2026 (3) TMI 1488 - AT - Income Tax

Documentary evidence defeated alleged bogus long-term capital gains claim where suspicion and general investigation material were insufficient.

Long-term capital gains exemption on share sale was sustained where the assessee proved purchase through banking channels, demat records, contract notes, ... Bogus long-term capital gains on listed shares - Addition u/s 68 based on alleged penny stock transactions - Suspicion versus cogent evidence - allegation of arranged transactions which involved the series of preconceived steps HELD THAT: - The Tribunal found that the first appellate authority had correctly accepted the assessee's claim on the basis that the assessee had produced documentary material relating to purchase, holding in demat form, sale through the stock exchange and receipt through banking channels, and that these evidences were not rebutted. It further noted that, on similar facts involving the same scrip in the assessee's earlier year and in other decisions of the Delhi Bench like Shivani Gupta [2021 (4) TMI 258 - ITAT DELHI] such additions had been deleted, and no distinguishing material was shown by the Revenue. The determinative principle applied was that an addition alleging accommodation entries in penny stock transactions cannot be sustained merely on suspicion or general investigation inputs in the absence of specific material linking the assessee to manipulation. [Paras 7] The findings of the CIT(A) were upheld and the Revenue's challenge to the deletion of the addition failed. Final Conclusion: Tribunal upheld the deletion of the impugned addition, holding that the Revenue had not displaced the documentary evidence produced by the assessee with any specific material establishing a sham or manipulated transaction. Issues: Whether the deletion of addition made on account of alleged bogus long-term capital gains and unexplained expenditure in share transactions was justified.Analysis: The Revenue challenged the relief granted by the first appellate authority in respect of the assessee's claim of exemption on sale of shares. The record showed that the shares were acquired through banking channels, reflected in the demat account, held for the requisite period, sold through a recognised stock exchange, and supported by contract notes and bank statements. The addition was founded mainly on general investigation material, alleged penny stock manipulation, and suspicion arising from the rise in share price. No direct material connected the assessee with any entry operator, broker misconduct, or sham arrangement, and no independent enquiry rebutting the documentary evidence was brought on record. The appellate authority's view was consistent with prior decisions on the same scrip and similar facts, where the claim was accepted in the absence of cogent contrary evidence.Conclusion: The deletion of the addition was upheld and the Revenue's challenge failed.Final Conclusion: The assessee's claim of exempt long-term capital gains remained accepted, and the additions made by the Assessing Officer did not survive.Ratio Decidendi: A claim of long-term capital gains cannot be rejected merely on suspicion or general investigation reports when the assessee's transaction is supported by primary documentary evidence and the Revenue fails to adduce cogent material showing the transaction to be sham.