INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - LTCG on sale of shares -

AO received information from Investigation Wing that assessee was one among the beneficiaries in the list by accepting bogus long-term capital gain entries through stock brokers trading in circular and penny stocks. Also, AO noticed astronomical increase in price of concerned shares. Accordingly, AO treated LTCG declared by assessee claiming exemption under section 10(38), as bogus and made addition under section 68. Held: Assessee had placed on record complete documents and evidences to support purchase and sale of shares. The sale was through screen based trading and STT and all charges were duly paid. The consideration was received through banking channels. In such circumstances, AO ought to have conducted independent enquiries and verifications with due application of mind before drawing any adverse inference. Thus, the approach of AO in making the addition was also contrary to section 142(1). Astronomical increase in price of concerned shares without evidence of any involvement of the assessee could not be the basis to deny the claim made by the assessee, particularly when SEBI had specifically exonerated assessee. Accordingly, addition made by AO on the basis of surmises, conjectures and suspicion was deleted.