2019 (7) TMI 1858 - AT - Income Tax

Bogus LTCG - Exemption u/s 10(38) - assessee is involved in promoting the 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. 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 AO. AO shall examine the matter as directed by this Tribunal in the case of Kanhaiyalal Sons 2019 (2) TMI 1640 - ITAT CHENNAI and thereafter decide the issue afresh in accordance with law after giving a reasonable opportunity to the assessee - 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.
2. Reliance on investigation report of Directorate of Investigation, Kolkata.
3. Disallowance of long term capital gains on sale of shares.
4. Lack of furnishing investigation report to the assessee.
5. Remitting back the matter to the Assessing Officer for reconsideration.

Analysis:

1. The appeal pertains to the claim of exemption under Section 10(38) of the Income-tax Act, 1961, in relation to long term capital gains from the sale of shares. The representative for the assessee argued that the Assessing Officer relied on an investigation report from the Directorate of Investigation, Kolkata, without providing a copy of the report to the assessee. The representative requested an opportunity for the assessee to be heard by remitting the matter back to the Assessing Officer.

2. The Departmental Representative contested the claim, relying on the orders of the Assessing Officer and the CIT(Appeals). Upon hearing both parties and examining the relevant material, it was noted that the assessee had invested in shares of a specific company and disclosed long term capital gains on the sale of these shares. However, the Assessing Officer disallowed the gains on the basis that the company was a penny stock company without establishing the assessee's involvement in promoting or inflating the shares.

3. The Tribunal highlighted a previous case where a similar issue was addressed. In that case, it was observed that the Assessing Officer had not provided the investigation report or details of the enquiries to the assessee, leading to a remittance of the matter back for reconsideration. Following this precedent, the Tribunal in the current case set aside the orders of the lower authorities and remitted the issue back to the Assessing Officer for a fresh examination.

4. The Tribunal directed the Assessing Officer to reconsider the matter after furnishing all relevant material to the assessee, including the investigation report from the Department at Kolkata. The Assessing Officer was instructed to examine the role of the assessee in promoting the company, any relationship with the promoters, and any involvement in inflating share prices. The decision was to be made in accordance with the law, ensuring a reasonable opportunity for the assessee to present their case.

5. Consequently, the appeal filed by the assessee was allowed for statistical purposes, and the issue regarding the deduction under Section 10(38) of the Act was remitted back to the Assessing Officer for a fresh decision. The Tribunal emphasized the need for a thorough reconsideration of the matter in line with the principles established in the previous case.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the Tribunal's decision to remit the matter back to the Assessing Officer for further examination.