The Bombay High Court has directed the Chief Commissioner to reconsider the application for compounding of offence under Income Tax Act as the rejection was solely based on the limitation period.
The bench of Justice M.S. Sonak and Justice Jitendra Jain has observed that the competent authority has treated the guidelines for compounding offences under the Income Tax Act 1961 as a binding statute. On the sole ground that the application for compounding offences was made beyond 36 months, the same has been rejected. The competent authority has exercised no discretion as such. The rejection is entirely premised on the notion that the competent authority had no jurisdiction to entertain a compounding application because it was made beyond 36 months.
The petitioner has challenged the Chief Commissioner’s order dated 17 January 2024, made under Section 279(2) of the Income-tax Act, 1961, dismissing the petitioner’s application for compounding the offence.
The Chief Commissioner has dismissed this application on the sole ground that it was filed beyond 36 months from the date of filing of the complaint against the petitioners.
The Chief Commissioner has relied upon paragraph 9.1 of CBDT guidelines dated 16 November 2022 for compounding offences under the Income Tax Act 1961.
Paragraph 9 of the CBDT guidelines dated 16 September 2022 states that if a compounding application is filed after 24 months but before 36 months from the date of the court complaint, the restriction in Para 7(ii) may be relaxed with the approval of the Principal Chief Commissioner of Income Tax (Pr. CCIT) of the relevant region. However, in such cases, the compounding charges will be 1.5 times the normal rate applicable at the time of the original application.
The department contended that even where no limitation is prescribed by the State, the application has to be filed within a reasonable period. She submits that the guidelines only specified what would be a reasonable period in the given case. Further, she referred to the decision of the Supreme Court in the case of Vinubhai Mohanlal Dobaria Vs Chief Commissioner of Income Tax & Anr. and submitted that the CBDT guidelines of 2014 were upheld by the Supreme court, including, the paragraph which has prescribed limitation period to file application for compounding.
The court held that notwithstanding the so-called limitation period, in a given case, the competent authority can exercise discretion and allow compounding application.
The court set aside the order and directed the Chief Commissioner to reconsider the petitioner’s application for compounding in the light of observations made by the Hon’ble Supreme Court in Vinubhai Dobaria.
The court clarified that the Chief Commissioner will have to consider all facts and circumstances and decide whether such facts make out the case for exercising discretion in favour of compounding the offence.
Case Details
Case Title: M/s. L. T. Stock Brokers Pvt. Ltd. Versus The Chief Commissioner Of Income Tax – 2, Mumbai
Case No.: Writ Petition (L) No. 21032 Of 2024
Date: 4/03/2025
Counsel For Petitioner: Mayur Vinod Faria
Counsel For Respondent: Shilpa Goel
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