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TMI Blog2025 (2) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... ld the order of the Chief Commissioner of Income Tax, Vadodara ("Respondent No. 1") dated 14.02.2017 rejecting the application preferred by the appellant-assessee for compounding of the offence under Section 276CC of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). A. FACTUAL MATRIX 3. The appellant is an individual earning income by way of salary and also by way of share of profit of partnership firm engaged in the business of chemicals. He filed his income tax returns for the AY 2011-12 and 2013-14 on 04.03.2013 and 29.11.2014 respectively declaring his income to be Rs 49,79,700/- and Rs 31,87,420/- respectively. The due dates for the filing of returns for AY 2011-12 and 2013-14 were 30.09.2011 and 31.10.2013 respectively and as such there was delay on the part of the appellant in filing the return of income for the said assessment years. 4. On 27.10.2014, a show cause notice was issued to the appellant by the Commissioner of Income Tax - III, Baroda alleging violation of Section 276CC of the Act for the AY 2011-12. The notice stated that although the due date for filing the income tax return for the AY 2011-12 was 01.08.2011 yet the appellant had filed the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 276CC of the Act for the AY 2013-2014 issued by the Commissioner of Income Tax, Vadodara - III. The notice stated that the appellant had furnished the return of income for AY 2013-14 declaring a total income of Rs. 31,87,420/- on 29.11.2014 and after allowing for the credit of prepaid taxes the appellant was liable to pay self-assessment tax of Rs. 2,78,740/-. The notice further called upon the appellant to show cause as to why proceedings under Section 276CC of the Act should not be initiated against him as he had filed his return of income after the expiry of the due date. The contents of the said notice are extracted hereinbelow: "Office of the Commissioner of Income Tax, Vadodara -3 Vadodara 2nd floor Aayakar Bhavan Race Course Circle, Vadodara 7 No. BRD/CIT-3/HQ/Pros/17-B/2014-15 Date.12.3.2015 To, Shri Vinubhai Mohanbhai Dobaria 303/C/16, Tulsi Kunj Society, Near Marathi School, GIDC, Ankleshwar PAN ACIPD4420D Sir/Sirs Sub: Launching of prosecution under section 276CC of the Income Tax Act, 1961 Chapter XXII of the I.T.Act, 1961 A.Y.2013-14 reg. On examination of records, it is seen that you have furnished your return of income for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad, competent to consider the assessee's petition, in its minutes of the meeting held at Ahmedabad on 25.1.2017 found that the Pr. CIT-3, Vadodara had issued show cause notice for initiating proceedings under section 276CC of the Act on 27.10.2014 for the AY.2011-12. The assessee filed his return of income for the A.Y.2013-14 on 29.11.2014 as against the due date for filing of return on 31.10.2013, after issuance of such show cause notice for A.Y. 2011-12. Accordingly, taking into consideration the definition of "First Offence" as specified in the Board's guidelines for compounding offence dated 23.11.2014, as well as the opinion obtained from the Board vide F.No.285/20/2014-IT (Inv.)/340 dated 15.9.2014 in the case of Chandra Knee Clinic P. Ltd. the committee unanimously opined that, the offence of similar nature committed by the assessee for A.Y.2013-14 cannot be compounded, as it does not fall within the definition of "First Offence". Thus, the committee rejected compounding petition for A.Y.2013-14. In view of the above facts, compounding petition filed by the assessee for A.Y.2013-14 is rejected." 9. The appellant challenged the aforesaid order passed by the Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... einbelow: "4.0 [...] However, on the other hand, it is the case on behalf of the petitioner assesee that for AY 2013-14 the show cause notice under Section 276 CC of the Act was issued on 12.03.2015 and prior thereto the return of income for AY 2013-14 was already filed on 29.11.2014 and therefore, the same can be said to be "first offence" even as per the clause 8(ii) of the Guidelines. The submission on behalf of the assessee cannot be accepted. The aforesaid submission on behalf of the assessee is absolutely on misreading of clause 8(ii). On true interpretation of clause 8(ii), in case the offence is committed prior to date of issuance of any show cause notice for prosecution, in that case, it can be said to be the "first offence". Therefore, in case for any prior assessment year, the show cầuse notice has been issued for prosecution and despite the same, in the subsequent year, the offence is committed by not filing the return, the same cannot be said to be "first offence". The submission on behalf of the petitioner assessee that in the present case the show cause notice for prosecution for AY 2013-14 was issued on 12.03.2015 and prior thereto the return of income was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion arose whether the offence for which accused was charged were distinct or separate and not in any way inter-related and when each offence had no connection with other, joinder of charges would become bad in law or not and to that it has been observed and held by the Madras High Court that framing of charge was defective and violative of Sections 218 and 219 of the Code of Criminal Procedure and as judgment was rendered only in one case and there was no finding of guilt recorded as regards two other cases, the Madras High Court has observed that error committed by the trial Court was of such grave nature that it had caused prejudice to accused and therefore, in that view of the matter, conviction and sentence passed by the lower