S.279(2) Income Tax Act | Authority Can Compound Offence Before Conviction But Not Thereafter: Madhya Pradesh High Court

Interpreting the guidelines issued for compounding of the offence under Direct Tax Laws, 2019 in the context of Section 279(2) of the Act, the division bench comprising Justice Vivek Rusia and Justice A.N. Kesharwani observed-

Clause 7 of the guidelines provides eligibility conditions for compounding and clause 8 provides a list of certain offences which are normally not be compounded. In order to become eligible for compounding clause 7(v) says that there has be to an undertaking by the assesses for withdrawal appeal filed by him, if it is related to the offence sought to be compounded. Likewise, clause 8(iii) provides that offence committed by a person for which he was convicted by a Court of law under direct taxes laws compounding cannot be done. As on today, the petitioners are convicted persons and in appeal, only the sentence has been suspended not the conviction, therefore, respondent No. 1 has rightly declined to compound the offence .

Facts of the case were that the Petitioners were convicted for offence punishable under Section 276C(i) of the Income Tax Act by the lower court. Challenging their conviction, they preferred an appeal before the appellate court. Simultaneously, the Petitioners also moved an application before the Authority concerned for compounding of offence. They also moved an application before the appellate court under Section 320(5) CrPC seeking permission for the compounding of offence.

The Authority rejected the application of the Petitioners on the ground that their request could not be considered as they were already convicted. Thereafter, even the appellate court rejected their application under Section 320(5) CrPC, holding that it could not direct the Authority for compounding the offence. Aggrieved, the Petitioners moved the High Court.

The Petitioners argued before the High Court that as per the circular regarding guidelines issued for compounding of the offence under the Direct Tax Laws Guidelines, 2019, they were entitled to its benefits. They further submitted that despite being eligible for compounding of offence, their application was rejected by the Authority on the ground that they were already convicted for the offence.

It was also contended by the Petitioners that the Authority had failed to appreciate that a criminal appeal against conviction is always treated as a continuation of original proceedings wherein the entire proceedings are again opened for consideration by the appellate authorities. Thus, the Petitioners prayed that the matter be remitted to the authority to consider their application afresh for compounding of offence.

Examining the submissions of parties and documents on record, the Court concurred with the decision of the Authority to not compound the offence of the Petitioners. The Court noted that a combined reading of the relevant provisions under the guidelines concerned and Section 279(2) of the Act would reveal that the compounding of offence after conviction is not prescribed. The Court further observed that the benefit under the guidelines could not be claimed as a matter of right-

By conjoint reading of section 279(2) and clauses 7(v) and 8. (iii), it is explicit that the Income Tax Authorities have the power to compound the offence either before or after the institution of the proceedings but certainly not after the conviction. Clause 4 of the policy also provides that compounding of offence is not a matter of right, however, the offence may be compounded by the competent authority on satisfaction prescribed in these guidelines. It is also important to see Clause 7.(ii) which provides that no application of compounding can be filed after the end of 12 months in which a prosecution complaint, if any, has been filed in the court of law.

With the aforesaid observations, the Court refused to interfere with the impugned order and accordingly, the petition was dismissed.

Case Title: RAMESH JAIN AND ANR VERSUS UNION OF INDIA AND ORS.

Case citation: 2022 LiveLaw (MP) 229

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