At Zerodha we made a change last year, even for BTST trades we credit the shares to Demat and then debit it on the settlement date. So this should cover for the concern you have.
By the way, another thing you can tell the AO is that STT for BTST trades are applied as STT for delivery and hence you are considering it as capital gains and not speculative income (non-delivery based).
Very less chance. But is it what it is. AO can always disagree with whatever you declare.
What can you do about it? Well. You can go for litigation or pay the demanded amount.
As per the Income tax act, a transaction where commodities including shares and stocks are settled otherwise than actual delivery then it is treated as a speculative transaction. Since you’re receiving actual delivery of shares in BTST it shall be treated as a capital transaction and reported as short-term capital gain/loss.