Compounding applications must be considered under prevailing law, while contempt lies only for clear wilful disobedience.

Wilful disobedience was not established where the earlier writ direction only required the competent authority to decide the compounding request in accordance with law, and the later rejection was made pursuant to that mandate. The Court also noted that a fresh compounding application had to be assessed under the revised CBDT guidelines effective from 17.06.2019 and Section 279(1A) of the Income-tax Act, 1961, with the statutory scope for compounding, the appellate reduction of penalty, delay in prosecution, and personal circumstances all being relevant considerations. The contempt plea was unsustainable, but the compounding request required fresh reconsideration under the prevailing legal framework.

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Issues: (i) Whether the respondents' rejection of the petitioner's compounding application amounted to wilful disobedience of the earlier order so as to warrant contempt action. (ii) Whether the impugned rejection of compounding required interference and reconsideration in the light of the revised CBDT guidelines and Section 279(1A) of the Income-tax Act, 1961.

Issue (i): Whether the respondents' rejection of the petitioner's compounding application amounted to wilful disobedience of the earlier order so as to warrant contempt action.

Analysis: The earlier writ order did not contain a positive mandate to compound the offences. It directed the competent authority to pass an order in accordance with law and in the light of the observations made therein. The impugned order was passed pursuant to that direction. In such circumstances, the subsequent rejection could not be treated as deliberate violation of a specific judicial command. Contempt jurisdiction is attracted only when there is clear wilful disobedience, and that threshold was not met.

Conclusion: No contempt was made out against the respondents.

Issue (ii): Whether the impugned rejection of compounding required interference and reconsideration in the light of the revised CBDT guidelines and Section 279(1A) of the Income-tax Act, 1961.

Analysis: The Court noted that the compounding request had to be examined under the governing departmental policy, and that the revised CBDT guidelines which came into force on 17.06.2019 were relevant when the fresh application was made. The offences fell within the category capable of being considered for compounding, and the effect of Section 279(1A), together with the reduction of penalty at the appellate stage, was a material factor that the respondents ought to consider. The petitioner's long pendency in prosecution and personal circumstances were also relevant considerations for a fresh, liberal and lawful reconsideration.

Conclusion: The impugned rejection required reconsideration by the respondents under the revised guidelines and the statutory framework.

Final Conclusion: The contempt petition was not sustainable, but the petitioner's compounding request was directed to be reconsidered afresh on the relevant statutory and policy considerations.

Ratio Decidendi: Contempt does not lie where the later order is passed in purported compliance with a prior direction that required consideration in accordance with law, and a compounding application must be examined under the prevailing statutory and administrative framework, including any beneficial revised guidelines and Section 279(1A) of the Income-tax Act, 1961.

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