Wp/429/2022 Of Footcandles Film Private Limited And Anr v. Income Tax Officer Tds-1 And 3 Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.429 OF 2022 Ms. Fereshte Sethna, with Ms. Mrunal Parekh, i/by DMD Advocates, for thePetitioners.Mr. Suresh Kumar for the Respondents. CORAM : DHIRAJ SINGH THAKUR & VALMIKI SA MENEZES, J.J.DATE : 28TH NOVEMBER, 2022. ORDER : { Per Valmiki SA Menezes, J.} 1.Rule. Rule made returnable forthwith, with the consent of the parties. 2.This Writ Petition, filed under Article 226 of the Constitution of India,impugns the order, under the provisions of sub-section (2) of Section 279 ofthe Income Tax Act, 1961, dated 1st June 2021, passed by respondent no.3-Chief Commissioner of Income Tax (TDS), Mumbai, whereby an applicationfiled by the petitioners for compounding of an offence committed, underSection 276B, r/w. Section 287B of the Income Tax Act, 1961 during theFinancial Year 2009-10 relevant to the Assessment Year 2010-11, wasrejected. 3.The case of the petitioner no.2 is that for the relevant Financial Year2009-10, the petitioner no.1-company deducted income tax to the tune ofRs.25,02,336/- from the salaries of its employees, under the provisions ofSection 192 of the Income Tax Act, 1961 (the Act), but had failed to depositthe tax so deducted to the credit of the Central Government within the timeprescribed under Section 200 r/w. Section 204 of the Act. The petitioners claim that this situation arose due to accumulated losses and delays inreceiving tax refund from respondent no.1 during the period 1st April 2009 to31st March 2010. 4.It is further case of the petitioners that, subsequently, on 2nd September2010, petitioner no.1-company voluntarily deposited the entire amount ofTax Deducted at Source due, along with statutory interest liability thereon,with respondent no.1 without any prior notice of default or demand from thesaid respondent. However, the petitioner no.1-company subsequentlyreceived Show Cause Notice dated 18th October 2011, calling upon it to showcause as to why prosecution should not be launched for offences committedunder Section 276B, r/w. Section 278B, of the Act for failure to deposit taxdeducted to the credit of the Central Government, within the statutory time-frame. The said show cause notice also required petitioner no.1 to nominateits Principal Officer for that purpose. Petitioner no.1 replied to the show causenotice on 24th October 2011 and 16th November 2011, attributingaccumulated losses, cash crunch and delay in receiving tax refund fromrespondent no.1 as reasons for their inability and delay in discharging the taxdeduction liability. Petitioner no.1 further stated in the reply that the entireliability, along with interest on the delayed payment, had already beendeposited by petitioner no.1 voluntarily, before any demand was made.Thereafter, upon hearing petitioner no.1-company, the respondent no.2issued sanction letter dated 10th March 2014, granting sanction forprosecution against petitioner no.1-company and its Principal Officer-3/22 petitioner no.2 herein, pursuant to which, on 11th March 2014, respondentno.1 lodged a Criminal Complaint bearing No.75/SW/2014 against thepetitioners before the 38th Court of Additional Chief Metropolitan Magistrate,Ballard Pier, Mumbai alleging offence punishable under Section 276B, r/w.Section 278B, of the Income Tax Act. 5.It is further the case of the petitioners that the said criminal case wastried and by order dated 14th January 2020, the learned Magistrate convictedthe petitioners, under Section 248(2) of the Code of Criminal Procedure, forthe offence punishable under Section 278B, r/w. Section 276B of the IncomeTax Act, whereby both the petitioners were sentenced to pay the fine ofRs.10,000/- each and imposed a sentence of rigorous imprisonment for oneyear on petitioner no.2. petitioner no.2 herein, pursuant to which, on 11th March 2014, respondentno.1 lodged a Criminal Complaint bearing No.75/SW/2014 against thepetitioners before the 38th Court of Additional Chief Metropolitan Magistrate,Ballard Pier, Mumbai alleging offence punishable under Section 276B, r/w.Section 278B, of the Income Tax Act. 5.It is further the case of the petitioners that the said criminal case wastried and by order dated 14th January 2020, the learned Magistrate convictedthe petitioners, under Section 248(2) of the Code of Criminal Procedure, forthe offence punishable under Section 278B, r/w. Section 276B of the IncomeTax Act, whereby both the petitioners were sentenced to pay the fine ofRs.10,000/- each and imposed a sentence of rigorous imprisonment for oneyear on petitioner no.2. 6.Aggrieved by this Judgment and Order of the Additional ChiefMetropolitan Magistrate, convicting the petitioners, Criminal Appeal No.127of 2020 was filed on 5th February 2020 before the City Sessions Court atGreater Mumbai. Along with Criminal Appeal, Criminal MiscellaneousApplication No.407 of 2020, for stay and suspension of sentence, was filedbefore the same court and the sentence was suspended by order dated 7thFebruary 2020. Since then, the criminal appeal is pending adjudication beforethe Sessions Court. 7.In this set of facts, the application, under the provisions of Section279(2) of the Income Tax Act, came to be filed on 5th February 2020 forcompounding of offence before respondent no.3. Along with this application,the petitioners have also filed an application for condonation of delay, if any,in filing the application for compounding of offence. It is stated by thepetitioners that the application under Section 279(2) of the Act was rejectedby the impugned order dated 1st June 2021, which is now challenged beforethis court by way of present petition on several grounds. 