2025 (3) TMI 357 - HC - Income Tax

Compounding of offences: guideline time limits do not oust authority discretion; remitted for reconsideration under Supreme Court guidance.

Rejection of a compounding application solely because it was filed after 36 months was found impermissible: the CBDT 2014 guideline referencing a ... Rejection of petitioner's application for compounding the offence - Chief Commissioner has dismissed this application on the sole ground that it was filed beyond 36 months from the date of filing of the complaint against the petitioners - HELD THAT:- CBDT guidelines of 2014 [which had referred to the period of limitation] does not exclude the possibility that in the peculiar case where the facts and circumstances so required, the competent authority should consider the explanation and allow the compounding application. This means that notwithstanding the so-called limitation period, in a given case, the competent authority can exercise discretion and allow compounding application. The competent authority has treated the guidelines as a binding statute in the present case. On the sole ground that the application was made beyond 36 months, the same has been rejected. The competent authority has exercised no discretion as such. The rejection is entirely premised on the notion that the competent authority had no jurisdiction to entertain a compounding application because it was made beyond 36 months. Such an approach is inconsistent with the rulings of this Court, Madras High Court and ruling in the case of Vinubhai Dobaria [2025 (2) TMI 335 - SUPREME COURT] relied upon by revenue. we set aside the impugned order and direct the Chief Commissioner to reconsider the petitioner's application for compounding in the light of observations made by the Hon'ble Supreme Court in Vinubhai Dobaria (Supra). This means that the Chief Commissioner will have to consider all facts and circumstances and decide whether such facts make out the case for exercising discretion in favour of compounding the offence. The High Court considered a case where the petitioner challenged the Chief Commissioner's order dismissing their application for compounding an offense under the Income-tax Act, 1961, on the grounds of delay in filing the application. The Chief Commissioner relied on CBDT guidelines that imposed a time limit for filing such applications. The Court analyzed the legality of imposing a time limit through guidelines and considered precedents to determine the proper application of law in such cases.The main issue before the Court was whether the Chief Commissioner's rejection of the compounding application solely based on the delay in filing beyond 36 months was justified under the CBDT guidelines. The Court examined the relevant legal framework, including the CBDT guidelines, and previous judgments to interpret the law and reach a decision.The Court referred to the CBDT guidelines dated 16 September 2022, which allowed for relaxation of time limits for compounding offenses in deserving cases. However, the Court noted that the Income-tax Act itself did not prescribe a period of limitation for applying for compounding, and therefore, such a period could not be introduced through guidelines. The Court held that the compounding application should not have been rejected based on delay alone, as observed in a previous judgment of the Co-ordinate bench.The Court also considered the argument presented by the revenue's counsel, who emphasized the need for filing the application within a reasonable period, even in the absence of a specific limitation period in the State. The counsel referred to a Supreme Court decision upholding the CBDT guidelines of 2014, including the paragraph prescribing a limitation period for filing compounding applications.In response to the revenue's argument, the Court highlighted a specific paragraph from the Supreme Court decision, which emphasized that the guidelines should be read in conjunction with the discretion of the competent authority to consider the facts and circumstances of each case. The Court noted that the guidelines did not exclude the possibility of the competent authority making exceptions in peculiar cases where warranted.Ultimately, the Court found that the competent authority had treated the guidelines as binding and rejected the application solely based on the delay in filing beyond 36 months, without exercising discretion. The Court held that this approach was inconsistent with previous rulings and directed the Chief Commissioner to reconsider the application in light of the Supreme Court's observations. The Court emphasized that the Chief Commissioner should consider all facts and circumstances to determine if the case warranted compounding the offense, leaving all contentions on merits open for further consideration.In conclusion, the Court set aside the Chief Commissioner's order and directed a reconsideration of the compounding application, emphasizing the need for a comprehensive assessment of the case based on the facts and circumstances presented.