Listed share sale LTCG treated as bogus accommodation entry without incriminating evidence; additions for gains and 6% commission deleted.

Addition treating disclosed LTCG on sale of listed shares as bogus was held unsustainable where no incriminating material was found from the taxpayer and the AO relied solely on a third-party search statement admitting provision of accommodation entries to other entities, without naming or linking the taxpayer as a beneficiary. In absence of any direct evidence establishing sham transactions, and following co-ordinate bench precedent holding similar share-sale gains to be genuine, the Tribunal deleted the addition made as unexplained capital gain; consequently, the estimated commission addition at 6% was also deleted, and the appeal was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1. Whether the long-term capital gains claimed as exempt on sale of listed shares could be treated as a sham/bogus transaction and added as unexplained income where the primary basis was a third-party statement recorded during search, without any incriminating material found from the assessee and without the statement specifically naming the assessee as beneficiary.

2. Whether an estimated addition towards alleged commission expenditure (computed as a percentage of the disputed gains) could survive once the long-term capital gains transaction was accepted as genuine on the evidence produced.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Sustainability of addition treating declared long-term capital gains as bogus

Legal framework (as reflected in the decision): The Court proceeded on the basis that exemption claimed for long-term capital gains on sale of listed shares could not be denied, and the gains could not be brought to tax as unexplained, unless the assessment was supported by cogent material connecting the assessee to an accommodation-entry arrangement.

Interpretation and reasoning: The Court found that the assessee's shares were acquired through preferential allotment, were credited to the assessee's demat account, and were held for the relevant period before being sold through a recognized stock exchange through a broker. Documentary evidence such as contract notes and related records, along with bank statements showing payments for purchase and receipts on sale through banking channels, was available on record. The Court also noted that no incriminating document was recovered from the assessee's possession. The only stated basis for treating the gains as bogus was a third-party statement recorded during search, which spoke of providing accommodation entries to certain persons/entities but did not state that the assessee was a beneficiary. The Court considered this lack of specific linkage to the assessee, coupled with the absence of incriminating material from the assessee and the existence of contemporaneous transactional documentation, as fatal to the addition.

Conclusion: The addition treating the long-term capital gains as unexplained/bogus was deleted, and the long-term capital gains were accepted as genuine, entitling the assessee to the claimed exemption on those gains.

Issue 2: Addition for alleged commission expenditure linked to the disputed gains

Legal framework (as reflected in the decision): The commission addition was treated as consequential, premised on the allegation that the gains were accommodation entries.

Interpretation and reasoning: Since the Court accepted the underlying share transactions and the resultant long-term capital gains as genuine on evidence, the foundation for alleging that the assessee paid commission to obtain accommodation entries did not survive. The Court held that, in these circumstances, the estimated commission addition computed as a percentage of the gains was unwarranted.

Conclusion: The addition on account of alleged commission expenditure was deleted.

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