Tribunal overturns AO's LTCG denial, deems transaction genuine, allows exemption under sec. 10(38).

The Tribunal concluded that the Assessing Officer's decision to treat the Long-Term Capital Gain (LTCG) as bogus under section 68 was unjustified. The transaction of shares was deemed genuine, supported by substantial evidence, and the assessee's claim for exemption under section 10(38) was accepted. The addition by the AO was directed to be deleted, and the assessee's appeal was successful.

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Issues Involved:
1. Whether the addition of Rs. 19,18,892/- claimed as Long-Term Capital Gain (LTCG) by the assessee on the sale of shares is a bogus transaction.
2. Whether the Assessing Officer (AO) correctly applied the deeming provisions of section 68 to treat the LTCG as unexplained cash credit.
3. Whether the assessee was provided with an opportunity to cross-examine the statements relied upon by the AO.
4. Whether the transaction of purchase and sale of shares was genuine and backed by sufficient evidence.

Issue-wise Detailed Analysis:

1. Bogus Transaction Allegation:
The primary issue revolves around the addition of Rs. 19,18,892/- claimed as LTCG by the assessee on the sale of shares of M/s. ALPS Motor Finance Limited. The AO alleged that the transaction was bogus, based on the modus operandi of operators in penny stocks as unearthed by the Director of Investigation, Kolkata. The AO deduced that the assessee was a beneficiary of accommodation entries for bogus LTCG. However, the assessee provided substantial documentation to support the genuineness of the transaction, including demat account statements, transaction statements, contract notes, and bank statements reflecting the purchase and sale of shares.

2. Application of Section 68:
The AO treated the LTCG as bogus and unexplained, adding it under the deeming provisions of section 68. The AO's decision was based on the inability of the assessee to furnish the bank statements of the sellers from whom the shares were purchased and the identity of the persons to whom the shares were sold. The AO also referred to the statement of Shri Sanjay Vora, who indicated that the scrips of ALPS Motor Finance Limited were used for providing bogus LTCG. The assessee rebutted this by highlighting the lack of specific evidence against her and requested an opportunity to cross-examine Shri Sanjay Vora, which was not provided.

3. Opportunity for Cross-Examination:
The assessee argued that no adverse inference should be drawn based on third-party statements without providing an opportunity for cross-examination. The reliance on Shri Sanjay Vora's statement was contested as it did not specifically implicate the assessee. The Tribunal noted that the denial of cross-examination violated the principles laid down by the Hon'ble Supreme Court in the case of Andaman Timbers Industries Ltd. vs Commissioner of Central Excise.

4. Genuineness of the Transaction:
The Tribunal examined the evidence provided by the assessee, including the allotment of shares directly from the company, payment through account payee cheque, dematerialization of shares, and sale through a registered broker on the Bombay Stock Exchange (BSE). The Tribunal found that the transaction was genuine, as it was backed by substantial documentation and there was no material evidence to suggest that the assessee was involved in any accommodation entry scam. The Tribunal also noted that in a similar case involving the assessee's husband, the addition was deleted based on identical facts and reasoning.

Conclusion:
The Tribunal concluded that the AO's action of treating the LTCG as bogus and adding it under section 68 was not justified. The transaction of purchase and sale of shares was genuine and supported by adequate evidence. The assessee's claim for exemption under section 10(38) on LTCG was allowed, and the addition made by the AO was directed to be deleted. The appeal of the assessee was allowed.

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