ASSESSMENT
Every taxpayer has to furnish the details of his income to the Income-tax Department. These
details are to be furnished by filing up his return of income. Once the return of income is filed up by
the taxpayer, the next step is the processing of the return of income by the Income Tax
Department. The Income Tax Department examines the return of income for its correctness. The
process of examining the return of income by the Income- Tax department is called as
“Assessment”. Assessment also includes re-assessment and best judgment assessment under
section 144.
Under the Income-tax Law, there are four major assessments given below:
Assessment under section 143(1), i.e., Summary assessment without calling the assessee.
Assessment under section 143(3), i.e., Scrutiny assessment.
Assessment under section 144, i.e., best judgment assessment.
Assessment under section 147, i.e., Income escaping assessment.
SETTLEMENT COMMISSION
COMPOUNDING OF OFFENCES
Compounding of an offence is a mechanism whereby the defaulter is reprieved of major
legal consequences by affording him with an opportunity to pay a sum of money to escape
prosecution. The competent authority has the power to compound any offense either prior
to or following the commencement of legal proceedings.
Compounding of offence is a process whereby a person committing a default under the
Income tax Act files an application to the competent authority accepting that it has
committed an offence and so that same should be compounded.
Competent authority shall be Principal Chief Commissioner or Chief Commissioner or
Principal Director-General or Director-General having jurisdiction over the assessee.
Compounding of offences is not the right of the assessee. The competent authority may
compound the offences on being satisfied with the fulfilment of the conditions subject to
which the assessee is eligible for compounding of offence.
Classification of compounding of offences
(a) Category A Offences
Category A offences are the ones where the offences are of technical nature caused due to an act
of omission.
Category A Offences are not considered for compounding if it has already been requested on
more than 3 occasions in respect of such offences. However, in exceptional circumstances,
compounding requested in more than 3 occasions can be considered with the approval of the Pr.
CCIT of the concerned region only.
Where an assessee files multiple applications for one or more than one assessment year in one
instance, all these applications shall be treated as one occasion.
(b) Category B Offences.
Category B offences are non-technical offences attributed to an act of commission.
Category B Offences are not generally compounded on other than a first offence.
Here, 'First Offence' means:
(a) Offences which is committed prior to earlier of the following: Date of issue of any letter or
notice in relation to the prosecution; Intimation relating to filing of prosecution complaint sent by
the department to the persons concerned; or Launching of the prosecution;
(b) Offences that were not detected by the department but voluntarily disclosed by the assessee
with the filing of application of compounding of offence for one or more assessment years.
To determine the first offence, the offence is relevant if it is committed by the same person or the
same entity. First offence is to be determined separately for each of the Category B offences.
Offences for which assessee has been convicted
Any Offence under Direct tax laws for which an assessee has been convicted earlier with
imprisonment for 2 years or more, with or without fine by a court of law, are not compounded.
Similarly, offences are not compounded if they are committed by a person, who was convicted by
a court of law for an offence under any law other than Direct Tax Laws, for which the prescribed
punishment was the imprisonment of two years or more (with or without fine) and which is directly
related to the offence sought to be compounded.
Compounding Application has been rejected
Any offence is not compounded if an application for compounding of such offence has already
been rejected, except where the benefit of rectification is available.
Enabling Others in Tax Evasion
The case of the main accused is not to be compounded where it is proved that he has enabled
others in tax evasion such as:
a) Laundering of money through the use of entities;
b) Generating bogus invoices of sale or purchase without actual business; or
c) Providing accommodation entries in any other manner prescribed under Section 277A.
Involvement in anti-national or terrorist activity
Where an assessee has been found involved in anti-national or terrorist activity, in any manner, as
a result of an investigation conducted by any Central or State agency or as per information
available with the concerned competent authority, such offences are not to be compounded.
Cases having bearing on a case under investigation
Offences committed by a person which, as per information available with the concerned
competent authority, directly related to the case under investigation, at any stage including enquiry
or filing of FIR/complaint, by Enforcement Directorate, CBI, Lokpal, Lokayukta or any other Central
or State Agency, are not to be compounded.
