ACIT CENT. CIR 5(4), MUMBAI V. SHRI NITIN CHHATWAL, MUMBAI

ITA 2269/MUM/2021

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The case involves an appeal by the Assistant Commissioner of Income-tax, Central Circle-5(4), Mumbai against the order of the Commissioner of Income-tax-53, Mumbai. The dispute centered on the allowance of a capital loss arising from the write-off of an investment in penny stocks, specifically in M/s. Surabhi Chemicals & Investment Limited. The Revenue contended that the CIT(A) erred in allowing the capital loss, arguing that long-term capital gain or loss only accrues upon the transfer of assets as per section 2(47) of the Income Tax Act, which had not occurred in this case. The assessee's counsel argued that the tax effect involved was below the monetary limit for filing appeals as prescribed by the CBDT, which the Revenue contested, citing exceptions for cases involving penny stocks due to organized tax evasion activities.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123178 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 06-02-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 02-12-2021
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Tax effect
• Section: 268A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAHUL CHAUDHARY (JUDICIAL MEMBER) ITA No. 2269/MUM/2021 Assessment Year: 2018-19 The Asst. CIT Central Circle-5(4), Room No. 1927, 19 th floor, Air India Building, Nariman Point, Mumbai-400021. Vs. Shri Nitan Chhatwal, Plot No. 2, New India Co- op EW Road No. 2, JVPD Scheme, Juhu, Mumbai-400049. PAN No. AAGPC 9892 G Appellant Respondent Revenue by : Dr. Mahesh Akhade, CIT-DR Assessee by : Mr. Mani Jain Date of Hearing : 07/02/2023 Date of pronouncement : 13/02/2023 ORDER PER OM PRAKASH KANT, AM This appeal by the Asst. Commissioner of Income-tax, Central Circle-5(4), Mumbai (in short ‘the Ld. Assessing Officer’) has been preferred against order dated 17.09.2021 passed by the Ld. Commissioner of Income-tax-53, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2018-19, raising following grounds: 1. On the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in allowing Capital loss arising out by the written off of investment of Rs. 1,51,56, 771/ Surabhi Chemi Long Term Capital gain or Loss accrues only on transfer of assets as per section 2(47) of the IT. Act, which in this case has not taken place. 2. At the outset, the Ld. Counsel of the assessee submitted that as per the Form No. 36, the total tax effect involved is only Rs.35,90,638/- which is less than the monetary limit prescribed for filing appeal by the Income Central Board of Direct Taxes (CBDT) in Circular No. 3/2018 dated 11.07.2018. 3. On the other hand, the Ld. Departmental Representative (DR) submitted that issue stocks and therefore, appeals involving long term c (LTCG)/short term cap (i.e. Board) has direct to decide the issue on merit as exception said Circular No. 3/2018. of Circular No. 23 of 2019 of the CBDT, monetary limit for filing appeals before the ITAT, High Court, Hon’ble Supreme Court has been ca 4. We have heard both the parties on the issue whether the instant appeal is covered by the monetary limit for filing appeal before the ITAT or arising out by the written off of investment of Rs. 1,51,56, 771/- in the penny stock company M/s. Surabhi Chemicals & Investment Limited, though the Long Term Capital gain or Loss accrues only on transfer of assets as per section 2(47) of the IT. Act, which in this case has not taken place. At the outset, the Ld. Counsel of the assessee submitted that as per the Form No. 36, the total tax effect involved is only which is less than the monetary limit prescribed for filing appeal by the Income-tax Department as notified by the ntral Board of Direct Taxes (CBDT) in Circular No. 3/2018 dated On the other hand, the Ld. Departmental Representative (DR) submitted that issue-in-dispute in the case involved is of penny stocks and therefore, appeals involving long term c (LTCG)/short term capital loss (STCL) on penny stock, has direct to decide the issue on merit as exception said Circular No. 3/2018. The Ld. DR also filed a copy of the letter ular No. 23 of 2019 of the CBDT, wherein exception of the monetary limit for filing appeals before the ITAT, High Court, on’ble Supreme Court has been carved out. We have heard both the parties on the issue whether the instant appeal is covered by the monetary limit for g appeal before the ITAT or falling under the exceptions Shri Nitan Chhatwal ITA No. 2269/M/2021 2 AY 2018-19 arising out by the written off of investment of Rs. in the penny stock company M/s. cals & Investment Limited, though the Long Term Capital gain or Loss accrues only on transfer of assets as per section 2(47) of the IT. Act, which in At the outset, the Ld. Counsel of the assessee submitted that as per the Form No. 36, the total tax effect involved is only which is less than the monetary