2012 (9) TMI 400 - HC - Income Tax

Rejection of issuance of no deduction certificate u/s 197 - Held that - Not issuing the short deduction/no deduction certificate u/s 197 to the petitioner on the ground that there was letter of the AO dated 25.03.2010 reporting opposite party No.1-ITO(TDS) that an amount of Rs.27,36,625/- for the assessment year 2004-05 and Rs.4,62,13,909/- for the year 2005-06 was outstanding against the assessee. Unfortunately, such a reason is not at all correct because as on 25.03.2010 no dues was outstanding against the assessee as the demand raised for the assessment years 2004-05 and 2005-06 was nullified by the Tribunal vide its order dated 11th February, 2010 i.e. much before issuance of letter dated 22nd/25.03.2010. There is inordinate delay and serious laches on the part of opposite party-authorities in dealing with the petitioner s application for grant of no deduction certificate u/s 197 with no explanation from the Department as to why the petitioner s application submitted on 22.06.2009 for issuance of no deduction certificate was taken up for the first time for consideration towards fag end of the financial year 2009-10 and that too on a wrong ground of non-payment of outstanding dues - As the impugned order of rejection of the petitioner s application does not state that because of outstanding dues, short deduction/no-deduction certificate u/s 197 was not issued. This is a fresh reason stated in the counter affidavit that too an incorrect reason which contention on behalf of the Revenue is wholly untenable in law - as the certificate ought to have been given to the petitioner during the financial year 2009-10 and the Department cannot take advantage of its own inaction and lapses by taking a stand that the financial year is over, thus in the peculiar circumstances the opposite party No.1 is directed to issue necessary certificate making it effective for the financial year in question - in favour of assessee.

Summary

Issues Involved:
1. Validity of the order dated 13.08.2010 rejecting the petitioner's application for a No-Deduction Certificate under Section 197 of the Income Tax Act, 1961.
2. Justification of the impugned order by assigning fresh reasons in the counter affidavit.

Issue-wise Detailed Analysis:

1. Validity of the Order Dated 13.08.2010:
The petitioner, a non-profit organization registered under Section 12AA of the Income Tax Act, 1961, sought to quash the order dated 13.08.2010 by the Income Tax Officer (TDS), Cuttack, which rejected their application for a No-Deduction Certificate under Section 197 for the financial year 2009-10. The petitioner argued that the rejection was based on the ground that the financial year had lapsed, despite the application being filed well in advance on 22.06.2009 and reminders sent on 04.09.2009 and 25.02.2010. The petitioner contended that the delay was due to the inaction of the Income Tax Department, which failed to process the application within a reasonable time, contrary to the statutory duty to issue the certificate promptly. The court found that the Department's delay and the subsequent rejection of the application were unjustified, especially since the petitioner had been issued similar certificates in previous years and had no outstanding tax dues as of 25.03.2010, as confirmed by the Income Tax Appellate Tribunal.

2. Justification of the Impugned Order by Assigning Fresh Reasons:
The court addressed whether the validity of the impugned order could be justified by new reasons presented in the counter affidavit, which were not mentioned in the original rejection order. The Department claimed that the certificate could not be issued due to outstanding tax dues for the assessment years 2004-05 and 2005-06. However, the court noted that these dues were nullified by the Tribunal's order dated 11.02.2010, and this reason was not mentioned in the original rejection order or during the earlier court proceedings. The court cited the principle from Mohinder Singh Gill & Anr. Vs. The Chief Election Commissioner, New Delhi & Ors., which states that the validity of an order must be judged by the reasons mentioned therein and cannot be supplemented by fresh reasons later. The court concluded that the Department's action was not bona fide and amounted to harassment of the petitioner.

Conclusion:
The court directed the Income Tax Department to issue the necessary No-Deduction Certificate for the financial year 2009-10, effective retroactively. It also emphasized the need for the Department to avoid such delays and inactions in the future and recommended an inquiry by the Chief Commissioner of Income Tax into the lapses by the responsible officers. The writ petition was disposed of with these observations and directions.