2023 (1) TMI 1018 - HC - Income Tax

Compounding of an offence committed u/s 276B, r/w. Section 287B - Period of limitation for filing compounding application - Power of the CBDT (Board) u/s 119 r.w.s. 279(6) to restrict compounding where application is filed beyond stipulated period - company deducted income tax from the salaries of its employees, under the provisions of Section 192 but had failed to deposit the tax so deducted to the credit of the Central Government within the time prescribed under Section 200 r/w. Section 204 - As submitted petitioner no.1-company has deposited the TDS due, though beyond time-limit set down, but before any demand notice was raised HELD THAT - The orders, instructions or directions issued by the CBDT under Section 119 of the Act or pursuant to the power given under the Explanation will not limit the powers of the authorities specified under Section 279(2) in considering such an application, much less place fetters on the powers of such authorities in the form of a period of limitation. We are, therefore, of the opinion that the guidelines contained in the CBDT Guidelines dated 14th June 2019 could not curtail the power vested in Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General under the provisions of Section 279(2) of the Income Tax Act. In our considered view, to the extent CBDT Guidelines dated 14th June 2019 creates a limitation on the time, within which application under Section 279(2) of the Income Tax Act is required to be filed, is of no consequence and does not take away jurisdiction of respondent no.3 or the other authorities, referred to in sub-section (2) of Section 279, from entertaining an application for compounding of offence at any time during the pendency of the proceedings, be they before the Magistrate or on conviction of the petitioners, in an appeal before the Sessions Court. We find that this is a classic case for consideration by respondent no.3 for compounding of offence, inasmuch as petitioner no.1-company has deposited the TDS due, though beyond time-limit set down, but before any demand notice was raised or any show cause notice was issued. The Tax Deducted at Source was deposited along with penal interest thereon. A reply setting out detailed reasons for not depositing the same within the time stipulated under the law had been filed in reply to the show cause notice issued earlier. Though the petitioners had been convicted, a proceeding in the form of an appeal is pending before the Sessions Court, which is yet to be disposed of, and in which there is an order of suspension of sentence imposed on petitioner no.2 is operating. Under these circumstances, we are of the view that the findings arrived at by respondent no.3 in the impugned order dated 1st June 2021, that the application for compounding of offence, under Section 279 of the Income Tax Act, was filed beyond twelve months, as prescribed under the CBDT Guidelines dated 14th June 2019, are contrary to the provisions of sub-section (2) of Section 279. The respondent no.3 has failed to exercise jurisdiction vested in it while deciding the application on merits and consideration of the grounds set out when the application for compounding of offence was filed before it. Matter restored back for consideration of application afresh.

Issues Involved:
1. Rejection of the application for compounding of an offence under Section 279(2) of the Income Tax Act, 1961.
2. Whether the CBDT Guidelines can impose a limitation period for filing applications for compounding offences.
3. The applicability of the CBDT Circulars and Guidelines to the facts of the case.
4. The jurisdiction and discretion of the Chief Commissioner under Section 279(2) of the Income Tax Act.
5. The impact of pending criminal proceedings on the application for compounding of offences.

Detailed Analysis:

1. Rejection of the Application for Compounding of an Offence:
The petitioners challenged the order dated 1st June 2021 by respondent no.3-Chief Commissioner of Income Tax (TDS), Mumbai, which rejected their application for compounding an offence committed under Section 276B, read with Section 278B of the Income Tax Act, 1961. The petitioners argued that they had deposited the entire TDS amount along with interest before any demand or show cause notice was issued.

2. Limitation Period for Filing Applications for Compounding Offences:
The petitioners contended that the CBDT Circulars No.25/2019 and 01/2020, which provide a twelve-month period for filing compounding applications, cannot override the statutory provisions of Section 279(2) of the Income Tax Act. The court noted that the guidelines could not curtail the statutory powers vested in the authorities under Section 279(2).

3. Applicability of CBDT Circulars and Guidelines:
The respondents relied on the CBDT Circulars and Guidelines, specifically paragraph 8.1(vii) of the Compounding Guidelines, 2019, to argue that the petitioners were ineligible for compounding. The petitioners countered that these guidelines were inapplicable as they had not been convicted under any Indirect Tax Law but under Direct Tax Laws. The court found that the guidelines could not impose a limitation period that would restrict the statutory powers under Section 279(2).

4. Jurisdiction and Discretion of the Chief Commissioner:
The court observed that Section 279(2) allows for the compounding of offences either before or after the institution of proceedings, including during the pendency of an appeal. The court emphasized that the Chief Commissioner has the discretion to consider applications for compounding at any stage of the proceedings, and this discretion could not be fettered by the guidelines.

5. Impact of Pending Criminal Proceedings:
The petitioners argued that the pending appeal before the Sessions Court should not preclude the consideration of their application for compounding. The court agreed, noting that the pendency of an appeal is a continuation of the original proceedings and does not bar the application for compounding.

Conclusion:
The court quashed the impugned order dated 1st June 2021, which rejected the application for compounding, and remanded the matter back to respondent no.3 for fresh consideration on its merits. The court directed respondent no.3 to dispose of the application within thirty days and stayed the criminal proceedings pending before the City Sessions Court until the application for compounding is decided. The challenge to the validity of clause 7(ii) of the CBDT Circular was left open for future consideration if the petitioners are aggrieved by the fresh order.

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