8.After service of notice on the respondents, an affidavit-in-reply dated26th May 2022 came to be filed by the respondents opposing the petition. Therespondents have also relied upon the CBDT Circulars No.25/2019 and01/2020, which deal with the procedure set down by the Board forconsideration of applications for compounding of offences under theprovisions of Section 279 of the Income Tax Act. 9.An affidavit-in-rejoinder dated 4th July 2022 came to be filed by thepetitioners opposing the contentions raised by the respondents in their reply.The affidavit-in-rejoinder sets out that the compounding application wasfiled with just six days delay, after considering relaxation granted till 31stJanuary 2020 as per the CBDT Circular No.25 of 2019 dated 9th September2019, r/w. CBDT Circular No.01 of 2020 dated 3rd January 2020. It is furtherthe petitioners’ contention in the affidavit-in-rejoinder that respondent no.3 has erroneously relied on paragraph 8.1(vii) of the Compounding Guidelines,2019, as they are inapplicable to the facts of this case since the petitioners hadnot been convicted of any offence under any Indirect Tax Law and theconviction pertains to a Direct Tax Law. 10.We have heard Ms. Fereshte Sethna, learned counsel for the petitionersand Mr. Suresh Kumar, learned counsel for the respondents and perused therecord before us. 11.It is the contention of learned counsel for the petitioners that theprovisions of Section 279(2) do not impose any fetters on respondent no.3from considering the petitioners’ application for compounding of offence,even when the Court of Metropolitan Magistrate had convicted the petitionersand during pendency of an appeal before the Sessions Court. It is furthercontended that plain reading of the provisions of sub-section (2) of Section279 allows compounding of offence either before or after the institution ofproceedings and the word “proceedings” encompasses all stages of thecriminal proceedings i.e. to say before the Magistrate and even after theMagistrate has convicted the concerned party or when the proceedings arepending before the Sessions Court in appeal. 11.It is the contention of learned counsel for the petitioners that theprovisions of Section 279(2) do not impose any fetters on respondent no.3from considering the petitioners’ application for compounding of offence,even when the Court of Metropolitan Magistrate had convicted the petitionersand during pendency of an appeal before the Sessions Court. It is furthercontended that plain reading of the provisions of sub-section (2) of Section279 allows compounding of offence either before or after the institution ofproceedings and the word “proceedings” encompasses all stages of thecriminal proceedings i.e. to say before the Magistrate and even after theMagistrate has convicted the concerned party or when the proceedings arepending before the Sessions Court in appeal. 12.Learned Advocate for the petitioners submits that, in the present case,the Sessions Court has suspended sentence of petitioner no.2 and this would have been otherwise a fit case for respondent no.3 to consider application ofthe petitioners for compounding of offence, as it is not in dispute thatpetitioner no.1-company has deposited the entire amount of TDS collectedalong with the interest, though beyond the stipulated period but prior to anydemand or show cause notice was issued. 13.Further proposition advanced by the petitioners is that a proceeding inappeal is a continuation of main proceedings and on that count, the learnedcounsel for the petitioners submits that the Sessions Court, in the presentmatter, having suspended sentence of petitioner no.2, the appeal which ispending and being a continuation of the original criminal case, there is a“proceeding” for compounding of offence within the meaning of the words“institution of proceedings” incorporated in Section 279(2) of the Income TaxAct and, therefore, refusal of respondent no.3 to exercise jurisdiction vested init, is an act contrary to the mandate of Section 279(2). Learned counselfurther submits that the Circulars of the CBDT, relied upon by respondentno.3 while rejecting the application for compounding of offence, whichprovides that the application for compounding of offence is required to befiled within twelve months from the end of the month in which the complaintwas filed, cannot operate as a rule of limitation since the same cannotoverride the provisions of the statute i.e. Section 279 of the Income Tax Act. 14.The learned counsel for the petitioners has relied upon the followingdecisions in support of his case :- (i)Sports Infratech (P.) Ltd. Vs. Deputy Commissioner ofIncome-Tax (HQRS)1Income-Tax (HQRS)1 (ii)Vikram Singh Vs. Union of India2 (iii)Government of India, Ministry of Finance, Department ofRevenue (Central Board of Direct Taxes) Vs. R. Inbavalli3Revenue (Central Board of Direct Taxes) Vs. R. Inbavalli3(iv)K.V. Produce and Ors. Vs. Commissioner of Income-Taxand Anr.4and Anr.4 15.Opposing the petition, Mr. Suresh Kumar, learned counsel for therespondents submits that the CBDT Circulars, bearing Nos.25/2019 and01/2020, provide for relaxation to file compounding applications beyondtwelve months from the end of the month in which the complaint was filedand does not permit respondent no.3 to grant such an application beyond theperiods specified in the aforesaid circulars. It is further his argument thatthese circulars are issued pursuant to powers vested in the Board underSection 119 of the Act as guidelines issued to the officers of the Income TaxDepartment exercising jurisdiction under various provisions of the IncomeTax Act and the officers are bound by the same. He further contends that theCBDT Guidelines for Compounding of Offences under Direct Tax Laws, 2019,dated 14th June 2019, more specifically contained in paragraph 8.1(vii), makethe petitioners ineligible for compounding the offences notwithstanding thefact that the provisions of the statute contained in Section 279 of the IncomeTax Act, 1961 do not provide for any rule of limitation. 