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CBDT New Guidelines for Compounding of Offences under Chapter XXII of Income Tax Act, 1961 dated 23-12-2014 from 01-01-2015

Posted on September 30 2020


F.No. 285/35/2013 IT(Inv.V)/108
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Direct Taxes)
E-2, ARA Centre, Jhandewalan Extn.,
New Delhi. Dated: 23rd, Dec, 2014
Subject: Guidelines  for  Compounding  of  Offences  under  Direct  Tax Laws, 2014
In the light of various references received from the field formation from time to time, existing guidelines on compounding of offences under Income-tax Act, 1961 (the Act) have been reviewed and in supersession of the same, including the guidelines issued vide F.No. 285/90/2008-IT(Inv.)/12 dated 16th May 2008, the following guidelines are issued for compliance by all concerned.
2. These guidelines shall come into effect from 01.01.2015 and shall be applicable to all applications for compounding received on or after the aforesaid date. The applications received before 01.01.2015 shall continue to be dealt with in accordance with the guidelines dated 16.05.2008.
3. Compounding Provision:
Section 279(2) of the Act provides that any offence under chapter XXII of the Act may, either before or after the institution of proceedings, be compounded by the CCIT/DGIT. As per section 2(15A) and 2(21) of the Act, Chief Commissioner of Income Tax includes Principal CCIT and Director General of Income tax includes Principal DGIT.
4. Compounding is not a matter of right:
Compounding of offences is not a matter of right. However, offences may be compounded by the competent authority on his satisfaction of the eligibility conditions prescribed in these guidelines keeping in view factors such as conduct of the person; nature and magnitude of the offence and facts and circumstances of each case.
5. Applicability of these guidelines to prosecutions under IPC:
Prosecution instituted under Indian Penal Code, if any, cannot be compounded as per these guidelines. However, section 321 of Criminal Procedure Code, 1973 provides for withdrawal of such prosecutions.
6. Classification of Offences:
The offences under Chapter-XXII of the Act are classified into two parts (Category' A' and Category 'B') for the limited purpose of compounding of the offences.
6.1 Category ‘A’
Offences punishable under the following sections are included in Category 'A':
Sl No.
Description/Heading of section
(Prior to 01/04/1976)- Failure to make payment or deliver returns or statements or allow inspection.
(Prior to 01/0411989)  -Failure to deduct or pay tax
(w.e.f. 01/04/1989 and up-to 30/5/1997)- Failure to pay tax deducted at source under chapter XVII-B
Failure to pay tax deducted at source under chapter XVII-B or tax payable under section  115 -0 or 2nd proviso to section 194B to the credit of the Central  Government (w.e.f. 01/06/1997)
Failure to pay the tax collected at source
(Prior to 1.04.1989) - Failure to comply with the provisions of section 269SS
(Prior to 1.04.1989) - Failure to comply with the provisions of section 269T
False statement in verification etc. with reference to Category 'A' offences
Abetment of false return etc. with reference to Category 'A' Offences
6.2 Category ‘B’
Offences punishable under the following sections are included in Category 'B':
Sl No.
Description/Heading of section
Contravention of order made u/s 132(3)
Failure Failure to comply with the provisions of Section 132 (1) (iib)
Removal, concealment, transfer or delivery of property to thwart tax recovery
Failure to comply with the provision of sections 178 (1) and 178(3)
(prior to 01/1011986)-Failure to comply with the provisions of section 269 AB or section 269 I
Failure to comply with the provisions of sections 269UC, 269UE and 269UL
Wilful attempt to evade tax etc
Wilful attempt to evade payment of taxes etc
Failure to furnish returns of lncome
Failure to furnish returns of income in search cases in block assessment scheme
Failure to produce accounts and documents
False statement in verification etc. with  reference to Category 'B'offences
Falsification of books of account or documents etc.
Abetment  of  false  return  etc. with reference  to Category 'B'offences
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- I) 
 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 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.
8. Offences generally not to be compounded:
i A Category 'A' offence 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 has been requested, on 3 occasions or more.
ii A  Category 'B' offence other than the first offence as defined herein below:
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; 
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.
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'
ix Any other offence, which the CCIT/DGIT concerned considers not fit for compounding in view of its nature and magnitude.
9. Notwithstanding anything contained in these Guidelines, the Finance Minister may relax restrictions in para 8 above for compounding of an offence in a deserving case, on consideration of a report from the Board on the petition of an applicant.
10. Authority Competent to Compound an Offence:
The CCIT/DGIT having jurisdiction over the person, seeking compounding of an offence, is the competent authority for compounding of all Category 'A' and Category 'B' offences. However, an order in case of an application for compounding of an offence appearing in Category 'B' of para 6 supra, involving compounding charges (as explained in para 13 infra) in  excess of Rs.10,00,000 (Rs. ten lakhs) shall be passed by the CCITIDGIT concerned only on the recommendation of a committee comprising of 3 officers of the region concerned, namely (i) Principal CCIT, (ii) DGIT (Inv.) and (iii) CCIT/DGIT having jurisdiction over the case. In case such officers are not available within the region, the nearest DGIT or CCIT may be co-opted as Member.
10.1 Where Principal CCIT I DGIT(Inv) is the CCIT/DGIT having jurisdiction over the case, then another officer of the rank of CCIT may be co-opted as a member of the Committee. The CCIT/DGIT having jurisdiction over the case will act as the Member Secretary who will also co-opt such other member as the case may be, and convene the meeting, as well as maintain its minutes.
11. Compounding Procedure:
i On receipt of the application for compounding, the same shall be processed    by the Assessing Officer/Assistant or Deputy Director concerned and submitted promptly along-with duly filled in check-list (Annexure-2), to the authority competent to compound, through proper channel.
ii The competent authority shall duly consider and dispose of every application for compounding through a speaking order in the prescribed format (Annexure-3) within the time limit prescribed by the Board from time to time. In absence of such a prescription, the application should be disposed off within 180 days of its receipt. However, while passing orders on the compounding applications, the period of time allowed to the assessee for paying compounding charges shall be excluded from the limitation specified above.
iii Where compounding application is found to be acceptable, the competent authority shall intimate the amount of compounding charges to the applicant requiring him to pay the same within 60 days of receipt of such intimation. Under exceptional circumstances and on receipt of a written request for further extension of time, the competent authority may extend this period up-to further period of 120 days. Extension beyond this period shall not be permissible except with the previous approval of the Member (Inv), CBDT on a proposal of the competent authority concerned.
iv However, wherever the compounding charges are paid beyond 60 days as extended  by the  competent authority, the applicant shall have to pay additional compounding charge at the rate of 2% per month or part of the month of the unpaid amount of compounding charges.
v The competent authority shall pass the compounding order within 30 days of payment of compounding charges. Where compounding charge is not deposited withi

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