Supreme Court: In a civil appeal against Gujarat High Court’s decision, whereby the order of Chief Commissioner of Income Tax, Vadodara (CIT) was upheld and application preferred by the appellant-assessee for compounding of the offence under Section 276-CC of the Income Tax Act, 1961 (‘the Act’) was dismissed, the Division Bench of JB Pardiwala* and Sanjay Karol, JJ. held that the High Court erred in rejecting the assessee’s application for compounding. The Court held that the offence alleged under Section 276-CC of the Act for the AY 2013-14 was covered by the expression “first offence” as defined under the 2014 guidelines and thus the compounding application preferred by the assessee could not have been rejected by the CIT on this ground alone. Hence, the Court set aside the impugned decision along with CIT’s order.
Factual Matrix
The appellant-assessee filed his income tax returns for the AY 2011-12 and 2013-14 on 04-03-2013 and 29-11-2014 respectively declaring his income to be Rs. 49,79,700/- and Rs. 31,87,420/- respectively. The due dates for the filing of returns for AY 2011-12 and 2013-14 were 30-09-2011 and 31-10-2013 respectively. However, the appellant delayed the filing of the return of income for the said assessment years.
A show cause notice was issued to the assessee by the Commissioner of Income Tax – III, alleging violation of Section 276-CC of the Act for the AY 2011-12. The assessee filed an application for compounding in accordance with the Guidelines for Compounding of Offence, 2008 (‘the 2008 guidelines’). The said application for compounding the delay in filing of return of income for two other years was allowed by the CIT vide order dated 11-11-2014. Thereafter, the assessee received another show cause notice for prosecution under Section 276-CC of the Act for the AY 2013-2014. The compounding application was rejected opining that his case was not fit for compounding as the committee opined that the assessee had filed his return of income for AY 2013-14 after the show cause notice for the offence under Section 276-CC for offence during AY 2011-12 had already been issued. Therefore, as per the committee, the offence committed by the appellant under Section 276-CC for the AY 2013-14 would not be covered by the expression “first offence” as defined in the Guidelines for Compounding of Offence, 2014 (‘2014 guidelines’).
Vide the impugned decision, the High Court rejected the assessee’s plea holding that although the show-cause notice for AY 2011-12 was issued on 27-10-2014, the assessee filed the return of income for the AY 2013-14 on 29-11-2014 and thus could be said to have committed the offence under Section 276-CC of the Act for the AY 2013-14 after the show cause notice for the AY 2011-12 had already been issued.
Analysis and Decision
Whether an offence under Section 276-CC of the Income Tax Act, 1961 was 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 Section 139(1) of the Act?
What is the meaning of the expression “first offence” appearing in Clause 8 of the 2014 guidelines?
The Court perused Section 276-CC of the Act which inter-alia provides that if a person fails to furnish the return of income which he is required to furnish under Section 139(1) of the Act, then he shall be punishable with punishment provided under the said section. The Court said that the matter at hand was only concerned with the failure of a person in furnishing, in due time, the return of income which he is required to furnish under Section 139. The Court noted that Section 139 provides that if a person has failed to furnish the return of income within the due time prescribed under sub-section (1), then he may furnish the return for any previous year at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.
The Court referred to Prakash Nath Khanna v. CIT (2004) 9 SCC 686, wherein, the scope and meaning of the expression “in due time” in Section 276-CC of the Act and whether it refers to the time period referred to in Section 139(1) or the time period referred to in Section 139(4) was discussed. It was viewed that the legislative intent behind Section 276-CC was to restrict the meaning of the expression “in due time” to the time period referred to in Section 139(1) and not to the time period referred to in Section 139(4). Explaining the meaning of the expression “wilful failure”, the Court said that the same has to be adjudicated factually by the Trial Court dealing with the prosecution of the case.
The Court discerned that an offence under Section 276-CC could be said to have been committed as soon as there was a failure on the part of the assessee to furnish the return of income within the due time as prescribed under Section 139(1) of the Act. 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 276-CC has been committed on the day immediately following the due date for furnishing return of income.
Therefore, the Court held that the assessee’s contention that the ‘point in time’ when the offence under Section 276-CC 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 276-CC of the Act was committed, was correct.
In light of Prakash Nath Khanna (supra), the date for commission of both of the offences in the matter at hand would be the day falling immediately next to the due date for filing of the return, that is 01-10-2011 for AY 2011-12 and 01-11-2013 for the AY 2013-14.
In the matter at hand, the Court said that the offence under Section 276-CC of the Act 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. Thus, the offence for the AY 2011-12 could be said to have been committed on 01-10-2011 and the offence for the AY 2013-14 could be said to have been committed on 01-11-2013.
THEREFORE, the Court held that both the offences under Section 276-CC of the Act were committed prior to the date of issue of any show cause notice for prosecution.
The Court noted that Paragraph 8 of the 2014 guidelines defines ‘first offence’ as any offence committed: a. Prior to the date of issuance of any show cause notice for prosecution in relation to the said offence; or b. 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. The Court said that according to Paragraph 12.4 of the 2014 guidelines, the compounding fee to be levied in the case of an offence under Section 276-CC, is to be reckoned from the date immediately following the date on which the return was due and this is in consonance with Section 139(8) of the Act and further fortifies the assessee’s argument that it is not the date of actual filing of belated return, but the date immediately following the due date for filing of return which is to be considered as the date of commission of the offence.
“Paragraph 4 of the 2014 guidelines specifies that compounding is not a matter of right of the assessee and the competent authority may allow the compounding application upon being satisfied that the applicant fulfills the eligibility conditions and keeping in mind the conduct of the applicant, nature and magnitude of the offence and the facts and circumstances of each case.”
The Court stated that the restrictions laid down in Paragraph 8 of the guidelines 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.
Conclusion
Thus, setting aside the impugned decision, the Court directed that the assessee shall prefer a fresh application for compounding before the competent authority within two weeks from the date of this judgment and the same shall be adjudicated by the competent authority having regard to the conduct of the assessee, 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. The Court clarified that the proceedings pending before the Trial Court shall remain stayed pending the decision of the competent authority on the compounding application.
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