2023 (7) TMI 1279 - AT - Income Tax

Dismissal of Department's Appeal & Long Term Capital Gain Addition Deletion Upheld.

The Tribunal dismissed the Department's appeal due to a delay of 363 days in filing, rejecting the condonation request based on Circular No.23 of 2019. ... Condonation of filing of appeal before the ITAT - monetary limits for filing of Departmental appeals before the ITAT - appeal of the Department is time barred by 363 days - DR submitted CBDT vide Circular No.23 of 2019 dated 06.09.2019 had mandated that notwithstanding anything contained in Circular issued u/s. 268A specifying monetary limits for filing of Departmental appeals before the ITAT, High Courts and SLPs/appeals before the Supreme Court, appeals may be filed on merits as an exception where the Board, by way of special order directs filing of appeal on merits in cases involved in organized tax evasion activity - HELD THAT:- The appeal was filed on 07.02.2020. The order appealed against was received by the Department on 11.12.2018 and, therefore, the last date for filing the Departmental appeal before the ITAT was 09.02.2019. Circular No. 23 of the CBDT is dated 06.09.2019 and the OM is dated 16.09.2019. Therefore, the Circular based on which the Department has filed this appeal was issued almost seven months after the expiry of the limitation period for filing of the appeal. Even after the issuance of the said Circular and OM, the present Departmental appeal was filed on 07.02.2020 i.e. almost five months after the issuance of the said Circular. Filing of the appeal five months after the issuance of Circular has not been suitably explained by the Department. Therefore, we are unable to consider the prayer of the Department to condone the delay and we dismiss the appeal as being unadmitted and being barred by limitation. Decided against department. ISSUES PRESENTED AND CONSIDERED 1. Whether the Department's appeal, filed 363 days late, should be admitted by condoning the delay based on subsequent issuance of CBDT Circular No.23/2019 (06.09.2019) and OM dated 16.09.2019 concerning organized tax-evasion involving penny stocks. 2. (Consequential / not adjudicated on merits) Whether the assessing officer's addition of long-term capital gains as unexplained cash/own money (u/s.69A) arising from alleged accommodation entries in penny-stock transactions is sustainable where the first appellate authority deleted the addition for lack of material specifically implicating the assessee in the Investigation Wing's report. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of Delay in Filing Departmental Appeal Legal framework (as applied by The Court): limitation for filing the Departmental appeal is computed from date of receipt of the appellate order (order received by Department on 11.12.2018; last date for filing appeal 09.02.2019). The Department filed the appeal on 07.02.2020, i.e., 363 days after the liminal date. The Department sought condonation relying on CBDT Circular No.23/2019 (06.09.2019) and OM dated 16.09.2019, which directed filing of appeals on merits in cases involving organized tax evasion / bogus LTCG through penny stocks notwithstanding monetary limits under earlier instructions. Precedent Treatment: No judicial precedent was relied upon or discussed by The Court; the Department's reliance was solely on administrative instructions (Circular & OM) issued after expiry of the limitation period. Interpretation and reasoning: The Court treated the dates and sequence of events as decisive. It observed that the Circular and OM were issued almost seven months after the expiry of the statutory period for filing the appeal. The Department failed to explain why the appeal was filed only five months after issuance of the Circular/OM (i.e., why additional delay after the Circular/OM was not explained). The Court held that issuance of an administrative circular after the limitation period does not, without satisfactory explanation for the entire period of delay, automatically justify condonation. The Court found the Department's explanation inadequate to demonstrate that the delay was beyond its control. Ratio vs. Obiter: Ratio - An administrative direction issued after expiry of the statutory filing period does not alone justify condonation of a belated Departmental appeal; the applicant must satisfactorily explain the entire period of delay including any gap after such direction. Obiter - Reference to the special policy to challenge organized tax-evasion was acknowledged but could not rescue an unexplained procedural delay. Conclusions: The Court dismissed the Department's application for condonation of delay and therefore dismissed the appeal as barred by limitation. The appeal was not admitted for adjudication on merits. Issue 2 - Validity of Addition under Section 69A Alleging Bogus LTCG / Accommodation Entry (disposed as consequence) Legal framework (as applied in the record before The Court): Assessing Officer treated large LTCG from penny-stock transactions as part of a manipulative design amounting to introduction of own unaccounted money and added the alleged amount to income under section 69A. First Appellate Authority examined the assessment record and the Investigation Wing's report relied upon by the AO. Precedent Treatment: No authority was cited by The Court. The CIT(A)'s approach relied on requirement of specific findings against the assessee in investigation materials before sustaining additions based on third-party investigative reports. Interpretation and reasoning: The CIT(A) found that the assessing officer had not placed on record any material showing the assessee was specifically implicated in the Investigation Wing's findings (no identification of the assessee as being in collusion with entry operators or brokers). The CIT(A) concluded that, in absence of any such specific finding against the assessee, the assessee could not be held liable for wrongs of third parties merely because an investigation had identified organized operators. The Court did not reopen or re-examine factual merits because the appeal was dismissed on limitation grounds; therefore, the correctness of the CIT(A)'s deletion was not adjudicated afresh by The Court. Ratio vs. Obiter: Obiter - The Tribunal's dismissal on limitation precluded a ratio on the substantive issue; however, the CIT(A)'s reasoning embodies a substantive proposition applied at appellate stage: additions premised on investigative reports require material specifically tying the assessee to the alleged scheme. That proposition, while decisive at the CIT(A) level, was left undisturbed by The Court only because the appeal was time-barred. Conclusions: The assessing officer's addition was deleted by the CIT(A) for absence of specific incriminating material against the assessee in the Investigation Wing's report. The Tribunal declined to adjudicate the substantive correctness of that deletion because the Department's appeal was dismissed as barred by limitation for failure to satisfactorily explain the delay and secure condonation. Cross-References and Practical Consequence 1. The Department's reliance on subsequent administrative directions (CBDT Circular & OM) cannot, without satisfactory explanation of the complete delay including the period after issuance of those directions, remedy a belated appeal filed long after the prescribed limitation. 2. Where an appellate authority deletes an addition grounded on investigative material, the Department's challenge must be lodged within the limitation period or must convincingly explain all periods of delay to obtain condonation; absent that, the appellate deletion stands unreviewed by the Tribunal.