2024 (9) TMI 1059 - HC - Income Tax

Rejection of application for compounding made u/s 279(2) on the basis of the Central Board of Direct Tax's Compounding Guideline dated 16 September 2022 - HELD THAT - We note that while dealing with the validity of the time frames as prescribed in Compounding Guidelines, a Division Bench of the Court in Vikram Singh vs. Union of India 2017 (4) TMI 621 - DELHI HIGH COURT above clause is not one prescribing a period of limitation for filing an application for compounding. It gives a discretion to the competent authority to reject an application for compounding on certain grounds. Again, it does not mean that every application, which involves an offence committed by a person, for which the complaint was filed to the competent court 12 months prior to the receipt of the application for compounding, will without anything further, be rejected. As is manifest from the aforesaid extracts, the Court had found that Section 279 (2) constructs no time lines with in which an application for compounding could be made. The Circular thus clearly travels beyond the statutory provision and erects a condition of disability which is not even contemplated by the Act. In that view of the matter, the impugned order cannot possibly be upheld. We, accordingly, allow the writ petition and set aside the order dated 18 January 2024. The matter shall in consequence stand remanded to the Chief Commissioner of Income Tax (TDS) who shall consider the application for compounding afresh and bearing in mind the observations made here in above.

Summary

Issues:
1. Application for compounding under Section 279(2) of the Income Tax Act, 1961 rejected based on the Central Board of Direct Tax's Compounding Guideline dated 16 September 2022.

Analysis:
The High Court judgment dealt with a writ petition challenging the rejection of an application for compounding under Section 279(2) of the Income Tax Act, 1961. The rejection was solely based on the Central Board of Direct Tax's Compounding Guideline dated 16 September 2022. The Court referred to a previous Division Bench judgment in Vikram Singh vs. Union of India, which clarified that there is no limitation period for filing an application for compounding. The judgment emphasized that the guidelines for compounding offenses should be understood in the context of providing closure to cases pending in the judicial system for an extended period. The Court found that the rejection of the petitioner's application for compounding was not in line with the guidelines and set aside the impugned order dated 18 January 2024.

The Court highlighted that Section 279(2) does not prescribe any time limits for filing an application for compounding. Therefore, the Circular issued by the Central Board of Direct Taxes, which imposed a time limitation, exceeded the statutory provision and imposed a condition not contemplated by the Act. The Court concluded that the impugned order could not be upheld due to the Circular's inconsistency with the statutory provision. Consequently, the Court allowed the writ petition, set aside the order dated 18 January 2024, and remanded the matter to the Chief Commissioner of Income Tax (TDS) for reconsideration of the application for compounding in accordance with the Court's observations.

The judgment maintained that all other rights and contentions of the parties involved were kept open for further consideration. The Court's decision focused on ensuring that the application for compounding was reconsidered without the imposition of time limits that were not supported by the statutory provisions. By setting aside the impugned order and remanding the matter for fresh consideration, the Court aimed to uphold the principles of fairness and adherence to statutory requirements in the process of compounding offenses under the Income Tax Act, 1961.