Tax Evasion Case by MRF Chairman & Managing Director: Madras HC permits Compounding of Prosecution [Read Order]

The Madras High Court permitted compounding of prosecution in the tax evasion case by MRF Chairman and Managing Director.

The present writ appeal has been filed challenging the order of the Single Judge insofar as it remitted the case back to the 4^th appellant, the Director General of Income Tax (Investigation), with a direction to compound the case under Section 279 (2) of the Income Tax Act, 1961.

The respondent, K.M.Mammen, filed a writ petition challenging the order, whereby the petition for compounding under Section 279(2) of the Income Tax Act stood rejected. The 4^thAppellantpassed the order under Section 279(2) of the Income Tax Act rejecting the compounding application.Aggrieved by the order of rejection, the respondent filed a Writ Petition wherein the Judge had allowed the Writ Petition, finding that the case was fit for compounding. Hence the Revenue is in appeal.

The counsel for the appellant contended that the observation of the Judge that the provisions of Section 279(1A) of the Income Tax Act and the decision in Prem Dass case are applicable, is incorrect inasmuch as the reduction in penalty by the Commissioner (Appeals) or the Tribunal cannot be treated as an order under Section 273A of the Income Tax Act and would thus not be covered under Section 279(1A) of the Income Tax Act. In any view, the decision in Prem Dass is distinguishable on facts. Further, reliance was placed on the judgment of the Court in South India Surgical Company v. K. Govindan.

To the contrary, it is submitted by the counsel for the Respondent, that the Judge had found that in view of the reduction in penalty from 300% to 100%, the respondent would be entitled to the benefit of Sections 279 (1A) of the Income Tax Act. Further, it was also observed that there cannot be any impediment for the Department to compound the offence under Sections 276 and 276C of the Income Tax Act.

A Division Bench comprising Justice R Mahadevan and Justice Mohammed Shaffiq observed that “The respondent herein is entitled to compound under Section 279(2) of the Act in respect of the offences under Sections 276C and 277 of the Income Tax Act. We say so inasmuch as in our view the respondent’s entitlement to compound in terms of Section 279(2) of the Income Tax Act stands resolved conclusively by the order of the learned Single Judge in the previous round of litigation, the same having not been challenged by the revenue, is bound by it, nor is it open to them to water down those directions/observations in the Contempt jurisdiction.”

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