CBDT cannot impose time limits for compounding IT Act offences through circular, Section 279(2) allows applications anytime

Madras HC held that CBDT cannot fix time limits for compounding IT Act offences through circular dated 14.06.2019. The court ruled that Section 279(2) of IT Act permits compounding applications before or after prosecution institution without time restrictions. The respondent's rejection of petitioner's compounding application solely on 12-month limitation grounds was set aside. HC found CBDT's circular contrary to statutory provisions, as the explanation empowers CBDT only for implementation, not imposing time limits for compounding applications.

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Issues involved:
The judgment involves challenges to an impugned order dated 20.08.2022 and a circular dated 14.06.2019 issued by the respondents regarding the compounding of offences under the Income Tax Act, 1961.

Challenge to impugned order dated 20.08.2022:
The petitioner had sold a property in 2013 and reinvested the capital gain in another property, believing she was not liable to pay income tax. However, she was prosecuted for delayed filing of income tax returns. The petitioner's application for compounding of offences was rejected due to being filed beyond the prescribed time limit of 12 months from the date of prosecution, as per a circular issued by the CBDT. The petitioner argued that the time limit set by the circular was contrary to the provisions of Section 279(2) of the IT Act. The court considered relevant case laws and held that the CBDT cannot fix a time limit for filing the application for compounding of offences, as it goes against the Act's provisions. The order rejecting the application was set aside, and the matter was remitted back to the authorities for reconsideration on merits.

Challenge to circular dated 14.06.2019:
The petitioner challenged Clause 7(ii) of the circular, which stated that no compounding application can be filed after 12 months from the end of the month in which a prosecution complaint was filed. The court held that this clause was beyond the scope of the Act and struck it down. The rest of the circular remained valid. The writ petitions were disposed of accordingly, with no costs imposed.

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