Tata Teleservices (Maharashtra) ... vs The Deputy Commissioner Of Income ...
2018 Latest Caselaw 950 Bom

                                                                902-WP-2701-17.doc

Sharayu Khot & S.R. Joshi.

             IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                 ORDINARY ORIGINAL CIVIL JURISDICTION

                          WRIT PETITION NO. 2701 OF 2017


      M/s Tata Teleservices (Maharashtra) 
      Limited                                                   ...Petitioner

              Versus

      1.    The Deputy Commissioner of Income
            Tax (TDS)-2(3)
      2.    The Commissioner of Income Tax 
            (2) TDS
      3.    The Commissioner of Income Tax 
            (Appeals)
      4.    The Union of India                ...Respondents

                                           ----------

      Mr. Tarun Gulati, a/w Ms. Ishita Farsaiya a/w Mr. Jas Sanghavi,
      i/by PDS Legal, for the Petitioner.

      Mr.   Suresh   Kumar,   a/w   Ms.   Samiksha   Kanani,   for   the
      Respondents.
                                  ----------

                                           CORAM : M.S. SANKLECHA   &
                                                   RIYAZ  I. CHAGLA, JJ.

DATE : 16 & 25 January 2018

ORAL JUDGMENT : [Per M.S. Sanklecha, J]

1. At the request of the parties, this Petition is being

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disposed of finally at the stage of admission.

2. This Petition under Article 226 of the Constitution of

India seeks the following reliefs :-

(a) The order dated 23 October 2017 issued by the

Deputy Commissioner of Income Tax (TDS),

Respondent No. 1, canceling the certificate dated

4 May 2017 of nil deduction of tax for the period 4

May 2017 upto 31 March 2018 (A.Y. 2018-19)

issued under Section 197 of the Income Tax Act,

1961 ("the Act" for short), be quashed and set

aside; and

(b) The Commissioner of Income Tax (Appeals)

("CIT[A]")- Respondent No. 3 be directed to

decide the Petitioner's pending Appeal for the

assessment year 2012-13 in respect of a demand

of Rs. 6.68 Crores. The hearing of which had taken

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on 15 February 2017, when detailed written

submissions were filed, within a time frame;

3. So far as relief (b) above is concerned, Mr. Suresh

Kumar, learned Counsel for the Revenue, on instructions of

CIT(A)-Respondent No. 3 states that the pending Appeal in

respect of assessment year 2012-13 would be disposed of on or

before 1 March 2018. Statement accepted. In view of the above

statement, this relief is not being pressed by the Petitioner.

4. The relevant facts leading to the filing of this

Petition are that the Petitioner is engaged in providing

telecommunication services. In the course of its business,

Petitioner earns its revenue from sale of post and prepaid cards,

sale/ lease of equipments and providing various value added

services. Petitioner has huge accumulated losses. Its return of

income for the Assessment Years 2014-15 to 2016-17, are loss

returns aggregating to Rs. 1330.00 Crores and in which an

aggregate claim to a refund of Rs. 121.00 Crores has been made.

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5. In the course of its business, Petitioner receives

various payments for services rendered which are subject to tax

deduction at source under Chapter XVII of the Act. However,

according to the Petitioner it would not be liable to pay

corporate tax in the immediate future in view of the likely loss

for the assessment year 2018-19 and the huge carried forward

losses.

6. Therefore, on 27 February 2017, Petitioners applied

to the Respondent No. 1 seeking an issuance of nil/lower

withholding taxes under Section 197 of the Act. This was to

enable the Petitioner to receive its payments from various

parties which are subject to tax deduction at source, without

deduction at source. In support of the above, the application

pointed out that their accumulated losses carried forward as on

1 April 2014 is over Rs. 4000.00 Crores - both as per MAT

provisions and under the normal provisions. Further, the

Petitioner had filed loss returns for Assessment Years 2015-16

and 2016-17. It was also submitted that the estimated loss for

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Assessment Year 2017-18 is approx. Rs. 1000.00 Crores. Thus,

there will be no assessable profit under the Act for the

assessment year in 2018-19 in view of huge carry forward

losses. Besides, the application points out that there was an

amount of Rs. 101.53 Crores up to 10 February 2017 receivable

as refund from the Revenue. It was also pointed out that the

financial health of the Petitioner is such that it has taken long

term debts, at huge interest payments. Therefore, the amounts

which are blocked on account of tax deduction at source

aggravates its financial hardship including cash crunch.

