ANIL KUMAR SHIYAL,CHENNAI vs. ITO NON CORPORATE WARD 11(1), CHENNAI

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ITA 2066/CHNY/2018Status: DisposedITAT Chennai03 December 2018AY 2015-164 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the capital gains exemption could not be denied without providing the investigation report to the assessee. It emphasized the need for thorough investigation to establish the penny stock nature of the company and the role of authorities in its registration and listing.

What were the facts?

The assessee claimed exemption for capital gains from share transactions under Section 10(38). The AO disallowed the exemption based on an investigation report identifying the company as a penny stock, without furnishing the report to the assessee.

What were the issues?

Whether capital gains exemption under Section 10(38) can be denied based on an unshared investigation report. The issue also involves the burden of proof regarding the penny stock status of a company.

Which sections of the Income-tax Act were involved?

Section 10(38)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘A’ / ’SMC’ BENCH: CHENNAI

Before: SHRI N.R.S. GANESAN

आदेश / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER:

1.

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-13, Chennai, and pertains to the AY 2015-16.

2.

Shri M.Karunakaran, Ld. Representative of the assessee submitted that the assessee purchased and sold the shares of M/s.Kailash Auto Finance Ltd., and the capital gains were claimed as exemption u/s.10(38) of the Act. However, the AO by placing reliance on Investigation Report said to be received from Kolkata Investigation Wing of the Department found that M/s.Kailash Auto Finance Ltd., is a Penny Stock Company.

Hence, the capital gains cannot be allowed as exempt u/s.10(38) of the Act. The Ld. Representative further submitted that the Investigation Report of the Kolkata Investigation Wing, was not furnished to the assessee. Moreover, the assessee is an innocent citizen invested in the shares of M/s.Kailash Auto Finance Ltd. Unless and until, necessary copies of the documents are furnished to the assessee, there cannot be no addition.

3.

I heard Mr.B.Sagadevan, the Ld. Departmental Representative also.

The Ld. Departmental Representative submitted that it is not in dispute that the claim of the assessee was disallowed on the basis of the Investigation Report said to be received by the AO from Investigation Wing Department at Kolkata. Admittedly, the report of the Investigation Wing at Kolkata was not furnished to the assessee. Moreover, it is not known, how the Department is claiming M/s.Kailash Auto Finance Ltd., is a Penny Stock Company. We have to ascertain who authorized the registration of such company, which is a Public Limited Company, and who authorized for listing of such company in the Stock Exchange. Blaming the innocent investor, as if, he invested in the Penny Stock Company may not serve any purpose. There should be thorough investigation and bring the facts on record, how these companies were registered by the Registrar of Companies and allowed to issue public shares so as to invite the general public for investment. Unless and until, these facts are brought on record, the claim of the assessee cannot be doubted. Moreover, the role of the assessee in promoting the said company, inflating the price of the shares also needs to be examined. Accordingly, the orders of authorities below are set-aside and the entire matter is remitted back to the file of the AO.

The AO shall furnish all copies of the materials including Investigation Reports said to be received from Investigation Wing, Kolkata, to the assessee and thereafter bring on record, how these companies were allowed to register by the Registrar of Companies and how they are allowed to issue public shares inviting the general public to invest their funds and role of the assessee in such matters and thereafter decide the issue afresh in accordance with law after giving a reasonable opportunity to the assessee.

4.

In the result, the appeal filed by the assessee is allowed for statistical purposes.

Order pronounced on the 3rd day of December, 2018, in Chennai.

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