ORAL ORDER
(Per : HONOURABLE MR. JUSTICE AKIL KURESHI)
Petitioner-assessee has challenged a communication dated 23rd August 2010, issued by respondent No. 1 herein demanding revised higher compounding fees to consider the request of the petitioner for compounding offences registered as Criminal Cases Nos. 18 to 21 of 1995, 34 to 38 of 1996 and offences under section 276CC and 276B of the Income Tax Act, 1961. The petition arises in following factual background.
The petitioner is a partnership firm. For the returns filed by the petitioner for the accounting years 1992-93, 1993-94 and 1994-95, there were certain defects noticed by the Income Tax Department. With respect to such returns, besides tax demands, prosecutions were also instituted by filing criminal cases as well as instituting proceedings for penalty under the provisions of the Income Tax Act.
Under the Kar Vivadh Samadhan Scheme 1998, launched by the Government of India, it is provided, inter alia, that an assessee could opt for full and final settlement of the tax arrears in respect of the earlier tax demands. It is the case of the petitioner that the petitioner fulfilled the requirements of the said Scheme, paid the tax arrears and was also issued a certificate in its favour.
Through various circulars issued by CBDT, amnesty scheme has been framed by virtue of which on demand of specified amounts, an assessee could request for consideration of dropping of criminal prosecution. Since criminal cases were lodged against the petitioner for not filing income tax returns and since such proceedings were pending before the competent Metropolitan Magistrate Court, Ahmedabad, the petitioner desired to avail of the benefit of such scheme. It is the case of the petitioner that several requests were made to the Authorities to drop the proceedings. However, the same was not done. Finally, the petitioner made a formal application dated 20th June 2006 to the Chief Commissioner of Income Tax, praying for compounding of the prosecution under section 279(2) of the Income Tax Act. In his application, the petitioner also showed its willingness to pay the compounding charges as per the guidelines of the CBDT. Such application of the petitioner received no response from the respondents for a long time. However, vide letter dated 20 March 2008, the petitioner was requested to attend the office of respondent No. 1 to clarify on following points.
“(a) Please state whether you are willing to pay the compounding fees ? Your consent may be given in writing.
(b) Please state whether it is the first offence?
(c) Please also state whether you have paid undisputed tax as well as interest and penalties relating to the default ? Please produce the proof of the payment of undisputed tax.”
It is not in dispute that the petitioner did not respond to the said communication. Respondent No. 1, therefore, wrote another letter dated 8.8.08 and called upon the petitioner to reply on following points.
“(a) Please state whether you are willing to pay the compounding fees i.e Rs. 4,79,153/-? Please give your consent in writing.
(b) Please state whether it is the first offence?
(c) Please also state whether you have paid undisputed tax as well as interest and penalties relating to the default ? Please produce the proof of the payment of undisputed tax.”
In response to such communication, the petitioner wrote letter dated 13.8.08, showed its willingness to pay the compounding fees of Rs. 4,79,153/- as indicated in the letter dated 8.8.08 He also clarified other points raised in the said communication.
For a considerable long period of time thereafter, once again nothing happened. There was neither any communication from the respondents nor any reminder from the petitioner. Finally, however, by the impugned communication dated 23 August 2010, respondent No. 1 conveyed to the petitioner to pay higher charges for compounding the offences which included the total demand of Rs. 12,39,832/- towards compounding the fees for three assessment years and also further demanded a sum of Rs. 1,36,382/- each for four partners of the firms. It is this communication which the petitioner has challenged in this petition.
Respondents have appeared and filed reply contending that by the time the petitioner was sent the communication dated 8.8.08 and the petitioner replied on 13.8.08, the revised guidelines for compounding offences were already in force. Computation of compounding fees of Rs. 4,79,153/- on the basis of previous guidelines and communication of such figure in the communication dated 8.8.08 was due to oversight. The petitioner's willingness to pay such charges, therefore, was of no consequence.
On the basis of such pleadings on record, learned advocates of both sides have made legal submissions before us for final disposal of the petition. Learned Senior Advocate Shri Soparkar for the petitioner submitted that the petitioner had in clear terms indicated its desire to compound the offences. The application was, therefore, made as far back as on 20 June 2006 when previous guidelines dated 30 September 1994 as amended by circular dated 29 July 2003 was in force. Respondents took unduly long time to process the case of the petitioner. Had the request of the petitioner been processed within reasonable time, the entire dispute could have been avoided. He submitted that the respondents cannot seek to collect higher compounding charges specified in CBDT guidelines dated 16 May 2008.
