Section 68 inapplicable to genuine share sale where identity, capacity, genuineness, and source including source of source are proved and confirmed, despite buyer funding doubts via share premium.

ORDER

PER R.K. PANDA, V.P:

This appeal filed by the assessee is directed against the order dated 18.08.2025 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2023-24.

2. Facts of the case, in brief, are that the assessee is an individual and filed his return of income u/s 139(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) on 31.10.2023 declaring total income of Rs.56,70,68,620/- after setting off of brought forward loss of Rs.3,26,010/- and after claiming deductions under Chapter VI-A at Rs.2,55,000/-. The assessee in his return of income had declared salary income of Rs.1,14,92,841/-, business income of Rs.1,27,430/-, short term capital gain of Rs.22,72,047/-, long term capital gain of Rs.52,96,90,358/- and income from other sources at Rs.2,40,66,957/-. The case of the assessee was selected under CASS to verify the following:

a) To examine whether the capital gains on sale of securities / mutual funds have been correctly offered to tax, and to verify the source of investment.

3. Accordingly, statutory notice u/s 143(2) of the Act was issued and served on the assessee. Subsequently, notice u/s 142(1) of the Act was issued and served on the assessee in response to which the assessee filed the requisite details. During the course of assessment proceedings the Assessing Officer asked the assessee to explain the capital gain declared by him. It was submitted by the assessee that the same has arisen on account of sale of equity shares held by the assessee as a promoter shareholder and Managing Director of the company namely KP Corporate Solutions Ltd. It was further stated that the stake sale is of the entire holding of the shares by the assessee and also other promoter shareholders and is sale of 100% of the holding under the Shares Sale Agreement with the acquiring company. The acquiring company is an independent company and has no relationship with any of the promoters and is done at the negotiated price and other terms and conditions as agreed to amongst the parties detailed in the Share Purchase Agreement which is a standard practice followed in such acquisitions and has standard warranties, covenants, conditions and restrictions along with long dates defined.

4. It was argued that KP Corporate Solutions Ltd. is a closely held limited company which was established and incorporated on 08.05.1997 i.e. after being in business and in operations for over 25 years as on the date of the sale of the entire stake of shares in this company. It was submitted that the acquisition of the shares by the assessee in this company is over the years and is well documented and available on the MCA portal in its filings and also in the Audited Financial Statements.

5. It was submitted that during the period ended March 2019 the company went through the process of merger of its wholly owned subsidiary namely K & P Capital Services Ltd. through NCLT order which was passed under CP(CAA) No.129 of 2018 order dated 15.11.2018 and which is effective from 01.04.2018 i.e. A.Y. 2019-20. The assessee and other shareholders of K & P Capital Services Ltd. got the shares of KP Corporate Solutions Ltd. under this merger in exchange for their shares held in K & P Capital Services Ltd. The assessee also filed a copy of Share Purchase Agreement dated 23.05.2022 executed with Qapita Fintech India Private Limited according to which the entire stake sale has to be done by the promote