Compounding Guidelines By CBDT Cannot Curtail Statutory Provision By Prescribing Limitation Period If None Is Provided U/s 279 IT Act: Bombay HC
The Bombay High Court held that the compounding application cannot be rejected on the ground of delay in filing the application, since no limitation period is provided under Section 279 of the Income Tax Act for submission or consideration of the compounding application.
The Division Bench of Bombay High Court comprising of Justice K.R. Shriram and Justice Firdosh P. Pooniwalla observed that the Compounding Guidelines notified by the CBDT, cannot travel beyond the scope of the powers conferred by the Income Tax Act or the Rules and cannot contain instructions or directions curtailing a statutory provision by prescribing the period of limitation where none is provided by either under the Act [Section 279(2)] or the Rules framed thereunder.
Advocate Sham Walve appeared for the Petitioners while the Respondent was represented by Advocate Suresh Kumar.
The brief facts of the case were that the Petitioners, a Limited Liability Partnership firm and its two partners, were served with show cause notice for initiation of prosecution proceedings under Section 276B read with Section 278B, for not depositing tax deducted by them, within the prescribed time limit. The Petitioners accordingly applied for compounding of offences dated Mar 05, 2012 (first application) and agreed to pay the compounding fees of Rs.7.39 Lacs. However, they failed to deposit the compounding fees within the extended time granted, and thus, the application got rejected on Jul 17, 2013. Accordingly, the Revenue filed a complaint before the Metropolitan Magistrate under Section 276B read with Section 278B. Thereafter, the Petitioners paid the compounding fees and filed a fresh compounding application which was not considered. Hence, the Petitioners approached the High Court.
After considering the submission and taking note of an affidavit filed by the ITO (TDS), stating that Petitioner’s second compounding application dated Oct 8, 2015, was barred by limitation as it was filed beyond the prescribed period of 12 months from the date of filing the complaint, as per CBDT’s Compounding Guidelines dated Dec 23, 2014, the Bench found that the provision of Section 279(2) provides that any offence under Chapter XXII be compounded by the PCIT or CIT or PDGIT or DGIT.
Thus, the Bench remarked that it is not for the ITO to decide the compounding application as the ITO has no power to even state that the application is null and void.
While concurring with the Petitioners' contention that the second application filed by the Petitioners dated Oct 8, 2015, has not even been considered or disposed of, which is clear from the affidavit filed in reply by the ITO, the High Court underscored that Section 279(2) provides for compounding of any offence either before or after the institution of the proceedings and no limitation period is provided therein for submission or consideration of the compounding application.
Further, the High Court observed that there is no restriction on the number of applications that could be filed and the only requirement is that the complaint filed should be still pending, which is admittedly pending in the present case.
Therefore, emphasizing that the CBDT Guidelines cannot provide for limitation nor can it restrict the operation of Section 279(2), the Bench observed that the Guidelines are subordinate to the principal Act and Rules and cannot override or restrict the application of specific provision enacted by the legislature and that the Petitioner’s application for compounding of the offences under Section 279 cannot be rejected on the ground that it was filed beyond twelve months, as prescribed under the CBDT Guidelines.
Accordingly, the Bench directed the CCIT(TDS) to consider and dispose of the Petitioner’s second compounding application within 8 weeks from the date of this order and also cautioned that the CCIT(TDS) shall, before passing a reasoned order, serve the Petitioner with a notice of personal hearing, at least five working days in advance.
The Bench also stayed the prosecution proceedings pending before the Additional Chief Metropolitan Magistrate, until the compounding application is disposed of.
Cause Title: Sofitel Realty LLP v. Income Tax Officer (TDS) and Ors.
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