2020 (3) TMI 1334 - AT - Income Tax

Disallowance u/s.10(38) - Bogus LTCG - HELD THAT - Clearly the facts in the present case shows that the transactions in the case of the assessee is through recognized Stock Exchange and through a Broker who is not in the tainted list. The transactions have been made through Demat Account and the payments and receipts through the banking channels only. More than anything else in the assessee s case the transactions are not transactions which are of twelve months or of around twelve months these are transactions having more than five year holdings. Just because the company whose shares the assessee has dealt in has been identified as a Penny Stock cannot make the transactions of the assessee ineligible for the deduction u/s.10(38). Assessing Officer is directed to grant the assessee the benefit of deduction u/s.10(38) as claimed. - Decided in favour of assessee.

Summary

Issues: Disallowance of assessee's claim for exemption u/s.10(38) of the Income Tax Act, 1961.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of the assessee's claim for exemption u/s.10(38) of the Income Tax Act, 1961 for the Assessment Year 2011-12.

2. The assessee purchased shares of M/s. Regency Trust Limited, holding them for more than five years before selling them during the assessment year 2011-12. The purchases were made through the Bombay Stock Exchange for a total consideration of ?15,149, with payments made through cheques. The shares were held in the DEMAT account for more than five years.

3. The Assessing Officer and the Commissioner of Income Tax (Appeals) treated the transactions as Penny Stock Transactions, disallowing the assessee's claim for exemption u/s.10(38). The assessee argued that the transactions were legitimate as they were done through a recognized stock exchange, Demat account, and bank payments, citing similar decisions by the Tribunal.

4. The Tribunal noted that the disallowance was based on presumption only, as the transactions were conducted through recognized channels and the shares were held for more than five years. The Tribunal emphasized that being labeled as Penny Stocks does not automatically disqualify the transactions from claiming exemption u/s.10(38) of the Income Tax Act, 1961.

5. Relying on previous decisions, the Tribunal directed the Assessing Officer to grant the assessee the benefit of deduction u/s.10(38) as claimed, overturning the disallowance made by the lower authorities.

6. Consequently, the appeal of the assessee was allowed, and the order was pronounced in the open Court on 19th March 2020 in Chennai.