Survey statement not conclusive where demat records and market sale support genuine long-term capital gains treatment.

A survey statement alone is not conclusive where the assessee produces substantive evidence of genuine share transactions, including demat records, merger-based allotment, sale through authorised brokers, and securities transaction tax payment. On that record, long-term capital gains exemption on the share sale was accepted because the revenue failed to show a colourable device or independent material discrediting the claim. The same transaction also could not be recharacterised as adventure in the nature of trade or as short-term capital gains arising from the merger, as no trading intention or statutory basis for that treatment was established. The revenue's challenge therefore failed.

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Issues: (i) Whether the assessee's claim of exemption for long-term capital gains on sale of shares could be denied on the basis of a survey statement and an alleged penny stock characterization. (ii) Whether the same transaction could alternatively be assessed as adventure in the nature of trade or as short-term capital gains arising from the merger of the shareholding.

Issue (i): Whether the assessee's claim of exemption for long-term capital gains on sale of shares could be denied on the basis of a survey statement and an alleged penny stock characterization.

Analysis: The sale and purchase trail, demat holding, merger of the original shares into the successor company, sale through authorised brokers, and payment of securities transaction tax were all evidenced by the assessee. The addition was founded principally on a survey statement recorded under section 131(1A) of the Income-tax Act, 1961, but a statement by itself was not treated as conclusive where the assessee produced substantive material supporting the claim. The revenue did not establish any independent material showing that the transaction was a colourable device or that the assessee was prejudiced by the absence of cross-examination in the manner urged. The claim therefore had to be tested on the surrounding evidence and not on the statement alone.

Conclusion: The exemption claim was held to be genuine and was accepted in favour of the assessee.

Issue (ii): Whether the same transaction could alternatively be assessed as adventure in the nature of trade or as short-term capital gains arising from the merger of the shareholding.

Analysis: The assessee had merely held the shares, the original investment had transformed through merger into shares of the successor company, and the eventual sale was of the dematerialised shares through regular market channels. No material showed trading intention or business character in the transaction, and the merger did not amount to a taxable transfer for the purpose suggested by the revenue. The alternative characterisations were therefore unsupported by the facts and the statutory scheme as applied to the record.

Conclusion: The alternative tax treatments were rejected and the issue was decided in favour of the assessee.

Final Conclusion: The revenue's appeals failed, and the relief granted by the first appellate authority was sustained on all material issues.

Ratio Decidendi: A survey statement is not conclusive where the assessee produces substantive evidence supporting the transaction, and an investment routed through merger and genuine market sale cannot be taxed as a colourable device or reclassified as trading income without independent supporting material.

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