Income Tax Department Revises Compounding Offense Standards

The Department of Income Tax has revised the guidelines for the accumulation of offenses under the Income Tax Act 1961. While on the one hand the revised guidelines for offenses relating to the removal, concealment, transfer or delivery of property to thwart the collection of tax can now be aggravated, on the other hand, capitalized charges and late tax interest rates revised.

New guidelines will take effect immediately. These will apply to all preparation requests received from the date of issue. These will supersede all previous guidelines.

Compounding provisions are provided in subsection 279(2) of the Income Tax Act to reduce litigation and give the accused another chance so that the effect of the offense can be erased. Officers of the rank of Principal Chief Commissioner (PCCIT), Chief Commissioner (CCIT), Principal Director General (PDGIT), or Director General (DGIT) may aggravate the offence. There are no parallel provisions in the Indian Penal Code for compounding offences. However, the fee can be withdrawn after compounding.

Compound fees increased

Under the Revised Guidelines, the offense under section 276 (Removal, concealment, transfer or delivery of property to frustrate the collection of tax) can now be aggravated. Composition charges where relaxation is allowed increased from 1.25 times to 1.5 times normal composition charges. The relaxation period for filing a request for preparation has been reduced from 12 to 24 months and up to 36 months instead of 24 months from the end of the month in which the complaint is filed. The term for payment of composition fees may be extended by the PCCIT/CCIT/PDGIT/DGIT up to 6 months instead of 3 months and the regional PCCIT may extend it up to 12 months. Interest on late payment of compound charges has been reduced to 1 percent of 2 percent up to 3 months and 2 percent of 3 percent beyond 3 months.

According to the guidelines, the offenses were classified into two categories. Category “A” includes failure to withhold or pay tax, failure to pay withholding tax, failure to pay withholding tax, failure to file tax returns , the failure to declare income in research cases under the global assessment scheme and complicity in false return to others. Category “B” includes offenses such as removal, concealment, transfer or delivery of property to frustrate the collection of taxes, deliberate attempt to evade taxes, etc., failure to produce accounts and documents, misrepresentation during verification, falsification of books of accounts or documents, alongside others.

The guidelines make it clear that the composition of offenses is not a question of law. However, offenses may be aggravated by the competent authority by fulfilling the eligibility requirements prescribed in these guidelines taking into account factors such as the conduct of the person, the nature and extent of the offense in the context of the facts and circumstances of each case.

Prosecutions under the Indian Penal Code (IPC) cannot be aggravated. However, article 321 of the 1973 Code of Criminal Procedure provides for the withdrawal of such proceedings. If the complaint filed under the provisions of the Income Tax Act and the ICC is based on the same facts and the complaint under the Act is aggravated, the process for withdrawing the complaint under the ICC can be engaged by the competent authority.

Published on

September 17, 2022

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