2018 (8) TMI 714 - HC - Income Tax

Compounding of offense u/s 276B - failure to deposit the compounding amount - Failure to deposit the amount of TDS, after collection to the government account - initiation of prosecution proceedings under the provisions of Chapter XVIIB of the Income Tax Act, 1961 - The main grievance of the petitioners is that when there is a genuine dispute about the quantum of compounding fee payable by them, it was not open to the respondents to reject the application for compounding, without first resolving the dispute. Held that - The amount of compounding fee is statutorily fixed. The question of raising any dispute on the same does not arise. Actually, the dispute with regard to the quantum raised by the petitioners was on the basis of a CBDT Circular - But these guidelines are applicable only to compounding applications filed after 01-01-2015. The application of the petitioners in this case was filed on 26-8-2014. Therefore, the compounding fee was liable to be calculated at the rate of 5%, as per the guidelines existing as on the date of filing of the compounding application. It appears that the compounding fee was stipulated at 5% at the time when the petitioners filed their application for compounding. It was reduced to 3%, after 01-01-2015. Today, the petitioners want to apply the CBDT guidelines to their case, taking the date of acceptance of the application for compounding as the basis. - But the above claim of the petitioners is an argument of convenience. Every proposition of law could prove to be a double edged weapon, but it can never be invoked or condemned depending upon convenience or consequences. Therefore, the 1st respondent was right in applying the guidelines that were in existence as on the date of the filing of the compounding application and the petitioners cannot question the correctness of the same. It is not too late for the petitioners to mend their ways. - the petitioners could be permitted to pay the compounding fee and get the offence compounded. - Decided partly in favor of assessee.

Summary

Issues:
Challenge to order rejecting application for compounding under Section 279(2) of the Income Tax Act, 1961.

Detailed Analysis:

1. The petitioners challenged the rejection of their application for compounding under Section 279(2) of the Income Tax Act, 1961. The application was filed after a show cause notice was issued to them for failure to remit taxes deducted to the Government account. The petitioners sought rectification of the compounding fee amount but failed to pay the fee within the stipulated time.

2. The Principal Commissioner of Income Tax rejected the compounding application after the petitioners failed to remit the full amount of the compounding fee. Subsequently, prosecution was sanctioned under Section 279(1) of the Act, leading to the initiation of criminal proceedings against the petitioners.

3. The petitioners contended that the rejection of the compounding application without resolving the dispute regarding the quantum of the compounding fee was unfair. However, the court held that the fee was statutorily fixed, and the dispute raised by the petitioners based on CBDT guidelines applicable post-2015 was not valid as their application was filed in 2014.

4. The court emphasized that the compounding fee calculation should be based on the guidelines existing at the time of filing the application. It rejected the petitioners' argument of applying post-2015 guidelines retroactively to their case. The court cited legal precedents to support the principle that the law prevailing at the time of commencement of proceedings governs the case.

5. The court acknowledged the petitioners' request to pay the compounding fee to avoid criminal prosecution. It noted that Section 279(2) of the Act allows for compounding of offences even after the institution of proceedings. The court directed the petitioners to pay the remaining compounding fee within a specified period to withdraw the criminal proceedings against them.

6. The judgment concluded by disposing of the writ petition, directing the petitioners to pay the balance compounding fee to compound the offences. The amount already paid by the petitioners was credited, and once the full payment was made, the criminal proceedings against them would be withdrawn.

7. The court's decision highlighted the importance of timely compliance with statutory requirements and the application of relevant guidelines in determining compounding fees under the Income Tax Act, 1961.