Section 68 addition on alleged penny stock sale proceeds failed where banked, exchange-routed trades were duly supported by records.

Section 68 addition based on alleged penny stock sale proceeds was unsustainable where the assessee produced contract notes, broker ledger, bank statements, demat records, and acquisition and sale details, and the receipts were routed through banking channels and the stock exchange. A general investigation report on the scrip, without specific adverse material or independent enquiry against the assessee's own transactions, was insufficient. The assessee had discharged the burden of proving the nature and source of the receipts, so the addition was deleted.

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Issues: Whether the addition made under section 68 of the Income-tax Act, 1961, on account of sale proceeds arising from shares alleged to be a penny stock transaction was sustainable.

Analysis: The assessee produced contract notes, broker ledger, bank statements, demat records, and details of acquisition and sale of the shares. The sale consideration was received through banking channels and the transactions were routed through the stock exchange. The material relied upon by the Assessing Officer was a general investigation report concerning the scrip, but the assessee and her broker were not specifically named, and no independent adverse enquiry was made against the assessee's own transactions. On the facts, the assessee discharged the evidentiary burden by establishing the nature and source of the receipts, and the addition was made only on generalized suspicion.

Conclusion: The addition under section 68 was not sustainable and was deleted, in favour of the assessee.

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