2024 (10) TMI 1572 - HC - Income Tax

Rejection of compounding application - application was filed beyond the period of limitation, as stated in Para 7(ii) of the CBDT circular dated 16.09.2022 - petitioner submits that there is no time limit for filing of the compounding application - HELD THAT - The judgment of this Court in Jayshree's case 2023 (11) TMI 1110 - MADRAS HIGH COURT this Court has categorically held that the CBDT cannot issue a circular contrary to the object of the provisions. The explanation, which empowers the CBDT to issue circular, is only for the purpose of implementation of the provisions of the Act with regard to compounding of offences and not for the purpose of fixing a time limit for filing the application for compounding of offences and therefore, the same is contrary to the provisions of the Act and hence, it is not permissible in terms of Section 279(2) of the IT Act. As already stated even as per the guidelines issued by the authorities in the circular dated 06.09.2022, the petitioner cannot be considered as a habitual offender, as he has committed default only in two cases and in one case, the offence has already been compounded. This Court is of the view that once the nature of offence is compoundable by virtue of the provisions of the Act, nature of compoundability of the said offence cannot be taken away by fixing a time limit for filing the compounding application. The law laid down by this Court in the aforesaid judgment is squarely applicable to the facts of the present case. Hence, the impugned order is liable to be set aside and it is accordingly set aside. Writ petition Allowed - The matter is remanded back to the respondent and the respondent is directed to take up the application for compounding of offences on record.

Summary

Issues:
Challenge to rejection of compounding application based on delay beyond limitation period.

Analysis:
The petitioner challenged the rejection of their compounding application, arguing that there is no time limit for filing such applications under Section 279(2) of the Income Tax Act. The petitioner relied on a previous judgment of the court to support their argument. The respondent, however, acknowledged the court's previous ruling striking down a clause in the circular but stated that a new time limit of 24 months had been set. The court considered both arguments and noted that Section 279(2) does not prescribe a time limit for filing compounding applications. The court emphasized that circulars cannot contradict the Act's provisions and that fixing a time limit for filing compounding applications goes against the law.

The respondent contended that the petitioner was a repeated offender, citing guidelines that label someone as a habitual offender after three offenses. However, the court found that the petitioner's offenses did not qualify them as a habitual offender since only two offenses were committed, with one already compounded. The court emphasized that the nature of an offense's compoundability cannot be altered by imposing a time limit for filing compounding applications. The court applied its previous judgment to the case and set aside the impugned order, directing the respondent to reconsider the compounding application within eight weeks.

In conclusion, the court allowed the writ petition, remanding the matter back to the respondent for further consideration within the specified time frame. The court declined to fix a compliance date, leaving it to the respondent to act as per the court's directions.