Supreme Court of India
VINUBHAI MOHANLAL DOBARIAversusCHIEF COMMISSIONER OF INCOME TAX & ANR
- Citation
- 2025 INSC 155
- Decided
- 6 February 2025
- Disposal
- Disposed off
- Bench
- B PARDIWALA
Holding
An offence under section 276CC is deemed committed on the day after the due date, and such offence for AY 2013‑14 qualifies as a "first offence" under the 2014 Guidelines, rendering the rejection of the compounding application erroneous.
Summary
The appellant, an individual with salary and partnership income, filed his income‑tax returns for AY 2011‑12 and AY 2013‑14 well after the statutory due dates, attracting show‑cause notices under section 276CC of the Income Tax Act. He sought compounding of the offences under the 2014 Guidelines; the first application (AY 2011‑12) was allowed, but the second (AY 2013‑14) was rejected on the ground that it was not a "first offence". The Supreme Court held that an offence under s.276CC is deemed committed on the day immediately after the due date, irrespective of when the return is later filed, and that both offences occurred before any show‑cause notice was issued, thus qualifying as "first offences" under the Guidelines. The Court further clarified the meaning of "first offence" and "voluntary disclosure" and held that the 2014 Guidelines, while mandatory on eligibility criteria, are directory regarding discretion. Consequently, the High Court’s order rejecting the compounding application was set aside and the appellant was directed to file a fresh compounding application.
Issues considered
- Whether an offence under section 276CC is committed on the actual filing date of the return or on the day immediately after the due date as per section 139(1).
- What is the meaning of "first offence" in Clause 8 of the 2014 Guidelines for Compounding of Offences.
- What constitutes voluntary disclosure for the purpose of Clause 8 of the 2014 Guidelines.
- Whether the 2014 Guidelines are mandatory or directory in nature.
Legislation cited
- Code of Criminal Procedure, 1973
- Income Tax Act, 1961s. 139(1), s. 139(4), s. 139(8), s. 276CC, s. 278E, s. 279, s. 279(2), s. 279(3)
- Indian Penal Code, 1860
Subjects
Compounding of offenceCompounding applicationFirst offenceActual date of filing of return of incomeDue date for filing of returnsSubsequent furnishing of return of income by assesseeFailure to furnish returns of incomeVoluntary disclosureGuidelines for Compounding of Offences under Direct Tax Laws, 2014Guidelines for Compounding of Offences under Direct Tax Laws, 2008Guidelines for Compounding of Offences under Direct Tax Laws, 2019Guidelines for Compounding of Offences under Direct Tax Laws, 2022Delay in filing return
Judgment
[2025] 2 S.C.R. 476 : 2025 INSC 155
Vinubhai Mohanlal Dobaria
v.
Chief Commissioner of Income Tax & Anr.
(Civil Appeal No. 1977 of 2025)
07 February 2025
[J.B. Pardiwala* and Sanjay Karol, JJ.]
Issue for Consideration
Whether an offence u/s.276CC of the Income Tax Act, 1961 could
be said to have been committed on the actual date of filing of return
of income or on the day immediately after the due date for filing
of returns as per s.139(1) of the Act; what is the meaning of the
expression “first offence” appearing in Clause 8 of the Guidelines
for Compounding of Offences under Direct Tax Laws, 2014; what
amounts to voluntary disclosure for the purpose of Clause 8 of
the 2014 Guidelines; whether the 2014 Guidelines are mandatory
or directory in nature.
Headnotes†
Income Tax Act, 1961 – s.276CC – Compounding of offence –
Commission of offence, when – Appellant, an individual
earning income by way of salary and also share of profit of
partnership firm – Delay in filing the return of income for AY
2011-12 and 2013-14 by appellant – Issuance of show cause
notice to the appellant for the AY 2011-12 alleging violation
of s.276CC – Application for compounding for AY 2011-12
allowed – Thereafter, the appellant received another show
cause notice as regards launching of prosecution for the
AY 2013-2014 – Compounding application for AY 2013-14
rejected – Writ petition by appellant that his compounding
application was rejected solely on the ground that the offence
alleged to have been committed by the appellant of belated
filing of the return of income for AY 2013-14 was not covered
by the expression “first offence” as defined in the 2014
guidelines, rejected by the High Court – Offence u/s.276CC
could be said to have been committed on the actual date of
* Author
[2025] 2 S.C.R. 477
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
filing of return of income or on the day immediately after the
due date for filing of returns as per s.139(1):
Held: Offence u/s.276CC could be said to have been committed
as soon as there is a failure on the part of the assessee in
furnishing the return of income within the due time as prescribed
u/s.139(1) – Subsequent furnishing of the return of income by the
assessee within the time limit prescribed under sub-section (4) of
s.139 or before prosecution is initiated does not have any bearing
upon the fact that an offence u/s.276CC has been committed on
the day immediately following the due date for furnishing return of
income – Offence u/s.276CC could be said to have been committed
on the dates immediately following the due date for furnishing the
return of income for both these assessment years respectively –
Date for commission of both of these offences would be the day
falling immediately next to the due date for filing of return, that is
01.10.2011 for AY 2011-12 and 01.11.2013 for the AY 2013-14 –
Show cause notice for the AY 2011-12 was issued to the appellant
on 27.10.2014 – Offence for the AY 2011-12 could be said to have
been committed on 01.10.2011 and the offence for the AY 2013-
14 could be said to have been committed on 01.11.2013 – Both
the offences u/s.276CC were committed prior to the date of issue
of any show cause notice for prosecution – Thus, the offence as
alleged to have been committed by the appellant u/s.276CC for the
AY 2013-14 is covered by the expression “first offence” as defined
under the 2014 Guidelines and thus, the compounding application
filed by the appellant could not have been rejected – High Court
erred in rejecting the writ petition filed by the appellant against the
order passed by the Chief Commissioner of Income Tax rejecting
the application for compounding – Impugned order passed by the
High Court as well as the order passed by the Chief Commissioner
of Income Tax set aside – Guidelines for Compounding of Offences
under Direct Tax Laws, 2014. [Paras 35, 41-43, 69, 70, 81-83]
Income Tax Act, 1961 – ss.276CC, 279 – Failure to furnish
returns of income – Compounding of Offences – Guidelines
for Compounding of Offences under Direct Tax Laws, 2014 –
Paragraph 8 – “First offence” – Meaning of:
Held: “First offence” is any offence committed prior to the date of
issuance of any show cause notice for prosecution in relation to
the said offence; or prior to any intimation relating to prosecution by
the department to the person concerned or prior to the launching
478 [2025] 2 S.C.R.
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of any prosecution, whichever is earlier – Expression “first offence”
is also defined to include any offence which has not been detected
by the Department, but has been voluntarily disclosed by a person
prior to the filing of an application for compounding of offence in the
case under any direct tax Acts – Paragraph 8 further clarifies that
the first offence would be determined separately with reference to
each section of the Act under which it is committed and it would be
relevant only if it is committed by the same entity – Scheme that
permeates Paragraph 8 allows only those offences to be treated
as the “first offence” which are committed by the assessee either
prior to a notice that he is liable to prosecution under the Act for the
commission of such offences or those offences which are voluntarily
disclosed by the assessee to the Department before they come to
be detected – Latter part of the definition of the expression “first
offence” is not to curtail the scope of the first half but to expand
its ambit by including those cases where the assessee comes
forward on his own initiative and discloses the commission of the
offence. [Paras 59-61, 73]
Guidelines for Compounding of Offences under Direct Tax
Laws, 2014 – Paragraph 8 – “Voluntary disclosure” – Purpose of:
Held: Voluntary disclosure to be construed in a manner which
ensures that such disclosure on part of the assessee saves the
Department from the trials and tribulations of having to detect the
commission of offence by the assessee by setting into motion
its own machinery of detection of offences – Neither the filing of
belated return of income by the assessee nor the making of an
application for compounding of offence after a show cause notice
has already been issued to the assessee fulfills the underlying
idea of saving the Department from the inconvenience of detecting
the offence – Even after a belated return of income is filed, the
Department is still required to process the return, identify the cases
wherein offences have been committed – Voluntary disclosure by
the assessee before the stage of detection by the Department
besides being economically viable also saves time and efforts
on part of the Department and also ensures that the dues are
recovered promptly. [Para 74]
Guidelines for Compounding of Offences under Direct Tax
Laws, 2014 – Paragraphs 4, 7, 8 – Guidelines, mandatory or
directory:
[2025] 2 S.C.R. 479
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
Held: Paragraph 4 of the 2014 guidelines provides that compounding
of offences is not a matter of right of the assessee – Plain reading
of the 2014 guidelines reveals that while it is mandatory that
the eligibility conditions prescribed under Paragraph 7 are to be
satisfied, the restrictions laid down in Paragraph 8 have to be
read along with Paragraph 4 which provides that the exercise of
discretion by the competent authority is to be guided by the facts
and circumstances of each case, the conduct of the appellant
and nature and magnitude of offence – Thus, it is clear that the
restrictions laid down in Paragraph 8 are although required to be
generally followed, the guidelines do not exclude the possibility that
in a peculiar case where the facts and circumstances so require,
the competent authority cannot make an exception and allow the
compounding application. [Paras 78-79]
Guidelines for Compounding of Offences under Direct Tax
Laws, 2014 – Guiding principles for the exercise of the power
conferred by s.279(2) allowing compounding of offences either
before or after the institution of proceedings – Explained –
Income Tax Act, 1961 – s.279(2). [Paras 53-67]
Case Law Cited
Prakash Nath Khanna v. CIT [2004] 2 SCR 434 : (2004) 9 SCC
686 – relied on.
Union of India v. Banwari Lal Agarwal [1998] Supp. 2 SCR 356 :
(1998) 7 SCC 652; Y.P. Chawla v. M.P. Tiwari [1992] 2 SCR
440 : (1992) 2 SCC 672; Sports Infratech P. Ltd. & Anr. v. Deputy
Commissioner of Income-tax, 2017 SCC OnLine Del 6543 –
referred to.
List of Acts
Income Tax Act, 1961; Penal Code, 1860; Code of Criminal
Procedure, 1973.
List of Keywords
Compounding of offence; Compounding application; First offence;
Actual date of filing of return of income; Due date for filing of returns;
Subsequent furnishing of return of income by assessee; Failure
to furnish returns of income; “Voluntary disclosure”; Guidelines
480 [2025] 2 S.C.R.
