Concise Analytical Summary of the Provided Opinion

Factual and Procedural Background

This appeal challenges the Income-tax Appellate Tribunal, Agra Bench order dated 18 November 2009, which had dismissed the Revenue's appeal against the order of the Commissioner of Income Tax (Appeals). The underlying assessment is for Assessment Year 2004-05. The assessee (an individual) filed a return declaring total income of Rs. 39,46,538 on 31 March 2005. The Assessing Officer scrutinised the assessee's return focusing on long term capital gain (LTCG) of Rs. 17,54,237 arising from sale of 19,000 shares of Focus Industrial Resources through broker M/s. MKM Finsec.

The Assessing Officer found that the shares had been purchased on 8-7-2002 for Rs. 1,90,000 and sold on 14-8-2003 for Rs. 19,54,948 and, because the broker had not supplied documentary details, treated the transaction as suspect. The AO disallowed the assessee's claim of LTCG and added the differential amount (treated as undisclosed income) — a figure noted as Rs. 19,51,038 — to income under the head "income from other sources" and made the addition under section 68 of the Income-tax Act.

The assessee appealed to the CIT (Appeals). The CIT(A) by order dated 4 March 2008 accepted the assessee's plea, deleted the addition and directed that LTCG of Rs. 17,54,237 be assessed as declared by the assessee. The Revenue's subsequent appeal to the Tribunal failed and the Revenue brought the present appeal challenging the Tribunal's order.

Legal Issues Presented

1. "Whether the Hon'ble ITAT was legally correct in confirming the findings of learned CIT (A) regarding the deletion of the addition of Rs. 19,51,038/- made by the A.O. u/s 68 of IT Act, 1961 and assess the income under the head LTCG as shown by the assessee ignoring the common modus operandi of providing fictitious accommodation entries to persons in the garb of share transactions, adopted by the M/s. M.K.M. Finsec Pvt. Ltd.?"
2. "Whether the Hon'ble ITAT was legally correct in confirming the deletion the addition made by the A.O. u/s 68 of IT Act ignoring the legal aspect that the assessee could not discharge his onus of providing the genuineness of the share transaction?"

Arguments of the Parties

Appellant (Revenue) — Principal Contentions

• The learned Senior Standing Counsel for the Revenue contended that both the CIT(A) and the Tribunal erred in deleting the addition because the share broker had not produced documentary evidence to substantiate the assessee's claim of sale of the shares.
• The Revenue argued that the Assessing Officer was correct to treat the transaction as suspect and to add the amount under section 68, given the absence of documentary proof from the broker to support the alleged sale.

Respondent (Assessee) / Assessee's Representative (AR) — Principal Contentions and Material on Record

The opinion reproduces the CIT(A)'s summary of the AR's submissions and the documentary material placed before the AO and in appellate proceedings. The AR's contentions and documents (as recorded) were:

• The shares were applied for and allotted directly from the company Focus Industrial Resources Ltd.; ROC master data was filed.
• Payment of the share application money was made by account-payee demand draft drawn on the assessee's bank account.
• The allotted shares were credited to the assessee's demat account (Demat A/c No. DEL/CL4/16179378) with Stock Holding Corporation of India Ltd. (DP ID No. IN301127).
• The company was listed with the Delhi Stock Exchange.
• The shares were sold through share broker MKM Finsec Pvt. Ltd.; the sale details (number of shares and sale rate) were on record.
• The shares were transferred via delivery instruction from the assessee's depository account to Abhipra Capital Ltd.; the buyer's name and ID in whose account the shares were transferred were filed.
• Sale consideration was received by account-payee demand drafts; AO independently ascertained that these drafts were issued from the broker's bank account.
• Documents brought on record during assessment proceedings included: copy of share broker bill; copy of contract note; copy of demat account statement showing transfer from the assessee's name; copy of ledger account of the assessee in the broker's books; and copy of bank statement of the assessee (Bank of India, Agra).
• Notices under sections 133(6) and 131 issued to the broker were complied with, and this compliance, together with the documents above, established the existence of the broker and the transaction.
• The AR emphasized that the continuous presence of shares in the demat account during the holding period and subsequent transfer to the buyer's demat account, along with official quotations supporting the sale price, indicated genuineness of the transaction.
• The AR contended that suspicion alone cannot displace documentary evidence and that the burden to prove that proceeds represented undisclosed income lay on the Department.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
ITO v. Smt. Kusumlata [2007] 13 SOT 61 (Mum.)	Held that a share transaction was not bogus; assessee filed requisite evidence to establish genuineness; inability of broker to report to Stock Exchange does not make transaction bogus. Burden to prove bogusness lies on the department and must be strictly discharged.	The CIT(A) relied on this decision to support the view that the assessee produced sufficient evidence and that mere failure of the broker to report to the exchange does not render the share transaction bogus.
Kishinchand Chellaram v. CIT [1980] 125 ITR 713 / 4 Taxman 29	States that the burden is on the Department to prove that the money belongs to the assessee and that the assessee cannot be expected to call the concerned person in evidence to help the Department discharge its burden.	The CIT(A) invoked this principle to conclude that the Department had the burden to show that proceeds represented undisclosed income and had not discharged that burden.
CIT v. Daya Chand Jain Vaidya [1975] 98 ITR 280 (Allahabad HC)	Expressed a similar view (as Kishinchand) regarding the burden on the Department.	Referred by the CIT(A) to reinforce the position that the Department must prove that proceeds are unexplained income; used to support deletion of the addition.
Lalchand Bhagat Ambika Ram v. CIT [1959] 37 ITR 288 (SC)	Referenced for the settled proposition that suspicion, however strong, cannot take the place of proper evidence.	The CIT(A) relied on this principle to reject the AO's reliance on suspicion and surmise in concluding the transaction was bogus.
CIT v. East Coast Commercial Co. Ltd. [1967] 63 ITR 449 (SC)	Also cited for the proposition that suspicion cannot replace evidence.	Used to support the view that the AO could not base the addition merely on suspicion when documentary evidence had been produced.
A.C. Auluck v. Asstt. CIT [2003] 1 SOT 90 (Chd.)	Cited in the context that suspicion cannot substitute for evidence in tax matters.	Relied on by the CIT(A) as part of the body of authority that documentary evidence, if not rebutted, should stand.
Sreelekha Banerjee v. CIT [1963] 49 ITR 112	Holds that before the Department rejects evidence, it must show inherent weakness in the explanation or rebut it by evidence in its possession; department cannot unreasonably reject good proof.	Invoked by the CIT(A) to criticize the AO's reliance on presumption and surmise and to justify acceptance of the assessee's documentary evidence.
Umacharan Shaw & Bros. v. CIT [1959] 37 ITR 271	Cited for the principle that conclusions based on unfounded presumption and surmise cannot be approved.	Relied upon to support the proposition that the AO's conclusion, based on presumption and surmise, was not sustainable.

