Sales of Shares Supported by Evidence Cannot be held as Sham Transaction

Fact of the case

• Assessee purchased shares of two companies in cash in early 2011 and sold these shares in F.Y. 2013-14 at consideration of ₹20 Lakhs & ₹23Lakhs approx., through a registered share broker in recognized stock exchange and claimed exemption u/s 10(38) after a holding period of one year.
• Assessing officer (AO) is framed an opinion that in the absence of sound financial result, share prices of the company were artificially hiked to create non-genuine LTCG and made addition as alleged unexplained cash credit u/s. 68 read with section 115BBE.

Contention of the Assessee

• Assessee on the basis of documents in relation to transaction contended that the entire transaction of sale of shares was incurred on recognized stock exchange (RSE) and is being routed through proper banking channels. Accordingly, share prices are not in control of assessee and nor any such allegation has surfaced on record that the assessee is involved in price manipulation of aforesaid scrips.
• Assessee contended that statements of alleged entry operators have never been produced for cross-examination, and thus addition cannot be made in the hands of assessee without giving a chance for rebuttal.

Contention of the Department

• AO contended that the parameters which are essential for increase in price of shares are absent, and hence the sky rocketing increase is due to artificial methods, with the sole objective of providing bogus LTCG to various beneficiaries.
• AO also relied on statements recorded in other cases of various brokers, operators, service providers and entry providers recorded by investigation wing, to create bogus profit in the garb of LTCG by well-organized network and therefore, held the transaction as sham.

Decision held & our Conclusion

• Considering the facts of the case, Tribunal held that effect of a transaction which is supported by documentary evidences cannot be brushed aside on suspicion or probabilities without pointing out any defect therein.
• It further held that prices of shares in the share market depends upon innumerable factors and perception of the investor and not alone on the financial performance of the company.
• It held that Ld. AO did not provided adequate opportunity to assessee to defend her case and accordingly, she was deprived of her right-to cross examine witness and accordingly held that in the present case, the entire documentary evidence on record has not been disputed by the authorities and no rebuttal to the explanation of assessee and deleted the additions.
  • It can be concluded that, no transaction shall be held as sham and could not be treated as unexplained cash credit u/s 68, If supporting documentary evidence are in existence and any material used against the assessee shall be given for rebuttal and cross-examination of assessee.

Source: [2020] 115 taxmann.com 167 (Delhi – Trib.)