Lastly, it was pointed out that the amount of Rs. 6.68 Crores

which is the outstanding tax demand for the assessment year

2012-13 was on account of an issue which already stands

concluded in its favour by an order of the Tribunal dated 27

May 2016, on identical issues for assessment years 2009-10 to

2012-13 (upto July 2011). This demand of Rs. 6.68 Crores is

thus, likely to be set aside by the CIT(A) as he would be bound

by the order of the Tribunal. It was pointed out so far as the

demand for the balance amount of Rs. 28.00 Lakhs is concerned

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it is on account of wrong/unsustainable demand arising from an

incorrect processing of TDS statement on application of TRACES

System.

7. Thereafter, Respondent No. 1 called for various

details from the Petitioner. On the same being submitted, they

were examined by Respondent No. 1. Thereafter, on 4 May

2017, Respondent No. 1 issued a certificate under Section 197

of the Act, directing the deduction of tax at nil rate by the

various persons listed in the certificate while making payments

to the Petitioner under Sections 194, 194A, 194C, 194I, 194H

and 194J of the Act. This would result in a relief of Rs. 238.90

Crores as the same would not be deducted as tax at source.

Thus, obviating the need for filing of refund claim with the

Revenue for the assessment year 2018-19.

8. Thereafter, on 16 August 2017, Respondent No. 1

informed the Petitioner that he is reviewing cases where

certificate under Section 197 of the Act has been issued in cases

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where huge outstanding tax demand is pending. Consequently,

the above communication requested the Petitioner to furnish the

details of outstanding tax demands. The Petitioner responded to

the same by its letter dated 20 August 2017, giving the details of

the tax outstanding. It reiterated its submissions made in the

application made on 27 February 2017. Besides pointing out

that a further refund of Rs. 34.37 Crores was due to them from

the Revenue for tax deducted at source in the subject

assessment year, for the period prior to the issue of certificate.

9. Thereafter, on 30 August 2017, Respondent No. 1

issued a Show Cause Notice to the Petitioner, calling upon it to

show cause as to why the certificate dated 4 May 2017 should

not be reviewed/ canceled. This was on account of outstanding

demand of taxes payable. Besides, relying upon the extract of

Central Action Plan 2017-18 issued by CBDT which directs the

Officers to follow the instructions/certificate issued by the CBDT

and also mentions of Certificates being issued where large

demands are pending. The Petitioner responded by letter dated

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7 September 2017 to the notice dated 30 August 2017 while

reiterating its reply dated 20 August 2017 and called for

withdrawal of the notice.

10. Thereafter, on 7 September 2017, a personal

hearing was granted and on 23 October 2017, the impugned

order was issued. By the impugned order, the certificate dated

4 May 2017 issued under Section 197 of the Act, was canceled.

The impugned order holds that while issuing the certificate

dated 4 May 2017 the existing demand of Rs. 6.90 Crores was

as recorded in the impugned order "Apparently, the demand was

not considered on the basis that this demand was under a covered

issue". This i.e "covered issue" in terms of Rule 28AA(2) of the

Income Tax Rules 1961 (Rules), cannot be a subject of

consideration while granting the certificate. Further, it holds

that in view of the current financial status, the future liability, if

any, which may arise on assessment or otherwise against the

company, would be impossible to recover.

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11. Before considering the rival submissions urged

on behalf of the respective parties, it would be useful to

reproduce Section 197 of the Act and Rule 28AA of the Rules,

which arises for our consideration:-

"Section 197 of the Act :-

(1) Subject to rules made under sub-section (2A), where, in the case of any income of any person or sum payable to any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194K, 194LA and 195, the Assessing Officer is satisfied] that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate.

(2) Where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be.

