2019 (11) TMI 1627 - AT - Income Tax

Bogus LTCG - Addition u/s 68 - assessee investment in a penny stock company - HELD THAT - As 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. Thus 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. The Assessing Officer shall examine the matter as directed by this Tribunal in the case of Kanhaiyalal Sons (HUF) (supra) - Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
Claim for exemption under Section 10(38) of the Income-tax Act, 1961 based on long term capital gains from sale of shares.

Analysis:
The appellant claimed exemption under Section 10(38) of the Income-tax Act for long term capital gains from the sale of shares of a specific company. The Assessing Officer disallowed this claim, citing the company as a penny stock company, without providing the appellant with the investigation report from the Directorate of Investigation, Kolkata. The appellant's counsel requested an opportunity for the appellant to address this issue. The Departmental Representative, however, supported the decisions of the Assessing Officer and the CIT(Appeals).

Upon review, the Tribunal found that the Assessing Officer's disallowance lacked sufficient evidence regarding the appellant's involvement in promoting the penny stock company or inflating its shares. Referring to a similar case, the Tribunal decided to remit the matter back to the Assessing Officer for reconsideration. The Tribunal emphasized the need for the Assessing Officer to furnish all relevant materials, including the investigation report, details of enquiries, and any other pertinent information. The Assessing Officer was instructed to reassess the appellant's involvement with the company, relationship with promoters, and role in share price inflation before making a decision in accordance with the law.

Consequently, the Tribunal set aside the orders of the lower authorities and remitted the issue of deduction under Section 10(38) back to the Assessing Officer for a fresh examination. The Assessing Officer was directed to follow the guidelines outlined in the Tribunal's decision and provide the appellant with a fair opportunity to present their case. The appeal by the assessee was allowed for statistical purposes, with the decision pronounced in court on 20th November 2019 in Chennai.