2023 (4) TMI 391 - HC - Income Tax

Benefit of Vivad Se Vishwas Scheme 2020 - present appeal (by revenue) was filed with a delay of 958 days - Addition of undisclosed income in the garb of Long Term Capital Gain (LTCG) to claim exemption u/s. 10(38) - revenue had opposed such a prayer by contending that the Scheme is no longer in vogue and, therefore, the respondent/assessee cannot be permitted to avail the benefit of the Scheme or file an application under the Scheme - as submitted had the appeal been preferred within the period of limitation the assessee could have filed an application well before the time stipulated under the Scheme. HELD THAT - Assessee should not be non-suited for the default committed by the revenue in nor preferring the appeal within the period of limitation. Identical issue arose for consideration before in the case of I.A. Housing Solution Private Limited vs. Principal Commissioner of Income Tax 4 Others 2022 (11) TMI 1308 - DELHI HIGH COURT as allowed the writ petition and directed the revenue to accept declaration/application forms in Form 1 and 2 filed by the assessee as valid declaration/application within a time frame and accept the balance disputed amount as stipulated by them under the provisions of the Scheme. Thus, appeal stands disposed of with a direction to the respondent to file the requisite application under the Scheme within a period of ten days from the date of receipt of the server copy of this application and such application shall be deemed to have been presented well before the last date on which the benefit of the Scheme had come to an end and the application shall be processed and the requisite forms be issued so as to enable the respondent/assessee to pay the disputed tax in terms of the conditions contained under the Scheme. Such order shall be passed by the revenue within a period of six weeks from the date on which Forms 1 and 2 are filed by the assessee.

Summary

Issues:
1. Substantiation of genuineness of transactions for claiming exemption under section 10(38) of the Income Tax Act, 1961.
2. Tax treatment of share transactions of penny stock companies.
3. Scrutiny of documentary evidence in light of conduct of assessee under section 68.
4. Failure to explain extraordinary profits earned within a short period.

Analysis:

1. The first issue revolves around the genuineness of transactions to claim exemption under section 10(38) of the Income Tax Act, 1961. The court deliberated on whether the assessee could substantiate the legitimacy of the transactions and if they were not dubious share transactions aimed at concealing undisclosed income as Long Term Capital Gains (LTCG). The court analyzed if the ITAT had erred in assessing the genuineness of the transactions and the eligibility for exemption under section 10(38).

2. The second issue concerns the tax treatment of share transactions involving penny stock companies. The court examined whether these transactions constituted an adventure in the nature of trade, necessitating taxation as business income. The ITAT's decision to allow the assessee's appeal for exemption under section 10(38) was scrutinized in light of the nature of the transactions and their tax implications.

3. The third issue pertains to the scrutiny of documentary evidence under section 68 of the Income Tax Act. The court assessed whether the ITAT's order overlooked its duty to thoroughly examine the documentary evidence, considering the conduct of the assessee and surrounding circumstances. The necessity to probe deeply into the evidence to determine the applicability of section 68 was a focal point of this issue.

4. The final issue revolves around the failure to explain substantial profits earned within a short period. The court analyzed whether the ITAT had erred in not appreciating the Assessing Officer's findings regarding the lack of satisfactory explanation for the significant profits generated by the assessee within a brief timeframe. The absence of evidence regarding the financials, growth, and operations of the company in question was a crucial aspect in this assessment.

In conclusion, the court allowed the appeal and directed the respondent to file an application under the Vivad Se Vishwas Scheme within a specified timeframe. The court considered the peculiar circumstances of the case, including the delay in filing the appeal, and ensured that the assessee was not disadvantaged due to the revenue's default. The judgment referenced a similar case from the High Court of Delhi to support its decision, emphasizing the importance of allowing the assessee to avail themselves of the Scheme despite procedural delays.