2022 (6) TMI 30 - HC - Income Tax

Compounding of offence u/s 279 - petitioner is being prosecuted under Sections 276C and 277 of the Income Tax Act pursuant to proceedings initiated under Section 148 wherein as held that the petitioner had willfully and deliberately failed to file returns of income without reflecting the investment in the form of bank balance in a foreign bank account thereby attempted to evade tax - whether the fourth respondent was justified in dismissing the compounding application filed by the petitioner under Section 279 particularly after order passed by the learned Single Judge was not appealed by the respondents? - HELD THAT - As per para 4.4 (g) of Circular in F.No.285/90/2008-IT (Inv.)/12 dated 16 th May 2008 cases are not to be compounded if CCIT/DGIT considers any other ground relevant for not accepting the compounding petition in view of the nature and magnitude of the offence. It is clear that discretion can be exercised for compounding the offence. Normally offences involving serious cross-border transaction are not to be compounded. However discretion can be exercised. Both 2015 or 2019 guidelines are strictly binding on the authorities. They are intended to guide officers to bring a closure of cases where there are extenuating circumstance for compounding offence on application filed under Section 279(2) of the Act. The petitioner is now over 70 years and has been facing prosecution for over a period of last one decade for an offence allegedly committed by him during 2001-2002 for the relevant assessment year 2002-2003. Earlier the petitioner faced adjudication proceeding both under Section 148 and penalty proceeding under Section 279(2) of the Income Tax Act 1961. The petitioner has paid the tax interest and the penalty imposed on him. Though the petitioner has paid the penalty the petitioner has filed an appeal against order of CIT (Appeals) confirming imposition of penalty to the extent of 100% of the tax. The Department is also in appeal as mentioned above. The 2019 Circular which has been pressed against the petitioner in the impugned order makes it clear that there is a fair amount of discretion vested with the fourth respondent. Even in the case covered by para 8 the phrase used is offence normally not to be compounded . Thus even these cases can be compounded. In Prem Dass Vs. ITO 1999 (2) TMI 6 - SUPREME COURT accepted the contention of the assessee that legislative intent of Section 279(1A) of the Income Tax Act 1961 has to be kept in mind where there is a reduction of penalty. This aspect has also not been kept in mind by the fourth respondent while passing the impugned order. Further by prosecuting a septuagenarian who is also an industrialist will serve no purpose. The petitioner entitled for buying a peace subject to his agreeing to pay the compounding fee that may be imposed by the fourth respondent. The petitioner has been sufficiently dealt for his past dalliances by the respondent. Thus this was a fit case for compounding the offence considering the age of the petitioner and considering the fact that the petitioner has paid the tax interest and penalty - we set aside the impugned order passed by the fourth respondent and remit the case back to the fourth respondent to compound the case by fixing the compounding fee to be paid by the petitioner if it has not been already paid by the petitioner. WP allowed.

Summary

Issues Involved:
1. Legality of the rejection of the compounding application by the fourth respondent.
2. Applicability of the guidelines for compounding offences.
3. Consideration of the petitioner's age, status, and prolonged prosecution.
4. Adherence to the previous court orders and directions.

Detailed Analysis:

1. Legality of the Rejection of the Compounding Application:
The petitioner filed a Writ Petition challenging the rejection of their compounding application by the fourth respondent. The fourth respondent's impugned order dated 30.08.2021 rejected the application based on the guidelines issued by the Board in F.No.285/08/2014-IT(IN.V)/147 dated 14.06.2019. The Committee noted that the petition filed on 09.03.2021 was a fresh petition and should be dealt with under the 2019 guidelines, which exclude offences related to undisclosed foreign bank accounts from being compounded. The Committee also considered the conduct, nature, and magnitude of the offence and found the petitioner's case ineligible for compounding under Para 8(x) and 8(xiii) of the guidelines.

2. Applicability of the Guidelines for Compounding Offences:
The petitioner’s case involved cross-border transactions and undisclosed foreign bank accounts, which are generally not compounded as per the 2019 guidelines. The guidelines under Para 8.1 list offences normally not to be compounded, including those with cross-border elements and undisclosed foreign assets. The Committee found that the petitioner’s case fell within these categories and thus was not eligible for compounding. However, the court noted that the guidelines allow for discretion, stating that offences "normally not to be compounded" can still be considered for compounding under exceptional circumstances.

3. Consideration of the Petitioner's Age, Status, and Prolonged Prosecution:
The court observed that the petitioner, now over 70 years old, had been facing prosecution for over a decade for an offence allegedly committed during 2001-2002. The petitioner had already paid the tax, interest, and penalty imposed. The court emphasized the need to consider the petitioner's age, status in society, and the prolonged nature of the prosecution. The court highlighted that further prosecution would serve no purpose and that the petitioner should be allowed to buy peace by paying the compounding fee.

4. Adherence to Previous Court Orders and Directions:
The court referred to its previous order dated 28.08.2019, which had set aside an earlier rejection of the compounding application and directed the Committee to reconsider the application in light of the observations made. Despite this, the fourth respondent rejected the application again based on the 2019 guidelines. The court noted that the guidelines are binding but allow for discretion. The court also referred to the Supreme Court's decision in Prem Dass Vs. ITO, which emphasized the legislative intent of Section 279(1A) of the Income Tax Act, 1961, where there is a reduction of penalty.

Conclusion:
The court set aside the impugned order of the fourth respondent and remitted the case back, directing the fourth respondent to compound the offence by fixing the compounding fee to be paid by the petitioner. The court allowed the Writ Petition with consequential relief, emphasizing that the petitioner's age, status, and prolonged prosecution warranted a favorable consideration for compounding the offence.