Long-term capital gains protection where demat exchange sales with STT and supporting documents upheld against revenue's sham-transaction claim.

Denial of exemption under section 10(38) and treatment of long term capital gains as unexplained income under section 68 was examined on documentary and market evidence. The Tribunal held that where share transfers occurred through recognised exchange with dematerialised trades, contract notes, share certificates, bank payments and payment of Securities Transaction Tax, and adverse third party statements relied on by revenue were not produced for cross examination, the revenue failed to discharge the onus to prove sham transactions on the preponderance of probabilities; result favoured the assessee.

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Issues: Whether the denial of exemption under section 10(38) of the Income-tax Act, 1961 and treating long term capital gains as unexplained income under section 68 of the Income-tax Act, 1961 in respect of sale of shares of M/s HPC Biosciences Ltd. was justified.

Analysis: The Tribunal examined documentary evidence including purchase invoices, allotment/bonus advice, share certificates, demat statement, contract notes, bank entries and proof of payment, and noted sale through a recognised stock exchange with payment of Securities Transaction Tax. The authorities below had relied on investigation reports and third party statements not supplied to, and not tested by cross examination of, the assessee. The Tribunal followed a coordinate bench decision which held that where transactions are executed through recognised exchanges with dematerialised trades, STT payment, and supporting documents, and where adverse statements were not furnished for cross examination, the onus on the revenue to establish sham transactions was not discharged on preponderance of probabilities.

Conclusion: In favour of the assessee.

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