(2A) The Board may, having regard to the

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convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (1) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.

Rule 28AA- Certificate for deduction at lower

rates or no deduction of tax from income other

than dividends.-

(1) Where the Assessing Officer, on an application made by a person under sub-rule (1) of rule 28 is satisfied that existing and estimated tax liability of a person justifies the deduction of tax at lower rate or no deduction of tax, as the case may be, the Assessing Officer shall issue a certificate in accordance with the provisions of sub-section (1) of section 197 for deduction of tax at such lower rate or no deduction of tax.

(2) The existing and estimated liability referred to in sub-rule (1) shall be determined by the Assessing Officer after taking into consideration the following:-

(I) tax payable on estimated income of the previous year relevant to the assessment year;

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(ii) tax payable on the assessed or returned income, as the case may be, of the last three previous years;

(iii) existing liability under the Income-tax Act, 1961 and Wealth-tax Act, 1957;

(iv) advance tax payment for the assessment year relevant to the previous year till the date of making application under sub-rule (1) of rule 28;

(v) tax deducted at source for the assessment year relevant to the previous year till the date of making application under sub-rule (1) of rule 28;

and

(vi) tax collected at source for the assessment year relevant to the previous year till the date of making application under sub-rule (1) of rule 28.

(3) The certificate shall be valid for such period of the previous year as may be specified in the certificate, unless it is cancelled by the Assessing Officer at any time before the expiry of the specified period.

(4) The certificate for no deduction of tax shall be valid only with regard to the person responsible for deducting the tax and named therein.

(5) The certificate referred to in sub-rule (4) shall be issued direct to the person responsible for deducting the tax under advice to the person who made an

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application for issue of such certificate."

12. Mr. Tarun Gulati, learned Counsel, in support

of the Petition, submits as under:-

(a) The impugned order dated 23 October 2017

cancelling the certificate dated 4 May 2017, is

without jurisdiction as Rule 28AA(3) of the Rules

could not be invoked in the present facts;

(b) The impugned order is arbitrary as it cancels a

valid certificate under Section 197 of the Act,

ignoring the fact that the existing liability of the

Petitioner would continue to be nil on

consideration of the factors as provided under

Rule 28AA(2) of the Rules;

(c) The impugned order completely ignores the test of

proportionality. At the highest, according to the

Revenue, the unpaid tax demand is Rs. 6.90

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Crores. While undisputedly, Petitioner is entitled

to refund of Rs. 7.30 Crores (being the deposit

made), consequent to the order dated 27 May

2016 passed by the Tribunal in respect of

Assessment Years 2009-10 to 2012-13. The

aforesaid amount continues to be retained by the

Revenue and it could be easily adjusted against

the demand of Rs. 6.90 Crores. In any event, the

relatively meagre amount of Rs. 6.90 Crores of tax

demand as against a refund of over Rs. 121.00

Crores would not justify denial of the benefit of

about Rs. 238.00 Crores as available under Section

197 of the Act. ;

(d) Lastly, it is submitted that the amount of Rs. 6.68

Crores is on account of an order for Assessment

Year 2012-13 which is pending before the CIT(A).

This issue to the knowledge of all concerned is

concluded in favour of the Petitioner and kept

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pending deliberately. This, even after the hearing

was completed, so far back as in February 2017.

13. On the other hand, Mr. Suresh Kumar, learned

Counsel for the Revenue supports the impugned order dated 23

October 2017 and submits as under:-

(a) An equally efficacious alternative remedy under

Section 264 of the Act as an by way of a Revision

to be Commissioner of Income Tax (CIT), against

the impugned order dated 23 October 2017,

cancelling the certificate dated 4 May 2017 is

available to the Petitioner. Therefore, this Court

should not entertain the Petition to exercise its

extraordinary jurisdiction;

(b) Cancellation of the certificate dated 4 May 2017

became necessary in view of the fact that the

financial condition of the Petitioner-company has

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further deteriorated. Thus, putting in jeopardy the

recovery of any liability, which may arise against

the Petitioner-company on account of future

assessment or otherwise. Therefore, necessitating

the cancellation of the nil withholding tax

certificate dated 4 May 2017;

(c) The existing demand of Rs. 6.90 Crores which

continued to be pending. This cannot be ignored

merely because, according to the Petitioner, the

demand is unsustainable and would be set aside in

appeal due to the issue being considered in its

favour;

(d) No prejudice would be caused to the Petitioner in

case the nil withholding certificate dated 4 May

2017 is withdrawn. This, for the reason that the

amounts so received by the Revenue on account of

withholding tax would be refunded if no tax

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demand is payable in future by the Petitioner.