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for Compounding of Offences under Direct Tax Laws, 2014;
Guidelines for Compounding of Offences under Direct Tax Laws,
2008; Guidelines for Compounding of Offences under Direct Tax
Laws, 2019; Guidelines for Compounding of Offences under Direct
Tax Laws, 2022; Delay in filing return.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1977 of 2025
From the Judgment and Order dated 21.03.2017 of the High Court
of Gujarat at Ahmedabad in SCA No. 5386 of 2017
Appearances for Parties
Tushar Hemani, Sr. Adv., Ms. Dharita Purvish Malkan, Alok Kumar,
Kush Goel, Suraj Pandey, Ms. Khushboo Aakash Sheth, Advs. for
the Appellant.
Mrs. Monica Benjamin, Raj Bahadur Yadav, Udai Khanna,
Shashank Bajpai, V C Bharathi, A K Kaul, Prahlad Singh, Advs.
for the Respondent.
Judgment / Order of the Supreme Court
Judgment
J.B. Pardiwala, J.
For the convenience of exposition, this judgement is divided into
the following parts:
INDEX*
A. FACTUAL MATRIX .......................................................... 2
B. SUBMISSIONS ON BEHALF OF THE APPELLANT 13
C. SUBMISSIONS ON BEHALF OF THE RESPONDENTS 15
D. ISSUES FOR CONSIDERATION .................................... 19
E. ANALYSIS ...................................................................... 20
i. Section 276CC of the Income Tax Act, 1961 .............. 20
* Ed. Note: Pagination as per the original Judgment.
[2025] 2 S.C.R. 481
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
ii. Provisions pertaining to compounding of offences ..... 36
iii. Guidelines for Compounding of Offences under 41
Direct Tax Laws, 2014 ............................................
F. CONCLUSION ............................................................... 57
1. Leave granted.
2. This appeal arises from the judgment and order passed by the High
Court of Gujarat dated 21.03.2017 in Special Civil Application No.
5386 of 2017 (hereinafter referred to as “the impugned order”) by
which the High Court rejected the writ petition filed by the appellant
herein and thereby upheld the order of the Chief Commissioner of
Income Tax, Vadodara (“Respondent No. 1”) dated 14.02.2017
rejecting the application preferred by the appellant-assessee for
compounding of the offence under Section 276CC of the Income
Tax Act, 1961 (hereinafter referred to as “the Act”).
A. FACTUAL MATRIX
3. The appellant is an individual earning income by way of salary and
also by way of share of profit of partnership firm engaged in the
business of chemicals. He filed his income tax returns for the AY
2011-12 and 2013-14 on 04.03.2013 and 29.11.2014 respectively
declaring his income to be Rs 49,79,700/- and Rs 31,87,420/-
respectively. The due dates for the filing of returns for AY 2011-12
and 2013-14 were 30.09.2011 and 31.10.2013 respectively and as
such there was delay on the part of the appellant in filing the return
of income for the said assessment years.
4. On 27.10.2014, a show cause notice was issued to the appellant
by the Commissioner of Income Tax - III, Baroda alleging violation
of Section 276CC of the Act for the AY 2011-12. The notice stated
that although the due date for filing the income tax return for the AY
2011-12 was 01.08.2011 yet the appellant had filed the same with
delay on 04.03.2013. The notice further stated that after allowing
for the credit of prepaid taxes, the appellant was liable to pay self-
assessment tax of Rs. 0/- which however remained unpaid by the
due date prescribed for the filing of return of income. In the last, the
482 [2025] 2 S.C.R.
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appellant was called upon to show cause as to why proceedings
under Section 276CC of the Act should not be initiated against him.
The contents of the said notice are extracted hereinbelow:
“Office of the Commissioner of Income Tax III
2nd floor, Aayakar Bhavan, Race Course Circle,
Baroda 390 007
No.BRD/CIT-III/HQ/Pros/17/2014-15
Date.27.10.2014
To,
Shri Vinubhai Mohanbhai Dobaria
B-2/203, Subhlaxmi Coop. Housing Society
Ankleshwar
PAN ACIPD4420D
Sir/Sirs,
Sub: Launching of prosecution under section 276CC of
the income Tax Act, 1961 Chapter XXII of the I.T.Act
1961 regd.
On examination of records, it is seen that you have
furnished your return of income for the assessment year
2011-12 declaring total income of Rs.49,79,700/- on
4.3.2013. Further, after allowing credit of prepaid taxes,
you were liable to pay self assessment tax of Rs.0/- by
due date of filing of return. Later, your return of income
was processed under section 143(1) of the Act 20.3.2013
determining demand of Rs0/- out of which Rs.0 is still
pending.
2. In this context, take notice and show cause as to why
proceedings under section 276CC of the Act should not be
initiated against you for failure to furnish returns of income
after the expiry of the assessment year. You may attend
either personally or through representative duly authorized
on 11.11.2014 at 12.30 p.m. If you fail to attend, it would
[2025] 2 S.C.R. 483
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
be presumed you have nothing to say in the matter and
this office shall proceed in the matter accordingly.
Yours faithfully
Sd/- S.R. Malik
Commissioner of Income Tax- III, Baroda”
5. The appellant replied to the aforesaid show cause notice along with
the application for compounding in accordance with the Guidelines for
Compounding of Offence, 2008 (hereinafter referred to as “the 2008
guidelines”). The application, along with application for compounding
the delay in filing of return of income for two other years came to
be allowed by the Respondent No. 1 vide order dated 11.11.2014.
6. Thereafter, on 12.03.2015, the appellant received another show
cause notice as regards launching of prosecution under Section
276CC of the Act for the AY 2013-2014 issued by the Commissioner
of Income Tax, Vadodara - III. The notice stated that the appellant
had furnished the return of income for AY 2013-14 declaring a total
income of Rs. 31,87,420/- on 29.11.2014 and after allowing for the
credit of prepaid taxes the appellant was liable to pay self-assessment
tax of Rs. 2,78,740/-. The notice further called upon the appellant
to show cause as to why proceedings under Section 276CC of the
Act should not be initiated against him as he had filed his return of
income after the expiry of the due date. The contents of the said
notice are extracted hereinbelow:
“Office of the Commissioner of Income Tax,
Vadodara -3 Vadodara
2nd floor Aayakar Bhavan Race Course Circle,
Vadodara 7
No. BRD/CIT-3/HQ/Pros/17-B/2014-15
Date.12.3.2015
To,
Shri Vinubhai Mohanbhai Dobaria
303/C/16, Tulsi Kunj Society,
Near Marathi School, GIDC,
Ankleshwar
484 [2025] 2 S.C.R.
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PAN ACIPD4420D
Sir/Sirs
Sub: Launching of prosecution under section 276CC of
the Income Tax Act, 1961 Chapter XXII of the I.T.Act, 1961
A.Y.2013-14 reg.
On examination of records, it is seen that you have furnished
your return of income for the assessment year 2013-14
declaring total income of Rs.31,87,420/- on 29.11.2014.
Further, after allowing credit of prepaid taxes, you were
liable to ay self assessment tax of Rs.2,78,740/- by due
date of filing of return. Later, your return of income was
processed under section 143(1) of the Act on 5.1.2015.
2. In this context, take notice and show cause as to why
proceedings under section 276CC of the Act should not be
initiated against you for failure to furnish returns of income
before expiry of the assessment year. You may attend
either personally or through representative duly authorized
on 19.3.2015 at 11.30 a.m. If you fail to attend, it would
be presumed that you have nothing to say in the matter
and this office shall proceed in the matter accordingly.
Yours faithfully
Dr. Banwari Lal
Commissioner of Income Tax
Vadodara-3 Vadodara”
7. The appellant replied to the aforesaid notice along with an application
for compounding as per the Guidelines for Compounding of Offence,
2014 (hereinafter referred to as “the 2014 guidelines”). In his reply,
the appellant stated that he had filed the return of income belatedly
because necessary funds were not available with him to enable him
to pay the assessed amount of tax. He further stated that the delay
in filing of the return of income was neither deliberate nor wilful.
8. By an order dated 14.02.2017 passed under Section 279(2) of the
Act, the Respondent No. 1 rejected the compounding application of
the appellant. The Respondent No. 1 took the view that the case of
the appellant was not fit for compounding as a committee comprising
[2025] 2 S.C.R. 485
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
of Principal CCIT Gujarat, CCIT Vadodara, DGIT (Investigation)
Ahmedabad and the CCIT - II Ahmedabad in the minutes recorded
of the meeting dated 25.01.2017 had opined that the assessee had
filed his return of income for AY 2013-14 after the show cause notice
for the offence under Section 276CC for offence during AY 2011-
12 had already been issued. Therefore, as per the committee, the
offence committed by the appellant under Section 276CC for the AY
2013-14 would not be covered by the expression “first offence” as
defined in the 2014 guidelines. The relevant part of the said order
is extracted hereinbelow:
“The case is not found to be fit case for compounding
as the Committee comprising of Pr. CCIT Gujarat and
CCIT, Vadodara DGIT (Investigation) Ahmedabad and the
CCIT 2 Ahmedabad, competent to consider the assessee’s
petition, in its minutes of the meeting held at Ahmedabad
on 25.1.2017 found that the Pr. CIT-3, Vadodara had issued
show cause notice for initiating proceedings under section
276CC of the Act on 27.10.2014 for the AY.2011- 12. The
assessee filed his return of income for the A.Y.2013-14
on 29.11.2014 as against the due date for filing of return
on 31.10.2013, after issuance of such show cause notice
for A.Y. 2011-12. Accordingly, taking into consideration the
definition of “First Offence” as specified in the Board’s
guidelines for compounding offence dated 23.11.2014,
as well as the opinion obtained from the Board vide
F.No.285/20/2014-IT (Inv.)/340 dated 15.9.2014 in the case
of Chandra Knee Clinic P. Ltd. the committee unanimously
opined that, the offence of similar nature committed by
the assessee for A.Y.2013-14 cannot be compounded,
as it does not fall within the definition of “First Offence”.
Thus, the committee rejected compounding petition for
A.Y.2013-14.
In view of the above facts, compounding petition filed by
the assessee for A.Y.2013-14 is rejected.”
9. The appellant challenged the aforesaid order passed by the
Respondent No. 1 before the High Court of Gujarat by way of Special
Civil Application No. 5386 of 2017. The appellant, who was the
petitioner before the High Court, contended that his compounding
486 [2025] 2 S.C.R.
