2020 (1) TMI 1441 - AT - Income Tax

Deduction under Section 10(38) - long term capital gains arising out of sale of shares - HELD THAT - The assessee made investments in the shares of M/s. Esaar (India) Ltd. From the order of the CIT(Appeals) it appears that the assessee sold 170000 shares of M/s. Esaar (India) Ltd., and on sale of these shares, the assessee disclosed long term capital gains to the extent of ₹53,66,918/- This was disallowed by the Assessing Officer on the ground that the company in which the assessee invested is a penny stock company. 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:
Appeal against order of Commissioner of Income Tax (Appeals) regarding exemption under Section 10(38) of the Income-tax Act, 1961 for long term capital gains from sale of shares.

Analysis:
The appeal was directed against the order of the Commissioner of Income Tax (Appeals) regarding the assessment year 2015-16. The assessee claimed exemption under Section 10(38) of the Income-tax Act for long term capital gains from the sale of shares. The Assessing Officer disallowed the claim based on an investigation report from the Directorate of Investigation, Kolkata, without providing a copy to the assessee. The representative for the assessee requested the matter to be remitted back to the Assessing Officer for reconsideration. The Departmental Representative, on the other hand, relied on the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals).

The Tribunal considered the submissions and found that the Assessing Officer disallowed the claim without establishing how the assessee was involved in promoting the penny stock company or inflating the shares. Citing a similar case, the Tribunal decided to remit the issue back to the Assessing Officer for a fresh consideration. The Tribunal emphasized the need for the Assessing Officer to provide all relevant materials relied upon, including the investigation report from Kolkata, and to reexamine the role of the assessee in promoting the company and inflating share prices. The Tribunal set aside the orders of both authorities below and directed the Assessing Officer to decide the issue afresh after giving a reasonable opportunity to the assessee.

Consequently, the Tribunal allowed the appeal filed by the assessee for statistical purposes and ordered the matter to be re-examined by the Assessing Officer. The issue regarding deduction under Section 10(38) of the Act was remitted back to the Assessing Officer for a fresh decision in accordance with the Tribunal's directions. The order was pronounced in court on 10th January, 2020 in Chennai.