2025 (2) TMI 335 - SC - Income Tax

Section 276CC offence occurs day after due date for filing returns, not actual filing date

VINUBHAI MOHANLAL DOBARIA Versus CHIEF COMMISSIONER OF INCOME TAX

The SC held that an offence under Section 276CC is committed on the day immediately following the due date for filing income tax returns, not on the ... Compounding of the offence u/s 276CC - belated filing of the return of income for AY 2013-14 within the due date as contemplated u/s 139(1) - Meaning of the expression “first offence” appearing in Clause 8 of the 2014 guidelines - voluntary disclosure for the purpose of Clause 8 of the 2014 guidelines Whether an offence u/s 276CC could be said to have been committed on the actual date of filing of return of income or on the day immediately after the due date for filing of returns as per Section 139(1) of the Act? - HELD THAT:- Appellant is right in his contention that the point in time when the offence u/s 276CC could be said to be committed is the day immediately following the due date prescribed for filing of return of income u/s 139(1) of the Act, and the actual date of filing of the return of income at a belated stage would not affect in any manner the determination of the date on which the offence u/s 276CC of the Act was committed. The due-date for filing the return of income for the AY 2011-12 was 30.09.2011. The appellant filed his return with delay on 04.03.2013. Hence, as the return was filed beyond the due date for filing the return, an offence under Section 276CC could be said to have been committed by the appellant prima facie. Similarly, the due date for filing the return of income for the AY 2013- 14 was 31.10.2013, whereas the appellant filed the return for the said year on 29.11.2014. Hence, the appellant once again breached the requirement of Section 276CC and thus committed an offence as defined under the said provision. Even otherwise, it has not been disputed by the appellant that an offence under Section 276CC was committed by him for AYs 2011-12 and 2013-14 respectively, and he had preferred compounding applications for both the assessment years. While his compounding application for the AY 2011-12 came to be allowed, his compounding application for the AY 2013-14 was rejected by Respondent no. 1 and the rejection was upheld by the High Court vide the impugned order. In view of the dictum laid in Prakash Nath Khanna [2004 (2) TMI 3 - SUPREME COURT] the date for commission of both of these offences would be the day falling immediately next to the due date for filing of return, that is 01.10.2011 for AY 2011-12 and 01.11.2013 for the AY 2013-14. Whether the offence u/s 276CC for the AY 2013-14 could be said to have been committed before the show cause notice for initiation of prosecution for the AY 2011-12 was issued by the Department? - As the show cause notice for the AY 2011-12 was issued to the appellant on 27.10.2014. However, the offence under Section 276CC of the Act could be said to have been committed on the dates immediately following the due date for furnishing the return of income for both these assessment years respectively. Thus, the offence for the AY 2011-12 could be said to have been committed on 01.10.2011 and the offence for the AY 2013-14 could be said to have been committed on 01.11.2013. Therefore, it can be said without a cavil of doubt that both the offences under Section 276CC of the Act were committed prior to the date of issue of any show cause notice for prosecution. We find it difficult to agree with the contention advanced by the respondents that even if the appellant is not covered by the first part of the definition of the expression “first offence”, he will still be covered by the latter half which is reproduced in the preceding paragraph. A plain reading of the 2014 guidelines reveals that while it is mandatory that the eligibility conditions prescribed under Paragraph 7 are to be satisfied, the restrictions laid down in Paragraph 8 have to be read along with Paragraph 4 of the Act which provides that the exercise of discretion by the competent authority is to be guided by the facts and circumstances of each case, the conduct of the appellant and nature and magnitude of offence. Seen thus, it becomes clear that the restrictions laid down in Paragraph 8 of the guidelines are although required to be generally followed, the guidelines do not exclude the possibility that in a peculiar case where the facts and circumstances so require, the competent authority cannot make an exception and allow the compounding application. We have also had the benefit of looking at the Guidelines for Compounding of Offences under Direct Tax Laws, 2019 and the Guidelines for Compounding of Offences under Direct Tax Laws, 2022 issued by the CBDT. In both the said Guidelines, the offence under Section 276CC has been made a Category A offence instead of a Category B offence and is compoundable up to three occasions. Although this