2019 (9) TMI 1040 - HC - Income Tax

Issue of certificate u/s 197(1) - fixing the rate of deduction of TDS at 4% instead of 1% as was fixed for earlier years - HELD THAT - This Court in Bently Nevada LLC Vs. Income Tax Officer, Ward-1(1)(2), International Taxation Another 2019 (7) TMI 1503 - DELHI HIGH COURT had quashed the certificate issued under Section 197(1) of the Act and directed a fresh order to be passed recording reasons for the same. The said decision, in turn, places reliance on the decision of the Bombay High Court in Tata Teleservices (Maharashtra) Ltd Vs. Deputy Commissioner of Income-Tax (TDS) 2018 (2) TMI 192 - BOMBAY HIGH COURT . A perusal of this decision does not betray the fact that prior to issuance of a certificate under Section 197(1), the Assessing Officer is obliged to grant personal hearing to the assessee. All that is required is that the Assessing Officer should have good reasons to issue the certificate under Section 197(1) of the Act and the said reasons should be communicated to the assessee. We dispose of this petition with a direction to the respondents to provide to the petitioner within one week the reasons recorded for issuance of the impugned certificate fixing the rate of deduction of TDS at 4%. It shall be open to the petitioner to assail the said reasons in case the petitioner is aggrieved thereby.

Summary

Issues:
Challenge to increase in TDS deduction rate from 1% to 4% without communication or hearing.

Analysis:
The petitioner filed a writ petition challenging the order increasing the TDS deduction rate from 1% to 4% without providing any reasons or opportunity for a hearing. The petitioner contended that the increase was arbitrary and unjustified as they were performing the same contracts for the same employer as before. The respondent's counsel argued that the Assessing Officer had valid reasons for the higher deduction rate, which were duly recorded. The petitioner relied on a previous court decision that emphasized the requirement for the Assessing Officer to provide reasons for such decisions and grant a personal hearing to the assessee. The court, considering the precedents, directed the respondents to furnish the reasons for the increased TDS deduction rate within a week to the petitioner. The petitioner was granted the opportunity to challenge the reasons if found unsatisfactory. The writ petition was disposed of with this direction, allowing the petitioner to contest the decision based on the communicated reasons.

This judgment highlights the importance of providing reasons and a hearing to the assessee before making significant decisions such as increasing the TDS deduction rate. It underscores the principle that the Assessing Officer must have valid justifications for such actions and communicate them to the concerned party. Failure to adhere to these procedural requirements can lead to challenges and potential invalidation of the decision. The court's decision in this case aligns with the legal precedent emphasizing transparency, communication, and the right of the assessee to challenge decisions affecting them.