In a landmark ruling, the Supreme Court of India has overturned the Gujarat High Court’s 2017 judgment, which had upheld the rejection of a compounding application for Assessment Year (AY) 2013-14 due to the late filing of an income tax return. The key contention was whether an offence under Section 276CC of the Income Tax Act, 1961—failure to file returns on time—could be compounded more than once. The Gujarat High Court ruled that compounding was allowed only for a “first offence.” However, the Supreme Court clarified that “first offence” refers to any offence committed before the issuance of a show-cause notice, irrespective of prior compounding.
Key Facts of the Case
- The assessee filed a delayed return for AY 2011-12 on March 4, 2013, while the due date was September 30, 2011.
- The Income Tax Department initiated prosecution under Section 276CC and issued a show-cause notice on October 27, 2014.
- The assessee applied for compounding, which was accepted on November 11, 2014 under the Guidelines for Compounding of Offences, 2008.
- For AY 2013-14, the assessee again filed a belated return on November 29, 2014, after the due date of October 31, 2013.
- A show-cause notice for prosecution was issued on March 12, 2015, leading the assessee to seek compounding under the Direct Tax Compounding Guidelines, 2014.
- This application was rejected in 2017, as the authorities interpreted the 2014 Guidelines to mean that only the first offence could be compounded.
- The Gujarat High Court upheld the rejection, stating that the compounding authority need not consider the reasons for the delay.
Supreme Court’s Interpretation: ‘First Offence’ and Compounding
A bench of Justices J.B. Pardiwala and Sanjay Karol ruled that the offence under Section 276CC for AY 2013-14 fell within the definition of “first offence” under the 2014 Guidelines, because:
- The first offence is considered committed on the day immediately after the due date for filing the return—i.e., October 1, 2011 (AY 2011-12) and November 1, 2013 (AY 2013-14).
- The show-cause notice for AY 2013-14 was issued later, in 2015.
- The 2014 Guidelines define “first offence” as any offence committed before the show-cause notice, making both AY 2011-12 and AY 2013-14 eligible for compounding.
The Court also referenced Prakash Nath Khanna v. CIT (2004), reaffirming that an offence under Section 276CC is committed immediately after the due date, irrespective of when the return is filed.
Impact of the Judgment
- Expands the scope of compounding under the Direct Tax Laws, 2014.
- Clarifies that multiple offences can be compounded, provided they were committed before a show-cause notice was issued.
- Protects taxpayers from undue prosecution if the delay was before a notice.
- Sets a precedent for similar cases, ensuring fair application of compounding provisions.
Court’s Order
The Supreme Court quashed the rejection order, directing the appellant to file a fresh compounding application within two weeks. If accepted, the criminal proceedings will be abated.
Case Details:
- Case Name: VINUBHAI MOHANLAL DOBARIA Vs CHIEF COMMISSIONER OF INCOME TAX
- Petition Number: SPECIAL LEAVE PETITION (C) NO. 20519 OF 2024
- Date of Judgment: January 7, 2024
This ruling significantly impacts tax litigation and compliance, reinforcing the taxpayer’s rights under the Income Tax Act, 1961.
