L. T. Stock Brokers Pvt. Ltd. Vs Chief Commissioner of Income Tax (Bombay High Court)
The Bombay High Court, in L.T. Stock Brokers Pvt. Ltd. v. Chief Commissioner of Income Tax, set aside an order rejecting a compounding application solely due to delay. The petitioner challenged the Chief Commissioner’s decision dated January 17, 2024, which dismissed the application under Section 279(2) of the Income Tax Act, 1961, citing a delay beyond 36 months, as per the Central Board of Direct Taxes (CBDT) guidelines of 2022. The court ruled that such rigid timelines imposed through guidelines could not override the discretion granted under the Act.
The petitioner relied on a coordinate bench ruling in Sofitel Realty LLP v. Income-tax Officer (TDS), which held that since the Income Tax Act does not prescribe a limitation period for compounding applications, the CBDT guidelines cannot introduce one. The Madras High Court in Kabir Ahmed Shakir v. Chief Commissioner of Income Tax had also ruled similarly. The Bombay High Court found that the Chief Commissioner had treated the guidelines as binding law rather than exercising discretion as required.
The Revenue, citing Vinubhai Mohanlal Dobaria v. Chief Commissioner of Income Tax, argued that even if no statutory limitation exists, a reasonable time frame should be followed. The Supreme Court in Vinubhai Dobaria upheld the 2014 CBDT guidelines but acknowledged that compounding applications should be considered based on facts and circumstances, allowing for exceptions. The High Court noted that the competent authority had not exercised discretion and had instead rejected the application on technical grounds.
