2020 (4) TMI 372 - HC - Income Tax

Writ Petition Dismissed: Income Tax Compounding Rejected for Major Fraud and Misrepresentation in Sham Transaction.

The HC dismissed the writ petition challenging the rejection of a compounding application under Section 279(2) of the Income Tax Act, 1961. The petitioner ... Compounding of offence - order passed in terms of Section 279(2) of the Income Tax Act, 1961 - levy of penalty under Section 271(1)(c) were initiated for concealment of income and furnishing of inaccurate particulars of income - HELD THAT:- Facts noted were (i) the assessee claimed to have inspected the premises of Bellary Steels for inspection of the machineries but the fact was that there was no machinery supplied by the manufacture (ii) that this amounted to a substantial fraud upon the Department since the false claim for depreciation on non-existing assets was made consciously. These concurrent findings of fact by the lower authorities was confirmed further by a Division Bench in CRN INVESTMENTS P. LTD.[2007 (2) TMI 166 - MADRAS HIGH COURT] dismissing the petitioners' appeal. This order has attained finality. The petitioner had in the meantime sought compounding of the offence that was rejected on the ground that the case of the petitioner fell within the parameters of an 'Offences involving major fraud or scam or misappropriation' or 'Offences committed by an assessee, who has enabled others in large scale concealment of income in a systematic and planned way over a number of years like hawala entries, bogus trusts, bogus remittance etc.'. The above portion in italics constitute the guidelines of the Central Board of Direct Taxes in F.No.285/90/2008IT(Inv.)/12 dated 16th May 2008 that have been relied upon by the Chief Commissioner of Income Tax in rejecting the request for compounding. Petitioner hardly has any defence to offer except to refer to its letter dated 26.03.2014 seeking a clarification from the respondent in respect of anticipated prosecution proceedings for the AY 1996-97. No relevance to this reference by the petitioner - there absolutely no merit in this writ petition and the same is dismissed. Issues:1. Challenge to order rejecting application for compounding under Section 279(2) of the Income Tax Act, 1961.2. Allegations of concealment of income and furnishing inaccurate particulars of income.3. Rejection of compounding request based on guidelines related to major fraud or scam.Analysis:1. The petitioner contested an order rejecting their application for compounding under Section 279(2) of the Income Tax Act, 1961, concerning the assessment year 1995-96. The case involved a sham transaction related to steel rollers leased to a company, where bills were issued to facilitate funding without actual supply of goods. The petitioner revised their income return after a survey revealed the fraudulent nature of the transaction.2. Proceedings for penalty under Section 271(1)(c) were initiated against the petitioner for concealment of income and furnishing inaccurate particulars. Despite the petitioner's claim of being unaware of the forged documents, authorities found the transaction to be bogus, leading to a penalty being imposed. The Commissioner of Income Tax and the Income Tax Appellate Tribunal upheld the penalty, citing conscious fraud and substantial misrepresentation.3. The rejection of the compounding request was based on guidelines categorizing offenses involving major fraud or systematic concealment of income over multiple years. The Central Board of Direct Taxes' guidelines were referenced in denying the compounding request, as the case fell within the parameters of major fraud or scam. The petitioner's defense was found lacking, and the writ petition was dismissed due to the conclusive findings of fact by all authorities involved.This detailed analysis of the judgment highlights the fraudulent transaction, penalty imposition, and the rejection of the compounding request based on established guidelines and lack of a valid defense from the petitioner.