2020 (5) TMI 203 - AT - Income Tax

Rectification of mistake u/s 254 - maintainability of appeal due to Low tax effect - HELD THAT - CBDT Circular no. 23 of 2019 should be read along with special order of the CBDT dated 16.09.2019 in respect of appeals filed pursuant to such special order and shall thus apply to all appeals filed on or after 16.09.2019 by the Revenue where the tax effect may be low but the appeal can still be filed by the Revenue on merits. In the instant case, the appeal of the Revenue was filed on 22.05.2019 and therefore, the present appeal was not filed pursuant to such a special order of the CBDT dated 16.09.2019 and thus, the matter doesn t fall in any exception as so prescribed by the CBDT in its earlier circular dated 8.8.2019 and the special order doesn t apply in the instant case and the appeal has thus rightly been dismissed by the Bench on account of low tax effect in light of CBDT s circular dated 8.8.2019. In any case, both CBDT Circular no. 23 of 2019 and special order dated 16.09.2019 were not in existence and thus not part of the record at the time when the matter was heard on 20.08.2019 or at the time of passing of order by the Tribunal on 21.08.2019 and therefore, non-consideration of such Circular and the special order so passed by the CBDT is not a mistake apparent from record which can be rectified within the narrow compass of section 254(2) of the Act.

Summary

Issues Involved:
1. Whether the CIT(A) was right in deleting the addition of ?1,36,94,500/- u/s 68 of the IT Act, 1961 on account of bogus LTCG claimed as exempt income u/s 10(38).
2. Whether the CIT(A) was right in deleting the addition of ?1,36,945/- u/s 69C of the IT Act, 1961 on account of unexplained commission expenditure for taking bogus accommodation entry in the form of LTCG.
3. Whether the CIT(A) was right in deleting the addition of ?1,36,94,500/- made by the AO on the basis of incriminating documents and statements u/s 132(4) and 131, on account of investment in shares made out of books.
4. Whether the CIT(A) was justified in holding that the statement recorded u/s 132(4) & 131 of the IT Act, 1961 cannot be considered as incriminating material found and seized during the search.
5. Whether the CIT(A) was justified in holding that the retraction against the statement given u/s 132(4) during the search and post-search proceedings was valid despite being filed after 14 months without supporting evidence.
6. Whether the CIT(A) was justified in allowing the appeal holding that in absence of any incriminating material, the completed assessment cannot be interfered with by the AO while making assessment u/s 153A.
7. Whether the CIT(A) was right in not accepting the decision of Hon’ble High Court, Jaipur in the case of Shri Roshan Lal Sancheti regarding the retraction of statements.
8. The Appellant's right to amend, modify, alter, add, or forego any grounds of appeal at any time before or during the hearing.

Detailed Analysis:

1. Deletion of Addition u/s 68:
The Revenue questioned the CIT(A)'s decision to delete the addition of ?1,36,94,500/- made by the AO under Section 68 of the IT Act, 1961, on account of bogus Long Term Capital Gains (LTCG) claimed as exempt income under Section 10(38). The Tribunal noted that the tax effect of this issue was ?46,54,760, which is below the monetary limit set by the CBDT Circular No. 17/2019 dated 08.08.2019. However, the Revenue argued that the case involved organized tax evasion through bogus LTCG, which falls under the exceptions to the monetary limit as per the CBDT's subsequent circulars and office memorandum.

2. Deletion of Addition u/s 69C:
The Revenue also contested the deletion of ?1,36,945/- made by the AO under Section 69C of the IT Act, 1961, on account of unexplained commission expenditure for taking bogus accommodation entry in the form of LTCG. The tax effect for this issue was ?46,548, which is also below the monetary limit. The Revenue's stance remained that the case should be decided on merits due to the involvement of organized tax evasion.

3. Addition Based on Incriminating Documents:
The Revenue challenged the CIT(A)'s deletion of ?1,36,94,500/- made by the AO based on incriminating documents and statements recorded under Sections 132(4) and 131, claiming the investment in shares was out of books. The Tribunal considered whether these statements and documents could be treated as incriminating material found during the search.

4. Validity of Statements u/s 132(4) & 131:
The CIT(A) held that the statements recorded under Sections 132(4) and 131 could not be considered incriminating material found and seized during the search. The Revenue disputed this, arguing that such statements should be treated as incriminating.

5. Retraction of Statements:
The CIT(A) accepted the assessee's retraction of statements given under Section 132(4) during the search and post-search proceedings, despite the retraction being filed after 14 months without supporting evidence. The Revenue argued that the retraction was invalid due to the delay and lack of evidence.

6. Interference with Completed Assessment u/s 153A:
The CIT(A) allowed the appeal on the grounds that in the absence of any incriminating material, the completed assessment could not be interfered with by the AO while making assessment under Section 153A. The Revenue challenged this, asserting that the AO could interfere with the completed assessment based on incriminating material unearthed during the search.

7. Non-Acceptance of High Court Decision:
The CIT(A) did not accept the decision of the Hon’ble High Court, Jaipur, in the case of Shri Roshan Lal Sancheti, which held that statements recorded under Section 132(4) and later confirmed under Section 131 could not be discarded simply because the assessee retracted them. The Revenue argued that the CIT(A) should have followed this precedent.

8. Appellant's Right to Amend Grounds:
The appellant reserved the right to amend, modify, alter, add, or forego any grounds of appeal at any time before or during the hearing. This procedural issue was noted but not elaborated upon in the judgment.

Tribunal's Decision:
The Tribunal examined whether the CBDT Circular No. 23/2019 dated 06.09.2019 and the special order communicated via office memorandum dated 16.09.2019 applied to the instant appeal. The Tribunal concluded that these circulars and orders, which allow appeals on merits in cases of organized tax evasion through bogus LTCG, applied only to future appeals filed after their issuance. Since the Revenue's appeal was filed on 22.05.2019, prior to these circulars and orders, it did not fall under the exceptions. Consequently, the Tribunal held that the appeal was rightly dismissed on account of low tax effect as per the earlier CBDT Circular dated 08.08.2019, and there was no mistake apparent from the record that could be rectified under Section 254(2) of the Act.

Conclusion:
The miscellaneous application filed by the Revenue was dismissed, and the Tribunal's order pronounced on 20/03/2020 upheld the dismissal of the Revenue's appeal based on the low tax effect in accordance with the CBDT's circulars and special orders.