2017 (4) TMI 824 - HC - Income Tax

Compounding of offence under Section 276CC rejected - failure to file the return for two assessment years years - whether for any prior year any show cause notice for prosecution is issued and served upon the petitioner or not? - Held that - In the present case, for AY 2011-12, the show cause notice was already issued under Section 276 CC of the Act on 27.10.2014 for non filing of return before due date (for AY 2011-12) and despite the same for the subsequent years i.e. for AY 2013-14 the assessee did not file return of income before due date of filing of return. Therefore, again the petitioner assessee committed the offence for AY 2013-14. Thus, it cannot be said that in AY 2013-14 it can be said to be the first offence committed by the assessee. Under the circumstances, the respondent no.1 has rightly rejected the compounding application submitted by the petitioner. Rejection of the compounding application submitted by the petitioner is absolutely in consonance with the Guidelines, 2014. The impugned order passed by the respondent no.1 rejecting the compounding application submitted by the petitioner cannot be said to be either illegal or contrary to the Guidelines, we see no reason to interfere with the same. In view of the above and for the reasons stated above, present petition fails and same deserve to be dismissed and is accordingly dismissed.

Summary

Issues:
1. Rejection of compounding application under Section 276 CC of the Income Tax Act for AY 2013-14.
2. Interpretation of Guidelines for Compounding of Offence, 2008.
3. Consideration of "first offence" in compounding applications.

Analysis:
1. The petitioner-assessee filed a petition under Article 226 to challenge the rejection of their compounding application for an offence under Section 276 CC of the Income Tax Act for AY 2013-14. The Chief Commissioner of Income Tax rejected the application citing that compounding is permissible only for the first offence. The petitioner contended that the rejection was based on an erroneous understanding of the law, emphasizing that the show cause notice for the alleged offence was issued after the return of income was filed. The petitioner argued that financial constraints led to the delayed filing and that the Guidelines are not binding in a strict sense. The petitioner sought relief based on precedents from the Madras and Delhi High Courts. However, the High Court upheld the rejection, stating that the offence for AY 2013-14 cannot be considered the first offence as a show cause notice was issued for a prior year. The court found that the rejection was in line with the Guidelines for compounding offences.

2. The Guidelines for Compounding of Offence, 2008, were a crucial point of contention in the case. The Guidelines categorized offences, with Section 276 CC falling under category "B." The Guidelines stated that compounding is generally not permissible for offences beyond the first. The court emphasized that the interpretation of the term "first offence" is key to determining the eligibility for compounding. The court clarified that the issuance of a show cause notice for prosecution prior to the alleged offence prevents it from being considered the first offence. The court rejected the petitioner's argument that the delayed filing of the return for AY 2013-14 should be considered the first offence, as a show cause notice was issued for a prior year.

3. The concept of "first offence" played a significant role in the judgment. The court analyzed the timeline of events, emphasizing that a show cause notice issued for a prior year's offence affects the classification of subsequent offences. The court highlighted that the Guidelines provide specific criteria for determining first offences, including the timing of show cause notices. The court concluded that the rejection of the compounding application was justified based on the Guidelines and the sequence of events leading to the alleged offence. The court refrained from delving into the merits of the reasons for delayed filing, as those considerations are not relevant in the context of a compounding application. Ultimately, the court dismissed the petition, upholding the rejection of the compounding application for AY 2013-14.