2023 (12) TMI 1189 - HC - Income Tax

Compounding of case u/s 279 (2) - alleged offences under Sections 276C and 277 of the Act - Ld' Judge after finding that the Contempt Petition had no merits, proceeded to direct the authority to re-examine the application filed by the respondent herein, in the light of the fresh circular dated 14.06.2019, which provides for a more liberal policy - HELD THAT - The order of the learned Single Judge insofar as it remits the matter back to the 4th appellant to compound the case by fixing the compound fee, does not warrant interference. We say so, inasmuch as we find that the learned Judge 2019 (9) TMI 59 - MADRAS HIGH COURT even while remanding the matter, had made it clear that the judgment in Prem Dass case 1999 (2) TMI 6 - SUPREME COURT would apply to the respondent, and further, the respondent herein is entitled to the benefit of Section 279 (1A) of the Act. The revenue having failed to challenge the above order is bound by it. Ld' Judge had found that the Respondent herein was entitled to compound in terms of Section 279(1A) of the Act, which provides that the assessee would be entitled to compound if the penalty stood reduced or waived under Section 273A of the Act. Importantly, the Supreme Court in Prem Dass case 1999 (2) TMI 6 - SUPREME COURT while construing Section 279(2) of the, Act had rejected the argument that the reduction of penalty by an appellate authority not being an order under Section 273A of the Act, the assessee/applicant would not be entitled to the benefit of Section 279(1A) of the Act and it was held that it may not be appropriate to adopt a literal construction of provisions of Section 279(1A) of the Act. Respondent would be entitled to the benefit of Section 279(1A) of the Act and the judgment of Supreme Court in Prem Dass case in view of reduction of penalty from 300% to 100% by the appellate authority, the failure of the appellant to challenge, in our view, would prove fatal, to any attempt by the revenue to contend to the contrary.

Summary

Issues Involved:
1. Assessment and Appellate Proceedings
2. Criminal Proceedings
3. Writ and Contempt Proceedings

Summary:

1. Assessment and Appellate Proceedings:
The respondent, an individual aged 72 years and the Chairman and Managing Director of MRF Limited, was assessed to tax for the Assessment Year 2002-03. The assessing officer received information about substantial sums transferred to Webster Foundation, a Trust in which the respondent is a beneficiary. The assessment was reopened and a sum of Rs. 2.26 Crores was assessed as unexplained investment under Section 69 of the Income Tax Act. The respondent's appeal against this order was dismissed by the Commissioner (Appeals) and the Tribunal. The penalty imposed was initially 300% of the tax sought to be evaded but was reduced to 100% by the Commissioner (Appeals). Both the respondent and the Revenue have appeals pending before this Court.

2. Criminal Proceedings:
The respondent was prosecuted under Sections 276C and 277 of the Act. His petition to quash the proceedings was dismissed by this Court, which directed the trial to be expedited. The respondent relied on the Supreme Court decision in Prem Dass v. ITO to argue that no prosecution can continue if the penalty is reduced, but this was distinguished by the court. The matter was stayed by the Apex Court.

3. Writ and Contempt Proceedings:
The respondent filed a writ petition challenging the rejection of his compounding application under Section 279(2) of the Act. This Court found that the respondent was entitled to the benefit of Section 279(1A) due to the reduction of penalty and directed the case to be re-examined. The Regional Compounding Committee rejected the application, citing reasons including cross-border transactions and major fraud. The respondent filed a contempt petition, which was dismissed, but the court quashed the rejection order and directed a re-examination in light of a more liberal CBDT policy. The Revenue's appeal against this was dismissed, and the court reiterated that the respondent was entitled to compounding under Section 279(1A) as per the Supreme Court's decision in Prem Dass.

The court concluded that the order of the learned Single Judge remitting the matter back to the 4th appellant to compound the case by fixing the compound fee does not warrant interference. The Revenue's failure to challenge the previous order bound them to it, and the respondent's entitlement to compound under Section 279(2) was conclusively resolved.

Conclusion:
The Writ Appeal was dismissed, affirming the respondent's entitlement to compound the offences under Sections 276C and 277 of the Income Tax Act, as previously determined by the learned Single Judge. The connected miscellaneous petition was also closed.