The Supreme Court examined the scope and interpretation of Section 276CC of the Income Tax Act, 1961, and the applicability of the Guidelines for Compounding of Offences under Direct Tax Laws, 2014, in the context of repeated delays in filing returns of income. The appeal arose from a judgment of the Gujarat High Court which upheld the rejection of the assessee’s application for compounding of the offence relating to a subsequent assessment year.

The appellant had filed his returns of income for multiple assessment years beyond the due dates prescribed under Section 139(1) of the Act. Prosecution proceedings were initiated under Section 276CC for failure to furnish returns within the stipulated time. While the compounding application relating to the earlier assessment year was accepted, the compounding request for the subsequent assessment year was rejected on the ground that it did not constitute a “first offence” within the meaning of the 2014 Guidelines.

The principal contention of the appellant was that an offence under Section 276CC is committed only on the actual date of filing of the belated return and that, since the return for the later assessment year was filed prior to the issuance of the second show cause notice, it ought to have been treated as a first offence. The Revenue, on the other hand, contended that the offence is committed immediately upon expiry of the due date for filing the return and that repeated defaults cannot be treated as a first offence merely because prosecution was initiated later.

After analysing the statutory scheme, the Supreme Court held that an offence under Section 276CC is committed on the day immediately following the due date prescribed under Section 139(1) and that the subsequent filing of a belated return does not alter the date of commission of the offence. Relying on its earlier decision in Prakash Nath Khanna v. CIT, the Court reiterated that the expression “in due time” refers only to the due date under Section 139(1) and not to the extended period available for filing a belated return.

The Court further interpreted the expression “first offence” under the 2014 Compounding Guidelines and held that once an assessee has committed an offence and disclosed the same, whether voluntarily or upon detection, subsequent similar offences would not qualify as a first offence. It was emphasised that compounding of offences is not a matter of right and that the guidelines are intended to prevent habitual and repeated defaults.

Accordingly, the Supreme Court upheld the rejection of the compounding application for the subsequent assessment year and affirmed the judgment of the High Court, holding that the authorities had acted in accordance with law and the applicable compounding guidelines.

 

Source Link - https://api.sci.gov.in/supremecourt/2019/39570/39570_2019_13_1501_59231_Judgement_07-Feb-2025.pdf

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