1. Heard Shri Shakeel Ahmad, learned counsel for the petitioner and Shri Gaurav Mahajan, learned counsel for the Income Tax Department.

2. This writ petition has been filed praying for the following relief:

"I. Issue a writ order or direction in the nature of certiorari quashing the show cause notice dated 16.11.2021 (Annexure No. 4) issued by respondent no. 2 and direct the respondent no. 2 to compound the case of the Petitioner.

II. Issue a writ order or direction in the nature of mandamus directing the respondent no. 2 to compound the case of the Petitioner."

3. Briefly stated facts of the present case are that a criminal case no. 193 of 2000 (Union of India Vs. M/S G.P. Engineering Works Mirzapur and three others) was filed in the Court of Special C.J.M., Varanasi under Section 276C(1) read with Section 277 and 278B of the Income Tax Act, 1961 against the petitioner on 29.3.2000 praying that the accused opposite parties may be summoned, tried and punished in accordance with law.

4. The petitioner filed an application for compounding of the offences which was received in the Office of the Chief Commissioner, Income Tax on 23.4.2021. The Chief Commissioner of Income Tax Allahabad issued a show cause notice dated 16.11.2021 which is reproduced below:

"F.No.-CCIT/Alld./ITO(Hq.-Tech.)/Compounding(Pros.)/2021-22/3081

Date-16.11.2021

To,

M/s G.P. Engineering Works

R/o Kachhwa

P.S. Kachhwa, Mirzapur

Sir,

Sub- Application for compounding of prosecution u/s 276C(1) of the I.T. Act in the case of M/s G.P. Engineering Works R/o Kachhwa, P.S. Kachhwa, Mirzapur relating to A.Y. 1990-91 for willful attempt to evade tax in accordance with the section 139(1) of the Income Tax Act, 1961-Regarding-

Kindly refer to your application dated 22/04/2021 received in this office on 23/04/2021 on the subject mentioned above, for compounding of offence willful attempt to evade tax for A.Y. 1990-91.

2. After perusal of your aforesaid application, I am directed to state that it is noticed that prosecution was launched in your above mentioned case on 29.03.2000 and your application has been received on 23.04.2021 in this office. Thus you have filed compounding application after a delay of more than 20 years from the end of month in which complaint was filed. As per para 7(ii) of the compounding guidelines circulated vide F.No.285/08/2014-IT(Inv.V)/147 dated 14.06.2019 of CBDT "No application of compounding can be filed after the end of 12 months from the end of the month in which prosecution complaint, if any, has been filed in the court of law."

A relaxation had been provided by CBDT's circular 25/2019 circulated vide letter F.No.285/08/2014-IT(Inv.V)/350 dated 09.09.2019 as a one time measure, through which the condition that compounding application shall be filed within 12 months was relaxed till 31.12.2019 and further extended till 31.01.2020 vide circular no. 1/2020 dated 03.01.2020. However, your above mentioned application does not fall in effective time duration of circular 25/2019 and circular 01/2020.

3. Accordingly, in view of the above, I am further directed to require you to show cause as to why your application for compounding of offence dated 23.04.2021 may not be rejected. Your reply must reach this office latest by 29.11.2021, failure to which it will be considered that you don't have to say anything in this regard and decision will be taken on the material available on record.

Yours faithfully,

(S.K. Singh)

Income Tax Officer (Hq.)/(Tech.)

O/o Chief Commissioner of Income Tax,

Allahabad"

5. Learned counsel for the petitioner submits that the impugned show cause notice relying upon the circular dated 14.6.2019 is wholly illegal and without authority of law to the extent it intends to reject the compounding application on the ground of delay. He, therefore, submits that since the circular dated 14.6.2019 of CBDT is binding on the Income Tax Authority, therefore, submission of reply before the concerned Tax Authority shall be an empty formality.

6. Learned counsel for the respondent submits that the present writ petition has been filed merely against a show cause notice, therefore, it is not maintainable.

