Penny stock capital gains cannot be rejected under section 68 on investigation material alone when banking and demat records support genuineness

An addition treating alleged penny stock long-term capital gains as unexplained under section 68 was not sustained where the revenue relied mainly on Investigation Wing material without independent verification. The assessee supported the share transactions with banking records and demat evidence, and the appellate finding of genuineness was left undisturbed because the departmental record did not provide contrary material. The operative principle is that, absent independent inquiry or rebuttal evidence, an addition based only on investigative material cannot displace a substantiated transaction.

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Issues: Whether the addition made on the basis of alleged bogus long-term capital gain from penny stock transactions under section 68 was liable to be sustained.

Analysis: The findings against the assessee were founded substantially on Investigation Wing material, and no independent inquiry was shown to have been made. The assessee had supported the transaction through banking channels and demat evidence, and the departmental record did not furnish material sufficient to dislodge the concurrent factual finding in the assessee's favour. On the facts recorded, the share-price movement and surrounding circumstances did not warrant interference with the appellate view that the transaction stood explained.

Conclusion: The addition was not sustained, and the assessee succeeded.

Final Conclusion: The appeal failed, and the appellate orders deleting the addition were left undisturbed.

Ratio Decidendi: Where an addition under section 68 is based only on investigation material without independent verification, and the assessee substantiates the transaction through banking and demat records, the appellate finding in favour of genuineness will not be disturbed in the absence of contrary evidence.

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