Bogus share capital gains claim rejected where improbable price rise and surrounding evidence showed an accommodation entry scheme.

The ITAT Delhi held that a claim of exempt long-term capital gain on sale of shares was not genuine where the shares were bought in an unknown company, sold after an improbable price surge, and supported only by banking trail and paperwork. The Tribunal relied on the investigation report, stock exchange information showing suspension and later revocation of trading, and the absence of credible evidence of the company's profile or financials to conclude that the transaction was a pre-arranged accommodation entry. It rejected the cross-examination objection because the assessee had been confronted with the material used against it, and sustained the addition as income liable to tax.

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Issues: Whether the long-term capital gain claimed as exempt under section 10(38) of the Income-tax Act, 1961 on sale of shares was a genuine transaction or a bogus accommodation entry liable to be taxed under section 68.

Analysis: The assessee purchased shares of an unknown company and sold them at an extraordinary and improbable rise in price within a short span. The surrounding circumstances, including the investigation report, the stock exchange information that trading in the company's securities had been suspended and later revoked, the absence of credible material about the company's profile and financials, and the inability of the assessee to discredit the adverse material, showed that the apparent transaction was not real. The Tribunal held that documentary compliance and routing of funds through banking channels did not, by themselves, establish genuineness where the overall facts disclosed a pre-arranged scheme to generate exempt capital gains. The objection regarding cross-examination was also rejected because the assessee had been confronted with the material relied upon.

Conclusion: The claim of exempt long-term capital gain was disbelieved and the addition was sustained. The issue was decided against the assessee and in favour of the Revenue.

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