7. We have carefully considered the submission of the learned counsel for the parties.

8. Section 279 of the Income Tax Act, 1961 (hereinafter referred to as the 'Act, 1961'), provides as under:

"279. Prosecution to be at instance of [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner. - [(1) A person shall not be proceeded against for an offence under section 275-A, [section 275-B], section 276, section 276A, section 276B, section 276BB, section 276C, section 276CC, section 276D, section 277, [section 277A] or section 278 except with the previous sanction of the [Principal Commissioner or] Commissioner or Commissioner (Appeals) or the appropriate authority:

Provided that the [Principal Commissioner or] Chief Commissioner or, as the case may be, [Principal Director General or] Director General may issue such instructions or directions to the aforesaid income-tax authorities as he may deem fit for institution of proceedings under this sub-section.

Explanation.- For the purposes of this section, "appropriate authority" shall have the same meaning as in clause (c) of section 269-UA.]

[(1A) A person shall not be proceeded against for an offence under section 276C or section 277 in relation to the assessment for an assessment year in respect of which the penalty imposed or imposable on him [section 270A or] under clause (iii) of sub-section (1) of section 271 has been reduced or waived by an order under section 273A.]

[(2) Any offence under this Chapter may, either before or after the institution of proceedings, be compounded by the [Principal Chief Commissioner or] Chief Commissioner or a [Principal Director General or] Director General.]

[(3) Where any proceeding has been taken against any person under sub-section (1), any statement made or account or other document produced by such person before any of the income-tax authorities specified in [clauses (a) to (g)] of section 116 shall not be inadmissible as evidence for the purpose of such proceedings merely on the ground that such statement was made or such account or other document was produced in the belief that the penalty imposable would be reduced or waived, [under section 273A] or that the offence in respect of which such proceeding was taken would be compounded.]

[Explanation. - For the removal of doubts, it is hereby declared that the power of the Board to issue orders, instructions, or directions under this Act shall include and shall be deemed always to have included the power to issue instructions or directions (including instructions or directions to obtain the previous approval of the Board) to other income-tax authorities for the proper composition of offences under this section.]"

9. From a bare perusal of sub-section (2) of Section 279, it is evident that any offence under Chapter XXII of the Act, 1961 may be compounded by the authorized officer either before or after the institution of the proceedings. No limitation for submission or consideration of compounding application has been provided under sub-section (2) of Section 279 of the Act, 1961. Therefore, the Central Board of Direct Taxes by a circular can neither provide limitation for the purposes of sub-section (2) nor can restrict the operation of sub-section (2) of Section 279 of the Act, 1961, in purported exercise of its power to issue circular under the second Explanation appended to Section 279 of the Act, 1961. It has not been disputed before us by the learned counsel for the respondent or in the impugned show cause notice that the criminal case in question is still pending.

10. A circular is subordinate to the principle Act or Rules, it cannot override or restrict the application of specific provision enacted by legislature. A circular cannot travel beyond the scope of the powers conferred by the Act or the Rules. Circulars containing instructions or directions cannot curtail a statutory provision as aforesaid by prescribing a period of limitation where none has been provided by either the Act, 1961 or the Rules. The authority to issue instructions or directions by the Board stems from the second Explanation appended to Section 279 of the Act, 1961. It is well settled that the Explanation merely explains the main section and is not meant to carve out a particular exception to the contents of the main section (Sonia Bhatia Vs. State of U.P., (1981) 2 SCC 585 at page 597). The object of an Explanation to a statutory provision was elaborated by the Supreme Court in S. Sundaram Pillai Vs. V.R. Pattabiraman, (1985) 1 SCC 591, in which it was held as follows:

"53. Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is-

"(a) to explain the meaning and intendment of the Act itself,

(b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve,

(c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful,

(d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and

(e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same."

