most
scrutiny cases.
Final Note
This case reinforces a simple truth:
Crypto scrutiny is not about the size of turnover —
it’s about how clearly you can explain it.
A salaried individual with limited capital, 6000 trades, and
₹11.68 crore turnover can still get a clean NIL-addition order when the
documentation is strong and transparent.
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