2023 (7) TMI 1094 - HC - Income Tax

Income-tax prosecution compounding u/s279(2): delay and repeat applications allowed; authority must rehear and decide in eight weeks

The dominant issue was whether a compounding application under s.279(2) of the Income-tax Act could be rejected solely for delay in filing, and whether a ... Compounding of offences - compounding application rejected due to delay in filing the application - HELD THAT:- Division Bench of this Court in Durgeshwari Hi-Rise & Farms (P) Ltd. Vs. Chief Commissioner of Income Tax (TDS) [2018 (10) TMI 1605 - BOMBAY HIGH COURT] was considering a matter where the assessee had filed more than one compounding application. Though court has observed that the order was being passed in peculiar facts of that case, we find that the court has observed that just because the first application was rejected for default, does not mean the second application should be rejected. Therefore, we make it clear to respondent no. 3 that the compounding application cannot be rejected on the ground of delay in filing the application. Moreover, there is no restriction also on the number of applications that could be filed. The only requirement under sub-section (2) of Section 279 of the Act is that the complaint filed should be still pending which Mr. Suresh Kumar concurs with Mr. Walve, is still pending. Therefore, we dispose the petition with a direction to respondent no. 3 to consider and dispose petitioner’s application dated 8th October 2015 within 8 weeks from today. Before passing any order which shall be a reasoned order dealing with every submission of petitioners, a notice of personal hearing shall be given which shall be communicated at least five working days in advance. Issues Involved:1. Non-deposit of TDS amount within the stipulated time.2. Issuance of show cause notice and subsequent compounding application.3. Rejection of the first compounding application due to non-payment of compounding fees.4. Initiation of prosecution and filing of a complaint.5. Filing and non-consideration of the second compounding application.6. Affidavit in reply and the issue of limitation for compounding applications.7. Legal interpretation of Section 279(2) of the Income Tax Act and compounding guidelines.Summary:Non-deposit of TDS amount within the stipulated time:Petitioner no. 1, a Limited Liability Partnership firm, did not deposit the TDS amount deducted for the assessment year 2009-2010 within the prescribed time. The amount was later deposited on 23rd March 2010 before receiving a show cause notice.Issuance of show cause notice and subsequent compounding application:A show cause notice dated 30th November 2011 was issued to the petitioners for prosecution under Section 276B read with Section 278B of the Income Tax Act, 1961. The petitioners filed a compounding application on 5th March 2012.Rejection of the first compounding application due to non-payment of compounding fees:The Chief Commissioner of Income Tax rejected the first compounding application because the petitioners failed to deposit the compounding fees of Rs. 7,39,984/- by the stipulated date despite extensions.Initiation of prosecution and filing of a complaint:On 26th August 2013, a sanction order for prosecution was passed, and a complaint was filed before the Metropolitan Magistrate on 28th August 2013.Filing and non-consideration of the second compounding application:The petitioners paid the compounding fees on 14th July 2014 and filed a second compounding application on 8th October 2015. This application was not considered, as indicated by letters dated 17th September 2018 and 13th April 2023, which erroneously referenced a non-existent application dated 4th August 2015 and a rejection order dated 17th July 2013.Affidavit in reply and the issue of limitation for compounding applications:An affidavit stated that the second compounding application was barred by limitation as per the guidelines dated 23rd December 2014, which provide a 12-month period for compounding applications post-complaint filing. However, the court noted that the Income Tax Officer has no authority to declare the application null and void, and that the application dated 8th October 2015 had not been disposed of.Legal interpretation of Section 279(2) of the Income Tax Act and compounding guidelines:The court emphasized that Section 279(2) allows for the compounding of offences either before or after the institution of proceedings without any limitation period. The guidelines issued by CBDT cannot override or restrict this statutory provision. The court cited several judgments supporting this interpretation, including those from the Allahabad High Court and Delhi High Court, which clarified that guidelines cannot impose a limitation period not provided by the Act.Conclusion:The court directed respondent no. 3 to consider and dispose of the second compounding application dated 8th October 2015 within 8 weeks, ensuring a reasoned order after a personal hearing. The proceedings before the Additional Chief Metropolitan Magistrate shall remain stayed until the application is disposed of. The petition was disposed of with these directions.