Bogus share gains and human probabilities led the Tribunal to uphold section 68 addition and reject exemption claim.

ITAT Mumbai held that a claimed exempt long-term capital gain from sale of shares was non-genuine where the shares were bought at a nominal price and later sold at an unexplained inflated price. The surrounding circumstances, including the timing of dematerialisation and sale, were found inconsistent with normal human conduct. Applying the preponderance of human probabilities and the principle that substance prevails over form, the Tribunal treated the transaction as bogus. The addition under section 68 was therefore upheld and the exemption claim for long-term capital gain was rejected.

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Issues: Whether the addition made by treating the claimed long-term capital gain as non-genuine under section 68 was sustainable.

Analysis: The assessee claimed long-term capital gain on sale of shares of a little-known company. The finding recorded was that the shares were purchased at a nominal rate and sold at a sharply inflated price without any economic or financial basis for such increase. The surrounding circumstances, including the timing of dematerialisation and sale, were held to be inconsistent with normal human conduct. Applying the test of preponderance of human probabilities and the principle that the substance of the transaction prevails over its form, the claim was found to be bogus. The reasoning was held to be consistent with the binding view relied upon on similar share transactions.

Conclusion: The addition under section 68 was upheld and the claim of exempt long-term capital gain was rejected.

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