Penny Stock Transactions Qualify for Tax Exemption

The Tribunal allowed the assessee's appeal, directing the Assessing Officer to grant the benefit of deduction under section 10(38) of the Income Tax Act, 1961. The Tribunal emphasized that transactions labeled as Penny Stocks do not automatically disqualify them from claiming exemption, especially when conducted through recognized channels and held for more than five years. The decision overturned the disallowance by lower authorities, and the appeal was allowed in favor of the assessee.

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Issues: Disallowance of assessee's claim for exemption u/s.10(38) of the Income Tax Act, 1961.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of the assessee's claim for exemption u/s.10(38) of the Income Tax Act, 1961 for the Assessment Year 2011-12.

2. The assessee purchased shares of M/s. Regency Trust Limited, holding them for more than five years before selling them during the assessment year 2011-12. The purchases were made through the Bombay Stock Exchange for a total consideration of Rs. 15,149, with payments made through cheques. The shares were held in the DEMAT account for more than five years.

3. The Assessing Officer and the Commissioner of Income Tax (Appeals) treated the transactions as Penny Stock Transactions, disallowing the assessee's claim for exemption u/s.10(38). The assessee argued that the transactions were legitimate as they were done through a recognized stock exchange, Demat account, and bank payments, citing similar decisions by the Tribunal.

4. The Tribunal noted that the disallowance was based on presumption only, as the transactions were conducted through recognized channels and the shares were held for more than five years. The Tribunal emphasized that being labeled as Penny Stocks does not automatically disqualify the transactions from claiming exemption u/s.10(38) of the Income Tax Act, 1961.

5. Relying on previous decisions, the Tribunal directed the Assessing Officer to grant the assessee the benefit of deduction u/s.10(38) as claimed, overturning the disallowance made by the lower authorities.

6. Consequently, the appeal of the assessee was allowed, and the order was pronounced in the open Court on 19th March 2020 in Chennai.

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