Income Tax Act, 1961 – s.276CC – Compounding of offence – Commission of offence, when – Appellant, an individual earning income by way of salary and also share of profit of partnership firm – Delay in filing the return of income for AY 2011-12 and 2013-14 by appellant – Issuance of show cause notice to the appellant for the AY 2011-12 alleging violation of s.276CC – Application for compounding for AY 2011-12 allowed – Thereafter, the appellant received another show cause notice as regards launching of prosecution for the AY 2013-2014 – Compounding application for AY 2013-14 rejected – Writ petition by appellant that his compounding application was rejected solely on the ground that the offence alleged to have been committed by the appellant of belated filing of the return of income for AY 2013-14 was not covered by the expression “first offence” as defined in the 2014 guidelines, rejected by the High Court – Offence u/s.276CC could be said to have been committed on the actual date of filing of return of income or on the day immediately after the due date for filing of returns as per s.139(1): Held: Offence u/s.276CC could be said to have been committed as soon as there is a failure on the part of the assessee in furnishing the return of income within the due time as prescribed u/s.139(1) – Subsequent furnishing of the return of income by the assessee within the time limit prescribed under sub-section (4) of s.139 or before prosecution is initiated does not have any bearing upon the fact that an offence u/s.276CC has been committed on the day immediately following the due date for furnishing return of income – Offence u/s.276CC could be said to have been committed on the dates immediately following the due date for furnishing the return of income for both these assessment years respectively – Date for commission of both of these offences would be the day falling immediately next to the due date for filing of return, that is 01.10.2011 for AY 2011-12 and 01.11.2013 for the AY 2013-14 – Show cause notice for the AY 2011-12 was issued to the appellant on 27.10.2014 – Offence for the AY 2011-12 could be said to have been committed on 01.10.2011 and the offence for the AY 201314 could be said to have been committed on 01.11.2013 – Both the offences u/s.276CC were committed prior to the date of issue of any show cause notice for prosecution – Thus, the offence as alleged to have been committed by the appellant u/s.276CC for the AY 2013-14 is covered by the expression “first offence” as defined under the 2014 Guidelines and thus, the compounding application filed by the appellant could not have been rejected – High Court erred in rejecting the writ petition filed by the appellant against the order passed by the Chief Commissioner of Income Tax rejecting the application for compounding – Impugned order passed by the High Court as well as the order passed by the Chief Commissioner of Income Tax set aside – Guidelines for Compounding of Offences under Direct Tax Laws, 2014. [Paras 35, 41-43, 69, 70, 81-83] Income Tax Act, 1961 – ss.276CC, 279 – Failure to furnish returns of income – Compounding of Offences – Guidelines for Compounding of Offences under Direct Tax Laws, 2014 – Paragraph 8 – “First offence” – Meaning of:
Held: “First offence” is any offence committed prior to the date of issuance of any show cause notice for prosecution in relation to the said offence; or prior to any intimation relating to prosecution by the department to the person concerned or prior to the launching of any prosecution, whichever is earlier – Expression “first offence” is also defined to include any offence which has not been detected by the Department, but has been voluntarily disclosed by a person prior to the filing of an application for compounding of offence in the case under any direct tax Acts – Paragraph 8 further clarifies that the first offence would be determined separately with reference to each section of the Act under which it is committed and it would be relevant only if it is committed by the same entity – Scheme that permeates Paragraph 8 allows only those offences to be treated as the “first offence” which are committed by the assessee either prior to a notice that he is liable to prosecution under the Act for the commission of such offences or those offences which are voluntarily disclosed by the assessee to the Department before they come to be detected – Latter part of the definition of the expression “first offence” is not to curtail the scope of the first half but to expand its ambit by including those cases where the assessee comes forward on his own initiative and discloses the commission of the offence. [Paras 59-61, 73]
Guidelines for Compounding of Offences under Direct Tax Laws, 2014 – Paragraph 8 – “Voluntary disclosure” – Purpose of: Held: Voluntary disclosure to be construed in a manner which ensures that such disclosure on part of the assessee saves the Department from the trials and tribulations of having to detect the commission of offence by the assessee by setting into motion its own machinery of detection of offences – Neither the filing of belated return of income by the assessee nor the making of an application for compounding of offence after a show cause notice has already been issued to the assessee fulfills the underlying idea of saving the Department from the inconvenience of detecting the offence – Even after a belated return of income is filed, the Department is still required to process the return, identify the cases wherein offences have been committed – Voluntary disclosure by the assessee before the stage of detection by the Department besides being economically viable also saves time and efforts on part of the Department and also ensures that the dues are recovered promptly. [Para 74]
Guidelines for Compounding of Offences under Direct Tax Laws, 2014 – Paragraphs 4, 7, 8 – Guidelines, mandatory or directory:
Held: Paragraph 4 of the 2014 guidelines provides that compounding of offences is not a matter of right of the assessee – Plain reading of the 2014 guidelines reveals that while it is mandatory that the eligibility conditions prescribed under Paragraph 7 are to be satisfied, the restrictions laid down in Paragraph 8 have to be read along with Paragraph 4 which provides that the exercise of discretion by the competent authority is to be guided by the facts and circumstances of each case, the conduct of the appellant and nature and magnitude of offence – Thus, it is clear that the restrictions laid down in Paragraph 8 are although required to be generally followed, the guidelines do not exclude the possibility that in a peculiar case where the facts and circumstances so require, the competent authority cannot make an exception and allow the compounding application. [Paras 78-79]
Guidelines for Compounding of Offences under Direct Tax Laws, 2014 – Guiding principles for the exercise of the power conferred by s.279(2) allowing compounding of offences either before or after the institution of proceedings – Explained – Income Tax Act, 1961 – s.279(2). [Paras 53-67]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Nidhi Jain. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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