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Income Tax Appellate Tribunal, ‘D’ SMC BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN
आदेश /O R D E R
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-5, Chennai, dated 05.07.2018 and pertains to assessment year 2012-13.
No one appeared for the assessee inspite of service of notice of hearing. The Registry has placed the postal acknowledgement received from the assessee as proof of service of notice on the assessee. Therefore, I heard the Ld. Departmental Representative and proceeded to dispose the appeal on merit.
Shri Sanath Kumar Raha, the Ld. Departmental Representative, submitted that the assessee claimed exemption under Section 10(38) of the Income-tax Act, 1961 (in short 'the Act') in respect of long term capital gains arising out of sale of shares to the extent of ₹34,71,650/-. In fact, according to the Ld. D.R., the assessee invested in shares of M/s ESSAR (India) Ltd. According to the Ld. D.R., it is a penny stock transaction. According to the Ld. D.R., the equity shares of shell companies were transacted and the price of each share was artificially increased. According to the Ld. D.R., the Investigation Wing of the Department at Kolkata found that there was cartel among the brokers who are all involved in penny stocks of shell companies. Therefore, according to the Ld. D.R., the Assessing Officer has rightly disallowed the claim of the assessee under Section 10(38) of the Act.
I heard the Ld. D.R. and perused the relevant material available on record. The assessee made investments in the shares of M/s ESSAR (India) Ltd. From the order of the Assessing Officer it appears that the assessee purchased 20000 shares of M/s ESSAR (India) Ltd. at ₹1/- per share and sold the same for a total consideration of ₹35,11,650/-. The assessee disclosed long term capital gains on the sale of these shares to the extent of ₹34,71,650/-. This was disallowed by the Assessing Officer on the ground that the company in which the assessee invested is a penny stock company. However, 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) v. ITO in has remitted back the matter to the file of the Assessing Officer for reconsideration. In fact, this Tribunal has observed at para 4 of its order dated 06.02.2019 as follows:-
“4. We heard Shri AR.V. Sreenivasan, the Ld. Departmental Representative also. Admittedly, the Assessing Officer disallowed the claim of the assessees on the basis of the information said to be received from the Investigation Wing of the Department at Kolkata with regard to investment made by the assessees in the penny stock company. It is not in dispute that a copy of the investigation report said to be received from Kolkata was not furnished to the assessee. Moreover, details of the enquiries said to be made by the Assessing Officer were also not furnished to the assessees. In those circumstances, this Tribunal is of the considered opinion that the Assessing Officer has to reconsider the issue afresh after furnishing the material relied upon by the Assessing Officer. Accordingly, the orders of both the authorities below are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall bring on record the role of the assessees in promoting the company and the relationship of the assessees, if any with the promoters, role of the assessees in inflating the price of shares, etc. The Assessing Officer shall also furnish a copy of the investigation report said to be received from the Investigation Wing of the Department at Kolkata and other materials if anything in his possession and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessees.”
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. The Assessing Officer shall examine the matter as directed by this Tribunal in the case of Kanhaiyalal & Sons (HUF)
(supra) and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the court on 2nd July, 2019 at Chennai.