14. Before dealing with the rival submissions on

merits, we shall first deal with the preliminary objection of the

Respondent to entertain this Petition. The objection is that an

effective efficacious alternative remedy to challenge the

impugned order under Section 264 of the Act, is available.

Therefore, this Petition should not be entertained. It is

submitted that a Revision under Section 264 of the Act would lie

to the Commissioner of Income Tax (CIT). This is so for the

reason that under Section 264 of the Act, Revision lies from any

order passed by any authority - subordinate to CIT other than

an order which is appealable and from which an appeal has

been filed or an order to which Section 263 of the Act is

applicable. In fact, this Court in Larsen & Toubro Ltd. &

Another v/s. CIT 326 ITR 514 has held that an order passed

under Section 197 of the Act, is amenable to Revision under

Section 264 of the Act.

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15. However, as correctly pointed out by the

Petitioner in this case, the impugned order dated 23 October

2017 as recorded therein, has been issued/ decided with the

concurrence of the CIT (TDS). This was not so in the case of

Larsen & Toubro (supra). It is also not disputed before us that

in this case, the Revision would be before the same authority

who gave the concurrence or to an authority of equal

rank/designation.

16. In the above view, the decision of this Court in

Larsen & Toubro Ltd., (supra) would not apply to the present

facts. As in this case, the Revision i.e. alternative remedy would

in facts be from "Caesar to Caesar." Therefore, in such a case an

alternative remedy would be a futile/empty formality and not

an efficacious remedy. (Please see Ram & Shyam Co. v/s. State

of Haryana 1985 (3) SCC 267).

17. In the above circumstances and in the present

facts, there is no merit in preliminary objection taken by the

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Revenue. Therefore, we proceed to examine the issue arising

herein and decide the same.

18. Section 197 of the Act permits/ allows an

assessee to make an application to the Assessing Officer, that in

its case, the deduction of tax under the Sections specified

therein should be at lower rates or at nil rates instead of the

normal rate prescribed under the Act. The Assessing Officer, if

satisfied, with the application made, bearing in mind the

provisions of the Act and the Rules, is obliged to grant the

certificate. Therefore, there is a right given to an assessee to

apply for nil/ lower rate of withholding tax under Section 197 of

the Act and an obligation upon the Assessing Officer to grant the

same, if the conditions specified therein are satisfied. Thus, it is

clear that the order passed under Section 197 of the Act is an

order which is a quasi judicial order and must be supported by

reasons. The Assessing Officer is also in terms of Section 197(2)

of the Act read with Rule 28AA (3) of the Rules empowered to

cancel a certificate already granted under Section 197(1) of the

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Act. This power of cancellation which in effect withdraws the

earlier certificate to the prejudice of the Assessee would be

required to stand the tests applicable to a rejection of an

application made under Section 197 of the Act. It is undisputed

that the cancellation of the earlier certificate will be effective

only from the date, the order of cancellation is passed.

19. The Petitioner's primary grievance is that the

impugned order dated 23 October 2017, canceling the

certificate dated 4 May 2017 is completely without jurisdiction.

It is not open to the Assessing Officer to even initiate review

proceedings in the absence of any change in circumstances

which existed while granting certificate dated 4 May 2017. It is

not disputed that Section 197(2) of the Act empowers the

Assessing Officer to cancel the certificate issued under Section

197(1) of the Act with regard to lower and/or nil withholding

tax issued under Section 197(1) of the Act. However, it is

submitted that there is no change in the financial and other

circumstances as existing when the certificate dated 4 May 2017

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was issued and when the impugned order canceling the above

certificate was passed. Therefore, the impugned order is without

jurisdiction.

