How not-in-time compounding application and inefficient presentation ultimately landed the assessee in jail?

Case Name:

Anil Tools & Forgings v. Chief Commissioner of Income-tax, Ludhiana (High Court of Punjab and Haryana)

Key Takeaways:

1. The department offered the assessee-firm an opportunity to compound the offences, but the firm refused.

2. The application for compounding of the offence was dismissed by the Chief Commissioner of Income-tax, Ludhiana, as it was considered an afterthought, moved after the conviction order passed by the criminal court.

Case Synopsis:

The case of Anil Tools & Forgings v. Chief Commissioner of Income-tax, Ludhiana, was heard by the High Court of Punjab and Haryana. The case involved the application for compounding of an offence under section 276C(2) of the Income-tax Act, 1961.

Case Details

Case Number: Civil Writ Petition No. 14447 of 2008

Date of Judgment: March 16, 2009

Judges: M.M. Kumar and H.S. Bhalla, JJ.

Facts of the Case

1. On 29-3-1996, a complaint was filed by the Assistant Commissioner against all the partners of the assessee-firm, alleging that they deliberately failed to make payment of tax under section 140A of the Income-tax Act, 1961.

2. The department offered the assessee-firm an opportunity to compound the offences, but the firm refused to avail that opportunity.

3. The Chief Judicial Magistrate passed an order convicting the partners of the assessee-firm on 14-8-2006.

4. Subsequently, on 16-2-2008, the assessee filed an application for compounding of the offence.

5. The compounding application was dismissed on the ground that the application was moved after the conviction order passed by the criminal court and Learned counsel for the petitioner-firm couldn't show

• any irregularity or impropriety in the impugned order passed by the Commissioner of Income-tax, Ludhiana or
• glaring defect on the point of law, which has resulted in miscarriage of justice, which needs to be set right by the Court.

Judgment

The High Court held that the application for compounding of the offence, which was filed after the conviction order, was an afterthought. The court noted that similar applications filed by the assessee-firm had been rejected prior to the application dated 16-2-2008. The court also mentioned that the matter can be compounded either before or after the institution of the proceedings, as per section 279(2) of the Income-tax Act, 1961. However, in this case, the application for compounding of the offence was moved after the conviction order passed by the criminal court, and therefore, the question of compounding of the offence did not arise.

The court also stated that the assessee-firm had not been able to show any irregularity or impropriety in the impugned order passed by the Commissioner of Income-tax, Ludhiana, or any glaring defect on the point of law, which had resulted in a miscarriage of justice. Therefore, the writ petition filed by the assessee was dismissed.

Conclusion

The High Court dismissed the writ petition filed by the assessee, as it found no merit in the petition and upheld the decision to dismiss the application for compounding of the offence.

This case highlights the importance of timely actions in legal proceedings and the implications of filing applications for compounding of offences after a conviction order has been passed by a criminal court.

FAQ

Q1: What was the nature of the case?

A1: The case involved the deliberate failure of the partners of M/s. Anil Tools and Forgings to make payment of tax under section 140A of the Income-tax Act, 1961 for the assessment year 1993-94.

Q2: What was the outcome of the application for compounding of the offence?

A2: The application for compounding of the offence was dismissed by the Chief Commissioner of Income-tax, Ludhiana, as it was considered an afterthought, moved after the conviction order passed by the criminal court.

The petitioners have knocked at the door of this Court by filing a writ petition praying for issuance of a writ in the nature of certiorari for quashing impugned order dated 5-6-2008 (Annexure P-13) passed by the Commissioner of Income-tax, Ludhiana (respondent No. 1) by virtue of which, application moved by the petitioners for compounding of offence, was dismissed.

2. The facts required to be noticed for the disposal of the petition are that M/s. Anil Tools and Forgings, Basti Danishmandan, Jalandhar through its partner Shri Anil Kumar son of late Shri Chunni Lal and its three other partners (hereinafter referred to as "petitioner-firm"), is engaged in the business of manufacturing various types of hand tools. On 22-10-1993 the petitioner-firm filed its return showing a total income of Rs. 4,12,810 for the assessment year 1993-94. On 11-1-1994 the return was processed under section 143(1)(a) of the Income-tax Act, 1961 (for brevity, "the Act"). Thereafter the case was picked up for scrutiny and after issuing statutory notice under section 143(2), assessment under section 143(3) of the Act was framed vide order dated 27-3-1996. It has further been pleaded in the petition that a notice dated 11-1-1994 was issued to the petitioner-firm to show cause as to why criminal proceedings under section 276C(2) of the Act be not initiated against the partners of the firm, inasmuch as they failed to make payment of self-assessment amounting to Rs. 2,29,417 as required under section 140A of the Act. On 15-1-1994 the petitioner-firm filed its reply (Annexure P-1) stating therein that on account of financial implications, it was unable to deposit the tax due.

