2015 (1) TMI 398 - HC - Income Tax

Compounding of offence under section 279(2) - Delay in making deposit of TDS - TDS amount along with interest already deposited by assessee - Request for compounding allowed in 1999 however a revision done in the year 2000 where this request was declined - Held that - application of the assessee for compounding under Section 279(2) of the Act was accepted by the CCIT on 29.11.1999 whereby compounding was accepted on payment of compounding fee of ₹ 2192/-. However, the same was subsequently reviewed on 16.3.2000. It was not disputed by learned counsel for the respondents that the amount of ₹ 4870/- alongwith interest of ₹ 426/- under Section 201(1A) of the Act has already been deposited. Ordinarily, the power to compound vests with the authorities under the Act. It will not serve any useful purpose in referring back the matter to the competent authority particularly keeping in view the fact that the very insignificant amount of ₹ 4870/- is involved which also stood paid and even interest under Section 201(1A)of the Act was paid by the assessee. Accordingly, letter dated 14.3.2000 withdrawing the compounding is hereby quashed. As a necessary corollary, the Annexure P.6 whereby the CCIT had agreed for compounding of the offence on payment of compounding fee of ₹ 2192/- shall stand revived. - petitioners submitted that though the CCIT had determined the compounding fee at ₹ 2192/-, however, the assessee shall deposit an additional amount of ₹ 5000/- to show his bonafides - Decided in favour of petitioner.

Issues Involved:
1. Compounding of offence under Section 279(2) of the Income Tax Act, 1961.
2. Delay in depositing tax deducted at source.
3. Application of CBDT instructions regarding prosecution for minor defaults.
4. Review and withdrawal of compounding approval by the Chief Commissioner of Income Tax (CCIT).
5. Judicial discretion and adherence to departmental instructions.

Issue-wise Detailed Analysis:

1. Compounding of Offence under Section 279(2) of the Income Tax Act, 1961:
The petitioners sought a direction for compounding the offence under Section 279(2) of the Income Tax Act, 1961. Petitioner No.1, a former partner of a dissolved firm, had applied for compounding the offence of delayed tax deposit. The Chief Commissioner of Income Tax (CCIT) initially accepted the compounding on payment of a fee of Rs. 2192 but later reviewed and declined it.

2. Delay in Depositing Tax Deducted at Source:
The firm deducted income tax at source during the accounting year 1984-85 but delayed depositing it due to financial constraints caused by fraud and subsequent business closure. The deducted amounts were eventually deposited voluntarily without any notice from the department. The Income Tax Officer calculated interest of Rs. 426 under Section 201(1A) of the Act, which the petitioners paid.

3. Application of CBDT Instructions Regarding Prosecution for Minor Defaults:
The petitioners argued that according to CBDT instructions dated May 28, 1980, prosecution should not be proposed for minor defaults if the amount involved was not substantial and had been deposited. The default amount of Rs. 4870 along with interest of Rs. 426 had been paid, thus falling within the parameters of the instructions. The court noted that such instructions are binding and should be applied judiciously to avoid arbitrary prosecution.

4. Review and Withdrawal of Compounding Approval by the CCIT:
The CCIT initially approved the compounding application on 29.11.1999 but later reviewed and declined it on 16.3.2000. The court found that the review was unjustified as the conditions for compounding were met, and the amount involved was insignificant. The court quashed the letter withdrawing the compounding approval and revived the initial approval.

5. Judicial Discretion and Adherence to Departmental Instructions:
The court emphasized that while the power to compound offences vests with the authorities, judicial discretion should be exercised to avoid unnecessary prosecution for minor defaults. The court referenced similar judgments from other High Courts supporting the view that minor defaults with paid dues should not lead to prosecution. The court directed the petitioners to deposit an additional Rs. 5000 to show bonafides and allowed the petition, instructing the appellate authority to pass an order in accordance with the revived compounding approval.

Conclusion:
The court allowed the petition, quashed the withdrawal of the compounding approval, and revived the initial compounding order. The petitioners were directed to deposit an additional Rs. 5000 along with the compounding fee of Rs. 2192. The appellate authority was instructed to pass an order on the appeal in accordance with the revived compounding approval. The judgment underscored the importance of adhering to CBDT instructions and exercising judicial discretion to prevent arbitrary prosecution for minor defaults.

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