Ramesh Kumar Kothari, CHENNAI V. ITO Non Corporate Ward 6(1), CHENNAI

ITA 2502/CHNY/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9221 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 28-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANATH KUMAR RAHA
• Keywords: Penny stocks; Set aside

Judgement Text

, / , IN THE INCOME TAX APPELLATE TRIBUNAL D SMC BENCH, CHENNAI ... , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER !./ ITA NO.2502/CHNY/2018 # $%# / ASSESSMENT YEAR : 2012-13 SHRI RAMESH KUMAR KOTHARI, 31, CHANDRAPPA MUDALI STREET, SOWCARPET, CHENNAI - 600 079. PAN : AJIPK 2509 H V. THE INCOME TAX OFFICER, NON CORPORATE WARD - 6(1), CHENNAI - 600 006. ('(/ APPELLANT) ()*'(/ RESPONDENT) '( + , / APPELLANT BY : NONE )*'( + , / RESPONDENT BY : SHRI SANATH KUMAR RAHA, JCIT - $ + ./ / DATE OF HEARING : 01.07.2019 01% + ./ / DATE OF PRONOUNCEMENT : 02.07.2019 / O R D E R THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-5, CHENNAI , DATED 05.07.2018 AND PERTAINS TO ASSESSMENT YEAR 2012-13. 2. NO ONE APPEARED FOR THE ASSESSEE INSPITE OF SERV ICE OF NOTICE OF HEARING. THE REGISTRY HAS PLACED THE POS TAL ACKNOWLEDGEMENT RECEIVED FROM THE ASSESSEE AS PROOF OF SERVICE OF 2 I.T.A. NO.2502/CHNY/18 NOTICE ON THE ASSESSEE. THEREFORE, I HEARD THE LD. DEPARTMENTAL REPRESENTATIVE AND PROCEEDED TO DISPOSE THE APPEAL ON MERIT. 3. SHRI SANATH KUMAR RAHA, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE CLAIMED EXEMPTION UNDER SECTION 10(38) OF THE INCOME-TAX ACT, 1961 (I N SHORT 'THE ACT') IN RESPECT OF LONG TERM CAPITAL GAINS ARISING OUT O F SALE OF SHARES TO THE EXTENT OF 34,71,650/-. IN FACT, ACCORDING TO THE LD. D.R., TH E ASSESSEE INVESTED IN SHARES OF M/S ESSAR (INDIA) LT D. 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 TRA NSACTED AND THE PRICE OF EACH SHARE WAS ARTIFICIALLY INCREASED. AC CORDING TO THE LD. D.R., THE INVESTIGATION WING OF THE DEPARTMENT AT K OLKATA FOUND THAT THERE WAS CARTEL AMONG THE BROKERS WHO ARE ALL INVO LVED 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. 4. I HEARD THE LD. D.R. AND PERUSED THE RELEVANT MA TERIAL AVAILABLE ON RECORD. THE ASSESSEE MADE INVESTMENTS IN THE SHARES OF M/S ESSAR (INDIA) LTD. FROM THE ORDER OF THE AS SESSING OFFICER IT APPEARS THAT THE ASSESSEE PURCHASED 20000 SHARES OF M/S 3 I.T.A. NO.2502/CHNY/18 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 EX TENT OF 34,71,650/-. THIS WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THE COMPANY IN WHICH THE ASSESSEE INVES TED IS A PENNY STOCK COMPANY. HOWEVER, IT IS NOT BROUGHT ON RECOR D HOW THE ASSESSEE IS INVOLVED IN PROMOTING THE PENNY STOCK C OMPANY AND HOW THE ASSESSEE INVOLVED IN INFLATING THE SHARES O F THE COMPANY. MOREOVER, THE COPY OF THE INVESTIGATION REPORT SAID TO BE RECEIVED FROM THE INVESTIGATION WING OF THE DEPARTMENT AT KO LKATA WAS NOT FURNISHED TO THE ASSESSEE. ON IDENTICAL CIRCUMSTAN CES, THIS TRIBUNAL IN THE CASE OF KANHAIYALAL & SONS (HUF) V. ITO IN I .T.A. NO.1849/CHNY/2018, HAS REMITTED BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR RECONSIDERATION. IN FACT, TH IS 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 B E RECEIVED FROM THE INVESTIGATION WING OF THE DEPARTMENT AT KOLKATA WITH REGARD TO INVESTMENT MAD E 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 TH E ASSESSEE. MOREOVER, DETAILS OF THE ENQUIRIES SAID TO BE 4 I.T.A. NO.2502/CHNY/18 MADE BY THE ASSESSING OFFICER WERE ALSO NOT FURNISH ED TO THE ASSESSEES. IN THOSE CIRCUMSTANCES, THIS TRI BUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFF ICER HAS TO RECONSIDER THE ISSUE AFRESH AFTER FURNISHING THE MATERIAL RELIED UPON BY THE ASSESSING OFFICER. ACCORDINGLY, THE ORDERS OF BOTH THE AUTHORITIES BEL OW 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 ASSES SEES IN PROMOTING THE COMPANY AND THE RELATIONSHIP OF TH E ASSESSEES, IF ANY WITH THE PROMOTERS, ROLE OF THE ASSESSEES IN INFLATING THE PRICE OF SHARES, ETC. T HE 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 WI TH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEES. 5. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE CO NSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-EXAMINED BY THE ASSESSING OFFICER. ACCORDINGLY, ORDERS OF BOTH THE AUTHORITI ES BELOW ARE SET ASIDE AND THE ISSUE RAISED BY THE ASSESSEE WITH REG ARD TO DEDUCTION UNDER SECTION 10(38) OF THE ACT IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL EXA MINE THE MATTER AS DIRECTED BY THIS TRIBUNAL IN THE CASE OF KANHAIY ALAL & SONS (HUF) (SUPRA) AND THEREAFTER DECIDE THE ISSUE AFRESH IN A CCORDANCE WITH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE A SSESSEE. 5 I.T.A. NO.2502/CHNY/18 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 2 ND JULY, 2019 AT CHENNAI. SD/- ( ... ) (N.R.S. GANESAN) /JUDICIAL MEMBER /CHENNAI, 3! /DATED, THE 2 ND JULY, 2019 KRI. + ).45 65%. /COPY TO: 1. '( /APPELLANT 2. )*'( /RESPONDENT 3. - 7. () /CIT(A)-5, CHENNAI-34 4. PRINCIPAL CIT-9, CHENNAI 5. 5$8 ). /DR 6. # 9 /GF.