The Gujarat High Court has held that for the purpose of computing Compounding charges, the expression “amount sought to be evaded” in CBDT’s compounding guidelines dated 23.12.2014 means the amount of “tax sought to be evaded” and not the amount of “income sought to be evaded”.
Before the High Court, the Petitioner has challenged the computation of compounding fees made by the department to enable the petitioner to avoid penalty proceedings. The department was of the view that the charges must be determined by taking 100% of the amount of income sought to be evaded.
The petitioner referred to the provisions of section 276C of the Act and contended that the compounding charges would be 100% of the amount of tax sought to be evaded and not the amount of income sought to be evaded. According to him, the basic compounding charges should have been taken at Rs.2,61,000/which was the additional tax levied by the Assessing Officer.
The bench comprising Justice Akil Kureshi and B N Karia observed that in the prescription of punishment, when there is a reference to amount sought to be evaded, it must be seen in light of the willful attempt on the part of the concerned person to evade tax, penalty or interest.
“This provision thus, links the severity of punishment on the amount sought to be evaded and thus, in turn has relation to the attempt at evasion of tax, penalty or interest,” the bench said.
While quashing the department’s order, the bench said that “Thus, when the CBDT circular refers to the amount sought to be evaded, it must be seen and understood in light of the provisions contained in section 276C(1) and in turn must be seen as amount sought to be evaded. 100% of tax sought to be evaded would be the basic compounding fees which in the present case would be Rs.2,71,000/and not Rs.8,70,000/as computed by the departmental authorities.”
