2018 (3) TMI 152 - HC - Income Tax

High Court quashes flawed tax certificate withdrawal, stresses need for reasons and due process

Vodafone India Limited Versus Deputy Commissioner of Income-tax (TDS) 2 (3) & Union of India

The High Court, in a challenge to an order withdrawing a tax certificate under the Income Tax Act, found the cancellation flawed due to lack of reasons ... Cancellation/withdrawal of the Certificate issued u/s 197 - Held that:- We find that in this case, as in Tata Teleservices (Maharashtra) Limited (2018 (2) TMI 192 - BOMBAY HIGH COURT), an order canceling a certificate issued under Section 197 of the Act, was passed on the ground that the aspect of pending demand has not been considered in the context of Rule 28AA of the Income Tax Rules, 1961 while granting the certificate under Section 197 of the Act. This, without furnishing a copy of the reasons recorded at the time of issuing the certificate under Section 197 of the Act. This non furnishing of copy of the reasons recorded was held by us to be a flaw in the decision making process. Thus, making the impugned order unsustainable. In the above view, the impugned order dated 11 October 2017 passed by the Respondent No. 1, which cancels the Certificate dated 18 May 2017 is quashed and set aside Issues:Challenge to order withdrawing/cancelling Income Tax Act certificate under Article 226 of the Constitution of India.Analysis:1. The petition challenged an order withdrawing/cancelling a certificate issued under Section 197 of the Income Tax Act, 1961, directing parties to deduct tax at a lower rate. The facts were similar to previous cases. The Commissioner of Income Tax directed the cancellation, leaving no alternative remedy for the petitioner under Section 264 of the Act. The High Court exercised its extraordinary writ jurisdiction due to the lack of an efficacious alternative remedy.2. The order cancelling the certificate was based on the non-consideration of pending demands in the context of Rule 28AA of the Income Tax Rules, without providing reasons recorded during the issuance of the certificate. This lack of furnishing reasons was deemed a flaw in the decision-making process, rendering the impugned order unsustainable.3. Referring to a previous case, the High Court emphasized that the Assessing Officer cannot initiate review proceedings without a change in circumstances from when the certificate was issued. The absence of the order preceding the certificate issuance led to an adverse inference against the Revenue. The Court highlighted the necessity of recording reasons for issuing a certificate under Section 197 of the Act, as it allows for revision by the Commissioner of Income Tax under Section 263.4. The Court found that the Revenue failed to counter the inference drawn from not providing reasons leading to the certificate issuance. It concluded that reasons must have been recorded before granting the certificate, and parties must be given an opportunity to respond before cancelling a certificate based on unconsidered aspects. The decision-making process was deemed flawed, vitiating the impugned order.5. Considering the similarity in facts with a previous case, the High Court quashed and set aside the order cancelling the certificate dated 18 May 2017. The Court clarified that other contentions raised by the parties were not considered for the purpose of disposing of the petition. The writ petition was thus disposed of in favor of the petitioner.