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CBDT issues revised guidelines for Compounding of Offences under Direct Tax Laws, 2019
June 19, 2019
In brief
The Central Board of Direct Taxes (CBDT) has issued1 guidelines for compounding of offences under the Direct Tax Laws, 2019 in supersession of its previous guidelines2 dated 23 December 2014. The new guidelines shall come into effect from 17 June 2019 and shall apply to all applications for compounding received on or after the aforesaid date.
In detail
The key changes in the revised guidelines have been summarised below.
Guidelines Change(s) introduced
Applicability to prosecution instituted under the Indian Penal Code (IPC)
It is clarified that prosecution complaints under the IPC may be withdrawn by the Competent Authority (CA) in case of the following:
- the complaint filed under the provisions of both Income-tax Act, 1961 (Act) and the IPC are based on the same facts; and - the complaint under the Act is
compounded.
Classification of offences Offences punishable under sections 276CC (failure to file return of income) and 276CCC (failure to file return of income in search cases) of the Act have been moved from Category “B” to Category “A” offence.
Offences punishable under section 275A [contravention of order made under section 132(3)], section 275B [failure to comply with the provisions of section 132(1)(iib)] and section 276 (removal, concealment,
1F. No. 285/08/2014-IT(Inv.V)/147
2 F. No. 285/35/2013 IT(Inv.V)/108
2 pwc transfer or delivery of property to thwart tax recovery) of the Act have been removed from Category “B”, and can no longer be compounded.
Offences not to be compounded Any offence for which compounding application has already been rejected except where benefit of rectification is available.
In case it is proved that a person has enabled others in tax evasion.
Offence related to undisclosed foreign bank accounts/ assets.
Offence under Black Money (Undisclosed Foreign Income and Assets) Act, 2015.
Offence under Benami Transaction (Prohibition) Act, 1988.
Form and time limit for filing of compounding application
The compounding application of offences to be filed in the prescribed format (Annexure 1) in the form of an affidavit on a stamp paper of value INR 100.
No compounding application can be filed after the end of 12 months from the end of the month in which prosecution complaint, if any, has been filed in a court of law.
Time limit of filing the compounding application may be relaxed until completion of 24 months from the end of the month in which the complaint is filed. Such relaxation shall be granted for delays attributable to reasons beyond the applicant’s control. However, compounding charges would be 1.25 times the normal compounding charges as applicable on the date of filing the original application.
Meaning of the term “occasion” It has been clarified that Category “A” offences cannot be compounded on more than three occasions except on approval of the prescribed
Committee. In this context, it has been clarified that multiple applications filed for one or more assessment years in one instance shall be treated as one “occasion”.
CA to compound an offence Jurisdiction over deductors who has committed an offence under sections 276B/ 276BB of the Act for non-payment of tax withheld in respect of both resident and non-resident deductees - The Pr. CCIT/
CCIT/ Pr. DGIT/ DGIT in whose jurisdiction the compounding application has been filed shall be the CA. He/ she shall compound the offence subject to approval of the Committee comprising of three officers of the rank of CCIT, constituted by the Pr. CCIT of the region.
Applicant having more than one Tax Deduction and Collection Account Number (TAN) lying in the jurisdiction of two or more Pr.
CCIT/ CCIT/ Pr. DGIT/ DGIT – Pr. CCIT/ CCIT having jurisdiction over the TAN of the region in which the Permanent Account Number (PAN) jurisdiction of the applicant is falling.
Compounding procedures The procedural timelines have been amended as below for processing the compounding application:
Disposal of application by CA by rejecting or intimating compounding charges in the prescribed format (Annexure 3) – six months from end of the month of application (excluding the time for payment of the compounding charges).
Compounding charges to be paid by applicant – within one month from end of the month of receipt of intimation from CA (under exceptional circumstances, Pr. CCIT/ CCIT/ Pr. DGIT/ DGIT may extend this period to three months, and prior approval is required in
3 pwc writing from the Committee for extension beyond three months. No approval beyond 12 months except in case of prior approval of Member (inv.) CBDT on proposal of the concerned CA.
Interest rate on compounding charges – 2% per month if paid beyond one month from the end of the month in which it was intimated to applicant and 3% per month if the period is extended beyond three months.
Passing of compounding order by CA – within one month from the end of the month of payment of compounding charges
Order of acceptance/ rejection of compounding application shall be brought to the notice of the Court through prosecution counsel in all cases where prosecution proceedings have been initiated.
A compounding application rejected solely on account of late/ short payment of compounding charges for bonafide mistakes or some other technical grounds can be rectified at applicant’s written application on payment of such shortfall with applicable interest before rejection or time allowed by the CA, whichever is applicable.
Having said above, the guidelines expressly state that the above timelines are administrative and indicative for work management and do not prescribe a limitation period for the disposal of the compounding applications.
Definition of “tax” For the purpose of computing the compounding fees, the word “tax”
means tax including surcharge and any cess by whatever name called, as applicable.
