1. Prakash Nath Khanna & Ors. v. CIT, (2004) 9 SCC 686: The Supreme Court held that the “due time” under Section 276CC refers specifically to Section 139(1) of the Act rather than the extended timelines in Section 139(4). It emphasized that once the due date lapses, an offence (if any) is deemed committed immediately following that due date, irrespective of subsequent belated filing or the start of prosecution.

2. Union of India v. Banwari Lal Agarwal, (1998) 7 SCC 652: Clarified that Section 279(2) of the Act, dealing with the power to compound offences, is enabling and discretionary in nature. Compounding cannot be demanded as an automatic right by a taxpayer.

3. Y.P. Chawla v. M.P. Tiwari, (1992) 2 SCC 672: Addressed the Explanation to Section 279, holding that the Central Board of Direct Taxes (CBDT) can issue instructions or guidelines to structure how an authority should determine compounding applications. The Commissioner’s discretion is bound by these instructions.

4. Sports Infratech (P) Ltd. & Anr. v. DCIT: The Delhi High Court highlighted that guidelines for compounding should be interpreted by considering the facts and circumstances of each case. The authorities should not adopt a rigid interpretation that forecloses legitimate compounding where warranted.

1. Definition of “In Due Time” and Date of Offence Under Section 276CC: The Court reiterated that the date of commission of the offence arises immediately on the day after the prescribed Section 139(1) due date is missed. Whether the taxpayer files a return at a later date under Section 139(4) does not affect the conclusion that the offence stood “committed” shortly after the original deadline elapsed.

2. Interpretation of “First Offence” in the 2014 Guidelines: Section 276CC is classified under Category B offences in the 2014 guidelines, meaning only the first occurrence is generally eligible for compounding. However, the Court explained that where multiple offences under the same provision all predate the earliest Departmental show-cause notice, each can still be viewed as a “first offence.” Additionally, “voluntary disclosures” are recognized where a taxpayer alerts the Department prior to any detection efforts. The Court rejected the argument that belated filing alone qualifies as a voluntary disclosure or that the date of the belated return controls the offence date.

3. Nature of the Guidelines: Directory, Not Mandatory: The 2014 guidelines, while binding on tax authorities’ approach and structure, allow for flexibility. The Supreme Court emphasized that these guidelines incorporate an element of discretion, requiring authorities to consider the totality of circumstances, the taxpayer’s conduct, and the significance of the offence rather than robotically refusing compounding.

4. Setting Aside the Rejection of Compounding: Because the AY 2013-14 offence date (1 November 2013) occurred before the show-cause notice for AY 2011-12 prosecution (issued 27 October 2014), both offences were committed prior to the first notice. Hence, the AY 2013-14 offence also qualified as the “first offence” under the 2014 guidelines. The Court found that the High Court and the CCIT misapplied the definition of “first offence” by focusing on the date of actual return filing (29 November 2014) rather than the date immediately following the due date.

1. Clarification of Offence Timing: This judicial pronouncement clears ambiguity around the date of commission of an offence under Section 276CC. Future cases will refer to this ruling to determine if multiple late returns remain eligible for compounding as “first offences” if they predate the first formal prosecution notice.

2. Shift in Department Policy: Although the 2014 guidelines yielded a relatively narrower approach by categorizing Section 276CC as Category B (generally compoundable only once), more recent guidelines (from 2019 and 2022) have re-labeled Section 276CC as a Category A offence, allowing for up to three compounding occasions. This shift indicates an overall liberalization of compounding norms for return-default offences.

3. Greater Latitude for Assessees: The rationale that belated filing does not foreclose or overshadow the fact that the offence transpired on the day after the missed due date provides more room for deserving taxpayers to seek compounding, particularly if their defaults took place before they were specifically put on notice for prosecution.

4. Guidance to Assessing and Compounding Authorities: Authorities must adopt a more fact-driven approach, considering both the guidelines and the taxpayer’s reasonableness, intent, and prior record. They cannot mechanically reject compounding simply because a belated return was filed after one show-cause notice.

1. Compounding of Offences: Compounding allows a taxpayer who has committed an offence to pay a compounding fee and meet certain requirements, instead of undergoing a full criminal trial under the Act. The taxpayer must generally meet eligibility conditions and pay prescribed charges.

2. Offence “In Due Time” under Section 276CC: “In due time” under Section 276CC strictly refers to Section 139(1)’s due date, not the time limit of Section 139(4). Once the due date lapses, the user is considered prima facie in default. Even if they file subsequently (prior to the end of the assessment year), that does not negate the earlier default.

3. “First Offence” Concept: Under the 2014 guidelines, Category B offences (like Section 276CC) are generally compoundable if they constitute the “first offence.” An offence qualifies as a “first offence” when it arises before any show-cause notice or prosecution intimation, or if it has not been detected but voluntarily disclosed. Thus, multiple prior defaults can still be the “first offence,” provided no prosecution notice had been issued beforehand.

4. Voluntary Disclosure: This term implies that the taxpayer informs the Department of the offence before any detection, thereby saving the authorities from investigating or issuing notices. Simply filing belated returns (particularly after a notice) does not automatically qualify as a “voluntary disclosure.”