Court has to be set aside. Therefore, the said decision shall not be applicable to the facts of the case on hand. 7.0 Now, so far as reliance placed upon the decision of the Delhi High Court in the case of Sport Infratech (P) Ltd (supra) relied upon by the learned advocate for the petitioner is concerned, the said decision also shall not be applicable to the facts of the case on hand. 8.0 Even the learned advocate for the petitioner has requested not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the offence alleged to have been committed by him. Once an assessee is put to notice, all offences alleged to have been committed thereafter are not compoundable. However, offences committed prior to the date when the assessee is put to notice, would be treated as constituting the "first offence" and hence would be compoundable. He submitted that in the facts of the present case, two show cause notices were issued against the appellant by the respondent authorities, one for AY 2011-12 issued on 27.10.2014 and the other for AY 2013-14 issued on 12.03.2015. He argued that the High Court erroneously relied upon the actual date of filing of return of income for the AY 2013-14 to hold that the offence for the said assessment year was committed after the first show cause notice in respect of AY 2011-12 had already been received. He submitted that it is not the date of actual filing of the belated return of income but the date immediately following the due date for filing of return for the given assessment year which should be considered while determining whether the offence is a "first offence" as per the 2014 guidelines. 14. After explaining the factual position as aforesaid, he submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when such an offence has not been detected by the Department but has been voluntarily disclosed by the applicant by filing a compounding application. In view of this, the counsel argued that the issuance of a show cause notice could not be said to be a prerequisite for the recognition of a first offence. 20. In furtherance of the aforesaid submission, she submitted that the appellant could be said to have disclosed the commission of offence for both AY 2011-12 and 2013-14 by belatedly filing his returns on 04.03.2013 and 29.11.2014 respectively for both the years, that is, after the due dates prescribed for filing the returns for these years had expired. She submitted that it was only after such a late filing of returns by the appellant that the Department became aware of both the offences and issued the respective show cause notices for the same. Thus, merely because a show cause notice was not issued by the Department due to non-detection that an offence under Section 276CC had been committed, the same cannot be construed as absolving the assessee from the fact that he had already committed an offence and disclosed the same by filing the return of income belatedly. 21. She subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osure for the purpose of Clause 8 of the 2014 guidelines? d. Whether the 2014 guidelines are mandatory or directory in nature? E. ANALYSIS i. Section 276CC of the Income Tax Act, 1961 27. Chapter XXII of the Act deals with offences and prosecutions and consists of Sections 275A to 280D. Section 276CC of the Act inter-alia provides that if a person fails to furnish the return of income which he is required to furnish under sub-section (1) of Section 139 of the Act, then he shall be punishable with: a. Rigorous imprisonment for a term ranging between six months to seven years along with fine in cases where the amount of tax which would have been evaded if the failure of the person had not been discovered is more than twenty-five hundred thousand rupees; and b. Rigorous imprisonment for a term ranging between three months to two years and with fine - in any other case. 28. Section 276CC of the Act as it stood at the relevant point in time is reproduced hereinbelow: "276CC. Failure to furnish returns of income.- If a person wilfully fails to furnish in due time the return of fringe benefits which he is required to furnish under sub-section (1) of section 115WD or by notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r provides that for the assessment years commencing from 01.04.1975, no proceedings shall be initiated under the provision if the tax payable by the person, not being a company, does not exceed ten thousand rupees. 31. Section 276CC punishes the wilful failure by the assessee in furnishing the following types of returns in due time: a. Return of fringe benefits which he is required to furnish under sub-section (1) of section 115WD or by notice given under sub- section (2) of the said section or section 115WH; or b. Return of income which he is required to furnish under sub- section (1) of section 139 or by notice given under clause (i) of sub-section (1) of section 142 or section 148 or section 153A. 32. In the case at hand, we are only concerned with the failure of a person in furnishing, in due time, the return of income which he is required to furnish under Section 139. Hence, it is also necessary to advert to the relevant portions of Section 139 of the Act as well and they are reproduced below: "139. Return of income.-(1) Every person,- (a) being a company or a firm; or (b) being a person other than a company or a firm, if his total income or the total income of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t every person shall, on or before the due date, furnish a return of his income during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed. Sub-section (4) of Section 139 provides that if a person has failed to furnish the return of income within due time prescribed under sub-section (1), then he may furnish the return for any previous year at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. 