2022 (1) TMI 487 - HC - Income Tax

Maintainability of appeal on low tax effect - claim of bogus LTCG on penny stock for which no monetary limits were applicable - Scope of Circular No.23 of 2019 dated 06.09.2019 along with an Office Memorandum No.279 dated 16.09.2019 providing that the cases involving Organized Tax Evasion Scam to bogus Long Term Capital Gain/ Short Term Capital Loss on penny stocks - Whether the Appellate Tribunal is justified in law and on facts in disposing the appeal of the revenue on account of low tax effect without deciding the appeal on merits even when the issue under appeal was claim of bogus LTCG on penny stock for which no monetary limits were applicable? - HELD THAT - On the date when the Tribunal dismissed the appeal on the ground of low tax effect, indisputably, the CBDT Circular No.23 of 2019 dated 06.09.2019 was not in force. However, Mr. Bhatt, very fairly pointed out that the argument of the Revenue that such circular should be applied with retrospective effect came to be negatived by a Coordinate Bench of this Court in the case of Principal Commissioner of Income-tax (Central), Ahmedabad vs. Anand Natwarlal Sharda 2021 (6) TMI 1065 - GUJARAT HIGH COURT - This Court took the view that there is nothing to suggest in the Circular/Office Memorandum referred to above that the same would have a retrospective effect. The Office Memorandum dated 16.09.2019 was issued pursuant to the said circular dated 06.09.2019 stating inter alia that by virtue of the powers of CBDT under Section 268A of the Income Tax Act, the monetary limits fixed for filing appeals before ITAT/High Court and SLPs/Appeals before Supreme Court shall not lie in case of assessees claiming bogus LTCG/STCL through penny stocks and appeals/ SLPs in such cases appeals shall be filed on merits. There is nothing to suggest in the said Circular/ Office Memorandum that they shall have retrospective effect. On the contrary, from the language employed in the said Circular dated 06.09.2019, it clearly transpires that the appeals may be filed on merits as an exception to the other Circulars issued earlier, where the Board by way of special order direct filing of Appeals on merits in the cases involved in organized tax evasion activity. Therefore, by virtue of the said Circular dated 06.09.2019, the appeals could be filed on merits, irrespective of the monetary limits fixed in earlier cases, if the Board passes special order for filing appeals in cases involving tax evasion activity. The said Circular speaks about the Appeals that may be filed with the special order of the Board in future, and hence could not be construed to have retrospective effect. Tribunal interpreting the said Circular/ Office Memorandum in the impugned order has rightly observed that in respect of each case or category of cases whether an appeal should be filed in view of the Circular dated 06.09.2019 or not shall be decided by the Board by way of special order, and thus a specific requirement of issuance of special order by CBDT is a must. The Tribunal therefore has rightly held that the CBDT Circular No. 23/2019 dated 06.09.2019 should be read along with the Office Memorandum dated 16.09.2019, in respect of the appeals to be filed pursuant to such special orders of CBDT and shall apply to all the appeals filed on or after 16.09.2019 by the revenue, where the tax effect may be low but the appeal could still be filed by the revenue on merits.

Summary

Issues:
Delay condonation sought by Revenue in Tax Appeal, Question of law regarding low tax effect appeal dismissal, Interpretation of CBDT Circular No.23 of 2019, Coordinate Bench decision on circular's retrospective effect, Special order requirement for filing appeals on merits, Reference to another Coordinate Bench order, Dismissal of appeal based on prior judgments.

Delay Condonation and Main Appeal Hearing:
The Tax Appeal by the Revenue sought condonation of a 17-day delay, which was granted by the court. Despite the usual procedure of registering the appeal first, the court decided to hear the main appeal on the same day due to the settled nature of the proposed legal question.

Question of Law and Tribunal's Decision:
The appeal challenged the Tribunal's order dismissing the Revenue's appeal based on low tax effect. The proposed legal question queried the justification of not deciding the appeal on merits concerning a claim of bogus LTCG on penny stocks without monetary limits.

CBDT Circular No.23 of 2019 and Retrospective Effect:
The Revenue argued that a subsequent circular by CBDT allowed appeals on merits for cases of organized tax evasion, including bogus LTCG on penny stocks, without monetary limits. However, a Coordinate Bench decision clarified that the circular did not have retrospective effect, emphasizing the need for a special order by the Board for such appeals.

Interpretation and Application of Circular:
The Circular dated 06.09.2019 permitted appeals on merits as an exception for cases of tax evasion, requiring a special order from the Board. The Coordinate Bench highlighted that the circular did not apply retrospectively and mandated specific orders for filing appeals on merits in cases involving tax evasion activities.

Reference to Coordinate Bench Order:
Another Coordinate Bench order dated 13.07.2021 in a related case involving the same assessee was referenced, indicating the dismissal of a petition seeking to set aside the Tribunal's order. This order further supported the dismissal of the present appeal.

Final Dismissal of the Appeal:
Considering the arguments, interpretations of the circular, and related judgments, the court dismissed the appeal, aligning with the decisions and interpretations provided by the Coordinate Bench orders.