2022 (4) TMI 1415 - HC - Income Tax

Declaration under the provisions of the Vivad Se Viswas Act - Addition u/s 68 - HELD THAT - In this appeal we may not be required to answer the substantial questions of law in the light of the fact that the respondent assessee had filed declaration under the provisions of the Vivad Se Viswas Act (VSV Act) and though the declaration was processed and Form 3 was issued on 27th January, 2021, subsequently it was withdrawn from the server of the Department. This compelled the assessee to submit representation to the Department and the representation was rejected by order dated 9th September, 2021. The said order was put to challenge which was allowed by us by order dated 1st April, 2022 with a direction to the concerned authority to restore the Form 3 which was originally issued and process the same in accordance with law. In the light of the said direction, this appeal filed by the revenue stands closed and the substantial questions of law are left open

Summary

Issues:
1. Whether unexplained Long Term Capital Gains (LTCG) fall under unexplained cash credits under Section 68 of the Income Tax Act, 1961?
2. Whether the deletion of undisclosed income by the Tribunal disregarded organized tax evasion through bogus capital gains?
3. Whether the Tribunal erred in not acknowledging the lack of substantiation of transaction genuineness and creditworthiness by the assessee?
4. Whether the Tribunal failed to probe documentary evidence deeply to determine the assessee's liability under Section 68 of the Income Tax Act?
5. Whether the deletion of disallowance of Long Term Capital Gain was erroneous, given the alleged stage-managed transactions for claiming bogus exemption?

Analysis:
1. The appeal by the revenue challenged the Tribunal's order concerning the assessment year 2014-15 under Section 260A of the Income Tax Act, 1961. The revenue raised questions regarding the treatment of unexplained LTCG under Section 68, contending that it falls under unexplained cash credits. However, the High Court indicated that due to the assessee's filing of a declaration under the Vivad Se Viswas Act (VSV Act), the appeal was no longer necessary, as the declaration was initially processed but later withdrawn. Subsequently, the High Court directed the concerned authority to restore the original Form 3 and process it accordingly, leading to the closure of the appeal and leaving the substantial legal questions open for future consideration.

2. The Tribunal's deletion of undisclosed income was questioned by the revenue, alleging ignorance of a larger scam involving organized tax evasion through bogus capital gains from penny stocks. However, the High Court's decision to close the appeal due to the VSV Act declaration submission rendered this issue moot for the time being, with the option for the revenue to restore the appeal if the declaration is rejected.

3. The revenue contended that the Tribunal erred in not recognizing the lack of substantiation of transaction genuineness and creditworthiness by the assessee. Despite this argument, the High Court's focus on the VSV Act declaration and subsequent directions to restore the Form 3 preempted the need to address this issue directly, providing the revenue with the opportunity to revive the appeal if necessary.

4. The Tribunal's alleged failure to deeply probe documentary evidence to determine the assessee's liability under Section 68 was a key concern raised by the revenue. However, the High Court's decision to close the appeal in light of the VSV Act declaration submission preempted the detailed examination of this issue, leaving it open for future consideration if the need arises.

5. The revenue challenged the Tribunal's deletion of the disallowance of Long Term Capital Gain, claiming that the transactions were stage-managed to enable the assessee to reinvest unaccounted income as fictitious LTCG for claiming bogus exemption. The High Court's closure of the appeal based on the VSV Act declaration submission prevented a detailed examination of this issue, offering the revenue the option to restore the appeal in case the VSV Act relief is not obtained.