2009 (3) TMI 609 - HC - Income Tax

Tax evasion - Self assessment - assessee did not pay the due tax and did not avail of the offer of compounding - whether the matter can be compounded after an order of conviction and sentence was passed against the present petitioners by a criminal court, if so, its effect - It is in this context that application for compounding of offence was not moved by the petitioner-firm before the conviction order passed by the criminal court - the application for compounding of offence was moved after the conviction order passed by the criminal court and therefore, the question of compounding of offence particularly when conviction and sentence against the present petitioners had already been passed by the Chief Judicial Magistrate does not arise - Decided in the favour of assessee

Summary

Issues:
1. Writ petition for quashing order dismissing compounding of offences.
2. Allegations of deliberate failure to pay tax under section 140A of the Income-tax Act.
3. Contesting the writ petition's merit by the respondent.
4. Consideration of compounding after conviction and its effect.
5. Rejection of application for compounding of offence by Chief Commissioner of Income-tax.
6. Interpretation of section 279(2) of the Act regarding compounding of offences.
7. Timing of application for compounding vis-a-vis conviction order.
8. Lack of irregularity or impropriety in the impugned order.

Analysis:
The petitioners filed a writ petition seeking to quash the order dismissing their application for compounding of offences under the Income-tax Act. The case involved allegations of deliberate failure to pay tax under section 140A. The respondent contested the petition's merit, arguing that the petition lacked substantial legal questions. The central issue revolved around whether compounding could occur after a criminal court's conviction and its implications. The Chief Commissioner of Income-tax rejected the application for compounding based on the petitioners' prior refusal to accept a compounding offer in 1997.

The court examined section 279(2) of the Act, which allows compounding before or after proceedings' institution. The petitioners' application for compounding, dated February 16, 2008, was rejected post their conviction in 2006. Previous applications for compounding were also denied. The court concluded that the timing of the application post-conviction precluded compounding, as the law does not allow compounding after a conviction. The court upheld the rejection of the compounding application by the Chief Commissioner, citing no irregularities or legal defects.

The respondent's contention that the offence did not qualify for compounding after conviction was accepted, leading to the dismissal of the writ petition. The court found no grounds for interference, as the rejection of the compounding application was deemed appropriate. Ultimately, the court ruled that the writ petition lacked merit and was dismissed accordingly.