Addition for investment in penny stock company set aside to show how assessee involved in Company

Addition for investment in penny stock company remitted to record how assessee involved in promoting company and how inflated shares of company

ABCAUS Case Law Citation:
ABCAUS 3224 (2020) (01) ITAT

Important case law relied upon by the parties:
Kanhaiyalal & Sons (HUF) v. ITO

In the instant case, the appeal was directed against the order passed by the Commissioner of Income Tax (Appeals).

The assessee had claimed exemption under Section 10(38) of the Income-tax Act, 1961 (‘the Act’) in respect of long term capital gains arising out of sale of shares of a limited company.

However, the Assessing Officer (AO) placing his reliance on the investigation report of Directorate of Investigation and disallowed the exemption on the ground that the company in which the assessee invested was a penny stock company.

Before the Tribunal, the assessee contended that a copy of the said investigation report was not furnished to the assessee. Therefore, it was prayed that an opportunity may be given to the assessee by remitting back the matter to the file of the Assessing Officer.

The Tribunal observed that the AO had not brought on record how the assessee was involved in promoting the penny stock company and how the assessee was involved in inflating the shares of the company.

Also, 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.

The Tribunal observed that in a case, on identical circumstances, the Tribunal had directed that apart from providing assessee the copy of the investigation report, 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.

As a result, the Tribunal opined that the matter needed to be re-examined by the Assessing Officer. Accordingly, orders of both the authorities below were set aside and the issue raised by the assessee with regard to deduction under Section 10(38) of the Act was remitted back to the file of the Assessing Officer.

The Assessing Officer was directed to examine the matter as directed by the Tribunal in the identical case and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee.

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• Assessee not obliged to demonstrate actual utilization of donation u/s 35(1)(ii)
• For Registration u/s 12AB, phrase “genuineness of activities” is interpreted liberally