2019 (7) TMI 1718 - AT - Income Tax

Tribunal Remands Case for Reassessment, Emphasizes Fairness and Re-evaluation of Tax Exemption Claim by the AO.

The ITAT set aside the orders of the AO and CIT(A), remanding the case for reassessment. The Tribunal emphasized procedural fairness, noting the ... Bogus LTCG - Exemption u/s 10(38) disallowed by AO on the ground that the company in which the assessee invested is a penny stock company - Long term capital gains on the sale of shares denied - 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 Directorate of Investigation 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. 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. - Decided in favour of assessee for statistical purposes. Issues: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. Reliance on investigation report of Directorate of Investigation, Kolkata by the Assessing Officer.3. Non-furnishing of the investigation report to the assessee.4. Disallowance of long term capital gains by the Assessing Officer on the grounds of the company being a penny stock company.5. Need for reassessment by the Assessing Officer.Analysis:1. The appellant claimed exemption under Section 10(38) of the Income-tax Act, 1961 for long term capital gains from the sale of shares. The Assessing Officer disallowed this claim based on the investigation report of the Directorate of Investigation, Kolkata, regarding the investment in a penny stock company. The appellant's representative argued that the investigation report was not provided to the assessee, requesting a remittance of the matter to the Assessing Officer for a fair opportunity.2. The Departmental Representative relied on the orders of the Assessing Officer and the CIT(Appeals). However, the Tribunal noted that the investigation report from Kolkata was not furnished to the assessee, raising concerns about procedural fairness and the lack of evidence linking the assessee to any wrongdoing related to the penny stock company.3. Upon reviewing the submissions and relevant material, the Tribunal found that the Assessing Officer disallowed the long term capital gains without establishing the assessee's involvement in promoting the penny stock company or inflating share prices. Citing a similar case, the Tribunal emphasized the importance of providing the assessee with all relevant information and directing a reconsideration by the Assessing Officer.4. The Tribunal concluded that the matter required re-examination by the Assessing Officer. Therefore, the orders of the lower authorities were set aside, and the issue of deduction under Section 10(38) was remitted back to the Assessing Officer for a fresh decision in accordance with the law, ensuring a reasonable opportunity for the assessee to present their case.5. Ultimately, the appeal filed by the assessee was allowed for statistical purposes, indicating that the decision was based on procedural grounds rather than a final determination of the tax liability. The Tribunal's order highlighted the importance of procedural fairness and the Assessing Officer's obligation to reconsider the issue with all relevant information before making a decision.