2022 (8) TMI 686 - HC - Income Tax

Compounding the offence under Section 276 C(1)(i) - pendency of the appeal - HELD THAT - In view of the aforesaid discussions, submissions made by learned counsel for the parties and the law laid down by Hon'ble Apex Court in the case of Rajesh Kumar Sharma 2007 (2) TMI 10 - SUPREME COURT and by high Court of Madras in the case of M/s.V.A. Haseeb Co. 2016 (9) TMI 756 - MADRAS HIGH COURT corroborating with the facts of the case that during the pendency of the appeal, the petitioners were became entitled for compounding the offence as per the law, the revision petition is liable to be and is hereby allowed by setting aside the impugned order. The matter is remitted back to the learned appellate Court concerned to consider the application afresh within a period of two months from the date of this order, in accordance with law without being influenced by this order.

Summary

Issues:
1. Application under Section 320(5) of Cr.P.C for compounding the offence under Section 276 C(1)(i) of Income Tax Act, 1961.
2. Rejection of the application by the XVIIth Additional Sessions Judge, Indore.
3. Interpretation of guidelines issued by the Ministry of Finance, Govt. of India for compounding of offences under Direct Tax Laws.
4. Misconstrued rejection of the compounding petition by the appellate court.
5. Legal rights of the appellants during the pendency of the appeal.
6. Opposition by the respondent/Income Tax Department regarding relief for the petitioners.

Analysis:
1. The petitioners filed a revision petition under Section 397 R/w Section 401 of Cr.P.C challenging the order passed by the XVIIth Additional Sessions Judge, Indore, dismissing their application for compounding the offence under Section 276 C(1)(i) of the Income Tax Act, 1961. The petitioners sought permission from the court to compound the offence due to a dispute between them and respondent nos. 2 and 3, who filed a complaint against each other before the Income Tax Department.

2. The petitioners argued that the impugned order was illegal, improper, and contrary to the guidelines issued by the Ministry of Finance, Govt. of India. They claimed that the appellate court wrongly dismissed their application without proper submission of relevant orders. The petitioners also highlighted circulars issued by the Ministry of Finance, relaxing time limits for compounding offences under Direct Tax Laws, making them eligible for compounding.

3. The learned Senior counsel for the petitioners cited the judgment of the Hon'ble Apex Court in Rajesh Kumar Sharma vs. Union of India, emphasizing the purpose of compounding offences to prevent litigation and encourage early dispute resolution. They also referred to a judgment of the High Court of Madras regarding compounding of offences under income tax laws.

4. The court found that the appellate court misconstrued the rejection of the compounding petition, as it was rejected after the impugned order was passed. The court held that during the pendency of the appeal, the petitioners were entitled to compound the offence as per the guidelines issued by the Ministry of Finance, Govt. of India.

5. The court concluded that the petitioners could compound the offence sought by the respondent during the pendency of the appeal, as it was a prescribed course of action for enforcing a legal right. The matter was remitted back to the appellate court to reconsider the application in accordance with the law, without being influenced by the previous order.

6. The respondent/Income Tax Department opposed the prayer for relief, arguing that the petitioners caused loss to the government by non-payment of tax amounts and penalties. However, the court allowed the revision petition, setting aside the impugned order and directing a fresh consideration of the application within two months from the date of the order.