Section 68 genuineness of transactions: documented sale proceeds and banking trail defeat additions; presumptive profit addition set aside.

Additions under Section 68 were deleted where sale proceeds of unlisted equity shares were supported by prior acceptance in earlier assessments, purchaser confirmations, ITRs, audited accounts and banking trail, and search-recorded statements were retracted without corroboration; the Assessing Officer failed to identify independent defects, so the Section 68 addition of Rs.2,30,00,000 was disallowed. A directed presumptive addition equal to 5% of sales consideration was set aside for lack of evidentiary basis and computation. An alleged non genuine commodity trading profit credited with contract notes and exchange records was also deleted for want of independent contradictory proof.

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Issues: (i) Whether addition under Section 68 of the Income-tax Act, 1961 of Rs.2,30,00,000/- on account of sale proceeds of unlisted equity shares should be sustained or deleted; (ii) Whether the direction by the Commissioner of Income-tax (Appeals) to the Assessing Officer to make an addition equal to 5% of total sales consideration as embedded profit is sustainable; (iii) Whether addition of Rs.31,00,000/- under Section 68 of the Income-tax Act, 1961 on account of alleged non-genuine commodity trading profit in illiquid stock options is sustainable.

Issue (i): Whether the addition of Rs.2,30,00,000/- under Section 68 in respect of sale of unlisted equity shares is maintainable.

Analysis: The transactions involved sale of investments held by amalgamating companies; investments and prior acceptances by revenue in earlier assessment years were on record; purchasers furnished confirmations, ITRs, audited accounts and banking trail; no independent defect in documents was demonstrated by the Assessing Officer; co-ordinate bench decisions and High Court confirmation in materially similar cases applied the principle that once investments were accepted in earlier scrutiny assessments and sale proceeds are supported by evidence, additions under Section 68 cannot be sustained; statements recorded during search were retracted and lacked corroborative material.

Conclusion: The addition of Rs.2,30,00,000/- under Section 68 is deleted and the Revenue's appeal on this issue is dismissed (in favour of the assessee).

Issue (ii): Whether the CIT(A)'s direction to make an addition equal to 5% of total sales consideration as presumed profit is sustainable.

Analysis: The direction imposing a 5% deemed profit lacked a substantive basis in the appellate order; the Assessing Officer was not directed to apply or compute such a percentage based on evidentiary findings; co-ordinate bench authority did not support an unsubstantiated presumptive addition where the factual matrix was similar and evidence supported genuineness of transactions.

Conclusion: The CIT(A)'s direction to add 5% of sales consideration is set aside and the assessee's cross-objection is allowed (in favour of the assessee).

Issue (iii): Whether the addition of Rs.31,00,000/- as non-genuine commodity trading profit in illiquid stock options is maintainable under Section 68.

Analysis: Profit of Rs.31,00,000/- was credited and offered to tax by the assessee with contract notes and exchange records; AO relied on SEBI/investigation reports without pointing to defects in the assessee's documents or producing independent contradictory evidence; legal authorities restrict making additions solely on retracted search statements without corroboration.

Conclusion: The addition of Rs.31,00,000/- is deleted and the assessee's ground is allowed (in favour of the assessee).

Final Conclusion: The Revenue's appeal is dismissed and the assessee's appeal and cross-objection are allowed; the Assessing Officer is directed to delete the impugned additions and to act in accordance with the findings recorded.

Ratio Decidendi: Where investments were accepted in earlier scrutiny assessments and sale proceeds are supported by documentary evidence and banking trail, and where statements recorded during search are retracted without corroborative material, additions under Section 68 of the Income-tax Act, 1961 cannot be sustained.

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