CBDT issues revised guidelines for Compounding of Offences under Income-tax Act

Letter F.No. 285/08/2014-IT(lnv.V)/ 196, dated 16-09-2022

Compounding of an offence is a mechanism whereby the defaulter is reprieved of major legal consequences by affording him with an opportunity to pay a sum of money to escape prosecution. Any offence can be compounded by the Principal Chief Commissioner or Chief Commissioner or Principal Director-General or Director-General having jurisdiction over the assessee either before or after initiation of proceedings.

The Central Board of Direct Taxes (CBDT) has reviewed the guidelines on the compounding of offences under the Income-tax Act intending to simplify and facilitate the compounding of offences. Thus, in supersession of all earlier guidelines, the board has issued revised guidelines for compliance by all concerned.

These revised guidelines shall come into immediate effect and shall apply to all applications for compounding received on or after 16-09-2022. A few changes brought by the board under new guidelines are mentioned below:

a) The Board has clarified that the meaning of offences is classified into ‘Category A and Category B’. Category A offences are the ones where the offences are of technical nature and caused by an act of omission. Whereas Category B offences are non-technical offences attributed to an act of commission.

b) An offence punishable under section 276 has been moved from category A to category B. Section 276 talks about removal, concealment, transfer or delivery of property to thwart tax recovery.

c) The compounding charges shall be 1.25 times the normal compounding charges in case the application of compounding is filed after the end of 12 months, but within 24 months, from the end of the month in which prosecution complaint, if any, has been filed in the court of law.

d) Offences punishable under sections 275A & 275B shall not be compounded in any circumstances.

e) Erstwhile guidelines provided that offences committed by a person for which he was convicted by a court of law under Direct Taxes Laws are generally not to be compounded. The new guideline has relaxed this conditions to include that such person shall be convicted with imprisonment for two years or more.

DISCLAIMER: The views expressed are strictly of the author and Indian tax Update. The contents of this article are solely for informational purpose and for the reader’s personal non-commercial use. It does not constitute professional advice or recommendation of firm, Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon. 

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