limit prescribed for tax Department as notified by the ntral Board of Direct Taxes (CBDT) in Circular No. 3/2018 dated On the other hand, the Ld. Departmental Representative (DR) dispute in the case involved is of penny stocks and therefore, appeals involving long term capital gain ital loss (STCL) on penny stock, the CBDT has direct to decide the issue on merit as exception to The Ld. DR also filed a copy of the letter rein exception of the monetary limit for filing appeals before the ITAT, High Court, We have heard both the parties on the issue-in-dispute whether the instant appeal is covered by the monetary limit for under the exceptions provided in Circular No. 23 of 2019 issued by the CBDT. For ready reference that relevant Circular is reproduced as under: Government of Central Board Direct Taxes Judicial Section Subject: -Exception to monetary limits for filing appeals specified in any Circular issued under Section 268A of the Income- Reference is invited to the Circulars issued from time to time by Central Board of Direct Taxes (the Board) under section 268A of the Income-tax Act,1961 (the Act), for laying down monetary limits and other conditions for filing of departmental ap before Income Tax Appellate Tribunal (ITA T), High Courts and SLPs/appeals before Supreme Court. 2. Several references have been received by the Board that in large number of cases where organised tax noticed through bogus Long Term Capital Loss (STCL) on penny stocks and department is unable to pursue the cases in higher judicial fora on account of enhanced monetary limits. It has been reported that in large number of cases, ITA Ts and High Court have r unique modus operandi involved in such scam and have passed judgements in favour of the revenue. However, in cases where some appellate fora have not given due consideration to position of law or facts investigated by the department, there is no remedy available with the department for filing further appeal in view of the prescribed monetary limits. 3. In this context, Board has decided that notwithstanding anything contained in any circular issued U/S 268A specifying monetary limits for fili Tax Appellate Tribunal (IT AT), High Courts and SLPs/appeals provided in Circular No. 23 of 2019 issued by the CBDT. For ready reference that relevant Circular is reproduced as under: Circular No. 23 of 2019 “F. No. 279/Misc.lM-93/20l8-ITJ(Pt.) Government of India Ministry of Finance Department of Revenue Central Board Direct Taxes Judicial Section New Delhi, 6 th September 2019 Exception to monetary limits for filing appeals specified in any Circular issued under Section 268A of -tax Act, 1961-reg Reference is invited to the Circulars issued from time to time by Central Board of Direct Taxes (the Board) under section 268A of tax Act,1961 (the Act), for laying down monetary limits and other conditions for filing of departmental ap before Income Tax Appellate Tribunal (ITA T), High Courts and SLPs/appeals before Supreme Court. 2. Several references have been received by the Board that in large number of cases where organised tax-evasion scam is noticed through bogus Long-Term Capital Gain (LTCG)/Short Term Capital Loss (STCL) on penny stocks and department is unable to pursue the cases in higher judicial fora on account of enhanced monetary limits. It has been reported that in large number of cases, ITA Ts and High Court have r unique modus operandi involved in such scam and have passed judgements in favour of the revenue. However, in cases where some appellate fora have not given due consideration to position of law or facts investigated by the department, there is no remedy available with the department for filing further appeal in view of the prescribed monetary limits. 3. In this context, Board has decided that notwithstanding anything contained in any circular issued U/S 268A specifying monetary limits for filing of departmental appeals before Income Tax Appellate Tribunal (IT AT), High Courts and SLPs/appeals Shri Nitan Chhatwal ITA No. 2269/M/2021 3 AY 2018-19 provided in Circular No. 23 of 2019 issued by the CBDT. For ready reference that relevant Circular is reproduced as under: Circular No. 23 of 2019 ITJ(Pt.) India Ministry of Finance Central Board Direct Taxes Judicial Section September 2019 Exception to monetary limits for filing appeals specified in any Circular issued under Section 268A of Reference is invited to the Circulars issued from time to time by Central Board of Direct Taxes (the Board) under section 268A of tax Act,1961 (the Act), for laying down monetary limits and other conditions for filing of departmental appeals before Income Tax Appellate Tribunal (ITA T), High Courts and 2. Several references have been received by the Board that in evasion scam is Capital Gain (LTCG)/Short Term Capital Loss (STCL) on penny stocks and department is unable to pursue the cases in higher judicial fora on account of enhanced monetary limits. It