2019 (2) TMI 1640 - AT - Income Tax

Exemption u/s 10(38) denied - Bogus LTCG - Addition based on information said to be received from the Investigation Wing of the Department at Kolkata - whether the company in which the assessees invested is considered to be penny stock company? - HELD THAT - Admittedly, AO disallowed the claim of the assessees on the basis of the information said to be received from the Investigation Wing of the Department at Kolkata with regard to investment made by the assessees in the penny stock company. It is not in dispute that a copy of the investigation report said to be received from Kolkata was not furnished to the assessee. Details of the enquiries said to be made by the Assessing Officer were also not furnished to the assessees. Tribunal is of the considered opinion that the Assessing Officer has to reconsider the issue afresh after furnishing the material relied upon by the Assessing Officer. Assessing Officer shall bring on record the role of the assessees in promoting the company and the relationship of the assessees, if any with the promoters, role of the assessees in inflating the price of shares, etc. AO shall also furnish a copy of the investigation report said to be received from the Investigation Wing of the Department at Kolkata and other materials if anything in his possession and thereafter decide the issue afresh in accordance with law - Decided in favour of assessee for statistical purposes.

Summary

Issues:
Rejection of claim under Section 10(38) of the Income-tax Act, 1961.

Analysis:
The judgment by the Appellate Tribunal ITAT Chennai involved appeals by independent assessees against the order of the Commissioner of Income Tax (Appeals)-5, Chennai, for the assessment year 2014-15. The key issue in consideration was the rejection of the assessees' claim under Section 10(38) of the Income-tax Act, 1961. The assessees' counsel argued that the Assessing Officer disallowed the claim based on information from the Investigation Wing at Kolkata, without providing the assessees with copies of the investigation report or details of the enquiries conducted. The counsel requested a remittance back to the Assessing Officer for a fresh decision after providing the necessary materials. Reference was made to a previous Tribunal order for support.

The Tribunal, after hearing from the Departmental Representative, acknowledged that the Assessing Officer had disallowed the claim without furnishing the necessary investigation report or enquiry details to the assessees. Consequently, the Tribunal set aside the orders of the lower authorities and remitted the issue back to the Assessing Officer. The Assessing Officer was directed to reconsider the matter after providing the assessees with the material relied upon, including the role of the assessees in promoting the company, any relationships with promoters, involvement in share price inflation, and other relevant details. The Assessing Officer was instructed to furnish the investigation report from the Kolkata Department and any other relevant materials before deciding the issue afresh in compliance with the law and providing a reasonable opportunity to the assessees.

As a result, both appeals by the assessees were allowed for statistical purposes, and the order was pronounced in court on 6th February 2019 in Chennai.