Penny stock exemption claims require disclosure of relied-upon material and fair opportunity before disallowance of capital gains relief.

Exemption under section 10(38) on long-term capital gains from share sales was questioned on the basis of alleged penny stock transactions, but the investigation material relied upon was not furnished to the assessee. The record also did not show how the assessee was involved in promoting the company or inflating the share price. In these circumstances, the matter required fresh examination after supplying the relied-upon material and giving a reasonable opportunity of hearing, and it was remitted to the Assessing Officer for a fresh decision in accordance with law.

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Issues: Whether the disallowance of exemption under section 10(38) of the Income-tax Act, 1961 in respect of long-term capital gains from sale of shares required fresh examination by the Assessing Officer in view of the non-furnishing of the investigation report and the need to verify the assessee's role in the alleged penny stock transactions.

Analysis: The assessment was based on material said to have been received from the Investigation Wing, Kolkata, but the copy of that material was not furnished to the assessee. The record also did not establish how the assessee was involved in promoting the company or inflating the share price. In these circumstances, and following the earlier approach adopted in a similar matter, the issue required reconsideration after supplying the relied-upon material and granting a reasonable opportunity of hearing.

Conclusion: The matter was remitted to the Assessing Officer for fresh decision in accordance with law.

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