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 in absence of tangible material linking the assessee to rigging or accommodation entries a claim to long term capital gains exemption under section 10(38) cannot be rejected and additions under unexplained cash credit cannot be sustained; similarly, a consequential notional commission addition is unsustainable where no evidence identifies payee(s) or proves expenditure was incurred, and the assessing officer must first establish such expenditure. Both additions were deleted and the exemption accepted.

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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.

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