Unexplained cash credit rejected where unrebutted documentary proof of genuine exchange-traded share transactions led to deletion of the addition.

Addition under the Unexplained Cash Credit head was held unsustainable where the assessee produced demat records, contract notes, bank statements and broker confirmations and the Revenue failed to produce cogent material to discredit those documents or establish nexus with alleged accommodation entry operators. Investigatory reports and characterization of the scrip as a penny stock, without independent enquiries or specific SEBI findings against the assessee or broker, were found insufficient to negate the documentary proof of genuine exchange-traded transactions through banking channels; the addition was deleted and the assessee's grounds allowed.

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Issues: Whether the addition made under Section 68 of the Income-tax Act, 1961 treating the sale proceeds of shares as unexplained cash credit and rejecting exemption claimed under Section 10(38) is sustainable where assessee furnished demat records, contract notes, bank statements and broker confirmations.

Analysis: The Tribunal examined whether the Revenue produced cogent material to discredit the documentary evidence produced by the assessee or to establish a direct nexus between the assessee and any alleged accommodation entry operators. The authorities below relied on investigatory reports and the characterization of the scrip as a penny stock, without independent enquiries into the authenticity of demat entries, banking transactions or broker contract notes. The assessee's transactions were through recognized exchange mechanisms, payments and receipts flowed through banking channels, and there was no allegation by SEBI or specific material implicating the assessee or his broker in price manipulation or pre-arranged deals. In these circumstances the evidentiary value of the documents remained unrebutted and mere suspicion or inclusion of the scrip in an investigation report was held insufficient to negate the documentary proof of genuine purchase and sale.

Conclusion: The addition under Section 68 of the Income-tax Act, 1961 is not sustainable and is deleted; the grounds of the assessee are allowed and the appeal is allowed in favour of the assessee.

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