Compounding fees Suo-moto application is filed by the taxpayer for offences punishable under sections 276B and/ or 276BB of the Act.
- A reduced compounding fee at the rate of 2% per month or part of a month of the amount of tax in default as disclosed in the application.
- The said fees shall not exceed the tax withheld and interest under section 201(1A) of the Act taken together, if the default is in respect of the deposit of tax withheld being less than INR 1,00,000.
Offence punishable under section 276C(1) of the Act.
- In cases involving tax sought to be evaded - 150% (where tax sought to be evaded exceeds INR 25,00,000) and 125% (in any other case).
- In cases involving attempt to evade only the penalty - 100% of such penalty sought to be evaded.
Offences punishable under sections 276CC and 276CCC of the Act.
- Default in furnishing return of income within due date under section 139(1) of the Act –
o Tax on returned income (reduced by tax withheld and advance tax) exceeds INR 25,00,000 – INR 4,000 per day.
o Any other case – INR 2,000 per day. However, in cases where the difference between the aggregate of taxes paid/ payable on returned income and the aggregate of self-assessment taxes already paid is less than INR 1,00,000, the compounding fees will be restricted to such difference subject to INR 10,000.
3 pwc - Non-compliance of notice under sections 142(1)(i)/ 148 / 153A / 153C
of the Act –
o Tax on returned income (reduced by tax withheld and advance tax) exceeds INR 25,00,000 – INR 4,000 per day from due date of filing of return till date specified in notice under section 142(1) of the Act and INR 5,000 from date specified in notice under sections 142(1)/ 148/ 153A/ 153C of the Act till date of filing of return or completion of assessment, whichever is earlier.
o Any other case – INR 2,000 per day from due date of filing of return till date specified in notice under sections 142(1)/ 148/
153A/ 153C of the Act, and INR 3,000 from date specified in notice under sections 142(1)/ 148 of the Act till date of filing of return or completion of assessment, whichever is earlier.
- Return of income is filed late but self-assessment tax is not paid – Constitutes two separate offences under sections 276CC and 276C(2) of the Act, and action under section 276C(2) to be undertaken only upon issue of demand notice under sections 143(1)/ 143(3) of the Act.
In case where no return of income is filed – tax on “returned income”
to be replaced by tax on “assessed income”.
If return of income processed under section 143(1) is higher than returned income – tax on “returned income” to be replaced by tax on income determined under section 143(1).
Compounding fees for offences punishable under section 276CCC of the Act shall be calculated in the same manner as for offences under section 276CC of the Act as prescribed in the compounding guidelines dated 16 May 2008.
Offences for which no compounding fees have been prescribed – minimum INR 1,00,000 for each of the offences.
Computation of period of default “Period of default” used for calculating the compounding fees under section 276C(2) of the Act shall be as follows:
- Where tax, interest or penalty as per notice of demand is not paid – from the date immediately following the due date of payment till the date of actual payment.
- Where self-assessment tax was not paid – from the due date of filing of return of income to the date of actual payment.
For computing period of default, any period of stay of demand
granted by any Income Tax Authority, the Appellate Tribunal or Court shall be excluded.
Clarification for offences punishable under sections 277 and 278 of the Act
The offense of the co-accused cannot be compounded separately unless the main accused i.e., company/ HUF comes for compounding in case of prosecution proceedings under sections 278B or 278C of the Act.
If one or more co-accused has not filed the compounding application or is not agreeable to the payment of compounding charges, then the main accused undertakes to pay the compounding charges on his/ her own and such co-accused’s behalf.
Changes in compounding application format (Annexure 1) and suggested
The said Annexures have been amended to incorporate changes viz.
earlier rejection, undisclosed foreign bank account/ assets, black money,
4
3 pwc check list for compounding (Annexure
2)
benami transactions, offences under sections 275A, 275B and/or 276 of the Act, verification of records, etc. aligned to the requirement of the revised guidelines.
The takeaways
The CBDT, by revising the compounding guidelines, has brought in a more stringent framework for compounding offences punishable under the Direct Tax Laws.
The emphasis in the revised guidelines is on preventing serious offences under the Black Money Act and Benami Transaction (Prohibition) Act from being compounded.
Certain other offences such as contravention of search and seizure orders, denial of access to electronic records to the authorities, property related offences to thwart tax recovery, etc., are no longer compoundable.
The CBDT has also tried to ensure that the taxpayers do not undergo hardship in genuine cases. For instance, compounding can be allowed up to three occasions (earlier,
only one opportunity was available) in case of non-filing of return of income. Also, the Finance Minister has the powers to relax the restrictions for compounding of an offence in deserving cases, based on the recommendation of the CBDT.
Let’s talk
For a deeper discussion of how this issue might affect your business, please contact your local PwC advisor
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For private circulation only
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© 2019 PricewaterhouseCoopers Private Limited. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Private Limited (a limited liability company in India having Corporate Identity Number or CIN : U74140WB1983PTC036093), which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity.
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