In October 2025, India’s Central Board of Direct Taxes (CBDT) launched an investigation into over 400 high-net-worth individuals (HNIs) on Binance. The identified individuals had not disclosed digital coins held in offshore wallets. Transactions spanning three financial years, FY 2022-23 to FY 2024-25, are under scrutiny, covering both direct trades and peer-to-peer activity.
What makes this investigation different from a standard tax notice is the instrument being used. A Section 131 summons carries the same legal force as a civil court order, not an advisory, not a request, but a directive to appear in person and answer questions under oath. Intentional non-compliance attracts a fine. Wilful obstruction can result in criminal prosecution under Section 276D of the Income Tax Act, 1961.
That is the position many offshore traders now find themselves in, holding records that do not match what the ITD already sees in AIS and exchange data, and unsure what it actually requires to respond correctly. This guide works through exactly that: what triggers a Section 131 summons for crypto traders, what you are legally required to produce, and how to respond without worsening your exposure.
Key Takeaways
- Section 131 grants the ITD the same powers as a civil court, summoning, examining on oath, and compelling document production, even without pending proceedings.
- The CBDT’s Binance probe targets 400 high-net-worth traders for undisclosed offshore holdings from FY 2022-23 to FY 2024-25, using Section 131 as a primary enforcement tool.
- Section 131(1A) allows Assessing Officers to issue written information notices before any formal case is opened, typically the first contact after an AIS mismatch.
- You have the right to be represented by a CA or an advocate, they can attend the hearing in your place or alongside you.
- Providing false information in response to a summons attracts penalties under Section 277 and potential prosecution under Section 276D.
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What is Section 131 of the Income Tax Act?
Under Section 131(1) of the Income Tax Act, 1961, authorities, including the Income Tax Officer, Appellate Assistant Commissioner, and Commissioner, hold the same powers as a court operating under the Code of Civil Procedure, 1908. That is the legal foundation of its weight.
It is not a request for information. It is not an advisory. It is a legally enforceable order, and the person who receives it is obligated to comply in the same way they would be obligated to comply with a court directive.
The Four Things the ITD Can Demand Under Section 131
The provision covers four distinct powers. Each has a specific application for crypto traders:
- Discovery and inspection: The ITD can inspect any books, documents, or assets relevant to the inquiry. For crypto traders, this extends to wallet addresses, exchange account histories, and on-chain transaction records across every platform used.
- Enforcing attendance and examination on oath: The ITD can compel personal appearance and question the individual under oath. Answers given during this examination carry the same legal weight as testimony before a civil court.
- Compelling production of books of account and documents: Every exchange statement, wallet history, bank record, and filed return relevant to the years under examination can be formally demanded. Incomplete records are not treated as an oversight: they are treated as a wilful omission.
- Issuing commissions: The ITD can appoint a commission to gather evidence or examine witnesses outside its direct jurisdiction. In the context of offshore exchange investigations, this includes potential coordination with FIU-registered foreign exchange partners operating in India.
Can the ITD Summon You Even If No Case Is Filed Against You?
Yes. Section 131 powers are exercisable even where no formal proceedings are pending against the individual. The ITD is not required to have filed an assessment or issued any prior notice. A summons can arrive as the very first official contact, which is precisely what makes it alarming for traders who assumed their offshore activity was invisible.
What Is a Section 131(1A) Notice?
Section 131(1A) empowers Assessing Officers to issue written notices seeking information even before any formal proceedings have begun. No personal appearance is required at this stage. The recipient responds in writing within 15 days of receipt.
For crypto traders, this is typically the first formal contact from the ITD. It arrives when the department identifies a discrepancy, an Annual Information Statement (AIS) entry that does not match the Schedule VDA in a filed return, or offshore exchange data that suggests undisclosed activity, and wants a written explanation before escalating further.
