2022 (9) TMI 554 - HC - Income Tax

Compounding of offences punishable u/s 276B r.w.s.278B - repeated default in deposit of TDS - Rejection of Application for compounding - HELD THAT - The petitioner has repeatedly defaulted despite receipt of show cause notice in 2014 and institution of complaints in 2016 - petitioner has admittedly been convicted by the criminal Court for FYs 2009-10, 2010-11 and 2011-12 for which inexplicably no compounding has been sought. The non-disclosure of the prior conviction in the compounding application is also admitted on record. This Court in exercise of its power of judicial review, reviews the process adopted by the adjudicating authority and whether the decision suffers from error of jurisdiction. In the present case, it is noted that the competent authority has duly applied its mind to the petitioner s application. It also issued a show-cause notice to the petitioner to explain the circumstances in which the material information pertaining to prior conviction was not disclosed in the petition. After considering the reply filed by the petitioner, respondent No. 1 has passed a reasoned order rejecting the compounding application of the petitioner. No infirmity in the impugned order passed by respondent No. 1 in exercise of his jurisdiction. The petitioner has not disputed the binding nature of the CBDT Guidelines, 2019 and in fact, in the judgment of K.M. Mammen 2022 (6) TMI 30 - MADRAS HIGH COURT relied upon by the petitioner itself, the Court had noted that CBDT Guidelines, 2019 issued under Section 279 of the Act are strictly binding on the authorities. The Court therein observed that the 2019 Guidelines are in fact, intended to guide the officers to bring a closure of cases, where there are extenuating circumstances for compounding offences on application filed under Section 279 (2) - SeeSangeeta Exports (P.) Ltd. 2008 (4) TMI 307 - DELHI HIGH COURT The facts of the present case are similar to the case of Anil Batra 2011 (7) TMI 332 - DELHI HIGH COURT the petitioner in the said case i.e. the assessee was a repeat defaulter and had been successfully convicted in the complaints filed against him. In these circumstances, we hold that pending conviction orders with respect to FYs 2009-10, 2010-11 and 2011-12, which have been upheld by this Court on 15th October, 2018, until the said orders are set aside, there is no infirmity in the order of the respondent No. 1 in light of Para 8.1(iii) of the CBDT Guidelines 2019. We however, observe that in the event, the petitioner succeeds in the Special Leave Petition filed before the Supreme Court, the petitioner will be entitled to apply for compounding of the offences for the Financial Years 2013-14, 201415 and 2016-17 and the said application, as and when filed, shall be considered by the Commissioner in accordance with law.

Issues Involved:
1. Legality of the rejection of the compounding application by the Chief Commissioner of Income Tax (TDS), Delhi.
2. Interpretation of the CBDT Guidelines, 2019 regarding compounding of offences.
3. Impact of prior convictions on the eligibility for compounding subsequent offences.
4. Effect of the Supreme Court's stay order on the petitioner's conviction status.

Detailed Analysis:

1. Legality of the Rejection of the Compounding Application:
The petitioner sought to set aside the impugned order dated 1st December 2021, which rejected their application to compound offences under Sections 276B read with 278B of the Income Tax Act for defaults in FYs 2013-14, 2014-15, and 2016-17. The petitioner argued that they deposited TDS before the due date of filing the income tax return and prior to any notice of default from the department. However, the department issued a show cause notice on 26th December 2017, leading to prosecution under Section 276B. The petitioner filed a compounding application on 22nd March 2021, which was rejected due to non-disclosure of prior convictions for FYs 2009-10, 2010-11, and 2011-12.

2. Interpretation of the CBDT Guidelines, 2019:
The respondent rejected the compounding application citing para 8.1(iii) of the CBDT Guidelines, 2019, which states that offences committed by a person for which conviction orders have been passed are generally not to be compounded. The petitioner argued that the stay order by the Supreme Court on their prior convictions meant they should not be considered a 'convict' under the guidelines. However, the court noted that the petitioner had not sought compounding for the years they were convicted and continued to default in subsequent years despite previous notices and convictions.

3. Impact of Prior Convictions on Compounding Eligibility:
The court emphasized that the petitioner's non-disclosure of prior convictions in the compounding application was significant. Column No. 18 of the application form required disclosure of any prior convictions, which the petitioner failed to provide. The court rejected the petitioner's argument that the column only pertained to the years for which compounding was sought. The court held that the prior convictions were relevant and their non-disclosure justified the rejection of the compounding application.

4. Effect of the Supreme Court's Stay Order:
The petitioner contended that the Supreme Court's stay on their conviction meant they should not be considered a convict. The court disagreed, stating that the stay did not overturn the conviction and that the petitioner should have disclosed the pending proceedings. The court referenced the Supreme Court's decision in Rama Narang v. Ramesh Narang, which clarified that a stay on conviction does not negate the conviction itself unless explicitly stated.

Conclusion:
The court upheld the rejection of the compounding application, noting that the petitioner's repeated defaults and non-disclosure of prior convictions justified the decision. The court also observed that the petitioner could apply for compounding if they succeeded in their pending Supreme Court appeal. The writ petition was disposed of with this direction.

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