Income Tax Act | Offence Committed Before Show-Cause Notice Compoundable As Covered By 'First Offence' In Compounding Guidelines: Supreme Court

 The Supreme Court on January 7 set aside the Gujarat High Court's judgment dated March 21, 2017, through which the rejection to the compounding application of the Appellant for the assessment year 2013-2014, for having filed the belated income tax return, was upheld on the ground that only for the "first offence" compounding of offence is possible. Since the Appellant had filed delayed income tax for 2011-2012 and his compounding application was accepted, it now cannot be accepted.

However, the Supreme Court observed that the "first offence" is the offence committed prior to the showcause notice, which was the case here for both years. 

As per brief facts, an assessee filed a return for the year 2011-12 on March 4, 2013, though the due date was September 30, 2011. Since the income tax was not filed before the due date, the Assistant Commissioner of Income Tax sent a proposal for the prosecution of the assessed under Section 276CC (failure to furnish returns of income) of the Income Tax Act on October 27, 2014. However, the assessee sought compounding of the offence under the Guidelines for Compounding of Offence, 2008. This application, also for 2012-2013, was accepted on November 11, 2014.

For 2013-2014, the assessee again filed the return after the due date(October 31, 2013) on November 29, 2014. Thereafter, he received the notice of prosecution under Section 276CC for 2013-2014 on March 12, 2015. But he again sought compounding of offence which came to be rejected in 2017 on grounds that only in the case of "first offence" is the compounding permissible as per the Guidelines for compounding offence under the Direct Tax Laws, 2014 (2014 Guidelines).

This order was upheld by the High Court while stating that the compounding authority need not look into the circumstances surrounding the delay in filing the return because that is to be looked at at the stage of trial.

A bench of Justices J.B. Pardiwala and Sanjay Karol has held that the offence as alleged to have been committed by the Appellant under Section 276CC for the year 2013-2014 fell within the expressed of "first offence" under the 2014 Guidelines.

This is because the "first offence" means offence committed prior to the issuance of show cause, which in this case for the year 2013-2014 was issued in 2015. The Court held that the offence with respect to 2013-2014 is said to be committed on the day falling immediately next to the due date for filing of return, that is 01.11.2013 for the AY 2013-14. However, the show-cause notice was issued in 2015 after the date of the offence

On when the offence of Section 276CC is committed 

The Court relied upon Prakash Nath Khanna v. CIT (2004) and held:

"What is discernable from the aforesaid decision is that an offence under Section 276CC could be said to have been committed as soon as there is a failure on the part of the assessee in furnishing 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 276CC has been committed on the day immediately following the due date for furnishing return of income.

...The due-date for filing the return of income for the AY 2011-12 was 30.09.2011. The appellant filed his return with delay on 04.03.2013. Hence, as the return was filed beyond the due date for filing the return, an offence under Section 276CC could be said to have been committed by the appellant prima facie. 

In view of the dictum laid in Prakash Nath Khanna (supra), the date for commission of both of these offences would be the day falling immediately next to the due date for filing of return, that is 01.10.2011 for AY 2011-12 and 01.11.2013 for the AY 2013-14."

On compounding 

The 2008 Guidelines superseded the 2014 Guidelines when the compounding application for 2013-2014 was preferred. As per the expression "first offence" defined under the 2014 Guidelines, it has to be committed

a. prior to the date of show cause for prosecution, and

b. prior to any intimation of prosecution by the department to the concerned person or prior to launching any prosecution, whichever is earlier. 

The Court observed:

"As discussed above, the show cause notice for the AY 2011-12 was issued to the appellant on 27.10.2014. However, the offence under Section 276CC 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, it can be said without a cavil of doubt that both the offences under Section 276CC of the Act were committed prior to the date of issue of any show cause notice for prosecution."

Based on this finding, the Court also set aside the rejection application and directed the Appellant to file a fresh application within 2 weeks of this judgment. If the fresh compounding application is accepted, the proceedings before the trial court shall stand abated. 

Case Details: VINUBHAI MOHANLAL DOBARIA Vs CHIEF COMMISSIONER OF INCOME TAX|SPECIAL LEAVE PETITION (C) NO. 20519 OF 2024)

Citation : 2025 LiveLaw (SC) 173

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