2017 (1) TMI 1005 - HC - Income Tax

Compounding of the offence under Section 276B rejected - petitioner had omitted to deposit amounts deducted as tax, from the sums payable under various contracts - Held that - In the present case petitioner s failure to deposit the amount collected was beyond its control and was on account of seizure of books of accounts and documents etc. But for such seizure, the petitioner would quite reasonably be expected to deposit the amount within the time prescribed or at least within the reasonable time. Instead of considering these factors on their merits and examining whether indeed they were true or not, the Chief Commissioner felt compelled by the text of para 8(v). That condition, no doubt is important and has to be kept in mind, cannot be only determining. In the present case, the material on record in the form of a letter by the Superintendent of CBI also shows that a closure report was in fact filed before the competent court. Having regard to all these facts, this Court is of the opinion that the refusal to consider and accept the petitioner s application under Section 279(2) cannot be sustained. The impugned order is hereby set aside. The Chief Commissioner is hereby directed to consider the relevant facts and pass necessary orders in accordance with law within six weeks after granting a fair opportunity to the petitioner in that regard. The petition is allowed in the above terms.

Summary

Issues:
1. Rejection of application for compounding of offence under Section 276B of the Income Tax Act, 1961 by the Chief Commissioner of Income Tax under Section 279(2).

Analysis:
1. The petitioner sought compounding of the offence under Section 276B after failing to deposit tax amounts deducted from payments related to Commonwealth Games services. The delayed payment was &8377; 70,06,803. The Chief Commissioner rejected the application citing non-fulfillment of eligibility criteria and guidelines, specifically para 8(v) of the Board's guidelines dated 3.12.2014.

2. The Chief Commissioner's decision was based on the belief that compounding was not permissible as per the guidelines issued by the Central Board for Direct Taxes, particularly para 8(v). The petitioner argued that ongoing investigations had concluded with a closure report, indicating that the seizure of documents by the CBI had hindered their ability to make the necessary TDS payment.

3. The court held that while the guidelines are important, they should not overshadow the objective facts of the case. The rejection of the application solely based on para 8(v) was deemed erroneous. The court noted that the petitioner's failure to deposit the amount was due to circumstances beyond their control, such as the seizure of documents. The court set aside the impugned order and directed the Chief Commissioner to reconsider the case in light of the facts presented.

4. The court emphasized that the power to grant or refuse compounding is discretionary and administrative, guided by the circumstances of each case. While the guidelines are to be considered, they should not prevent authorities from assessing the actual facts. In this case, the Chief Commissioner's decision was found to be based on an incorrect interpretation of the law, and the refusal to accept the petitioner's application was deemed unsustainable.

5. The court directed the Chief Commissioner to review the relevant facts and make a decision within six weeks, providing a fair opportunity to the petitioner. Ultimately, the petition was allowed, and the impugned order was set aside.