Share sale genuineness and human probability test can defeat exempt capital gains where transactions appear sham

Exempt long-term capital gains from share sales were scrutinised against investigation material, financial patterns, trading behaviour and surrounding circumstances, and the documentary records were found insufficient to prove genuineness. The text emphasises that taxing authorities may look beyond apparent documents, apply the test of human probability, and require the assessee to discharge the burden of proving a real transaction. Where the share dealings are found to be a structured sham or colourable device to introduce unaccounted money, the claim of exemption fails and the sale proceeds may be treated as unexplained income. A procedural objection based on non-confrontation or lack of cross-examination did not displace the factual finding.

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Issues: Whether the assessee's claim of exempt long-term capital gain from sale of shares was genuine, and whether the addition of the sale proceeds as income was justified.

Analysis: The documents produced for purchase and sale of shares were found insufficient in the light of the investigation material, the financials and trading pattern of the scrip, and the surrounding circumstances. The explanation of the assessee was held not to discharge the burden of proving genuineness of the transaction. Applying the test of human probability and the principle that taxing authorities may look beyond apparent documents to ascertain the real nature of the transaction, the claim of exempt long-term capital gain was treated as a structured sham and a colourable device to introduce unaccounted money. The addition was also sustained as unexplained income, and the challenge based on non-confrontation and lack of cross-examination did not lead to interference on the facts found.

Conclusion: The claim of genuine exempt long-term capital gain was rejected and the addition was upheld in favour of the Revenue.

Ratio Decidendi: In share-transaction cases, apparent documentary evidence does not prevail where investigation material and surrounding circumstances establish that the transaction is a sham or colourable device; the assessee must prove genuineness on the touchstone of human probability and discharge the burden of proof.

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