Genuine share transactions and capital gains exemption upheld where documentary trail and exchange sale evidence rebutted suspicion.

ITAT Hyderabad held that share purchase and sale transactions were genuine where the assessees produced purchase documents, dematerialisation records, sale through recognised stock exchange channels, banking trail and securities transaction tax payment. Mere non-traceability of brokers or companies, and adverse material in separate SEBI or market-intermediary proceedings, did not discredit the transactions without case-specific proof of sham dealings, compensatory payments or manipulation. Applying the principle that suspicion cannot replace proof, the Tribunal found the assessees had discharged the primary onus and the Revenue had not rebutted the documentary evidence. The addition treating sale proceeds as income from other sources was therefore deleted, and the gains were accepted as long-term capital gains eligible for exemption under section 10(38).

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Issues: Whether the share purchase and sale transactions were genuine and, if so, whether the resulting gains were chargeable as income from other sources or entitled to exemption as long-term capital gains under section 10(38).

Analysis: The assessees produced documentary evidence of purchase, dematerialisation, sale through recognised stock exchange channels, receipt of consideration through banking channels, and payment of securities transaction tax. The Assessing Officer relied largely on the non-traceability of brokers and companies, CSE replies, and SEBI action against some market intermediaries, but no cogent material was brought to show that the assessees themselves had entered into sham or arranged transactions, made compensatory payments, or otherwise manipulated the sales. The Tribunal held that off-market purchase followed by dematerialisation did not become non-genuine merely because the purchases were not routed through the stock exchange, and that adverse material against brokers in other proceedings could not by itself discredit the assessees' transactions without case-specific proof. Applying the principle that suspicion cannot replace proof, the Tribunal agreed that the primary onus stood discharged by the assessees and that the Revenue had not rebutted the documentary evidence.

Conclusion: The share transactions were held to be genuine, the addition treating the sale proceeds as income from other sources was not sustained, and the assessees were entitled to the claimed treatment as long-term capital gains with the exemption under section 10(38).

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