2023 (11) TMI 1110 - HC - Income Tax

Compounding of offences - period of limitation - application rejected for the reason that the same was filed beyond the prescribed time limit, i.e., a period of 12 months from the date of launching of prosecution fixed fixed vide circular F.No. 285/08/2014-IT(Inv.V)/147 dated 14.06.2019 - petitioner contend that as per Section 279(2) of the IT Act, there is no provision with regard to the fixation of time limit for filing the application for compounding of offences HELD THAT - Since the idea of the Legislation was that the compounding of offences is permissible either before or after the institution of the proceedings, the CBDT cannot issue a circular contrary to the object of the said 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 the compounding of offences and not for the purpose of fixing time limit for filing the application for compounding of offences and 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. Therefore, this Court is of the view that the CBDT is not empowered to fix the time limit for filing the application for compounding of offences, which is contrary to the provisions of Section 279(2) of the IT Act. Thus in terms of Section 279(2) of the IT Act, the petitioner can file the application for compounding of offences either before or subsequent to the launching of the prosecution. As far as the citation provided by the learned counsel for the petitioner is concerned, in all those citations, the respective High Courts had struck down the provisions of Clause 7(ii) of the said circular dated 14.06.2019 with respect to the prescribed time limit of 12 months and held that at any point of time the application for compounding of offences can be filed i.e., even after the filing of the prosecution and before the disposal of the case. Thus this Court is of the considered view that the order passed by the respondent, rejecting the application for compounding of offences on a sole ground that it is barred by limitation, is liable to be set aside.

Summary

Issues involved:
The judgment involves challenges to an impugned order dated 20.08.2022 and a circular dated 14.06.2019 issued by the respondents regarding the compounding of offences under the Income Tax Act, 1961.

Challenge to impugned order dated 20.08.2022:
The petitioner had sold a property in 2013 and reinvested the capital gain in another property, believing she was not liable to pay income tax. However, she was prosecuted for delayed filing of income tax returns. The petitioner's application for compounding of offences was rejected due to being filed beyond the prescribed time limit of 12 months from the date of prosecution, as per a circular issued by the CBDT. The petitioner argued that the time limit set by the circular was contrary to the provisions of Section 279(2) of the IT Act. The court considered relevant case laws and held that the CBDT cannot fix a time limit for filing the application for compounding of offences, as it goes against the Act's provisions. The order rejecting the application was set aside, and the matter was remitted back to the authorities for reconsideration on merits.

Challenge to circular dated 14.06.2019:
The petitioner challenged Clause 7(ii) of the circular, which stated that no compounding application can be filed after 12 months from the end of the month in which a prosecution complaint was filed. The court held that this clause was beyond the scope of the Act and struck it down. The rest of the circular remained valid. The writ petitions were disposed of accordingly, with no costs imposed.