34. To fully understand the import of Section 276CC of the Act, it is necessary to understand the meaning of the expressions "wilfully fails" and "in due time" used in the said provision respectively. This Court in Prakash Nath Khanna v. CIT reported in (2004) 9 SCC 686 was called upon to look into the scope and meaning of the expression "in due time" appearing in Section 276CC of the Act and whether it refers to the time period referred to in Section 139(1) or the time period referred to in Section 139(4). This Court, after discussing the various methods of statutory interpretation, took the view that the legislative intent behind S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y judicial interpretative process. 16. Two principles of construction - one relating to casus omissus and the other in regard to reading the statute as a whole - appear to be well settled. Under the first principle a casus omissus cannot be supplied by the court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the legislature. "An intention to produce an unreasonable result", said Danckwerts, L.J., in Artemiou v. Procopiou [(1966) 1 QB 878 : (1965) 3 All ER 539 : (1965) 3 WLR 1011 (CA)] (All ER p. 544 I), "is not to be imputed to a statute if there is some other construction available". Where to apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the said expression was used without any purpose. Before substitution of the expression "clause (i) of sub-section (1) of Section 142" by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989, the expression used was "sub-section (2) of Section 139". At the relevant point of time the assessing officer was empowered to issue a notice requiring furnishing of a return within the time indicated therein. That means the infractions which are covered by Section 276-CC relate to non-furnishing of return within the time in terms of sub-section (1) or indicated in the notice given under sub- section (2) of Section 139. There is no condonation of the said infraction, even if a return is filed in terms of sub- section (4). Accepting such a plea would mean that a person who has not filed a return within the due time as prescribed under sub-section (1) or (2) of Section 139 would get benefit by filing the return under Section 139(4) much later. This cannot certainly be the legislative intent. 19. Another plea which was urged with some amount of vehemence was that the provisions of Section 276-CC are applicable only when there is discovery of the failure regarding evasion of tax. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to furnish the return is a matter which is to be adjudicated factually by the court which deals with the prosecution case. Section 278-E is relevant for this purpose and the same reads as follows: "278-E. Presumption as to culpable mental state.- (1) In any prosecution for any offence under this Act which requires a culpable mental state on the part of the accused, the court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution. Explanation.-In this sub-section, 'culpable mental state' includes intention, motive or knowledge of a fact or belief in, or reason to believe, a fact. (2) For the purposes of this section, a fact is said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability." 23. There is a statutory presumption prescribed in Section 278-E. The court has to presume the existence of culpable mental state, and absence of such mental state can be pleaded by an accused as a defence in respect to the act charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee under this sub- section." 38. A perusal of the aforesaid provision makes it clear that irrespective of whether the return of income is filed by an assessee after the specified date or is not furnished at all, the assessee shall be liable to pay simple interest at the rate 15% reckoned from the day immediately following the specified date notwithstanding the fact that the Assessing Officer has extended the date for furnishing of return. 39. Accepting the contention of the respondents would mean that the commission of an offence under Section 276CC is made contingent upon the filing of the actual belated return by an assessee. This could never have been the intention of the legislature in enacting the provision as such a reading would mean that no assessee would file a return of income after the due date has expired and despite such failure would be able to escape any liability under Section 276CC of the Act. 40. Having discussed the scope of Section 276CC and the ingredients required to constitute an offence under the said provision, the next question that falls for us is whether the appellant could be said to have committed an offence under Section 276CC of the Act and if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 was made on 11.11.2014 and thus would be governed by the 2008 guidelines. As the compounding application for the AY 2013-14 was preferred by the appellant on 19.03.2015, hence it would be governed by the 2014 guidelines. Since the present appeal is only concerned with the compounding application for the AY 2013-14, hence we are limiting our discussion to the 2014 guidelines. However, as the compounding guidelines are framed to guide the exercise of power of compounding conferred upon the CCIT and DGIT under Section 279(2) of the Act, hence we deem it appropriate to first examine the provisions of the Act before discussing the guidelines. ii. Provisions pertaining to compounding of offences 48. Section 279 of the Act is reproduced hereinbelow: "279. Prosecution to be at instance of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.