Two Triggers for Section 131(1A) in Crypto Cases
The notice is issued in two distinct situations:
- Post search-and-seizure: After the ITD conducts a search or seizure operation, a Section 131(1A) notice may follow to gather further information beyond what was physically obtained. Where crypto wallet data or exchange printouts were seized, the notice seeks documentary clarification of what those records contain and what they represent.
- During a survey under Section 133A: Where the ITD surveys a taxpayer’s premises and identifies a discrepancy, such as active crypto trading not reflected in the filed return, a Section 131(1A) notice is issued for a written explanation. This survey trigger does not require physical attendance in response. However, if the written response is inadequate or no response is received, the matter escalates to a full Section 131 summons.
How Is a Section 131(1A) Notice Different From a Section 131 Summons?
The distinction matters practically. One requires a written response. The other requires you, or your authorised representative, to appear in person, answer questions under oath, and produce documents on the day. Treating one as the other is a compliance error that accelerates the very escalation you are trying to avoid.
Section 131 Summons | Section 131(1A) Notice | |
Type of instrument | Legal summons for personal appearance | Written information notice |
Personal appearance required | Yes, on oath | No, written response only |
When it is issued | Before or during proceedings | Before formal proceedings begin |
Standard response time | As stated in the summons | 15 days from date of receipt |
Issued by | ITO, AAC, IAC, Commissioner | Assessing Officer |
Penalty for non-compliance | Fine up to INR 500; prosecution under Section 276D | INR 10,000 per failure under Section 272A(1)(c) |
What escalation looks like | Document impoundment; prosecution | Escalation to a full Section 131 summons |
Primary crypto trigger | Undisclosed offshore holdings; P2P investigation | AIS mismatch; non-response to prior enquiry |
The process moves step by step. If a Section 131(1A) notice is ignored or not properly answered, it can escalate into a Section 131 summons. Once that happens, you no longer have the option to respond only in writing.
Why Is the ITD Using Section 131 Summons for Crypto Traders?
The ITD does not issue Section 131 summons arbitrarily. Specific transaction patterns, data mismatches, and enforcement triggers determine who receives one. For crypto traders, the following five scenarios most consistently lead to a personal appearance being demanded.
Undisclosed Offshore Crypto Holdings
The CBDT’s October 2025 investigation into 400 Binance traders targets individuals who held digital assets in offshore wallets without disclosing them in their filed returns. Binance re-registered with India’s Financial Intelligence Unit in 2024, giving the ITD direct access to exchange-level data it previously could not obtain systematically. Undisclosed holdings identified through that data channel are a primary trigger.
P2P Transactions Without Counterparty KYC
Both direct trades and peer-to-peer transactions are being examined in the Binance investigation. P2P trades conducted on foreign platforms without verified counterparty PAN details are flagged under Section 68 as unexplained cash credits. That flag, when combined with an AIS mismatch, typically results in a summons requiring the trader to explain the origin of funds in person.
AIS Mismatch Between Exchange Volume and Declared Income
The ITD cross-references AIS transaction data against Schedule VDA entries in filed returns. Where the AIS reflects significantly higher gross volume than the net gain declared, the department treats the gap as potential under-reporting. An AIS mismatch is one of the most reliable early triggers, beginning with a Section 131(1A) notice and escalating to a personal appearance summons if left unaddressed.
Transactions From FY 2022-23 to FY 2024-25 That Were Not Reported
The Binance probe covers three financial years. Traders who were active during this period but left Schedule VDA blank, or who filed nil returns while exchange data confirms active trading, sit directly within the scope of the investigation. The ITD’s examination is not limited to the most recent filing year.
Tip-Offs and Third-Party Intelligence
The ITD also acts on information received from whistleblowers and third-party data providers. In the crypto context, this includes intelligence shared through international tax cooperation frameworks and data obtained from FIU-registered exchanges operating in India. A tip-off does not require an AIS mismatch to exist, the summons can follow from external intelligence independently of any domestic data trail.
What Documents Must You Bring to a Section 131 Summons?
