Revenue authority cannot deny compounding application under section 279(2) without following natural justice principles

The HC allowed a petition challenging refusal of compounding application under section 279(2). The revenue authority had denied compounding after criminal conviction, citing CBDT guidelines and petitioner's non-cooperation. The HC held that CBDT guidelines don't bar compounding when appeal against conviction is pending. The court found violation of natural justice as the petitioner wasn't given opportunity to explain the alleged non-cooperation before denial. The impugned order was set aside and matter remitted for fresh determination following proper procedure with personal hearing opportunity.

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Issues Involved:
1. Legitimacy of rejecting the compounding application post-conviction.
2. Alleged non-cooperation of the petitioner during initial proceedings.
3. Discriminatory treatment in granting compounding relief.
4. Applicability of repealed Chapter XX-C of the Income Tax Act, 1961.

Detailed Analysis:

1. Legitimacy of Rejecting the Compounding Application Post-Conviction:
The Writ Petition challenges the Order rejecting the compounding application under Section 279(2) of the Income Tax Act, 1961. The rejection was based on the application being filed after the conviction order dated 29.04.2010. The court referenced the Division Bench ruling in *Chairman, Central Board of Direct Taxes -vs- Umayal Ramananthan*, which clarified that Section 279(2) allows for compounding "either before or after the institution of proceedings." The term "proceedings" includes pending appeals, thus the pending appeal does not negate the possibility of compounding. The court found no justification to deviate from this precedent, establishing that the compounding application should be considered even if filed post-conviction but during the pendency of the appeal.

2. Alleged Non-Cooperation of the Petitioner During Initial Proceedings:
The Respondent cited the petitioner's non-cooperation in property valuation as a reason for rejection, referencing guidelines 3 and 4.4(g) of the CBDT circular. The court emphasized the principles of natural justice, stating that any adverse material must be communicated to the petitioner, allowing for an explanation before a decision is made. The court found that the Respondent did not follow this procedure, thereby violating natural justice principles. The petitioner was not informed or given an opportunity to respond to the allegations of non-cooperation, rendering the decision flawed.

3. Discriminatory Treatment in Granting Compounding Relief:
The petitioner argued that the compounding application was rejected for the purchaser (petitioner) while granted for the vendor, which constituted discriminatory treatment. The court noted that the Respondent's distinction based on the timing of the compounding applications (before vs. after conviction) was not valid in light of the binding decisions of the Division Benches. The court reiterated that pending appeals should not preclude the consideration of compounding applications, thus the differential treatment was unjustified.

4. Applicability of Repealed Chapter XX-C of the Income Tax Act, 1961:
The petitioner contended that Chapter XX-C, under which the action was taken, was repealed and should not apply to transactions post-01.07.2002. The court did not specifically address this issue in detail, focusing instead on the procedural and substantive fairness of the compounding application rejection.

Conclusion:
The court set aside the impugned order and remitted the matter to the Respondent for fresh determination, ensuring adherence to principles of natural justice. The Respondent must conduct an enquiry, provide personal hearing opportunities, address all contentions, and pass a reasoned order by 31.03.2021. The Writ Petition was disposed of on these terms without costs.

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