12 Months Time limit on Filing Application for Compounding Offences: Madras HC strikes down CBDT Circular [Read Order]

The Madras High Court struck down the Central Board of Direct Taxes (CBDT) circular which fixed 12 12-month time limit on filing applications for compounding offences.

Jayshree, the petitioner had purchased a property in the year 2006 and sold the same in the year 2013. Thereafter, in the same year (2013), she had purchased another property. Therefore, she was under the impression that since she is not an income tax assessee and she had re-invested the capital gain of her sale consideration in another property, she was not liable to pay any income tax to the respondents and hence, she had not filed the income tax returns.

However, though the petitioner had not filed her income tax returns on time for the assessment year 2013-2014, she had filed the same belatedly on 13.06.2019. Under these circumstances, the respondent had launched the prosecution against the petitioner on 14.09.2016 for delay in filing of Income Tax Returns for the assessment year 2013-14.

In terms of the provisions of Section 279(2) of the Income Tax Act, 1961 (“IT Act”), the petitioner had applied to the respondents for compounding of offences. However, the said application was rejected for the reason that the same was filed beyond the prescribed time limit, i.e., a period of 12 months from the date of launching of prosecution, which was fixed by the 1st respondent vide circular F.No. 285/08/2014-IT(Inv.V)/147 dated 14.06.2019 (“ the said circular”).

The petitioner contended that as per Section 279(2) of the IT Act, there is no provision about the fixation of the time limit for applying for compounding of offences. Hence, the time limit of 12 months is fixed by the CBDT circular only to restrain the rights of the petitioner to apply for compounding of offences and the same is contrary to the provisions of Section 279(2) of the IT Act.

Therefore, since the said circular was issued beyond the scope of the Act, the same is liable to be quashed. Without considering all these aspects, the respondents had passed the impugned order dated 20.08.2022 by nonapplication of mind.

It was found that since the circular was issued by CBDT within the power provided under the provisions of the Income Tax Act, the petitioner is bound to the provisions of the said circular and hence, considering all these facts, the Authorities concerned have rightly rejected the application filed by the petitioner for compounding of offences.

A single bench of Justice Krishnan Ramasamy observed that the order passed by the respondent, rejecting the application for compounding of offences on the sole ground that it is barred by limitation, is liable to be set aside. Further remitted the matter back to the Authority concerned and the respondent is directed to decide the same on its own merits.

The court held that the said Clause 7(ii) of the circular is beyond the scope of the Act and hence, the same is liable to be struck down.

To Read the full text of the Order CLICK HERE 

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