Compounding of income-tax offences may be sought during a pending appeal, with rejection set aside for fresh consideration.

Compounding of an income-tax offence may be considered even while a criminal appeal is pending, where the applicable direct tax compounding guidelines permit such a request. The Court held that compounding is intended to reduce litigation and that a pending appeal can still be a proceeding in which compounding may be pursued. Because the appellate court had not correctly appreciated that legal position, its rejection of the compounding application was set aside and the matter was remitted for fresh consideration in accordance with law.

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Issues: Whether the petitioners were entitled to have their application for compounding of the offence under the Income-tax Act considered during the pendency of the appeal, and whether the appellate court's rejection of that application was liable to be set aside.

Analysis: The revision challenged the appellate order rejecting the compounding application. The Court noted that the application was sought during the pendency of the criminal appeal and that the applicable compounding framework under the direct tax compounding guidelines permitted consideration of such requests. Relying on the principles that compounding is intended to reduce litigation and that a pending appeal can constitute a proceeding in which compounding may be pursued, the Court found that the appellate court had not correctly appreciated the legal position.

Conclusion: The petitioners were entitled to seek compounding during the pendency of the appeal, and the impugned order rejecting the application was set aside. The matter was remitted to the appellate court for fresh consideration in accordance with law.

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