2023 (12) TMI 813 - HC - Income Tax

Benefit of compounding of offences u/s 279(2) - denial of benefit on the ground of prior conviction of the petitioner cannot be countenanced in the light of the above mentioned decisions of this Court - assessee had committed not one but multiple grave offences - HELD THAT - In the present case the impugned order has been passed by the Chief Commissioner of Income Tax. A reading of the impugned order indicates that it has been passed by placing reliance on the opinion of the Regional Compounding Committee (RGC) dated 18.07.2022. Facts and law are clear. U/s 279 (2) of the Income Tax Act the Principal Chief Commissioner or Chief Commissioner or the Principal Director General of Income Tax or Director General of Income Tax may compound any offence under Chapter XXII either before or after institution of proceedings. For the aforesaid purpose the Central Board of Direct Taxes has issued circular u/s 119 of the Income Tax Act 1961. The power to compounding offences is vested with the Principal Chief Commissioner or Chief Commissioner or Principle Director General or Director General of Income Tax u/s 279 of the Income Tax Act 1961 In The Chairman Central Board of Direct Taxes and Others Versus Umayal Ramanathan 2009 (4) TMI 36 - MADRAS HIGH COURT Court allowed the case of the petitioner taking note of the fact that during the pendency of an appeal against the conviction order before the Principal Sessions Judge s Court an Application was filed on 09.04.2012 under Section 279(2) of the Income Tax Act 1961 for compounding of the offence. There also the application for compounding of offence was earlier rejected on the ground that the petitioner therein had been convicted of the offence. It was held that the rejection of the compounding application during the pendency of the appeal was not justified merely because the applicant/the writ petitioner therein was convicted by the Trial Court of the offence. In Inbavalli Vs The Government of India Ministry of Finance Department of Revenue. 2016 (9) TMI 209 - MADRAS HIGH COURT rendered reported in Manu/TN/ 1996/2016 followed the above mentioned decision and allowed the case of the petitioner therein. There the Court took note of the fact that the petitioner was a lady aged more than 70 years of age and had lost her husband and only son and was the sole proprietor of a small firm dealing in electrical and electronic appliances while allowing the writ petition.The Court in both the above mentioned cases did not take note of the aforementioned circular issued under Section 119 of the Income Tax Act 1961 issued specifically in context of compounding of offences. There is no merits in this writ petition as petitioner has shown no remorse. The petitioner has taken the chance all the way up to the Tribunal and waited for conviction order to be passed in the criminal case instituted against the petitioner for violation of the provisions of the Income Tax Act 1961. These decisions cited for the petitioner therefore do not come to his rescue. The circular of the Board also makes it clear that there is no scope for compounding of the offences if there was a conviction of the person by a court of law under direct tax laws. Further the application is belated. Petitioner has taken a chance all the way up to the Income Tax Appellate Tribunal and waited for an order of conviction by the Economic Offences Court on 06.03.2019 in EOCC No.184 of 2007.The decision of the Delhi High Court in Vikram Singh versus Union of India 2017 (4) TMI 621 - DELHI HIGH COURT also does not lay down any general principle of law to be followed by Courts. Para 9 of the said decision which has been highlighted is of no relevance. The decision of the Court rendered in Ram Prakash Khemka Vs Commissioner of Income Tax 2007 (2) TMI 205 - MADRAS HIGH COURT relied upon by the counsel for the respondent dealing with an identical situation also impels this Court to dismiss this writ petition. To allow compounding of the offences at this stage merely because the petitioner has paid the tax penalty and interest would not mean that the petitioner is in return entitled to compound of the offence particularly having taken a chance for an acquittal before the Trial Court. By paying the tax penalty and interest the petitioner has done no favour for the revenue. What he had to do earlier he has done later. To interfere with the impugned order and to allow compounding of the offence would also send wrong signal in the society. There has to be deterrent effect not only on the petitioner from committing similar offence in future but also on others from committing such offence by taking the tax laws casually.

Summary

Issues Involved:
1. Rejection of compounding application by the respondent.
2. Petitioner's argument for compounding based on previous court decisions.
3. Respondent's defense of the impugned order.
4. Legal provisions and guidelines on compounding of offences.
5. Court's decision on the merits of the petition.

Summary:

1. Rejection of Compounding Application by the Respondent:
The petitioner challenged the impugned order dated 30.07.2022, which rejected their compounding application filed on 20.11.2019. The rejection was based on multiple grave offences committed by the petitioner, including failure to file returns voluntarily, non-response to notices, and unexplained investments, leading to a demand of Rs. 38,45,340/-.

2. Petitioner's Argument for Compounding Based on Previous Court Decisions:
The petitioner argued that the issue is settled by various decisions of the Court, including:
- The Chairman, Central Board of Direct Taxes vs. Umayal Ramanathan.
- R. Inbavalli vs. The Government of India.
- V.A. Haseeb and Company vs. The Chief Commissioner of Income Tax TDS.
The petitioner contended that the impugned order was unsustainable as they had paid the disputed tax, penalty, and interest, and there were no arrears.

3. Respondent's Defense of the Impugned Order:
The respondent argued that the petitioner was a recalcitrant assessee who failed to file returns on time and did not cooperate with the Department, leading to proceedings under Section 144 of the Income Tax Act, 1961. The petitioner was convicted for multiple offences under the Income Tax Act, including willful concealment of investment and failure to furnish returns.

4. Legal Provisions and Guidelines on Compounding of Offences:
The power to compound offences is vested with the Principal Chief Commissioner or Chief Commissioner under Section 279 of the Income Tax Act, 1961. Relevant guidelines state that offences where a conviction order has been passed by a Court are generally not to be compounded. The Court referred to several decisions, including:
- Ramesh Jain vs. Union of India.
- Viraj Exports (P.) Limited vs. Chief Commissioner of Income (TDS).
- Union of India vs. Banwari Lal Agarwal.
The guidelines also clarify that cases involving conviction are not eligible for compounding.

5. Court's Decision on the Merits of the Petition:
The Court found no merit in the writ petition, noting that the petitioner showed no remorse and had taken chances all the way up to the Tribunal and waited for a conviction order. The Court held that allowing compounding at this stage would send a wrong signal and undermine the deterrent effect of the law. The Court dismissed the writ petition and the connected Miscellaneous Petitions, with no costs.