Tax Certificate Rejection Overturned; Application Sent Back for Review within Four Weeks under Income Tax Act.

The HC set aside the impugned order rejecting the Form 13 application for a Nil/lower withholding tax certificate under Section 197(1) of the Income Tax Act, 1961. The matter was remanded to the AO for re-examination. The AO must issue a reasoned order after hearing the petitioner within four weeks. The writ petition and applications were disposed of accordingly.

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Issues:
Challenge to rejection of Form 13 application for Nil/lower withholding tax certificate under Section 197(1) of the Income Tax Act, 1961 for Assessment Year 2021-22.

Analysis:
The petitioner challenged the order rejecting their Form 13 application for a Nil/lower withholding tax certificate. The petitioner argued that the provision for slow and ageing inventory is a common practice in retail business, done based on scientific estimates and in compliance with Accounting Standard 2. They emphasized that the treatment is revenue-neutral and follows the provisions of the Act. The petitioner also highlighted that the AO had accepted the returned income for the previous assessment year after explanations regarding the inventory provision were provided.

The petitioner contended that applying a 1% tax deduction under Section 194O would lead to a significant tax refund, causing hardship. They relied on the Standard Operating Procedure by the Central Board of Direct Taxes and Rule 28AA of the IT Rules for issuing certificates under Section 197, arguing that the AO did not follow the prescribed procedures or provide reasons in the impugned order. The petitioner cited previous court judgments where similar TDS certificates were set aside under comparable circumstances.

The respondent accepted notice and stated that the AO had reasons for rejecting the Form 13 application, mentioning that the provision for slow and ageing inventory was not scrutinized during the limited scrutiny for the previous assessment year. However, upon clarification by the petitioner that the inventory provision was not claimed as a deduction in the relevant year, the respondent agreed to send the matter back to the AO for re-examination.

In light of the respondent's statement, the High Court set aside the impugned order and remanded the matter to the AO for a fresh determination in accordance with the law. The AO was directed to pass a reasoned order after providing an opportunity of hearing to the petitioner's representative within four weeks. The writ petition and applications were disposed of with these directions, and the order was to be uploaded on the website and forwarded to the counsel via email.

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