Unexplained share sale proceeds and exempt capital gains fail when acquisition of shares is not satisfactorily proved.

ITAT Ahmedabad held that where the initial acquisition of shares was not satisfactorily proved, later sale through a recognised exchange and payment of STT did not by themselves establish a genuine exempt long-term capital gain. The assessee's reliance on allotment papers, demat records and contract notes was found insufficient because the script was suspended or unlisted for the relevant period and the purchase trail remained doubtful. The addition as unexplained cash credit was therefore sustained and the exemption claim under section 10(38) was rejected.

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Issues: (i) Whether the addition made by treating the share sale proceeds as unexplained cash credit under section 68 was sustainable, and whether the claim of exempt long-term capital gains under section 10(38) was proved to be genuine.

Issue (i): Whether the addition made by treating the share sale proceeds as unexplained cash credit under section 68 was sustainable, and whether the claim of exempt long-term capital gains under section 10(38) was proved to be genuine.

Analysis: The assessee relied on allotment documents, demat records, contract notes and proof of STT payment to support the claim that the shares were acquired through preferential allotment and sold through the stock exchange. The record, however, showed that the script was a suspended or unlisted script for the relevant period, the purchase trail remained doubtful, and the material produced did not establish the genuineness of the transaction to the extent required to displace the finding of the Assessing Officer and the first appellate authority. Mere sale through the stock exchange was held insufficient where the initial acquisition itself was not satisfactorily proved.

Conclusion: The addition under section 68 was upheld and the claim of exemption under section 10(38) was rejected.

Final Conclusion: The appeal failed in substance, and the assessment addition was sustained.

Ratio Decidendi: Where the acquisition of shares is not satisfactorily established, subsequent sale through a recognised exchange and payment of STT do not by themselves prove a genuine exempt capital gain or displace an addition as unexplained cash credit.

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