Gujarat HC Restores Tax Appeal Involving Organized Tax Evasion and Penny Stock Fraud:

Gujarat HC Restores Tax Appeal Involving Organised Tax Evasion and Penny Stock Fraud Previously, the court had closed a tax appeal just because the tax amount was small. Thereafter, the Income Tax Department argued that this case involves serious issues like organised tax evasion and fake stock transactions, which should not be ignored. The court agreed with this argument, cancelled the old closure order, and restored the case so that it can now be heard properly on its merits. The present application [R/Misc. Civil Application (For Restoration) No. 1032 Of 2025 In R/Tax Appeal No. 194 Of 2024] has been filed by the Principal Commissioner of Income Tax (Central), Ahmedabad (applicant), in the Gujarat High Court against an individual named Sarthav Infratech (respondent). The benches comprised Honourable Mr Justice Bhargav D. Karia and Honourable Mrs Justice Mauna M. Bhatt. The judges announced their decision on October 10, 2025.

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The application has been filed by the Income Tax Department to recall a previous order dated October 07, 2024, in which the authority disposed of the tax appeal (R/Tax Appeal No. 194 of 2024) because the tax involved was considered small (“low tax effect”). At that time, the court had also said that the appeal could be revived later if any difficulty arises. On this negligence of the court, the income tax department said that the tax appeal falls under a special exception mentioned in Paragraph 3.1(h) of a circular (No. 5 of 2024), dated March 15, 2024. This exemption underlines that in cases where organised tax evasion or fake capital gains/losses through penny stocks or accommodation entries are involved, the decision should be made based on the merits of the case instead of ignoring the case just because the tax amount is small.

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The tax department also cited an earlier circular (No. 9 of 2024) dated September 17, 2024, to support their point, which says that the exceptions mentioned in Circular No. 5 of 2024 must be taken into account when deciding whether to proceed with such tax cases. When the court analysed all these points, it decided to recall the order dated October 07, 2024. Meaning, earlier, all directions had been quashed. Now, the Tax Appeal No. 194 of 2024 is restored, which means the appeal will be reconsidered on its merits.