Preparation before the hearing date is not optional. The ITD expects complete, organised records. Arriving with gaps or producing documents you have not personally reviewed creates complications that a well-prepared response would have avoided entirely. Here is a list of documents you need in a 131 summons:
Exchange and Wallet Records
Under Section 131(1)(c), the ITD can compel the production of books of account and relevant documents. For a crypto trader, this means complete trade histories from every exchange used, Indian and foreign, alongside on-chain records for every active wallet. The ITD has access to exchange data through FIU filings. Any gap between what the exchange recorded and what you produce will be visible.
Filed Returns and Schedule VDA Entries
Bring ITR copies for every financial year under examination, with Schedule VDA entries clearly identified. If any year’s return was not filed or Schedule VDA was left blank, bring the revised return filed under Section 139(5) of the Income Tax Act. Voluntary disclosure submitted before the hearing significantly reduces penalty exposure under Section 270A.
Bank Statements and Source of Funds
The ITD routinely asks how the funds used to acquire crypto were generated. Bank statements showing the origin of INR, whether from salary credits, business receipts, or documented inheritance, are standard supporting documents in Section 131 hearings involving crypto. Prepare these for every year under examination, not just the most recent one.
P2P Transaction Records and Counterparty Details
For traders who used P2P platforms, bring counterparty PAN details, Form 26QE filings, and transaction confirmations from the platform itself. The absence of counterparty KYC documentation is the most common reason P2P traders face a concurrent Section 68 unexplained credit flag alongside the summons, and it is a gap that the ITD will specifically probe during the examination.
What Are Your Rights When You Receive a Section 131 Summons?
Receiving a summons does not mean you have been found guilty of anything. It means the ITD wants information. You have legal rights throughout this process, and exercising them correctly is not obstruction. It is compliance done properly. So let us now see what rights you have to reply to such a summons:
Right to Be Represented by a CA or Advocate des
You are not required to face this alone. Under Section 288 of the Income Tax Act (1961), you have the explicit right to be represented by a chartered accountant, advocate, or any authorised representative. Your representative can accompany you to the hearing or, where the summons permits it, appear entirely in your place. This is the single most important right to exercise, and it should be exercised before you compile a single document.
Right to Seek Clarification on Scope
A valid summons must state its purpose and the specific subject matter it covers. If the summons you received does not clearly identify which financial years, exchanges, or transaction types are under examination, you have the right to seek clarification from the issuing officer before the hearing date. Do not assume the scope is wider than what is written.
Right to Request an Extension
If the stated deadline does not allow adequate time to compile complete records, particularly from foreign platforms or on-chain sources, you may request an extension from the Assessing Officer. Submit this request in writing before the hearing date. An extension request filed properly is not treated as non-compliance. Simply failing to appear is.
Right to Challenge an Arbitrary Summons
Courts have consistently held that Section 131 powers must be exercised in good faith and on reasonable grounds. In Tata Communications Ltd. v. ACIT (2017), the Bombay High Court ruled that Section 131(1A) does not extend to a roving inquiry without a proper basis. Where a summons appears to lack a legitimate foundation, your representative can formally challenge it through the appropriate legal channels.
How To Respond to a Section 131 Crypto Summons?
The traders who navigate Section 131 summons without significant additional penalty exposure are almost always the ones who acted methodically from the moment the document arrived. The steps below are not suggestions, they are the minimum required actions.
Step 1: Read the Summons and Identify the Exact Scope
Read the summons carefully from start to finish. Identify which financial years are under examination, which platforms or transaction types are referenced, and exactly which documents have been requested. Do not assume the scope extends beyond what is written, and do not act on assumptions before that reading is complete.
Step 2: Engage a CA or Crypto Tax Advocate Immediately
The examination is conducted on oath. Every answer you give carries legal weight. Engaging a CA or advocate who understands both crypto transaction records and ITD examination procedures is essential, and it must happen before any documents are compiled or any communication is sent to the department.
