[Report lacks flow] Section 279(2) I-T Act Doesn't Grant Right to Compounding: SC

The Supreme Court has said an offence under Section 276CC of the Income Tax Act, 1961 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 under Section 139(1) of the Act.

A bench of Justices J B Pardiwala and Sanjay Karol said the subsequent furnishing of the return of income by the assessee within the time limit prescribed under sub-section (4) of Section 139, or before prosecution is initiated, does not have any bearing upon the fact that an offence under Section 276CC has been committed on the day immediately following the due date for furnishing the return of income.

"The point in time when the offence under Section 276CC could be said to be committed is the day immediately following the due date prescribed for filing of return of income under Section 139(1) of the Act, and the actual date of filing of the return of income at a belated stage would not affect in any manner the determination of the date on which the offence under Section 276CC of the Act was committed," the bench held.

The bench also pointed out that Section 279(2) is enabling in nature and cannot be construed as allowing the assessee to demand compounding as a matter of right.

Referring to the Guidelines for Compounding of Offences under Direct Tax Laws, 2014, the court noted that only those offences are 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.

"The 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," the court said.

The restrictions laid down in Paragraph 8 of the guidelines, although generally required to be followed, 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, the bench held.

In a civil appeal filed by Vinubhai Mohanlal Dobaria, the bench opined that the High Court of Gujarat, in its impugned judgment dated March 21, 2017, fell in error in rejecting the writ petition filed by the appellant against the order passed by the Chief Commissioner of Income Tax, Vadodara, rejecting the application for compounding.

"The offence as alleged to have been committed by the appellant under Section 276CC of the Act for the Assessment Year 2013-14 is, without a doubt, covered by the expression 'first offence' as defined under the 2014 guidelines and thus the compounding application preferred by the appellant could not have been rejected by Respondent No. 1 on this ground alone," the bench said.

The court set aside the impugned order passed by the high court as well as the order passed by the Chief Commissioner of Income Tax, Vadodara, on February 14, 2017.

It allowed the appellant to prefer a fresh application for compounding before the competent authority, which shall be adjudicated by the competent authority having regard to the conduct of the appellant, the nature of the offence, and the facts and circumstances of the case, within a period of four weeks from the date on which the application is filed by him.

The court also stayed the proceedings pending before the trial court, pending the decision of the competent authority on the compounding application of the appellant.

In the event the fresh compounding application of the appellant is accepted by the competent authority, the proceedings pending before the trial court shall stand abated. If the compounding application is rejected by the competent authority, then the trial shall continue and be brought to its logical conclusion, the bench said.

Case Title: Vinubhai Mohanlal Dobaria Vs Chief Commissioner of Income Tax & Anr