2022 (6) TMI 394 - AT - Income Tax

Court upholds CIT(A) decision on penny stock, allows STCS claim appeal, dismisses tax evasion appeal, maintains CIT(A) order.

The Court upheld the CIT (A)'s decision to delete the addition under section 68 related to penny stock transactions, finding the AO's actions ... Monetary limits for filing appeals specified in any Circular issued under Section 268A - Addition made u/s 68 - sales proceeds from penny stock - Transaction in the nature of organized tax-evasion scam - HELD THAT:- As per Circular No. 23/2019 dated 06.09.2019 para 3 in the case of bogus LTCG/STCL of penny stocks, appeals may be filed on merits as an exception to said Circular where Board by way of special order direct filing of appeal on merit in cases involved in organized tax evasion activity. Considering the directions in the Circular as we found that there is no special order obtained by the Department from Board in this case, hence, same is not qualified to be entertained - Appeal of the Revenue is dismissed relying on Board Circular Issues:1. Deletion of addition made under section 68 on account of sales proceeds from penny stock.2. Claim of STCS without appreciating the AO's computation of STCG.3. Entertaining the appeal despite the tax effect being below the prescribed limit due to organized tax evasion activity.4. Setting aside the CIT (A) order and restoring that of the Assessing Officer.Issue 1: Deletion of addition under section 68:The case involved the appellant's involvement in penny stock transactions, specifically relating to M/s. KCL Infra Projects Ltd. The AO added the total sale value of Rs. 2,31,000 as sales proceeds back towards the taxable income under section 68 of the Act. However, the CIT (A) observed that the AO's action was incorrect as the source of the sum was explained, and there was no substantial evidence linking the appellant to any rigging activities related to the penny stock. Consequently, the CIT (A) directed the AO to delete the addition of Rs. 2,31,581, considering it unsustainable.Issue 2: Claim of STCS and computation of STCG:The AO disallowed the STCL of Rs. 10,530 claimed by the assessee and reduced the STCG of Rs. 10,776 from the total STCG under section 111A in the income computation. However, the CIT (A) found the AO's actions unjustified, stating that the AO failed to provide substantial evidence linking the appellant to any rigging activities. Consequently, the CIT (A) allowed the grounds of appeal related to the claim of STCS, directing the AO to delete the disallowed amount.Issue 3: Entertaining appeal despite tax effect below prescribed limit:The appellant requested the ITAT to entertain the appeal despite the tax effect being below the monetary limit prescribed in a circular. The argument was based on the nature of organized tax evasion activity, as highlighted in Circular No. 23/2019. However, since there was no special order obtained by the Department from the Board in this case, the ITAT concluded that the appeal did not qualify to be entertained. Therefore, the appeal of the Revenue was dismissed based on the Board Circular, without delving into the merits of the case.Issue 4: Setting aside CIT (A) order and restoring AO's order:The appellant prayed for setting aside the CIT (A) order and restoring that of the Assessing Officer. However, the ITAT dismissed the appeal of the Revenue based on the Board Circular, without discussing the merits of the case. The order was pronounced in the open court on March 15, 2022.This detailed analysis covers the issues of deletion of addition under section 68, the claim of STCS, entertaining the appeal despite the tax effect being below the prescribed limit, and setting aside the CIT (A) order to restore that of the Assessing Officer.