Income Tax Department has revised the guidelines for compounding of offences under the Income Tax Act 1961. While on the one hand, revised guidelines for the offences related with removal, concealment, transfer or delivery of property to thwart tax recovery can now be compounded, on the other hand, compounding charges and rate of interest in delayed payment of tax revised.

New guidelines will come into immediate effect. These will be applicable to all applications for compounding received on or after the issue date. These will supersede all the previous guidelines.

Provisions of compounding are provided in Section 279(2) of the Income Tax Act to reduce litigation and to give another chance to the accused so that the effect of the offence can be erased. Officers of Principal Chief Commissioner (PCCIT), Chief Commissioner (CCIT), Principal Director General (PDGIT) or Director General (DGIT) level rank can compound the offence. There are no parallel provisions under the Indian Penal Code for compounding of offences. However, the charges can be withdrawn post compounding.

Compounding charges hiked

Under the revised Guidelines, the offence under Section 276 (Removal, concealment, transfer or delivery of property to thwart tax recovery) can now be compounded. Compounding charges where relaxation is allowed increased from 1.25 to 1.5 times of the normal compounding charges. Relaxation time for filing compounding application increased from 12 to 24 months and up to 36 months instead of 24 months from the end of the month in which complaint is filed. Period for payment of compounding charges can be extended by PCCIT/CCIT/PDGIT/DGIT upto 6 months instead of 3 months and Regional PCCIT can extend it up to 12 months. Interest on delayed payment of compounding charges decreased to 1 per cent p.m. from 2 per cent p.m. for up to 3 months and to 2 per cent p.m. from 3 per cent p.m. beyond 3 months.

Under the guidelines, offences have been categorized into two. Category ‘A’ includes failure to deduct or pay tax, failure to pay tax deducted at source, failure to pay the tax collected at source, failure to furnish return of income, failure to furnish return of income in search cases in block assessment scheme and abetment of false return beside others. Category ‘B’ comprise of offences such as removal, concealment, transfer or delivery of property to thwart tax recovery, willful attempt to evade tax, etc, failure to produce accounts and documents, false statement in verification, falsification of books of account or documents, beside others.

Guidelines make it clear that compounding of offences is not a matter of right. However, offences may be compounded by the Competent Authority on satisfaction of the eligibility conditions prescribed in these Guidelines keeping in view factors such as conduct of the person, the nature and magnitude of the offence in the context of the facts and circumstances of each case.

Prosecution instituted under Indian Penal Code (IPC) cannot be compounded. However, section 321 of Criminal Procedure Code, 1973, provides for withdrawal of such prosecution. In case the prosecution complaint filed under the provisions of both the Income Tax Act and the IPC are based on the same facts and, the complaint under the Act is compounded, then the process of withdrawal of the complaint under the IPC may be initiated by the Competent Authority.