Bogus Share Transaction Case Exempted from CBDT Low-Tax-Effect Circular: Delhi HC

The Delhi High Court has held that bogus share transaction cases involving allegations of organised tax evasion cannot be dismissed merely on the ground that the tax demand falls below the monetary threshold prescribed for departmental appeals. The Bench of Justice Dinesh Mehta and Justice Vinod Kumar allowed the Income Tax Department’s appeal against an order of the Income Tax Appellate Tribunal (ITAT), which had dismissed the department’s appeal solely on the basis of low tax effect and ruled that where the assessment order alleges an organised tax evasion scheme involving bogus share transactions, such cases fall within the exceptions carved out under CBDT Circular No. 5/2024 and therefore deserve adjudication on merits. Background of the DisputeDept’s Challenge Before the High CourtTribunal Had Not Examined MeritsBroad Interpretation of ‘Organised Tax Evasion’Findings of the CourtAppeal Restored to ITATCase Details Background of the Dispute The dispute arose from an assessment order dated March 17, 2023, wherein the Assessing Officer alleged that the assessee, Vishwanath Singhal, had engaged in non-genuine share transactions with the assistance of two stock brokers, Karnam Securities Limited and Lifeline Securities Limited. According to the Department, these brokers facilitated forged and bogus transactions in listed company shares, thereby enabling tax evasion. The Assessing Officer treated the transactions as sham arrangements and raised a corresponding tax demand against the assessee. However, when the Revenue challenged the relief granted to the assessee, the ITAT dismissed the departmental appeal by invoking CBDT Circular No. 5/2024 dated March 15, 2024, which restricts filing of appeals involving tax effects below specified monetary limits. Dept’s Challenge Before the High Court Appearing for the Revenue, the Department argued that the Tribunal had incorrectly applied the low-tax-effect circular without considering whether the case fell within one of the exceptions specifically preserved by the CBDT. The Department drew the Court’s attention to Clause (h) of Paragraph 3.1 of Circular No. 5/2024, which excludes certain categories of cases from the low-tax-effect policy. The relevant clause provides: “Cases involving organized tax evasion including cases of bogus capital gain/loss through penny stocks and cases of accommodation entries.” The department contended that the allegations in the assessment order clearly involved an organised tax evasion mechanism and therefore the Tribunal was duty-bound to examine the appeal on merits instead of dismissing it summarily. Tribunal Had Not Examined Merits After examining the Tribunal’s order, the High Court found that the ITAT had not adjudicated the substantive issues raised by the Revenue. The Court specifically referred to the Tribunal’s observation: “Hence, without going into the merits of the issue, this appeal is hereby dismissed on the ground of low tax effect. The case does not fall under the exceptions provided in the CBDT Circular. Accordingly, the grounds raised by the revenue are dismissed.” The Bench noted that this observation conclusively demonstrated that the Tribunal had refrained from evaluating the allegations contained in the assessment order and had disposed of the matter exclusively on the basis of monetary limits. Broad Interpretation of ‘Organised Tax Evasion’ A key aspect of the judgment is the Court’s interpretation of Clause (h) of the CBDT Circular. The High Court rejected the narrow view that the exception applies only to penny-stock manipulation cases or accommodation-entry transactions. Instead, it held that the phrase “organized tax evasion” is the principal category, while the subsequent references to bogus capital gains through penny stocks and accommodation entries are merely illustrative examples. According to the Court, the use of the word “including” in Clause (h) significantly expands the scope of the exception rather than restricting it. The Bench observed that all cases involving organised tax evasion are excluded from the low-tax-effect regime, irrespective of whether they specifically involve penny stocks or accommodation entries. The Court held that the examples cited in the circular serve only an explanatory purpose and cannot be interpreted as limiting the broader category of organised tax evasion. Findings of the Court The High Court found that the Assessing Officer had specifically alleged that the assessee’s transactions were fictitious and had been facilitated through coordinated assistance from share brokers. If such allegations were ultimately established, they would amount to organised tax evasion. Consequently, the Court concluded that the matter squarely fell within the exception provided in Clause (h) of Paragraph 3.1 of Circular No. 5/2024. The Bench therefore held that the Tribunal committed an error in dismissing the Revenue’s appeal solely on account of low tax effect without examining the applicability of the exception. Appeal Restored to ITAT Allowing the appeal, the High Court set aside the Tribunal’s order and restored the matter to the ITAT for fresh consideration. The Tribunal has now been directed to hear the appeal on merits and decide the controversy in accordance with law. Importantly, the Court clarified that it had not expressed any opinion on the correctness of the allegations against the assessee and that the Tribunal would remain free to independently assess the factual and legal issues involved. Case Details Case Title: PCIT Versus Vishwanath Singhal Citation: JURISHOUR-1503-HC-2026(DEL) Case No.: ITA 135/2026 CM APPL. 10947/2026 CM APPL. 10948/2026 Date: 11.05.2026 Counsel For Appellant: Abhishek Maratha Counsel For Respondent: Ruchesh Sinha Click Here To Read Order Read More: GSTIN in E-Way Bill Alone Can’t Establish NDPS Conspiracy: Gauhati HC

Bogus Share Transaction Case Exempted from CBDT Low-Tax-Effect Circular: Delhi HC

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