Application for plea bargaining is pending in court
Offences committed by a person, whose application for plea-bargaining in respect of any offence
is pending in a Court or where a Court has recorded that a mutually satisfactory disposition of
such an application is not worked out and such offence has a bearing on the offence sought to be
compounded, is not to be compounded.
Outstanding tax recovery
Offence under Section 276 cannot be compounded if the outstanding amount in recovery has not
been deposited before filing the compounding application.
Other Offences
The Following offences are not to be compounded:
(a) Offence which is directly related to an offence relating to undisclosed foreign bank account or
assets in any manner;
(b) Offence which is directly related to an offence under the Black Money (Undisclosed Foreign
Income and Assets) and Imposition of Tax Act, 2015;
(c) Offence which is directly related to an offence under the Benami Transactions (Prohibition) Act,
1988; and
(d) Any other offence, which the concerned competent authority does not consider fit for
compounding in view of offence by habitual/repeat offender
Eligibility Conditions for Compounding
1. Filing of application
Form for Filing of Application - The application for compounding must be filed in the
prescribed format in Annexure-I to the competent authority. The application should
be filed in the form of an affidavit on a stamp paper of Rs. 100.
Time Limit for Filing of Application - The assessee can file the application for
compounding at any time after committing the offence, regardless of whether the
same has come to the notice of the department or not. However, if a prosecution
complaint has already been filed in a court of law, the application should be filed
within 12 months from the end of the month in which the prosecution complaint was
filed.
Relaxation of Time Limit for Filing of Application - Where a prosecution complaint
has already been filed in a court of law, the application for compounding can be filed
even after the expiry of 12 months, but within 24 months from the end of the month
in which the prosecution complaint was filed. In such cases, compounding charges
will be levied at the rate of 1.25 times of the normal compounding charges applicable
to the offence. The time limit of 24 months may be further extended to 36 months in
deserving cases with the approval of the jurisdictional Pr. CCIT. In such cases,
compounding charges will be levied at the rate of 1.5 times of the normal
compounding charges applicable to the offence.
2. Payment of outstanding dues- The person must ensure that all outstanding tax, interest,
penalty, and any other sum due in relation to the offence for which compounding is sought
is paid before making the application. In the event that the department discovers any
outstanding amount, it shall inform the applicant. The application for compounding will only
be considered valid if the demand is paid by the assessee within 30 days of
communication.
3. Undertaking to pay compounding charges - The person must undertake to pay all
compounding charges, including the compounding fee, prosecution establishment
expenses, and litigation expenses including counsel's fee, if any, as determined and
communicated by the concerned competent authority.
4. Undertaking to withdraw appeal - The person who has committed the offence is required
to undertake to withdraw any appeals that have been filed relating to the offence that is
being sought to be compounded. In cases where the appeal has mixed grounds, the
undertaking is only required in respect of the grounds that are related to the offence that is
being compounded.
5. Furnish details of all defaults - In order to file a compounding application for offences
under Section 276B and 276BB, the assessee is required to furnish all the defaults
constituting an offence under the said sections for that particular TAN for the period under
compounding.
Authority to compound an offence
The authority to compound an offence lies with the Principal Chief Commissioner, Chief
Commissioner, Principal Director-General, or Director-General (hereinafter collectively referred to
as ‘Commissioner’) having jurisdiction over the assessee.
Compounding relates to authorities in a different jurisdiction - In cases where an assessee has
committed an offence under Section 276B or Section 276BB and the jurisdiction over such a
person lies with more than one Commissioner, the Commissioner in whose jurisdiction the
compounding application has been filed will be the competent authority.
Compounding relates to multiple TAN - Where an applicant has more than one TAN and the
jurisdiction over these TANs lies with two or more Commissioners, the compounding application
shall be filed with the Commissioner having jurisdiction over the TAN in the region in which the
PAN jurisdiction of the applicant is falling.
PENALTIES AND PUNISHMENT FOR NON-COMPLIANCE
