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2024 (1) TMI 799 - HC - Income TaxCompounding of the offence committed for failure to pay the Tax Deducted at Source (TDS) - Second respondent invoked the provisions of Section 276B to prosecute the petitioner and its Directors - HELD THAT - Under Section 279(2) of the IT Act, 1961, the Principal Chief Commissioner, Chief Commissioner, Principal Director General or the Director General, as the case may be, can compound any offence committed by an assessee, which is punishable under Chapter XXII of the IT Act, 1961. Applications can be filed either before or after the institution of the case. The well-settled principal of law is that such applications should be filed before conviction is handed over to an assessee and at the earliest. Applications filed by the petitioner and its Directors for compounding of the offences u/s 200, 204 read with Rule 30 of the Income Tax Rules, 1961 on 25.11.2022 were clearly beyond the time prescribed in the Circular dated 16.09.2022 issued u/s 119 of the IT Act, 1961. There is no limitation prescribed for compounding of the offences committed by an assessee u/s 279(2) of the IT Act, 1961. It is only in para 7(ii) to the above mentioned Circular, it has been stated that in a case where prosecution complaint has already been filed in a court of law, the application for compounding of offence cannot be filed later than 12 months from the end of the month of filing of the complaint before the Court. There is exception to the above rule in Para 9.1 of the same circular as in deserving case, the restrictions in Para 7(ii) can be relaxed with the approval of the Principal Chief Commissioner within beyond 24 months but before the expiry of 36 months from the date of the complaint before the Court. The limitation in the above circular cannot bind either the petitioner or this Court. The limitation in the Circular is not mandatory. It is to be construed as directory. There cannot be any restriction/limitation for filing application for compounding of offence contrary to Section 279(2) of the IT Act, 1961. There is also no useful purpose in prosecuting an assessee who may otherwise deserve to compound the offence. This is also not a case where the petitioner has been convicted of the offence in E.O.C.C.Nos.193 and 194 of 2018 and had filed the applications for compounding of the offence thereafter u/s 279(2) of the IT Act, 1961. The applications filed by the petitioner for the respective Assessment Years for compounding the offence are bereft of details. Therefore, even if the limitation prescribed in Circular dated 16.09.2022 bearing Ref.F.No.285/08/2014-IT(Inv.V)/196 of the Central Board of Direct Taxes (CBDT) issued u/s 119 of the IT Act, 1961 was overlooked, there was no material available with the first respondent to determine whether the petitioner otherwise deserved to compound the offences. As the respective application filed by the petitioner are bereft of the details required for compounding the offence, it is the view of the Court that the petitioner can be given an opportunity to explain the case properly, as in deserving and appropriate cases, applications to compound the offence cases can be allowed to be filed. There is no point in prosecuting an assessee whose conduct may otherwise warrant compounding of offence(s). As long as there is no conviction, such application can be entertained, considered and ordered. Since the applications filed by the petitioner and its Directors are bereft of any details, the petitioner is given a fresh chance to file an amended copy of applications for compounding of the offence explaining the reasons as to why the offences for which they have been prosecuted should not be compounded under Section 279(2) of the IT Act, 1961. Such amended applications shall be filed within a period of thirty days from the date of receipt of a copy of this order. Therefore, the impugned Common Order is quashed and the cases are remitted back to the first respondent to pass a fresh order on merits within a period of six months from the date of receipt of a copy of this order.
Issues Involved:
1. Rejection of applications for compounding the offence under Section 279(2) of the Income Tax Act, 1961. 2. Delay in filing the application for compounding the offence. 3. Prosecution of the petitioner and its Directors for failure to pay TDS. 4. Validity of the guidelines issued by the Central Board of Direct Taxes (CBDT) under Section 119 of the IT Act, 1961. 5. Opportunity to file amended applications for compounding the offence. Summary: Issue 1: Rejection of applications for compounding the offence under Section 279(2) of the Income Tax Act, 1961. The petitioner is aggrieved by the impugned Common Order dated 19.01.2023, which rejected the applications filed by the petitioner and its Directors to compound the offence committed for failure to pay TDS for the Assessment Years 2013-2014 and 2014-2015. The applications were rejected under Section 279(2) of the IT Act, 1961 due to a delay of 4 years 6 months and 2 days from the date of filing of the complaint in the Court. Issue 2: Delay in filing the application for compounding the offence. The petitioner filed the application for compounding the offence beyond the time prescribed in the CBDT Circular dated 16.09.2022. According to Para 7(ii) of the Circular, the application should be filed within 12 months from the end of the month in which the prosecution complaint was filed in the court. The petitioner filed the application after a delay of 4 years 6 months and 2 days, which led to the rejection of the compounding petition. Issue 3: Prosecution of the petitioner and its Directors for failure to pay TDS. The petitioner and its Directors were prosecuted before the Additional Chief Metropolitan Magistrate, Economic Offences-I, Egmore, Chennai, for failure to pay TDS amounting to Rs. 24,87,814/- and Rs. 10,64,768/- for the Assessment Years 2013-2014 and 2014-2015. Notices were issued to the petitioner, and the third respondent issued Show Cause Notices for the offence punishable under Section 276B read with Section 278B of the IT Act, 1961. Issue 4: Validity of the guidelines issued by the Central Board of Direct Taxes (CBDT) under Section 119 of the IT Act, 1961. The petitioner argued that the guidelines issued by the CBDT under Section 119 of the IT Act, 1961, cannot override Section 279(2) of the IT Act, 1961. The Court observed that there is no limitation prescribed for compounding of offences under Section 279(2) of the IT Act, 1961, and the limitation in the Circular is not mandatory but directory. Issue 5: Opportunity to file amended applications for compounding the offence. The Court noted that the applications filed by the petitioner were bereft of details required for compounding the offence. The Court allowed the petitioner an opportunity to file amended applications for compounding the offence, explaining the reasons for compounding under Section 279(2) of the IT Act, 1961. The impugned Common Order was quashed, and the cases were remitted back to the first respondent to pass a fresh order on merits within six months. Conclusion: The Writ Petitions were allowed by way of remand, giving the petitioner a fresh chance to file amended applications for compounding the offence within thirty days. The first respondent was directed to pass a fresh order on merits within six months. No costs were awarded, and the connected Writ Miscellaneous Petitions were closed.
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