Madras HC Strikes Down CBDT Circular Clause That Fixed 12 Months Time Limit For Filing Application For Compounding Of Offences

The Madras High Court has struck down a CBDT Circular clause which fixed the time limit, to file the application for compounding of offences, as 12 months from the date of prosecution

The court allowed a writ petition challenging the Clause 7(ii) of the circular dated 14.06.2019 issued by Central Board of Direct Taxes [CBDT].

A Single Judge Bench of Justice Krishnan Ramasamy observed that “the CBDT is not empowered to fix the time limit for filing the application for compounding of offences, which is contrary to the provisions of Section 279(2) of the IT Act. Thus, in terms of Section 279(2) of the IT Act, the petitioner can file the application for compounding of offences either before or subsequent to the launching of the prosecution”.

Advocate R. Sivaraman appeared for the Petitioner/ Assessee while the Respondent/ Revenue was represented by Advocate Dr. B. Ramaswamy.

The brief facts of the case were that the assessee, an individual, had sold an immovable property and re-invested the sale consideration in purchase of another immovable property in the same year but did not file any income tax return under an incorrect understanding of the law. Having realized the error, the assessee subsequently filed the return and was subjected to prosecution. The AO however, rejected assessee’s application for compounding of offences under Section 279(2), on the ground that it is barred by limitation as prescribed by the CBDT Circular dated June 14, 2019.

After considering the submission, the Bench noted that, in the present case, since the prosecution was launched on Sep 14, 2016, the application for compounding of offences was supposed to be filed by the assessee on or before Sep 13, 2017, however the application was filed on Sep 14, 2019, clearly beyond the period of prescribed time limit.

Further, the Bench observed that as per Section 119(1), the CBDT is empowered to issue circulars, directions, instructions etc., however the same should not be beyond the scope of the Act.

Pointing out that the legislative intent for bringing Section 279(2) is to permit the assessee to go for compounding of offences either before institution of proceedings or after institution of proceedings, the Bench highlighted that the CBDT, contrary to the legislative intent, issued the Circular intending to fix the time limit, which almost amounts to amendment of Section 279(2).

Thus, the Bench clarified that issue of a Circular fixing a time limit for filing application for compounding of offences is contrary to the provisions of the Act and not permissible in terms of Section 279(2).

Therefore, holding that the CBDT is not empowered to fix the time limit for filing the application for compounding of offences as it is contrary to the provisions of Section 279(2) and that the assessee can file the application for compounding of offences either before or subsequent to the launching of the prosecution, the High Court remitted the matter back to the Revenue Department with the direction to decide the same on merits and in accordance with law.

Cause Title: Jayshree v. Central Board of Direct Taxes and Ors.

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