2019 (9) TMI 1589 - AT - Income Tax

Bogus LTCG - Addition u/s 68 - Denial of deduction u/s 10(38) - company in which the assessee invested is a penny stock company - 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) v. ITO 2019 (2) TMI 1640 - ITAT CHENNAI has remitted back the matter to the file of the Assessing Officer for reconsideration. 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 involved:
1. Claim of exemption under Section 10(38) of the Income-tax Act, 1961 for long term capital gains arising from the sale of shares.
2. Disallowance of the claim by the Assessing Officer based on the company being a penny stock company and reliance on an investigation report from the Directorate of Investigation, Kolkata.
3. Non-furnishing of the investigation report to the assessee and lack of details on the involvement of the assessee in promoting the company or inflating share prices.

Comprehensive Analysis:
Issue 1: The assessee claimed exemption under Section 10(38) of the Income-tax Act for long term capital gains from the sale of shares. The representative argued that the Assessing Officer disallowed the claim based on the company being a penny stock company without establishing the assessee's involvement in promoting the company or inflating share prices.

Issue 2: The Assessing Officer relied on an investigation report from the Directorate of Investigation, Kolkata, which was not provided to the assessee. The lack of details on the role of the assessee in promoting the company or inflating share prices led to the Tribunal remitting the matter back for reconsideration.

Issue 3: The Tribunal referred to a similar case where the matter was remitted back to the Assessing Officer due to non-furnishing of the investigation report and other details to the assessee. The Tribunal emphasized the need for the Assessing Officer to reconsider the issue after providing all relevant materials to the assessee.

In conclusion, the Tribunal set aside the orders of both lower authorities and remitted the issue back to the Assessing Officer for a fresh examination. The Assessing Officer was directed to consider the role of the assessee in promoting the company, relationship with promoters, and involvement in inflating share prices. The decision was to be made after providing a reasonable opportunity to the assessee, following the principles established in a similar case. The appeal was allowed for statistical purposes, emphasizing the importance of due process and providing all necessary information to the assessee for a fair assessment.