2019 (1) TMI 261 - AT - Income Tax

Bogus LTCG - addition u/s 68 - exemption u/s.10(38) denied - addition on Investigation Report said to be received by the AO from Investigation Wing Department at Kolkata - assessee purchased and sold the shares of M/s.Kailash Auto Finance Ltd.held to be a Penny Stock Company - Held that - It is not known, how the Department is claiming M/s.Kailash Auto Finance Ltd., is a Penny Stock Company. We have to ascertain who authorized the registration of such company, which is a Public Limited Company, and who authorized for listing of such company in the Stock Exchange. Blaming the innocent investor, as if, he invested in the Penny Stock Company may not serve any purpose. There should be thorough investigation and bring the facts on record, how these companies were registered by the Registrar of Companies and allowed to issue public shares so as to invite the general public for investment. Unless and until, these facts are brought on record, the claim of the assessee cannot be doubted. The role of the assessee in promoting the said company, inflating the price of the shares also needs to be examined. Accordingly, the orders of authorities below are set-aside and the entire matter is remitted back to the file of the AO. - Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of capital gains exemption under section 10(38) based on Investigation Report.
2. Non-furnishing of Investigation Report to the assessee.
3. Allegations of the company being a Penny Stock Company.
4. Need for thorough investigation regarding company registration and share issuance.
5. Remittance of the matter back to the Assessing Officer (AO) for further examination.

Analysis:
The appeal pertains to the disallowance of capital gains exemption under section 10(38) by the AO, based on an Investigation Report from the Kolkata Investigation Wing, regarding the shares of M/s. Kailash Auto Finance Ltd. The assessee contended that the Investigation Report was not provided to them, and emphasized their innocence as an investor. The Departmental Representative acknowledged the non-furnishing of the report to the assessee and raised concerns about the registration and listing process of the company as a Public Limited Company and on the Stock Exchange. The Tribunal highlighted the need for a comprehensive investigation into the registration process of such companies and the role of the assessee in share price inflation. Consequently, the orders of the lower authorities were set aside, and the matter was remitted back to the AO for further examination.

The Tribunal directed the AO to provide all relevant materials, including the Investigation Reports, to the assessee. The AO was instructed to investigate how the companies were registered and allowed to issue public shares, along with assessing the role of the assessee in these processes. The decision-making process was to be conducted afresh by the AO, ensuring a reasonable opportunity for the assessee to present their case. Ultimately, the appeal filed by the assessee was allowed for statistical purposes, with the order pronounced in Chennai on December 3, 2018.