CBDT Issues Stricter Guidelines for Compounding of Offences Under Direct Tax

From 17th June 2019, a more stringent set of norms on compounding of offences came into effect, limiting the options available to certain tax defaulters so as to avoid prosecution. The newly revised guidelines supersede the existing guidelines issued on 23rd December 2014 and shall apply to all compounding applications received henceforth. This article attempts to briefly cover the newly issued directives.

  • Compounding Provision [Sec. 279 (2) Income Tax Act, 1961]

Any offence under Chapter XXII of the Act may be compounded (either before or after institution of proceedings) by the Principal Chief Commissioner of Income Tax or Chief Commissioner of Income Tax or Principal Director General of Income Tax or the Director General of Income Tax.

  • Compounding is not a matter of right

The revised guidelines clearly state that compounding is not a matter of right. However, such relief may be granted by the Competent Authority on satisfaction of eligibility conditions prescribed. Other factors like conduct of the person, nature and magnitude of the offence in the context of facts and circumstances which differ from case to case, shall also be considered by the Board.

  • Compounding of Prosecutions under Indian Penal Code

The guidelines further state that prosecutions under IPC cannot be compounded unless, the complaints filed under both Income Tax Act and IPC are based on same facts and the complaint under IT Act is compounded. In such cases, the Competent Authority may initiate withdrawal of the complaint under IPC, provision for which is stated under Sec. 321 of Criminal Procedure Code.

  • Classification of Offences

The fresh guidelines continue to classify offences in two categories. Offences mentioned in Category A include failure to pay TDS / TCS, failure to file return and are open to compounding. Offences stated in Category B are not compoundable and include wilful attempt to evade tax, failure to furnish books of accounts and other documents or falsification of such documents and making false statements during verification. Moreover, offences under Sections 275A and 275B (which deal with failure to comply with search and seizure action) and 276 (dealing with removal, concealment, transfer or delivery of property to thwart tax recovery) of the Income Tax Act will not be compounded.

  • Offences that are generally non-compoundable

The guidelines also state that Category A offence on more than three occasions and Category B offence other than the first offence, would not be generally compounded. Offences wherein a person was convicted by a court of law under direct tax laws, enabling others to evade taxes, launder money by generating bogus invoices are also not normally compounded. Further, any offence which has bearing on any offence under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 or under the Benami Transactions (Prohibition) Act, 1988 would not be generally compounded. Offences which, as per the information available with the Principal Chief Commissioner of Income Tax and other officials 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 are also mentioned in this category. The Union Finance Minister may relax these restrictions in a deserving case, after obtaining a report from the Board.

  • Other Guidelines

The exhaustive guidelines also further elaborate on relaxation of time, competent authorities, procedure and charges among other processes for compounding of offences.

Click here to see guidelines.