2019 (11) TMI 1611 - AT - Income Tax

Bogus LTCG - Deduction u/s 10(38) denied - Claim disallowed by AO on the ground that the 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) 2019 (2) TMI 1640 - ITAT CHENNAI has remitted back the matter to the file of the Assessing Officer for reconsideration. In view of the above 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:
1. Claim of exemption under Section 10(38) of the Income-tax Act, 1961 regarding long term capital gains from sale of shares.
2. Reliance on investigation report of Directorate of Investigation, Kolkata by Assessing Officer.
3. Non-furnishing of investigation report to the assessee.
4. Need for remitting the matter back to the Assessing Officer for reconsideration.

Analysis:
1. The appellant claimed exemption under Section 10(38) of the Income-tax Act for long term capital gains from the sale of shares. The Assessing Officer disallowed this claim based on the investment in a penny stock company, without establishing the appellant's involvement in promoting or inflating the shares of the company. The Tribunal found a similar case where the matter was remitted back to the Assessing Officer for reconsideration, emphasizing the need for providing relevant material to the assessee. The Tribunal set aside the orders of the lower authorities and remitted the issue back to the Assessing Officer for fresh consideration.

2. The Assessing Officer relied on an investigation report from the Directorate of Investigation, Kolkata, regarding the investment in the penny stock company. However, the report was not furnished to the assessee, raising concerns about the lack of transparency and opportunity for the assessee to respond effectively. The Tribunal stressed the importance of providing all relevant material to the assessee for a fair assessment and directed the Assessing Officer to reconsider the issue after sharing the investigation report and other related details with the assessee.

3. The non-furnishing of the investigation report to the assessee was a crucial point raised by the appellant's counsel, highlighting the procedural irregularity in the assessment process. The Tribunal acknowledged this lapse and emphasized the assessee's right to access and respond to all information and evidence relied upon by the tax authorities. By remitting the matter back to the Assessing Officer, the Tribunal aimed to ensure a fair and transparent assessment process, in line with the principles of natural justice and procedural fairness.

4. The need for remitting the matter back to the Assessing Officer for reconsideration stemmed from the failure to provide the investigation report to the assessee and the lack of clarity on the appellant's involvement in the penny stock company. The Tribunal's decision to set aside the lower authorities' orders and direct a fresh examination by the Assessing Officer was based on the principles of natural justice, fairness, and the assessee's right to a proper opportunity to present their case. By allowing the appeal for statistical purposes, the Tribunal upheld the importance of procedural regularity and due process in tax assessments.