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application had been rejected by Respondent No. 1 solely on the
ground that the offence alleged to have been committed by the
appellant of belated filing of the return of income for AY 2013-14
was not covered by the expression “first offence” as defined in the
2014 guidelines. The appellant further submitted that the show cause
notice for the initiation of prosecution issued under Section 276CC of
the Act for AY 2013–14 was issued on 12.02.2015 whereas he had
already filed the return of income for the said assessment year on
29.11.2014, that is, much before the issuance of show cause notice on
12.02.2015 and therefore it could not be said that it was not the first
offence. It was also contended by the appellant that the respondent
had erroneously computed the date of issuance of show cause
notice for AY 2011-12 for the purpose of holding that the appellant
had committed the offence post that date. Lastly, it was argued by
the appellant that the 2014 guidelines are only general guidelines
and are not in the nature of strict law and thus are to be construed
accordingly. The appellant submitted that the general nature of the
guidelines was also suggested by the heading “offences generally
not to be compounded” used in the said Guidelines.
10. However, the High Court rejected the Special Civil Application of the
appellant vide the impugned judgment and order dated 21.03.2017
taking the view that the contention of the appellant was based on
a misreading of the Clause 8(ii) of the 2014 guidelines. The High
Court held that although the show-cause notice for AY 2011-12 was
issued on 27.10.2014, yet the appellant filed the return of income
for the AY 2013-14 on 29.11.2014 and thus could be said to have
committed the offence under Section 276CC of the Act for the AY
2013-14 after the show cause notice for the AY 2011-12 had already
been issued. It was further observed by the High Court that the
circumstances surrounding the delay in the filing of return of income
by the appellant were not required to be considered in detail by the
compounding authority and the same would be considered during
the course of the trial. The relevant observations made by the High
Court are extracted hereinbelow:
“4.0 [...] However, on the other hand, it is the case on behalf
of the petitioner assesee that for AY 2013-14 the show
cause notice under Section 276 CC of the Act was issued
on 12.03.2015 and prior thereto the return of income for AY
2013-14 was already filed on 29.11.2014 and therefore, the
[2025] 2 S.C.R. 487
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
same can be said to be “first offence” even as per the clause
8(ii) of the Guidelines. The submission on behalf of the
assessee cannot be accepted. The aforesaid submission
on behalf of the assessee is absolutely on misreading of
clause 8(ii). On true interpretation of clause 8(ii), in case
the offence is committed prior to date of issuance of any
show cause notice for prosecution, in that case, it can
be said to be the “first offence”. Therefore, in case for
any prior assessment year, the show cầuse notice has
been issued for prosecution and despite the same, in the
subsequent year, the offence is committed by not filing the
return, the same cannot be said to be “first offence”. The
submission on behalf of the petitioner assessee that in the
present case the show cause notice for prosecution for AY
2013-14 was issued on 12.03.2015 and prior thereto the
return of income was filed for AY 2013-14 on 29.11.2014
and therefore, the same can to be said to be first offence,
cannot be accepted. What is required to be considered
is whether for any prior year any show cause notice for
prosecution is issued and served upon the petitioner or not.
If the contention on behalf of the petitioner is accepted,
in that case, it will be contrary to the clause 8(ii) of the
Guidelines. In the present case, for AY 2011-12, the show
cause notice was already issued under Section 276 CC of
the Act on 27.10.2014 for non filing of return before due
date (for AY 2011-12) and despite the same for the
subsequent years i.e. for AY 2013-14 the assessee did
not file return of income before due date of filing of return.
Therefore, again the petitioner -assessee committed the
offence for AY 2013-14. Thus, it cannot be said that in AY
2013-14 it can be said to be the “first offence” committed
by the assessee. Under the circumstances, the respondent
no.1 has rightly rejected the compounding application
submitted by the petitioner. Rejection of the compounding
application submitted by the petitioner is absolutely in
consonance with the Guidelines, 2014.
5.0. Now, so far as submission on behalf of the petitioner
that while rejecting the compounding application submitted
by the petitioner, respondent no.1 has not properly
appreciated and / or considered the reason for not filing
488 [2025] 2 S.C.R.
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the return of income by petitioner before due date is
concerned, at the outset, it is required to be noted that it
has nothing to do with the compounding application. It is
required to be noted that while considering the application
for compounding, merits is not required to be considered
as is to be considered in trial.
6.0. Now, so far as reliance placed upon the decision of
the Madras High Court in the case of K. Inba Sagaran
(supra) relied upon by the learned advocate for the
petitioner-assessee is concerned, the said decision shall
not be applicable to the facts of the case on hand, more
particularly, while considering the compounding application.
In the case before the Madras High Court, three different
complaints for the offence under Section 276CC of the
Act for AY 1991-92, 1992-93 and 1993-94 though were
filed and numbered separately, were clubbed together in
one case and the learned Magistrate passed the orders
holding the accused guilty under Section 276CC on three
counts. The question arose whether the offence for which
accused was charged were distinct or separate and not
in any way inter-related and when each offence had no
connection with other, joinder of charges would become
bad in law or not and to that it has been observed and
held by the Madras High Court that framing of charge was
defective and violative of Sections 218 and 219 of the Code
of Criminal Procedure and as judgment was rendered only
in one case and there was no finding of guilt recorded
as regards two other cases, the Madras High Court has
observed that error committed by the trial Court was of
such grave nature that it had caused prejudice to accused
and therefore, in that view of the matter, conviction and
sentence passed by the lower Court has to be set aside.
Therefore, the said decision shall not be applicable to the
facts of the case on hand.
7.0. Now, so far as reliance placed upon the decision of
the Delhi High Court in the case of Sport Infratech (P)
Ltd (supra) relied upon by the learned advocate for the
petitioner is concerned, the said decision also shall not
be applicable to the facts of the case on hand.
[2025] 2 S.C.R. 489
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
8.0. Even the learned advocate for the petitioner has
requested not to observe anything on merits and therefore,
we refrain from observing anything on merits, more
particularly, the reasons given by the petitioner assessee
for not filing return of income before due date, even for
AY 2013-14.
9.0. In view of the above and for the reasons stated
above, the impugned order passed by the respondent
no.1 rejecting the compounding application submitted
by the petitioner cannot be said to be either illegal or
contrary to the Guidelines, we see no reason to interfere
with the same. In view of the above and for the reasons
stated above, present petition fails and same deserve to
be dismissed and is accordingly dismissed.”
11. In such circumstances referred to above, the appellant is here before
this Court with the present appeal.
B. SUBMISSIONS ON BEHALF OF THE APPELLANT
12. Mr. Tushar Hemani, the learned Senior Counsel appearing for
the appellant, submitted that an offence as contemplated under
Section 276CC of the Act is committed upon the failure of the
assessee in furnishing the return of income within the due date as
contemplated under Section 139(1) of the Act. He submitted that
whether the assessee had filed a belated return of income, that is,
after the expiry of the due date or not, is immaterial and the point
in time when the offence under Section 276CC is committed is the
date immediately following the due date for furnishing the return
of income as prescribed under Section 139(1) of the Act. Thus, for
the AY 2013-14, the appellant could be said to have committed the
offence on the date immediately following the due date for filing
of returns for the AY 2013-14. Hence the date for commission of
the offence under Section 276CC for the AY 2013-14 would be
01.11.2013 as the due date for filing the returns for AY 2013-14
was 31.10.2023. He emphasised on the fact that the actual date
of filing the belated return is of no consequence for the purpose
of an offence under Section 276CC as otherwise an assessee
who has missed filing the return before the due date for a given
assessment year would never file a belated return and the offence
would never be committed.
490 [2025] 2 S.C.R.
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13. He further submitted that as per the 2014 guidelines, the expression
“first offence” means offence committed prior to the issuance of show
cause notice seeking to initiate prosecution as that is the earliest
point in time when the assessee is put to notice about the offence
alleged to have been committed by him. Once an assessee is put
to notice, all offences alleged to have been committed thereafter are
not compoundable. However, offences committed prior to the date
when the assessee is put to notice, would be treated as constituting
the “first offence” and hence would be compoundable. He submitted
that in the facts of the present case, two show cause notices were
issued against the appellant by the respondent authorities, one for
AY 2011-12 issued on 27.10.2014 and the other for AY 2013-14
issued on 12.03.2015. He argued that the High Court erroneously
relied upon the actual date of filing of return of income for the AY
2013-14 to hold that the offence for the said assessment year was
committed after the first show cause notice in respect of AY 2011-12
had already been received. He submitted that it is not the date of
actual filing of the belated return of income but the date immediately
following the due date for filing of return for the given assessment
year which should be considered while determining whether the
offence is a “first offence” as per the 2014 guidelines.
14. After explaining the factual position as aforesaid, he submitted that
as the offence under Section 276CC of the Act could be said to have
been committed on 01.11.2013, therefore, it could be said that the
same was committed before the first show cause notice seeking
to initiate prosecution for the AY 2011-12 was issued against the
appellant. Thus, even for the AY 2013-14, the offence committed by
the accused under Section 276CC would come within the scope of
the expression “first offence” as it is defined in the 2014 guidelines.
15. In such circumstances referred to above, the counsel prayed that
there being merit in his appeal, the impugned order passed by the
High Court be set aside and the respondent authorities be directed
to accept the compounding application moved by the appellant.
C. SUBMISSIONS ON BEHALF OF THE RESPONDENTS
16. Mrs. Monica Benjamin, the learned counsel appearing for the
Revenue, submitted that the offence under a particular provision of
the Act, for a specific assessment year, can only be committed once
[2025] 2 S.C.R. 491
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
for that assessment year. She further submitted that the objective of
the 2014 guidelines has never been to compound the same offence
every year with no limit on the number of years for which it may be
compounded.
17. Referring to Clause 8 of the 2014 guidelines, she submitted that the
said Clause prescribes a limit after which both category of offences,
that is, A and B, are not to be generally compounded, by laying
down that Category A offences will not be generally compounded
after the third offence and Category B offences will not be generally
compounded after the first offence.
18. In response to the contention of the appellant that more than one
offence under Section 276CC of the Act can be compounded if all
such offences were committed before the issuance of the first show
cause notice for prosecution in relation to any of those offences,
she submitted that if the aforesaid submission is accepted then it
would defeat the very intent and purpose of the 2014 guidelines,
as the said Guidelines are not meant to benefit habitual and repeat
offenders intending to circumvent the provisions of the Act.