Court's Reasoning and Analysis

The court's analysis proceeds from the factual findings recorded by the Assessing Officer, the documentary material produced by the assessee and the legal principles established by cited authorities. The court (through the CIT(A) and the Tribunal, whose orders the present bench considered) reasoned as follows:

1. AO's Finding: The AO initially held that the transaction appeared fake because the broker had not given details and furnished documents; accordingly, the AO added the sale proceeds as undisclosed income under section 68, treating the gain as not genuine LTCG.
2. Evidence Placed by Assessee: The assessee (through AR) produced a set of documents during assessment and appellate proceedings: allotment details from the company, demand drafts evidencing payment of application money from the assessee's bank account, demat account statement showing allotment and subsequent transfer, broker bill/contract note, broker ledger entries, and the assessee's bank statement. Notices under sections 133(6)/131 were issued to the broker and were complied with.
3. Onus and Standard of Proof: The CIT(A) applied settled legal principles, citing multiple authorities, that the Department bears the onus of proving that money belongs to the assessee as undisclosed income and that suspicion cannot replace evidence. The CIT(A) observed that the AO had improperly equated the onus in this matter to that applicable in cash-credit cases and had failed to produce evidence rebutting the documents produced by the assessee.
4. Treatment of Demat Transfers and Documentary Chain: The CIT(A) emphasized that allotment to the assessee, holding in demat account and subsequent transfer to buyer's demat account were significant indicia of genuineness, and that dematerialised transactions are prima facie evidence under the Depository Act framework (as presented by the AR).
5. Reliance on Precedents: The CIT(A) relied on the jurisprudence cited (e.g., ITO v. Smt. Kusumlata; Kishinchand Chellaram; Sreelekha Banerjee; Umacharan Shaw & Bros.; Lalchand Bhagat; East Coast Commercial) to conclude that the AO had failed to discharge the burden of proving bogusness and that his conclusions were based on presumption and surmise rather than on rebuttal evidence.
6. Tribunal's Confirmation: The Tribunal upheld the CIT(A)'s reasoning, noting that the assessee was in possession of the shares, sold them in the ordinary course through a broker, and that if the broker could not file evidence because documents were seized by the Revenue, that fact did not impugn the assessee's position. The Tribunal found that the sale consideration receipt by demand drafts and the demat transfers supported genuineness. The Tribunal concluded there was no error in deleting the addition and assessing LTCG as declared.

Holding and Implications

DISMISSED — The appeal by the Revenue fails and is dismissed.

Direct consequences as recorded in the opinion:

• The Tribunal's order upholding the CIT(A)'s deletion of the addition of Rs. 19,51,038 is sustained.
• The Assessing Officer is directed to assess the long term capital gains of Rs. 17,54,237 as shown by the assessee (i.e., to treat the gain as LTCG rather than undisclosed income under section 68).

Broader implications: The opinion applies settled principles concerning burden of proof and the inadmissibility of mere suspicion in tax assessments; it does not purport to establish a new legal precedent beyond the application of the authorities cited. The decision resolves the dispute between the Revenue and the assessee in favour of the assessee for the assessment year in question.