Stricter compounding rule for tax evaders

Tightening the screws around tax evaders, the revised guidelines issued by the tax department has made serious offences of black money and ‘benami’ laws “generally” non-compoundable.

This in general terms means that a person or entity would not be able to settle a case of tax evasion by just paying the tax demand, penalty and interest.

The new guidelines will kick in from 17 June, 2019 and apply to all cases for compounding received on or after this date.

Listing out 13 cases where the offences are not to be generally compounded and also grouping the offences in two parts, the Central Board of Direct Taxes (CBDT) has directed its senior officers to circulate the revised guidelines for compliance by concerned authorities.

Offences forming category ‘A’ include failure to pay tax deducted at source under chapter XVII-B or tax payable under section 115-0. Failure to pay the tax collected at source also falls under this category.

The category ‘B’ offences include wilful attempt to evade tax, failure to produce accounts and documents and false statement in verification.

While the first category offences are open to compounding, offences such as wilful evasion of tax, removal or concealment or transfer or delivery of property to thwart tax recovery in a search operation are not to be compounded.

“Offences under sections 275A, 275B and 276 of the Act will not be compounded,” said the new guideline that supersedes the one issued in 2014.

The guidelines state that Category ‘A’ offence on more than three occasions would not be generally
compounded.

Any offence which has bearing on any offence under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 would not be generally compounded, the revised guidelines said.

Further, any offence which has bearing on any offence under the Benami Transactions (Prohibition) Act, 1988 would not merit compounding by tax authorities.

The CBDT guidelines said that offences committed by a person which, as per the information available with the Principal Chief Commissioner of Income Tax and other officials concerned, have a bearing on a case under investigation (at any stage including enquiry, filing of FIR/complaint) by the Enforcement
Directorate, CBI, Lokpal, Lokayukta or any other Central or state agency are also not to be normally compounded.

“Notwithstanding anything contained in these Guidelines, the Finance Minister may relax
restrictions in Para 8.1 above for compounding of an offence in a deserving case, on consideration of a report from the Board on the petition of an applicant,” said the tax body.