AI Drafter 
TaxTMI 
TaxTMI 
2025 (2) TMI 335
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....writ petition filed by the appellant herein and thereby upheld the order of the Chief Commissioner of Income Tax, Vadodara ("Respondent No. 1") dated 14.02.2017 rejecting the application preferred by the appellant-assessee for compounding of the offence under Section 276CC of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). A. FACTUAL MATRIX 3. The appellant is an individual earning income by way of salary and also by way of share of profit of partnership firm engaged in the business of chemicals. He filed his income tax returns for the AY 2011-12 and 2013-14 on 04.03.2013 and 29.11.2014 respectively declaring his income to be Rs 49,79,700/- and Rs 31,87,420/- respectively. The due dates for the filing of returns for AY 2011-12 and 2013-14 were 30.09.2011 and 31.10.2013 respectively and as such there was delay on the part of the appellant in filing the return of income for the said assessment years. 4. On 27.10.2014, a show cause notice was issued to the appellant by the Commissioner of Income Tax - III, Baroda alleging violation of Section 276CC of the Act for the AY 2011-12. The notice stated that although the due date for filing the income tax return for....
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....the Respondent No. 1 vide order dated 11.11.2014. 6. Thereafter, on 12.03.2015, the appellant received another show cause notice as regards launching of prosecution under Section 276CC of the Act for the AY 2013-2014 issued by the Commissioner of Income Tax, Vadodara - III. The notice stated that the appellant had furnished the return of income for AY 2013-14 declaring a total income of Rs. 31,87,420/- on 29.11.2014 and after allowing for the credit of prepaid taxes the appellant was liable to pay self-assessment tax of Rs. 2,78,740/-. The notice further called upon the appellant to show cause as to why proceedings under Section 276CC of the Act should not be initiated against him as he had filed his return of income after the expiry of the due date. The contents of the said notice are extracted hereinbelow: "Office of the Commissioner of Income Tax, Vadodara -3 Vadodara 2nd floor Aayakar Bhavan Race Course Circle, Vadodara 7 No. BRD/CIT-3/HQ/Pros/17-B/2014-15 Date.12.3.2015 To, Shri Vinubhai Mohanbhai Dobaria 303/C/16, Tulsi Kunj Society, Near Marathi School, GIDC, Ankleshwar PAN ACIPD4420D Sir/Sir....
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....efined in the 2014 guidelines. The relevant part of the said order is extracted hereinbelow: "The case is not found to be fit case for compounding as the Committee comprising of Pr. CCIT Gujarat and CCIT, Vadodara DGIT (Investigation) Ahmedabad and the CCIT 2 Ahmedabad, competent to consider the assessee's petition, in its minutes of the meeting held at Ahmedabad on 25.1.2017 found that the Pr. CIT-3, Vadodara had issued show cause notice for initiating proceedings under section 276CC of the Act on 27.10.2014 for the AY.2011-12. The assessee filed his return of income for the A.Y.2013-14 on 29.11.2014 as against the due date for filing of return on 31.10.2013, after issuance of such show cause notice for A.Y. 2011-12. Accordingly, taking into consideration the definition of "First Offence" as specified in the Board's guidelines for compounding offence dated 23.11.2014, as well as the opinion obtained from the Board vide F.No.285/20/2014-IT (Inv.)/340 dated 15.9.2014 in the case of Chandra Knee Clinic P. Ltd. the committee unanimously opined that, the offence of similar nature committed by the assessee for A.Y.2013-14 cannot be compounded, as it does not fall within....
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....mstances surrounding the delay in the filing of return of income by the appellant were not required to be considered in detail by the compounding authority and the same would be considered during the course of the trial. The relevant observations made by the High Court are extracted hereinbelow: "4.0 [...] However, on the other hand, it is the case on behalf of the petitioner assesee that for AY 2013-14 the show cause notice under Section 276 CC of the Act was issued on 12.03.2015 and prior thereto the return of income for AY 2013-14 was already filed on 29.11.2014 and therefore, the same can be said to be "first offence" even as per the clause 8(ii) of the Guidelines. The submission on behalf of the assessee cannot be accepted. The aforesaid submission on behalf of the assessee is absolutely on misreading of clause 8(ii). On true interpretation of clause 8(ii), in case the offence is committed prior to date of issuance of any show cause notice for prosecution, in that case, it can be said to be the "first offence". Therefore, in case for any prior assessment year, the show cầuse notice has been issued for prosecution and despite the same, in the subsequent year, the....