has been reported that in large number of cases, ITA Ts and High Court have recognized the unique modus operandi involved in such scam and have passed judgements in favour of the revenue. However, in cases where some appellate fora have not given due consideration to position of law or facts investigated by the department, there is no remedy available with the department for filing further 3. In this context, Board has decided that notwithstanding anything contained in any circular issued U/S 268A specifying ng of departmental appeals before Income Tax Appellate Tribunal (IT AT), High Courts and SLPs/appeals before Supreme Court, appeals may be filed on merits as an exception to said circular, where Board, by way of special order direct filing of appeal on mer tax evasion activity. 4. Hindi version follows. 4.1 On perusal of the above Circular it is evident that wherever assessee has claimed bogus long term capital gain/short term capital loss on penny stock in such cases, the consider the filing of the appeal on merit. Before us, the Ld. Counsel of the assessee has however submitted that the loss in case is arising from investment long term capital gain or short term penny stock and therefore said Circular No. 23 of 2019 is not applicable in the case of the assessee. 4.2 From the grounds raised by the Revenue also we find that the Ld. CIT(A) has allowed Revenue has also accepted in the ground that long term capital gain or loss has not taken place in this case. 4.3 In view of the above facts and circumstances, we are of the opinion that the case of the assessee is not filing under the exceptions as provided under Circular No. 23 of 2019. Accordingly, the appeal filed by the Revenue being covered by the monetary tax limit of Rs.50 lakhs for filing appeal before the ITAT as prescribed before Supreme Court, 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 organised tax evasion activity. 4. Hindi version follows.” On perusal of the above Circular it is evident that wherever assessee has claimed bogus long term capital gain/short term capital loss on penny stock in such cases, the Board has directed to consider the filing of the appeal on merit. Before us, the Ld. Counsel of the assessee has however submitted that the loss in arising from investment written off and not on account of long term capital gain or short term capital loss arising from the penny stock and therefore said Circular No. 23 of 2019 is not applicable in the case of the assessee. From the grounds raised by the Revenue also we find that the Ld. CIT(A) has allowed claim of loss on investment also accepted in the ground that long term capital gain or loss has not taken place in this case. In view of the above facts and circumstances, we are of the opinion that the case of the assessee is not filing under the provided under Circular No. 23 of 2019. Accordingly, the appeal filed by the Revenue being covered by the monetary tax limit of Rs.50 lakhs for filing appeal before the ITAT as prescribed Shri Nitan Chhatwal ITA No. 2269/M/2021 4 AY 2018-19 before Supreme Court, appeals may be filed on merits as an exception to said circular, where Board, by way of special order it in cases involved in organised On perusal of the above Circular it is evident that wherever assessee has claimed bogus long term capital gain/short term Board has directed to consider the filing of the appeal on merit. Before us, the Ld. Counsel of the assessee has however submitted that the loss in the and not on account of capital loss arising from the penny stock and therefore said Circular No. 23 of 2019 is not From the grounds raised by the Revenue also we find that the written off. The also accepted in the ground that long term capital gain In view of the above facts and circumstances, we are of the opinion that the case of the assessee is not filing under the provided under Circular No. 23 of 2019. Accordingly, the appeal filed by the Revenue being covered by the monetary tax limit of Rs.50 lakhs for filing appeal before the ITAT as prescribed under CBDT Circular No. 3/2019 and therefore, appeal of Revenue is liable to be dismissed as infructuous. 5. In the result, the appeal filed by the Revenue is dismissed. Order pronounced 1963 on 13/02/2023. Sd/- (RAHUL CHAUDHARY JUDICIAL MEMBER Mumbai; Dated: 13/02/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// under CBDT Circular No. 3/2019 and therefore, appeal of Revenue is liable to be dismissed as infructuous. In the result, the appeal filed by the Revenue is dismissed. Order pronounced under Rule 34(4) of the ITAT Rules, 02/2023. Sd/- RAHUL CHAUDHARY) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai Shri Nitan Chhatwal ITA No. 2269/M/2021 5 AY 2018-19 under CBDT Circular No. 3/2019 and therefore, appeal of the In the result, the appeal filed by the Revenue is dismissed. under Rule 34(4) of the ITAT Rules, - OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai