CBDT Circular Prescribing Limitation to Decide Application for Compounding of Offence Violative of S. 279(2) of Income Tax Act: Bombay HC [Read Order]

The Bombay Bench of High Court has held that the Central Board of Direct Tax (CBDT) circular prescribing limitation to decide application for compounding of offence would be violative of Section 279(2) of the Income Tax Act.

The petitioner Footcandles Film Pvt.Ltd had deposited Tax Deducted at Source (TDS) due, before any demand notice was raised. The Tax Deducted at Source was deposited along with penal interest thereon. Then a reply setting out detailed reasons for not depositing within the time stipulated under the law had been filed by the assessee.

 The Income Tax Officer lodged a Criminal Complaint alleging offence punishable under Section 276B, r/w. Section 278B, of the Income Tax Act1961 and the petitioners were sentenced to pay a fine of Rs.10,000/- each and a sentence of rigorous imprisonment for one year on petitioner no.2 Nirav Dama was also imposed.  The petitioner then filed an application, under Section 279(2) of the Income Tax Act 1961 for compounding of offence before Chief Commissioner of Income Tax and the same was rejected on the ground that the application was contrary to the CBDT Circulars No.25/2019 and 01/2020.

Fereshte Sethna, who appeared for the petitioner contended that Section 279(2) had not imposed any restriction upon compounding of any offence in any stages. 

Suresh Kumar who appeared for the revenue submitted that the CBDT Circulars, bearing Nos.25/2019 and 01/2020 had provided for relaxation to file compounding applications beyond twelve months from the end of the month in which the complaint had been filed. He further contended that the CBDT Guidelines for Compounding of Offences under Direct Tax Laws, 2019, dated 14th June 2019, would make the petitioners ineligible for compounding the offences.

The Bombay High Court Bench of Valmiki Sa Menezes and Diraj Sing Thakur held that the application for compounding of offence, under Section 279 of the Income Tax Act 1961, was filed beyond twelve months, as prescribed under the CBDT Guidelines dated 14th June 2019, were contrary to the provisions of sub-section (2) of Section 279.  The bench quashed the impugned order which was passed in consequence to the application filed by the assessee and directed to issue fresh order on merit.

To Read the full text of the Order CLICK HERE

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