would not have any direct implication on the case at hand since the same is governed by the 2014 guidelines, yet what this indicates is that there is a clear shift in the policy of the Department when it comes to the compounding of offences under Section 276CC in particular and in making the compounding regime more flexible and liberal in particular. Order:- We have reached the conclusion that the High Court fell in error in rejecting the writ petition filed by the appellant against the order passed by the Chief Commissioner of Income Tax, Vadodara rejecting the application for compounding. The offence as alleged to have been committed by the appellant under Section 276CC of the Act for the AY 2013-14 is, without a doubt, covered by the expression “first offence” as defined under the 2014 guidelines and thus the compounding application preferred by the appellant could not have been rejected by Respondent no. 1 on this ground alone. The impugned order passed by the High Court as well as the order passed by the Chief Commissioner of Income Tax, Vadodara rejecting the compounding application of the appellant are hereby set aside. Appellant shall prefer a fresh application for compounding before the competent authority within two weeks from the date of this judgment. 1. ISSUES PRESENTED and CONSIDEREDa. Whether an offence under Section 276CC of the Income Tax Act, 1961 could be said to have been committed on the actual date of filing of return of income or on the day immediately after the due date for filing of returns as per Section 139(1) of the ActRs.b. What is the meaning of the expression 'first offence' appearing in Clause 8 of the 2014 guidelinesRs.c. What amounts to voluntary disclosure for the purpose of Clause 8 of the 2014 guidelinesRs.d. Whether the 2014 guidelines are mandatory or directory in natureRs.2. ISSUE-WISE DETAILED ANALYSISi. Section 276CC of the Income Tax Act, 1961The Court examined the scope of Section 276CC, which penalizes the failure to furnish income tax returns in due time. The Court referred to the precedent set in Prakash Nath Khanna v. CIT, which clarified that the offence is committed immediately after the due date for filing returns as per Section 139(1), not the actual date of filing a belated return. Therefore, the offence for AY 2013-14 was committed on 01.11.2013, the day after the due date.ii. Provisions pertaining to compounding of offencesSection 279(2) of the Act allows the Principal Chief Commissioner or Chief Commissioner to compound offences either before or after proceedings are initiated. The Court noted that this power is discretionary and not a matter of right for the assessee, as previously held in Union of India v. Banwari Lal Agarwal. The Court also emphasized that the exercise of this discretion must adhere to instructions issued by the Central Board of Direct Taxes (CBDT), as clarified in Y.P. Chawla v. M.P. Tiwari.iii. Guidelines for Compounding of Offences under Direct Tax Laws, 2014The 2014 guidelines categorize offences under two categories: A and B, with Section 276CC falling under Category B. The guidelines specify that Category B offences are generally not compounded except when it is the first offence. The definition of 'first offence' includes offences committed before a show cause notice is issued or voluntarily disclosed before detection by the Department.The Court found that both offences for AY 2011-12 and AY 2013-14 were committed before the issuance of any show cause notice, thus qualifying as 'first offences.' The Court rejected the respondents' argument that filing a belated return constitutes voluntary disclosure, clarifying that voluntary disclosure should occur before the Department detects the offence.The Court also discussed the discretionary nature of the guidelines, emphasizing that while eligibility conditions must be met, the competent authority should consider the specific facts and circumstances of each case. The Court referred to the Delhi High Court's decision in Sports Infratech P. Ltd. & Anr. v. Deputy Commissioner of Income-tax, which highlighted the need for authorities to consider objective facts rather than rigidly applying guidelines.3. SIGNIFICANT HOLDINGSThe Court held that the offence under Section 276CC for AY 2013-14 was committed on 01.11.2013, immediately after the due date, and before any show cause notice was issued, thus qualifying as a 'first offence' under the 2014 guidelines. The Court emphasized that the guidelines are directory, not mandatory, and authorities must consider the facts and circumstances of each case when deciding on compounding applications.The Court set aside the High Court's judgment and the order of the Chief Commissioner of Income Tax, Vadodara, rejecting the appellant's compounding application. The Court directed the appellant to file a fresh compounding application, which the competent authority must adjudicate considering the appellant's conduct and the nature of the offence.