1(2017) 78 taxmann.com 44 (Delhi) 2(2017) 80 taxmann.com 371 (Delhi) 1(2017) 78 taxmann.com 44 (Delhi) 2(2017) 80 taxmann.com 371 (Delhi) 3(2017) 84 taxmann.com 105 (Madras)4(1992) 196 ITR 293 (Kerala)4(1992) 196 ITR 293 (Kerala) 8/22 16.Mr. Suresh Kumar has relied upon a judgment of the Division Bench ofHigh Court of Delhi in Anil Batra Vs. Chief Commissioner of Income Tax5 andon the basis of the ruling in this judgment, which was rendered on the basisof the CBDT Guidelines of 30th September 1994 for compounding of offences,contends that since the learned Court of Metropolitan Magistrate had alreadyconvicted the petitioners, there was no question of respondent no.3 exercisingits jurisdiction under Section 279 of the Income Tax Act as the application forcompounding of offence ought to have been filed before the filing of thecomplaint or at-least before an order of conviction was rendered by the Courtof Metropolitan Magistrate. 17.For ready reference, Section 279 of the Income Tax Act, 1961 isreproduced hereunder :- Prosecution to be at instance of Principal Chief Commissioner or ChiefCommissioner or Principal Commissioner or Commissioner. 279. (1) A person shall not be proceeded against for an offence undersection 275A, section 275B, section 276, section 276A,section 276B, section 276BB, section 276C, section 276CC,section 276D, section 277, section 277A or section 278except with the previous sanction of the PrincipalCommissioner or Commissioner or Commissioner (Appeals)or the appropriate authority:section 275A, section 275B, section 276, section 276A,section 276B, section 276BB, section 276C, section 276CC,section 276D, section 277, section 277A or section 278except with the previous sanction of the PrincipalCommissioner or Commissioner or Commissioner (Appeals)or the appropriate authority: Provided that the Principal Chief Commissioner or ChiefCommissioner or, as the case may be, Principal DirectorGeneral or Director General may issue such instructions ordirections to the aforesaid income-tax authorities as he maydeem fit for institution of proceedings under this sub-section. 5 (2011) 15 Taxman.Com 121 (Delhi) Explanation.—For the purposes of this section, "appropriateauthority" shall have the same meaning as in clause (c) ofsection 269UA. (1A) A person shall not be proceeded against for an offence undersection 276C or section 277 in relation to the assessment foran assessment year in respect of which the penalty imposedor imposable on him under section 270A or clause (iii) ofsub-section (1) of section 271 has been reduced or waivedby an order under section 273A.section 276C or section 277 in relation to the assessment foran assessment year in respect of which the penalty imposedor imposable on him under section 270A or clause (iii) ofsub-section (1) of section 271 has been reduced or waivedby an order under section 273A. (2) Any offence under this Chapter may, either before or afterthe institution of proceedings, be compounded by thePrincipal Chief Commissioner or Chief Commissioner or aPrincipal Director General or Director General.the institution of proceedings, be compounded by thePrincipal Chief Commissioner or Chief Commissioner or aPrincipal Director General or Director General. (2) Any offence under this Chapter may, either before or afterthe institution of proceedings, be compounded by thePrincipal Chief Commissioner or Chief Commissioner or aPrincipal Director General or Director General.the institution of proceedings, be compounded by thePrincipal Chief Commissioner or Chief Commissioner or aPrincipal Director General or Director General. (3) Where any proceeding has been taken against any personunder sub-section (1), any statement made or account orother document produced by such person before any of theincome-tax authorities specified in clauses (a) to (g) ofsection 116 shall not be inadmissible as evidence for thepurpose of such proceedings merely on the ground that suchstatement was made or such account or other document wasproduced in the belief that the penalty imposable would bereduced or waived, under section 273A or that the offencein respect of which such proceeding was taken would becompounded.under sub-section (1), any statement made or account orother document produced by such person before any of theincome-tax authorities specified in clauses (a) to (g) ofsection 116 shall not be inadmissible as evidence for thepurpose of such proceedings merely on the ground that suchstatement was made or such account or other document wasproduced in the belief that the penalty imposable would bereduced or waived, under section 273A or that the offencein respect of which such proceeding was taken would becompounded. (4) The Central Government may make a