M/S SUPERNOVA SYSTEM PRIVATE LIMITED vs. CHIEF COMMISSIONER OF INCOME TAX 2

Petitioner   has   challenged   the   computation   of compounding fees made by the respondents to enable the petitioner to avoid penalty proceedings.

Brief facts are as under.

Petitioner   is  a  private   limited  company.     For the assessment year 2008­09, the petitioner had filed the   return   of   income   declaring   total   income   of Rs.17,18,090/­ and claimed refund of Rs.6,68,460/­. During   the   course   of   scrutiny   assessment,   the Assessing Officer objected to the assessee's claim of deduction for the provisions of income tax of a sum of Rs.8.70 lakhs.  The representative of the assessee accepted   it   as   an   error   and   agreed   to   such   claim being   disallowed.     The   Assessing   Officer   thereupon passed   the   order   of   assessment   on   24.12.2010. He also instituted penalty proceedings.   He passed an order   of   penalty   under   section   271(1)(c)   of   the Income   Tax   Act,   1961   ('the   Act'   for   short)   on 15.03.2013, in which, he imposed penalty at the rate of 100% of the tax sought to be evaded.   He thus, levied penalty of Rs.2,61,000/­.  Petitioner's appeal against such order was rejected.   Subsequently, the Revenue issued a notice on 23.02.2017 for initiating prosecution   against   the   petitioner   under   section 276C(1)   of   the   Act.     Subsequently,   the   petitioner also   received   a   notice   dated   30.03.2017   from   the concerned   Magistrate.     The   petitioner   thereupon applied to the Chief Commissioner of Income Tax on 05.09.2017   and   requested   that   the   offense   be compounded.   He offered to pay the compounding fees as   may   be   prescribed. In   response   to   such application of the petitioner, the department wrote to the petitioner on 20.03.2018 asking the petitioner to pay the compounding fees of Rs.10,49,000/­ before 31.03.2018. It was conveyed that if the petitioner does not pay such amount within the prescribed time, the   application   for   compounding   would   be   rejected. Along with this letter, the department had attached an annexure which shows the detailed computation of such   sum   of   Rs.10,49,000/­   towards   the   total   of compounding charges.  This annexure reads as under: S.No. Description 1 Name of the assessee M/s Supernova Systems Pvt. Ltd. 2 Status Pvt. Limited Company 3 PAN AAECS 9195 B 4 Assessment year 2008-09 5 Date of passing penalty order u/s 271(1)(c) of the Act and issue of 15/03/2013 demand notice Quantum of addition confirmed penalty 271(1)(c) of the Act 2,61,000/- 7 Amount of compounding fees: i) 100% of amount sought to be evaded as per para-12.2 of compounding guidelines. (ii) Liability of Directors u/s 278B: 10% of compounding fees (Shri Trupti S Mistry who digitally signed the return of income) (iii)

The petitioner

Since   the   department   did   not   accept   the petitioner's view point, the present petition came to be filed.

Short question that calls for consideration is what would be the basic compounding charges that the petitioner must pay in order to avail the offer for compounding the offense.   The primary facts are not in dispute.   In the assessment of the petitioner's return, an addition of Rs.8.70 lakhs came to be made. This gave rise to additional tax of Rs.2.61 lakhs.  A penalty of Rs.2.61 lakhs at the rate of 100% of the tax sought to be evaded was also imposed in terms of section 271(1)(c) of the Act.

Section   276C   of   the   Act   pertains   to   willful attempt to evade tax, etc.  Sub­section (1) of which at the relevant time read as under: 276C. Wilful attempt to evade tax, etc. (1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable   or   imposable   under   this   Act,   he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable,­ (i) in a case where the amount sought to be evaded exceeds twenty­five hundred thousand rupees,   with   rigorous   imprisonment   for   a term   which   shall   not   be   less   than   six months but which may extend to seven years and with fine; (ii) in   any   other   case,   with   rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and with fine.

