Guidelines For Compounding Of Offences Under Direct Tax Laws 2014

Compounding of Offences Under Income Tax:

 

According to provisions of Section 279(2) any offence under the Chapter XXII (Offences and Prosecutions) may, either before or after institution of proceedings is compounded by the Principal Chief Commissioner or Chief Commissioner or a Principal Director General¹ or Director General.

 

Compounding of offences is not a matter of right. However, offences may be compounded by the competent authority on his satisfaction of the eligibility conditions prescribed in these guidelines keeping in view factors such as conduct of the person; nature and magnitude of the offence and facts and circumstances of each case. 

Competent Authority for Compounding:

The CCIT/DGIT( CCIT includes Principal CCIT and DGIT includes Principal DGIT) having jurisdiction over the person, seeking compounding of an offence, is the competent authority for compounding of all Category 'A' and Category 'B' offences. 

However, an order in case of an application for compounding of an offence appearing in Category 'B', involving compounding charges in excess of Rs.10,00,000 (Rs. ten lakhs) shall be passed by the CCIT/DGIT concerned only on the recommendation of a committee comprising of 3 officers of the region concerned, namely (i) Principal CCIT, (ii) DGIT (Inv.) and (iii) CCIT/DGIT having jurisdiction over the case. In case such officers are not available within the region, the nearest DGIT or CCIT may be co-opted as Member. 

Where Principal CCIT / DGIT (Inv) is the CCIT/DGIT having jurisdiction over the case, then another officer of the rank of CCIT may be co-opted as a member of the Committee. The CCIT/DGIT having jurisdiction over the case will act as the Member Secretary who will also co-opt such other member as the case may be, and convene the meeting, as well as maintain its minutes. 

Compounding Procedure: 

On receipt of the application for compounding, the same shall be processed by the Assessing Officer or Assistant or Deputy Director concerned and submitted promptly to the authority competent to compound. 

In supersession of theguidelines issued vide F.No. 285/90/2008-IT(Inv.)/12 dated 16^thMay 2008 Inserted by the Finance Act (No.2) Act, 2014 w.r.e.f 01/06/2013 

The competent authority shall duly consider and dispose of everyapplication for compounding through a speaking order in the prescribedformatwithin the time limit prescribed by the Board fromtime to time. 

In absence of such a prescription, the application should bedisposed of within 180 days of its receipt. However, while passingorders on the compounding applications, the period of time allowed to theassessee for paying compounding charges shall be excluded from thelimitation specified above. 

Where compounding application is found to be acceptable, the competentauthority shall intimate the amount of compounding charges to theapplicant requiring him to pay the same within 60 days of receipt of suchintimation. 

Under exceptional circumstances and on receipt of a writtenrequest for further extension of time, the competent authority may extendthis period up-to further period of 120 days. Extension beyond this periodshall not be permissible except with the previous approval of the Member(Inv), CBDT on a proposal of the competent authority concerned. 

However, wherever the compounding charges paid beyond 60 days as extended by the competent authority, the applicant shall have to pay additional compounding charges @ 2% per month or part of the month of the unpaid amount of compounding charges. 

The competent authority shall pass the compounding order within 30days of payment of compounding charges. Where compounding charge isnot deposited within the time allowed, the compounding application maybe rejected after giving the applicant an opportunity of being heard. Theorder of rejection shall be brought to the notice of the Court immediatelythrough prosecution counsel in the cases where prosecution had beeninstituted. 

The prescribed compounding charges shall be applicable while compounding any offence. However, in extreme and exceptional cases of genuine financial hardship, the compounding charges may be suitably reduced with approval of the Finance Minister. 

The compounding charges shall include compounding fee, prosecution establishment expenses and litigation expenses including Counsel's fee. Prosecution establishment expenses will be charged at the rate 10% of the compounding fees subject to a minimum of Rs.25,000/- in addition to litigation expenses including Counsel's fees paid/payable by the Department in connection with offence(s) compounded by a single order.

In a case where the litigation expenses are not readily ascertainable, the competent authority may arrive at litigation expenses, inter alia, on the basis of rates prescribed by the Government and on the basis of available records with the government and the counsels. 

Classification of Offences: 

The offences under Chapter-XXII of the Act are classified into two parts (Category 'A' and Category B') for the limited purpose of compounding of theoffences. 

