Penny stock additions fail when exchange trades, demat entries, bank routing, and disclosure lack any direct nexus to alleged operators.

Additions based on alleged penny stock accommodation entries were found unsustainable where the share transactions were executed through the stock exchange, securities transaction tax was paid, the shares were reflected in the demat account, and sale proceeds moved through banking channels. The assessee had also disclosed the transactions in the return of income. In the absence of direct material linking the assessee to entry operators, brokers, or any colourable device, generalized suspicion and the theory of human probabilities were insufficient to support additions under sections 68 and 69C. The Revenue's challenge therefore failed and the additions were deleted.

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Issues: Whether additions made under section 68 and section 69C of the Income-tax Act, 1961, on the basis of alleged penny stock accommodation entries were sustainable.

Analysis: The transactions were undertaken through the stock exchange, securities transaction tax was paid, the shares stood reflected in the demat account, and the sale proceeds were routed through banking channels. The assessee had disclosed the transactions in the return of income. No direct material was brought on record to establish a nexus between the assessee and the alleged entry operators, brokers, or any colourable device, and the additions rested only on generalized suspicion and the theory of human probabilities without corroborative evidence linking the specific transactions to the alleged rigging.

Conclusion: The additions under section 68 and section 69C were rightly deleted, and the Revenue's challenge failed.

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