2019 (7) TMI 1764 - AT - Income Tax

Bogus LTCG - penny stock purchases - Eligibility of deduction under Section 10(38) - HELD THAT - It is not brought on record how the assessee is involved in promoting the penny stock company and how the assessee involved in inflating the shares of the company. Moreover, the copy of the investigation report said to be received from the Investigation Wing of the Department at Kolkata was not furnished to the assessee. On identical circumstances, this Tribunal in the case of Kanhaiyalal Sons (HUF) 2019 (2) TMI 1640 - ITAT CHENNAI has remitted back the matter to the file of the Assessing Officer for reconsideration. In view of the above, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer. Accordingly, orders of both the authorities below are set aside and the issue raised by the assessee with regard to deduction under Section 10(38) of the Act is remitted back to the file of the Assessing Officer - Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
Assessee's claim for exemption under Section 10(38) of the Income-tax Act, 1961 based on long term capital gains from sale of shares. Reliance on investigation report of Directorate of Investigation, Kolkata. Non-furnishing of investigation report to assessee. Disallowance by Assessing Officer on grounds of investment in a penny stock company. Need for remitting the matter back to Assessing Officer for reconsideration.

Analysis:
The appeal pertains to the assessment year 2014-15 and involves the assessee's claim for exemption under Section 10(38) of the Income-tax Act, 1961 regarding long term capital gains from the sale of shares. The assessee invested in shares of M/s Kailash Auto Finance Ltd. The Assessing Officer disallowed the claim based on the company being categorized as a penny stock company without establishing the assessee's involvement in promoting or inflating the shares of the company. The key contention was the non-furnishing of the investigation report from the Directorate of Investigation, Kolkata to the assessee, which led to a lack of opportunity for the assessee to respond effectively.

During the proceedings, the Ld. representative for the assessee argued for the matter to be remitted back to the file of the Assessing Officer to provide the assessee with a fair opportunity to address the allegations and evidence presented against them. On the contrary, the Ld. Departmental Representative relied on the orders of the Assessing Officer and CIT(Appeals without addressing the crucial aspect of non-disclosure of the investigation report to the assessee.

Upon careful consideration, the Tribunal found merit in the assessee's request for a fair opportunity to respond to the allegations and evidence against them. Citing a similar case precedent, the Tribunal emphasized the importance of providing the assessee with all relevant materials and details relied upon by the Assessing Officer to enable a proper defense. Therefore, the Tribunal set aside the orders of both lower authorities and remitted the issue back to the Assessing Officer for fresh consideration.

In conclusion, the Tribunal allowed the appeal filed by the assessee for statistical purposes, highlighting the need for a thorough re-examination of the matter by the Assessing Officer. The decision aimed to ensure a fair and transparent assessment process by providing the assessee with a reasonable opportunity to address the concerns raised and present their case effectively.