Section   279   of   the   Act   pertains   to   the prosecution to be at instance of the Principal Chief Commissioner   or   Chief   Commissioner   or   Principal Commissioner or   Commissioner.   Sub­section (1) of section   279   provides   that   a   person   shall   not  be proceeded against for offenses under various sections including   section   276C   of   the   Act   except   with   the previous   sanction   of   the   Principal   Commissioner   or Commissioner   or   Commissioner   (Appeals)   or   the appropriate authority. Sub­section (2) of section 279 provides   that   any   offense   under   this   chapter   may, either before or after institution of the proceedings be compounded by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or the Director General.

In  terms   of  such   compounding   powers,   the   CBDT has been issuing circulars for providing guidelines for   compounding   offenses   under   the   Act.     We   are concerned   with   the   latest   guideline   issued   on 23.12.2014   issued   by   the   CBDT.     This   circular contains   detailed   provisions   and   procedure   for compounding offenses under the Act.

Para 12 of the said circular pertains to fees for compounding.   In the context of section 276C(1) of the Act, para 12.2 prescribes fees for compounding as under: “12.2   Section   276C(1)­   Wilful   attempt   to evade tax etc. 100% of the amount sought to be evaded.”

Para 12.2 of the said circular thus prescribes compounding fees for offense under section 276C(1) at 100% of the amount sought to be evaded. This para also   starts   with   an   expression   “Section   276C(1)­ Wilful attempt to evade tax etc.”.  The title of this para thus, is taken from the section itself and the compounding fee is to be computed at the rate of 100% of the amount sought to be evaded.  Since this para does   not   contain   any   specification   of   “the   amount sought   to   be   evaded”,   we   may   fall   back   on   the statutory   provisions   in   relation   to   which,   this compounding fee is prescribed.   Sub­section (1) of section 276C, as noted, prescribes punishment for a person who willfully attempts in any manner to evade any   tax,   penalty   or   interest   chargeable   under   the Act.  This could be without prejudice to any penalty that may be imposable on him under any provisions of the   Act.     Under   such   circumstances,   as   per   the sections   stood   at   the   relevant   time,   the   person concerned would be punishable; (i) In   case   where   the   amount   sought   to   be evaded   exceeds   Rs.250,000/­,   with   rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine and; (ii) In   any   other   case   with   rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and with fine.

This provision thus while prescribing punishment for willful attempt to evade tax, penalty or interest chargeable, provides for a more severe punishment in case   the   amount   sought   to   be   evaded   exceeds Rs.250,000/­.  For the rest, punishment prescribed is lesser.     This   prescription   of   punishments   in   two categories is thus linked with the amount sought to be evaded.   This amount sought to be evaded is in relation with the action of a person of a willful attempt to evade tax, penalty or interest chargeable. In the prescription of punishment thus, when there is a reference to amount sought to be evaded, it must be seen in light of the willful attempt on the part of the   concerned   person   to   evade   tax,   penalty   or interest.   This provision thus, links the severity of punishment on the amount sought to be evaded and thus, in turn has relation to the attempt at evasion of tax, penalty or interest.   Thus, when the CBDT circular refers to the amount sought to be evaded, it must   be   seen   and   understood   in   light   of   the provisions contained in section 276C(1) and in turn must be seen as amount sought to be evaded.  100% of tax   sought   to   be   evaded   would   be   the   basic compounding fees which in the present case would be Rs.2,71,000/­   and   not   Rs.8,70,000/­   as   computed   by the   departmental   authorities.     The   rest   of   the computation   is   consequential   and   automatic.     The impugned communication dated 20.03.2018 is therefore set   aside.     The   respondent   shall   carry   out   fresh computation   of   the   petitioner's   liability   to   pay compounding charges in terms of this order.  We are informed   that,   to   avoid   any   complication,   the petitioner   has   under   protest,   paid   up   the   entire amount   of   Rs.10,49,000/­   as   demanded   by   the department.  Once such fresh computation is made, the excess   would   be   refunded   by   the   department   to   the petitioner latest by 31.10.2018. 13. Petition is disposed of accordingly. (AKIL KURESHI, J) (B.N. KARIA, J) ANKIT SHAH