The Bombay High Court set aside the impugned order in which the application of the Petitioners for compounding the offence filed under Section 279(2) of the Income Tax Act, 1961 (“the Act”) was rejected due to the limitation period prescribed in the CBDT circulars.
This Court was of the view that the orders, instructions or directions issued by the CBDT under Section 119 of the Act or pursuant to the power given under the Explanation will not limit the powers of the authorities specified under Section 279(2) of the act in considering an application of compounding for offence.
Brief Facts:
In this case, Petitioner no.1 deducted income tax from the salaries of its employees but failed to deposit the tax deducted to the Central Government's credit within the time prescribed under Section 200 r/w. Section 204 of the Act. Respondent no. 1 issued the show cause notice, to which the Petitioners replied that this situation arose due to accumulated losses and delays in receiving a tax refund from the Respondent. After hearing the Petitioners, the criminal case was registered against them for the offence punishable under Section 278B, r/w. Section 276B of the Act.
The learned Magistrate convicted the Petitioners and directed them to pay the fine of Rs.10,000/- each and a sentence of rigorous imprisonment for one year was imposed on Petitioner no.2. In an appeal, the sentence was suspended by order dated 7th February 2020. The Petitioners also filed an application under the provisions of Section 279(2) of the Act for compounding of offence before Respondent no.3. However, the application was rejected by the order dated 1st June 2021 on the ground that the Petitioner failed to file an application within the limitation period of twelve months as prescribed by CBDT circulars. The Petitioners, being aggrieved by the order dated 1st June 2021, filed the present petition.
Submission of the Petitioner:
The learned Counsel for the Petitioner submitted that Section 279(2) does not impose any constraints on Respondent no.3 from considering the Petitioner's application for compounding of offence. A bare reading of the provision shows that it allows compounding of offence either before or after the institution of proceedings, and the word “proceedings” encompasses all stages of the criminal proceedings. Further, it was submitted by the Counsel that the CBDT Circulars No.25/2019 and 01/2020, relied upon by Respondent no.3 while rejecting the application for compounding of offence, cannot operate as a rule of limitation since the same cannot override the provisions of the statute, i.e. Section 279 of the Act.
Submission of the Respondent:
The learned Counsel for the Respondent submitted that the CBDT circulars do not permit Respondent no.3 to allow compounding application beyond the periods specified in the circulars. The Counsel relied on a judgment of the Division Bench of High Court of Delhi in Anil Batra Vs. Chief Commissioner of Income Tax (2011) 15 Taxman.Com 121 (Delhi) to contend that as the Petitioners were already convicted, there was no question of Respondent no.3 exercising its jurisdiction under Section 279(2)of the Act. The application for compounding of offence ought to have been filed before the filing of the complaint or at least before an order of conviction was rendered by the Court of Metropolitan Magistrate. Therefore, he prayed for the dismissal of the petition.
Observation of the Court
This Court had placed their reliance on a catena of judgments and came to the view that the orders, instructions or directions issued by the CBDT under Section 119 of the Act will not limit the powers of the authorities specified under Section 279(2) of the Act in considering an application for compounding the offence. The limitation prescribed by CBDT circulars does not take away the jurisdiction of Respondent no.3 or the other authorities, referred to in Section 279(2) from entertaining an application for compounding of offence at any time during the pendency of the proceedings, be they before the Magistrate or on conviction of the petitioners, in an appeal before the Sessions Court.
In the opinion of this Court, the impugned order was passed on an erroneous factual assumption that the petitioners have been convicted by a court of law for an offence other than under the Direct Taxes Laws. Further, the findings arrived at by Respondent no.3 in the impugned order, that the application for compounding of offence, under Section 279 of the Act, was filed beyond twelve months, as prescribed under the CBDT Guidelines dated 14th June 2019, were held contrary to the provisions of sub-section (2) of Section 279. Therefore, the impugned order was set aside as Respondent no.3 had failed to exercise the jurisdiction vested in them while deciding the applications.
The decision of the Court:
The Bombay High Court allowed the writ and set aside the impugned order. Further, the Court remanded the application, under Section 279(2) of the Act, back to Respondent no.3 to consider afresh on its own merits.
Case Title: Footcandles Film Pvt Ltd. & Anr. versus Income Tax Officer – TDS & Ors.
Coram: Hon’ble Justice Dhiraj Singh Thakur and Valmiki SA Menezes
Case no.: WRIT PETITION NO.429 OF 2022
Advocate for the Petitioner: Ms. Fereshte Sethna
Advocate for the Respondent: Mr. Suresh Kumar
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