scheme, bynotification in the Official Gazette, for the purposes ofgranting sanction under sub-section (1) or compoundingunder sub-section (2), so as to impart greater efficiency,transparency and accountability by—notification in the Official Gazette, for the purposes ofgranting sanction under sub-section (1) or compoundingunder sub-section (2), so as to impart greater efficiency,transparency and accountability by— (a)eliminating the interface between the income-taxauthority and the assessee or any other person to theextent technologically feasible; authority and the assessee or any other person to theextent technologically feasible; (b)optimising utilisation of the resources througheconomies of scale and functional specialisation; economies of scale and functional specialisation; (5) (6) (c)introducing a team-based sanction to proceed against,or for compounding of, an offence, with dynamicjurisdiction. or for compounding of, an offence, with dynamicjurisdiction. The Central Government may, for the purpose of givingeffect to the scheme made under sub-section (4), bynotification in the Official Gazette, direct that any of theprovisions of this Act shall not apply or shall apply with suchexceptions, modifications and adaptations as may bespecified in the notification:effect to the scheme made under sub-section (4), bynotification in the Official Gazette, direct that any of theprovisions of this Act shall not apply or shall apply with suchexceptions, modifications and adaptations as may bespecified in the notification: Provided that no direction shall be issued after the 31st dayof March, 2022.of March, 2022. Every notification issued under sub-section (4) and sub-section (5) shall, as soon as may be after the notification isissued, be laid before each House of Parliament.section (5) shall, as soon as may be after the notification isissued, be laid before each House of Parliament. Provided that no direction shall be issued after the 31st dayof March, 2022.of March, 2022. Every notification issued under sub-section (4) and sub-section (5) shall, as soon as may be after the notification isissued, be laid before each House of Parliament.section (5) shall, as soon as may be after the notification isissued, be laid before each House of Parliament. Explanation.—For the removal of doubts, it is herebydeclared that the power of the Board to issue orders,instructions or directions under this Act shall include andshall be deemed always to have included the power to issueinstructions or directions (including instructions ordirections to obtain the previous approval of the Board) toother income-tax authorities for the proper composition ofoffences under this section.declared that the power of the Board to issue orders,instructions or directions under this Act shall include andshall be deemed always to have included the power to issueinstructions or directions (including instructions ordirections to obtain the previous approval of the Board) toother income-tax authorities for the proper composition ofoffences under this section. 18.In Anil Batra (Supra), the Delhi High Court was dealing with theapplication of Guidelines issued on 29th July 2003 to a case where threecomplaints had been filed against the petitioners, in which he had beenconvicted in two cases. Anil Batra’s case was not dealing with the effect of theCBDT Guidelines dated 14th June 2019 as in the present matter, nor was itdealing with the question whether, in the face of the provisions of Section279(2), which set no rule of limitation, the Guidelines can set a period oflimitation for filing of an application for compounding offences. 11/22 19.In Sports Infratech (P.) Ltd. (Supra), a Division Bench of the Delhi HighCourt was considering the provisions of the Board’s Guidelines dated 3rdDecember 2014. In that case, an application for compounding came to berejected on the ground that the petitioner did not fulfill the eligibility criteriafor consideration of its case for compounding. As per paragraph 8(v) of theGuidelines, while considering the binding nature of the guidelines and theireffect and considerations to be adopted while deciding an application forcompounding under Section 279(3) of the Act, it was held as under :- 11/22 19.In Sports Infratech (P.) Ltd. (Supra), a Division Bench of the Delhi HighCourt was considering the provisions of the Board’s Guidelines dated 3rdDecember 2014. In that case, an application for compounding came to berejected on the ground that the petitioner did not fulfill the eligibility criteriafor consideration of its case for compounding. As per paragraph 8(v) of theGuidelines, while considering the binding nature of the guidelines and theireffect and considerations to be adopted while deciding an application forcompounding under Section 279(3) of the Act, it was held as under :- “6.The learned counsel for the Revenue urges that the bindingnature of the Board’s instructions and guidelines is apparentfrom explanation to Section 279(3), which clarifies that thepower to grant or refuse compounding is essentiallydiscretionary and actually administrative. Therefore, theguidelines framed for its exercise under Section 279 arebinding upon all Revenue Authorities including the ChiefCommissioner. Learned counsel relied upon the Supreme Courtdecision in Asstt. CIT v. Velliappa Textiles Ltd., (2003) 263 ITR550 / 132 Taxman 165 (SC) to highlight that compoundingapplication cannot be concluded to as a matter of right, butrather is subject to exercise of