By TIOL News Service

AHMEDABAD, APRIL 18, 2017: THE ISSUE IS - Whether when a show cause notice for prior A.Y was issued for prosecution and despite the same, in the subsequent year, the offence is committed by not filing the return, the same cannot be treated as 'first offence' and hence the assessee cannot claim its compounding as a matter of right. YES is the verdict.

Facts of the case:

The assessee had filed its return for AY 2011-12 on March 04, 2013, though the return was due on August 01, 2011. As the return was not filed before the due date and therefore, the assessee had violated the provision of Section 276 CC, the Asst CIT sent a proposal for prosecution to CIT-III, Vadodara, who in turn issued a show cause notice. In response, the assessee applied for compounding as prescribed under the Guidelines for Compounding of Offence, 2008. The said application along with application for two other years i.e. AY 2011-12 and 2012-13 came to be accepted by the CIT, Vadodara and the application for compounding offence also came to be allowed. Subsequently, the assessee filed return for AY 2013-14 on Nov 29, 2014, which was also after the due date of filing of return. Therefore, the assessee again violated the provision of Section 276CC. Hence, he received a notice for prosecution u/s 276 CC for AY 2013-14. On receipt of the said show cause notice, the assessee again applied for compounding. This time, the CIT, Vadodara rejected the said application by observing that as per the Guidelines issued with respect to first offence only compounding was permissible.

On appeal, the HC held that,

++ it is to be noted that as per clause 4 of the Guidelines for compounding offence under the Direct Tax Laws, 2014, the compounding offence is not a matter or right. There are different categories of offence mentioned in the Guidelines. The offence under Section 276 CC of the Act falls in category "B". As per Clause 8(ii) with respect to offence falling under category "B", the offence other than first offence as defined generally not to be compound. What can be said to be first offence is also mentioned in the clause 8(ii) and as per the same, first offence means offence under any of the Direct Tax Laws committed prior to (a) the date of issue of any show cause notice for prosecution or (b) any intimation relating to prosecution by the Department to the person concerned or (c) launching of any prosecution, whichever is earlier. It is the case on behalf of the department and so mentioned in the impugned order that in the present case prior to offence u/s 276 CC for AY 2013-14 there was already show cause notice for prosecution for AY 2011-12 and despite the same, the assessee did not file the return of income for AY 2013-14 within the time prescribed and therefore, the offence u/s 276 CC for AY 2013-14 cannot be said to be the "first offence". However, on the other hand, it is the case on behalf of the assesee that for AY 2013-14, the show cause notice u/s 276 CC was issued on Mar 12, 2015 and prior thereto the return of income for AY 2013-14 was already filed on Nov 29, 2014 and therefore, the same can be said to be "first offence" even as per the clause 8(ii) of the Guidelines. The aforesaid submission on behalf of the assessee is absolutely on misreading of clause 8(ii). On true interpretation of clause 8(ii), in case the offence is committed prior to date of issuance of any show cause notice for prosecution, in that case, it can be said to be the "first offence". Therefore, in case for any prior assessment year, the show cause notice has been issued for prosecution and despite the same, in the subsequent year, the offence is committed by not filing the return, the same cannot be said to be "first offence". In the present case, for AY 2011-12, the show cause notice was already issued u/s 276 CC on Oct 27, 2014 for non filing of return before due date and despite the same for the subsequent years, the assessee did not file return before due date. Therefore, again the assessee committed the offence for AY 2013-14. Under the circumstances, the CIT has rightly rejected the compounding application submitted by assessee in consonance with the Guidelines, 2014.

(See 2017-TIOL-747-HC-AHM-IT)