Step 3: Compile Records From Every Platform Mentioned
Pull complete trade histories from every exchange referenced or implied in the summons. For foreign platforms, request CSV exports or API-generated reports directly from the exchange. For P2P transactions, locate counterparty PAN details and any Form 26QE filings. Cross-reference everything against your filed Schedule VDA entries and the AIS data available on the income tax portal.
Step 4: Request an Extension If Foreign Records Take Time
Records from offshore platforms, particularly Binance, can take time to compile in a format that satisfies the ITD’s requirements. If the stated deadline does not allow enough time to produce a complete, accurate response, submit a formal written extension request to the Assessing Officer before the hearing date. Do not simply fail to appear.
Step 5: File Revised Returns Before the Hearing Where Possible
If the summons relates to financial years where Schedule VDA was incomplete or absent, file revised returns under Section 139(5) of the Income Tax Act before the hearing. Voluntary disclosure made prior to a formal examination significantly reduces penalty exposure under Section 270A. It also signals good faith, which matters when the Assessing Officer is deciding how to proceed.
Step 6: Attend Or Send Your Authorised Representative
On the hearing date, attend with your representative, or arrange for your authorised representative to appear on your behalf where the summons permits. Bring every document compiled in Step 3, organised by financial year and exchange. Every document you submit should be one you, or your representative, have reviewed in full before the hearing begins.
What Happens If You Do Not Respond to a Section 131 Summons?
Ignoring a Section 131 summons is the single worst decision a crypto trader under ITD scrutiny can make. The consequences escalate in stages, each more serious than the one before, and none of them improve your position. So here is how the penalties work:
The Initial Fine
Where a person intentionally fails to attend or produce documents as directed, the Income-tax authority may impose a fine of up to INR 500 under Section 131(2). That figure is not the concern. It is a marker that the ITD has recorded your non-compliance, and what follows that record is far more consequential.
Penalty for Failing to Provide Information
Beyond the initial fine, each instance of failing to provide requested information or documents attracts a separate penalty of INR 10,000 under Section 272A(1)(c). For a trader with activity across multiple exchanges and three financial years under examination, these individual failures accumulate into a significant aggregate liability before the underlying tax demand is even addressed.
Prosecution for Wilful Non-Compliance
Repeated failure to comply, or any wilful attempt to obstruct proceedings, can result in prosecution under Section 276D. This is criminal exposure, not an administrative penalty. In the context of the HNI Binance investigation, where the ITD has specifically alleged evasion, non-appearance is unlikely to be treated as a minor administrative lapse.
Providing False Information
Knowingly furnishing false information or documents in response to a Section 131 summons attracts penalties under Section 277, in addition to the underlying tax demand and interest that may have already accrued. Accuracy throughout the process is a legal obligation, not a matter of judgement. The examination is conducted on oath, which means false answers carry criminal weight.
If any of these consequences are already in motion, KoinX can generate your complete AIS-matched transaction records and Schedule VDA reports, giving your CA accurate documentation to work with before the situation escalates further.
How KoinX Can Help If You Have Received a Section 131 Summons?
Responding to a Section 131 summons means producing complete, accurate transaction records for every platform used across multiple financial years, and ensuring those records align precisely with what the ITD already holds in AIS and Form 26AS. That reconciliation is where most traders find themselves exposed. KoinX is a global crypto tax platform trusted by over 1.5 million users across 100+ countries, with 800+ exchange and wallet integrations, built specifically to close that gap for Indian traders.
Complete Transaction History Across 800+ Exchanges
KoinX imports your full transaction history from every connected exchange, Indian and foreign, into a single, consolidated record. For traders summoned under the Binance investigation, this means complete trade data from FY 2022-23 to FY 2024-25, presented in a format that is organised by financial year and ready for submission. No manual CSV reconciliation. No gaps from missed exports.
