Facts of the Case

The petitioner, a manpower service provider operating on very low profit margins (0.26%), applied under Section 197 seeking a Nil TDS certificate for FY 2020-21.

Despite:

  • Estimated tax liability being Nil,
  • Average tax rate being 0.12%,
  • Huge refunds due (approx. ₹128+ crore),

the Assessing Officer issued a certificate prescribing:

  • 0.50% TDS under Section 194C,
  • 1.50% TDS under Sections 194J & 194I.

The petitioner challenged the order on grounds of arbitrariness and violation of Rule 28AA.

Issues Involved

  1. Whether writ petition is maintainable despite availability of remedy under Section 264?
  2. Whether the Assessing Officer followed mandatory Rule 28AA while determining TDS rates?
  3. Whether fixation of TDS rates without proper computation is arbitrary and illegal?
  4. Whether an order passed with CIT approval can be revised under Section 264 

Petitioner’s Arguments

  • Estimated tax liability was Nil, yet TDS rates were imposed arbitrarily.
  • Rule 28AA conditions were satisfied, but ignored.
  • Past consistency violated (earlier lower rates).
  • No computation or reasoning justifying higher TDS rates.
  • Revision under Section 264 is not maintainable as order passed with CIT approval.

Respondent’s Arguments

  • Writ petition not maintainable due to alternate remedy under Section 264.
  • Judicial review limited to decision-making process, not rate determination.
  • Petitioner allegedly misrepresented nature of services.
  • Increase in projected turnover justified higher TDS rates.
  • Suggested petitioner file fresh application.

Court’s Findings / Judgment

1. Maintainability of Writ Petition

  • Court held writ is maintainable.
  • Revision under Section 264 not efficacious as order passed with CIT approval → “Appeal from Caesar to Caesar” principle applied.

2. Rule 28AA is Mandatory

  • AO must consider:
    • Estimated income
    • Past tax liability
    • Existing liabilities
    • TDS/advance tax
  • Failure to follow Rule 28AA invalidates the order.

3. Arbitrary Decision-Making

  • No computation under Rule 28AA was produced despite court direction.
  • Decision lacked application of mind.

4. Reliance on Incorrect Data

  • Department wrongly relied on superseded previous rates.

Court Order / Final Decision

  • Impugned order quashed.
  • Matter remanded for fresh determination within 2 weeks.
  • Interim relief granted:
    • Apply previous year revised rates + 25% COVID rebate.

Important Clarifications

  • Orders under Section 197 approved by CIT cannot be revised under Section 264.
  • Rule 28AA compliance is mandatory, not discretionary.
  • Courts will intervene where decision-making process is flawed, even if rates are discretionary.
  • Government authorities must follow their own prescribed rules strictly.

Link to download the order - https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:3646-DB/MMH21122020CW58652020_165742.pdf

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