- (1) A person shall not be proceeded against for an offence under section 275A, section 275B, section 276, section 276A, section 276B, section 276BB, section 276C, section 276CC, section 276D, section 277, section 277A or section 278 except with the previous sanction of the Principal Commissioner or Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Commissioner (Appeals) or the appropriate authority. The proviso to Sub-section (1) of Section 279 empowers the Principal Chief Commissioner or the Chief Commissioner or the Principal Director General or Director General to issue appropriate directions to the authorities specified in sub-Section (1) for the initiation of prosecution. 50. Sub-section (2) of Section 279 empowers the Principal Chief Commissioner, the Chief Commissioner, the Principal Director General and the Director General to compound any offence defined under Chapter XXII of the Act, either before or after the initiation of proceedings. 51. While interpreting the nature of the power conferred upon the Principal Chief Commissioner under Section 279, this Court in Union of India v. Banwari Lal Agarwal reported in (1998) 7 SCC 652 held that sub- section (2) of the provision is enabling in nature and cannot be construed as allowing the assessee to demand compounding as a matter of right. The relevant observations are reproduced hereinbelow: "7. We further find that sub-section (2) of Section 279 is a provision which enables the Chief Commissioner or the Director General to compound any offence either before or af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition has altered to the advantage of the Revenue by the introduction of an Explanation to Section 279 of the Act by the Finance Act (2 of 1991) which has been made operative with effect from April 1, 1962. The Explanation is as under:- "Explanation.- For the removal of doubts, it is hereby declared that the power of the Board to issue orders, instructions, or directions under this Act shall include and shall be deemed always to have included the power to issue instructions or directions (including instructions or directions to obtain the previous approval of the Board) to other Income Tax authorities for the proper composition of offences under this section." 10. The Explanation is in the nature of a proviso to Section 279(2) of the Act with the result that the exercise of power by the Commissioner under the said section has to be subject to the instructions issued by the Board from time to time. The Explanation empowers the Board to issue orders, instructions or directions for the proper composition of the offences under Section 279(2) of the Act and further specifically provides that directions for obtaining previous approval of the Board can also be issued. Reading Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegories of offences which can be compounded - category A and category B offences. Category A offences include the offences defined under Sections 276, 276B 276BB, 276DD, 276E, 277 and 278 of the Act respectively. Whereas Category B offences include the offences defined under Sections 275A, 275B, 276, 276A, 276AA, 276AB, 276C(1), 276C(2), 276CC, 276CCC, 276D, 277, 277A, 278 of the Act respectively. Thus, the offence involved in the case at hand being one under Section 276CC of the Act would be governed by the rules applicable to the compounding of Category B offences. 58. Paragraph 7 of the 2014 guidelines prescribes certain eligibility conditions which have to be satisfied by the applicant before his application for compounding can be accepted by the competent authority. The conditions, as prescribed under the guidelines, are reproduced hereinbelow: "7. Eligibility Conditions for compounding: The following conditions should be satisfied for considering compounding of an offence :- i. The person makes an application to the CCIT/DGIT having jurisdiction over the case for compounding of the offence(s) in the prescribed format (Annexure-1) ii. The person has paid the outstand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any prosecution, whichever is earlier. 61. Further, the expression "first offence" is also defined to include any offence which has not been detected by the Department, but has been voluntarily disclosed by a person prior to the filing of an application for compounding of offence in the case under any direct tax Acts. Clause 8 further clarifies that the first offence would be determined separately with reference to each section of the Act under which it is committed and it would be relevant only if it is committed by the same entity. 62. Paragraph 8 further prescribes certain additional categories of offences which are generally not to be considered for compounding. They are reproduced hereinbelow: "iii. Offences committed by a person who, as a result of investigation conducted by any Central or State agency and as per information available with the CCIT/DGIT concerned, has been found involved, in any manner, in anti-national/terrorist activity. iv. Offences committed by a person who, was convicted by a court of law for an offence under any law, other than the Direct Taxes laws, for which the prescribed punishment was imprisonment for two years or more, with or without fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear, reckoned from the date immediately following the date on which the return of income was due to be furnished to the date of furnishing of the return or where no return was furnished, to the date of completion of the assessment. 