Category A:

	Section		Remarks
	276		(Prior to 01/04/1976)- Failure to make payment or deliver returns or statements or
			allow inspection
	276B		(Prior to 01/04/1989)- Failure to deduct or pay tax
			(From 01/04/1989 and up to 30/05/1997)- Failure to pay tax deducted at source
			under Chapter – XVII- B
			(From 01/06/1997)- Failure to pay tax deducted at source under Chapter- XVII-B
			or tax payable under section 115-O or 2nd proviso to section 194B to the credit of
			the Central Government.
	276BB		Failure to pay the tax collected at source
	276DD		(Prior to 01/04/1989)- Failure to comply with the provisions of section 269SS
	276E		(Prior to 01/04/1989)- Failure to comply with the provisions of section 269T
	277		False statement in verification etc… with reference to Category 'A' offences
	278		Abetment of false return etc… with reference to Category 'A' offences

Category B:

	Section		Remarks
	275A		Contravention of order made U/S 132(3)
	275B		Failure to comply with the provisions of section 132(1)(iib)
	276		Removal, concealment, transfer or delivery of property to thwart tax recovery
	276A		Failure to comply with the provisions of sections 178(1) and 178(3)
	276AA		(Prior to 01/10/1986) – Failure to comply with the provisions of section 269AB or
			Section 269I
	276AB		Failure to comply with the provisions of sections 269UC,269UE and 269UL
	276C(1)		Wilful attempt to evade tax etc.
	276C(2)		Wilful attempt to evade payment of taxes etc.
	276CC		Failure to furnish return of Income
	276CCC		Failure to furnish return of income in search cases in block assessment
	276D		Failure to produce accounts and documents
	277		False statements in verification etc... with reference to Category 'B' offences
	277A		Falsification of books of account or documents etc.
	278		Abetment of false return etc. with reference to Category 'B' offences

Eligibility for Compounding: 

The following conditions should be satisfied for considering compounding of an offence:- 

ØTheperson makes an application to the CCIT/DGIT (CCIT includes Principal CCIT and DGIT includes Principal DGIT) having jurisdiction over the case for compounding of the offence(s) in the prescribed format 

ØTheperson has paid the outstanding tax, interest, penalty and any other sum due, relating to the offence for which compounding has been sought 

ØTheperson undertakes to pay the compounding charges including the compounding fee, the prosecution establishment expenses and the litigation expenses including counsel's fee, if any, determined and communicated by the CCIT/DGIT(CCIT includes Principal CCIT and DGIT includes Principal DGIT) concerned.

ØTheperson undertakes to withdraw appeal filed by him, if any, in case the same has a bearing on the offence sought to be compounded. In case such appeal has mixed grounds, some of which may not be related to the offence under consideration, the undertaking may be taken for appropriate modification in grounds of such appeal. 

Offences generally not compounded: 

ØACategory 'A' offence sought to be compounded by an applicant in whose case compounding was allowed in the past, in an offence under the same section for which the present compounding has been requested, on 3 occasions or more. 

ØACategory 'B' offence other than the first offence.

Note: First offence means offence under any of the Direct Tax Laws committedprior to (a) the date of issue of any show-cause notice for prosecution or (b)any intimation relating to prosecution by the

Department to the personconcerned or (c) launching of any prosecution, whichever is earlier;     OR

Offence not detected by the department but voluntarily disclosed by a personprior to the filing of application for compounding of offence in the case underany Direct Tax Acts. For this purpose, offence is relevant if it is committed bythe same entity. The first offence is to be determined separately withreference to each section of the Act under which it is committed. 

first offence is to be determined separately withreference to each section of the Act under which it is committed.

ØOffences committed by a person who, as a result of investigation conducted by any Central or State agency and as per information available with the CCIT/DGIT concerned, has been found involved, in any manner, in anti-national/terrorist activity 

ØOffences committed by a person who, was convicted by a court of law for an offence under any law, other than the Direct Taxes laws, for which the prescribed punishment was imprisonment for two years or more, with or without fine, and which has a bearing on the offence sought to be compounded 

ØOffences committed by a person which, as per information available with the CCIT/DGIT concerned, have a bearing on a case under investigation (at any stage including enquiry, filing of FIR/complaint) by Enforcement Directorate, CBI, Lokpal, Lokayukta or any other Central or State agency

ØOffences committed by a person for which he was convicted by a court of law under Direct Taxes 

laws

ØOffences committed by a person for which complaint was filed with the competent court 12 months prior to receipt of the application for compounding.

ØOffences committed by a person whose application for 'plea-bargaining' under Chapter XXI-A of 'Code of Criminal Procedure' is pending in a Court or a Court has recorded that a 'mutually satisfactory disposition of such an application is not worked out’

ØAnyother offence, which the CCIT/DGIT concerned considers not fit for compounding in view of its nature and magnitude 

Notwithstanding anything contained in these Guidelines, the FinanceMinister may relax restrictions mentioned above for compounding of an offencein a deserving case, on consideration of a report from the Board on the petitionof an applicant. 

These guidelines shall come into effect from 01.01.2015 and shall be applicable to all applications for compounding received on or after the aforesaid date. The applications received before 01.01.2015 shall continue to be dealt with in accordance with the guidelines dated 16.05.2008.

This article is contributed by Partners of SBS and Company LLP – Chartered Accountant Company You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.