Courts uphold 5% compounding fee for tax offence, reject plea for reduced charges

The court upheld the order of the Principal Chief Commissioner of Income Tax, determining compounding charges at 5% for the offence under Section 276-B for the Financial Years 2013-14 and 2014-15. The court found that the applications were not valid until correctly filed, considering them as second occasions per CBDT guidelines. The petitioner's plea to treat the applications as first occasions was rejected, affirming the 5% compounding fee calculation. Consequently, the writ petition was dismissed.

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Issues Involved:
1. Determination of compounding charges for the offence under Section 276-B of the Income Tax Act, 1961.
2. Classification of the compounding application as first or second occasion.
3. Compliance with Central Board of Direct Taxes (CBDT) guidelines dated 23/12/2014.

Detailed Analysis:

1. Determination of Compounding Charges for the Offence Under Section 276-B:
The petitioner filed a petition against the communication from the Principal Chief Commissioner of Income Tax (PCCIT) regarding the approval of compounding charges for the offence under Section 276-B for the Financial Years 2013-14 and 2014-15. The petitioner contended that the charges were determined at 5%, treating it as a second occasion, without proper consideration of the facts and records.

2. Classification of the Compounding Application as First or Second Occasion:
The petitioner argued that the compounding charges should be 3% for the Financial Years 2013-14 and 2014-15, as the application was filed before the compounding order for the Financial Year 2015-16 was passed. The CBDT guidelines state that for the first application, the compounding fee is 3% per month, and for subsequent applications, it is 5%. The PCCIT treated the applications for 2013-14 and 2014-15 as second occasions because the application for 2015-16 was filed first on 16/10/2017, while the applications for 2013-14 and 2014-15 were filed later on 17/01/2018.

3. Compliance with CBDT Guidelines Dated 23/12/2014:
The petitioner relied heavily on paragraph 12 of the CBDT guidelines, which outlines the compounding fees. The guidelines specify that the fee for compounding offences under Section 276-B is 3% per month of the tax in default for the first application and 5% for subsequent applications. The respondent (Income Tax Department) maintained that the petitioner’s applications were considered per the guidelines, and the compounding of offences is not a matter of right but subject to the satisfaction of the competent authority regarding the fulfillment of eligibility conditions.

Court’s Observations:
The court noted that the petitioner initially submitted the application for 2013-14 and 2014-15 to the wrong authority (Deputy Commissioner of Income Tax instead of PCCIT), which was a mandatory requirement as per the guidelines. Consequently, the applications were not valid until they were correctly filed on 17/01/2018, after the application for 2015-16 was filed on 16/10/2017. Therefore, the PCCIT was justified in treating the applications for 2013-14 and 2014-15 as second occasions and levying the compounding fee at 5%.

Conclusion:
The court upheld the order of the PCCIT, stating that it was in consonance with the CBDT guidelines. The petitioner’s request to consider the applications for 2013-14 and 2014-15 as first applications was dismissed, and the compounding fees were rightly calculated at 5%. The writ petition was dismissed accordingly.

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