Share transaction genuineness defeats unexplained cash credit addition; consequential commission disallowance also falls

Share-sale transactions supported by share application and allotment records, demat statements, contract notes, broker ledgers and banking trail were treated as genuine, and the addition as unexplained cash credit was held unsustainable because the record showed no specific evidence of bogus accommodation entries or defects in the documents. The reliance on general investigation material, price manipulation allegations and human probabilities was insufficient to displace the apparent transaction on suspicion alone. As the commission disallowance was only consequential to the rejected share transaction addition, it also failed. The long-term capital gain exemption was therefore upheld in favour of the assessee.

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Issues: Whether the sale proceeds from the share transactions could be treated as unexplained cash credit, and whether the consequential addition for alleged commission expenditure could be sustained while allowing exemption on the long-term capital gain.

Analysis: The assessee supported the purchase and sale of shares with share application and allotment documents, demat statements, contract notes, broker ledger entries and banking records showing receipt of sale consideration through regular channels. The addition was made primarily on general investigation material, alleged price manipulation and the theory of human probabilities, without any specific evidence linking the assessee to any bogus accommodation entry or any defect in the documentary evidence produced. The absence of tangible material to disprove the apparent transaction, together with the settled requirement that a transaction supported by contract notes, demat trail and banking evidence cannot be rejected merely on suspicion, led to acceptance of the share sale as genuine. Since the commission addition was only consequential to the disallowance of the share transaction itself, it also could not survive once the main addition failed.

Conclusion: The addition under section 68 was not sustainable, the consequential addition under section 69C also failed, and the exemption claimed on the long-term capital gain was upheld in favour of the assessee.

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