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....rt, three different complaints for the offence under Section 276CC of the Act for AY 1991-92, 1992-93 and 1993-94 though were filed and numbered separately, were clubbed together in one case and the learned Magistrate passed the orders holding the accused guilty under Section 276CC on three counts. The question arose whether the offence for which accused was charged were distinct or separate and not in any way inter-related and when each offence had no connection with other, joinder of charges would become bad in law or not and to that it has been observed and held by the Madras High Court that framing of charge was defective and violative of Sections 218 and 219 of the Code of Criminal Procedure and as judgment was rendered only in one case and there was no finding of guilt recorded as regards two other cases, the Madras High Court has observed that error committed by the trial Court was of such grave nature that it had caused prejudice to accused and therefore, in that view of the matter, conviction and sentence passed by the lower Court has to be set aside. Therefore, the said decision shall not be applicable to the facts of the case on hand. 7.0 Now, so far as reliance....
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....ver file a belated return and the offence would never be committed. 13. He further submitted that as per the 2014 guidelines, the expression "first offence" means offence committed prior to the issuance of show cause notice seeking to initiate prosecution as that is the earliest point in time when the assessee is put to notice about the offence alleged to have been committed by him. Once an assessee is put to notice, all offences alleged to have been committed thereafter are not compoundable. However, offences committed prior to the date when the assessee is put to notice, would be treated as constituting the "first offence" and hence would be compoundable. He submitted that in the facts of the present case, two show cause notices were issued against the appellant by the respondent authorities, one for AY 2011-12 issued on 27.10.2014 and the other for AY 2013-14 issued on 12.03.2015. He argued that the High Court erroneously relied upon the actual date of filing of return of income for the AY 2013-14 to hold that the offence for the said assessment year was committed after the first show cause notice in respect of AY 2011-12 had already been received. He submitted that it is not....
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....ders intending to circumvent the provisions of the Act. 19. She further submitted that the issuance of a show cause notice is not a prerequisite for recognising a first offence under the 2014 guidelines. As per the meaning of the expression "first offence" as defined in the 2014 guidelines, a first offence can also be said to have been committed when such an offence has not been detected by the Department but has been voluntarily disclosed by the applicant by filing a compounding application. In view of this, the counsel argued that the issuance of a show cause notice could not be said to be a prerequisite for the recognition of a first offence. 20. In furtherance of the aforesaid submission, she submitted that the appellant could be said to have disclosed the commission of offence for both AY 2011-12 and 2013-14 by belatedly filing his returns on 04.03.2013 and 29.11.2014 respectively for both the years, that is, after the due dates prescribed for filing the returns for these years had expired. She submitted that it was only after such a late filing of returns by the appellant that the Department became aware of both the offences and issued the respective show cause notices ....
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....der 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 Act? b. What is the meaning of the expression "first offence" appearing in Clause 8 of the 2014 guidelines? c. What amounts to voluntary disclosure for the purpose of Clause 8 of the 2014 guidelines? d. Whether the 2014 guidelines are mandatory or directory in nature? E. ANALYSIS i. Section 276CC of the Income Tax Act, 1961 27. Chapter XXII of the Act deals with offences and prosecutions and consists of Sections 275A to 280D. Section 276CC of the Act inter-alia provides that if a person fails to furnish the return of income which he is required to furnish under sub-section (1) of Section 139 of the Act, then he shall be punishable with: a. Rigorous imprisonment for a term ranging between six months to seven years along with fine in cases where the amount of tax which would have been evaded if the failure of the person had not been discovered is more than twenty-five hundred thousand rupees; and b. Rigorou....
