Documented listed-share gains cannot be treated as unexplained income without transaction-specific evidence linking taxpayers to price manipulation.

Long-term capital gains from listed-share sales supported by stock-exchange, banking and demat records cannot be treated as unexplained income solely on a general investigation report concerning penny-stock manipulation. Where purchases in an earlier year were undisputed, no defect exists in transaction records, and no transaction-specific material links the taxpayer to price rigging, the report does not establish that documented sales are non-genuine. The additions treating the gains as unexplained income were therefore liable to be deleted.

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Issues: Whether long-term capital gains from the sale of listed shares, supported by banking, stock-exchange and demat records, could be assessed as unexplained income merely on the basis of a general investigation report concerning penny-stock price manipulation.

Analysis: The assessees furnished evidence that the shares were purchased and sold through the stock-exchange platform, consideration moved through banking channels, and delivery was effected through their demat accounts. The purchases had occurred in an earlier year and were not disputed. No defect was identified in the supporting records, and no material established that either assessee had participated in, or was connected with, any alleged price-rigging arrangement. A general investigation report concerning the modus operandi of manipulation cannot, without further enquiry and transaction-specific evidence, establish that the assessees' documented transactions were non-genuine.

Conclusion: The long-term capital gains could not be treated as unexplained income; the additions were liable to be deleted.

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