2020 (3) TMI 1241 - AT - Income Tax

Maintainability of appeal - low tax effect - reference to monetary limits prescribed by CBDT Circular No. 03 of 2018 dated 20-03-2018 - Tax effect of Revenue s appeal not exceeding the monetary limit - Bogus purchases addition - additions made on the basis of corroboration information received from the Investigating Wing, Mumbai which is a law enforcement agency under the Ministry of Finance - HELD THAT - As decided in S M/S. GEHLOT TRACTORS PVT. LTD., 2019 (11) TMI 1413 - ITAT JAIPUR as per the original Circular No. 3 of 2018 these matters do not fall in the exception, however, the said circular was amended by the CBDT vide Notification dated 20.08.2018 and the amended para 10 of Circular No. 3 of 2018 Even as per Circular No. 23 of 2019 dated 6th September, 2019 the exception is provided only in the cases where organized tax evasion is noticed through bogus long term capital/short term capital gain on penny stocks. Therefore, the said Circular cannot be applied in the cases when the addition is not in respect of capital gain on penny stocks. Accordingly, the said circular will not help the cases of the department. In the case in hand, the addition was made by the AO based on the information received from DIT (Investigation) of the Department which is not an external source in the nature of law enforcement agencies such as CBI/ED/DRI/SFIO/Director General of GST Intelligence (DGGI) etc. Therefore, this case of the Revenue does not fall in the exception provided in clause (e) of para 10 of the Circular No. 3 of 2018. Accordingly, when the tax effect of Revenue s appeal is not exceeding the monetary limit as prescribed in the Circular then the same is not maintainable. Hence, the appeal of the Revenue is dismissed.

Summary

Issues:
1. Estimation of GP against disallowed purchases.
2. Deletion of additions based on information from the Investigation Wing.

Estimation of GP against disallowed purchases:
The appeal questioned the justification of estimating the GP at 17.5% instead of 25% for disallowed purchases, citing a Supreme Court decision on bogus purchases. The Tribunal noted the tax effect was below the prescribed limit by CBDT Circular No. 03 of 2018. The arguments presented by both sides were considered. The Tribunal referred to a similar case and analyzed the exceptions under the Circular. It was highlighted that the case did not fall under the exception clause (e) regarding information from external law enforcement agencies. The Tribunal dismissed the appeal as the tax effect did not exceed the monetary limit specified in the Circular.

Deletion of additions based on information from the Investigation Wing:
The appeal challenged the deletion of additions based on information from the Investigation Wing, claiming it fell under exception clause 10(e) of Circular 03 of 2018. The Tribunal examined the arguments from both parties, emphasizing the distinction between external law enforcement agencies and internal departmental sources. Reference was made to Circular No. 23 of 2019, which provided exceptions for organized tax evasion activities related to capital gains on penny stocks. The Tribunal concluded that the appeal did not meet the criteria of the Circular and was not maintainable due to the tax effect falling below the prescribed monetary limit. Consequently, the appeal of the Revenue was dismissed.

In conclusion, the Tribunal dismissed the Revenue's appeal in both issues, emphasizing adherence to the prescribed monetary limits and the criteria specified in the Circulars. The judgment highlighted the importance of differentiating between external law enforcement agencies and internal departmental sources when considering exceptions for additions based on information received.