11. By means of para 7(ii) of the compounding guidelines circulated by F.No.285/08/2014-IT(Inv.V)/147 dated 14.06.2019, that has been quoted in the impugned notice dated 16.11.2021 the period for filing an application for compounding has been restricted to 12 months from the end of the month in which the prosecution complaint has been filed in the court of law. Given the interpretation of the Supreme Court regarding the object of an Explanation to a statutory provision, the Board has sought to introduce the provision of limitation by means of circular that is not contemplated by the second Explanation.

12. In the case of Vikram Singh Vs. Union of India & Ors. in W.P. (C) 6825 of 2016 decided on 11.4.2017 by a Division Bench of the Delhi High Court (enclosed as Annexure No.5 to the writ petition), in response to the petitioner's application for compounding of offences under Section 279(2) of the Act, 1961, he was sent a communication informing him the total compounding charges payable in his case which he was required to pay even for his application to be considered. This was purportedly in terms of a circular dated 23.12.2013 issued by the Board containing guidelines for compounding of offence under Clause 11(v). A writ petition was filed seeking quashing of the circular dated 23.12.2014 particularly the paragraph which set out the fee for compounding. In the reply filed to the writ petition, the Department, inter alia, stated that the compounding application under consideration was filed by the accused after about 10 years of filing the prosecution complaint; that para 8(vii) of the revised guidelines for compounding dated 23.12.2014 provides that offences committed by a person for which prosecution complaint was filed by the Department with the competent court 12 months prior to receipt of the compounding application are generally not to be compounded. With that reply, the Department had also filed an order dated 3.11.2016 passed by the Chief Commissioner of Income Tax on the ground that there was inordinate delay of 9 years in filing of the application for compounding of offences by the assessee. While referring to para 8(vii) of the circular dated 23.12.2014, the Court observed that it did not stipulate a limitation period for filing the application for compounding. It gave a discretion to the competent authority to reject an application for compounding on certain grounds. Thus, the Court held that resort cannot be had to para 8 of the circular to prescribe a period of limitation for filing an application for compounding. The Court accordingly held as follows:

"14. The Court finds nothing in Section 279 of the Act or the Explanation thereunder to permit the CBDT to prescribe such an onerous and irrational procedure which runs contrary to the very object of Section 279 of the Act. The CBDT cannot arrogate to itself, on the strength of Section 279 of the Act or the Explanation thereunder, the power to insist on a 'pre-deposit' of sorts of the compounding fee even without considering the application for compounding. Indeed Mr Kaushik was unable to deny the possibility, even if theoretical, of the application for compounding being rejected despite the compounding fee being deposited in advance. If that is the understanding of para 11(v) of the above Circular by the Department, then certainly it is undoubtedly ultra vires Section 279 of the Act. The Court, accordingly, clarifies that the Department cannot on the strength of para 11(v) of the Circular dated 23rd December 2014 of the CBDT reject an application for compounding either on the ground of limitation or on the ground that such application was not accompanied by the compounding fee o

r that the compounding fee was not paid prior to the application being considered on merits." 13. However, in the present case a specific limitation has been provided by para 7(ii) of the compounding guidelines contained in the circular dated 14.6.2019 in purported exercise of power under the second Explanation to Section 279(2) of the Act, 1961. The second Explanation merely enables the Board to issue instructions or directions to other Income Tax authorities for the proper composition of offences under that Section. That is to say the instructions or directions may prescribe the methodology and manner of composition of offences to clarify any obscurity or vagueness in the main provisions to make it consistent with the dominant object of bringing closure to such cases which may be pending interminably in our Court system. Such instructions or directions that are prescribed by the Explanation cannot take away a statutory right with which an assessee has been clothed, or set at naught the working of the provision of compounding of offences. 14. Considering the facts and circumstances of the case and the provisions of sub-section (2) of Section 279 of the Act, 1961, the writ petition is allowed to the extent that compounding application of the petitioner cannot be rejected by the Income Tax Authority concerned on the ground of delay in filing the application. Accordingly, we also direct that compounding application of the petitioner shall be considered by the Income Tax Authority concerned in accordance with law.