The Supreme Court of India, in its recent judgment in Vinubhai Mohanlal Dobaria v. Chief Commissioner of Income Tax & Anr. (Civil Appeal No. 1977 of 2025, arising out of SLP (C) No. 20519 of 2024), has held that an income tax return filed belatedly after the issuance of a show cause notice for a prior offence cannot be considered a ‘first offence’ under the Guidelines for Compounding of Offences under Direct Tax Laws, 2014.
Background of the Case
The case originated from an appeal filed by the appellant, Vinubhai Mohanlal Dobaria, against the decision of the Gujarat High Court. The appellant, an individual taxpayer earning income through salary and partnership profits in a chemical business, had filed his income tax returns for the Assessment Years (AY) 2011-12 and 2013-14 with substantial delays. The Income Tax Department initiated prosecution under Section 276CC of the Income Tax Act, 1961, which penalizes willful failure to furnish returns in due time.
Dobaria had applied for compounding of his offences under the Guidelines for Compounding of Offences under Direct Tax Laws, 2014. The Chief Commissioner of Income Tax (CCIT), Vadodara, rejected the application for AY 2013-14 on the grounds that it was not the ‘first offence’, as per Clause 8(ii) of the 2014 Guidelines. The Gujarat High Court upheld this rejection, leading to the present appeal before the Supreme Court.
Key Legal Issues
The Supreme Court considered the following crucial legal questions:
Determination of the date of offence – Whether an offence under Section 276CC occurs on the actual filing of a belated return or the day immediately following the due date for filing returns.
Interpretation of ‘First Offence’ – Whether a tax offence committed before the issuance of a show cause notice for a prior default can still be categorized as a ‘first offence’ for the purpose of compounding.
Compounding discretion of authorities – Whether the 2014 Guidelines are discretionary or mandatory for tax authorities while deciding compounding applications.
Effect of voluntary disclosure – Whether an offence disclosed by the taxpayer without being detected by the Income Tax Department qualifies as a ‘first offence’ for compounding purposes.
Supreme Court’s Observations and Decision
The Supreme Court bench, comprising Justice J.B. Pardiwala and Justice Sanjay Karol, upheld the Gujarat High Court’s ruling, affirming that once a show cause notice has been issued for an earlier default, any subsequent non-filing or late filing of returns is not a ‘first offence’ under the 2014 Guidelines. The Court made the following critical observations:
“An offence under Section 276CC is committed on the day immediately following the due date for filing of return under Section 139(1) of the Income Tax Act, 1961. The actual date of filing a belated return is irrelevant for determining the commission of the offence.”
“The 2014 Guidelines clearly distinguish between first-time offenders and habitual defaulters. Once a taxpayer is put on notice regarding prosecution, any subsequent failure to file returns on time cannot be treated as a ‘first offence’.”
The Court also emphasized that the compounding of an offence is not a right but a discretionary power of the tax authorities under Section 279(2) of the Income Tax Act. It observed that the authorities have the prerogative to reject compounding applications if they find that an applicant has repeatedly defaulted.
Arguments by the Parties
Appellant’s Contentions:
Senior Advocate Tushar Hemani, appearing for the appellant, argued that:
The offence under Section 276CC for AY 2013-14 was committed on 01.11.2013 (immediately after the due date), whereas the show cause notice for AY 2011-12 was issued on 27.10.2014. Thus, AY 2013-14 should still qualify as a ‘first offence’.
The rejection of compounding was based on a misinterpretation of Clause 8(ii) of the 2014 Guidelines.
The guidelines are not strict law but are merely advisory and should be interpreted in favor of the taxpayer.
Respondents’ Contentions:
Representing the Income Tax Department, Senior Advocate Monica Benjamin countered that:
The appellant was a repeat offender, having filed returns late for multiple years.
The authorities were correct in interpreting Clause 8(ii), which prevents habitual defaulters from claiming compounding benefits repeatedly.
The appellant had himself admitted to a second offence in a letter dated 29.09.2017 and could not retract this admission.
