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2008 (4) TMI 307 - HC - Income TaxPetition against impugned order of Chief CIT rejecting the petition filed for compounding of offence u/s 276C(1)/277 - prosecution has successfully established that there was an act of concealment on the part of the petitioner and had filed its return by concealing facts - it is a clear case of of tax evasion - Contention of petitioner that Chief CIT alone has power to compound an offence and CBDT only had the authority to issue general directions with regard to composition of offences, is rejected held that Commissioner has to exercise the discretion in conformity with instructions of CBDT - present petition is, hereby, dismissed.
Issues Involved:
1. Challenge to the impugned order under section 279 of the Income-tax Act, 1961. 2. Request for writs/orders/directions for compounding the offence under sections 276C(1)/277. 3. Determination of whether the Central Board of Direct Taxes (CBDT) can control the discretion of the Commissioner of Income-tax under section 279(2). Issue-wise Detailed Analysis: 1. Challenge to the Impugned Order under Section 279 of the Income-tax Act, 1961: The petitioners challenged the order dated November 2, 2007, passed by the Chief Commissioner of Income-tax, Delhi-III, which rejected their application for compounding the offence under sections 276C(1)/277 of the Income-tax Act. The petitioners sought a writ of certiorari to quash this order. 2. Request for Writs/Orders/Directions for Compounding the Offence under Sections 276C(1)/277: The petitioners prayed for the issuance of writs/orders/directions in the nature of mandamus to direct the respondent-Chief Commissioner of Income-tax, Delhi-III, to pass final orders for compounding the offence, subject to the petitioners depositing the composition fee of Rs. 3,98,830 as per the respondent's order dated February 13, 2007. 3. Determination of Whether the Central Board of Direct Taxes (CBDT) Can Control the Discretion of the Commissioner of Income-tax under Section 279(2): The primary question was whether the CBDT could issue instructions controlling the discretion of the Commissioner of Income-tax under section 279(2) to compound offences. The petitioners argued that the power to compound offences is vested solely in the Chief Commissioner of Income-tax, who has the discretion to accept or reject such applications. They contended that the Board could only issue general directions or policy decisions regarding the composition of offences, and the rejection of their application by the Board was arbitrary and unjust. Legal Provisions and Interpretations: - Section 279(1) and 279(2) of the Income-tax Act: Section 279(1) states that a person shall not be proceeded against for certain offences except at the instance of the Commissioner. Section 279(2) allows the Chief Commissioner or a Director-General to compound offences either before or after the institution of proceedings. - Explanation to Section 279(2) and Section 119(1): The Finance (No. 2) Act, 1991, inserted an Explanation to section 279(2), clarifying that the Board's power to issue orders, instructions, or directions includes the power to issue directions for the proper composition of offences. Section 119(1) empowers the Board to issue orders, instructions, and directions for the proper administration of the Act, which must be followed by all income-tax authorities. Court's Observations and Rulings: - Binding Nature of Board's Instructions: The court noted that the Board's instructions are binding on all officers and persons employed in the execution of the Act. The circulars issued by the Board must be observed and followed. - Case Law References: The court referred to previous judgments, such as Dr. K. Jagadeesan v. CBDT and M. P. Purusothaman v. Asst. Director of Income-tax, which emphasized that the Board's instructions are clarificatory and declaratory in nature and that the discretion to compound offences is not to be exercised as a matter of course but requires the approval of the Board. - Rejection of Petitioners' Contentions: The court held that the Chief Commissioner of Income-tax must exercise discretion in conformity with the Board's instructions. The rejection of the petitioners' application by the Board was found to be in accordance with the law, and the petitioners' contentions were not accepted. - Establishment of Wilful Attempt to Evade Tax: The prosecution successfully established that the petitioners, as directors of the company, had concealed facts and filed false returns, amounting to a wilful attempt to evade tax. Conclusion: The court dismissed the petition, upholding the rejection of the application for compounding by the Chief Commissioner of Income-tax, following the instructions of the CBDT. The petitioners' request for writs/orders/directions for compounding the offence was denied.
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