TaxTMI 
TaxTMI 
TaxTMI 
2018 (1) TMI 1115
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....w Delhi. Pursuant to the said operation, notices dated 19th March, 1997 were issued under Section 158BC of the Act. In response to the notices, the petitioner filed block assessment returns on 28th May, 1997 disclosing NIL undisclosed income. The Assessing Officer (for short, 'the AO') passed a block assessment order dated 28th November, 1997, under Section 158BA of the Act holding that the petitioner had earned undisclosed income of Rs. 30,15,158/- during the block assessment period. 3. The block assessment order was challenged in appeal before the Income Tax Appellate Tribunal (for short, 'ITAT') registered as IT(SS)375/DEL/97. No stay was granted. During the pendency of the appeal before the ITAT, prosecution proceedings were initiated against the petitioner under Sections 276C(1), 276C(2) and 277 of Act for wilful evasion of tax, wilful failure to pay tax, false verification etc., The complaint registered as case No.23 of 2004 was filed before the ACMM, Special Acts (Central Government), Delhi. After pre-charge evidence, charges were framed against the petitioner on 21st April, 2010 for wilful evasion of tax and interest payable under the Act, as also for failure to pay the ta....
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.... application, the Petitioner approached this Court vide W.P.(C) No. 6825/2016 in July 2016. On 3rd November, 2016 the Principal CCIT rejected the petitioner's compounding application on the ground of limitation. The writ petition was finally allowed on 11th April, 2017 with the Court holding that compounding charges cannot be collected prior to the compounding application being decided on merits. The question as to whether compounding charges can be levied at all, on the strength of the circular, was left open by this Court. 10. On 19th May 2017, the petitioner was informed that the application for compounding had been considered by the competent authority and it was decided that the offences could be compounded subject to the following conditions: "In connection, 1 have been directed to intimate you that Competent Authority to compound offences for compounding on 18-05-2017 deliberated upon the judgment pronounced by the Hon'ble Delhi High Court in this case and reviewed its earlier decision dated 01-112016 on the issue of compounding of offences u/s 279(2) of the Income Tax Act considering the observations made by the Hon'ble Court in Para 9 of the judgment in the case ....
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....es to submit that the compounding fee charged has no statutory basis and the exorbitant nature of the same renders it discriminatory and illegal, as also unconstitutional. 14. Following are authorities relied upon by the petitioner. * Hingir-Rampur Coal Co. Ltd v State of Orissa (1961) 2 SCR 537 (hereinafter 'Hingir-Rampur') * Secunderabad Hyderabad Hotel Owner's Association v Hyderabad Municapal Corporation, Hyderabad (1999) 2 SCC 274 (hereinafter 'Hyderabad Hotel Owner's Association') * Mahant Sri Jagannath Ramanuj Das v State of Orissa AIR 1954 SC 400 (hereinafter 'Mahant Sri Jagannath Ramanuj Das') * Corporation of Calcutta v Liberty Cinema (1965) 2 SCR 477 (hereinafter 'Liberty Cinema') * P. Ratnakar Rao v Govt of A.P. (1996) 5 SCC 359 (hereinafter P. Ratnakar Rao') * Paramjit Bhasin v UOI (2005) 12 SCC 642 (hereinafter 'Paramjit Bhasin') * Tata Teleservices Limited v Central Board of Direct Taxes & Anr (2016) 386 ITR 30 (hereinafter 'Tata Teleservices Limited') * CIT v. McDowell & Co. Ltd. (2009) 10 SCC 755 (hereinafter 'Mcdowell & Co. Ltd.') Respondent's submissions 15. Learned Senior Standing Counsel, appearing for the Revenue, submits that subsequent to th....
