INCOME TAX
INSTRUCTION NO. 5206/1994
Dated: September 30, 1994
Section(s) Referred: 279(2)
Statute: Income - Tax Act, 1961
The existing instructions regarding compounding of offences under the laws relating to Direct Taxes have been reviewed by the Board. After careful consideration of the matter, these revised guidelines are hereby issued.
2.1 The distinction between technical and non-technical offences for the purpose of compounding of offences was removed in Board's Instruction No. 1317 dated 11-03-1980. It has now been decided to reintroduce the concept of technical and non-technical offences for the limited purpose of compounding of the offences.
2.2 Offences punishable under the following sections showed be treated as technical offences:-
Sections (i) 275 (prior to 1.4.75 - failure to make payment or deliver returns or statements or allow inspection)
(ii) 276B (prior to 1.4.89 - failure to deduct or pay tax)
(iii) 276B (w.e.f. 1.4.89 - failure to pay tax deducted at source)
(iv) 276BB (failure to pay the tax collected at source)
(v) 276DD (failure to comply with the provisions of section 269SS)
(vi) 276E (failure to comply with the provisions of section 269-I)
2.3 Offences punishable under the following sections shall be treated as non-technical or substantive offences:- Sections i) 275A (contravention of order made u/s 132(3))
ii) 276 (w.e.f. 1.4.89 - removal, concealment, transfer or delivery of property to thwart tax recovery)
iii) 276A (failure to comply with the provisions of sections 178(1) and 178(3))
iv) 276AA (prior to 1-10-86 - failure to comply with provisions of section 269AB or section 269-I)
v) 276AB (failure to comply with the provisions of section 269UC, 269UE and 269UL)
vi) 276D (wilful attempt to evade tax etc.)
vii) 276DD (wilful failure to furnish returns of Income)
viii) 276D (failure to produce accounts and documents)
ix) 277 (false statement in verification etc.)
x) 278 (abetment of false return etc.)
3. Offences under Indian Penal Code cannot be compounded. They can, however, be withdrawn. Offences under Direct Tax Laws may be compounded subject to the conditions prescribed in paragraph 4 and 5. It must be borne in mind that an assessee cannot claim, as of right, that his offence should be compounded. Factors such as conduct of the assessee, nature and magnitude of the offence and facts and circumstance of each offence will be considered while dealing with such a request.
4.
Conditions for compounding technical offences:-
---------------------------------------------
The following conditions should be satisfied before compouing a technical offence:-
4.1 The assessee should make a written request for compounding of the offence.
4.2 The case should be considered for compounding only when the assessee has paid the amount of undisputed tax as well as interest and penalties relating to the default.
4.3 The assessee should state that he is willing to pay the compounding fee prescribed in para 9 below, and the prosecution establishment expenses prescribed in para 10 below. The order compounding an offence should be passed only when the compounding charges comprising of the composition fee and establishment expenses are paid by the assessee/defaulter.
4.4 Technical offences may be compounded by CCIT or DGIT (as the case may be) if the following conditions are satisfied cumulatively:-
(i) it is the first offence by an assessee.
(ii) the compounding charges do not exceed Rs. 10 lakhs.
(iii) the offence is compounded only before the filing of complaint.
In the case of offences punishable u/s 276 (prior to 1.4.76), 276B (prior to 1.4.89), 276DD & 276E, complaints in respect of which have been filed before coming into force of these revised guidelines, the CCIT/DGIT may compound the offence without seeking Board's approval if the other conditions prescribed above are satisfied.
In all other cases, the offence shall not be compounded except with the previous approval of the Board.
4.5 The second and subsequent offences may be compounded with the approval of the Board in the following circumstances:-
(i) The default does not involve mens rea i.e. it is not deliberate or intended to conceal any information from the department or to defraud the revenue directly or indirectly.
(ii) Necessary steps for compliance of relevant provisions of Direct Tax Laws have been taken by the assessee prior to the detection of the default by the department. (For example in case of default in respect of tax deducted at source/tax collected at source, the tax should have been deposited by the assessee voluntarily and prior to detection of the default by the department).
4.6 In case of second and subsequent offence, the compounding fee shall be enhanced by 100% each time. Thus for second offence it will be 200% of the normal fee and so on.
4.7 For the limited purpose of determining authority granting approval for compounding, the compounding charges at the time of passing order u/s 279(2) shall be considered. However if the computation of compounding charges is dependent upon the income or tax etc. determined in the assessment order or any other order which is subject matter of appeal, revision, reference etc., the compounding charges shall be calculated on the basis of the assessment order or such other order. It may be clarified that compounding charges payable---------------
5.
Compounding of substantive/non-technical offences:-
-------------------------------------------------
Following conditions must be cumulatively satisfied before compounding a substantive offence.
(i) the conditions prescribed in para 4.1, 4.2, 4.3, are satisfied,
(ii) it is first substantive offence.
(iii) the prior approval of the Board is obtained. If the amount involved in the offence exceed Rs. 1 lakh, the Board shall grant approval if MOL advises that the chances of successful prosecution are not good.
6. Notwithstanding anything contained in paragraph 4 & 5 above, the F.M. may grant approval for compounding the offence in a suitable and deserving case.
7. While seeking the Board's approval CCIT/DGIT shall clearly report whether all the prescribed conditions for compounding have been met.