20. In the present facts, we note that impugned

order dated 23 October 2017 cancels the certificate dated 4 May

2017 on the ground that it was issued by mistake i.e. not having

considered Rule 28AA (2) of the Rules in the context of the

pending demands. The Revenue has filed an affidavit in reply

dated 11 January 2018 of Respondent No. 1- Mr. M. Ashok

Babu, Joint Commissioner of Income Tax, opposing the

admission and also relies upon it at the final hearing. We find

that the order preceding the grant of the certificate has not been

annexed to the affidavit filed by the Revenue. This Court in

Larsen & Toubro Ltd., (supra) has held that an issue of

certificate must necessarily be preceded by an order under

Section 197(1) of the Act. In fact the issue of certificate is the

result of an order holding that the applicant is entitled to a

certificate under Section 197 of the Act. It must of necessity be

so, as in the absence of the reasons being recorded, the

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Certificate under Section 197 of the Act, would not be open to

challenge by the Revenue, as it would be impossible to state that

it is erroneous and prejudicial to the Revenue. The Revenue

would be helpless. Therefore, the recording of reasons is

necessary as only then it could be subject to Revision by the

Commissioner of Income Tax under Section 263 of the Act.

21. Therefore, it appeared to us while correcting

the order which was dictated in Court on 16 January 2017 that

the order prior to issuing the certificate dated 4 May 2017 ought

to have been communicated to the Petitioner along with the

notice, seeking to review the earlier certificate on account of

mistake. In the above circumstances we kept the petition on

board for directions on 23 January 2018 as this issue was not

addressed by the Revenue at the hearing. In fact the petitioner

had contended before us that the Respondent No. 1 had no

jurisdiction to cancel the certificate dated 4 May 2017 in the

absence of any change in the circumstances. However, we

wanted to hear and consider the Revenue's response on the

above aspect of jurisdiction. Therefore, on 23 January 2018 we

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expressed our prima faice view on the issue to the parties,

particularly that the absence of the order leading to the grant of

the certificate being given to the Petitioner, leads to an adverse

inference against the Revenue i.e. all issues including Rule 28AA

(2) of the Rules were considered in the order passed leading to

the issuing of Certificated dated 4 May 2017. We specifically

invited the attention of the Revenue to the specific observation

found in para 7 of the decision of this Court in Larsen & Toubro

Ltd. (supra) and also to the decision of the Apex Court in

Liberty Oil Mills Vs. U.O.I. 1984(3) SCC 465 which while

construing the words "without assigning any reasons" held that

it does not do away with the requirement of reasons existing for

the decision, it only does away with communicating the same. In

fact in this case the Section does not do away with requirement

of issuing a reasoned order while issuing a Certificate under

Section 197 of the Act.

22. At the request of the Revenue the petition was

posted for directions on 25 January 2018 to enable the

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Respondent to respond on the above issue. On 25 January 2018,

the Revenue did not make any submission to counter our prima

facie view including our drawing an adverse inference on

account of non furnishing of the order/reasons leading to the

issue of the certificate dated 4 May 2017. Therefore, we

conclude that there would have been reasons recorded in the

file before issuing a certificate dated 4 May 2017 and this ought

to have been furnished to the party before resting its case in the

impugned order on the ground that the aspect of Rule 28 AA of

the Rules was not considered at the time of granting the

Certificate. Further if the Revenue seeks to cancel the same on

the ground that a particular aspect has not been considered then

before taking a decision to cancel the certificate already granted,

it must satisfy the requirement of Natural Justice by giving a

copy of the same to the parties and hear them on it before

taking decision to cancel the certificate. This is particularly so as

in the present facts the show cause notices dated 16 August

2017 and 30 August 2017 seeking to review the Certificate

dated 4 May 2017 did not indicate that the review is being done

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as the Certificate dated 4 May 2017 was granted without

considering the applicability of Rule 28 AA of the Rules in the

context of the petitioner's facts. Therefore, there was no

opportunity/occasion for the petitioner to seek a copy of the

reasons recorded while issuing a certificate dated 4 May 2017.

