2022 (2) TMI 1452 - AT - Income Tax

Dismissal of appeal due to low tax effect - assessee pointed out that the limit prescribed vide aforesaid Circular is less than Rs. 50 lakhs while the tax effect involved in the present appeal was only Rs. 3,51,871/- - as argued monetary limit fixed for filing appeal before the ITAT shall not apply in case of assessees claiming bogus gains / losses through penny stocks and appeals in such cases shall be filed on merits. HELD THAT - From a plain reading of the language of Circular No. 23 of 2019 dated 06.09.2019 read with Office Memorandum dated 16.09.2019, in our view, the same shall apply when assessee has earned / claimed bogus LTCG/STCL through penny stocks. There is nothing to suggest that the Circular read with Memorandum would apply with equal force even if the assessee has shown sale and purchase of such alleged penny stocks as income from business or profession in its return of income. In our view, the language of Circular read with Memorandum is very categorical and does not suggest any scope for a wider interpretation so as to cover within its scope even business income from purchase and sale of alleged penny stocks. A perusal of the return of income and the computation of income filed by the assessee shows that the assessee has filed return of income declaring income from sale of shares under the head income from business or profession . The assessee has not declared any income/ loss under the head capital gains . The total tax effect from the assessment framed during the captioned year which as admitted by both parties is below the prescribed limit for filing appeals before Tribunal. Therefore, case of the assessee does not fall within the exceptions as provided by CBDT Circular No. 23 of 2019 dated 06.09.2019 read with Office Memorandum dated 16.09.2019 and therefore, the impugned appeal filed by the Revenue deserves to be treated as withdrawn on account of low tax effect. Revenue is accordingly dismissed.

Summary

Issues:
1. Whether the appeal filed by the Revenue should be dismissed due to low tax effect as per CBDT Circular No. 17 of 2019?
2. Whether the exception provided in Circular No. 23 of 2019 and Office Memorandum dated 16-09-2019 applies to the case of the assessee?

Analysis:

Issue 1:
The appeal was filed by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals)-4, Ahmedabad for the Assessment Year 2011-12. The ld. counsel for the assessee argued that the appeal should be dismissed due to low tax effect, which was below the prescribed limit for filing appeals by the Department before ITAT as per CBDT Circular No. 17 of 2019. The tax effect involved in the present appeal was only Rs. 3,51,871/-. The Departmental Representative countered by citing Circular Number 23 dated 6th September, 2019 and Office Memorandum dated 16-9-2019, which provided exceptions for cases involving bogus gains/losses through penny stocks. However, the assessee argued that the exception did not apply to their case as they had not claimed bogus long term capital gain/short term capital loss through penny stocks. The Tribunal examined the Circulars and Memorandum along with the assessee's tax return, which showed income from sale of shares under 'income from business or profession' and no income under 'capital gains'. The Tribunal concluded that the case did not fall within the exceptions provided by the Circulars, and hence, the appeal was dismissed on account of low tax effect.

Issue 2:
The Circular No. 23 of 2019 dated 06.09.2019 and the Office Memorandum dated 16.09.2019 issued by CBDT provided exceptions for cases involving organized tax evasion activity through bogus LTCG/STCL on penny stocks. The Tribunal noted that the exceptions applied when the assessee had earned or claimed bogus LTCG/STCL through penny stocks. In this case, the assessee had shown the sale and purchase of alleged penny stocks as 'income from business or profession' in the return of income, not under 'capital gains'. The Tribunal emphasized that the language of the Circular and Memorandum did not support a broader interpretation to cover 'business income' from penny stocks. As the tax effect was below the prescribed limit for filing appeals before the Tribunal, the case of the assessee did not fall within the exceptions provided by the Circular and Memorandum. Consequently, the appeal filed by the Revenue was dismissed.

In conclusion, the Tribunal dismissed the appeal filed by the Revenue due to low tax effect and clarified that the exceptions provided in the Circular and Memorandum did not apply to the case of the assessee as they had not claimed bogus LTCG/STCL through penny stocks, but had shown income from penny stocks as 'income from business or profession'.