Facts

The assessee had claimed exemption under section 10(38) in respect of long-term capital gain earned from sale of shares of a scrip. During the course of investigation, it was revealed that the said scrip was a penny stock and the broker through whom the transaction by way of sale of shares was effected by the assessee, had indulged in price manipulation through synchronized and cross deal in the said scrip. SEBI had also passed an order regarding irregularities and synchronized trades carried out in the scrip by the said broker. On this basis, the long-term capital gain claimed as exempt by the assessee was held to be an accommodation entry by the Assessing Officer and the same was added to the total income under section 68.

The CIT (Appeals) observed that during the course of independent enquiry in the case of the said broker undertaken by SEBI, it was conclusively proved that it was the said broker who was involved in inflating the price of the said scrip. No evidence was brought on record to prove that the assessee was also involved in inflating the price of the scrip.

Decision

The High Court of Bombay upheld the decision of the Tribunal.
The Tribunal had held that since, the shares were purchased on the floor of stock exchange and not from the broker, payment was made through banking channel, deliveries were taken in DEMAT account where shares remained for more than one year, contract notes were issued and shares were sold on the floor of stock exchange, the long-term capital gain claimed as exempt cannot be treated as accommodation entry.

Conclusion

In order to treat exempt long-term capital gain earned from sale of shares as accommodation entry under section 68, the assessee’s direct involvement in price rigging of the scrip should be conclusively proved besides the broker’s involvement.