Share sale long-term capital gains via demat and banking records: s.10(38) exemption upheld; bogus-LTCG addition dismissed.

The dominant issue was whether the assessee's claimed exemption under s.10(38) could be denied by treating the reported LTCG as bogus. The Tribunal held that where purchase and sale were supported by unimpeachable documentary evidence, routed through normal banking channels, reflected in demat records, and effected through recognised mechanisms, the burden stood discharged. It further held that the Revenue cannot sustain an addition merely on generic investigation material or third-party statements without granting cross-examination, absent any specific "live nexus" linking the assessee to price manipulation, operators, or exit providers. Consequently, the deletion of the addition by the first appellate authority was upheld and the Revenue's appeal was dismissed.

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ISSUES PRESENTED AND CONSIDERED

1. Whether one of two revenue appeals, filed against the same appellate order with identical grounds, should be treated as withdrawn/infructuous and dismissed.

2. Whether the addition of the claimed exempt long-term capital gains from sale of listed shares as unexplained money (treated by the assessing authority as accommodation entries in a "penny stock" scrip) was sustainable where the assessee produced contemporaneous documentary evidence of purchase, dematerialisation, and stock-exchange sale, and the Revenue relied mainly on generic investigation material, third-party statements without cross-examination, and a regulatory order not naming the assessee and covering a different period.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Dismissal of duplicate appeal as infructuous

Legal framework: Not discussed.

Interpretation and reasoning: The Court accepted the Revenue's submission that two separate appeals had been filed due to inadvertence against the same appellate order and on identical grounds. Since the later-filed appeal served no independent purpose, it was treated as withdrawn/infructuous.

Conclusion: The subsequently filed appeal was dismissed as infructuous.

Issue 2: Sustainability of addition treating share-sale proceeds/LTCG as unexplained money based on "penny stock" allegations

Legal framework: The Court proceeded on the basis of the reassessment and the addition made as unexplained money, and considered the claim of exemption on long-term capital gains; it evaluated the evidentiary burden and the permissibility of relying on generic investigation reports and third-party statements without cross-examination.

Interpretation and reasoning: The Court found that the assessee demonstrated the investment and exits through regular and verifiable channels: payment for acquisition through banking channels, allotment of shares, dematerialisation in a demat account, and sale through a recognised stock exchange supported by broker contract notes and settlement records. The source of investment was explained as capital withdrawal from a partnership concern. These evidences were described as undisputed and showing transactions executed in the ordinary course on the exchange's online platform.

Against this, the assessment was found to rest "almost wholly" on general investigation findings about penny stock modus operandi, abnormal price movement, and statements of alleged exit providers, without any specific material establishing a live nexus between the assessee and any operator/entry provider. The Court additionally held that mere reliance on third-party statements without affording cross-examination could not justify the addition. On the price movement aspect, the Court noted the company's turnover growth and observed that the price rise was gradual and largely within circuit-filter norms; thus price movement alone could not establish manipulation in the assessee's hands.

The Court also treated the regulatory order relied upon by the assessing authority as misplaced because it neither named the assessee nor referred to his transactions, and it examined a different period and conduct of another entity rather than the assessee's purchase/sale window.

Conclusion: In the absence of a specific "live nexus" linking the assessee to manipulation or cash exchange, and in view of unimpeachable transactional documentation and recognised-channel execution, the addition treating the claimed exempt gains as unexplained money was unsustainable; deletion of the addition was upheld and the Revenue's surviving appeal was dismissed.

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