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....at source, does not exceed ten thousand rupees." 30. The proviso to the aforesaid provision prescribes certain cases in which proceedings under the provision would not be initiated and inter alia stipulates that for the assessment years commencing after 1st day of April, 1975, no proceedings under Section 276CC shall lie against any person for the failure to furnish return of income in due time if the return is furnished by him before the expiry of the said assessment year. It further provides that for the assessment years commencing from 01.04.1975, no proceedings shall be initiated under the provision if the tax payable by the person, not being a company, does not exceed ten thousand rupees. 31. Section 276CC punishes the wilful failure by the assessee in furnishing the following types of returns in due time: a. Return of fringe benefits which he is required to furnish under sub-section (1) of section 115WD or by notice given under sub- section (2) of the said section or section 115WH; or b. Return of income which he is required to furnish under sub- section (1) of section 139 or by notice given under clause (i) of sub-section (1) of section 142 or section....
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....ose total income, or the total income of any person in respect of which he is assessable under this Act, includes any income from business or profession, the date of the expiry of four months from the end of the previous year or where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year or the 30th day of June of the assessment year, whichever is later; (b) in the case of every other assessee, the 30th day of June of the assessment year. [...]" 33. Section 139(1) inter alia provides that every person shall, on or before the due date, furnish a return of his income during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed. Sub-section (4) of Section 139 provides that if a person has failed to furnish the return of income within due time prescribed under sub-section (1), then he may furnish the return for any previous year at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. 34. To fully understand the import of Section 276CC....
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.... own preconceived notions of ideological structure or scheme into which the provision to be interpreted is somewhat fitted. They are not entitled to usurp legislative function under the disguise of interpretation. 15. While interpreting a provision the court only interprets the law and cannot legislate it. If a provision of law is misused and subjected to the abuse of process of law, it is for the legislature to amend, modify or repeal it, if deemed necessary. (See Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd. [(2000) 5 SCC 515] ) The legislative casus omissus cannot be supplied by judicial interpretative process. 16. Two principles of construction - one relating to casus omissus and the other in regard to reading the statute as a whole - appear to be well settled. Under the first principle a casus omissus cannot be supplied by the court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed w....
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....of Section 139 would stand complied with cannot be accepted for more reasons than one. 18. One of the significant terms used in Section 276-CC is "in due time". The time within which the return is to be furnished is indicated only in sub-section (1) of Section 139 and not in sub-section (4) of Section 139. That being so, even if a return is filed in terms of sub-section (4) of Section 139 that would not dilute the infraction in not furnishing the return in due time as prescribed under sub- section (1) of Section 139. Otherwise, the use of the expression "in due time" would lose its relevance and it cannot be said that the said expression was used without any purpose. Before substitution of the expression "clause (i) of sub-section (1) of Section 142" by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989, the expression used was "sub-section (2) of Section 139". At the relevant point of time the assessing officer was empowered to issue a notice requiring furnishing of a return within the time indicated therein. That means the infractions which are covered by Section 276-CC relate to non-furnishing of return within the time in terms of sub-section (1) or indicated in ....
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....y purpose or intent specified only sub-sections (1) and (2) and the conspicuous omission of sub-section (4) has no meaning or purpose behind it. Sub- section (4) of Section 139 cannot by any stretch of imagination control operation of sub-section (1) wherein a fixed period for furnishing the return is stipulated. The mere fact that for purposes of assessment and carrying forward and to set off losses it is treated as one filed within sub-section (1) or (2) cannot be pressed into service to claim it to be actually one such, though it is factually and really not by extending it beyond its legitimate purpose. 22. Whether there was wilful failure to furnish the return is a matter which is to be adjudicated factually by the court which deals with the prosecution case. Section 278-E is relevant for this purpose and the same reads as follows: "278-E. Presumption as to culpable mental state.- (1) In any prosecution for any offence under this Act which requires a culpable mental state on the part of the accused, the court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state wi....
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....essing Officer has extended the date for furnishing the return under sub-section (1) or sub-section (2), the assessee shall be liable to pay simple interest at fifteen per cent per annum, reckoned from the day immediately following the specified date to the date of the furnishing of the return or, where no return has been furnished, the date of completion of the assessment under section 144, on the amount of the tax payable on the total income as determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source: Provided that the Assessing Officer may, in such cases and under such circumstances as may be prescribed, reduce or waive the interest payable by any assessee under this sub- section." 38. A perusal of the aforesaid provision makes it clear that irrespective of whether the return of income is filed by an assessee after the specified date or is not furnished at all, the assessee shall be liable to pay simple interest at the rate 15% reckoned from the day immediately following the specified date notwithstanding the fact that the Assessing Officer has extended the date for furnishing of return. 39. Accepting the contention of t....
