THE issue before the Bench is - Whether in a case of wilful non-payment of tax for a long period, assessee deserves any sympathy if compounding fees turn out to be more than the princpal. NO is the verdict.
Facts of the case:
The Assessee-an individual, had filed his return for the relevant AY. However, a search and seizure operation was carried out at the Assessee's residence and following the said operation, notices u/s 158BC were issued. In reply, the Assessee filed block assessment returns disclosing nil undisclosed income. The AO noted that the Assessee was unable to explain the source of loan of One Million Indian Rupees given to a resident of Sri Lanka. Therefore, the AO passed a block assessment order u/s 158BA and held that the Assessee had earned undisclosed income during the said block assessment period. The block assessment order was passed almost two decades ago, and relates to 1st April, 1986 to 1st November, 1996. In 1997, an appeal was preferred by the Assessee before the Tribunal wherein, no stay was granted and was remained pending for almost 20 years. In 2006, the Department issued a notice to the Assessee stating that the taxes due was not paid and on 22nd January, 2007, only revised grounds of appeal were filed. However, the Assessee failed to prosecute his appeal. Though there was no stay granted in Assessee's favour, he had still ignored the outstanding tax demands against him. Even after criminal prosecution was launched, on 25th January, 2010, an order for framing of charges was passed by the ACMM (Special Acts), Central Delhi, which held that there were enough material to frame charges against the Assessee for the wilful defaults. Thereafter, on 21st April, 2010, formal charges were framed against the Assessee by the ACMM (Special Acts) u/s 276 C(1), 276C(2) and 227. The first application for compounding was filed by the Assessee after 17 years of passing of the assessment order, and nearly 4 years after framing of charge against him. Further, for the second time, the Assessee had filed the compounding application on 22nd January 2015 whereby, only principal amount was paid and not the interest and the same was rejected. On 23rd February, 2015, the Assessee, filed the third application which was also rejected for the non-payment of interest and the fourth application was filed wherein, interest amount was paid but there was a balance interest amount for the period from 1st December, 2014 to 31st October, 2015 which remained unpaid.
Finally, the balance interest amount was paid on 6th January, 2016 and a fresh compounding application was made. Nevertheless, the Assessee was informed that the said application had to be made to Pr.CIT and hence, an application was made in this regard but, it was rejected since it was not as per the compounding guidelines. The Assessee, by following the correct format, made an application which was accepted. The Department informed the Assessee that deposit of compounding charges was to be made. The Department also insisted on a pre-deposit of the compounding charges but, the Assessee was permitted to pursue huis application without the said pre-deposit of compounding charges. The pending application was finally rejected as being barred by limitation. The said case was then dealt by the Jurisdictional High Court as well as the Committee. On recommendation of the Committee, the compounding charges was determined.
In Writ, the High Court held that,
++ the Assessee, as per the AO could not properly explain the undisclosed income. The AO’s order could have rightly been challenged by the Assessee, which in fact the Assessee appears to have done. However, this appeal, filed before the Tribunal as early as in 1997, does not appear to have been seriously pursued by the Assessee even till 2007 i.e. 10 years later. The revised grounds of the appeal were filed in 2007 and until 2014, no decision in the appeal came about. Despite there being no interim protection in favour of the Assessee, he did not deposit the tax. The Assessee waited until the criminal court passed the order of framing of charge on 25th January, 2010 and subsequent framing of charges, to make the first deposit of Rs.8,19,419/-, at the time when the second application for compounding was filed by him on 22nd January, 2015. Even this compounding application was not as per the prescribed guidelines and format, prescribed at that time. Interest as due for 20 years was not paid. It required a full one year of correspondence before the Assessee deposited the interest amounts. Thus, it was almost 20 years after passing of the block assessment order that the Assessee actually even deposited the principal amount and the interest;
++ it is the long delay, which is attributable only to the Assessee that has resulted in the compounding charges, for the delay in payment of taxes, being what they are. As per the guidelines, the compounding charges payable for an offence u/s 276C(1) is 100% of the amount sought to be evaded, and for an offence u/s 276C(2) it is 3% per month of the amount of tax, the payment of which was sought to be evaded, for the period of default. Thus, the monthly 3% charge which constitutes a part of the compounding charges was only due to the Assessee’s fault, due to prolonged period of default;
++ almost Rs. 50 lakhs is due to the long duration that has elapsed from the date of the order till the payment of taxes and interest. The CBDT, in its wisdom, has issued circulars and guidelines from time to time prescribing the compounding charges leviable for compounding of various offences. Only because in a particular case, due to the delay attributable purely to the Assessee, the amount of compounding charges turned out to be much higher than the principal and the interest, it does not per se render the compounding charges illegal or arbitrary;
++ the Assessee ought to have exercised due diligence and deposited the tax and the interest at the inception without prejudice to his rights and contentions in the appeal. The non-payment of tax amounts, which are determined to be offences under the Act and delay by the Assessee in depositing the same is non-condonable in any manner whatsoever. Moreover, the Assessee has, by seeking compounding, consciously and voluntarily opted for compounding of the criminal offence, undertaking to withdraw the appeal, undertaking to pay the compounding charges determined;
++ having filed the compounding application the Assessee cannot attempt to wriggle out of his obligations to pay the compounding charges by alleging that the same are exorbitant. The amount of compounding charges is not to be merely compared with the principal and the interest charged but has to be adjudged from the point of view of the long duration during which there was wilful non-payment of taxes. The conduct of the Assessee brooks no sympathy. The Authorities, it appears, were helpless. Even filing of criminal prosecution appears to have made no difference. Therefore, in cases of this nature, quid pro quo or proportionality is not always applicable;
++ there is no element of quid pro quo required, inasmuch as, the compounding fee charged is in the nature of tax under the Act. The legislation has vested the CBDT with power to prescribe compounding fee, etc., for different offences. It is well within the powers of CBDT as vested in it under the Act. The principle of proportionality also would not apply in the present case, inasmuch as, compounding fee is in the nature of a payment made to avoid punishment for a criminal offence;
++ the Assessee was conscious of the fact that if he was convicted in the criminal complaint, no compounding could have taken place after that. Thus, the Assessee has consciously and with full knowledge applied for compounding. In fact at the time when the Assessee filed the compounding application for the first time, the charges for compounding would have been higher, as per the guidelines in operation then, than what was applied finally to the Assessee's case. In any event, the guidelines per se do not fall foul of Article 14 inasmuch as, the only ground which is sought to be raised to challenge the same is the exorbitant nature of the compounding charges in the Assessee's case. The Assessee has not argued that the compounding charge is per se exorbitant.