2021 (11) TMI 1058 - HC - Income Tax

Non maintainability of appeal on low tax effect - Addition u/s 68 - bogus LTCG on penny stock - Whether the Appellate Tribunal is justified in law and on facts in disposing the appeal of the revenue on account of low tax effect without deciding the appeal on merits even when the issue under appeal was claimed of bogus LTCG on penny stock for which no monetary limits were applicable? - HELD THAT - This Court in Special Civil Application 2021 (6) TMI 1065 - GUJARAT HIGH COURT by virtue of the said Circular dated 06.09.2019 the appeals could be filed on merits irrespective of the monetary limits fixed in earlier cases if the Board passes special order for filing appeals in cases involving tax evasion activity. The said Circular speaks about the Appeals that may be filed with the special order of the Board in future and hence could not be construed to have retrospective effect. The Tribunal interpreting the said Circular/ Office Memorandum in the impugned order has rightly observed that in respect of each case or category of cases whether an appeal should be filed in view of the Circular dated 06.09.2019 or not shall be decided by the Board by way of special order and thus a specific requirement of issuance of special order by CBDT is a must. The Tribunal therefore has rightly held that the CBDT Circular No. 23/2019 dated 06.09.2019 should be read along with the Office Memorandum dated 16.09.2019 in respect of the appeals to be filed pursuant to such special orders of CBDT and shall apply to all the appeals filed on or after 16.09.2019 by the revenue where the tax effect may be low but the appeal could still be filed by the revenue on merits. The appeals including the appeal in case of the respondent which were disposed of by the Tribunal vide the common order dated 14.08.2019 could not be said to have been filed pursuant to the special order of the CBDT in view of the Circular dated 06.09.2019 read with the Office Memorandum dated 16.09.2019 and therefore it could not be said that the Tribunal had committed any mistake apparent from the record which would require rectification as envisaged in Section 254(2) of the said Act. In that view of the matter the Court does not find any illegality or infirmity in the impugned order dated 09.09.2020 passed by the Tribunal dismissing the Miscellaneous Application filed by the petitioner. The petition being devoid of merits is dismissed in limine.

Summary

Issues:
1. Whether the Appellate Tribunal was justified in disposing of the appeal on the grounds of low tax effect without deciding on the merits of the case involving alleged bogus LTCG on penny stock?
2. Whether the Circular No. 23 of 2019 and Office Memorandum dated 16.09.2019 had retrospective effect in cases involving organized tax evasion through bogus LTCG/STCL on penny stocks?

Analysis:

Issue 1:
The case involved a search and survey action revealing the facilitation of accommodation entries for various financial transactions by Mr. S.C. Shah. The Assessing Officer added a sum on account of bogus long term capital gain (LTCG) based on transactions involving Praneta Industries Limited. The CIT (Appeals) later deleted these additions, which led the Department to challenge the decision before the ITAT. The ITAT dismissed the appeal citing low tax effect and the prescribed monetary limit for filing appeals. The appellant contested this decision, arguing that the exception in Circular No. 23 of 2019 and OM dated 16.09.2019 exempted cases involving bogus LTCG through penny stocks from monetary limits for appeal filing. The High Court noted previous petitions dismissed on similar grounds and upheld the ITAT's decision, stating that the Circular and Office Memorandum did not have retrospective effect and did not apply to cases disposed of before their issuance.

Issue 2:
The Circular No. 23 of 2019 and Office Memorandum dated 16.09.2019 were analyzed by the High Court to determine their applicability to the case at hand. The Circular allowed for appeals to be filed on merits as an exception to monetary limits in cases of organized tax evasion. The Office Memorandum further clarified that monetary limits would not apply in cases involving bogus LTCG/STCL through penny stocks. The Court emphasized that these provisions did not have retrospective effect and required a special order from the CBDT for their application. As the appeals in question were disposed of before the issuance of the Circular and Memorandum and were not filed pursuant to any special order, the Court concluded that the Tribunal did not commit any rectifiable mistake. Consequently, the High Court upheld the Tribunal's decision to dismiss the appellant's appeal, stating it lacked merit and legality.

In conclusion, the High Court dismissed the appeal, affirming the ITAT's decision based on the lack of retrospective effect of Circular No. 23 of 2019 and the Office Memorandum dated 16.09.2019 in cases disposed of before their issuance.