Delhi High Court Sets Aside Non-Reasoned Order on TDS Deduction Rate, Directs Fresh Assessment

Delhi High Court Sets Aside Non-Reasoned Order on TDS Deduction Rate, Directs Fresh Assessment

The Delhi High Court has revoked the non-speaking order that denied the issuance of a lower deduction tax certificate (LDC) permitting a 0.01 per cent TDS deduction.

The bench comprising Chief Justice Satish Chandra Sharma and Justice Tushar Rao Gedela commented that the reasons provided by the Respondent/department in response to the Application regarding the Petitioners' request not to deduct TDS at a rate of 0.01 per cent are based on broad generalisations concerning the validity of projected revenue and tax liability estimations and accordingly lack substance and are reflective of a lack of thorough consideration.

The taxpayer, engaged in the retail trade of goods through e-commerce platforms, contested a certificate issued by the Deputy Commissioner of Income Tax, TDS Circle 77(1), pursuant to Section 197 of the Income Tax Act, 1961, in conjunction with a letter addressed to the taxpayer by the respondent.

The petitioner submitted an application under Section 197 of the Income Tax Act, accompanied by Form 13 of the Income Tax Rules, 1961, requesting a lower deduction of tax certificate (LDC) in lieu of the 1 per cent tax deducted at source (TDS) mandated under Section 194O of the Income Tax Act.

In a bid to reduce their TDS deduction to 0.01 per cent, the petitioner requested the issuance of an LDC. In response, the respondent posed several queries, seeking information such as the nature of the petitioner's business activities, details of previous LDC issuances, financial statements for specific fiscal years, copies of income tax returns (ITRs), advance tax details, and any outstanding tax liabilities.

To support its request for a lower TDS deduction, the petitioner presented its projected tax-to-turnover ratio, which stood at a mere 0.012 per cent. This figure, significantly lower than the standard 1 per cent TDS deduction rate, demonstrated the petitioner's limited tax liability.

Despite the petitioner's request for a 0.01 per cent TDS deduction, the respondent issued an LDC allowing a deduction rate of 0.5 per cent, significantly higher than the petitioner's desired rate.

The assessee argued that the LDC was issued without adhering to the requirements of Rule 28AA of the Income Tax Rules. They emphasized that granting an LDC is an exception to the stringent provisions of Sections 192-195 of the Income Tax Act and not an automatic right. The assessee maintained that the onus of justifying the relief under Section 197 of the Income Tax Act lies with the petitioner, which, in their opinion, had not been adequately fulfilled.

The Court ruled that the order, in conjunction with the letter, displayed a lack of careful consideration, which would undoubtedly cause substantial harm to the petitioner. Therefore, the Court quashed the challenged actions and remanded the matter to the respondent for a new evaluation of the application in accordance with the law as expeditiously as possible.