2019 (6) TMI 602 - AT - Income Tax

Bogus LTCG - exemption under Section 10(38) denied - investment in penny stock companies - HELD THAT - It is not brought on record how the assessees are involved in promoting the penny stock companies and how the assessees involved in inflating the shares of the companies. Moreover the copy of the investigation report said to be received from 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 AO. 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 - Decided in favour of assessee for statistical purposes.

Summary

Issues:
Appeal against orders of Commissioner of Income Tax (Appeals) - Common issue of exemption under Section 10(38) of the Income-tax Act, 1961 - Disallowance of long term capital gains on shares sold by assessees due to investment in penny stock companies without furnishing investigation report.

Analysis:
The appeals were filed against the orders of the Commissioner of Income Tax (Appeals) regarding the exemption claimed under Section 10(38) of the Income-tax Act, 1961 for long term capital gains from shares sold by the assessees. The assessees contended that the Assessing Officer relied on an investigation report from the Department's Investigation Wing at Kolkata without providing a copy to them. The assessees requested an opportunity to be given by remitting the matter back to the Assessing Officer for proper consideration.

The Departmental Representative, on the other hand, supported the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals). After considering the submissions from both sides and examining the relevant material on record, it was found that the Assessing Officer disallowed the long term capital gains claimed by the assessees based on their investment in penny stock companies. However, it was not established how the assessees were involved in promoting these companies or inflating share prices. Additionally, the investigation report from the Department's Investigation Wing at Kolkata was not provided to the assessees.

Referring to a similar case, the Tribunal decided to remit the issue back to the Assessing Officer for reconsideration. The Tribunal emphasized the need for the Assessing Officer to ascertain the assessees' role in promoting the companies, any relationship with promoters, and involvement in share price inflation. The Assessing Officer was directed to furnish the investigation report and other relevant materials before deciding the issue afresh in accordance with the law, ensuring a fair opportunity for the assessees.

Consequently, the Tribunal set aside the orders of the lower authorities and remitted the issue to the Assessing Officer for re-examination. The Assessing Officer was instructed to follow the directions given in the mentioned case and decide the matter after providing a reasonable opportunity to the assessees. As a result, all appeals filed by the assessees were allowed for statistical purposes.

In conclusion, the Tribunal's decision highlighted the importance of proper consideration and providing opportunities to the assessees in cases involving disallowance of long term capital gains based on investments in penny stock companies without adequate evidence and disclosure of investigation reports.