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Income Tax Appellate Tribunal, ‘D’ SMC BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN
आदेश /O R D E R
Both the appeals of two independent assessees are directed against the respective orders of the Commissioner of Income Tax (Appeals)-12, Chennai, dated 16.02.2018 and 19.02.2018 respectively, for the assessment year 2014-15. Since common issue arises for consideration in both the appeals, I heard both the appeals together and disposing of the same by this common order.
Shri N. Vijay Kumar, the Ld. representative for the assessees, submitted that each assessee purchased 2000 shares of Kappac Pharma Ltd. through off market transaction for ₹30,000/-. According to the Ld. representative, each share costs about ₹15/-. In fact, the shares were purchased from a stock broker known as M/s Sannidhya Tradelink Pvt. Ltd. The shares were purchased physically on 19.07.2012. According to the Ld. representative, out of 2000 shares, the assessee-Smt. Vandhana Sankhala sold 1200 shares on 05.02.2014 at a price of ₹683.95 per share and 500 shares on 10.02.2014 at a price of ₹683.95 per share. The balance of 300 shares were sold on 13.02.2014 at a price of ₹678/- per share, whereas, the assessee-Shri Sanjay Jain sold 1500 shares at a price of ₹727.80 per share on 24.02.2014 and 500 shares at a claimed exemption under Section 10(38) of the Income-tax Act, 1961 (in short 'the Act') to the extent of ₹13,31,521/-, the later claimed exemption under Section 10(38) of the Act to the extent of ₹14,05,695/-. The Assessing Officer, however, disallowed the claim of the assessees on the ground that Kappac Pharma Ltd. is a penny stock company, therefore, the profit on sale of shares of Kappac Pharma Ltd. cannot be allowed as exemption under Section 10(38) of the Act.
Referring to the assessment order, Shri N. Vijay Kumar, the Ld. representative submitted that the Assessing Officer referred to various investigations said to be carried out by the Investigation Wing of the Department at Kolkata and found that several companies are providing accommodation entry in order to make bogus claim of exemption under Section 10(38) of the Act. The copies of investigation report said to be received by the Assessing Officer were not furnished to the assessees. Moreover, according to the Ld. representative, the assessees have no role either in the promotion of the company Kappac Pharma Ltd. or its functioning. The assessees, according to the Ld. representative, are investors in in confirming the order of the Assessing Officer.
On the contrary, Shri B. Sagadevan, the Ld. Departmental Representative, submitted that Kappac Pharma Ltd. is a paper company and it is a penny company. According to the Ld. D.R., Kappac Pharma Ltd. is not engaged in any business. The share price of Kappac Pharma Ltd. was inflated abnormally. According to the Ld. D.R., the Investigation Wing of the Department at Kolkata made thorough investigation and found that Kappac Pharma Ltd. is one of the paper companies for the purpose of enrouting unaccounted black money. One Shri Anil Kumar Khemka, the Director of Apex commotrade Private Ltd. was examined.
According to the Ld. D.R., the assessees earned huge capital gain within a short period by investing money in penny stock company.
Therefore, according to the Ld. D.R., the Assessing Officer found that the assessees invested in the shares of loss making company at an abnormally high rate as identified by jamakharchi companies which have no net worth. Therefore, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the order of the Assessing Officer. perused the relevant material available on record. It is not in dispute that both the assessees invested in the shares of Kappac Pharma Ltd. through independent stock broker and claimed exemption in respect of the sale of said shares under Section 10(38) of the Act.
The Department appears to have made thorough investigation at Kolkata and found that Kappac Pharma Ltd. is a penny stock company and the net worth of the said company was artificially inflated to increase the share price. However, a copy of the investigation report was not furnished to the assessees.
Moreover, the Assessing Officer has not brought on record the role of the assessees in promoting Kappac Pharma Ltd. or inflating the shares of Kappac Pharma Ltd. in the market. If the assessees are innocent investors, then they cannot be found fault merely because the investments were made in a penny stock company.
It is not known how a penny stock company was allowed to continue as a registered company by the office of Registrar of Company? and it is also not known how it was allowed to issue public shares? The action taken by the Income-tax Department or the Ministry of Company Affairs was not brought on record by the Assessing Officer. It is also not known whether Kappac Pharma Registrar of Company or it was deregistered? It is also not known who are responsible for promoting such companies and officers who are responsible to register this kind of companies as public limited companies. Since facts are not available on record, this Tribunal is of the considered opinion that the facts need to be verified by the Assessing Officer. Accordingly, 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 furnish a copy of so-called investigation report said to be received from Investigation Wing of the Department at Kolkata to both the assessees and also bring on record whether Kappac Pharma Ltd. continues to be a registered company as on today and who are the promoters of the penny stock company, and whether the finding of Income-tax Department was brought to the notice of Ministry of Company Affairs and the action taken on such reports by the Ministry of Company Affairs and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessees.
In the result, both the appeals of the assessees are allowed for statistical purposes.