2022 (5) TMI 63 - HC - Income Tax

Compounding offences pertaining to late deposit of Tax Deducted at Source (TDS) committed by the Petitioners herein under Section 279(2) - HELD THAT - This Court is of the view that compounding of offences cannot be taken as the matter of right. It is for the law and authorities to determine as to what kind of offences should be compounded, if at all, and under what conditions. (See Vikram Singh vs. Union of India Ors. 2018 (1) TMI 1115 - DELHI HIGH COURT ) This Court is of the opinion that the guidelines issued by the CBDT clearly stipulate that after compounding of the first offence, if the same person comes forward for compounding of another offence through any subsequent application, the applicable rate will be five per cent instead of three per cent. This Court is also of the view that the expression after compounding of the said offence means when the offence has been compounded, meaning thereby, not only the stage after the compounding order has been passed but also after the conditions stipulated in the said order have been complied with like payments. In fact, there is a rationale behind imposing a higher rate for subsequent offences as the respondents want to incentivize compliance and want the public to deduct TDS and pay to the Government. Since, in the present case, the petitioners company is a repeat offender , this Court is of the view that the respondents are entitled in law to impose a higher compounding fee i.e. five per cent instead of three per cent. Accordingly, the first submission advanced by learned senior counsel for the petitioner is rejected. Compounding fee is payable only by the main accused by treating Mr. Rakesh Kumar as the Principle Officer instead of all the Directors of the petitioners - This Court is of the view that matter requires examination especially in view of the fact that in the Year 2012-13 the compounding fee was levied only on one Director (Mr. Aman Gulati) and not on the other Directors. This Court is also of the view that if the Chartered Accountant who had represented the petitioner before the Commissioner did not have a power of attorney or a vakalatnama in his favour at the time when he had filed the written submission, the Commissioner should have given time to the authorized representative to file the power of attorney/Vakalatnama instead of levying the compounding charge on all the Directors. To await instructions, list on 18th May, 2022.

Summary

Issues:
Challenging orders passed by Chief Commissioner of Income Tax (TDS) and Assistant Commissioner of Income Tax for late deposit of Tax Deducted at Source (TDS) at higher compounding charges.

Analysis:
The petitioners challenged the orders dated 11th February, 2022, passed by the Chief Commissioner of Income Tax (TDS) and the orders dated 31st July, 2017, under Section 2 (35) of the Income Tax Act, 1961, for the Financial Years 2013-14, 2014-15, and 2015-16. The petitioners argued that the compounding charges levied at a rate of five per cent instead of the usual three per cent were in violation of the Circular issued by the Department of Revenue. They contended that the higher rate was imposed erroneously as they had only filed a single compounding application for each financial year. The petitioners also objected to the compounding fee being imposed on all directors instead of just the Principal Officer for the company. They highlighted discrepancies between the compounding orders for different financial years, alleging arbitrariness.

The respondents, representing the revenue, referred to Clause 12.1 of the Guidelines for Compounding of Offences under Direct Tax Laws, stating that after the first compounding, subsequent applications could be charged at a rate of five per cent. They argued that the higher rate was justified to encourage compliance with TDS regulations. The Court noted that compounding of offences is not a right but a decision for the authorities, emphasizing the importance of compliance and incentivizing adherence to tax laws. Considering the petitioners as 'repeat offenders', the Court upheld the imposition of a higher compounding fee at five per cent.

Regarding the issue of whether the compounding fee should be payable only by the main accused, the Court found the matter requiring further examination, especially in light of past practices where fees were levied on specific directors. The Court also criticized the Commissioner for not allowing time for the authorized representative to file necessary documents before imposing charges on all directors. The Court decided to await further instructions and directed the petitioners to pay the compounding charge within two weeks, excluding specific individuals mentioned in the order, until the next hearing scheduled for 18th May, 2022.