Section 68 cannot sustain on documented share sales without incriminating material; ad hoc profit estimates also need factual support.

Recorded share sale proceeds were treated as explained where the shares had been acquired in earlier years, their purchase and disclosure were not disturbed in prior assessments, and the assessee produced sale records, buyer details, bank statements, audited accounts and return filings to establish identity, creditworthiness and genuineness; in the absence of incriminating material, fund-flow evidence or proof that the proceeds were unaccounted money, section 68 could not be applied. An ad hoc 5% profit estimate on the sale consideration also lacked factual foundation because no material showed any embedded profit beyond the recorded receipts, so such addition was unsustainable.

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Issues: (i) Whether the addition of share sale proceeds as unexplained cash credit under section 68 was sustainable. (ii) Whether estimation of profit at 5% of the sale consideration was justified.

Issue (i): Whether the addition of share sale proceeds as unexplained cash credit under section 68 was sustainable.

Analysis: The shares had been acquired in earlier years and their purchase and disclosure in the balance sheets had not been disturbed in prior assessments. The assessee furnished sale details, buyer particulars, bank records, audited accounts and return filings to establish identity, creditworthiness and genuineness. The purchasers were found to have responded to statutory notices, and the doubt raised by the Revenue rested mainly on alleged non-existence of some buyers and their later strike-off status. No incriminating material from search or any fund-flow evidence was brought to show that the sale proceeds were the assessee's own unaccounted money. In these circumstances, the initial burden stood discharged and the addition under section 68 could not survive.

Conclusion: The addition of Rs. 5,63,50,000 was not sustainable and was deleted in favour of the assessee.

Issue (ii): Whether estimation of profit at 5% of the sale consideration was justified.

Analysis: The direction to tax 5% of the total sale consideration was made without any direct material showing profit over and above the recorded sale proceeds. The sale was of investments already accepted in earlier years, and the appellate direction rested on presumption rather than evidence. In the absence of a factual foundation for estimating an embedded profit element, such ad hoc addition could not be sustained.

Conclusion: The 5% profit estimation was set aside and the cross objection was allowed in favour of the assessee.

Final Conclusion: The Revenue's challenge to the deletion of the section 68 addition failed, and the assessee succeeded in overturning the estimated profit addition, leaving no surviving addition on the disputed share sale proceeds.

Ratio Decidendi: Where share investments accepted in earlier years are sold through identifiable buyers supported by bank and documentary evidence, and the Revenue brings no incriminating or corroborative material to show that the sale proceeds are unexplained or fictitious, section 68 cannot be applied to the recorded sale consideration; an ad hoc profit estimate also requires a factual basis.

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