Long-term capital gains exemption on listed shares upheld where documentary evidence outweighed unsubstantiated penny-stock suspicion.

Long-term capital gains exemption on listed equity shares was accepted where purchase, holding, dematerialisation and sale were supported by contract notes, bank records, demat statements and securities transaction tax payment. In the absence of any specific defect in those documents, or cogent material linking the assessee to an alleged entry operator, broker manipulation or price-rigging, mere suspicion and general investigation material could not displace the evidence. Because the adverse material was not properly confronted and no meaningful rebuttal was made, the bogus penny-stock allegation failed. The additions under section 68 and the estimated commission addition were therefore deleted, and the exemption under section 10(38) was treated as genuine.

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Issues: Whether the assessee was entitled to exemption on long-term capital gains from sale of listed equity shares under section 10(38), and whether the additions made by treating the transaction as bogus penny-stock income and by estimating commission were sustainable.

Analysis: The documentary record showed purchase, holding, dematerialisation, and sale of shares through registered intermediaries, with payment of securities transaction tax and supporting share-transfer, contract-note, bank, and demat evidence. The Revenue did not point out any specific defect in these documents or bring cogent material to establish a live link between the assessee and any alleged entry operator, broker, or price-rigging activity. Mere suspicion arising from price movement or general investigation material could not displace otherwise supported transactions, particularly when the assessee was not shown to be connected with the company's management or any alleged accommodation-entry network. The adverse material referred to in the assessment was not properly confronted, and no meaningful enquiry was made to rebut the assessee's evidence.

Conclusion: The exemption claim under section 10(38) was held to be genuine, the additions under section 68 were deleted, and the estimated commission addition was also deleted.

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