On the other hand, counsel for the respondents Shri Manish Bhatt vehemently contended that the assessee has no vested right to insist that offences must be compounded. It is always at the discretion of the Department depending on the facts and circumstances of the case. He submitted that when the petitioner's application was processed, revised guidelines dated 16 May 2008 were already in force. In communication dated 8.8.08, the concerned Officer, therefore, committed an error to indicate the compounding fees on the basis of previous guidelines. He submitted that unless the assessee pays the compounding charges, offences cannot be compounded. In the present case, no such payment was made.
Having thus heard the learned advocates for the parties, short question that calls for consideration is whether the petitioner can insist on being governed by the earlier guidelines specifying the terms and conditions for compounding offences. It is not even the case of the petitioner that merely because at one point of time, the Income Tax Officer sought his willingness to pay compounding charges calculated on the basis of superseded guidelines, the petitioner would have vested right to insist that such communication be implemented. Even otherwise, we are of the opinion that merely because the Income Tax Officer has committed an error in overlooking the fresh guidelines recently issued while asking the petitioner's willingness to pay the compounding charges, that by itself would not result in any legal right in favour of the petitioner to insist that the charges at the pre-revised rates be collected.
Question, however, is somewhat different. The Question is whether the respondents can collect higher charges as per the revised guidelines having not responded to the petitioner's request for nearly two years. Facts are undisputed. As already noted, on 20 June 2006, the petitioner wrote to the Department requesting for compounding of the offences and showing its willingness to pay compounding charges. First response to such request was made by the Department only on 20 March 2008 and thereafter on 8 August 2008. The Department thus took nearly 20 months to respond to the petitioner's request for compounding the offences. It is, of course, true that compounding of offence is not a matter of right and must depend on the facts and circumstances of the case and in particular must meet with the requirements of the guidelines issued by the CBDT from time to time. This, however, is not the same thing as suggesting that the assessee's request for compounding can either be turned down without any valid reasons or that the same may be attended to after indefinite period of time. An assessee by virtue of equality clause enshrined under Article 14 of the Constitution of India, would have a right to be treated equally like all others and would have a right to insist that his application for compounding of offences be considered in terms of guidelines issued by the CBDT prevailing at the relevant time. Had the Department attended to the petitioner's request for compounding the offences within reasonable period, the piquant situation arising in the present case would not have occasioned. On 20 June 2006, the petitioner in clear terms indicated his desire to compound the offences and pay necessary compounding fees for the same. Such a request was at least required to be considered in light of the CBDT guidelines vide its circular dated 30 September 1994 as amended by circular dated 29 July 2003. This was not done for a long period of time. No explanation comes forward on the record why such application remained unattended or dormant for nearly 20 months. It is not the case of the respondents that the petitioner was called upon to furnish certain details which it did not do. No other or further reasons are stated by the Department why the application received no response for an inordinate long time.
Counsel for the Revenue pointed out that in the guidelines of 2008, there is provision that an application be considered preferably within six months. No corresponding provision was made in the previous guidelines and no time limit, therefore, was prescribed. We are of the opinion that merely because in the previous guidelines no such time limit was prescribed does not mean that the application of the assessee can be attended to after indefinite period of time. The respondents were required to process the application of the petitioner within a reasonable time. What could be stated to be reasonable period of time is always a question of fact to be considered in the facts and circumstances of a given case. In the present case, we find that for nearly 20 months, the petitioner's application did not receive any response and further that there is no explanation for such delay coming forth from the respondents, the period consumed cannot be stated to be reasonable.
Counsel for the Revenue also submitted that the prosecution was lodged way back in the year 1995 and the petitioner itself applied for compounding of offences in the year 2006. We do not find that this could be a ground on which the application could have been turned down. Guidelines nowhere prescribe a period within which after initiation of prosecution compounding can be requested.
The inescapable conclusion, therefore, we arrive at is that the Department did not process the request of the petitioner for a long period of time without any explanation whatsoever. In the meantime, if the guidelines were amended, we are of the opinion that revised guidelines could not have been applied to the petitioner for levying compounding charges to process the request of the petitioner. This is not to suggest that other requirements for compounding the offences are not to be examined. This is only to hold that the respondents cannot collect compounding charges as per the revised guidelines in the facts of the present case.
In the result, by quashing the impugned communication Annexure A, it is further directed that if the petitioner pays the compounding charges as indicated in the communication dated 8.8.08 and further pays simple interest at the rate of 9% per annum from such date till actual payment, its request for compounding offences will be processed further and appropriate decision be taken in terms of the pre-revised guidelines, provided other requirements are satisfied. With the above direction, the petition is disposed of. No costs.