discretion. There is no quarrelwith the proposition that power to accept a plea forcompounding or refusal is essentially discretionary. Theexercise, however, in each case is dependent upon theAuthority, who has to apply his or her mind judiciously to thecircumstances of each case. The rejection of the petitioner’sapplication in this case is entirely routed on the ChiefCommissioner’s understanding of the conditions of ineligibilityof para 8(v) apply. In this Court’s opinion, that view was basedupon an erroneous understanding of law. Whilst guidelines nodoubt are to be kept in mind specially while exercisingjurisdiction, they cannot blind the authority from consideringnature of the Board’s instructions and guidelines is apparentfrom explanation to Section 279(3), which clarifies that thepower to grant or refuse compounding is essentiallydiscretionary and actually administrative. Therefore, theguidelines framed for its exercise under Section 279 arebinding upon all Revenue Authorities including the ChiefCommissioner. Learned counsel relied upon the Supreme Courtdecision in Asstt. CIT v. Velliappa Textiles Ltd., (2003) 263 ITR550 / 132 Taxman 165 (SC) to highlight that compoundingapplication cannot be concluded to as a matter of right, butrather is subject to exercise of discretion. There is no quarrelwith the proposition that power to accept a plea forcompounding or refusal is essentially discretionary. Theexercise, however, in each case is dependent upon theAuthority, who has to apply his or her mind judiciously to thecircumstances of each case. The rejection of the petitioner’sapplication in this case is entirely routed on the ChiefCommissioner’s understanding of the conditions of ineligibilityof para 8(v) apply. In this Court’s opinion, that view was basedupon an erroneous understanding of law. Whilst guidelines nodoubt are to be kept in mind specially while exercisingjurisdiction, they cannot blind the authority from considering the objective facts before it. In the present case, petitioner’sfailure to deposit the amount collected was beyond its controland was on account of seizure of books of accounts anddocuments etc. But for such seizure, the petitioner would quitereasonably be expected to deposit the amount within the timeprescribed or at-least within the reasonable time. Instead ofconsidering these factors on their merits and examiningwhether indeed they were true or not, the Chief Commissionerfelt compelled by the text of para 8(v). That condition, nodoubt, is important and has to be kept in mind, cannot be onlydetermining. In the present case, the material on record in theform of a letter by the Superintendent of CBI also shows that aclosure report was in fact filed before the competent court.Having regard to all these facts, this Court is of the opinionthat the refusal to consider and accept the petitioner’sapplication under Section 279(2) cannot be sustained. Theimpugned order is hereby set aside. 7.The Chief Commissioner is hereby directed to consider therelevant facts and pass necessary orders in accordance withlaw within six weeks after granting a fair opportunity to thepetitioner in that regard. The petition is allowed in the aboveterms.”relevant facts and pass necessary orders in accordance withlaw within six weeks after granting a fair opportunity to thepetitioner in that regard. The petition is allowed in the aboveterms.” 20.The Delhi High Court has concluded that the condition in theguidelines, no doubt, is important but cannot be the only determining factorfor deciding an application under Section 279(2) of the Act. It further heldthat the authority, while exercising jurisdiction under this provision, was alsorequired to consider the objective facts in the application before it. 21.In Vikram Singh (Supra), another Division Bench of the Delhi HighCourt considered the provisions of the Circular dated 23rd December 2014 issued by the CBDT and, more specifically, the guidelines contained in para8(vii), which provides that offences committed by a person for whichcomplaint was filed by the Department with the competent court twelvemonths prior to receipt of the application for compounding was generally notto be compounded. While considering the import of such a clause in thecircular, it has held as under :- “7.The Circular dated 23[rd] December 2014 does not stipulate alimitation period for filing the application for compounding.What the said circular sets out in para 8 are “Offencesgenerally not to be compounded”. In this, one of thecategories, which is mentioned in sub-clause (vii), is :“Offences committed by a person for which complaint wasfiled with the competent court 12 months prior to receipt ofthe application for compounding”.limitation period for filing the application for compounding.What the said circular sets out in para 8 are “Offencesgenerally not to be compounded”. In this, one of thecategories, which is mentioned in sub-clause (vii), is :“Offences committed by a person for which complaint wasfiled with the competent court 12 months prior to receipt ofthe application for compounding”. 