Documentary proof for exchange traded share sales prevents treating resultant capital gains as unexplained income; exemption must follow.

Where sales of listed shares are executed on a recognised exchange through registered brokers with contract notes, demat deliveries, STT payment and bank receipts not controverted, such documentary proof shifts the evidential burden to Revenue and precludes treating resultant capital gains as unexplained income; absent cogent corroborative material showing sham transactions, price rigging or accommodation entries, additions under Section 68 cannot be sustained and exemption for capital gains must be allowed, with consequential estimated additions deleted.

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Issues: (i) Whether the addition of Rs. 75,16,570/- made under Section 68 by treating long term capital gains on sale of SRK Industries Ltd. as unexplained income and denial of exemption under Section 10(38) is sustainable.

Analysis: The appeal concerns sale transactions of listed shares executed through recognised stock exchange brokers with STT paid and consideration routed through banking channels; documentary evidence including broker contract notes, demat statements and bank receipts were placed on record and were not controverted by Revenue. Coordinate decisions of the Tribunal and binding decisions of the Bombay High Court on identical or similar facts hold that where purchase and sale occur on the stock exchange platform, deliveries are taken in demat accounts, payments are through banking channels and contract notes and STT are available, mere reliance on an investigation report without cogent corroborative material is insufficient to treat capital gains as unexplained cash credit under Section 68. The Assessing Officer did not point out defects in the documentation nor bring material establishing participation of the assessee in price rigging or accommodation entries; notices under Section 133(6) did not produce identification or linkage that would rebut the recorded documentary trail.

Analysis: Coordinate Bench precedents dealing with the same scrip and jurisdictional High Court authorities demonstrate that, on similar facts, documentary evidence shifts the evidential burden to Revenue to establish sham nature of transactions; absent such evidence or SEBI/BSE findings impugning the transactions, additions based on conjecture and investigation reports unsupported by particulars cannot be sustained. The Tribunal therefore directed deletion of the addition made under Section 68 and directed grant of exemption under Section 10(38); consequential estimate additions were also deleted.

Conclusion: Issue (i) decided in favour of the assessee - the addition of Rs. 75,16,570/- under Section 68 is deleted and exemption under Section 10(38) is to be granted; consequential additions are deleted.

Ratio Decidendi: Where purchase and sale of listed shares are executed on a recognised stock exchange through SEBI-registered brokers with contract notes, demat deliveries, STT payment and banking channel receipts, and documentary evidence is not controverted, an addition under Section 68 treating resultant capital gains as unexplained income cannot be sustained absent cogent corroborative material showing sham transactions or participation in price rigging.

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