Income Tax | Revised 2024 Compounding Guidelines Cannot Be Applied After Case Attains Finality: Madras High Court
The Madras High Court held that once the assessee's entitlement to compounding had attained finality through earlier orders, then the Income Tax Department could not apply the revised Compounding Guidelines. Justice C. Saravanan referred to the Explanation to Section 279(6) of the Income Tax Act, 1961 and noted that the new compounding Guidelines dated 17.10.2024 bearing...
The Madras High Court held that once the assessee's entitlement to compounding had attained finality through earlier orders, then the Income Tax Department could not apply the revised Compounding Guidelines.
Justice C. Saravanan referred to the Explanation to Section 279(6) of the Income Tax Act, 1961 and noted that the new compounding Guidelines dated 17.10.2024 bearing reference F.No.285/08/2014-IT (Inv.V) would apply, only if a new application is/was filed in terms of paragraph 3.2 of the said guidelines.
In the case at hand, the petitioner/assessee is a senior citizen who sought compounding of offences under Sections 276C and 277 of the Income Tax Act related to the undisclosed foreign bank deposits.
An application was filed by the assessee under Section 279 of the Income Tax Act before the Director General of Income Tax, which was rejected. The assessee challenged the said order by filing a writ petition, which was allowed.
The assessee filed a fresh application for compounding of offences under Section 279(2) of the Income Tax Act, 1961, which was rejected. The reasons given for rejecting the application were based on the CBDT guidelines dated 16.05.2008.
The assessee filed a third compounding application before the Director General of Income Tax, which was again rejected. The assessee filed a petition, which was allowed, and the case was remitted back to the Director General of Income Tax for a fresh order.
The department challenged the order before the Madras High Court, which was dismissed. A further appeal was filed by the department before the Supreme Court, which was dismissed.
The Director General of Income Tax (Investigation), Tamil Nadu & Puducherry, has issued the impugned communication on 11.06.2025, wherein reliance has been placed on the Compounding Guidelines dated 17.10.2024. By the impugned communication, the assessee has been asked to pay a sum of Rs. 1.29 crores.
The counsel for the assessee submitted that once the dispute had reached the stage of finality during the earlier proceedings before this Court between the parties, there is no scope for imposing a higher compounding fee, as per the new compounding Guidelines dated 17.10.2024.
The department relying upon Section 279(2) and the explanation to the Section 279(6) submitted that as per the explanation, the Board has a power to issue orders, instructions or directions under the Income Tax Act, 1961, which shall include and shall be deemed to has always included the power to issue instructions or directions (including instructions or directions to obtain the previous approval of the Board) to other income-tax authorities for the proper composition of offences under Section 279 of the Income Tax Act, 1961.
The bench stated that the question of imposing the revised Guidelines dated 17.10.2024 bearing reference F.No.285/08/2014-IT (Inv.V) in the light of the Explanation to Section 279(6) of the Income Tax Act, 1961, was not available to the department.
Only if a new application was file independently in terms of Paragraph 3.2 of the new compounding Guidelines dated 17.10.2024 bearing reference F.No.285/08/2014-IT (Inv.V), the respondents would have been justified in imposing the content of it, in the light of Explanation to Section 279(6) of the Income Tax Act, 1961, added the bench
The bench held that only the CBDT Guidelines in F.No.285/90/2008-IT(Inv.)/12 dated 16.05.2008 were to be applied. Since the Director General of Income Tax (Investigation), Tamil Nadu & Puducherry, in the impugned communication, has applied the revised Guidelines dated 17.10.2024 bearing reference F.No.285/08/2014-IT(Inv.V) as in force with effect from 17.10.2024, the impugned order is liable to be set aside.
The bench remanded the matter to the concerned authority to issue a fresh calculation of the compounding fee to be paid after adjusting the compounding fee already paid by the assessee.
In view of the above, the bench allowed the petition.
Case Title: K.M. Mammen v. The Principal Commissioner of Income Tax
Citation: 2025 LiveLaw (Mad) 498
Case Number: W.P. No. 24029 of 2025
Counsel for Petitioner/Assessee: J. Sivanandaraj
Counsel for Respondent/Department: A.P. Srinivas and A.N.R. Jayaprathap