Share Sale Proceeds Not Unexplained – Karnataka HC Upholds ITAT Order Deleting ₹7 Cr Addition u/s 68

Share Sale Proceeds Not Unexplained – Karnataka HC Upholds ITAT Order Deleting ₹7 Cr Addition u/s 68- Tribunal’s Finding of Genuineness is Purely Factual

PCIT Vs The Hamlet Karnataka High Court decision dt 2 September 2025 ITA No.193 of 2024 AY 2012-13

Share Sale Proceeds Not Unexplained – Karnataka HC Upholds ITAT Order Deleting ₹7 Cr Addition u/s 68- Tribunal’s Finding of Genuineness is Purely Factual

The Karnataka High Court dismissed the Revenue’s appeal & upheld the order of the Income Tax Appellate Tribunal (ITAT) deleting an addition of ₹7 crores made u/s 68. The Court held that the Tribunal’s findings on genuineness of the transaction & creditworthiness of the purchasers were findings of fact based on evidence, which did not raise any substantial question of law.

The case pertained to AY 2012-13. The Assessee, M/s The Hamlet, had sold shares held in M/s Kemwell Biopharma Pvt. Ltd. to three private companies – Newedge Realtors Pvt. Ltd., Swift Residency Pvt. Ltd., & Rootstar Builders Pvt. Ltd. – & declared a short-term capital loss in its return. AO, doubting the genuineness of the share sale, treated the receipt of ₹7 crores as unexplained cash credit u/s 68, holding that the purchasers had not proved their creditworthiness or genuineness. CIT(A) upheld the addition.

On further appeal, the Tribunal deleted the addition after examining the bank statements & financials of the purchaser companies, holding that each had sufficient shareholder funds & reserves to justify the investment. It noted that all three purchasers had responded to notices issued u/s 133(6), confirming the transactions. The Tribunal also observed that AO had brought no material to disprove the explanation or to show that the share sale was sham.

Before the High Court, the Revenue contended that the Tribunal had relied on fresh evidence without remanding the case to the AO, & that the purchasers’ creditworthiness remained unproven. However, the Assessee argued that all relevant documents, including bank statements, were already on record before the AO, & that the Tribunal merely evaluated existing evidence.

The Division Bench accepted the Assessee’s contention. It observed that the Tribunal’s conclusions were derived from the material already before the tax authorities & that no new evidence had been introduced. The findings on genuineness, identity & creditworthiness were purely factual, based on examination of the purchasers’ financials showing substantial net worth – ₹29.97 crore, ₹21.83 crore, & ₹9.45 crore respectively. Since these findings were not shown to be perverse, no substantial question of law arose.

Consequently, the High Court dismissed the Revenue’s appeal, confirming the ITAT’s order & reiterating that factual determinations of the Tribunal cannot be interfered with u/s 260A unless they are perverse or unsupported by evidence.

The Tribunal’s finding that the share sale transaction was genuine & duly explained was a finding of fact, & therefore the High Court found no substantial question of law. The appeal by the Revenue was dismissed, & the deletion of ₹7 crores u/s 68 was upheld.