2024 (9) TMI 293 - HC - Income Tax

Time limit for filing of the compounding application - Rejection of compounding application filed by the petitioner on the ground that the application was filed beyond the period of limitation of 36 months, as stated in Para 7(ii) of the CBDT circular dated 16.09.2022 - HELD THAT - Section 279(2) of the Act does not prescribe any time limit for filing of the compounding application. The judgment of this Court in Jayshree's case 2023 (11) TMI 1110 - MADRAS HIGH COURT this Court has categorically held that the CBDT cannot issue a circular contrary to the object of the 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 compounding of offences and not for the purpose of fixing a time limit for filing the application for compounding of offences and therefore, 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. This Court is of the view that once the nature of offence is compoundable by virtue of the provisions of the Act, it cannot be taken away by fixing a time limit for filing the compounding application. The law laid down by this Court in the aforesaid judgment is squarely applicable to the facts of the present case. Hence, the impugned order is liable to be set aside and it is accordingly set aside. WP allowed.

Summary

Issues:
Challenge to rejection of compounding application based on time limitation under CBDT circular.

Analysis:
The petitioner challenged the rejection of their compounding application by the respondent, citing a time limitation of 36 months as per the CBDT circular dated 16.09.2022. The petitioner argued that there is no specific time limit for filing a compounding application under Section 279(2) of the Income Tax Act. The counsel relied on the judgment in Jayshree vs. CBDT, where it was held that the CBDT cannot issue circulars contrary to the Act's provisions. The petitioner sought to quash the impugned order based on this argument.

Analysis:
The senior standing counsel for the Revenue acknowledged the Court's previous judgment striking down clause 7(ii) of the circular but mentioned that the time limit was revised to 24 months. Referring to the Jayshree case, the counsel requested appropriate orders. It was noted that the respondent had filed a writ appeal against the order, but no interim order had been issued. The Court considered both parties' submissions.

Analysis:
The Court examined Section 279(2) of the Act, noting the absence of a prescribed time limit for compounding applications. Citing the Jayshree case, the Court reiterated that the CBDT cannot set a time limit contrary to the Act's provisions. The power to issue circulars is limited to implementing Act's provisions, not fixing time limits for compounding applications. Therefore, the Court found the rejection of the compounding application on grounds of delay unsustainable and set aside the impugned order.

Analysis:
The Court emphasized that once an offence is compoundable under the Act, this right cannot be restricted by imposing a time limit for filing compounding applications. The precedent set in the Jayshree case was deemed applicable to the present situation, leading to the setting aside of the impugned order. The writ petition was allowed without costs, directing the respondent to consider the compounding application on its merits and in accordance with the law, clarifying that the order does not pertain to compounding any existing or future criminal proceedings against the petitioner.