19. She further submitted that the issuance of a show cause notice
is not a prerequisite for recognising a first offence under the 2014
guidelines. As per the meaning of the expression “first offence” as
defined in the 2014 guidelines, a first offence can also be said to have
been committed when such an offence has not been detected by the
Department but has been voluntarily disclosed by the applicant by
filing a compounding application. In view of this, the counsel argued
that the issuance of a show cause notice could not be said to be a
prerequisite for the recognition of a first offence.
20. In furtherance of the aforesaid submission, she submitted that the
appellant could be said to have disclosed the commission of offence
for both AY 2011-12 and 2013-14 by belatedly filing his returns on
04.03.2013 and 29.11.2014 respectively for both the years, that is,
after the due dates prescribed for filing the returns for these years
had expired. She submitted that it was only after such a late filing
of returns by the appellant that the Department became aware of
both the offences and issued the respective show cause notices
for the same. Thus, merely because a show cause notice was not
issued by the Department due to non-detection that an offence
under Section 276CC had been committed, the same cannot be
492 [2025] 2 S.C.R.
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construed as absolving the assessee from the fact that he had
already committed an offence and disclosed the same by filing the
return of income belatedly.
21. She submitted that by virtue of delayed filing of the return of income
for AY 2011-12, the appellant had disclosed the commission of his
first offence prior to the due date of filing return for AY 2013-14.
Therefore, as the offence under Section 276CC of the Act for the
AY 2013-14 was committed after the disclosure of the offence under
Section 276CC for the AY 2011-12, hence the offence for the AY
2013-14 could not be said to be covered within the meaning of the
expression “first offence” as defined in the 2014 guidelines.
22. Placing emphasis on a letter dated 29.09.2017, she submitted that
in the said letter the appellant had admitted committing the second
offence and having made such an admission, he cannot be permitted
to retract from it at this stage.
23. The counsel further submitted that Clause 4 of the 2014 guidelines
stipulates that compounding of offences is not a matter of right and
therefore a hyper-technical view should not be taken by the Court
while interpreting the 2014 guidelines and only such an interpretation
which furthers the underlying intention behind the guidelines should
be adopted.
24. She further submitted that the appellant’s reading of the definition of
the expression “first offence” under Clause 8 of the 2014 guidelines
could be termed as erroneous for the reason that it conveniently
overlooks the latter part of the definition which provides that the
offences that have gone undetected by the Department but have
been voluntarily disclosed by the applicant would also be covered
under the definition of the expression “first offence”.
25. In the last, the counsel prayed that this Court may not allow the
appellant to take advantage of his own wrongs. She prayed that the
impugned judgment of the High Court may not be disturbed and the
appeal be dismissed.
D. ISSUES FOR CONSIDERATION
26. Having heard the learned counsel appearing for the parties and
having gone through the materials on record, the following questions
fall for our consideration:
[2025] 2 S.C.R. 493
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
a. Whether an offence under Section 276CC of the Income Tax
Act, 1961 could be said to have been committed on the actual
date of filing of return of income or on the day immediately
after the due date for filing of returns as per Section 139(1)
of the Act?
b. What is the meaning of the expression “first offence” appearing
in Clause 8 of the 2014 guidelines?
c. What amounts to voluntary disclosure for the purpose of Clause
8 of the 2014 guidelines?
d. Whether the 2014 guidelines are mandatory or directory in
nature?
E. ANALYSIS
i. Section 276CC of the Income Tax Act, 1961
27. Chapter XXII of the Act deals with offences and prosecutions and
consists of Sections 275A to 280D. Section 276CC of the Act inter-
alia provides that if a person fails to furnish the return of income
which he is required to furnish under sub-section (1) of Section 139
of the Act, then he shall be punishable with:
a. Rigorous imprisonment for a term ranging between six months
to seven years along with fine in cases where the amount of
tax which would have been evaded if the failure of the person
had not been discovered is more than twenty-five hundred
thousand rupees; and
b. Rigorous imprisonment for a term ranging between three months
to two years and with fine - in any other case.
28. Section 276CC of the Act as it stood at the relevant point in time is
reproduced hereinbelow:
“276CC. Failure to furnish returns of income.—
If a person wilfully fails to furnish in due time the return
of fringe benefits which he is required to furnish under
sub-section (1) of section 115WD or by notice given under
sub-section (2) of the said section or section 115WH or
the return of income which he is required to furnish under
sub-section (1) of section 139 or by notice given under
494 [2025] 2 S.C.R.
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clause (i) of sub-section (1) of section 142 or section 148
or section 153A, he shall be punishable,—
(i) in a case where the amount of tax, which would
have been evaded if the failure had not been
discovered, exceeds twenty-five hundred thousand
rupees, with rigorous imprisonment for a term which
shall not be less than six months but which may
extend to seven years and with fine;
(ii) in any other case, with imprisonment for a term
which shall not be less than three months but which
may extend to two years and with fine:
Provided that a person shall not be proceeded against
under this section for failure to furnish in due time the return
of fringe benefits under sub-section (1) of section 115WD
or return of income under sub-section (1) of section 139—
(i) for any assessment year commencing prior to the
1st day of April, 1975; or
(ii) for any assessment year commencing on or after
the 1st day of April, 1975, if—
(a) the return is furnished by him before the
expiry of the assessment year; or
(b) the tax payable by such person, not being
a company, on the total income determined on
regular assessment, as reduced by the advance
tax, if any, paid, and any tax deducted at source,
does not exceed three thousand rupees.”
29. Sub-clause (b) of clause (ii) of the proviso to Section 276CC was
substituted by the Act No. 23 of 2019 with effect from 01.04.2020.
The said sub-clause, as it stands after the amendment, is reproduced
hereinbelow:
“(b) the tax payable by such person, not being a company,
on the total income determined on regular assessment,
as reduced by the advance tax or self-assessment tax, if
any, paid before the expiry of the assessment year. and
any tax deducted or collected at source, does not exceed
ten thousand rupees.”
[2025] 2 S.C.R. 495
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
30. The proviso to the aforesaid provision prescribes certain cases in
which proceedings under the provision would not be initiated and
inter alia stipulates that for the assessment years commencing after
1st day of April, 1975, no proceedings under Section 276CC shall lie
against any person for the failure to furnish return of income in due
time if the return is furnished by him before the expiry of the said
assessment year. It further provides that for the assessment years
commencing from 01.04.1975, no proceedings shall be initiated under
the provision if the tax payable by the person, not being a company,
does not exceed ten thousand rupees.
31. Section 276CC punishes the wilful failure by the assessee in furnishing
the following types of returns in due time:
a. Return of fringe benefits which he is required to furnish under
sub-section (1) of section 115WD or by notice given under sub-
section (2) of the said section or section 115WH; or
b. Return of income which he is required to furnish under sub-
section (1) of section 139 or by notice given under clause (i) of
sub-section (1) of section 142 or section 148 or section 153A.
32. In the case at hand, we are only concerned with the failure of a
person in furnishing, in due time, the return of income which he is
required to furnish under Section 139. Hence, it is also necessary
to advert to the relevant portions of Section 139 of the Act as well
and they are reproduced below:
“139. Return of income.—(1) Every person,—
(a) being a company or a firm; or
(b) being a person other than a company or a firm, if his
total income or the total income of any other person in
respect of which he is assessable under this Act during
the previous year exceeded the maximum amount which
is not chargeable to income-tax,
shall, on or before the due date, furnish a return of his
income or the income of such other person during the
previous year, in the prescribed form and verified in the
prescribed manner and setting forth such other particulars
as may be prescribed :
xxx xxx xxx
496 [2025] 2 S.C.R.
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(4) Anyperson who has not furnished a return within the
time allowed to him under sub-section (1), may furnish the
return for any previous year at any time before the end of
the relevant assessment year or before the completion of
the assessment, whichever is earlier.
xxx xxx xxx
8) (a) Where the return under sub-section (1) or sub-
section (2) or sub-section (4) for an assessment year
is furnished after the specified date, or is not furnished,
then whether or not the Assessing Officer has extended
the date for furnishing the return under sub-section (1) or
sub-section (2), the assessee shall be liable to pay simple
interest at fifteen per cent per annum, reckoned from the
day immediately following the specified date to the date
of the furnishing of the return or, where no return has
been furnished, the date of completion of the assessment
under section 144, on the amount of the tax payable on
the total income as determined on regular assessment,
as reduced by the advance tax, if any, paid, and any tax
deducted at source: Provided that the Assessing Officer
may, in such cases and under such circumstances as
may be prescribed, reduce or waive the interest payable
by any assessee under this sub-section.
Explanation 1.—For the purposes of this sub-section,
“specified date”, in relation to a return for an assessment
year, means,—
(a) in the case of every assessee whose total income,
or the total income of any person in respect of which
he is assessable under this Act, includes any income
from business or profession, the date of the expiry
of four months from the end of the previous year or
where there is more than one previous year, from the
end of the previous year which expired last before the
commencement of the assessment year or the 30th
day of June of the assessment year, whichever is later;
(b) in the case of every other assessee, the 30th day
of June of the assessment year. [...]”
[2025] 2 S.C.R. 497
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
33. Section 139(1) inter alia provides that every person shall, on or before
the due date, furnish a return of his income during the previous
year, in the prescribed form and verified in the prescribed manner
and setting forth such other particulars as may be prescribed. Sub-
section (4) of Section 139 provides that if a person has failed to
furnish the return of income within due time prescribed under sub-
section (1), then he may furnish the return for any previous year at
any time before the end of the relevant assessment year or before
the completion of the assessment, whichever is earlier.
34. To fully understand the import of Section 276CC of the Act, it is
necessary to understand the meaning of the expressions “wilfully
fails” and “in due time” used in the said provision respectively. This
Court in Prakash Nath Khanna v. CIT reported in (2004) 9 SCC
686 was called upon to look into the scope and meaning of the
expression “in due time” appearing in Section 276CC of the Act
and whether it refers to the time period referred to in Section 139(1)
or the time period referred to in Section 139(4). This Court, after
discussing the various methods of statutory interpretation, took the
view that the legislative intent behind Section 276CC, undoubtedly,
was to restrict the meaning of the expression “in due time” used in
the said provision to the time period referred to in Section 139(1) and
not to the time period referred to in Section 139(4). Explaining the
meaning of the expression “wilful failure”, the Court observed that
the same has to be adjudicated factually by the trial court dealing
with the prosecution of the case. The Court further observed that by
virtue of Section 278E, the trial court has to presume the existence of
culpable mental state and it would be open to the accused to plead
the absence of the same in his defence. The relevant observations
made by the Court are reproduced hereinbelow:
“13. It is a well-settled principle in law that the court cannot
read anything into a statutory provision which is plain
and unambiguous. A statute is an edict of the legislature.