Moreover, this becomes all the more important as we have

found on examination of facts that there is no change in facts as

existing on 4 May 2017 and as existing when the impugned

order dated 23 October 2017 was passed. Thus, in the present

facts, according to us, there is a flaw in the decision making

process which vitiates the impugned order dated 23 October

2017.

23. Apart from the above, we shall examine the

issue of cancellation of certificate dated 4 May 2017 by the

impugned order dated 23 October 2017 and examine whether

the same can be sustained on grounds specified therein, de hors

the issue of breach of natural justice. However, before

examining the other issues we must make it clear that we are

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mindful of the fact that the Revenue Officers are best equipped

to protect the interest of the Revenue. Therefore, at the time of

disposing of an application for grant of nil or lower rate of

withholding tax certificate, they must ensure that Revenue's

interest are protected. However, this protection of Revenue's

interest has as to be examined/weighed against the assessee's

right to nil or lower rate of withholding tax as provided by

Parliament in Section 197 of the Act. Therefore, the grant or

refusal to grant the certificate under Section 197 of the Act has

to be determined by the parameters laid down therein and Rule

28 AA of the Rules. It cannot go beyond the said provisions to

decide an application. This alone would ensure uniformity of

treatment of all applicants seeking the benefit of Section 197 of

the Act.

24. Mr. Suresh Kumar, learned Counsel for the

Revenue, states that the impugned order need not be examined

at all as the cancellation of a certificate in the present case

would not cause any prejudice to the Petitioner. In case, more

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taxes are paid then it is liable to, by virtue of tax deducted at

source, then consequent to final assessment the Petitioner would

be entitled to refund of excess tax paid. In support he places

reliance upon the decision of the Madras High Court in Ansaldo

Energia SpA. Vs. ITO 2003(133) Taxmann 795. The above

submission completely ignores the provisions of Section 197 of

the Act which provides a facility to an assessee who may not be

liable to tax, to have the benefit of not having tax deducted at

source on his behalf being made completely nugatory. This is so,

as in all cases an assessee would be entitled to refund after

assessment and no occasion to apply Section 197 of the Act can

ever arise. Further the decision of the Madras High Court in

Ansaldo Energia SpA. (supra) has no application to the present

facts. In the case before Madras High Court, the contention of

the Petitioner was that no tax liability would arise as it stood

exempted by virtue of Section 49BBB of the Act. It was in the

above facts that the Madras High Court upheld the cancellation

of a certificate by holding that whether or not the assessee is

entitled to the benefit of Section 49BBB of the Act, is a matter of

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determination during the assessment proceedings. Therefore, at

this stage, before the assessment is completed, it is not open to

the Assessee therein to contend that it is not liable to tax till its

claim to exemption is determined during assessment

proceedings. In the present facts, the carry forward loss of the

Petitioner are so huge that even if the Petitioner makes any

profits in the subject assessment year, there would be no taxable

income for the subject Assessment Year. Thus, the aforesaid

decision of the Madras High Court in Ansaldo Energia SpA.

(supra) would have no application to the present facts.

25. The impugned order dated 23 October 2017

cancels the certificate dated 4 May 2017 on the following two

grounds:-

(a) the financial condition of the Petitioner is such

that any future tax payable may not be

recoverable from the Petitioner; and

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(b) there is outstanding tax demand of Rs. 6.90 Crores

payable by the Petitioner.

26. So far as ground (a) above viz: the earlier

certificate is cancelled because of the current financial health/

condition of the Petitioner is such that it would be difficult to

recover any future liability raised against the Petitioner-

Company. A mere averment is made to above effect without

indicating any basis for the conclusion.

