Documented share trades via broker and Demat records versus alleged penny-stock manipulation, leading to s.69A addition deletion upheld.

Addition under s.69A for alleged unexplained money from purported penny-stock manipulation was examined. The Tribunal held that where the taxpayer produced primary documentary evidence-contract notes, broker account statements, and Demat records-showing purchase and sale through a registered stock broker and online exchange platform, the initial onus to prove genuineness stood discharged. As the AO neither disputed these documents nor independently verified them, and the Revenue failed to substantiate that the scrip was a penny stock, reliance solely on third-party statements recorded during search was insufficient. The deletion of the addition by CIT(A) was upheld and the Revenue's appeal was dismissed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the receipts from sale of shares, claimed as long-term capital gains, could be treated as bogus and added as unexplained money under section 69A on the allegation that the scrip was a "penny stock" and price was manipulated.

(ii) Whether, on the facts found, the addition could be sustained merely on the basis of third-party statements, "human probability", and regulatory material, despite the assessee producing primary documentary evidence showing purchase, holding (demat), and sale through stock exchange and banking channels.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) & (ii) (Grouped): Addition as unexplained money u/s 69A on alleged bogus LTCG from sale of shares

Legal framework (as discussed in the judgment): The Court considered the addition made under section 69A by treating the declared long-term capital gains as bogus, and evaluated the relevance of evidence relied upon by the assessing authority (including third-party statements and allegations of price manipulation) against the assessee's documentary trail of share acquisition and sale through banking and recognised market mechanisms.

Interpretation and reasoning: The Court noted that the assessee produced primary evidence supporting the transaction chain: application for preferential allotment, payment through banking channel, allotment, dematerialisation, share split resulting in increased quantity, and subsequent sale through a recognised broker/stock exchange with contract notes, broker statements, demat statements, and sale proceeds reflected in the bank account. The Court found that these documents constituted discharge of the assessee's initial onus, and the assessing authority did not dispute the authenticity of these primary evidences. The Court further observed that the revenue's case proceeded mainly on third-party statements and a general allegation that the scrip was a penny stock, without conducting further verification to rebut the assessee's documentary evidence. The Court also considered that the regulatory order relied upon did not characterise the scrip as a penny stock or record a finding of price rigging, and there was no adverse finding therein against the assessee. The statement recorded from the assessee during survey/search was also found not to contain any admission that the transactions were non-genuine. On these facts, the Court held that treating the sale receipts/LTCG as bogus merely on "probability" and third-party material, without disproving the assessee's transaction documents, was not justified.

Conclusions: The Court upheld the deletion of the addition, holding that the revenue failed to substantiate the allegation of a sham/penny stock arrangement or to rebut the assessee's primary evidences establishing purchase, holding, and sale through recognised channels. Consequently, the addition under section 69A could not be sustained and the revenue's grounds were dismissed.

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