3. It has further been specifically submitted that on 29-3-1996, a complaint under section 276C(2), read with section 278B of the Act (Annexure P-2) was filed by the Assistant Commissioner of Income-tax, Circle 1(2), Jalandhar (respondent No. 2) against all the partners of the petitioner-firm alleging therein that they deliberately failed to make payment of the tax under section 140A of the Act. The petitioner-firm also filed an application before the Chief Commissioner of Income-tax, Chandigarh, for withdrawal of the criminal proceedings filed by the department and that application was also dismissed and ultimately, petitioner-firm moved an application for compounding the offence after passing of order dated 14-8-2006 by the Chief Judicial Magistrate, Jalandhar, convicting and sentencing the present petitioners to undergo rigorous imprisonment for one year each and to pay a fine of Rs.500 each under sections 276C(2) and 278B of the Act. Finally, it was prayed that the writ petition be allowed.

4. The claim of the petitioner-firm has been hotly contested by the respondent contending therein that the writ petition is devoid of any substantial question of law since the department, vide letter dated 11-12-1997 communicated the petitioner-firm whether it intended to avail an opportunity of compounding of the offence, but it refused to avail this opportunity. Denying most of the assertions made by the petitioner-firm, it was finally prayed that the writ petition, bereft of merit, is liable to be dismissed.

5. Having heard learned counsel for the parties and going through the averments contained in the writ petition as also the reply submitted by the respondent and other documents available on the record, we are of the view that the writ petition has got no merit and the same is liable to be dismissed for the reasons to be recorded hereinafter.

6. It is crystal clear that the entire case of the petitioner-firm revolves around impugned order dated 5-6-2008 (Annexure P-13) by virtue of which application moved by the petitioner-firm for compounding of offence was dismissed vide order dated 5-6-2008 passed by the Chief Commissioner of Income-tax, Ludhiana, concluding part of which, reads as under :

"I have been directed to convey that the entire matter has been reconsidered. The gist of the same is that the assessee did not pay the due tax and did not avail the offer of compounding. As the assessee has already been convicted, there remains no ground for compounding of offence. Even the latest CBDT guidelines dated 16-5-2008 on compounding applicable from 1-6-2008 provided that compounding cannot be done when the conviction order has been passed by the Court. Accordingly, the offence of the assessee, does not qualify for being compounded. The application has thus been rejected by the Chief Commissioner of Income-tax, Ludhiana."

The only point that arises for consideration before this Court is as to whether the matter can be compounded after an order of conviction and sentence was passed against the present petitioners by a criminal court, if so, its effect ?

7. It is no denying fact that prosecution proceedings against the present petitioners were launched on 29-3-1996 and vide letter dated 11-12-1997, which was sent to the petitioners, they were called upon to avail an opportunity of compounding the offence and in order to effectively adjudicate upon the point involved in the present petition, we deem it necessary to refer to the contents of letter dated 11-12-1997, which reads thus :

"You are requested to intimate the undersigned by the return of mail whether you intend to avail the opportunity of compounding the prosecution launched in your case for the assessment year 1993-94."

8. In response to the letter aforesaid issued by the respondent, the petitioner-firm submitted a reply on 22-12-1997, relevant extract whereof is reproduced as under:—

"It is submitted that we are unable to reconcile that whether your offer for compounding of prosecution is in connection with our petition lying with the Chief Commissioner of Income-tax, Chandigarh or otherwise.

In the end, we would like to submit that we are unable to agree to this compounding of prosecution proposal made to us vide your letter dated 11-12-1997."

9. In the context of what has been discussed above, it can easily be inferred that fairly enough, an offer was made to the petitioners for compounding of offence, but for the reasons best known to the petitioner-firm, the same was not acceptable to them. It is no doubt true that the matter can be compounded either before or after the institution of the proceedings as embodied in section 279(2) of the Act, which for facility of reference, is required to be reproduced here in below :

"279(2) Any offence under this Chapter may, either before or after the institution of proceedings, be compounded by the Chief Commissioner or a Director General."

10. In the instant case, the application moved for compounding of offence before the Chief Commissioner of Income-tax, Ludhiana, is dated 16-2-2008, which was rejected through the impugned order dated 5-6-2008 (Annexure P-13) is an afterthought, which fact is clearly evident from order dated 14-8-2006 whereby the present petitioners were convicted and sentenced by the Chief Judicial Magistrate, Jalandhar. Record clearly spells out that prior to the application dated 16-2-2008, similar applications dated 24-2-2007 and 25-8-2007 filed by the petitioner-firm were also rejected. It is in this context that application for compounding of offence was not moved by the petitioner-firm before the conviction order passed by the criminal court. In such like circumstances, we have no hesitation in holding that the application for compounding of offence was moved after the conviction order passed by the Criminal Court and therefore, the question of compounding of offence particularly when conviction and sentence against the present petitioners had already been passed by the Chief Judicial Magistrate does not arise. The observation made by the Assistant Commissioner of Income-tax that the offence of the assessee does not qualify for being compounded cannot at all be said to be erroneous which may warrant interference by this Court. Accordingly, the question posed here-in-above is answered in the negative.

11. Learned counsel for the petitioner-firm has not been able to show any irregularity or impropriety in the impugned order dated 5-6-2008 (Annexure P-13) passed by the Commissioner of Income-tax, Ludhiana (respondent No. 1) or glaring defect on the point of law, which has resulted in miscarriage of justice, which needs to be set right by this Court.

12. In the light of what has been observed above, writ petition filed by the petitioner-firm being without any merit, fails and is hereby dismissed.