Power to Allow Compounding of an Offence is Undoubtedly Discretionary, Authorities must consider each case Judiciously: Delhi HC [Read Judgment]

Finance Act - Delhi High Court - taxscan

In Sports Infratech Pvt. Ltd. & Anr vs DCIT, the division bench of the Delhi High Court held that the power to allow compounding of an offence is a discretionary power vested upon the Chief Commissioner of Income Tax.

The bench clarified that though the power is discretionary, the Chief Commissioner should consider each plea of compounding in a judicious manner with application of mind.

The petitioner-assessee, in the instant case, had omitted to deposit amounts deducted as tax, from the sums payable under various contracts which were entered into by it, towards services rendered in connection with the Commonwealth Games, 2010. Consequently, penalty was initiated against the petitioners. Its application compounding of the offence under Section 276B of the Income Tax Act had been rejected by the Chief Commissioner.

The bench accepted the contention of the petitioners that the obligation to deposit the TDS amount arose on 19.09.2011, 27.09.2011 and 29.09.2011. Prior to these in April, 2011, material including its books of accounts and documents were seized by the CBI and had not been released so as to enable to make necessary TDS payment. “under these circumstances, the petitioner faced genuine difficulties which prevented it from complying with the provisions of law. In completely ignoring these facts and in rejecting its application, the Chief Commissioner acted in error of jurisdiction.” The bench said.

The Revenue relied upon the Instructions and guidelines of CBDT and on the apex Court decision in Assistant Commissioner, Assessment II, Bangalore and Others vs. Velliappa Textiles Ltd. and Another and contended that the power vested on the authority in considering the matter is discretionary.

Allowing the petition, the division bench comprising of Justice S. Ravindra Bhat and Justice Najimi Waziri said “There is no quarrel with the proposition that power to accept a plea for compounding or refusal is essentially discretionary”.

“The exercise, however, in each case is dependent upon the Authority who has to apply his or her mind judiciously to the circumstances of each case. The rejection of the petitioner’s application in this case is entirely routed on the Chief Commissioner’s understanding of the conditions of ineligibility of para 8(v) apply. In this Court’s opinion, that view was based upon an erroneous understanding of law. Whilst guidelines no doubt are to be kept in mind specially while exercising jurisdiction, they cannot blind the authority from considering the objective facts before it”, the bench also added.

Read the full text of the Judgment below.