27. Mr. Suresh Kumar, learned Counsel for the

Revenue places reliance upon the affidavit in reply of

Respondent No. 1 Mr. N. Ashok Babu, Joint Commissioner of

Income Tax, dated 11 January 2018 - wherein reference is

made to a meeting with the group CFO that the financial health

of the Company is very weak and also newspaper reports. It is

now well settled that the impugned order would stand or fall by

the reasons mentioned therein and the same cannot be

improved by an affidavit. In any case, in the present case, the

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affidavit relied upon newspaper items and discussion with the

group CFO that the financial health of the company is very

weak. This is without giving any particulars. In any case this

also supports the stand of the petitioner that its financial

condition was very weak both when it made the application on

27 February 2017 for a certificate under Section 197 of the Act -

wherein the Petitioner points out that it had carried forward loss

of over Rs. 4900.00 Crores as per the return of income filed for

the year ending 31 March 2016 and now at the time when the

impugned order was passed. The impugned order dated 23

October 2017 does not indicate, even remotely, what the profits

are likely to be in the near future, which the revenue may not be

able to recover as it would be more than the carry forward

losses. In fact the affidavit if anything supports the case of the

petitioner that they have huge carried forward losses and there

is no likelihood of any tax becoming payable in the subject

assessment year.

28. Moreover, it was urged by the petitioner that

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the aforesaid further huge financial loss was one of the

considerations which weighed with the Respondent No. 1 while

granting certificate dated 4 May 2017 as even if the Company

were to turn the corner, the accumulated losses were so huge

that it was unlikely that any taxable income would be a subject

matter of tax for the subject Assessment year. In fact, this Court

had occasion in Mckinsey and Company Inc. Vs. U.O.I. 324

ITR 367 to consider the exercise of powers under Section

197(2) of the Act by the Assessing Officer i.e. to cancel the

certificate granted earlier. This Court had observed that the

Assessing Officer can exercise power under Section 197(2) of

the Act for canceling the certificate which has been earlier

issued/ granted. However, such a cancellation/ departure from

the earlier view has to be made on valid and cogent reasons, i.e.

when there is material on record to justify the departure. The

impugned order does not indicate any such material, nor

Revenue is able to show us any such change in circumstances

which would warrant canceling certificate dated 4 May 2017.

Therefore, the basis/ ground (a) of the impugned order is not

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sustainable in the facts and renders the order bad.

29. So far as ground (b) above viz. outstanding tax

demand of Rs. 6.90 Crores is payable to the revenue by the

petitioner. Therefore, the certificate dated 4 May 2017 cannot

be sustained, resulting in its cancellation. We note that neither

Section 197 of the Act nor Rule 28AA of the Rules provide that

no certificate of nil/lower rate of withholding tax can be

granted if any demand, howsoever minuscule, is outstanding. In

fact Rule 28 AA(2) of the Rules requires the authority to

determine the existing/estimated liability taking into

consideration various aspects including the estimated tax

payable for the subject assessment year and also the existing

liability. The existing and estimated liability would also require

taking into account the demands likely to be upheld by the

appellate authorities.

30. In a case like this one where the petitioner

states that the issue is concluded by a decision dated 27 May

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2016 of the Tribunal in its own case, then the assessing officer

has to consider the same and give some modicum of reason why

it is prima facie not covered by the decision of the Tribunal. This

is particularly so in the back ground of the petitioner's Appeal

with respect to the demand of Rs. 6.68 Crores being heard by

the CIT(A) as far back as in February 2017 and no order being

passed thereon till date. Further, in the present case the

impugned order does not deal with the petitioner's contention

that the demand of Rs. 28.00 Lakhs is on account of mistake in

application of TRACE system nor does it deal with the

Petitioner's contention that the entire demand of Rs. 6.90Crores

can be adjusted against the refundable deposit of Rs. 7.30

Crores, consequent to the order dated 27 May 2016 of the

Tribunal in its favour.

31. Therefore, the impugned order dated 23

October 2017 seeking to cancel the certificate dated 5 May 2017

is a non speaking order as it does not consider the petitioner's

submissions. Therefore, the basis/ ground (b) of the impugned

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order is not sustainable in the above facts and renders the

order bad.

32. In the above view the impugned order dated

23 October 2017 is quashed and set aside.

33. Writ Petition disposed of in the above terms.

 [RIYAZ I. CHAGLA  J.]                             [M.S. SANKLECHA, J.]