Tax Evaders can escape by paying penalty? New CBDT Norms state otherwise!

The Department of Income Tax has come up with revised guidelines according to which serious offenses committed under the benami and black money laws are non-compoundable. Read in detail about the new CBDT Norms. 

Compounding indicates that the tax authorities, in return for some monetary consideration, comply not to prosecute the offenders.  So, the new rules are quite strict now and they restrict settling a tax evasion case by any person/entity by way of paying the tax demand or penalty or interest. 

These new guidelines will be applicable to cases of compounding that are received on or post k 17 June 2019. The senior officers have been directed by the Central Board of Direct Taxes (CBDT) to circulate the set of revised norms for compliance. 

New CBDT Norms

The revised guidelines have classified the offenses into three main categories:

(i) The first category relates to compounding and consists of all the defaults under the tax that has been deducted/collected at source and the failure to file the returns. 

(ii) The second category is where compounding will not be permitted. This category deals with intentional tax evasion, getting rid of or concealing or transferring or delivering the property to stop recovery of tax in case of a search operation. 

(iii) The third category refers to cases that “should normally not be compounded”. These include the various offences done by a person which has had him convicted under direct tax laws, by a court of law, helping others to avoid paying taxes, involving in money laundering by creating fake invoices, non-disclosure of any foreign bank accounts or assets [These offenses fall under the Benami Transactions (Prohibition) Act, 1988 or the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015].

The revised guidelines issued by the CBDT also mentions that any offence done by a person which, according to the information present with the Principal Chief Commissioner of Income Tax as well as other concerned officials, which is connected to any case under investigation (be it at any stage inclusive of enquiry or filing of an FIR/complaint) by the CBI, Enforcement Directorate, Lokpal, Lokayukta or any other state or Central agency, should not be normally compounded. 

However, in a deserving case, the finance minister might relax the restrictions pertaining to the compounding of an offense, on receipt of a report from the CBDT on the applicant’s petition.