The language employed in a statute is the determinative
factor of legislative intent. The first and primary rule of
construction is that the intention of the legislation must
be found in the words used by the legislature itself. The
question is not what may be supposed and has been
intended but what has been said. “Statutes should be
construed, not as theorems of Euclid”, Judge Learned
498 [2025] 2 S.C.R.
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Hand said, “but words must be construed with some
imagination of the purposes which lie behind them”. (See
Lenigh Valley Coal Co. v. Yensavage [218 FR 547].) The
view was reiterated in Union of India v. Filip Tiago De
Gama of Vedem Vasco De Gama [(1990) 1 SCC 277 :
AIR 1990 SC 981] and Padma Sundara Rao v. State of
T.N. [(2002) 3 SCC 533]
14. In D.R. Venkatachalam v. Dy. Transport Commr.
[(1977) 2 SCC 273] it was observed that courts must
avoid the danger of a priori determination of the meaning
of a provision based on their own preconceived notions
of ideological structure or scheme into which the provision
to be interpreted is somewhat fitted. They are not
entitled to usurp legislative function under the disguise
of interpretation.
15. While interpreting a provision the court only interprets
the law and cannot legislate it. If a provision of law is
misused and subjected to the abuse of process of law,
it is for the legislature to amend, modify or repeal it, if
deemed necessary. (See Rishabh Agro Industries Ltd.
v. P.N.B. Capital Services Ltd. [(2000) 5 SCC 515] ) The
legislative casus omissus cannot be supplied by judicial
interpretative process.
16. Two principles of construction — one relating to casus
omissus and the other in regard to reading the statute
as a whole — appear to be well settled. Under the first
principle a casus omissus cannot be supplied by the court
except in the case of clear necessity and when reason
for it is found in the four corners of the statute itself but
at the same time a casus omissus should not be readily
inferred and for that purpose all the parts of a statute or
section must be construed together and every clause
of a section should be construed with reference to the
context and other clauses thereof so that the construction
to be put on a particular provision makes a consistent
enactment of the whole statute. This would be more so if
literal construction of a particular clause leads to manifestly
absurd or anomalous results which could not have been
[2025] 2 S.C.R. 499
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
intended by the legislature. “An intention to produce an
unreasonable result”, said Danckwerts, L.J., in Artemiou
v. Procopiou [(1966) 1 QB 878 : (1965) 3 All ER 539 :
(1965) 3 WLR 1011 (CA)] (All ER p. 544 I), “is not to be
imputed to a statute if there is some other construction
available”. Where to apply words literally would “defeat
the obvious intention of the legislation and produce a
wholly unreasonable result”, we must “do some violence
to the words” and so achieve that obvious intention and
produce a rational construction. [Per Lord Reid in Luke v.
IRC [1963 AC 557 : (1963) 1 All ER 655 : (1963) 2 WLR
559 (HL)] where at AC p. 577 he also observed : (All ER
p. 664 I) “This is not a new problem, though our standard
of drafting is such that it rarely emerges.”]
17. The heading of the section or the marginal note may
be relied upon to clear any doubt or ambiguity in the
interpretation of the provision and to discern the legislative
intent. In CIT v. Ahmedbhai Umarbhai and Co. [1950 SCC
94 : AIR 1950 SC 134] after referring to the view expressed
by Lord Macnaghten in Balraj Kunwar v. Jagatpal Singh
[ILR (1904) 26 All 393 : 31 IA 132 : 1 All LJ 384 (PC)] it
was held that marginal notes in an Indian statute, as in
an Act of Parliament cannot be referred to for the purpose
of construing the statute. Similar view was expressed
in Board of Muslim Wakfs, Rajasthan v. Radha Kishan
[(1979) 2 SCC 468] and Kalawatibai v. Soiryabai [(1991)
3 SCC 410 : AIR 1991 SC 1581] . Marginal note certainly
cannot control the meaning of the body of the section if the
language employed there is clear. (See Nandini Satpathy
v. P.L. Dani [(1978) 2 SCC 424 : 1978 SCC (Cri) 236 : AIR
1978 SC 1025] .) In the present case as noted above, the
provisions of Section 276-CC are in clear terms. There
is no scope for trying to clear any doubt or ambiguity as
urged by learned counsel for the appellants. Interpretation
sought to be put on Section 276-CC to the effect that if a
return is filed under sub-section (4) of Section 139 it means
that the requirements of sub-section (1) of Section 139
would stand complied with cannot be accepted for more
reasons than one.
500 [2025] 2 S.C.R.
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18. One of the significant terms used in Section 276-CC
is “in due time”. The time within which the return is to be
furnished is indicated only in sub-section (1) of Section 139
and not in sub-section (4) of Section 139. That being so,
even if a return is filed in terms of sub-section (4) of Section
139 that would not dilute the infraction in not furnishing the
return in due time as prescribed under sub-section (1) of
Section 139. Otherwise, the use of the expression “in due
time” would lose its relevance and it cannot be said that
the said expression was used without any purpose. Before
substitution of the expression “clause (i) of sub-section
(1) of Section 142” by the Direct Tax Laws (Amendment)
Act, 1987 w.e.f. 1-4-1989, the expression used was “sub-
section (2) of Section 139”. At the relevant point of time
the assessing officer was empowered to issue a notice
requiring furnishing of a return within the time indicated
therein. That means the infractions which are covered by
Section 276-CC relate to non-furnishing of return within the
time in terms of sub-section (1) or indicated in the notice
given under sub-section (2) of Section 139. There is no
condonation of the said infraction, even if a return is filed
in terms of sub-section (4). Accepting such a plea would
mean that a person who has not filed a return within the
due time as prescribed under sub-section (1) or (2) of
Section 139 would get benefit by filing the return under
Section 139(4) much later. This cannot certainly be the
legislative intent.
19. Another plea which was urged with some amount of
vehemence was that the provisions of Section 276-CC
are applicable only when there is discovery of the failure
regarding evasion of tax. It was submitted that since the
return under sub-section (4) of Section 139 was filed
before the discovery of any evasion, the provision has
no application. The case at hand cannot be covered by
the expression “in any other case”. This argument though
attractive has no substance.
20. The provision consists of two parts. First relates to
the infractions warranting penal consequences and the
second, measure of punishment. The second part in turn
[2025] 2 S.C.R. 501
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
envisages two situations. The first situation is where there
is discovery of the failure involving the evasion of tax of a
particular amount. For the said infraction stringent penal
consequences have been provided. Second situation
covers all cases except the first situation elaborated
above.
21. The term of imprisonment is higher when the amount
of tax which would have been evaded but for the
discovery of the failure to furnish the return exceeds one
hundred thousand rupees. If the plea of the appellants is
accepted, it would mean that in a given case where there
is infraction and where a return has not been furnished
in terms of sub-section (1) of Section 139 or even in
response to a notice issued in terms of sub-section (2),
the consequences flowing from non-furnishing of return
would get obliterated. At the relevant point of time Section
139(4)(a) permitted filing of return where return has not
been filed within sub-section (1) and sub-section (2).
The time-limit was provided in clause (b). Section 276-
CC refers to “due time” in relation to sub-sections (1)
and (2) of Section 139 and not to sub-section (4). Had
the legislature intended to cover sub-section (4) also,
use of the expression “Section 139” alone would have
sufficed. It cannot be said that the legislature without
any purpose or intent specified only sub-sections (1)
and (2) and the conspicuous omission of sub-section (4)
has no meaning or purpose behind it. Sub-section (4) of
Section 139 cannot by any stretch of imagination control
operation of sub-section (1) wherein a fixed period for
furnishing the return is stipulated. The mere fact that for
purposes of assessment and carrying forward and to set
off losses it is treated as one filed within sub-section (1)
or (2) cannot be pressed into service to claim it to be
actually one such, though it is factually and really not by
extending it beyond its legitimate purpose.
22. Whether there was wilful failure to furnish the return is
a matter which is to be adjudicated factually by the court
which deals with the prosecution case. Section 278-E is
relevant for this purpose and the same reads as follows:
502 [2025] 2 S.C.R.
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“278-E. Presumption as to culpable mental state.—
(1) In any prosecution for any offence under this Act
which requires a culpable mental state on the part of
the accused, the court shall presume the existence
of such mental state but it shall be a defence for the
accused to prove the fact that he had no such mental
state with respect to the act charged as an offence
in that prosecution.
Explanation.—In this sub-section, ‘culpable mental
state’ includes intention, motive or knowledge of a
fact or belief in, or reason to believe, a fact.
(2) For the purposes of this section, a fact is said to be
proved only when the court believes it to exist beyond
reasonable doubt and not merely when its existence
is established by a preponderance of probability.”
23. There is a statutory presumption prescribed in Section
278-E. The court has to presume the existence of culpable
mental state, and absence of such mental state can be
pleaded by an accused as a defence in respect to the act
charged as an offence in the prosecution. Therefore, the
factual aspects highlighted by the appellants were rightly
not dealt with by the High Court. This is a matter for trial.
It is certainly open to the appellants to plead absence of
culpable mental state when the matter is taken up for trial.”
(Emphasis supplied)
35. What is discernable from the aforesaid decision is that an offence
under Section 276CC could be said to have been committed as
soon as there is a failure on the part of the assessee in furnishing
the return of income within the due time as prescribed under Section
139(1) of the Act. Subsequent furnishing of the return of income by
the assessee within the time limit prescribed under sub-section (4)
of Section 139 or before prosecution is initiated does not have any
bearing upon the fact that an offence under Section 276CC has
been committed on the day immediately following the due date for
furnishing return of income.
36. Thus, the appellant is right in his contention that the point in time
when the offence under Section 276CC could be said to be committed
[2025] 2 S.C.R. 503
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
is the day immediately following the due date prescribed for filing of
return of income under Section 139(1) of the Act, and the actual date
of filing of the return of income at a belated stage would not affect
in any manner the determination of the date on which the offence
under Section 276CC of the Act was committed.
