Penny stock capital gain claims fail when market behaviour shows accommodation entries and documentary proof is insufficient.

A penny stock share-sale claim was treated as non-genuine where abnormal price movement, thin trading volumes, weak financial fundamentals, and investigation material indicated a pre-arranged accommodation entry rather than a real investment transaction. Documentary records such as contract notes, bank statements, demat statements, and securities transaction tax payment were insufficient to prove genuineness when the overall market behaviour showed manipulation. Because the assessee failed to satisfactorily explain the nature and source of the credit, the amount was treated as unexplained cash credit and the claimed long-term capital gain exemption was rejected.

---

---

Issues: Whether the alleged long-term capital gain arising from sale of shares was genuine and eligible for exemption, and whether the corresponding credit was taxable as unexplained cash credit under section 68.

Analysis: The shares were found to belong to a penny stock scrip whose price movement, trading pattern, and thin volumes were inconsistent with normal market behaviour and the company's financial position. The surrounding circumstances, investigation material, and abnormal rise and fall in price indicated a pre-arranged accommodation entry arrangement rather than a genuine investment transaction. Mere production of contract notes, bank statements, demat statements, or payment of securities transaction tax was held insufficient to establish genuineness where the overall conduct and market data showed manipulation. The assessee failed to discharge the burden under section 68 to satisfactorily explain the nature and source of the credit.

Conclusion: The long-term capital gain claim was held to be bogus, the addition under section 68 was sustained, and the exemption claim under section 10(38) was rejected.

Final Conclusion: The appeal was dismissed and the Revenue's addition was upheld on the ground that the share transaction was not genuine.

Ratio Decidendi: Where the surrounding circumstances, trading pattern, and market behaviour that a penny stock transaction is a sham accommodation entry, documentary records alone do not discharge the assessee's burden under section 68 and the claimed exempt capital gain may be taxed as unexplained income.

---