Section 68 treatment of documented share-trading receipts as unexplained credits risks double taxation where no exempt gains were claimed

Section 68 additions based on alleged bogus long-term capital gains from penny-stock transactions require examination of the assessee's actual business, financial records and transaction character. Where share trading is recorded as business revenue, supported by contract notes, broker ledgers, demat statements, bank statements and audited accounts, and no exempt income is claimed under Section 10(38), reliance solely on general information about accommodation entries may be inadequate. Treating selected trading transactions as unexplained credits may also create a risk of taxing the same transactions twice. On the stated analysis, such additions for both assessment years were considered unsustainable and directed to be deleted.

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Issues: Whether additions under Section 68 of the Income-tax Act, 1961, based on alleged bogus long-term capital gains from penny-stock transactions, were sustainable where the assessee was engaged in share trading and had not claimed exempt income under Section 10(38) of the Income-tax Act, 1961.

Analysis: The share transactions were supported by contract notes, broker ledgers, demat statements and bank statements, and the accounts were audited. The assessee had disclosed share trading turnover as business revenue and had not claimed any exempt long-term capital gain under Section 10(38). The assessment relied on general information concerning penny-stock accommodation entries without examining the assessee's business, financial statements and the character of the transactions. Treating selected share-trading transactions as unexplained credits under Section 68 would result in taxing the same transactions twice.

Conclusion: The additions under Section 68 of the Income-tax Act, 1961, for both assessment years were unsustainable and were directed to be deleted.

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