Compounding of Offences - Jurishour No. 1Latest Tax News

The Central Board of Direct Taxes (CBDT) has issued Revised Guidelines for compounding of offences under the Income- tax Act, 1961.

In conformity with theFinance Minister’s budget announcement on simplification and rationalisation of compounding procedure, CBDT has issued Revised Guidelines for Compounding of offences under the Income-tax Act, 1961 on 17.10.2024.

The revised guidelines supersede all existing guidelines on the subject and would apply to pending as well as new applications, from the date of its issue. The guidelines are expected to facilitate the stakeholders by reducing complexities arising out of existing multiple guidelines, simplifying the compounding procedure and lowering the compounding charges.

The guidelines have been simplified inter-alia by eliminating the categorization of offences, removing the limit on number of occasions for filing applications, allowing fresh application upon curing of defects which was not permissible under earlier guidelines, allowing compounding of offences under section 275A and 276B of the Act, removing the existing time limit for filing application viz 36 months from the date of filing of complaint, etc.

To facilitate compounding of offences by companies and HUFs, the requirement of main accused filing the application has been dispensed with. The offences of the main accused as well as any or all co- accused can be compounded on payment of relevant compounding charges by the main accused and/or any of the co-accused, under the revised guidelines.

The compounding charges have also been rationalized by abolishing interest chargeable on delayed payment of compounding charges, reducing rates for various offences such as for TDS defaults multiple rates of 2%, 3% and 5% have been reduced to single rate of 1.5% per month and basis for calculation of compounding charges for non-filing of return has been simplified. Other simplification measures include removal of charge of separate compounding fee from co- accused.

The revised guidelines are an additional step towards simplification of procedures aimed at promoting ease of compliance.

Guidelines for Compounding of Offences under the Income-Tax Act, 1961

Section 279(2), read with section 2(15A) and 2 (21) of the Income Tax Act, 1961 (Act) provides that any offence under Chapter XXI of the Act may, either before or after the institution of proceedings, be compounded by the P.r CCIT/ CCIT/ P.r DGIT/ DGIT. The Central Board of Direct Taxes (CBDT) had earlier issued guidelines for compounding of offences under section 279 (2) of the Act.

Where an offence under this Act has been committed by a Company or HUF as defined in section 278B or 278C of the Act. an application for compounding may be filed separately or conjointly by the main accused i.e., Company, or HUF and/or any

of the person(s) deemed to be guilty ofthe offence under section 278B or 278C of the Act. to be referred as “Co-accused” for the purpose of compounding under these guidelines. The Competent Authority may decide the application accordingly subject to the payment of compounding charges as per these guidelines.

It is again clarified that in cases of offences by a company or HUF, the main accused or co-accused may apply separately or conjointly. On payment of compounding charges for the offence as determined under these guidelines, by any one of them separately or jointly, the Competent Authority shall compound the offences of the main accused as well as all the co-accused, vide an order u/s 279(2) of the Act.

For the purpose of depositing compounding charges, co-accused under Section 278B or 278C of the Act may deposit the charges under his PAN for the relevant financial year of the offence for which compounding is sought.

In case liability of a company for an offence committed prior to the commencement of the corporate insolvency resolution process ceases due to the provisions of section 32A of the Insolvency Bankruptcy Code (IBC), it is clarified that prosecution proceedings against the co-accused can still continue.

The compounding application and payment of compounding charges can be made by the co-accused and/or the main accused company.