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.... loss caused to the State. 19. Usually, offences are also categorized depending on the gravity of the violation. Some offences are held to be non-compoundable, whereas, some are compoundable. Even for those offences which are compoundable, the amount to be charged as compounding fee depends upon the nature of the offence, the conduct of the party, loss suffered, gain of the accused, restitution and such other such factors. In some other jurisdictions, offences are not compoundable at all in any category of cases. In some other jurisdictions, specific laws have been enacted to permit compounding of only a few classes of offences. Judgment of Y.P. Chawla v. M.P. Tiwari (1992) 2 SCC 672 20. The issue of compounding of offences under the Act came before the Supreme Court in the case of Y.P. Chawla SC (supra). The matter arose out of a dispute where the assessee therein failed to deposit the penalty amount imposed under Section 221 of the Act. The assessee had paid the interest as per Section 201 (1A) of the Act. However, the TDS amount, which was to be deposited, had not been deposited. The ITO, thus, launched criminal prosecution. 21. The CBDT had issued a circular in respect of c....
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....irections of the Board : Provided that no such orders, instructions or directions shall be issued- (a) so as to require any Income-Tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or (b) so as to interfere with the discretion of the Deputy Commissioner (Appeals) or the Commissioner (Appeals) in the exercise of his appellate functions. "Section 279 (1)...... (2) The Commissioner may either before or after the institution of proceedings compound any such offence. (3).......... Explanation - For the removal of doubts, it is hereby declared that the power of the Board to issue orders, instructions or directions under this Act shall include and shall be deemed to have always included the power to issue instructions or directions (including instructions or directions to obtain the previous approval of the Board) to other income-tax authorities for the proper composition of offences under this section." Analysis and Findings 24. Compounding of offences cannot be taken as a matter of right. It is for the law and authorities to determine as to what kind of offences should be compounded, if at all, and under what conditions. ....
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....ges are in excess of Rs. 10,00,000/- (Rupees Ten Lacs) for a category 'B' offence, the compounding order shall be passed by the CCIT/DGIT only on the recommendations of the three-member committee consisting of the Principal CCIT, DGIT(Inv.) and the CCIT/DGIT, having jurisdiction over the case. 29. The procedure for compounding has been prescribed which includes filing of an application with all the requisite documents. The compounding fee so determined has to be paid within sixty days which can be extended up to 180 days. However, in the latter case, an additional compounding charge @ 2% per month would be liable to be paid for the delay caused. 30. The fee for compounding is separately stipulated for each of the offences. In respect of offences under Section 276C(2)- wilful attempt to evade the payment of any tax, the compounding fee payable is 3% per month or part thereof of the amount of tax etc, the payment of which was sought to be evaded, for the period of default in respect of offences under Section 276C of the Act. 31. In respect of a wilful attempt to evade the tax under Section 276C(1) of the Act, 100% of the amount of tax sought to be evaded shall be the compounding f....
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....clared to be either exorbitant or irrational or bereft of guidance" 34. Though, in the above judgment, the charging Section did provide for an upper limit of compounding fee that could be charged, the Supreme Court held that so long as the fee imposed did not exceed the fine prescribed in the Section, there would be no illegality. In Hingir-Rampur (supra), the question was whether the levy, which was imposed as per the Orissa Mining Areas Development Fund Act, 1952 and the Orissa Mining Areas Development Act Rules, 1955 ('1955 Rules', for short) made thereunder, was a tax or a fee. The same was being imposed by way of a notification under the 1955 Rules and it was argued that the imposition and collection of cess under Section 4 of the Orissa Mining Areas Development Fund Act, 1952 was illegal and contrary to law. The cess was to be allotted to a separate fund which was to be used for the development of State. It was leviable only against the class of persons owning mines to enable the government to render specific services. In view thereof, the Supreme Court held that the cess partakes the character of a fee as distinct from a tax. The Supreme Court in that case went into the qui....
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....d neither does the question of proportionality arise. 38. In Paramjit Bhasin (supra), the Court was considering notifications issued by various State Governments imposing compounding fee for carrying excess weight on trucks/lorries. The Court held that once the compounding fee was paid, the offence could not continue as the offence stood compounded. This judgement had relied upon P. Ratnakar Rao (supra) of the Supreme Court. 39. None of the authorities relied upon by the Petitioner support the stand that compounding fee has to be charged as quid pro quo. The written submissions of the petitioner tend to misinterpret these judgments. These authorities do not help the petitioner's case. 40. In the present case, the block assessment order was passed almost two decades ago, and relates to 1st April, 1986 to 1st November, 1996 i.e. the period began three decades ago. The block assessment order passed under Section 158BA shows that the petitioner was unable to explain the source of loan of One Million Indian Rupees given to a resident of Sri Lanka. As per the AO, the Petitioner did not give a satisfactory reply explaining this loan. The AO, after detailed assessment order determined t....
