2022 (5) TMI 116 - HC - Income Tax

Maintainability of appeal in High Court - low tax effect - Addition u/s 69A - bogus Long term Capital Gain and Short Term Capital Loss - HELD THAT - As in the appeals preferred after the date of the Circular dated 23/2019 dated 6th September 2019 involved in organized tax evasion activity can be filed on merits before the ITAT/High Courts/ Supreme Court including the cross objections only if the CBDT passes a special order in those SLPs/appeals/cross objections before the Supreme Court/High Courts/Tribunals if the tax limit is less than the specified monetary reliefs prescribed in the Circulars issued by the CBDT under section 268A of the IT Act 1961. These circulars under section 268A of the IT Act 1961 by the CBDT are issued with an object to not to burden the Courts and Tribunals in respect of the matters where the tax effect is less than the limit prescribed subject to the exceptions carved out in these Circulars. It is not in dispute that the appeals filed by the appellant-revenue in this bunch of appeals allege the voluntary declaration of the amounts shown as long term capital gain and short term capital loss by the respondents-assessee during the search action under section 132 (4) of the IT Act 1961. However in view of the fact that the said Circular No. 23/2019 dated 6th September 2019 read with Office Memorandum dated 16th September 2019 not applicable with retrospective effect though appellant-revenue has alleged organized tax evasion activity on the part of the respondent-assessee in those pending appeals as on the date of the said Circular No. 23/2019 the appellant-revenue cannot be allowed to pursue these appeals. In our view since the tax effect involved in this bunch of appeals is less than the monetary limit prescribed in the earlier circulars referred to aforesaid issued by the Department of Revenue CBDT Ministry of Finance Government of India the appellant- revenue cannot be allowed to proceed with these appeals on merits. The aforesaid appeals are accordingly dismissed however without prejudice to rights and liberties of the appellant to approach this Court afresh in appropriate case wherever special orders have been issued by the Board as an exception to the Circular No. 17/2019 and 23/2019 where organized tax evasion activity of the assessee is noted in future i.e. after the date of the said Circular.

Summary

Issues Involved:

1. Whether the additions made by the AO under Section 69A to the taxable income of the assessee are just and proper.
2. Whether the sale proceeds from the transaction of shares amount to Long Term Capital Gain (LTGC) and Short Term Capital Gain (STGC) when the assessee voluntarily admitted to pay the taxes on the additional income.
3. Whether the appeals having tax effect less than the monetary limit prescribed in Circular No. 3/2018 and modified by Circular No. 17/2019, involving organized tax evasion activity, could be pursued without obtaining a special order from CBDT.
4. Whether Circular No. 23/2019 and Office Memorandum dated 16th September 2019 would apply to pending appeals before ITAT/High Court/SLPs/appeals before the Supreme Court on the date of the said circular.

Detailed Analysis:

Issue 1: Additions under Section 69A
The court examined whether the additions made by the Assessing Officer (AO) under Section 69A to the taxable income of the assessee were just and proper. The AO had held that the claims of long-term capital gain and short-term capital loss were bogus and added the amounts to the taxable income of the assessee. This decision was initially overturned by the Commissioner of Income Tax (Appeals), Aurangabad, and subsequently upheld by the Income Tax Appellate Tribunal (ITAT), Pune Bench 'B'. The court did not explicitly resolve this issue due to the overarching impact of the monetary limits prescribed in the CBDT circulars.

Issue 2: Voluntary Admission of Tax Liability
The court considered whether the sale proceeds from the transaction of shares amounted to Long Term Capital Gain (LTGC) and Short Term Capital Gain (STGC) when the assessee had voluntarily admitted to pay the taxes on the additional income. The assessee had retracted the voluntary admission made under Section 132(4) of the IT Act while filing the return. The court did not provide a specific resolution to this issue due to the dismissal of the appeals based on the monetary limits set by the CBDT circulars.

Issue 3: Monetary Limits and Organized Tax Evasion
The court analyzed whether the appeals involving organized tax evasion activity could be pursued without obtaining a special order from CBDT, despite having a tax effect less than the monetary limit prescribed in Circular No. 3/2018 and modified by Circular No. 17/2019. The court noted that Circular No. 23/2019 and the Office Memorandum dated 16th September 2019 provided an exception for cases involving organized tax evasion activity. However, the court clarified that this exception applied only to future appeals filed after the date of the circular and not to pending appeals.

Issue 4: Applicability of Circular No. 23/2019 to Pending Appeals
The court examined whether Circular No. 23/2019 and the Office Memorandum dated 16th September 2019 would apply to pending appeals before ITAT/High Court/SLPs/appeals before the Supreme Court on the date of the said circular. The court concluded that these circulars did not apply retrospectively to pending appeals. The court emphasized that the legislative intent was clear that Circular No. 23/2019 would not apply to pending cases, and any special order from CBDT for filing appeals on merits in such cases was not applicable.

Conclusion:
The court dismissed the appeals, stating that since the tax effect involved was less than the monetary limit prescribed in the relevant CBDT circulars, the appellant-revenue could not proceed with these appeals on merits. The court noted that the dismissal was without prejudice to the rights and liberties of the appellant to approach the court afresh in appropriate cases where special orders have been issued by the Board as an exception to Circular No. 17/2019 and 23/2019. Consequently, the court did not answer the substantial questions of law formulated earlier and ordered no costs.