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....n of the Act read with the appropriate compounding guidelines issued from time to time. At the outset it is important to ascertain the compounding guidelines which would be applicable for the purpose of adjudication of the compounding application made by the appellant. 46. The 2014 guidelines superseded the 2008 guidelines and came into effect from 01.01.2015. Clause 2 of the 2014 guidelines provided that all compounding applications received on or after 01.01.2015 shall be decided in accordance with the 2014 guidelines whereas all applications received prior to 01.01.2015 would be governed by the 2008 guidelines which came into effect on 16.05.2008. 47. In the case at hand, the compounding application for the AY 2011-12 was made on 11.11.2014 and thus would be governed by the 2008 guidelines. As the compounding application for the AY 2013-14 was preferred by the appellant on 19.03.2015, hence it would be governed by the 2014 guidelines. Since the present appeal is only concerned with the compounding application for the AY 2013-14, hence we are limiting our discussion to the 2014 guidelines. However, as the compounding guidelines are framed to guide the exercise of power of c....
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....ding was taken would be compounded. 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 always to have 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." 49. Sub-section (1) of Section 279 of the Act provides that any prosecution for the commission of an offence under Sections 275A, 275B, 276, 276A, 276B, 276BB, 276C, 276CC, 276D, 277, 277A or 278 of the Act respectively cannot be launched except with the previous sanction of the Principal Commissioner or Commissioner or Commissioner (Appeals) or the appropriate authority. The proviso to Sub-section (1) of Section 279 empowers the Principal Chief Commissioner or the Chief Commissioner or the Principal Director General or Director General to issue appropriate directions to the authorities specified in sub-Section (1) for the initiation of prosecution. 50. Sub-section (2) of Section 279 empowers the Principal Chie....
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.... of Income Tax under Section 279(2) of the Act, to compound the offences, is the short question for our consideration. xxx xxx xxx 9. This Court in Navnitlal C. Javeri v. K.K. Sen, Appellant Assistant C.I.T. [(1965) 1 SCR 909 : AIR 1965 SC 1375 : (1965) 56 ITR 198] , Ellerman Lines Ltd. v. C.I.T. [(1972) 4 SCC 474 : 1974 SCC (Tax) 304] and in K.P. Varghese v. ITO [(1981) 4 SCC 173 : 1981 SCC (Tax) 293] has held that circulars issued by the Central Board of Direct Taxes under Section 119(1) of the Act are binding on all officers and persons employed in the execution of the Act even if they deviate from the provisions of the Act. The High Court has discussed these judgments in detail and has distinguished them on plausible grounds. It is not necessary for us to go into this question because the legal position has altered to the advantage of the Revenue by the introduction of an Explanation to Section 279 of the Act by the Finance Act (2 of 1991) which has been made operative with effect from April 1, 1962. The Explanation is as under:- "Explanation.- For the removal of doubts, it is hereby declared that the power of the Board to issue orders, instructions, ....
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....eing fulfilled and keeping in view factors like the conduct of the assessee, nature and magnitude of the offence, and of course the facts and circumstances of each case. Thus, what can be discerned from Paragraph 4 is that while it stipulates that the eligibility conditions prescribed in the guidelines are to be satisfied necessarily, the ultimate discretion to compound the offence(s) or not has to be guided by factors which include the conduct of assessee, nature and magnitude of the offence and the unique facts of each case. 56. Paragraph 5 of the 2014 guidelines provides that the guidelines would not be applicable for the compounding of any prosecution initiated under the Indian Penal Code, 1860 and the same can only be withdrawn under Section 321 of the Code of Criminal Procedure, 1973. 57. Paragraph 6 of the guidelines provides two categories of offences which can be compounded - category A and category B offences. Category A offences include the offences defined under Sections 276, 276B 276BB, 276DD, 276E, 277 and 278 of the Act respectively. Whereas Category B offences include the offences defined under Sections 275A, 275B, 276, 276A, 276AA, 276AB, 276C(1), 276C(2), 27....