12.4.2 Where, before the date of furnishing of the return or where no return was furnished before the date of completion of assessment, any tax is paid by the person u/s 140A, compounding fee shall be calculated in the manner prescribed above up-to the date on which the tax is so paid; and thereafter, the fee shall be calculated at the aforesaid rate on the amount of tax and interest determined on the assessment or re-assessment as the case may be, determined after rectification u/s 154 of the Act, if any, as reduced by the TDS, TCS, advance tax and tax paid u/s 140A before filing of the return of income or where no return was furnished from the date of completion of assessment or reassessment." (Emphasis supplied) 66. A perusal of Paragraph 12.4 of the 2014 guidelines as reproduced hereinabove shows that the compounding fee to be levied in the case of an offence under Section 276CC is to be reckoned from the date immediately following the date on w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment years. In other words, the respondents contended that the very act of filing belated return of income by the appellant amounts to voluntary disclosure of commission of offence for the purpose of Paragraph 8 of the 2014 guidelines which defines the expression "first offence". The latter part of the definition of the expression "first offence" reads as follows : "Offence not detected by the department but voluntarily disclosed by a person prior to the filing of application for compounding of offence in the case under any Direct Tax Acts. For this purpose, offence is relevant if it is committed by the same entity. The first offence is to be determined separately with reference to each section of the Act under which it is committed." 72. We find it difficult to agree with the contention advanced by the respondents that even if the appellant is not covered by the first part of the definition of the expression "first offence", he will still be covered by the latter half which is reproduced in the preceding paragraph. Paragraph 8 of the 2014 guidelines has defined a "first offence" in two different manners: a. First, all those offences which are committed by the assessee prior t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detection by the Department besides being economically viable also saves time and efforts on part of the Department and also ensures that the dues are recovered promptly. 75. The primary purpose of the prosecution provisions enshrined in Chapter XXII of the Act is to ensure the penalization of offenders adjudged guilty of tax evasion and other tax-related offenses, while simultaneously instilling a deterring effect in the minds of those who might contemplate circumventing the payment of lawful taxes. When an assessee voluntarily discloses the commission of an offence, he cannot be said to have the intention of evading payment of taxes. 76. The appellant submitted that the 2014 guidelines are directory in nature and the respondents could not have solely relied upon the guidelines to reject his application for compounding without taking into account the attendant extraordinary circumstances pointed out by the him as the cause for the commission of the offences. The appellant placed reliance on a decision of the Delhi High Court delivered in the case of Sports Infratech P. Ltd. & Anr. v. Deputy Commissioner of Income-tax reported in 2017 SCC OnLine Del 6543 in support of his submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount and documents, etc. But for such seizure, the petitioner would quite reasonably be expected to deposit the amount within the time prescribed or at least within the reasonable time. Instead of considering these factors on their merits and examining whether indeed they were true or not, the Chief Commissioner felt compelled by the text of para. 8(v). That condition, no doubt is important and has to be kept in mind, cannot be only determining. In the present case, the material on record in the form of a letter by the Superintendent of CBI also shows that a closure report was in fact filed before the competent court. Having regard to all these facts, this court is of the opinion that the refusal to consider and accept the petitioner's application under section 279(2) cannot be sustained. The impugned order is hereby set aside." 78. As we have discussed in the preceding parts of this judgment, Paragraph 4 of the 2014 guidelines specifies that compounding is not a matter of right of the assessee and the competent authority may allow the compounding application upon being satisfied that the applicant fulfills the eligibility conditions and keeping in mind the conduct of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt, covered by the expression "first offence" as defined under the 2014 guidelines and thus the compounding application preferred by the appellant could not have been rejected by Respondent no. 1 on this ground alone. 82. The impugned order passed by the High Court as well as the order passed by the Chief Commissioner of Income Tax, Vadodara dated 14.02.2017 rejecting the compounding application of the appellant are hereby set aside. 83. The appellant shall prefer a fresh application for compounding before the competent authority within two weeks from the date of this judgment and the same shall be adjudicated by the competent authority having regard to the conduct of the appellant, the nature of the offence and the facts and circumstances of the case within a period of four weeks from the date on which the application is filed by the appellant. 84. The proceedings pending before the Trial Court shall remain stayed pending the decision of the competent authority on the compounding application of the appellant. 85. In the event the fresh compounding application of the appellant is accepted by the competent authority, the proceedings pending before the Trial Court shall stand ..... X X X X Extracts X X X X X X X X Extracts X X X X
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