Facts of the Case

The petitioners, Hero Wind Energy Pvt. Ltd. and Hero Solar Wind Energy Pvt. Ltd., filed applications under Section 197 of the Income Tax Act seeking a Nil rate TDS certificate in respect of interest income receivable from group companies.

The Assessing Officer rejected these applications through order dated 18 June 2021. The petitioners contended that they were loss-making companies, and deduction of TDS at the standard rate of 10% would result in excessive tax deduction compared to their actual tax liability.

They further stated that in the previous financial year, TDS was deducted at a lower rate of 0.5%, but due to the impugned order, deduction would now be at 10%.

Issues Involved

  1. Whether the rejection of application under Section 197 for Nil TDS certificate without proper reasoning is valid in law.
  2. Whether the Assessing Officer failed to follow Rule 28AA while deciding the application.
  3. Whether a cryptic order without justification violates principles of natural justice.

Petitioner’s Arguments

  • Petitioners are entitled to Nil or lower TDS as they are loss-making entities, and deduction at 10% exceeds their tax liability.
  • The Assessing Officer wrongly rejected the application alleging non-submission of borrowing rate details, whereas all required information had already been furnished.
  • The rejection order is arbitrary and does not comply with statutory requirements under Section 197 read with Rule 28AA.

Respondent’s Arguments

  • The Revenue contended that the information provided by the petitioners in response to queries was incorrect and erroneous.
  • It was argued that the rejection was justified based on deficiencies in the data submitted by the petitioners.

Court Findings / Order

  • The Delhi High Court held that the impugned order was cryptic and lacked reasoning, thereby making it unsustainable in law.
  • The Court observed that the order did not clearly state that the information provided by the petitioners was incorrect.
  • It reiterated that the Assessing Officer must adhere to Rule 28AA and cannot decide applications arbitrarily.

Final Order

  • The impugned order dated 18 June 2021 was set aside.
  • The matter was remanded back to the Assessing Officer for fresh consideration (de novo hearing).
  • The Assessing Officer was directed to pass a reasoned order within four weeks.

Important Clarification

  • Authorities must provide reasoned orders while rejecting applications under Section 197.
  • Rule 28AA is mandatory, and deviation renders the order invalid.
  • Mere allegation of incorrect information without recording findings is insufficient.

Sections Involved

  • Section 197, Income Tax Act, 1961 (Certificate for Nil/Lower TDS)
  • Section 194A, Income Tax Act, 1961 (TDS on Interest Income)
  • Rule 28AA, Income Tax Rules

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:2012-DB/MMH09072021CW61842021_092642.pdf


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