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....ly, the application was returned as the petitioner had not paid the tax due. When the petitioner filed the compounding application for the second time on 22nd January 2015, only the principal amount of Rs. 8,19,419/- was paid and not the interest. Thus, this application was rejected on 12th February, 2015 since it was not in the prescribed format and a fresh application had to be filed for the third time. This third application dated 23rd February, 2015 was also rejected on 1st April, 2015 due to non-payment of interest and a fourth application dated 20th November, 2015 had to be filed as the interest amount had not been deposited. Despite making payment of interest amount of Rs. 19,33,295/-, there was a balance interest amount of Rs. 90,136/- for the period from 1st December, 2014 to 31st October, 2015 which was to be deposited by the petitioner, and was finally paid on 6th January, 2016 and a fresh application for compounding was made on 7th January, 2016. Vide letter dated 18th January, 2016, the Petitioner was informed that the application for compounding had to be made to Pr. CIT, and an application in this regard was made on 22nd January, 2016. However, this application was a....
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....f events in this case leads to a completely different conclusion. Firstly, the petitioner, as per the AO could not properly explain the undisclosed income. The AO's order could have rightly been challenged by the petitioner, which in fact the petitioner appears to have done. However, this appeal, filed before the ITAT as early as in 1997, does not appear to have been seriously pursued by the petitioner even till 2007 i.e. 10 years later. The revised grounds of the appeal were filed in 2007 and until 2014, no decision in the appeal came about. Despite there being no interim protection in favour of the petitioner, he did not deposit the tax. The petitioner waited until the criminal court passed the order of framing of charge on 25th January, 2010 and subsequent framing of charges, to make the first deposit of Rs. 8,19,419/-, at the time when the second application for compounding was filed by him on 22nd January, 2015. Even this compounding application was not as per the prescribed guidelines and format, prescribed at that time. Interest as due for 20 years was not paid. It required a full one year of correspondence before the petitioner deposited the interest amounts. Thus, it was a....
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....uch higher than the principal and the interest, it does not per se render the compounding charges illegal or arbitrary. 49. The petitioner ought to have exercised due diligence and deposited the tax and the interest at the inception without prejudice to his rights and contentions in the appeal. The non-payment of tax amounts, which are determined to be offences under the Act and delay by the petitioner in depositing the same is non-condonable in any manner whatsoever. Moreover, the petitioner has, by seeking compounding, consciously and voluntarily opted for: (a) Compounding of the criminal offence; (b)Undertaking to withdraw the appeal; (c) Undertaking to pay the compounding charges determined; 50. Having filed the compounding application the petitioner cannot attempt to wriggle out of his obligations to pay the compounding charges by alleging that the same are exorbitant. The amount of compounding charges is not to be merely compared with the principal and the interest charged but has to be adjudged from the point of view of the long duration during which there was wilful non-payment of taxes. The conduct of the petitioner brooks no sympathy. The respondent authorities, it a....
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....ffences. The categorization or the classification in the guidelines do not appear to be arbitrary or irrational. A perusal of the 2008 Guidelines which were in operation, when the petitioner first made the application for compounding of offences reveals that under the said Guidelines, the charges leviable for an offence under Section 276C(1) were 50% of amount of tax sought to be evaded and for an offence under Section 276C(2) it was 5% per month of the tax, the payment of which was sought to be evaded, for the period of default. Thus, under the older guidelines, the compounding charges leviable against the petitioner may have been much higher. 55. Thus, the Guidelines of 2014, under which the last application for compounding was made, and was accepted to be in the prescribed format, has enured to the benefit of the petitioner and the application has rightly been processed under these Guidelines. The petitioner has not raised a challenge either to the 2008 Guidelines or 2003 Guidelines. It is only after the charges were framed in the criminal proceedings and after filing the applications for compounding and after compounding charges have been determined as per the formula prescrib....