Facts of the Case

The petitioner company filed a writ petition challenging an order dated 19.01.2023 passed by the Income Tax Department, wherein the application for compounding of offences was not satisfactorily addressed.

The dispute primarily concerned the rate of compounding fee imposed for failure to deposit tax deducted at source (TDS). The department levied a 5% compounding fee, whereas the petitioner contended that the offence fell under Category ‘A’, attracting only 3% fee as per the 2019 Guidelines.

The petitioner had already deposited a substantial portion of the compounding fee and later deposited the additional amount calculated at 3% for all relevant financial years (2016–17, 2017–18, 2018–19).

Issues Involved

  1. Whether the offence under Section 276B qualifies as a Category ‘A’ offence under the 2019 Guidelines.
  2. Whether the compounding application filed for multiple years constitutes a “first occasion”.
  3. Whether the compounding fee should be calculated at 3% or 5% of the tax default.

Petitioner’s Arguments

  • The offence under Section 276B is a Category ‘A’ offence, thus compounding fee must be 3%.
  • The application for compounding was filed for the first time, covering multiple financial years, hence qualifies as a “first occasion”.
  • The higher rate of 5% imposed by the department is contrary to the Guidelines.
  • The petitioner complied with court directions and deposited the required amount calculated at 3%.
  • Only one director was responsible for company affairs; others should not be held liable.

Respondent’s Arguments

  • The department initially imposed 5% compounding fee based on its interpretation of the Guidelines.
  • It confirmed receipt of the additional amount deposited by the petitioner.
  • No counter-affidavit was filed to strongly oppose the petitioner’s claim.

Court’s Findings / Judgment

  • The Court held that the compounding application filed for multiple financial years constituted a “first occasion”.
  • It ruled that the offence falls under Category ‘A’, making 3% the applicable compounding fee.
  • The imposition of 5% was incorrect and unsustainable.
  • The impugned order dated 19.01.2023 was set aside.
  • The Court directed the department to pass fresh orders for compounding of offences, considering that the full fee had already been paid.
  • The writ petition was disposed of in favour of the petitioner.

Important Clarifications by the Court

  • A single compounding application covering multiple years can still be treated as a first offence/first occasion.
  • Once compounding is allowed and payment is made, prosecution cannot proceed further under Section 279.
  • Correct classification of offence category is crucial for determining compounding fees.

Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/60825092023CW24572023_165124.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.