37. This can also be discerned from Section 139(8) of the Act which
reads as follows:
“Where the return under sub-section (1) or sub-section (2)
or sub-section (4) for an assessment year is furnished after
the specified date, or is not furnished, then whether or not
the Assessing Officer has extended the date for furnishing
the return under sub-section (1) or sub-section (2), the
assessee shall be liable to pay simple interest at fifteen
per cent per annum, reckoned from the day immediately
following the specified date to the date of the furnishing
of the return or, where no return has been furnished, the
date of completion of the assessment under section 144,
on the amount of the tax payable on the total income as
determined on regular assessment, as reduced by the
advance tax, if any, paid, and any tax deducted at source:
Provided that the Assessing Officer may, in such cases
and under such circumstances as may be prescribed,
reduce or waive the interest payable by any assessee
under this sub-section.”
38. A perusal of the aforesaid provision makes it clear that irrespective
of whether the return of income is filed by an assessee after the
specified date or is not furnished at all, the assessee shall be
liable to pay simple interest at the rate 15% reckoned from the day
immediately following the specified date notwithstanding the fact that
the Assessing Officer has extended the date for furnishing of return.
39. Accepting the contention of the respondents would mean that the
commission of an offence under Section 276CC is made contingent
upon the filing of the actual belated return by an assessee. This
could never have been the intention of the legislature in enacting
the provision as such a reading would mean that no assessee would
file a return of income after the due date has expired and despite
such failure would be able to escape any liability under Section
276CC of the Act.
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40. Having discussed the scope of Section 276CC and the ingredients
required to constitute an offence under the said provision, the next
question that falls for us is whether the appellant could be said to
have committed an offence under Section 276CC of the Act and if yes,
then whether the appellant is entitled to the benefit of compounding
of the offence under the relevant compounding guidelines.
41. The due-date for filing the return of income for the AY 2011-12 was
30.09.2011. The appellant filed his return with delay on 04.03.2013.
Hence, as the return was filed beyond the due date for filing the
return, an offence under Section 276CC could be said to have been
committed by the appellant prima facie.
42. Similarly, the due date for filing the return of income for the AY 2013-
14 was 31.10.2013, whereas the appellant filed the return for the
said year on 29.11.2014. Hence, the appellant once again breached
the requirement of Section 276CC and thus committed an offence
as defined under the said provision.
43. Even otherwise, it has not been disputed by the appellant that an
offence under Section 276CC was committed by him for AYs 2011-
12 and 2013-14 respectively, and he had preferred compounding
applications for both the assessment years. While his compounding
application for the AY 2011-12 came to be allowed, his compounding
application for the AY 2013-14 was rejected by Respondent no. 1 and
the rejection was upheld by the High Court vide the impugned order.
44. In view of the dictum laid in Prakash Nath Khanna (supra), the date
for commission of both of these offences would be the day falling
immediately next to the due date for filing of return, that is 01.10.2011
for AY 2011-12 and 01.11.2013 for the AY 2013-14.
45. The pertinent question that now arises is whether the offences
committed by the appellant under Section 276CC of the Act could
be said to be compoundable under the relevant provision of the Act
read with the appropriate compounding guidelines issued from time
to time. At the outset it is important to ascertain the compounding
guidelines which would be applicable for the purpose of adjudication
of the compounding application made by the appellant.
46. The 2014 guidelines superseded the 2008 guidelines and came into
effect from 01.01.2015. Clause 2 of the 2014 guidelines provided
that all compounding applications received on or after 01.01.2015
[2025] 2 S.C.R. 505
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
shall be decided in accordance with the 2014 guidelines whereas
all applications received prior to 01.01.2015 would be governed by
the 2008 guidelines which came into effect on 16.05.2008.
47. In the case at hand, the compounding application for the AY
2011-12 was made on 11.11.2014 and thus would be governed
by the 2008 guidelines. As the compounding application for the
AY 2013-14 was preferred by the appellant on 19.03.2015, hence
it would be governed by the 2014 guidelines. Since the present
appeal is only concerned with the compounding application for
the AY 2013-14, hence we are limiting our discussion to the 2014
guidelines. However, as the compounding guidelines are framed
to guide the exercise of power of compounding conferred upon the
CCIT and DGIT under Section 279(2) of the Act, hence we deem
it appropriate to first examine the provisions of the Act before
discussing the guidelines.
ii. Provisions pertaining to compounding of offences
48. Section 279 of the Act is reproduced hereinbelow:
“279. Prosecution to be at instance of Principal Chief
Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner.—
(1) A person shall not be proceeded against for an offence
under section 275A, section 275B, section 276, section
276A, section 276B, section 276BB, section 276C,
section 276CC, section 276D, section 277, section 277A
or section 278 except with the previous sanction of the
Principal Commissioner or Commissioner or Commissioner
(Appeals) or the appropriate authority:
Provided that the Principal Chief Commissioner or Chief
Commissioner or, as the case may be, Principal Director
General or Director General may issue such instructions
or directions to the aforesaid income-tax authorities as
he may deem fit for institution of proceedings under this
sub-section.
Explanation.—For the purposes of this section, “appropriate
authority” shall have the same meaning as in clause (c)
of section 269UA.
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(1A) A person shall not be proceeded against for an
offence under section 276C or section 277 in relation to
the assessment for an assessment year in respect of which
the penalty imposed or imposable on him under section
270A or clause (iii) of sub-section (1) of section 271 has
been reduced or waived by an order under section 273A.
(2) Any offence under this Chapter may, either before or
after the institution of proceedings, be compounded by the
Principal Chief Commissioner or Chief Commissioner or a
Principal Director General or Director General.
(3) Where any proceeding has been taken against any
person under sub-section (1), any statement made or
account or other document produced by such person
before any of the income-tax authorities specified in
clauses (a) to (g) of section 116 shall not be inadmissible
as evidence for the purpose of such proceedings merely
on the ground that such statement was made or such
account or other document was produced in the belief that
the penalty imposable would be reduced or waived, under
section 273A or that the offence in respect of which such
proceeding was taken would be compounded.
Explanation.—For the removal of doubts, it is hereby
declared that the power of the Board to issue orders,
instructions or directions under this Act shall include and
shall be deemed always to have included the power to
issue instructions or directions (including instructions or
directions to obtain the previous approval of the Board)
to other income-tax authorities for the proper composition
of offences under this section.”
49. Sub-section (1) of Section 279 of the Act provides that any prosecution
for the commission of an offence under Sections 275A, 275B, 276,
276A, 276B, 276BB, 276C, 276CC, 276D, 277, 277A or 278 of the
Act respectively cannot be launched except with the previous sanction
of the Principal Commissioner or Commissioner or Commissioner
(Appeals) or the appropriate authority. The proviso to Sub-section
(1) of Section 279 empowers the Principal Chief Commissioner or
the Chief Commissioner or the Principal Director General or Director
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Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
General to issue appropriate directions to the authorities specified
in sub-Section (1) for the initiation of prosecution.
50. Sub-section (2) of Section 279 empowers the Principal Chief
Commissioner, the Chief Commissioner, the Principal Director
General and the Director General to compound any offence defined
under Chapter XXII of the Act, either before or after the initiation of
proceedings.
51. While interpreting the nature of the power conferred upon the Principal
Chief Commissioner under Section 279, this Court in Union of India
v. Banwari Lal Agarwal reported in (1998) 7 SCC 652 held that
sub-section (2) of the provision is enabling in nature and cannot be
construed as allowing the assessee to demand compounding as a
matter of right. The relevant observations are reproduced hereinbelow:
“7. We further find that sub-section (2) of Section 279 is
a provision which enables the Chief Commissioner or the
Director General to compound any offence either before
or after the institution of proceedings. There is no warrant
in interpreting this sub-section to mean that before any
prosecution is launched, either a show-cause notice should
be given or an opportunity afforded to compound the matter.
The enabling provision cannot give a right to a party to
insist on the Chief Commissioner or the Director General
to make an offer of compounding before the prosecution
is launched.”
52. The effect and scope of the Explanation to Section 279, which was
inserted vide the Finance Act, 1991 (Act 2 of 1991) was explained
by this Court in the case of Y.P. Chawla v. M.P. Tiwari reported in
(1992) 2 SCC 672. It was observed therein that the Explanation
serves as a proviso to Section 279(2) of the Act, meaning thereby
that the exercise of power under this section by the Commissioner
must adhere to the periodically issued instructions by the Board.
The Explanation grants the Board the authority to issue orders,
instructions, or directions concerning the proper composition of
offences under Section 279(2) and explicitly allows for directives
requiring prior approval from the Board. The Court observed that
when Section 279(2) is read alongside the Explanation, it becomes
clear that the Commissioner must follow the instructions given by the
Board when exercising discretion under this section. The relevant
observations made therein are reproduced hereinbelow:
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“2. Whether the Central Board of Direct Taxes, (the Board)
under Section 119 of the Income Tax Act, 1961 (the Act)
can issue instructions to control the discretion of the
Commissioner of Income Tax under Section 279(2) of the
Act, to compound the offences, is the short question for
our consideration.
xxx xxx xxx
9. This Court in Navnitlal C. Javeri v. K.K. Sen, Appellant
Assistant C.I.T. [(1965) 1 SCR 909 : AIR 1965 SC 1375 :
(1965) 56 ITR 198] , Ellerman Lines Ltd. v. C.I.T. [(1972)
4 SCC 474 : 1974 SCC (Tax) 304] and in K.P. Varghese
v. ITO [(1981) 4 SCC 173 : 1981 SCC (Tax) 293] has
held that circulars issued by the Central Board of Direct
Taxes under Section 119(1) of the Act are binding on all
officers and persons employed in the execution of the Act
even if they deviate from the provisions of the Act. The
High Court has discussed these judgments in detail and
has distinguished them on plausible grounds. It is not
necessary for us to go into this question because the legal
position has altered to the advantage of the Revenue by
the introduction of an Explanation to Section 279 of the
Act by the Finance Act (2 of 1991) which has been made
operative with effect from April 1, 1962. The Explanation
is as under:—
“Explanation.— For the removal of doubts, it is hereby
declared that the power of the Board to issue orders,
instructions, or directions under this Act shall include
and shall be deemed always to have included the
power to issue instructions or directions (including
instructions or directions to obtain the previous
approval of the Board) to other Income Tax authorities
for the proper composition of offences under this
section.”
