Compounding application under section 279(2) Income Tax Act rejected due to wilful default and poor conduct history

The HC upheld the rejection of the appellant's compounding application under section 279(2) of the Income Tax Act. The court found that rejection was not solely based on prior conviction but multiple factors including the appellant's poor conduct from 1997, tax evasion mentality, non-cooperation during assessment proceedings, and filing the application belatedly after almost 20 years. The court held the default was wilful and that Circular No.25 of 2019 did not extend compounding benefits to convicted persons. Payment of tax, penalty and interest did not entitle the appellant to compounding of the offence.

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Issues Involved:
1. Validity of the rejection of the compounding application by the appellant.
2. Applicability of Circular No. 25 of 2019 and related guidelines.
3. Conduct of the appellant and its impact on the compounding application.
4. Timeliness of the compounding application.
5. Prior conviction and its effect on the compounding application.

Detailed Analysis:

1. Validity of the Rejection of the Compounding Application:
The court upheld the rejection of the appellant's compounding application due to multiple reasons. The Regional Committee for Compounding of Offences (RCC) found the appellant's application non-compliant with the eligibility criteria as per para 7(ii) of the compounding guidelines dated 14.06.2019, which stipulates that no application can be filed after 12 months from the end of the month in which the complaint is filed. The RCC also noted the appellant's lack of cooperation during the assessment proceedings, which resulted in an ex-parte assessment under Section 144 of the Income-tax Act.

2. Applicability of Circular No. 25 of 2019 and Related Guidelines:
The appellant argued that Circular No. 25 of 2019 intended to extend the benefit of compounding to all persons who applied on or before 31.12.2019. However, the court found this claim incorrect, citing Para 4.1(ii) of the Circular, which states that such relaxation is not available for offences generally or normally not compoundable, as per para 8.1 of the guidelines dated 14.06.2019. The court emphasized that the Circular and Guidelines prohibit compounding for individuals already convicted by a court under Direct Tax Laws.

3. Conduct of the Appellant:
The court noted that the appellant's conduct was not cooperative. The appellant did not file the return of income voluntarily and was uncooperative during the assessment proceedings, leading to an ex-parte assessment. The RCC's order highlighted that the appellant's deliberate attempt to conceal income and evade tax was clearly established, and there were no compelling circumstances beyond the appellant's control to consider the compounding petition sympathetically.

4. Timeliness of the Compounding Application:
The appellant's compounding application was filed on 20.11.2019, 12 years after the filing of the prosecution complaint, violating the eligibility criteria of the compounding guidelines. The court noted that the appellant had ample time to file the compounding application during the assessment proceedings and even after the penalty order was passed on 04.02.2002 and confirmed by the CIT(A) on 10.12.2002. The delay of almost 20 years was seen as a deliberate attempt to evade taxes.

5. Prior Conviction and its Effect on the Compounding Application:
The court held that the appellant's prior conviction under Direct Tax Laws was a significant factor in rejecting the compounding application. The Guidelines and Circular explicitly state that relaxation for compounding is not available for individuals already convicted by a court. The court emphasized that the rejection was not solely based on the prior conviction but also on the appellant's conduct and the nature and magnitude of the offence.

Conclusion:
The court dismissed the writ appeal, affirming the rejection of the compounding application by the authorities. The court found that the appellant's application was non-compliant with the guidelines, untimely, and that the appellant's conduct did not merit sympathetic consideration for compounding. The prior conviction and deliberate tax evasion by the appellant further justified the rejection of the compounding application.

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