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Assessing officer cannot ignore the mandate of Rule 28AA: Delhi High court

Writ petition, challenging the Certificate dated 30th June, 2020 issued by respondent No.1 under Section 197(1) of the Income Tax Act refusing to grant a certificate of deduction of tax at source at NIL rate, on payments to the petitioner company by its customers, was filed in case of Camions logistics solutions private limited v. Joint commissioner of income tax, Osd, Tds circle-73-1, new Delhi & Anr. [ W.P. (c) 8524/2020 & cm appl.27471 /2020].

The assessing officer cannot ignore the mandate of Rule 28AA and proceed on any other basis as the Government is bound to follow the rules and standard, they themselves had set on pain of their action being invalidated stated by the Delhi High court. Also, the tax liability depends on the estimated profits, which in turn, depends on the turnover. In financial year 2020-21, the petitioner has itself projected a rise of more than 60% in the turnover.

Hon’ble Mr. Justice Manmohan and Hon’ble Mr. Justice Sanjeev Narula stated that the impugned reasons furnished by the Revenue in support of the impugned Lower Tax Deduction Certificate and note that as opposed to estimation of tax liability, the assessing officer has instead rejected the estimates provided by the assesses, on a broad and generalized reasoning. Thus, in absence of determination, as provided under the Rule, the reasons for rejections cannot be termed as valid in eyes of law. Consequently, decision making process in the present case is contrary to law.

In the writ petition it has been averred that the respondent did not compute the tax liability of the petitioner which is a mandatory requirement of Rule 28AA and has arbitrarily concluded on mere guess work that there would be increase in tax liability as the petitioner’s turnover is projected to increase.

The present writ petition was not maintainable as the petitioner has not exhausted the alternative efficacious remedy available under Section 264 of the Act. Moreover, the scope of judicial review of an order passed under Section 197 of the Act is limited as it is directed not against the rates prescribed in the certificate, but against the decision-making process. She submitted that it is settled law that till there is a patent illegality and/or error apparent on the face of the decision or non-application of mind by the Officer.

The court held that there is non-application of mind which vitiates the impugned order and reasons. Accordingly, the impugned order and reasons and remand the matter to the Assessing Officer for fresh determination in accordance with law as expeditiously as possible preferably within three weeks was set aside.

Hon’ble Mr. Justice Manmohan and Hon’ble Mr. Justice Sanjeev Narula held that “the benefit of revised TDS rates prescribed for financial year 2019-2020 (determined vide order dated 26th July, 2019) read with rebate of 25% given by Ministry of Finance on account of Covid-19 crisis from the rates applicable in the preceding year 2019-20 vide Press Release dated 13th May, 2020 be given to the petitioner”. The writ petition was allowed.

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