2020 (11) TMI 1112 - HC - Income Tax

Application for compounding u/s 279(2) - application made was refused as it had been made after the order of conviction has been passed by the Criminal Court - HELD THAT - Guideline 4.4(f) of the Circular in F. No. 285/90/2008-IT(Inv.)/12 dated 16.05.2008 issued by the CBDT directing that compounding should not be permitted when conviction order has been passed by the Criminal Court, has to be construed that it would not stand in the way for considering a compounding application when appeal against conviction by the Criminal Court is pending, as in this case. Though the Respondent has made a distinction for granting the benefit of compounding to others while denying the same to the Petitioner for the reason that their compounding applications have been made before conviction by the Criminal Court, such distinction cannot be of any avail in view of the binding decisions of the Division Benches of this Court. See UMAYAL RAMANATHAN 2009 (4) TMI 36 - MADRAS HIGH COURT Conduct of the Petitioner by non-cooperation at the initial stage disentitles him to any relief - It would have to be examined with reference to the well known canons of the principles of natural justice that no material could be relied against a person without affording him an opportunity to explain his position before taking any decision entailing adverse civil consequence to him. In the fact situation that has arisen in this case, it was incumbent upon the Respondent to have informed the Petitioner before passing the impugned order that it was proposed to deny relief on account of such non-cooperation at the initial stage of the proceedings by bringing the same to his notice and supplying copies of the materials relied in support of the same, and calling upon him to submit explanation and also afford an opportunity of personal hearing, in that regard. The explanation of the Petitioner, if submitted, ought to be then considered before taking the final decision in the matter. Such exercise apparently has not taken place in the instant case as seen in the impugned order. The result of the foregoing discussion is that the impugned Order passed by the Respondent cannot be sustained and it is set aside and the matter is remitted to the Respondent for fresh determination of the matter. It is incumbent upon the Respondent to take into account the aforesaid conclusions arrived by this Court, conduct enquiry affording opportunity of personal hearing to the Petitioner following the prescribed procedure in consonance with the principles of natural justice, deal with each of the contentions raised by the Petitioner and pass reasoned orders on merits.

Summary

Issues Involved:
1. Legitimacy of rejecting the compounding application post-conviction.
2. Alleged non-cooperation of the petitioner during initial proceedings.
3. Discriminatory treatment in granting compounding relief.
4. Applicability of repealed Chapter XX-C of the Income Tax Act, 1961.

Detailed Analysis:

1. Legitimacy of Rejecting the Compounding Application Post-Conviction:
The Writ Petition challenges the Order rejecting the compounding application under Section 279(2) of the Income Tax Act, 1961. The rejection was based on the application being filed after the conviction order dated 29.04.2010. The court referenced the Division Bench ruling in *Chairman, Central Board of Direct Taxes -vs- Umayal Ramananthan*, which clarified that Section 279(2) allows for compounding "either before or after the institution of proceedings." The term "proceedings" includes pending appeals, thus the pending appeal does not negate the possibility of compounding. The court found no justification to deviate from this precedent, establishing that the compounding application should be considered even if filed post-conviction but during the pendency of the appeal.

2. Alleged Non-Cooperation of the Petitioner During Initial Proceedings:
The Respondent cited the petitioner's non-cooperation in property valuation as a reason for rejection, referencing guidelines 3 and 4.4(g) of the CBDT circular. The court emphasized the principles of natural justice, stating that any adverse material must be communicated to the petitioner, allowing for an explanation before a decision is made. The court found that the Respondent did not follow this procedure, thereby violating natural justice principles. The petitioner was not informed or given an opportunity to respond to the allegations of non-cooperation, rendering the decision flawed.

3. Discriminatory Treatment in Granting Compounding Relief:
The petitioner argued that the compounding application was rejected for the purchaser (petitioner) while granted for the vendor, which constituted discriminatory treatment. The court noted that the Respondent's distinction based on the timing of the compounding applications (before vs. after conviction) was not valid in light of the binding decisions of the Division Benches. The court reiterated that pending appeals should not preclude the consideration of compounding applications, thus the differential treatment was unjustified.

4. Applicability of Repealed Chapter XX-C of the Income Tax Act, 1961:
The petitioner contended that Chapter XX-C, under which the action was taken, was repealed and should not apply to transactions post-01.07.2002. The court did not specifically address this issue in detail, focusing instead on the procedural and substantive fairness of the compounding application rejection.

Conclusion:
The court set aside the impugned order and remitted the matter to the Respondent for fresh determination, ensuring adherence to principles of natural justice. The Respondent must conduct an enquiry, provide personal hearing opportunities, address all contentions, and pass a reasoned order by 31.03.2021. The Writ Petition was disposed of on these terms without costs.