As the new government has made it amply clear that it is dead serious on combating corruption so is it on tax compliances.In this context the recent changes regarding compounding are worth paying close attention.
What is compounding:
Section 279(2) of 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 meaning thereby that an assessee can apply for absolving of all defaults by paying whatever is agreed under this chapter and can save himself from further prosecution, litigation etc.
What is chapter XXII:
This chapter of the Income tax Act deals specifically with “Offences and Prosecutions” under Income tax act
Compounding is not a right
It may be provided by the competent authority provided the assessee satisfies the eligibility criteria given in these guidelines.
Category and offences:
The offences are divided into two category explained as follows:
offences under sec 275A,275B and 276C can not be compounded
Eligibility for compounding:
An application is made to the Pr. CCIT/CCIT/Pr. DGIT/DGIT having jurisdiction over the case for compounding of the offence(s) in the prescribed format (Annexure–1) in the form of an affidavit on a stamp paper of Rs.] 00/-.
The compounding application may be filed suo-moto at any time after the offence(s) is committed irrespective of whether it comes to the notice of the Department or not. However, no application of compounding can be filed after the end of 12 months from the end of the month in which prosecution complaint, if any, has been filed in the court of law in respect of the offence for which compounding is sought.
The person has paid the outstanding tax, interest (including interest u/s. 220 of the Act), penalty and any other sum due, relating to the offence for which compounding has been sought before making the application. However, if any related demand is found outstanding on verification by the Department, the same should be intimated to the applicant and if such demand including interest u/s 220 is paid within 30 days of the intimation by the Department, then the compounding application would be deemed to be valid.
The person undertakes to pay the compounding charges determined in accordance with these Guidelines by the Pr. CCIT/CCIT/Pr. DGIT/DGIT concerned.
The person undertakes to withdraw appeals filed by him, if any, related to the offence(s) sought to be compounded. In case such appeal has mixed grounds, one or more of which may not be related to the offence(s) under consideration, an undertaking shall be given for withdrawal of such grounds as are related to the offence to be
Any application for compounding of offence u/s 276B/276BB of the Act by an applicant for any period for a particular TAN should cover all defaults constituting offence u/s 276B/276BB in respect of that TAN for such period
Offences that can not be compounded:
Category A offence more than 3 occurrence .However if more than three times can be compounded by the approval of committee as defined in these guidelines
Category B offence other than that defined in these guidelines
Offences where the person was convicted by court of law in matter of Direct taxes
Where application for compounding has been rejected except where rectification is available
The cases of a person as main accused where it is proved that he has enabled others in tax evasion such as, through entities used to launder money or generate bogus invoices of sale/purchase without actual business, or by providing accommodation entries in any other manner as prescribed in section 277A of the Act.
Offences committed by a person who, as a result of investigation conducted by any Central or State Agency and as per information available with the Pr. CCIT/CCIT/Pr. DGIT/DGIT concerned, has been found involved, in any manner, in anti-national/terrorist activity.
Offences committed by a person who was convicted by a court of law for an offence under any law, other than the Direct Taxes Laws, for which the prescribed punishment was imprisonment for two years or more, with or without fine and which has a bearing on the offence sought to be compounded.
Offences committed by a person which, as per information available with the Pr. CCIT/CCIT/Pr. DGIT/DGIT 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.
Offences committed by a person whose application for ‘plea-bargaining’ under Chapter XXI-A of ‘Code of Criminal Procedure’ in respect of any offence is pending in a Court or where a Court has recorded that a ‘mutually satisfactory disposition of such an application is not worked out’ and such offence has bearing on offence sought to be compounded
Any offence which has bearing on an offence relating to undisclosed foreign bank account/assets in any manner.
Any offence which has bearing on any offence under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
Any offence which has bearing on any offence under the Benami Transactions (Prohibition) Act,1988
Any other offence, which the Pr. CCIT/CCIT/Pr. DGIT/DGIT concerned considers not fit for compounding in view of factors such as conduct of the person, nature and magnitude of the offence.
Occasion and first offence defined:
Multiple application filed in an instance for different A Y shall be considered as one “occasion”
First Offence means offence committed before
a) date of issue of any letter for prosecution
b)any intimation sent by department for filing prosecution
c)launching of prosecution
whichever is earlier
offence not detected by department but declared voluntarily
The occurrence of offence is to be taken separately for each section
Finance minister can relax conditions on filing a petition and on approval of committee under these guidelines
Also the time of filing can be extended provided there is reasonable cause but in this case the compounding charges will be 1.25 times of normal charges
If Compounding charges are less than 10.00 lacs:
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.
If Compounding charges are more than 10.00 lacs:
The Pr. CCIT/CCIT/Pr.DG1T/DGIT concerned only on the 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. In case such officers are not available within the Region, a suitable Officer of the rank of CCIT/DGIT from any nearby Region may be co-opted as Member by the Pr. CCU.
In case of a deductor:
An offence u/s 276B/276BB of the Act for non-payment of TDS in respect of both resident and non-resident deductees and therefore the jurisdiction over such deductor lies with more than one Pr. CCIT/CCIT/Pr. DGIT/DGIT, then the Pr. CCIT/CCIT/Pr. DGIT!DGIT in whose jurisdiction compounding application has been filed will be the Competent Authority. However, he shall compound the offence only on the approval of Committee comprising of three Officers of the rank of CCIT from among the CCIT/DGIT/Pr.CCIT/Pr.DGIT having jurisdiction over the applicant, constituted by the Pr.CCIT of the region
File Application as per jurisdiction
Report obtained from AO/Asst Or Deputy Director alongwith Annexure-2
application to be disposed in speaking order in Annexure-3 within six months of receipt of application
The applicant be informed about the compounding charges in case of acceptance who shall pay the amount in one month however an extension can be given upto 3 months and further to maximum 12 month but this shall be given by the committee defined in these guidelines
If the charges are paid after one month and upto 3 months then 2% per month extra charges to be paid and 3% per month after 3 months
Once the payment is made the compounding order is passed in one month
In case of rejection the competent court is informed
Normally any offence in respect of which the compounding application has been rejected is not considered for compounding . However, if any compounding application has been rejected solely on account of late payment of compounding charges or shortfall in payment of compounding charges and if such shortfall is for some bonafide mistakes or on some other technical grounds, such compounding order can be rectified at the written request of applicant provided the payment of compounding charges was made before rejection or time allowed by the Competent Authority whichever is applicable. A decision to rectify such order can be taken by the Committee after considering various facts and circumstances of the case. However, the applicant will be required to pay interest at 2% or 3% as defined above, on the unpaid compounding charges from the due date of payment as per original intimation of compounding along with the shortfall in compounding charges.
Compounding Fees to be paid :
We have presented the fees to be paid under these guidelines as under:
We have tried to present the guidelines in the minimum possible content however the guidelines being elaborate one if you fees to get any clarification do please write to us at email@example.com