2021 (8) TMI 1408 - HC - Income Tax

Certificate u/s 197(1) of the Act at Nil rate - petitioner s Form 13 application for Nil/lower withholding tax certificate was rejected - As now in the writ petition the petitioner has clarified that the provision creating slow and ageing inventory in relation to the relevant AY has not been claimed as a deduction in the said year the matter can be sent back to the AO for re-examination - HELD THAT - Though in rejoinder learned senior counsel for the petitioner disputes the contention advanced by learned counsel for the respondent yet he has no objection to the matter being remanded back to the AO. Accordingly in view of the statement made by learned counsel for the respondent the impugned order under Section 197(1) of the Act for the Assessment Year 202122 is set aside and the matter is remanded back to the AO to determine the said application afresh in accordance with law. Respondent no. 2 shall pass a reasoned order in accordance with law after giving an opportunity of hearing to the authorised representative of the petitioner within four weeks.

Summary

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.