8. For the purpose of these guidelines the "first offence" will mean the following:-
a) Offences under any of the Direct Tax Laws committed prior to the date of issue of any prosecution show-cause notice or any other mode of intimation by the department to the person concerned or prior to launching of prosecution, whichever is earlier. Any offence, even though committed prior to the issue of such show cause notice or intimation or filing of complaint but discovered or disclosed after the first compounding order shall not be considered as "first offence".
(b) Offences not detected by the department but voluntarily disclosed by a person prior to the first compounding of offence in his case under any Direct Taxes Acts.
For this purpose offence is relevant if it is committed by the same taxable entity.
9.
Fees for compounding:-
--------------------
The composition fee for compounding of various offences in addition to any interest / penalty leviable) will be as follows:-
9.1 Section 276:- Failure to make payment or deliver return or (prior to 1.4.76) statement or allow inspection.
The composition fee would be an amount of Rs. 2/- for every day during which the default continues.
9.2 Section 276B:- Failure to deduct or pay tax (prior to 1.4.89).
10% per month or part of a month of the amount in default where the said amount exceeds one lac and 5% per month or part of a month of the amount in default in other cases.
Section 276B:- Failure to pay the tax deducted at source (w.e.f. 1.4.89)
5% per month or part of a month of the amount of tax in default.
Section 276DD. Failure to pay the tax collected at source.
The same guidelines as in respect of Section 276B in Para 9.3 above shall be applicable for an offence under this section also.
9.5 Section 276D(1):- Wilful attempt to evade tax etc.
(a) If the amount sought to evaded is less than Rs. one lac the compounding fee shall be 100% of amount sought to be evaded.
(b) If the amount sought to be evaded is more than Rs. one lac the compounding fee shall be 200% of the amount sought to be evaded.
For the removal of doubts, it is clarified that the composition fee as per the scale given above shall be charged even if no penalty was actually levied or the amount of penalty was reduced or cancelled in appeal. It is also clarified that where the same set of facts and circumstances attract prosecution u/s 276C(1), 277 and 278, the compounding fee shall be charged by treating all these offences as one offence.
9.6 Section 276C(2):- Wilful attempt to evade payment of any tax etc.
5% per month or part of a month of the amount, the payment of which is sought to be evaded, for the period of default.
9.7.1 Section 276CC:- Failure to furnish returns of income 5% per month or part of a month of the tax determined on regular assessment as reduced by the tax deducted at source and advance tax, if any, paid during the financial year immediately preceding the assessment year reckoned from the date immediately following the date on which the return of income was due to be furnished, to the date of furnishing of the return or where no return was furnished, the date of completion of the assessment.
9.7.2 Where before the date of furnishing of the return or when no return was furnished, the date of completion of assessment any tax is paid by the assessee u/s 143A or otherwise:
(i) Compounding fee shall be calculated in the manner prescribed in para 9.7.1 above, upto the date on which the tax is so paid and
(ii) thereafter the fee shall be calculated at the aforesaid rate on the amount of tax determined on regular assessment as reduced by the TDS, advance tax and tax paid u/s 140A or otherwise before filing the return of income or where no return was furnished, the date of completion of assessment.
9.8 Section 276DD:- Failure to comply with the provisions of section 269SS) (prior to 02-04-89)
A sum equal to 50% of the amount of any loan or deposit accepted in contravention of the provisions of section 269SS.
9.9 Section 276E:- Failure to comply with the provisions of section 269I (prior to 01-04-89).
A sum equal to 50% of the amount of deposit repaid in contravention of the provisions of section 269I.
9.10 Section 277:- False statement in verification etc.
Section 278:- Abetment of false return etc.
For both these offences the same guidelines will be applicable as for the offences u/s 276D(1).
9.11 No composition fee has been prescribed for offences u/s 275A, 276(w.e.f. 1.4.89), 276A (w.e.f. 1.4.65), 276AA, 276AB and 276D as these provisions should be strictly enforced. However if there are any mitigating circumstances in any given case, the Board may consider the same on a case to case basis.
9.12 The prescribed compounding charges shall be chargeable while compounding offence. However, in extreme and exceptional case of genuine financial hardship the compounding charges may be suitably reduced with the approval of F.M.
10. In addition to the composition fee, the compounding charges shall include prosecution establishment expenses. A consolidated fee for prosecution establishment expenses will be charged which would cover the litigation expenses also. Accordingly, prosecution establishment expenses will be charged at the 10% of the composition fee subject to a maximum amount of Rs. 50,000/-. This limit will apply even where a number of offences are compounded under a single order.
11. The revised guidelines outlined above are in supersession of all earlier instructions / clarifications on the subject and apply to future as well as pending cases. However the offences already compounded under the old guidelines shall not be reconsidered.
12. In a case where prosecution has not been filed, no order for compounding of offence need be passed, if as per guidelines issued vide F.No. 285/160/90-IT(Inv.) dated 7.2.1991, the smallness of the default does not call for launching of prosecution. However in such cases levy of interest and penalties prescribed under the Direct Taxes Acts must be considered on merits.
13. These guidelines shall apply mutatis mutandis to offences under the other Direct tax Laws also.
These guidelines may be brought to the notice of all concerned.
F.No. 285/161/90-IT(INV.)