In Vikram Singh v. UOI & Anr, the division bench of the Delhi High Court held that the Income Tax authorities cannot reject a compounding application by stating that it is barred by limitation or the applicant has not paid compounding fee at the time of making application.
The Income Tax authorities rejected the compounding application filed by the petitioner on ground that the application is barred by limitation and it does not fulfill the guidelines prescribed in the CBDT circular dated 23.12.2014.
Quashing the above order rejecting the application, the division bench comprising of Justice Muralidhar and Justice Najmi Waziri held that the reason stated for rejection, in the instant case, is not a valid one and directed the CCIT to consider the application afresh.
Para 8 of the circular which provides that “Offences committed by a person for which complaint was filed with the competent court 12 months prior to receipt of the application for compounding.”
The bench observed that the clause is not one prescribing a period of limitation for filing an application for compounding, but it gives a discretion to the competent authority to reject an application for compounding on certain grounds. It was said that, however, it does not mean that every application, which involves an offence committed by a person, for which the complaint was filed to the competent court 12 months prior to the receipt of the application for compounding, will without anything further, be rejected. “Understandably, there is no limitation period for considering the application for compounding. The grounds on which an application may be considered, should not be confused with the limitation for filing such an application.”
“This has to be also understood in the context of the object of providing for compounding of offences. There is an acknowledgement that the judicial system is not as efficient as it is intended to be. There are trials, even in nonserious offences, that have been pending for decades. It is in the public interest, apart from the interest of the Department itself, that some closure is brought to such cases which may be pending interminably in our Court system. It is for this reason that some discretion has been vested in the officers of the Department to compound offences. It provides an opportunity for some assessees, notwithstanding that their appeals as regards the assessments may be pending, to come forward to have their offences compounded. It does subserve both public interest as well as the interest of the Department itself that on some reasonable terms such offences, which may not be considered serious, are compounded. The guidelines have to be understood only in that context,” the bench said.
The bench clarified that the Department cannot on the strength of para 11(v) of the Circular dated 23rd December 2014 of the CBDT reject an application for compounding either on the ground of limitation or on the ground that such application was not accompanied by the compounding fee or that the compounding fee was not paid prior to the application being considered on merits.
It was further said that the question of payment of the compounding fee, if any, would arise, only if upon considering the application on merits, the Department is of the view that the prayer should be allowed subject to terms that are reasonable and subserve the object of Section 279 of the Act.
Read the full text of the Judgment below.