The Madras High Court held that compounding fees for tax offences must be calculated according to the CBDT guidelines prevailing at the time of the offence. In K.M. Mammen v. Principal Commissioner of Income Tax, the Court ruled that applying the stricter 2024 compounding guidelines to offences committed in 2009 was impermissible. The demand raised by the Income Tax Department was set aside and the matter remanded for fresh computation under the 2008 guidelines.

Issue of Law

Whether compounding fees for tax offenses committed in 2009 should be computed based on the 2008 CBDT guidelines or the more stringent 2024 guidelines.

Facts

This case involved the Chairman of MRF in a third round of litigation spanning 15 years. Following a 2009 search, the petitioner sought to "compound" (settle) the offenses to avoid prosecution. After the Supreme Court previously directed the department to reconsider his application, the IT Department demanded Rs. 1.29 Crores as fees, applying modern 2024 rates to a 2009 offense. The petitioner challenged this as an illegal retrospective application of penal costs.

Judgment

The Court analyzed the 38-page history of the litigation and held that since the offense and the original application pertained to the 2008-2009 period, the department must apply the 2008 CBDT guidelines, which were more beneficial to the assessee. The Court noted that the delay in processing the application (caused by the department's initial rejection) should not penalize the citizen with higher modern fees.

 Substantive Development 

The demand was set aside, and the matter was remanded for re-computation under the 2008 norms.

Link to the Official Notification, click here 

Court 

In The High Court Of Judicature At Madras

Case Title

K.M. Mammen Vs. The Principal Commissioner of Income Tax & Ors.

Case Number

W.P. No. 24029 of 2025

Bench

The Honourable Mr. Justice C. Saravanan

Date

16.12.2025