Bona fide share transfer receipts cannot be taxed as unexplained cash credit when documentary evidence and funding trail are established.

A bona fide share-transfer transaction supported by the share purchase agreement, bank records, valuation material, audited financials and purchaser confirmations could not be re-characterised as unexplained cash credit under section 68 read with section 115BBE merely because the purchaser's internal funding structure was questioned. The assessee had explained the receipt and the source trail, so the share-sale consideration was treated as capital gains and the addition was deleted. As the capital gains computation survived, the deduction claim under section 54F was not finally adjudicated and was remanded for verification of the investment details and fresh decision in accordance with law.

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Issues: (i) Whether the consideration received on transfer of shares could be assessed as unexplained cash credit under section 68 read with section 115BBE, or was taxable as capital gains. (ii) Whether the claim for deduction under section 54F required allowance on the basis of the accepted transfer and computation of capital gains.

Issue (i): Whether the consideration received on transfer of shares could be assessed as unexplained cash credit under section 68 read with section 115BBE, or was taxable as capital gains.

Analysis: The assessee supported the share transfer with the share purchase agreement, bank records, valuation material, audited financial statements and confirmations from the purchaser. The purchaser's funding trail was also examined, showing receipt of funds from its foreign holding company and issuance of fresh shares at premium. On these facts, the assessee had explained the source of receipt and the source of source. The addition was therefore not sustainable in the assessee's hands merely because the purchaser's internal funding structure was questioned. A genuine business transfer of shares could not be re-characterised as unexplained cash credit when the transaction itself was established and no material showed that the receipt was not sale consideration.

Conclusion: The addition under section 68 read with section 115BBE was deleted and the share-sale receipt was to be taxed as capital gains.

Issue (ii): Whether the claim for deduction under section 54F required allowance on the basis of the accepted transfer and computation of capital gains.

Analysis: Once the addition treating the sale proceeds as unexplained credit was deleted, the capital gains computation accepted by the assessee survived. The factual verification necessary for the deduction claim had not been carried out at the assessment stage, and the record was insufficient for a final adjudication of the eligibility and quantum of deduction. The proper course was to restore the matter for verification of the investment details and allow the claim in accordance with law.

Conclusion: The issue under section 54F was remanded to the Assessing Officer for verification and fresh decision.

Final Conclusion: The addition treating the share-sale consideration as unexplained credit was set aside, while the deduction claim under section 54F was restored for factual verification, resulting in relief to the assessee on the main issue and remand on the ancillary claim.

Ratio Decidendi: Where a bona fide share-transfer transaction is supported by contemporaneous documentary evidence and the assessee explains both the receipt and the purchaser's funding trail, the consideration cannot be taxed as unexplained cash credit in the assessee's hands under section 68 merely because the purchaser's own capital structure is questioned.

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