Share sale proceeds cannot be treated as unexplained cash credit when primary documentary evidence remains unrebutted.
Share sale proceeds supported by contract notes, demat records, bank statements, broker details, and securities transaction tax payment were held not to be taxable as unexplained cash credit under section 68 where the revenue produced no cogent adverse material linking the assessee or broker to price manipulation or bogus accommodation entries, and no effective independent inquiry dislodged the documentary evidence. The related commission addition under section 69C also failed because it was only consequential to the disallowed share transaction and had no independent evidentiary basis. The result was deletion of both additions, with the commission claim falling once the primary section 68 allegation was not sustained.
Issues: (i) Whether the sale proceeds of shares credited as long-term capital gain could be treated as unexplained cash credit under section 68; (ii) Whether the commission addition under section 69C could survive where it was made as a consequential addition.
Issue (i): Whether the sale proceeds of shares credited as long-term capital gain could be treated as unexplained cash credit under section 68.
Analysis: The assessee produced contract notes, demat account details, bank statements, purchase and sale particulars, and evidence of payment and receipt through banking channels. The shares were stated to have been purchased and sold through a recognised stock exchange through a registered broker, and securities transaction tax was paid. No adverse material was brought to connect the assessee or the broker with price manipulation, and no independent inquiry was made to dislodge the documentary evidence. The request for cross-examination of the persons whose statements formed the basis of the adverse inference was also not granted.
Conclusion: The addition under section 68 was not sustainable and was deleted in favour of the assessee.
Issue (ii): Whether the commission addition under section 69C could survive where it was made as a consequential addition.
Analysis: The commission addition was founded only on the premise that the share transaction was bogus and represented an entry transaction. Once the addition under section 68 failed, there remained no independent basis or supporting evidence for estimating commission expenditure.
Conclusion: The addition under section 69C was also deleted in favour of the assessee.
Final Conclusion: The appeal was allowed and both additions made in respect of the share transaction were deleted.
Ratio Decidendi: Where an assessee substantiates a share transaction with primary documentary evidence and the revenue brings no cogent adverse material linking the assessee or broker to price manipulation or bogus accommodation entries, the transaction cannot be taxed as unexplained cash credit, and a consequential commission addition cannot survive independently.
TaxTMI 
AI Drafter ✕
TaxTMI 