AIS-Matched Schedule VDA Reports for Every Year Under Examination
KoinX generates Schedule VDA reports that are cross-referenced against your AIS data before you file or before you attend a hearing. Where the ITD’s AIS figure diverges from your declared net gain, KoinX identifies the source of the discrepancy and produces a reconciliation document you can present at the examination.
TDS Reconciliation for P2P and Foreign Exchange Trades
For P2P traders and those active on foreign platforms, KoinX reconciles TDS deducted or self-deducted via Form 26QE against each corresponding transaction in the records. The reconciliation output maps each TDS credit to its source transaction, providing a clean, auditable trail for each year the ITD is examining.
CA Directory, Connect With a Crypto Tax Specialist
If you do not already have a CA experienced in crypto tax matters, KoinX provides access to a verified directory of Chartered Accountants who specialise in this area. Representation at a Section 131 hearing by someone who understands both the ITD’s procedures and crypto transaction records is not a luxury, it is the difference between a hearing that closes cleanly and one that escalates further.
If you have received a Section 131 summons or a Section 131(1A) notice you have not yet responded to, start with KoinX to generate your complete transaction history and AIS-matched reports before your hearing date.
Conclusion
A Section 131 summons is not a routine ITD query. It is a civil court-backed order requiring personal appearance, production of documents, and answers under oath. The Binance HNI probe has made it a live risk for every trader with undisclosed offshore holdings or unreconciled AIS data. Ignoring it turns a manageable situation into criminal exposure under Section 276D.
The records that will determine how that hearing goes, exchange histories, AIS-matched Schedule VDA reports, and TDS reconciliations across every financial year under examination, are exactly what KoinX generates automatically. Your CA needs accurate documentation before the hearing date, not after. Get started with KoinX today.
Frequently Asked Questions
Can I Send My CA to the Section 131 Hearing Instead of Attending Myself?
Yes, in most cases. You have the right to be represented by a chartered accountant, advocate, or authorised representative. Where the summons permits representation in place of personal attendance, your CA can appear on your behalf. Confirm the specific terms of your summons with your representative before the hearing date, some examinations require the taxpayer’s physical presence regardless of representation.
The Summons Asks for Records I No Longer Have. What Do I Do?
Do not attend the hearing and simply state that records are unavailable. Contact the exchange directly for historical data exports, most platforms retain records for at least seven years. For foreign exchanges, submit a formal data request as early as possible and use that request as the basis for an extension application to the Assessing Officer. Your CA can frame the extension request in a way that demonstrates good faith rather than evasion.
I Responded to a Section 131(1A) Notice Already. Why Have I Now Received a Section 131 Summons?
A written response to a Section 131(1A) notice that the Assessing Officer considers incomplete, inconsistent, or insufficiently supported will lead to escalation. The officer has discretion to determine whether a written response adequately addresses the subject matter. If it does not, or if the response raises further questions, a personal appearance summons follows. Review what you submitted, identify the gaps, and prepare a more complete response for the hearing.
What Happens If I Provide Partial Information at the Hearing?
The examination is conducted on oath. Deliberately withholding information during sworn testimony is not a minor compliance lapse, it carries the same legal exposure as providing false information under Section 277. If your records are incomplete at the time of the hearing, disclose that fact clearly through your representative and request an opportunity to submit the outstanding documentation within a stated timeframe. Partial cooperation is better than none, but it must be transparent.
I Did My P2P Trades Through a Foreign Exchange With No KYC. What Is My Specific Exposure Under Section 68?
Where counterparty PAN details cannot be produced for a P2P transaction, the ITD may treat the entire transaction value as an unexplained cash credit under Section 68, not just the gain. That means the tax exposure is calculated on the full transfer value at 60%, not on the profit at 30% under Section 115BBH. On a trade worth INR 3,00,000 with an INR 8,000 gain, the Section 68 exposure is INR 1,80,000 in tax alone. Counterparty KYC documentation is not optional for P2P traders.
