Supreme Court Judgment concerningappellant’s failure to furnish income tax returns within the due date for assessment years 2011-12 and 2013-14. The core issue revolves around the interpretation of “first offence” under the 2014 Guidelines for Compounding of Offences, which dictates whether an offense can be resolved outside of prosecution. The High Court of Gujarat previously upheld the rejection of the appellant’s compounding application, leading to this appeal. The Supreme Court’s analysis centers on the definition of when an offense is committed under Section 276CC of the Income Tax Act, 1961, and how “voluntary disclosure” impacts the “first offence” classification for compounding purposes. The court ultimately sets aside the High Court’s decision, ordering a fresh review of the appellant’s compounding application.
(A) Income Tax Act, 1961, Section 276CC, 279(2), 139(1) – Guidelines for Compounding of Offence, 2008 – Guidelines for Compounding of Offence, 2014, Clause 8(ii) – Income Tax – Compounding of offence – Rejection of application – Challenge as to – Expressions “wilfully fails” and “in due time” – Delay on the part of the appellant in filing the return of income for the two assessment years – Whether an offence under Section 276CC of the Income Tax Act, 1961 could be said to have been committed on the actual date of filing of return of income or on the day immediately after the due date for filing of returns as per Section 139(1) of the Act? – Held that the legislative intent behind Section 276CC, undoubtedly, was to restrict the meaning of the expression “in due time” used in the said provision to the time period referred to in Section 139(1) and not to the time period referred to in Section 139(4) – Expression “wilful failure” has to be adjudicated factually by the trial court dealing with the prosecution of the case -By virtue of Section 278E, the trial court has to presume the existence of culpable mental state and it would be open to the accused to plead the absence of the same in his defence – Held an offence under Section 276CC could be said to have been committed as soon as there is a failure on the part of the assessee in furnishing the return of income within the due time as prescribed under Section 139(1) of the Act – Subsequent furnishing of the return of income by the assessee within the time limit prescribed under sub-section (4) of Section 139 or before prosecution is initiated does not have any bearing upon the fact that an offence under Section 276CC has been committed on the day immediately following the due date for furnishing return of income.
(Para 34 and 35)
(B) Income Tax Act, 1961, Section 276CC – Guidelines for Compounding of Offence, 2014, Clause 8 – Income Tax – Delay in filing the return of income – Compounding of offence – Expression ‘first offence’ – What is the meaning of the expression “first offence” appearing in Clause 8 of the 2014 guidelines? – Held that scheme that permeates Paragraph 8 of the 2014 guidelines allows only those offences to be treated as the “first offence” which are committed by the assessee either prior to a notice that he is liable to prosecution under the Act for the commission of such offences or those offences which are voluntarily disclosed by the assessee to the Department before they come to be detected – The latter part of the definition of the expression “first offence” is not to curtail the scope of the first half but to expand its ambit by including those cases where the assessee comes forward on his own initiative and discloses the commission of the offence – The meaning as sought to be given by the respondents to Paragraph 8 of the 2014 guidelines would turn the very purpose of having a two-fold definition of “first offence” on its head and thus cannot be accepted for it would take away the incentive of coming forward and voluntarily disclosing the commission of offences from erring-assessees – Show cause notice for the AY 2011-12 was issued to the appellant on 27.10.2014 – However, the offence under Section 276CC of the Act could be said to have been committed on the dates immediately following the due date for furnishing the return of income for both these assessment years respectively – Thus, the offence for the AY 2011-12 could be said to have been committed on 01.10.2011 and the offence for the AY 2013-14 could be said to have been committed on 01.11.2013 – Therefore, it can be said without a cavil of doubt that both the offences under Section 276CC of the Act were committed prior to the date of issue of any show cause notice for prosecution – The offence as alleged to have been committed by the appellant under Section 276CC of the Act for the AY 2013-14 is, without a doubt, covered by the expression “first offence” as defined under the 2014 guidelines and thus the compounding application preferred by the appellant could not have been rejected by Respondent no. 1 on this ground alone.
(Para 69, 70, 73 and 81)
(C) Income Tax Act, 1961, Section 276CC – Guidelines for Compounding of Offence, 2014, Clause 8 – Income Tax – Delay in filing the return of income – Compounding of offence – What amounts to voluntary disclosure for the purpose of Clause 8 of the 2014 guidelines? – Voluntary disclosure for the purpose of Paragraph 8 of the 2014 guidelines has to be construed in a manner which ensures that such disclosure on part of the assessee saves the Department from the trials and tribulations of having to detect the commission of offence by the assessee by setting into motion its own machinery of detection of offences – Neither the filing of belated return of income by the assessee nor the making of an application for compounding of offence after a show cause notice has already been issued to the assessee fulfills this underlying idea of saving the Department from the inconvenience of detecting the offence. Even after a belated return of income is filed, the Department is still required to process the return, identify the cases wherein offences have been committed, issue show cause notices to the defaulting assessees and thereafter prosecute the offenders to recover the dues and punish the offenders – A voluntary disclosure by the assessee before the stage of detection by the Department besides being economically viable also saves time and efforts on part of the Department and also ensures that the dues are recovered promptly – When an assessee voluntarily discloses the commission of an offence, he cannot be said to have the intention of evading payment of taxes.
(Para 74 and 75)
(D) Income Tax Act, 1961, Section 276CC – Guidelines for Compounding of Offence, 2014, Clause 8 – Income Tax – Delay in filing the return of income – Compounding of offence – Whether the 2014 guidelines are mandatory or directory in nature? – Paragraph 4 of the 2014 guidelines specifies that compounding is not a matter of right of the assessee and the competent authority may allow the compounding application upon being satisfied that the applicant fulfills the eligibility conditions and keeping in mind the conduct of the applicant, nature and magnitude of the offence and the facts and circumstances of each case – A plain reading of the 2014 guidelines reveals that while it is mandatory that the eligibility conditions prescribed under Paragraph 7 are to be satisfied, the restrictions laid down in Paragraph 8 have to be read along with Paragraph 4 of the Act which provides that the exercise of discretion by the competent authority is to be guided by the facts and circumstances of each case, the conduct of the appellant and nature and magnitude of offence – Seen thus, it becomes clear that the restrictions laid down in Paragraph 8 of the guidelines are although required to be generally followed, the guidelines do not exclude the possibility that in a peculiar case where the facts and circumstances so require, the competent authority cannot make an exception and allow the compounding application.
(Para 78 and 79)
Vinubhai Mohanlal Dobaria V. Chief Commissioner Of Income Tax
Supreme Court: 2025 INSC 155: (DoJ 07-02-2025)
