2021 (3) TMI 1127 - HC - Income Tax

Contempt action against the IRS for not following the directions issued by the Court - Prosecution for offence punishable under Section 276C - undisclosed deposit in a foreign bank account - appellant filed a petition under Section 279(1) of the I.T.Act for compounding the offence - HELD THAT - We have to necessarily hold that the directions issued by the learned Contempt Court after holding that there is no merit in the contempt petition is beyond the jurisdiction of the Court while considering the contempt petition. Therefore, we have no other option except to interfere and set aside such direction. Effect and applicability of the circular issued by the CBDT dated 14.06.2019, which came into effect from 17.06.2019. Admittedly, this circular was not in vogue when the respondent filed his first application under Section 279(2) of the I.T.Act. The Writ Court while testing the correctness of the order dated 15.01.2014, was examining the correctness of the same qua the circular/guidelines which were in vogue when the order was passed, which is the circular dated 16.05.2008. In fact, the learned Contempt Court, in the impugned order, notes that neither the respondent, nor the Revenue had brought to the notice of of the Writ Court about the fresh circular dated 14.06.2019, when the writ petition was heard in August, 2019 (filed in 2014). With regard to the effective date of such circular, which is stated to be 17.06.2019. We find that these issues neither directly nor indirectly arose for consideration in the contempt petition. There appears to be no pleadings to the said effect. Consequently, the Revenue had no opportunity to put forth their stand. Thus, we are fully convinced that no such direction could have been issued by the learned Contempt Court after having held that there is no merit in the contempt petition. We are to necessarily set aside the direction issued by the Court in paragraphs 37 to 40 of the impugned order and all the observations, which were made by the Court in paragraphs 32 to 36, which have led to issuance of the impugned directions. Having held so, we need to take note of the submissions of the learned Senior Counsel for the respondent that the respondent should not be left without a remedy because his contempt petition was dismissed as being devoid of merit and now we have come to a conclusion that the direction could not have been issued by the Contempt Court, which was beyond the scope of the contempt petition. Bearing this in mind, we are inclined to give liberty to the respondent to file a fresh petition for compounding in which, he may canvass all issues available to him on law as well as on facts and orders and directions which according to them are in their favour as well as the decisions which he chooses to rely upon. This writ appeal is allowed and the directions issued in paragraphs 37 to 40 are set aside and the observations made in paragraphs 32 to 36 leading to the directions are vacated. Liberty is granted to the respondent to file a fresh petition under Section 279 of the I.T.Act before the first appellant within a period of 30 days from the date of receipt of a copy of this judgment and the same shall be considered in accordance with law within a reasonable time not later than 90 days from the date on which the petition is presented in full form.

Issues Involved:
1. Maintainability of the appeal against the order passed in Cont.P.No.2079 of 2019.
2. Correctness of the rejection of the compounding petition by the first appellant.
3. Directions issued by the learned Contempt Court.
4. Applicability of the CBDT circular dated 14.06.2019.

Detailed Analysis:

1. Maintainability of the Appeal:
The appeal was filed by the Revenue challenging the order passed in Cont.P.No.2079 of 2019, where the respondent sought to punish the appellants for allegedly violating the order in W.P.No.3929 of 2014. The High Court examined the maintainability of the appeal and noted that the Revenue had not challenged the original writ petition order, allowing it to attain finality. The court further observed that the respondent complied with the directions and submitted a fresh compounding petition which was subsequently rejected by the first appellant.

2. Correctness of the Rejection of the Compounding Petition:
The first appellant rejected the compounding petition on the grounds that:
- The respondent had cross-border transactions which, if not for the information from a foreign government, would have resulted in a loss to the Revenue.
- The evidence established major fraud, indicating funds had gone out of the country untaxed.
- The respondent failed to produce documents to disprove the department’s contentions and exhibited non-cooperation during the proceedings.
The High Court noted that the respondent did not challenge this rejection by filing a writ petition but instead filed a contempt petition.

3. Directions Issued by the Learned Contempt Court:
The learned Contempt Court found no merit in the contempt petition but proceeded to issue certain directions, including reconsidering the respondent’s application for compounding the offence in light of the liberalized CBDT policy dated 14.06.2019. The High Court, relying on precedents such as J.S. Parihar vs. Ganpat Duggar and Union of India & Ors. vs. Subedar Devassy PV, held that the contempt jurisdiction cannot be used to traverse beyond the original order or to issue new directions. The directions issued by the Contempt Court were found to be beyond its jurisdiction.

4. Applicability of the CBDT Circular Dated 14.06.2019:
The High Court observed that the circular dated 14.06.2019 was not in effect when the respondent filed his first application under Section 279(2) of the I.T. Act. The learned Contempt Court noted that neither party had brought this circular to the attention of the Writ Court during the hearing of the writ petition. The High Court concluded that the directions based on the new circular were inappropriate as the issues related to the circular did not arise directly or indirectly in the contempt petition.

Conclusion:
The High Court set aside the directions issued by the learned Contempt Court in paragraphs 37 to 40 of the impugned order and vacated the observations made in paragraphs 32 to 36 leading to those directions. The respondent was granted liberty to file a fresh petition for compounding under Section 279 of the I.T. Act within 30 days, which the first appellant was directed to consider in accordance with law within 90 days. The appeal was allowed, and the connected miscellaneous petition was closed.

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