There Can Be No Limitation For Filing Application For Compounding Of Offence Contrary To Sec 279(2) Of I-T Act: Madras High Court
Remarking that there cannot be any restriction/limitation for filing application for compounding of offence contrary to Section 279(2) of the Income tax Act, 1961, the Madras High Court quashed the order rejecting application for compounding of offences filed by the assessee and its directors on the ground that the same is filed beyond the period of 12 months as prescribed in CBDT Circular...
Remarking that there cannot be any restriction/limitation for filing application for compounding of offence contrary to Section 279(2) of the Income tax Act, 1961, the Madras High Court quashed the order rejecting application for compounding of offences filed by the assessee and its directors on the ground that the same is filed beyond the period of 12 months as prescribed in CBDT Circular dated Sep 16, 2022.
At the same time, the High Court clarified that the limitation period in the CBDT Circular is directory, not mandatory, and thus cannot bind the assessee or the Writ Court.
A Single Judge Bench of Justice C. Saravanan observed that “There cannot be any restriction/limitation for filing application for compounding of offence contrary to Section 279(2) of the IT Act, 1961. There is also no useful purpose in prosecuting an assessee who may otherwise deserve to compound the offence. This is also not a case where the petitioner has been convicted of the offence in E.O.C.C.Nos.193 and 194 of 2018 and had filed the applications for compounding of the offence thereafter under Section 279(2) of the IT Act, 1961”. (Para 26)
As per the brief facts of the case, failure of the assessee company to pay TDS while making payment, resulted in issuance of notice to the director of assessee, treating him to be the principal officer. The assessee, in response to the show cause notices paid certain tax and sought permission to pay the balance amount in instalments. However, the AO launched prosecution against the assessee and its directors under Section 276B r/w/s 278B, for failure to pay TDS, before the Additional Chief Metropolitan Magistrate. Subsequently, the assessee and its directors filed applications for compounding of the offences, which was rejected on the ground that the same was filed beyond the period of 12 months from the end of the month of filing of the complaint before the Court, and being in violation of the CBDT Circular dated Sep 16, 2022. Challenging the same, the assessee approached the High Court.
The Bench observed that as per Section 279(2) the officers of the rank of Pr. CCIT, CCIT, Pr. DGIT or DGIT can compound any offence committed by an assessee, which is punishable under Chapter XXII.
The Bench also noted that para 7(ii) to the CBDT Circular dated Sep 16, 2022, provides that in a case where prosecution complaint has already been filed in a court of law, the application for compounding of offence cannot be filed later than 12 months from the end of the month of filing of the complaint before the Court.
The Bench found that even though the application for compounding of the offences filed by the assessee under Sections 200, 204 read with Rule 30 of the Income Tax Rules, 1961, was clearly beyond the time prescribed in the aforementioned CBDT Circular, however, no limitation is prescribed for compounding of offences under Section 279(2).
The Bench pointed out that the same Circular, in para 9, also provides exception to the above rule and states that the restrictions in Para 7(ii) can be relaxed with the approval of the Pr. CCIT within 24 months but before the expiry of 36 months from the date of the complaint before the Court.
Going further, the Bench found that the assessee's applications for compounding the offence are bereft of details required for compounding the offence, and therefore even if the limitation prescribed in the CBDT Circular dated Sep 16, 2022 was overlooked, there was no material available with the Department to determine whether the assessee otherwise deserved to compound the offences.
Hence, the High Court allowed the assessee a fresh chance to file an amended copy of applications for compounding of the offence explaining the reasons as to why the offences for which they have been prosecuted should be compounded under Section 279(2), within a period of thirty days.
Counsel for Petitioner: Adv V. Prashanth Kiran
Counsel for Respondent: Adv B. Ramaswamy
Case Title: Jak Communications Private Limited Verses Chief Commissioner of Income Tax (TDS)
Citation: 2024 LiveLaw (Mad) 25
Case Number: W.P Nos.4855 and 4857 of 2023