2024 (1) TMI 1137 - HC - Income Tax

Order Quashed: Reconsider Compounding Application on Merits Without Time Limit, Says Court.

The HC quashed the impugned order rejecting the petitioner's compounding application for being untimely, directing the first respondent to reconsider the ... Compounding of offences - Section 279(2) of the Income Tax Act - limitation for compounding - CBDT guidelines on compounding - exclusion of time due to COVID-19 - judicial review of administrative guidelines - remand for fresh considerationCompounding of offences - Section 279(2) of the Income Tax Act - CBDT guidelines on compounding - judicial review of administrative guidelines - Validity of rejecting the compounding application solely on the ground that it was filed beyond the time-limit specified in the CBDT guidelines. - HELD THAT: - The Court noted that sub-section (2) of Section 279 does not prescribe any limitation period for compounding and that the CBDT guidelines of 14.06.2019, which attempted to impose such time-limits, have been quashed by this Court. Having regard to the absence of a statutory time-limit in Section 279(2) and the quashing of the administrative guidelines, the conclusion in the impugned order that the compounding application was liable to be rejected on the ground of delay under the quashed guidelines was unsustainable. The impugned order was therefore quashed and the compounding application was ordered to be considered on merits. [Paras 6, 7]Impugned order rejecting the compounding application on the basis of the CBDT time-limit is quashed; the application must be considered on merits.Limitation for compounding - exclusion of time due to COVID-19 - Whether the compounding application filed on 19.05.2022 fell within the applicable period if the COVID-19 exclusion adopted by the Supreme Court is applied. - HELD THAT: - The Court observed that the complaint was lodged on 03.01.2019 and that approximately fifteen months elapsed before the onset of the COVID-19 pandemic. The orders of the Supreme Court excluding the period from 15.03.2020 to 28.02.2022 from computation of limitation were taken into account. If that exclusion is applied, the compounding application dated 19.05.2022 would fall within the relevant period measured against the CBDT guideline timetable; in any event, the absence of a statutory limitation and the prior quashing of the guidelines supports consideration of the application notwithstanding the chronological gap. [Paras 2, 6]Applying the COVID-19 exclusion period, the compounding application falls within the relevant computed period; the application is to be considered.Remand for fresh consideration - compounding of offences - Relief and procedural direction as to disposal of the compounding application. - HELD THAT: - In view of the foregoing conclusions, the Court directed that the petitioner's compounding application, which was earlier rejected, be reconsidered and disposed of on merits. The first respondent was directed to dispose of the application within a maximum period of one month from receipt of a copy of the order, after affording the petitioner a reasonable opportunity. [Paras 7]Compounding application remitted for fresh consideration and disposal on merits within one month after opportunity to be afforded to the petitioner.Final Conclusion: The order rejecting the compounding application on the basis of the CBDT time-limit is quashed; the compounding application shall be considered and disposed of on merits by the first respondent within one month after providing the petitioner a reasonable opportunity. Issues involved:The rejection of the compounding application by the first respondent, based on the time limit specified in guidelines issued by the Central Board of Direct Taxes, and the challenge to this decision by the petitioner.Summary:The petitioner, a subsidiary of a company in Singapore, faced prosecution for belated filing of returns due to a difference of opinion between auditors in India and Singapore. The compounding application was rejected for being filed beyond the time limit specified in guidelines. The petitioner argued that the application was filed within a reasonable timeframe considering the exclusion of time due to the Covid-19 pandemic and the quashing of the guidelines by the Court.The petitioner contended that the exclusion of time due to the Covid-19 pandemic should be considered, making the compounding application timely. Additionally, the petitioner argued that since the guidelines were quashed by the Court, the application could be filed at any time during the proceedings before the Magistrate.The respondent, however, mentioned that a review application against the quashing of the guidelines was dismissed, and they intend to file an appeal. The legal provision regarding the compounding of offences under Section 279 of the Income Tax Act, 1961, does not prescribe a specific period of limitation.The Court held that the conclusions in the impugned order were unsustainable, and thus quashed the order. The first respondent was directed to consider and dispose of the compounding application on its merits within one month. The case was disposed of accordingly, with no costs imposed.