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....ting to prosecution by the Department to the person concerned or (c) launching of any prosecution, whichever is earlier; OR Offence not detected by the department but voluntarily disclosed by a person prior to the filing of application for compounding of offence in the case under any Direct Tax Acts. For this purpose, offence is relevant if it is committed by the same entity. The first offence is to be determined separately with reference to each section of the Act under which it is committed." 60. A perusal of the reproduced portion of Paragraph 8 shows that the expression "first offence" has been defined under the compounding guidelines as any offence committed: a. Prior to the date of issuance of any show cause notice for prosecution in relation to the said offence; or b. Prior to any intimation relating to prosecution by the department to the person concerned or prior to the launching of any prosecution, whichever is earlier. 61. Further, the expression "first offence" is also defined to include any offence which has not been detected by the Department, but has been voluntarily disclosed by a person prior to the filing of an application....
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....purpose of compounding an offence under the guidelines. Paragraph 11 provides for the compounding procedure. 65. Paragraph 12 provides for the compounding fee which would be applicable to the compounding of offences committed under specific provisions of the Act. Paragraph 12.4 prescribes the compounding fee applicable to offences committed under Section 276CC and is reproduced hereinbelow: "12.4 Section 276CC- Failure to furnish returns of income. 12.4.1 2% per month or part of a month of the tax and interest determined on assessment or reassessment, in relation to return of income that was required to be furnished under section 139(1) or section 142(1) or section 148 or section 153A/153C as the case may be, existing on the date of conveyance of compounding charges to the applicant, determined after rectification u/s 154 of the Act, if any and as reduced by the tax deducted at source and advance tax, if any, paid during the financial year immediately preceding the assessment year, reckoned from the date immediately following the date on which the return of income was due to be furnished to the date of furnishing of the return or where no return was furnished, ....
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....r 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. 70. 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. 71. It was submitted by the respondents that even if the offences committed by the appellant for AY 2011-12 and AY 2013-14 could be said to have been committed before the issuance of the show cause notice dated 27.10.2014, the appellant would still be covered by the subsequent part of the definition of "first offence" as the appellant had voluntarily disclosed the commission of the offences for the AY 2011-12 and 2013-14 respectively by filing belated return of income for the said assessment years. In other words, the respondents contended that the very act of filing belated return of income by the appellant amounts to volun....
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....rd and voluntarily disclosing the commission of offences from erring-assessees. 74. Voluntary disclosure for the purpose of Paragraph 8 of the 2014 guidelines has to be construed in a manner which ensures that such disclosure on part of the assessee saves the Department from the trials and tribulations of having to detect the commission of offence by the assessee by setting into motion its own machinery of detection of offences. Neither the filing of belated return of income by the assessee nor the making of an application for compounding of offence after a show cause notice has already been issued to the assessee fulfills this underlying idea of saving the Department from the inconvenience of detecting the offence. Even after a belated return of income is filed, the Department is still required to process the return, identify the cases wherein offences have been committed, issue show cause notices to the defaulting assessees and thereafter prosecute the offenders to recover the dues and punish the offenders. A voluntary disclosure by the assessee before the stage of detection by the Department besides being economically viable also saves time and efforts on part of the Departme....
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....ied upon the Supreme Court decision in Asst. CIT v. Velliappa Textiles Ltd. (2003) 263 ITR 550 (SC) to highlight that compounding application cannot be concluded to as a matter of right but rather is subject to exercise of discretion. There is no quarrel with the proposition that power to accept a plea for compounding or refusal is essentially discretionary. The exercise, however, in each case is dependent upon the authority who has to apply his or her mind judiciously to the circumstances of each case. The rejection of the petitioner's application in this case is entirely routed on the Chief Commissioner's understanding of the conditions of ineligibility of para. 8(v) apply. In this court's opinion, that view was based upon an erroneous understanding of law. Whilst guidelines no doubt are to be kept in mind specially while exercising jurisdiction, they cannot blind the authority from considering the objective facts before it. In the present case the petitioner's failure to deposit the amount collected was beyond its control and was on account of seizure of books of account and documents, etc. But for such seizure, the petitioner would quite reasonably be expected t....
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....es 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. F. CONCLUSION 81. For all the aforesaid reasons, 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....