Compounding of Offences Under the Income Tax Act: Orissa High Court's Stance on Inherent Jurisdiction Under Section 482 CrPC

In a pivotal judgment, the Orissa High Court has clarified that while the Income Tax Act, 1961, permits the compounding of offences, the inherent jurisdiction of the High Court under Section 482 of the Criminal Procedure Code (CrPC) should not be invoked to quash such offences. This decision underscores the necessity for accused individuals to utilize the compounding provisions within the Income Tax Act rather than seeking judicial intervention for quashing proceedings.

Case Background

The petitioner, Binod Pattanayak, faced prosecution under Section 276(B) of the Income Tax Act for failing to deposit the deducted Tax Deducted at Source (TDS) from employees' salaries into the Central Government account within the stipulated timeframe. Despite eventually depositing the TDS amount along with the applicable interest, the delay exceeded twelve months, prompting the initiation of legal proceedings. The trial court took cognizance of the complaint and subsequently rejected the petitioner's application for discharge. In response, the petitioner approached the Orissa High Court, seeking to quash the proceedings under its inherent jurisdiction as per Section 482 CrPC.

High Court's Observations

Justice Sibo Sankar Mishra, presiding over the case, emphasized that the current legal framework allows for the compounding of offences under the Income Tax Act. He referred to the Central Board of Direct Taxes (CBDT) Circular dated October 17, 2024, which provides comprehensive guidelines for compounding various offences under the Act. The Court noted that the petitioner's situation fell within the ambit of these guidelines, particularly clauses 4.6 and 8.3, which address offences related to delayed deposit of TDS.

The Court asserted that in scenarios where the law permits compounding, invoking the High Court's inherent jurisdiction to quash proceedings is unwarranted. Justice Mishra stated, "In the present regime, where the compounding of the offence is permissible, the jurisdiction of this Court under Section 482 Cr.P.C. may not be necessarily invoked by the petitioner." He advised the petitioner to pursue the procedural remedy under Section 320 CrPC, in conjunction with the CBDT Circular, to seek compounding of the alleged offences.

Legal Implications

This judgment delineates the boundaries between judicial intervention and administrative remedies available under the Income Tax Act. By directing the petitioner to seek compounding, the Court reinforced the principle that when a statutory remedy exists, it should be exhausted before approaching higher judicial forums. The decision also highlights the efficacy of the compounding mechanism as a means to resolve tax-related offences without protracted litigation.

Conclusion

The Orissa High Court's ruling serves as a precedent, guiding individuals accused of offences under the Income Tax Act to utilize the compounding provisions rather than seeking to quash proceedings through the High Court's inherent jurisdiction. This approach not only aligns with the legislative intent behind the compounding provisions but also promotes efficient resolution of tax disputes.

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