8.The above clause is not one prescribing a period of limitationfor filing an application for compounding. It gives adiscretion to the competent authority to reject an applicationfor compounding on certain grounds. Again, it does not meanthat every application, which involves an offence committedby a person, for which the complaint was filed to thecompetent court 12 months prior to the receipt of theapplication for compounding,w ill without anything further,be rejected. In other words, resort cannot be had to para 8 ofthe circular to prescribe a period of limitation for filing anapplication for compounding. For instance, if there is anapplication for compounding, in a case which has beenpending trial for, let us say 5 years, it will still have to beconsidered by the authority irrespective of the fact that itmay have been filed within ten years after the complaint wasfirst filed. Understandably, there is no limitation period forconsidering the application for compounding. The groundson which an application may be considered, should not befor filing an application for compounding. It gives adiscretion to the competent authority to reject an applicationfor compounding on certain grounds. Again, it does not meanthat every application, which involves an offence committedby a person, for which the complaint was filed to thecompetent court 12 months prior to the receipt of theapplication for compounding,w ill without anything further,be rejected. In other words, resort cannot be had to para 8 ofthe circular to prescribe a period of limitation for filing anapplication for compounding. For instance, if there is anapplication for compounding, in a case which has beenpending trial for, let us say 5 years, it will still have to beconsidered by the authority irrespective of the fact that itmay have been filed within ten years after the complaint wasfirst filed. Understandably, there is no limitation period forconsidering the application for compounding. The groundson which an application may be considered, should not be confused with the limitation for filing such an application. confused with the limitation for filing such an application. 9.This has to be also understood in the context of the object ofproviding for compounding of offences. There is anacknowledgment that the judicial system is not as efficient asit is intended to be. There are trials, even in non-seriousoffences, that have been pending for decades. It is in thepublic interest, apart from the interest of the Departmentitself, that some closure is brought to such cases which maybe pending interminably in our Court system. It is for thisreason that some discretion has been vested in the officers ofthe Department to compound offences. It provides anopportunity for some assessees, notwithstanding that theirappeals as regards the assessments may be pending, to comeforward to have their offences compounded. It does subserveboth public interest as well as the interest of the Departmentitself that on some reasonable terms such offences, whichmay not be considered serious, are compounded. Theguidelines have to be understood only in that context.providing for compounding of offences. There is anacknowledgment that the judicial system is not as efficient asit is intended to be. There are trials, even in non-seriousoffences, that have been pending for decades. It is in thepublic interest, apart from the interest of the Departmentitself, that some closure is brought to such cases which maybe pending interminably in our Court system. It is for thisreason that some discretion has been vested in the officers ofthe Department to compound offences. It provides anopportunity for some assessees, notwithstanding that theirappeals as regards the assessments may be pending, to comeforward to have their offences compounded. It does subserveboth public interest as well as the interest of the Departmentitself that on some reasonable terms such offences, whichmay not be considered serious, are compounded. Theguidelines have to be understood only in that context. 10.The reason given in the impugned order dated 3rd November2016 for rejection of the petitioner’s application does notsatisfy the criteria spelt out in the guidelines issued by theDepartment by its Circular dated 23rd December 2014. It hasproceeded on a ground that is not available to theDepartment viz. that the application is inordinately delayed.Since there is no other reason given for the rejection of theapplication, the Court is unable to sustain the order dated 3rdNovember 2016 of the CCIT by which the petitioner’sapplication for compounding was rejected. The said order ishereby set aside. The petitioner’s application forcompounding will have to be considered afresh by the CCIT.”2016 for rejection of the petitioner’s application does notsatisfy the criteria spelt out in the guidelines issued by theDepartment by its Circular dated 23rd December 2014. It hasproceeded on a ground that is not available to theDepartment viz. that the application is inordinately delayed.Since there is no other reason given for the rejection of theapplication, the Court is unable to sustain the order dated 3rdNovember 2016 of the CCIT by which the petitioner’sapplication for compounding was rejected. The said order ishereby set aside. The petitioner’s application forcompounding will have to be considered afresh by the CCIT.” 22.A similar provision, as has been dealt with by the Delhi High Court,contained in the Circular dated 23rd December 2014 is found in para 7(ii) ofthe Circular dated 14th June 2019, which is applicable to the present case. The15/22 provisions of para 7(ii) of 2019 Circular would be required to be read withthe provisions of para 9.1 of that circular, which provides for relaxation incases where an application is filed beyond twelve months referred to inparagraph 7(ii), specially when there is a pendency of an appeal or at anystage of the proceedings. 