Long-term capital gains exemption upheld where stock-exchange trades with STT and contemporaneous records show genuineness.

Long-term capital gains exemption under Section 10(38) was allowable where dealings in listed shares were executed through a recognised stock exchange, supported by demat records, contract notes, bank payments and payment of STT; revenue must prove transactions were sham, accommodation entries, or routed back to the assessee by establishing a direct nexus with entry operators or price rigging, and mere suspicion or general reports are insufficient. Absent cogent material linking the assessee to manipulation, denial of exemption is unsustainable and the addition must be deleted.

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Issues: Whether the addition by treating long-term capital gains from sale of Sunrise Asian Ltd. shares as bogus and denying exemption under Section 10(38) of the Income-tax Act, 1961 is sustainable in the absence of cogent material demonstrating the assessee's involvement in price rigging, accommodation entries, or routing back of unaccounted money.

Analysis: Legal framework: Section 10(38) of the Income-tax Act, 1961 provides exemption for long-term capital gains on transfer of listed shares where applicable conditions including payment of security transaction tax are met. Revenue bears the onus of proving that transactions are sham, bogus, or accommodation entries and must establish a direct nexus between the assessee and any alleged entry operators or price manipulation. Documentary proof of purchase and sale, payment through banking channels, demat records, contract notes and payment of STT are relevant primary evidence to substantiate genuineness. Where suspicion or general investigation reports alone exist without specific evidence linking the assessee to manipulation or routing back of funds, such suspicion cannot substitute for cogent proof. The authorities and coordinate benches cited involved similar factual matrices where transactions executed through recognized stock exchange with supporting documentation and no adverse material were held genuine, and jurisdictional precedent gives weight to such findings.

Conclusion: The addition disallowing exemption under Section 10(38) is unsustainable; the exemption is allowable and the addition is to be deleted. The appeal is allowed in favour of the assessee.

Ratio Decidendi: Where transactions in listed shares are supported by contemporaneous documentary evidence, effected through recognized stock exchange with payment of STT, and revenue fails to produce cogent material establishing the assessee's nexus with price rigging or entry operators, suspicion alone cannot justify treating the gains as bogus and denying exemption under Section 10(38) of the Income-tax Act, 1961.

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