10. The Explanation is in the nature of a proviso to Section
279(2) of the Act with the result that the exercise of power
by the Commissioner under the said section has to be
subject to the instructions issued by the Board from time
to time. The Explanation empowers the Board to issue
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Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
orders, instructions or directions for the proper composition
of the offences under Section 279(2) of the Act and further
specifically provides that directions for obtaining previous
approval of the Board can also be issued. Reading Section
279(2) along with the Explanation, there is no manner of
doubt that the Commissioner has to exercise the discretion
under Section 279(2) of the Act in conformity with the
instructions issued by the Board from time to time.”
iii. Guidelines for Compounding of Offences under Direct Tax
Laws, 2014
53. The Guidelines for Compounding of Offences under Direct Tax Laws,
2014 were issued by the Central Board of Direct Taxes, Department
of Revenue, Government of India in supersession of the previous
guidelines which were issued on 16.05.2008. These guidelines were
one in line of many guidelines which were issued by the Central
Board of Direct Taxes from time to time to provide guiding principles
for the exercise of the power conferred by section 279(2) of the
Act which allows compounding of offences by the Principal Chief
Commissioner or Chief Commissioner or Principal Director General or
Director General either before or after the institution of proceedings.
54. Paragraph 2 of the 2014 guidelines specifies the date from which
the guidelines would come into force and also the applications which
would be governed by it. Paragraph 3 stipulates the authorities who
are authorised to compound the offences in exercise of the power
conferred under Section 279(2).
55. Paragraph 4 of the 2014 guidelines provides that compounding of
offences is not a matter of right of the assessee. However, the offences
may be compounded by the competent authority upon satisfaction
that the eligibility conditions prescribed in the 2014 guidelines are
being fulfilled and keeping in view factors like the conduct of the
assessee, nature and magnitude of the offence, and of course the
facts and circumstances of each case. Thus, what can be discerned
from Paragraph 4 is that while it stipulates that the eligibility conditions
prescribed in the guidelines are to be satisfied necessarily, the ultimate
discretion to compound the offence(s) or not has to be guided by
factors which include the conduct of assessee, nature and magnitude
of the offence and the unique facts of each case.
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56. Paragraph 5 of the 2014 guidelines provides that the guidelines
would not be applicable for the compounding of any prosecution
initiated under the Indian Penal Code, 1860 and the same can only
be withdrawn under Section 321 of the Code of Criminal Procedure,
1973.
57. Paragraph 6 of the guidelines provides two categories of offences
which can be compounded - category A and category B offences.
Category A offences include the offences defined under Sections 276,
276B 276BB, 276DD, 276E, 277 and 278 of the Act respectively.
Whereas Category B offences include the offences defined under
Sections 275A, 275B, 276, 276A, 276AA, 276AB, 276C(1), 276C(2),
276CC, 276CCC, 276D, 277, 277A, 278 of the Act respectively. Thus,
the offence involved in the case at hand being one under Section
276CC of the Act would be governed by the rules applicable to the
compounding of Category B offences.
58. Paragraph 7 of the 2014 guidelines prescribes certain eligibility
conditions which have to be satisfied by the applicant before his
application for compounding can be accepted by the competent
authority. The conditions, as prescribed under the guidelines, are
reproduced hereinbelow:
“7. Eligibility Conditions for compounding:
The following conditions should be satisfied for considering
compounding of an offence :-
i. The person makes an application to the CCIT/DGIT
having jurisdiction over the case for compounding of the
offence(s) in the prescribed format (Annexure-1)
ii. The person has paid the outstanding tax, interest, penalty
and any other sum due, relating to the offence for which
compounding has been sought.
iii. The person undertakes to pay the compounding
charges including the compounding fee, the prosecution
establishment expenses and the litigation expenses including
counsel’s fee, if any, determined and communicated by
the CCIT/DGIT concerned.
iv. The person undertakes to withdraw appeal filed by
him, if any, in case the same has a bearing on the
[2025] 2 S.C.R. 511
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
offence sought to be compounded. In case such appeal
has mixed grounds, some of which may not be related
to the offence under consideration, the undertaking may
be taken for appropriate modification in grounds of such
appeal.”
59. Paragraph 8 of the guidelines prescribes offences which are generally
not to be compounded under the compounding guidelines. It provides
that a Category A offence which is sought to be compounded by an
applicant in whose case compounding was allowed in the past in an
offence under the same section for which the present compounding
application has been made on three occasions or more shall not be
compounded. Secondly, it prescribes that category B offences will
not be generally compounded other than the first offence as defined
in the guidelines. A “first offence” has been defined by Paragraph
8 as follows:
“First offence means offence under any of the Direct Tax
Laws committed prior to (a) the date of issue of any show-
cause notice for prosecution or (b) any intimation relating
to prosecution by the Department to the person concerned
or (c) launching of any prosecution, whichever is earlier;
OR
Offence not detected by the department but voluntarily
disclosed by a person prior to the filing of application for
compounding of offence in the case under any Direct Tax
Acts. For this purpose, offence is relevant if it is committed
by the same entity. The first offence is to be determined
separately with reference to each section of the Act under
which it is committed.”
60. A perusal of the reproduced portion of Paragraph 8 shows that the
expression “first offence” has been defined under the compounding
guidelines as any offence committed:
a. Prior to the date of issuance of any show cause notice for
prosecution in relation to the said offence; or
b. Prior to any intimation relating to prosecution by the department
to the person concerned or prior to the launching of any
prosecution, whichever is earlier.
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61. Further, the expression “first offence” is also defined to include any
offence which has not been detected by the Department, but has been
voluntarily disclosed by a person prior to the filing of an application
for compounding of offence in the case under any direct tax Acts.
Clause 8 further clarifies that the first offence would be determined
separately with reference to each section of the Act under which it
is committed and it would be relevant only if it is committed by the
same entity.
62. Paragraph 8 further prescribes certain additional categories of
offences which are generally not to be considered for compounding.
They are reproduced hereinbelow:
“iii. Offences committed by a person who, as a result of
investigation conducted by any Central or State agency
and as per information available with the CCIT/DGIT
concerned, has been found involved, in any manner, in
anti-national/terrorist activity.
iv. Offences committed by a person who, was convicted
by a court of law for an offence under any law, other than
the Direct Taxes laws, for which the prescribed punishment
was imprisonment for two years or more, with or without
fine, and which has a bearing on the offence sought to
be compounded.
v. Offences committed by a person which, as per information
available with the CCIT/DGIT concerned, have a bearing on
a case under investigation (at any stage including enquiry,
filing of FIR/complaint) by Enforcement Directorate, CBI,
Lokpal, Lokayukta or any other Central or State agency.
vi. Offences committed by a person for which he was
convicted by a court of law under Direct Taxes laws.
vii. Offences committed by a person for which complaint
was filed with the competent court 12 months prior to
receipt of the application for compounding.
viii. Offences committed by a person whose application
for ‘plea-bargaining’ under Chapter XXI-A of ‘Code of
Criminal Procedure’ is pending in a Court or a Court has
recorded that a ‘mutually satisfactory disposition of such
an application is not worked out’.
[2025] 2 S.C.R. 513
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
ix. Any other offence, which the CCIT/DGIT concerned
considers not fit for compounding in view of its nature
and magnitude.”
63. Paragraph 9 of the 2014 guidelines empowers the Minister of Finance
to relax the restrictions stipulated in Paragraph 8 of the guidelines
for the purposes of compounding in a deserving case upon the
consideration of a report from the Board on a petition made by an
applicant.
64. Paragraph 10 of the 2014 guidelines prescribes the competent
authority for the purpose of compounding an offence under the
guidelines. Paragraph 11 provides for the compounding procedure.
65. Paragraph 12 provides for the compounding fee which would be
applicable to the compounding of offences committed under specific
provisions of the Act. Paragraph 12.4 prescribes the compounding
fee applicable to offences committed under Section 276CC and is
reproduced hereinbelow:
“12.4 Section 276CC- Failure to furnish returns of income.
12.4.1 2% per month or part of a month of the tax and
interest determined on assessment or reassessment,
in relation to return of income that was required to be
furnished under section 139(1) or section 142(1) or section
148 or section 153A/153C as the case may be, existing
on the date of conveyance of compounding charges to
the applicant, determined after rectification u/s 154 of the
Act, if any and as reduced by the tax deducted at source
and advance tax, if any, paid during the financial year
immediately preceding the assessment year, reckoned
from the date immediately following the date on which the
return of income was due to be furnished to the date of
furnishing of the return or where no return was furnished,
to the date of completion of the assessment.
12.4.2 Where, before the date of furnishing of the return
or where no return was furnished before the date of
completion of assessment, any tax is paid by the person
u/s 140A, compounding fee shall be calculated in the
manner prescribed above up-to the date on which the
tax is so paid; and thereafter, the fee shall be calculated
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at the aforesaid rate on the amount of tax and interest
determined on the assessment or re-assessment as the
case may be, determined after rectification u/s 154 of the
Act, if any, as reduced by the TDS, TCS, advance tax and
tax paid u/s 140A before filing of the return of income or
where no return was furnished from the date of completion
of assessment or reassessment.”
(Emphasis supplied)
66. A perusal of Paragraph 12.4 of the 2014 guidelines as reproduced
hereinabove shows that the compounding fee to be levied in the
case of an offence under Section 276CC is to be reckoned from the
date immediately following the date on which return was due. This
is in consonance with Section 139(8) of the Act and further fortifies
the argument of the appellant that it is not the date of actual filing of
belated return, but the date immediately following the due date for
filing of return which is to be considered as the date of commission
of the offence.
67. Paragraph 8 of the 2014 guidelines provides that a category B offence
will generally not be compounded except when it is the first offence
committed by the applicant. As discussed aforesaid, the offence
committed by the applicant would be covered by the expression
“first offence” if it is committed prior to:
a. Issuance of any show-cause notice for prosecution; or
b. Intimation relating to any prosecution by the Department to the
applicant; or
c. Launch of any prosecution, whichever is earlier.
68. In the case at hand, the show cause notice for the initiation of
prosecution for the AY 2011-12 was the earliest in time and hence
what falls for our determination is whether the offence under Section
276CC for the AY 2013-14 could be said to have been committed
before the show cause notice for initiation of prosecution for the AY
2011-12 was issued by the Department.
69. As discussed above, the show cause notice for the AY 2011-12 was
issued to the appellant on 27.10.2014. However, the offence under
Section 276CC of the Act could be said to have been committed on
the dates immediately following the due date for furnishing the return
[2025] 2 S.C.R. 515
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
of income for both these assessment years respectively. Thus, the
offence for the AY 2011-12 could be said to have been committed
on 01.10.2011 and the offence for the AY 2013-14 could be said to
have been committed on 01.11.2013.
70. Therefore, it can be said without a cavil of doubt that both the offences
under Section 276CC of the Act were committed prior to the date of
issue of any show cause notice for prosecution.
