Penny stock gains treated as sham where surrounding facts and regulatory findings outweighed documentary evidence and sustained additions.

Penny stock long-term capital gains were treated as bogus where surrounding circumstances, SEBI findings, off-market purchase, unusual price rise, connected parties and the assessee's statement showed a sham accommodation entry; the documentary trail of bank entries, demat records and contract notes did not displace the onus under section 68, and the addition was sustained. The objection based on denial of cross-examination and non-furnishing of material failed because the assessment rested on independent inquiry and corroborative evidence, so no prejudice was shown. Once the share transaction was found sham, the commission estimate under section 69C was also upheld as a natural corollary of arranging the entry.

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Issues: (i) Whether the assessee's claim of exempt long-term capital gain from purchase and sale of penny stock shares was genuine or represented a sham transaction attracting addition under section 68; (ii) whether denial of cross-examination and alleged non-furnishing of relied-upon material vitiated the assessment; (iii) whether the commission addition under section 69C was sustainable.

Issue (i): Whether the assessee's claim of exempt long-term capital gain from purchase and sale of penny stock shares was genuine or represented a sham transaction attracting addition under section 68.

Analysis: The assessee's claim was tested against the surrounding circumstances, including the off-market purchase, unusual price rise, the financial profile of the scrip, the SEBI findings on manipulation, and the role of connected entities and counter-parties. The Tribunal accepted that documentary form such as banking entries, demat records, and contract notes was not where the real nature of the transaction was contradicted by the totality of material. The onus to establish genuineness, creditworthiness, and the genuineness of the price rise remained on the assessee, and the transaction was examined on the touchstone of human probabilities.

Conclusion: The long-term capital gain claim was held to be bogus and the addition under section 68 was upheld against the assessee.

Issue (ii): Whether denial of cross-examination and alleged non-furnishing of relied-upon material vitiated the assessment.

Analysis: The Tribunal noted that the assessment was not founded solely on third-party statements. Independent inquiry, analysis of share-price movement, examination of counter-parties, and the assessee's own statement formed part of the evidentiary basis. Since the impugned addition rested on a broader chain of circumstances and corroborative material, the absence of cross-examination did not establish prejudice sufficient to invalidate the assessment.

Conclusion: The objection based on denial of cross-examination and natural justice was rejected.

Issue (iii): Whether the commission addition under section 69C was sustainable.

Analysis: Once the principal share-transaction claim was found to be sham, the inference that commission or charges would have been paid to arrange the accommodation entry was treated as a natural corollary. The Tribunal found the percentage-based estimate to be reasonable in the context of the bogus transaction.

Conclusion: The addition under section 69C was upheld against the assessee.

Final Conclusion: The Tribunal found no reason to interfere with the lower appellate order and sustained the additions arising from the impugned share transactions and related expenditure.

Ratio Decidendi: In a penny stock case, where the surrounding facts, independent inquiries, and regulatory findings show a manipulated and sham transaction, the assessee's documentary trail does not discharge the onus under section 68, and corroborative material may sustain the addition even without cross-examination of third parties.

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