2018 (9) TMI 1322 - HC - Income Tax

Determination of compounding fee u/s 279 - Penalty under section 271(1)(c) - disallowance of claim of deduction for the provisions of income tax - Wilful attempt to evade tax - what would be the basic compounding charges that the petitioner must pay in order to avail the offer for compounding the offense? - Held that - Section 279 of the Act pertains to the prosecution to be at instance of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. Subsection (1) of section 279 provides that a person shall not be proceeded against for offenses under various sections including section 276C of the Act except with the previous sanction of the Principal Commissioner or Commissioner or Commissioner (Appeals) or the appropriate authority. Subsection (2) of section 279 provides that any offense under this chapter may, either before or after institution of the proceedings be compounded by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or the Director General. In terms of such compounding powers, the CBDT has been issuing circulars for providing guidelines for compounding offenses under the Act. We are concerned with the latest guideline issued on 23.12.2014 issued by the CBDT. This circular contains detailed provisions and procedure for compounding offenses under the Act. When the CBDT circular refers to the amount sought to be evaded, it must be seen and understood in light of the provisions contained in section 276C(1) and in turn must be seen as amount sought to be evaded. 100% of tax sought to be evaded would be the basic compounding fees which in the present case would be ₹ 2,71,000/and not ₹ 8,70,000/as computed by the departmental authorities. The rest of the computation is consequential and automatic. The impugned communication dated 20.03.2018 is therefore set aside. The respondent shall carry out fresh computation of the petitioner s liability to pay compounding charges in terms of this order. We are informed that, to avoid any complication, the petitioner has under protest, paid up the entire amount of ₹ 10,49,000/as demanded by the department. Once such fresh computation is made, the excess would be refunded by the department to the petitioner latest by 31.10.2018.

Summary

Issues:
Challenge to computation of compounding fees for avoiding penalty proceedings.

Analysis:
The petitioner, a private limited company, challenged the compounding fees computation by the respondents to avoid penalty proceedings. The petitioner had filed a return of income for the assessment year 2008-09, declaring total income and claiming a refund. During scrutiny assessment, the Assessing Officer disallowed a deduction claimed by the petitioner, resulting in an additional tax levy and a subsequent penalty under section 271(1)(c) of the Income Tax Act, 1961. The department initiated prosecution proceedings against the petitioner, who then applied for compounding the offense by paying prescribed fees. The department demanded a compounding fee of ?10,49,000, which the petitioner contested, stating that the basic compounding charges should be ?2,61,000, the additional tax levied.

The key question was determining the basic compounding charges required for the petitioner to avail the compounding offer. Section 276C of the Act deals with willful attempts to evade tax, with subsection (1) outlining the punishment for such attempts. The petitioner argued that the compounding charges should be based on the tax sought to be evaded, not the income sought to be evaded. The CBDT guidelines prescribed compounding fees at 100% of the amount sought to be evaded, which in this case, should be ?2,61,000, as per the additional tax levied. The court analyzed the statutory provisions and the severity of punishment based on the amount sought to be evaded in willful attempts to evade tax, penalty, or interest.

The court referred to the circular issued by the CBDT, which prescribed compounding fees for offenses under section 276C(1) at 100% of the amount sought to be evaded. The court concluded that the basic compounding fees should be ?2,71,000 and not ?8,70,000 as computed by the department. The impugned communication demanding ?10,49,000 was set aside, and the respondent was directed to recalculate the compounding charges. The petitioner had already paid the amount demanded under protest, and any excess would be refunded by the department by a specified date.

In conclusion, the petition was disposed of accordingly, with the court directing the department to recalculate the compounding charges based on the correct interpretation of the statutory provisions and guidelines.