71. It was submitted by the respondents that even if the offences
committed by the appellant for AY 2011-12 and AY 2013-14 could be
said to have been committed before the issuance of the show cause
notice dated 27.10.2014, the appellant would still be covered by the
subsequent part of the definition of “first offence” as the appellant
had voluntarily disclosed the commission of the offences for the AY
2011-12 and 2013-14 respectively by filing belated return of income
for the said assessment years. In other words, the respondents
contended that the very act of filing belated return of income by the
appellant amounts to voluntary disclosure of commission of offence
for the purpose of Paragraph 8 of the 2014 guidelines which defines
the expression “first offence”. The latter part of the definition of the
expression “first offence” reads as follows:
“Offence not detected by the department but voluntarily
disclosed by a person prior to the filing of application for
compounding of offence in the case under any Direct Tax
Acts. For this purpose, offence is relevant if it is committed
by the same entity. The first offence is to be determined
separately with reference to each section of the Act under
which it is committed.”
72. We find it difficult to agree with the contention advanced by the
respondents that even if the appellant is not covered by the first
part of the definition of the expression “first offence”, he will still
be covered by the latter half which is reproduced in the preceding
paragraph. Paragraph 8 of the 2014 guidelines has defined a “first
offence” in two different manners:
a. First, all those offences which are committed by the assessee
prior to a formal intimation of his liability for being prosecuted
by the Department are to be treated as “first offence” and it
shall be open to the assessee to pray for the compounding
of such offences subject to other requirements being fulfilled.
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b. Second, any offence which is voluntarily disclosed by the
assessee before its detection by the Department would also
be treated as a “first offence”.
73. The scheme that permeates Paragraph 8 of the 2014 guidelines
allows only those offences to be treated as the “first offence” which
are committed by the assessee either prior to a notice that he is liable
to prosecution under the Act for the commission of such offences
or those offences which are voluntarily disclosed by the assessee
to the Department before they come to be detected. The latter part
of the definition of the expression “first offence” is not to curtail the
scope of the first half but to expand its ambit by including those
cases where the assessee comes forward on his own initiative and
discloses the commission of the offence. The meaning as sought to
be given by the respondents to Paragraph 8 of the 2014 guidelines
would turn the very purpose of having a two-fold definition of “first
offence” on its head and thus cannot be accepted for it would take
away the incentive of coming forward and voluntarily disclosing the
commission of offences from erring-assessees.
74. Voluntary disclosure for the purpose of Paragraph 8 of the 2014
guidelines has to be construed in a manner which ensures that
such disclosure on part of the assessee saves the Department
from the trials and tribulations of having to detect the commission of
offence by the assessee by setting into motion its own machinery of
detection of offences. Neither the filing of belated return of income
by the assessee nor the making of an application for compounding
of offence after a show cause notice has already been issued to the
assessee fulfills this underlying idea of saving the Department from
the inconvenience of detecting the offence. Even after a belated
return of income is filed, the Department is still required to process
the return, identify the cases wherein offences have been committed,
issue show cause notices to the defaulting assessees and thereafter
prosecute the offenders to recover the dues and punish the offenders.
A voluntary disclosure by the assessee before the stage of detection
by the Department besides being economically viable also saves
time and efforts on part of the Department and also ensures that
the dues are recovered promptly.
75. The primary purpose of the prosecution provisions enshrined in
Chapter XXII of the Act is to ensure the penalization of offenders
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Chief Commissioner of Income Tax & Anr.
adjudged guilty of tax evasion and other tax-related offenses, while
simultaneously instilling a deterring effect in the minds of those who
might contemplate circumventing the payment of lawful taxes. When
an assessee voluntarily discloses the commission of an offence, he
cannot be said to have the intention of evading payment of taxes.
76. The appellant submitted that the 2014 guidelines are directory in
nature and the respondents could not have solely relied upon the
guidelines to reject his application for compounding without taking
into account the attendant extraordinary circumstances pointed out
by the him as the cause for the commission of the offences. The
appellant placed reliance on a decision of the Delhi High Court
delivered in the case of Sports Infratech P. Ltd. & Anr. v. Deputy
Commissioner of Income-tax reported in 2017 SCC OnLine Del
6543 in support of his submission.
77. In Sports Infratech (supra), the petitioner therein assailed the order
rejecting its application for compounding of the offence under Section
276B of the Act. The application was rejected on the ground that the
petitioner did not fulfil the criteria for consideration of its application
as per the guidelines issued by the CBDT. Allowing the writ petition,
the High Court observed that an application for compounding of an
offence cannot be rejected without having regard to the specific
facts of the case. The Court highlighted that the guidelines do not
limit the authorities from exercising their discretion and therefore
the authorities, while exercising their power under Section 279, are
required to consider the objective facts in the application before it.
The relevant observations from the said decision are reproduced
hereinbelow:
“6. The learned counsel for the Revenue urges that the
binding nature of the Board’s instructions and guidelines is
apparent from Explanation to section 279(3) which clarifies
that the power to grant or refuse compounding is essentially
discretionary and actually administrative. Therefore, the
guidelines framed for its exercise under section 279 are
binding upon all Revenue authorities including the Chief
Commissioner. Learned counsel relied upon the Supreme
Court decision in Asst. CIT v. Velliappa Textiles Ltd.
(2003) 263 ITR 550 (SC) to highlight that compounding
application cannot be concluded to as a matter of right
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but rather is subject to exercise of discretion. There is no
quarrel with the proposition that power to accept a plea
for compounding or refusal is essentially discretionary.
The exercise, however, in each case is dependent upon
the authority who has to apply his or her mind judiciously
to the circumstances of each case. The rejection of the
petitioner’s application in this case is entirely routed on
the Chief Commissioner’s understanding of the conditions
of ineligibility of para. 8(v) apply. In this court’s opinion,
that view was based upon an erroneous understanding
of law. Whilst guidelines no doubt are to be kept in mind
specially while exercising jurisdiction, they cannot blind
the authority from considering the objective facts before
it. In the present case the petitioner’s failure to deposit
the amount collected was beyond its control and was on
account of seizure of books of account and documents,
etc. But for such seizure, the petitioner would quite
reasonably be expected to deposit the amount within the
time prescribed or at least within the reasonable time.
Instead of considering these factors on their merits and
examining whether indeed they were true or not, the
Chief Commissioner felt compelled by the text of para.
8(v). That condition, no doubt is important and has to be
kept in mind, cannot be only determining. In the present
case, the material on record in the form of a letter by the
Superintendent of CBI also shows that a closure report was
in fact filed before the competent court. Having regard to
all these facts, this court is of the opinion that the refusal
to consider and accept the petitioner’s application under
section 279(2) cannot be sustained. The impugned order
is hereby set aside.”
78. As we have discussed in the preceding parts of this judgment,
Paragraph 4 of the 2014 guidelines specifies that compounding is
not a matter of right of the assessee and the competent authority
may allow the compounding application upon being satisfied that
the applicant fulfills the eligibility conditions and keeping in mind the
conduct of the applicant, nature and magnitude of the offence and
the facts and circumstances of each case. Further, Paragraph 7 of
the guidelines prescribes the eligibility conditions and Paragraph 8
[2025] 2 S.C.R. 519
Vinubhai Mohanlal Dobaria v.
Chief Commissioner of Income Tax & Anr.
provides those cases which are generally not to be compounded.
Paragraph 9 carves out an exception and empowers the Minister of
Finance to relax the conditions laid down in Paragraph 8 of the 2014
guidelines and allow compounding in a deserving case.
79. A plain reading of the 2014 guidelines reveals that while it is mandatory
that the eligibility conditions prescribed under Paragraph 7 are to be
satisfied, the restrictions laid down in Paragraph 8 have to be read
along with Paragraph 4 of the Act which provides that the exercise
of discretion by the competent authority is to be guided by the facts
and circumstances of each case, the conduct of the appellant and
nature and magnitude of offence. Seen thus, it becomes clear that the
restrictions laid down in Paragraph 8 of the guidelines are although
required to be generally followed, the guidelines do not exclude the
possibility that in a peculiar case where the facts and circumstances
so require, the competent authority cannot make an exception and
allow the compounding application.
80. We have also had the benefit of looking at the Guidelines for
Compounding of Offences under Direct Tax Laws, 2019 and the
Guidelines for Compounding of Offences under Direct Tax Laws,
2022 issued by the CBDT. In both the said Guidelines, the offence
under Section 276CC has been made a Category A offence instead
of a Category B offence and is compoundable up to three occasions.
Although this would not have any direct implication on the case
at hand since the same is governed by the 2014 guidelines, yet
what this indicates is that there is a clear shift in the policy of the
Department when it comes to the compounding of offences under
Section 276CC in particular and in making the compounding regime
more flexible and liberal in particular.
F. CONCLUSION
81. For all the aforesaid reasons, we have reached the conclusion that
the High Court fell in error in rejecting the writ petition filed by the
appellant against the order passed by the Chief Commissioner of
Income Tax, Vadodara rejecting the application for compounding.
The offence as alleged to have been committed by the appellant
under Section 276CC of the Act for the AY 2013-14 is, without a
doubt, covered by the expression “first offence” as defined under
the 2014 guidelines and thus the compounding application preferred
520 [2025] 2 S.C.R.
Digital Supreme Court Reports
by the appellant could not have been rejected by Respondent no.
1 on this ground alone.
82. The impugned order passed by the High Court as well as the order
passed by the Chief Commissioner of Income Tax, Vadodara dated
14.02.2017 rejecting the compounding application of the appellant
are hereby set aside.
83. The appellant shall prefer a fresh application for compounding
before the competent authority within two weeks from the date of
this judgment and the same shall be adjudicated by the competent
authority having regard to the conduct of the appellant, the nature
of the offence and the facts and circumstances of the case within a
period of four weeks from the date on which the application is filed
by the appellant.
84. The proceedings pending before the Trial Court shall remain stayed
pending the decision of the competent authority on the compounding
application of the appellant.
85. In the event the fresh compounding application of the appellant is
accepted by the competent authority, the proceedings pending before
the Trial Court shall stand abated. If the compounding application
is rejected by the competent authority, then the trial shall continue
and be brought to its logical conclusion.
86. The appeal is disposed of in the aforesaid terms.
87. Pending application(s), if any, shall stand disposed of.
Result of the case: Appeal disposed of.
†
Headnotes prepared by: Nidhi Jain
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