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2024 (1) TMI 1390 - HC - Income TaxEligibility Conditions for Compounding - Prosecution u/s 276B - petitioner's failure to pay the tax deducted at source to the credit to the Central Government - HELD THAT - The petitioner has already deposited the outstanding tax interest and late fees and accordingly, the petitioner was eligible for compounding Considering the various provisions of the guidelines for compounding the offence, the respondent authority ought to have taken into consideration the fact that the petitioner could not deposit the TDS due to sever financial crisis from the year 2012-2013 on wards. It is also not in dispute that the respondent has permitted the compounding for assessment years 2013-2014, 2014-2015 and 2016-2017. The respondent has therefore contrary to the provisions of guidelines appears to have rejected the application for compounding filed by the petitioner as the petitioner committed default of failure to pay the tax deducted at source to the credit of the Central Government within prescribed time limit on the same ground, for which such offence was committed for earlier assessment years 2013-2014, 2015-2016 and 2016-2017. AO could not have held that the petitioner has failed to furnish convincing reason for its default of failure to pay TDS to the credit of the Central Government within prescribed time limit except financial hardships. The financial hardships also remained was the cause for the offences committed for earlier assessment years, which were permitted to be compounded. It is true that the petitioner has committed default continuously for five years for non depositing the TDS and for which, the petitioner is liable for compounding charges para 12 of the guidelines. Respondent authority therefore ought to have considered the case of the petitioner in terms of para 8.3 of the guidelines by putting stringent conditions for compounding the offence for the year under consideration after following the prescribed procedure of approval as para 10 of the guidelines. Impugned orders passed u/s 279 (2) are hereby quashed and set aside and the matter is remanded back to the respondent authority to reconsider the application of the petitioner in terms of the guidelines for compounding offence under as per the circular of CBDT dated 14.06.2019.
Issues Involved:
1. Legality of the rejection of the compounding application under Section 279(2) of the Income Tax Act, 1961. 2. Compliance with the guidelines for compounding of offences as per the CBDT circular dated 14.06.2019. 3. Consideration of financial hardship as a reasonable cause under Section 278AA of the Act. 4. Application of restrictions on compounding offences on more than three occasions. 5. Requirement of prior approval from the committee for compounding charges exceeding Rs. 10,00,000/-. Detailed Analysis: 1. Legality of the Rejection of the Compounding Application: The petitioner challenged the orders dated 17.03.2022, which declined the compounding of offences under Section 276B of the Income Tax Act for assessment years 2017-2018 and 2018-2019. The petitioner argued that the rejection was primarily based on habitual non-depositing of TDS without considering the financial hardships faced. The court found that the rejection was contrary to the guidelines, as the petitioner had already deposited the outstanding tax, interest, and late fees, making them eligible for compounding. 2. Compliance with the Guidelines for Compounding of Offences: The guidelines issued by the CBDT on 14.06.2019 require that for compounding charges exceeding Rs. 10,00,000/-, prior approval from a committee of three officers is necessary. The court observed that the impugned orders lacked such approval, rendering them contrary to the guidelines. The guidelines also provide that compounding is not a right but can be granted based on the eligibility conditions, conduct, and nature of the offence. 3. Consideration of Financial Hardship as a Reasonable Cause: The petitioner contended that the financial difficulties faced over several years constituted a reasonable cause under Section 278AA, which should prevent punishment. The court noted that the financial hardship was accepted as a reason in previous years for compounding similar offences, and thus, it should have been considered in the current application as well. 4. Application of Restrictions on Compounding Offences on More Than Three Occasions: The guidelines generally restrict compounding of Category 'A' offences on more than three occasions unless exceptional circumstances are present. The court highlighted that the respondent should have considered the discretion allowed under the guidelines to relax these restrictions, especially given the petitioner's financial crisis since 2012-2013. 5. Requirement of Prior Approval from the Committee: The court emphasized that for compounding charges exceeding Rs. 10,00,000/-, as was the case for the assessment years in question, prior approval from the designated committee was mandatory. The absence of such approval in the impugned orders was a significant procedural lapse. Conclusion: The court set aside the impugned orders under Section 279(2) of the Act and remanded the matter back to the respondent authority for reconsideration. The respondent was directed to follow the guidelines for compounding offences, including obtaining the necessary committee approval and considering the petitioner's financial hardships. The notice was discharged, and the matter was to be reconsidered in light of the CBDT circular dated 14.06.2019.
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