TaxTMI 
TaxTMI 
2008 (4) TMI 307
X X X X Extracts X X X X
X X X X Extracts X X X X
....Delhi-III, to pass final orders for compounding the offence, subject to the petitioners depositing the composition fee of Rs. 3,98,830 in terms of the respondent's own order dated February 13, 2007. 2. The brief facts leading to dispute are that the petitioner-company (which is a registered private limited company and which since 1984 has stopped functioning) filed its income-tax return on August 16, 1984, claiming a loss of Rs. 69,402. The said return was verified by petitioner No. 2 in his capacity as its director. The return was accompanied by the profit and loss account and balance-sheet as on June 30, 1982. In the profit and loss account, the accused-company declared a gross income of Rs. 4,01,775 and claimed expenses under various heads totalling Rs. 4,71,177. 3. Upon scrutiny, it was alleged by the Income-tax Officer that petitioner No. 1 had misdeclared a sum of Rs. 11,00,000 received as sub-commission for sales as advances against certain contracts amounting to Rs.7,33,334. The Income-tax Officer summoned the petitioners and directed them to produce books of account, receipts and other documents. The books of account were produced and examined by the Income-tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Department responded, vide orders dated June 11, 2004, and July 7, 2004, by directing the petitioners to liquidate pending demand as a "prerequisite" condition for compounding of offences under the Income-tax Act, 1961 (for short as "the Act"). 11. On November 18, 2004, the petitioners submitted a detailed application to the Chief Commissioner of Income-tax (for short as "the CCIT") and again requested to consider the application for compounding filed by them. 12. Initially, the Department computed and determined the total liability of the petitioners at Rs. 78,91,495 towards tax demands, interest and penalty. Since the computation done by the Department was wrong and incorrect and not based on records (which they admittedly did not have), the petitioners helped the Department reconstruct the entire file and accordingly asked them to correctly compute the arrears of tax, interest, penalty, etc. 13. Vide O. M. No. 285/26/2002-IT (Inv.)/132, dated November 30, 2004/ December 1, 2004, the Additional Director of Income-tax (Pros) communicated the order of the Central Board of Direct Taxes to the Chief Commissioner of Income-tax-III, Delhi, wherein the Board directed the Chi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pounding, hence the Chief Commissioner of Income-tax is rejecting the application of the petitioners for compounding. 20. Aggrieved thereby, the petitioners have filed the present petition under article 226 of the Constitution of India read with section 151, Code of Civil Procedure, for issuance of appropriate writs/orders/directions in the nature of certiorari quashing the impugned order dated November 2, 2007 and for mandamus directing the Income-tax Department to pass final orders for compounding the offences, subject to the petitioners depositing the com-position fee of Rs.3,98,830 in terms of the respondent's own order dated February 13, 2007. 21. Thus, the question arises for determination in the present petition is, "Whether the Central Board of Direct Taxes can issue instructions to control the discretion of the Commissioner of Income-tax under section 279(2) of the Act to compound the offences ?" 22. It has been contended by the petitioner that the power to compound an offence is specifically vested in the Chief Commissioner of Income-tax under section 279(2) of the Act, who alone has the discretion to accept or reject. The Board is only invested with the autho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng that such power was so included and thereby setting at rest the doubts, if any. The Explanation is thus in the nature of a proviso to section 279(2) as held in Y. P. Chawla v. M. P. Tiwari [1992] 195 ITR 607 (SC) and has also to be read as clarificatory and declaratory of the scope of the power of the Board emanating from section 119 of the Act." 27. As held in M. P. Purusothaman v. Asst. Director of Income-tax (Prosecution) [2001] 252 ITR 603 (Mad) (page 605) : "The prosecution once launched is to continue before the court in which the prosecution is initiated and in which the accused would have all the protection available to him under the ordinary law of the land. The provision permitting the compounding of the offence and thereby bringing the prosecution to an end is a provision which vests a discretion in the authority at a high level, namely, the Chief Commissioner or the Director-General who may act only after securing the prior approval of the Central Board. The provisions requiring the consideration of any proposal for compounding at that level would indicate that it is not the policy of the law to permit compounding as a matter of course but that the compounding ....