Compounding of Income-tax offences can be considered during appeal; conviction alone is not an absolute bar.

Section 279(2) of the Income-tax Act permits compounding of offences before or after institution of proceedings, and "proceedings" includes appellate proceedings. The pendency of an appeal does not bar consideration of a compounding application, and guidelines on compounding do not create an absolute prohibition merely because there is a criminal conviction. The authority must exercise discretion on the facts of each case and consider the request on merits. A rejection based solely on conviction, without such consideration, is unsustainable and the application must be reconsidered afresh.

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Issues: Whether the rejection of the application for compounding of offences under the Income-tax Act was sustainable when the criminal conviction was cited as the sole reason, despite the pendency of the appeal and the statutory power to compound.

Analysis: Section 279(2) of the Income-tax Act, 1961 permits compounding of offences either before or after institution of proceedings. The expression "proceedings" includes appellate proceedings, and the pendency of the appeal did not bar consideration of the compounding request. The guidelines relied upon by the authority did not impose an absolute prohibition on compounding merely because there was a conviction by a criminal court; they contemplated a discretionary assessment of the facts in each case. The authority was therefore required to consider the application on merits and could not reject it solely on the ground of conviction, especially when the jurisdictional High Court had already recognised the scope of the power to compound in pending matters.

Conclusion: The rejection order was unsustainable; the matter had to be reconsidered afresh by the respondent without being influenced only by the conviction.

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