Penny stock allegations alone cannot justify treating share-sale proceeds as unexplained credits without cogent linking evidence.

Share-sale proceeds and claimed long-term capital gains cannot be treated as unexplained credits merely because the scrip is alleged to be a penny stock or its price movement appears unusual. Where the assessee produced purchase records, demat entries, sale details and banking-channel evidence, the Revenue had to bring cogent material linking the assessee to price rigging, accommodation entries or a sham arrangement. Mere suspicion, human probabilities and general allegations about penny stocks were insufficient. On that evidentiary basis, the additions under sections 68 and 115BBE and the denial of exemption under section 10(38) were deleted as unsustainable.

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Issues: Whether the addition made by treating the share-sale proceeds and claimed long-term capital gains as unexplained credits on the basis of penny stock allegations was sustainable.

Analysis: The assessee had produced purchase records, demat entries, sale details and banking-channel evidence to support the share transactions. The addition was founded substantially on the weak financials of the company, its alleged penny stock character, and the broader suspicion of price manipulation. The Tribunal held that suspicion, human probabilities and generalized material about penny stock scripts could not substitute for independent evidence linking the assessee to any price rigging, entry operation or sham arrangement. As the Revenue did not bring cogent material to show that the assessee's transactions were fictitious or that any unaccounted money had been routed back through the alleged arrangement, the evidentiary burden was not discharged.

Conclusion: The addition under sections 68, 115BBE and denial of exemption under section 10(38) were held unsustainable and deleted.

Ratio Decidendi: A share transaction cannot be rejected as bogus merely because the script is suspected to be a penny stock or because its price rise appears improbable; the Revenue must adduce cogent evidence connecting the assessee with manipulation or accommodation entries before making an addition under section 68.

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