Madras HC allows refiling of TDS compounding applications under Section 279(2) despite timeline delays

The Madras HC quashed the order rejecting compounding applications filed by the petitioner and its directors for TDS-related offences under Section 276B of the IT Act, 1961. The court held that while the applications were filed beyond the 12-month timeline prescribed in the CBDT circular dated 16.09.2022, such limitations are directory, not mandatory, and cannot override Section 279(2) of the IT Act which permits compounding before conviction. The court found the applications lacked necessary details and granted the petitioner 30 days to file amended applications with proper explanations. The matter was remitted to the first respondent for fresh consideration within six months.

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Issues Involved:
1. Rejection of applications for compounding the offence under Section 279(2) of the Income Tax Act, 1961.
2. Delay in filing the application for compounding the offence.
3. Prosecution of the petitioner and its Directors for failure to pay TDS.
4. Validity of the guidelines issued by the Central Board of Direct Taxes (CBDT) under Section 119 of the IT Act, 1961.
5. Opportunity to file amended applications for compounding the offence.

Summary:

Issue 1: Rejection of applications for compounding the offence under Section 279(2) of the Income Tax Act, 1961.
The petitioner is aggrieved by the impugned Common Order dated 19.01.2023, which rejected the applications filed by the petitioner and its Directors to compound the offence committed for failure to pay TDS for the Assessment Years 2013-2014 and 2014-2015. The applications were rejected under Section 279(2) of the IT Act, 1961 due to a delay of 4 years 6 months and 2 days from the date of filing of the complaint in the Court.

Issue 2: Delay in filing the application for compounding the offence.
The petitioner filed the application for compounding the offence beyond the time prescribed in the CBDT Circular dated 16.09.2022. According to Para 7(ii) of the Circular, the application should be filed within 12 months from the end of the month in which the prosecution complaint was filed in the court. The petitioner filed the application after a delay of 4 years 6 months and 2 days, which led to the rejection of the compounding petition.

Issue 3: Prosecution of the petitioner and its Directors for failure to pay TDS.
The petitioner and its Directors were prosecuted before the Additional Chief Metropolitan Magistrate, Economic Offences-I, Egmore, Chennai, for failure to pay TDS amounting to Rs. 24,87,814/- and Rs. 10,64,768/- for the Assessment Years 2013-2014 and 2014-2015. Notices were issued to the petitioner, and the third respondent issued Show Cause Notices for the offence punishable under Section 276B read with Section 278B of the IT Act, 1961.

Issue 4: Validity of the guidelines issued by the Central Board of Direct Taxes (CBDT) under Section 119 of the IT Act, 1961.
The petitioner argued that the guidelines issued by the CBDT under Section 119 of the IT Act, 1961, cannot override Section 279(2) of the IT Act, 1961. The Court observed that there is no limitation prescribed for compounding of offences under Section 279(2) of the IT Act, 1961, and the limitation in the Circular is not mandatory but directory.

Issue 5: Opportunity to file amended applications for compounding the offence.
The Court noted that the applications filed by the petitioner were bereft of details required for compounding the offence. The Court allowed the petitioner an opportunity to file amended applications for compounding the offence, explaining the reasons for compounding under Section 279(2) of the IT Act, 1961. The impugned Common Order was quashed, and the cases were remitted back to the first respondent to pass a fresh order on merits within six months.

Conclusion:
The Writ Petitions were allowed by way of remand, giving the petitioner a fresh chance to file amended applications for compounding the offence within thirty days. The first respondent was directed to pass a fresh order on merits within six months. No costs were awarded, and the connected Writ Miscellaneous Petitions were closed.

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