Sumit Bharana v. Union of India & Ors.

1. The petitioner has filed the present petition, inter alia, impugning an order dated 28.05.2024 (hereafter the impugned order) rejecting the petitioner’s application for compounding of the offences under Section 276B and 278B of the Income Tax Act, 1961 (hereafter the Act).

2. The petitioner states that he was a director of the respondent no.5 company at the material time. He had received the show cause notice dated 30.06.2016 under Section 2(35) of the Act for the financial year (FY) 2012- 13 and 2013-14, calling upon the petitioner to show cause as to why he should not be considered as the principal officer of the respondent no.5 company and the prosecution under Section 276B of the Act not be launched against him for defaults in depositing the Tax Deducted at Source (TDS).

3. The petitioner responded to the said show cause notice inter alia, asserting that the respondent no.5 company had deposited the TDS for the FY 2012-13.

4. The concerned Income Tax Authority passed an order dated 12.07.2016 declaring the petitioner to be the principal officer of respondent no.5 company for FY 2012-13 and 2013-14. Thereafter, the respondents initiated the proceedings for prosecuting the petitioner for default in depositing the TDS for the relevant period.

5. On 18.10.2016, the CC No.541060/2016 captioned Income Tax Officer v. M/s Adel Landmarks Limited & Others was filed before the learned ACMM and summons were issued to the respondent no.5 as well as the petitioner in the said case. In the meanwhile, the proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC) commenced in respect of respondent no.5 before the National Company Law Tribunal (NCLT). On 03.02.2019, the learned ACMM (Special Court) framed the charges under Section 276B read with Section 278B and 278E of the Act against the petitioner and respondent no.5. However, thereafter the proceedings in respect of the respondent no.5 were stayed pursuant to the moratorium under the IBC.

6. The petitioner filed an application for compounding of the offences, however the said application was rejected by the impugned order.

7. A plain reading of the impugned order indicates that the same was rejected as the main accused (respondent no.5 – M/s Adel Landmark Limited) had not filed any application for the compounding of the offences before the competent authority [Chief Commissioner of Income Tax (TDS)] as the said authority was of the view that the petitioner’s application for compounding could not be considered on a stand alone basis.

8. The Central Board of Direct Taxes (CBDT) has recently, on 17.10.2024, issued fresh guidelines for compounding of the offences under the Act. It is relevant to refer to paragraph no.11 of the said guidelines, which are reproduced below:-

of the Act may deposit the charges under his PAN for the relevant financial year of the offence for which compounding is sought. 11.[4] In case liability of a company for an offence committed prior to the commencement of the corporate insolvency resolution process ceases due to the provisions of section 32A of the Insolvency Bankruptcy Code (IBC), it is clarified that prosecution proceedings against the co-accused can still continue. In such a case, the compounding application and payment of compounding charges can be made by the co-accused and/or the main accused company.”

9. It is apparent from the above that the co-accused are now entitled to apply separately for compounding of the offences.

10. The learned counsel appearing for the Revenue states on instructions that the impugned order may be set aside and the parties be remanded to the competent authority to consider it afresh in the light of the guidelines dated 17.10.2024. The said course commends to us.

11. We accordingly set aside the impugned order and remand the matter to the competent authority to decide afresh in the light of the current guidelines.

12. The petition is disposed of in the aforesaid terms. Pending application is also disposed of.