22.A similar provision, as has been dealt with by the Delhi High Court,contained in the Circular dated 23rd December 2014 is found in para 7(ii) ofthe Circular dated 14th June 2019, which is applicable to the present case. The15/22 provisions of para 7(ii) of 2019 Circular would be required to be read withthe provisions of para 9.1 of that circular, which provides for relaxation incases where an application is filed beyond twelve months referred to inparagraph 7(ii), specially when there is a pendency of an appeal or at anystage of the proceedings. 23.In R. Inbavalli (Supra), a Division Bench of the Madras High Court wasdealing with the CBDT Guidelines dated 16th May 2008, wherein anapplication for compounding was rejected on the ground that it was not adeserving case as parameters of para 7.2 of those guidelines had not beenadhered to. In that case, it was argued by the Revenue that whereverconviction order has been passed by the competent court, it would fall underthe category of cases which are not to be compounded and though adiscretionary power was given under clause 7.2 of the guidelines for grant ofapproval for compounding of an offence in a suitable and deserving case,such discretion could not be exercised in favour of the assessee when theassessee had been convicted. In that case also, an appeal was pending againstthe order of conviction before the higher court when the application forcompounding of offence was made to the party. 24.In the face of these facts, the Madras High Court, considering theprovisions of the Guidelines dated 16th May 2008, has held as under :- “36. Therefore, the mere pendency of the appeal against theconviction, in our view, could no longer be a reason forrefusing the consideration for compounding of offencewithin the meaning of clause 4.4(f) of the guidelines dated16.05.2008.”conviction, in our view, could no longer be a reason forrefusing the consideration for compounding of offencewithin the meaning of clause 4.4(f) of the guidelines dated16.05.2008.” 25.A Single Judge of the Kerala High Court in K.V. Produce and Ors.(Supra), while considering the effect of the circulars issued under Section 119of the Income Tax Act, has held as under :- “Though circulars issued under section 119 of the Income-TaxAct, may have the force of law, they may not override the lawitself. Concepts like “ultra vires” would come into play if anotification of a rule runs derogatory to the parent law.However, I consider it unnecessary to examine that questionfor purposes of this case. The basic question is whether thecircular governs the case.” 26.The Explanation to sub-section (6) of Section 279, provides power tothe Board to issue orders, instructions or directions under the Act to otherincome tax authorities for proper composition of offences under the section.The Explanation does not empower the Board to limit the power vested in theauthority under Section 279(2) for the purpose of considering an applicationfor compounding of offence specified in Section 279(1). 27.In our opinion, the orders, instructions or directions issued by theCBDT under Section 119 of the Act or pursuant to the power given under theExplanation will not limit the powers of the authorities specified underSection 279(2) in considering such an application, much less place fetters on 17/22 the powers of such authorities in the form of a period of limitation. We are,therefore, of the opinion that the guidelines contained in the CBDT Guidelinesdated 14th June 2019 could not curtail the power vested in Principal ChiefCommissioner or Chief Commissioner or Principal Director General orDirector General under the provisions of Section 279(2) of the Income TaxAct. 27.In our opinion, the orders, instructions or directions issued by theCBDT under Section 119 of the Act or pursuant to the power given under theExplanation will not limit the powers of the authorities specified underSection 279(2) in considering such an application, much less place fetters on 17/22 the powers of such authorities in the form of a period of limitation. We are,therefore, of the opinion that the guidelines contained in the CBDT Guidelinesdated 14th June 2019 could not curtail the power vested in Principal ChiefCommissioner or Chief Commissioner or Principal Director General orDirector General under the provisions of Section 279(2) of the Income TaxAct. 28.In our considered view, to the extent CBDT Guidelines dated 14th June2019 creates a limitation on the time, within which application under Section279(2) of the Income Tax Act is required to be filed, is of no consequence anddoes not take away jurisdiction of respondent no.3 or the other authorities,referred to in sub-section (2) of Section 279, from entertaining an applicationfor compounding of offence at any time during the pendency of theproceedings, be they before the Magistrate or on conviction of the petitioners,in an appeal before the Sessions Court. As long as a proceeding, as referred toin sub-section (1), is pending, an application for compounding of offencewould be maintainable under sub-section (2) of Section 279 and will have tobe dealt with by the authorities on its own merits. 