The Central Board of Direct Taxes (CBDT) rolled out fresh guidelines for compounding offences under Chapter XXII of the ITA to avoid the rigours of prosecution by paying the applicable fees/charges. The guidelines will apply to all compounding applications filed after October 17, 2024, as well as those filed under the erstwhile guidelines but yet to be disposed off. The guidelines also permit the refiling of applications rejected under previous guidelines due to curable defects.
The revised guidelines reiterate that ‘compounding is not a matter of right’ and that the Competent authority may reject the application in exceptional cases, viz. applicant being a habitual offender taking into consideration the gravity of the offence.
The guidelines provide the ability to file a Consolidated Compounding Applications covering several financial years/quarters. Further, the guidelines provide that the compounding applications can be filed on suo moto basis or after launch of prosecution proceedings.
Further, for offenses committed by a Company or HUF, the guidelines provide that applications can be filed separately or conjointly by the main accused and co-accused. Also, the compounding charges can be paid by any one of them separately or jointly under the new guidelines. A specific relaxation has been provided for the Company under the Insolvency Bankruptcy Code (IBC) with respect to its liability for any offence committed prior to the commencement of the corporate insolvency resolution process. It has been clarified that whilst the liability of the Company would cease by operation of IBC the prosecution proceedings against the co-accused can still continue.
The guidelines have been aimed at simplifying the compounding process by eliminating the categorization of offences, allowing fresh application upon curing of defects, removing the existing time limit for filing applications, rationalizing the compounding charges and doing away with interest chargeable on delayed payments, et al. In order to pacify the taxpayer’s concerns, it is proposed that the compounding orders would subsume a specific language that the compounding order is intended to resolve the offence and should not be construed to be an admission of offence.
It is expected that the new guidelines will streamline the compounding process and would garner more taxpayers to go for compounding thus reducing the pending litigation on such matters.