2025 (5) TMI 2236 - AT - Income Tax

Exemption under section 10(38) upheld where exchange sale documentation and bank settlement discharge initial onus; cash credit and notional commission additions unsustainable.

Documentary proof of purchase, dematerialisation, contract notes, STT payment and bank settlement suffices to discharge the assessee's initial onus, and ... Addition made u/s 68 - bogus sale proceeds of shares - unexplained cash credit - exemption u/s 10(38) denied - expenditure for payment of commission assessed u/s 69C - HELD THAT:- Evidences furnished by the assessee to prove the purchase and sale of shares, payment made/received, entry/exit of shares in the demat account of the assessee etc., are not found to be incorrect. Since the AO has not established that the assessee was involved in price rigging and further the AO did not find fault with any of the documents furnished by the assessee. We also noticed earlier that the Assessing Officer has assessed the sale consideration of shares as unexplained cash credit under section 68 of the Act. It is pertinent to note that the purchase of shares made in an earlier year has been accepted by the Revenue. The sale of shares has taken place in the online platform of the Stock Exchange and the sale consideration has been received through the stock broker in banking channels. It is not alleged that shares sold are available with the assessee and are not sold as claimed. Hence, in the facts of the case, the sale consideration cannot be considered to be unexplained cash credit in terms of section 68 of the Act. The entire case of the Assessing Officer is based on the preponderance of probabilities and the normal human conduct to allege that the transaction undertaken by the assessee was not genuine. It is a settled position in law that the onus of proving that the apparent is not real is on the person who alleges it to be so. Assessee has explained the transaction of purchase and sale of shares satisfactorily. Transaction of sale of shares is hereby held to be genuine and bona fide considering the legal evidence available on record. Legal position on the subject discussed hereinabove fully supports the assessee’s case as to the addition made by the AO is unjustified and unsustainable. Sale consideration received on sale of shares cannot be assessed as unexplained cash credit u/s 68 of the Act. Long term capital gains declared in the return of income and exemption claimed hereby accepted as shown in return of income. Accordingly, we direct to delete the impugned addition made. Hence, the grounds raised by the assessee are allowed. Addition u/s 69C - As already held hereinabove that sale transaction in respect of shares is genuine and bona fide as per documentary evidence on record. In view of the above, there remains no case for any alleged commission which calls for any addition at the hands of assessee. The very premise for which the addition is made has been held to be incorrect and thus consequent addition made by the Assessing Officer for alleged expenditure is unjustified and unsustainable. It is seen that the AO has made adverse inference which is not based on any material or evidence on record. Issues: (i) Whether sale proceeds of shares sold on the stock exchange and claimed as exempt under section 10(38) can be treated as unexplained cash credit and added to income under section 68; (ii) Whether an addition under section 69C as notional commission/ unexplained expenditure is sustainable where no evidence of such expenditure is brought on record.Issue (i): Whether the sale proceeds of shares can be assessed as unexplained cash credit under section 68 by rejecting the claim of exemption under section 10(38).Analysis: Documentary evidence on record included share allotment advice, share application form, demat account statements showing entry and exit of shares, contract notes issued by a registered stock broker indicating trade time, order number, STT payment and ledger entries reflecting receipt of sale proceeds through banking channels. The assessment relied on a general investigation report and statements not specific to the assessee and no material was produced to show connivance or price manipulation involving the assessee. No defect was found in the primary documents substantiating purchase and sale and the Assessing Officer did not point to tangible material linking the assessee to any rigging or accommodation scheme. Opportunity for cross-examination of third-party statements relied upon was not provided and such statements lacked direct nexus to the assessee's transactions.Conclusion: Issue (i) decided in favour of the assessee.Issue (ii): Whether addition under section 69C as 5% notional commission is sustainable without evidence of expenditure.Analysis: The addition under section 69C was made solely as a consequential estimate based on the primary addition under section 68 and without any evidence identifying payee(s) or proving that any commission expenditure was actually incurred. Documentary evidence established the genuineness of the sale transactions, removing the factual basis for inferring a notional commission. The Assessing Officer bore the burden to first establish that such expenditure was incurred.Conclusion: Issue (ii) decided in favour of the assessee.Final Conclusion: The appellate order deletes the additions made under section 68 and section 69C and accepts the long term capital gains exemption under section 10(38) as declared in the return; the assessment additions were found unsustainable for lack of tangible evidence and for reliance on general investigation material not tied to the assessee.Ratio Decidendi: Documentary proof of purchase and sale on recognized exchanges, dematerialization and banking channel settlement including contract notes and STT payment suffices to discharge the assessee's initial onus; absent tangible material linking the assessee to rigging or accommodation entries and without evidence of incurred commission, additions under section 68 and section 69C cannot be sustained.