29.These Guidelines / Circular of 2019 before us sets out “EligibilityConditions for Compounding” in para 7 thereof. In paragraph 7(ii), theguidelines state that no application of compounding can be filed after the endof twelve months from the end of the month in which prosecution complaint has been filed in the court. Guideline 7(v) prescribes that the person seekingcompounding of the offence is required to give an undertaking to withdrawany appeals that may have been filed by him relating to the offences sought tobe compounded. Guideline 9.1 contains powers to relax the time periodprescribed under para 7(ii) and refers to situations where there is a pendencyof an appeal. Conjoint reading of these provisions leaves us with no mannerof doubt that the condition specified in clause 7(ii) is not a rule of limitation,but is only a guideline to the authority while considering the application forcompounding. It in no manner takes away the jurisdiction of the authorityunder Section 279(2) of the Act to consider the application for compoundingon its own merits and decide the same. 30.Clause (vii) of guideline 8.1, which is referred to in the impugnedorder, has the basis on which the application can be rejected. It prescribes theoffences which are generally not to be compounded. Clause (vii) refers tooffences under any law other than the Direct Taxes Laws. The present case isone where the petitioners have categorically averred that they have not beenconvicted under any other law other than Direct Taxes Laws, nor is it the caseof the Revenue that the petitioners have been convicted under such law otherthan Direct Taxes Laws. 31.The reason stated by the authority in the impugned order, wherein itproceeds on the erroneous factual assumption that the petitioners have been convicted by a court of law for an offence other than under the Direct TaxesLaws, is unsustainable and on this count alone, the impugned order isrequired to be set aside. 31.The reason stated by the authority in the impugned order, wherein itproceeds on the erroneous factual assumption that the petitioners have been convicted by a court of law for an offence other than under the Direct TaxesLaws, is unsustainable and on this count alone, the impugned order isrequired to be set aside. 32.In the present case, we find that this is a classic case for considerationby respondent no.3 for compounding of offence, inasmuch as petitioner no.1-company has deposited the TDS due, though beyond time-limit set down, butbefore any demand notice was raised or any show cause notice was issued.The Tax Deducted at Source was deposited along with penal interest thereon.A reply setting out detailed reasons for not depositing the same within thetime stipulated under the law had been filed in reply to the show cause noticeissued earlier. Though the petitioners had been convicted, a proceeding in theform of an appeal is pending before the Sessions Court, which is yet to bedisposed of, and in which there is an order of suspension of sentence imposedon petitioner no.2 is operating. 33.Under these circumstances, we are of the view that the findings arrivedat by respondent no.3 in the impugned order dated 1st June 2021, that theapplication for compounding of offence, under Section 279 of the Income TaxAct, was filed beyond twelve months, as prescribed under the CBDTGuidelines dated 14th June 2019, are contrary to the provisions of sub-section(2) of Section 279. The respondent no.3 has failed to exercise jurisdictionvested in it while deciding the application on merits and consideration of the grounds set out when the application for compounding of offence was filedbefore it. On this count, the impugned order dated 1st June 2021 needs to bequashed and set aside. Accordingly, we pass the following order :- (i)The impugned order dated 1st June 2021 passed byrespondent no.3-Chief Commissioner of Income Tax(TDS), Mumbai, on the application filed by the petitionersfor compounding of an offence, is quashed and set aside.respondent no.3-Chief Commissioner of Income Tax(TDS), Mumbai, on the application filed by the petitionersfor compounding of an offence, is quashed and set aside. (ii)Consequently, we remand the application, under theprovisions of Section 279(2) of the Income Tax Act, of thepetitioners back to respondent no.3 to consider afresh onits own merits.provisions of Section 279(2) of the Income Tax Act, of thepetitioners back to respondent no.3 to consider afresh onits own merits. (iii)Respondent no.3 shall dispose of the application of thepetitioners preferably within a period of thirty days fromthe date of receipt of this judgment.petitioners preferably within a period of thirty days fromthe date of receipt of this judgment. (iv)Until disposal of the application of the petitioners forcompounding of offence, under sub-section (2) of Section279 of the Income Tax Act, 1961, by respondent no.3, theproceedings, being Criminal Appeal No.127 of 2020,along with Criminal Miscellaneous Application No.407 of2020, pending before the City Sessions Court, GreaterMumbai, shall remain stayed.compounding of offence, under sub-section (2) of Section279 of the Income Tax Act, 1961, by respondent no.3, theproceedings, being Criminal Appeal No.127 of 2020,along with Criminal Miscellaneous Application No.407 of2020, pending before the City Sessions Court, GreaterMumbai, shall remain stayed. (v)The challenge to the validity of clause 7(ii) contained inCircular F. No. 285/08/2014-IT(INV.V)/147 dated 14th21/22Circular F. No. 285/08/2014-IT(INV.V)/147 dated 14th21/22 June 2019, as raised in the present petition, is left open in the event the petitioners are aggrieved by a fresh order tobe passed by respondent no.3. 34.Rule is made absolute in the above terms. 35.Petition is disposed of accordingly. [ VALMIKI SA MENEZES, J. ] [ DHIRAJ SINGH THAKUR, J. ] 22/22