Assessing Officer Must Adhere to Rule 28AA (of Income Tax Rules, 1962): Court Remands Case for Re-evaluation

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Case Name:

Caminons Logistics Solutions Private Limited vs. Joint Commissioner of Income Tax OSD TDS (High Court of Delhi)

W.P. (C) 8524/2020 & CM APPL.27471 /2020

Date: 23rd December 2020

Key Takeaways:

• The court emphasized the mandatory nature of Rule 28AA (of Income Tax Rules, 1962), which requires specific considerations for tax liability estimation.
• The decision highlights the importance of following established rules and standards set by the government.
• The case underscores the limited scope of judicial review in tax matters, focusing on the decision-making process rather than the outcome.

Issue

Can an assessing officer ignore the mandate of Rule 28AA (of Income Tax Rules, 1962) and proceed on a different basis for tax deduction decisions?

Facts

Caminons Logistics Solutions Private Limited challenged an order refusing a certificate for tax deduction at a NIL rate. The assessing officer rejected the company’s tax liability estimates without proper determination as required by Rule 28AA (of Income Tax Rules, 1962). The company argued that the officer’s decision was arbitrary and based on guesswork.

Arguments

• Petitioner (Caminons Logistics Solutions): Argued that the assessing officer failed to compute tax liability as mandated by Rule 28AA (of Income Tax Rules, 1962), leading to an arbitrary decision.
• Respondent (Tax Department): Claimed the petition was not maintainable as the petitioner had not exhausted alternative remedies. They also argued that the decision-making process was within legal bounds unless there was a patent illegality.

Key Legal Precedents

• Manpowergroup Services India Pvt. Ltd Vs. Commissioner Of Income Tax (Tds)-1: This case established that orders approved by the CIT cannot be challenged by revision petitions under Section 264 (of Income Tax Act, 1961), reinforcing the need to adhere to Rule 28AA (of Income Tax Rules, 1962).

Judgement

The court set aside the impugned order due to non-application of mind and remanded the matter for fresh determination. It directed the assessing officer to comply with Rule 28AA (of Income Tax Rules, 1962) and provide the petitioner with the benefit of revised TDS rates and rebates due to the COVID-19 crisis.

FAQs

Q1: What is Rule 28AA (of Income Tax Rules, 1962)?

A1: Rule 28AA (of Income Tax Rules, 1962) outlines the considerations for determining tax liability for lower or NIL tax deduction certificates. It mandates specific parameters that must be considered by the assessing officer.

Q2: Why was the case remanded?

A2: The case was remanded because the assessing officer did not follow the mandatory considerations of Rule 28AA (of Income Tax Rules, 1962), leading to an invalid decision-making process.

Q3: What does this decision mean for other taxpayers?

A3: This decision reinforces the requirement for tax authorities to adhere strictly to established rules and standards, ensuring fair and lawful tax assessments.

1. Present writ petition has been filed challenging the Certificate dated 30th June, 2020 issued by respondent No.1 under Section 197(1) (of Income Tax Act, 1961) 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 Income Tax Act, 1961) for deduction of tax at source at NIL rate.

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 (of Income Tax Rules, 1962) 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.

3. 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, (2011) 333 ITR 13 (Del.),

wherein the court declined to entertain a similar writ petition and

directed the petitioner to file a revision petition.

4. She further submits that the scope of judicial review of an order

passed under Section 197 (of Income Tax Act, 1961) 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).

5. 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.

6. This court, in similar facts, in the case of Manpowergroup

Services India Pvt. Ltd Vs. Commissioner Of Income Tax (Tds)-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 Income Tax Act, 1961). To hold otherwise, would amount to directing the petitioner to file an ‘appeal from Caesar to Caesar’.

7. This court also held in Manpowergroup Services India Pvt. Ltd

Vs. Commissioner Of Income Tax (Tds)-1 (supra) that the assessing

officer cannot ignore the mandate of Rule 28AA (of Income Tax Rules, 1962) 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 Income Tax Rules, 1962) reads as under:-

“28AA. (1) Where the Assessing Officer, on an

application made by a person under sub-rule (1) 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 (1) of section 197 (of Income Tax Act, 1961) for deduction of tax at

such lower rate or no deduction of tax.

(2) The existing and estimated liability referred to in

sub-rule (1) shall be determined by the Assessing Officer

after taking into consideration the following:—

(i) tax payable on estimated income of the

previous year relevant to the assessment year;

(ii) tax payable on the assessed or returned [or

estimated income, as the case may be, of last four]

previous years;

(iii) existing liability under the Income-tax Act,

1961 and Wealth-tax Act, 1957;

(iv) advance tax payment [tax deducted at source

and tax collected at source for the assessment year

relevant to the previous year till the date of making

application under subrule (1) of rule 28 (of Income Tax Rules, 1962)]

8. Perusal of the aforesaid Rule shows that the considerations and

parameters prescribed under clause (2) 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-rule (1). We have perused 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 assessee, on

a broad and generalized reasoning. Thus, in absence of determination,

as provided under the above-noted 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.;”

(emphasis supplied)

9. In view of the aforesaid discussion, this court finds that there is

non-application of mind which vitiates the impugned order and

reasons. Accordingly, we set aside 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.

10. In the interim, we direct 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. Respondents should ensure compliance of this

order forthwith. With the aforesaid directions, the writ petition is

allowed and pending application(s) stand disposed of.

MANMOHAN, J

SANJEEV NARULA, J

DECEMBER 23, 2020