CBDT revises Guidelines for Compounding of Offences under Direct Tax

CBDT revises Guidelines for Compounding of Offences under Direct Tax Laws, 2019

Section 279(2) of the Income Tax Act, 1961 (the Act) provides that any offence under Chapter XXII of the Act may, either, before or after the institution of proceedings, be compounded by the Pr. CCIT/CCIT/Pr. DGIT/DGIT. As per section 2(15A) and 2(21) of the Act, Chief Commissioner of Income Tax includes Principal Chief Commissioner of Income Tax, and Director General of Income Tax includes Principal Director General of Income Tax.

CBDT has released revised Guidelines for Compounding of Offences under Direct Tax Laws, 2019. The revised Guidelines replace earlier Guidelines on this subject, including the Guidelines of the Board issued vide F. No.285/35/2013 IT (Inv.V)/ 108 dated 23rd December 2014.

These Guidelines are issued in exercise of power u/s 119 of the Act read with explanation below sub-section (3) of section 279 of the Act. These Guidelines shall come into effect from 17.06.2019 and shall be applicable to all applications for compounding received on or after the aforesaid date. The applications received before 17.06.20 19 shall continue to be dealt with in accordance with the Guidelines dated 23.12.2014

Compounding is not a matter of right

It has been clarified that Compounding of offences is not a matter of right. However, offences may be compounded by the Competent Authority on satisfaction of the eligibility conditions prescribed in these Guidelines keeping in view factors such as conduct of the person , the nature and magnitude of the offence in the context of the facts and circumstances of each case.

Applicability Compounding Guidelines to prosecutions under IPC

It has been clarified that Prosecution instituted under Indian Penal Code(‘IPC’), if any, cannot be compounded . However, section 321 of Criminal Procedure Code, 1973, provides for withdrawal of such prosecution. In cast: the prosecution complaint filed under the provisions of both Income-tax Act, 1961 and the IPC are based on the same facts and the complaint under the Income-tax Act, 1961 is compounded, then the process of withdrawal of the complaint under the IPC may be initiated by the Competent Authority.

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 Offences.

Eligibility Conditions for Compounding

The Guidelines prescribes the format of the application and all the conditions that should be satisfied for considering compounding of an offence.

Offences normally not to be compounded

The guidelines also list out the offences that are generally not to be compounded. However, the Finance Minister may relax restrictions for compounding of an offence in a deserving case, on consideration of a report from the Board on the petition of an applicant.

Authority Competent to Compound an Offence

Normally the Pr. CCIT/CCIT/Pr. DGIT/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 in certain cases, prior approval of a Committee comprising of three officers of the Region concerned , namely Pr. CCIT/CCIT/Pr. DGIT/DGIT having jurisdiction over the case and two other Officers of the rank of Pr.CCIT/CCIT/Pr. DGIT/DGIT constituted by the Pr.CCIT of the Region has been prescribed.

Compounding Procedure

Detailed compounding procedure starting with timeline from receipt of comprising procedure has been prescribed. The Competent Authority  shall pass the compounding order within one month from the end of the month of payment of compounding charges. 

Compounding Charges

The fees for compounding of offences shall be computed depending the gravity of offence and various offences. 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 existing records with the Government and the counsels.

Format of Application

Format of application in the form of Affidavit for Compounding of Offences under Income-tax Act, 1961 to be submitted separately by each applicant

Check List for Compounding

A Check List for Compounding has been also prescribed to be submitted by AO/ADIT/DDIT to the authority competent to compound through proper channel

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