Court sets aside excessive compounding charges, directs reevaluation without upfront payment.

The court ruled in favor of the petitioner, setting aside the rejection of the application for compounding. The court emphasized that compounding charges levied before considering the application were excessive and lacked legal authority. It held that rejection based solely on the delay in filing was unjustified. The court directed the authorities to reconsider the application without requiring upfront payment of the compounding fee, stating that fee payment should only be addressed after evaluating the application on its merits.

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Issues:
1. Exorbitant compounding charges levied before considering the application.
2. Validity of circular setting out compounding fee.
3. Rejection of application based on delay in filing.
4. Power of CBDT to require upfront payment of compounding fee.

Issue 1: Exorbitant compounding charges levied before considering the application

The petitioner filed a writ petition challenging the circular dated 23rd December, 2014, which required the payment of a substantial sum of &8377; 69,67,699 as compounding charges even before considering the application. The petitioner argued that such charges were excessive and lacked legal authority. The court noted that the circular did not specify a limitation period for filing the application for compounding. The court emphasized that the purpose of compounding offences is to provide closure to cases pending for long periods in the judicial system. The court held that the rejection of the application based solely on the delay in filing was not justified. The court set aside the rejection order and directed the authorities to reconsider the application.

Issue 2: Validity of circular setting out compounding fee

The court examined whether the CBDT had the power to require upfront payment of the compounding fee before considering the application. The court referred to a Supreme Court decision regarding the power of the CBDT to issue instructions for the compounding of offences. However, the court found that the circular's provision requiring upfront payment of the fee contradicted the purpose of Section 279 of the Income Tax Act. The court clarified that the CBDT cannot reject an application for compounding based on the non-payment of the fee before considering the merits of the application. The court emphasized that the question of the fee payment should only arise after considering the application on its merits.

Issue 3: Rejection of application based on delay in filing

The Department rejected the petitioner's application for compounding citing an inordinate delay of 9 years in filing the application. The court noted that the rejection was not in line with the guidelines issued by the Department. The court held that the rejection based solely on the delay was not a valid ground. The court set aside the rejection order and directed the authorities to reconsider the application based on the merits.

Issue 4: Power of CBDT to require upfront payment of compounding fee

The court analyzed whether the CBDT had the authority to insist on the upfront payment of the compounding fee before considering the application. The court found that such a requirement was not supported by the Income Tax Act or its provisions. The court clarified that the CBDT cannot reject an application based on non-payment of the fee before evaluating the application on its merits. The court directed the authorities to reconsider the petitioner's application and communicate the decision within a specified timeframe.

In conclusion, the court ruled in favor of the petitioner, setting aside the rejection of the application for compounding and directing the authorities to reconsider the application without insisting on upfront payment of the compounding fee.

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