Tax Authority Directed to Reconsider Compounding Application; Circulars Can't Contradict Law, Says Court.

The HC set aside the rejection of the petitioner's compounding application, holding that Section 279(2) of the Income Tax Act does not prescribe a time limit for such applications. The court ruled that circulars cannot contradict statutory provisions and directed the respondent to reconsider the application within eight weeks, emphasizing the non-habitual nature of the petitioner's offenses. The writ petition was allowed, and the matter was remanded for further consideration without a fixed compliance date.

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Issues:
Challenge to rejection of compounding application based on delay beyond limitation period.

Analysis:
The petitioner challenged the rejection of their compounding application, arguing that there is no time limit for filing such applications under Section 279(2) of the Income Tax Act. The petitioner relied on a previous judgment of the court to support their argument. The respondent, however, acknowledged the court's previous ruling striking down a clause in the circular but stated that a new time limit of 24 months had been set. The court considered both arguments and noted that Section 279(2) does not prescribe a time limit for filing compounding applications. The court emphasized that circulars cannot contradict the Act's provisions and that fixing a time limit for filing compounding applications goes against the law.

The respondent contended that the petitioner was a repeated offender, citing guidelines that label someone as a habitual offender after three offenses. However, the court found that the petitioner's offenses did not qualify them as a habitual offender since only two offenses were committed, with one already compounded. The court emphasized that the nature of an offense's compoundability cannot be altered by imposing a time limit for filing compounding applications. The court applied its previous judgment to the case and set aside the impugned order, directing the respondent to reconsider the compounding application within eight weeks.

In conclusion, the court allowed the writ petition, remanding the matter back to the respondent for further consideration within the specified time frame. The court declined to fix a compliance date, leaving it to the respondent to act as per the court's directions.

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