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

 IN THE HIGH COURT OF DELHI AT NEW DELHI W.P.8524 2020 & CM APPL.27471 2020 CAMIONS LOGISTICS SOLUTIONS PRIVATE LIMITED ..... Petitioner Through: Mr. V.N. Jha Advocate. versus JOINT COMMISSIONER OF INCOME TAX OSD TDS CIRCLE 73 1 NEW DELHI & ANR. ...... Respondents Through: Ms. Adeeba Mujahid Advocate for Ms. Lakshmi Gurung Sr. Standing Date of Decision: 23rd December 2020 HON BLE MR. JUSTICE MANMOHAN HON BLE MR. JUSTICE SANJEEV NARULA JUDGMENT MANMOHAN Jof 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. Petitioner also prays for a direction to the respondent No.1 to reconsider the petitioner’s application and grant Certificate under Section 197 of the Income Tax Act 1961 for deduction of tax at source at NIL rate. WPC 8524 2020 2. 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 learned standing counsel for respondent submits that present writ petition is not maintainable as the petitioner has not exhausted the alternative efficacious remedy available under Section 264 of the Act. She relies upon the judgment of this court in the case of Sis Live Vs. Income Tax Officer 333 ITR 13 wherein the court declined to entertain a similar writ petition and directed the petitioner to file a revision petition. She further submits that 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 submits 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 this Court would not interfere with the decision arrived at by such officer. In support of her submission she relies upon the judgment dated 20th December 2019 passed by this Court in National Petroleum Construction Company Vs. Deputy Commissioner of Income Tax Circle 2(2)(2). She submits that the tax liability depends on the estimated profits which in turn depends on the turnover. She states that in financial year 2020 21 the petitioner has itself projected a rise of more than 60% in the turnover. WPC 8524 2020 6. This court in similar facts in the case of Manpowergroup Services India Pvt. Ltd Vs. Commissioner Of Income Tax 1 New Delhi & Anr. being WP(C) 5865 2020 decided on 21st December 2020 has held that since the impugned order was passed after an approval from the CIT it cannot be challenged by way of a revision petition before the CIT under Section 264 of the Act. To hold otherwise would amount to directing the petitioner to file an ‘appeal from Caesar to Caesar’. This court also held in Manpowergroup Services India Pvt. Ltd Vs. Commissioner Of Income Tax1that 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 standards they themselves had set on pain of their action being invalidated. The relevant portion of Rule 28AA of the Income Tax Rules reads as under: the Assessing Officer on an “28AA. Where application made by a person under sub rule of rule 28 is satisfied that existing and estimated tax liability of a person justifies the deduction of tax at lower rate or no deduction of tax as the case may be the Assessing Officer shall issue a certificate in accordance with the provisions of sub section of section 197 for deduction of tax at such lower rate or no deduction of tax. The existing and estimated liability referred to in sub ruleshall be determined by the Assessing Officer after taking into consideration the following:— tax payable on estimated income of the previous year relevant to the assessment year WPC 8524 2020 tax payable on the assessed or returned previous years iii) existing liability under the Income tax Act 1961 and Wealth tax Act 1957 iv) advance tax paymentof rule 28] ” emphasis supplied) Perusal of the aforesaid Rule shows that the considerations and parameters prescribed under clause are mandatory and the department is bound to take the same into consideration for the purpose of computation of existing and estimated liability referred in sub ruleread 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. Respondents should ensure compliance of this order forthwith. With the aforesaid directions the writ petition is allowed and pending application(s) stand disposed of. DECEMBER 23 2020 MANMOHAN J SANJEEV NARULA J WPC 8524 2020 

Summary: 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 &amp; Anr. [ W.P. (c) 8524/2020 &amp; 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.