M/S Tata Teleservices (Maharashtra) Limited v. The Deputy Commissioner Of Income

Sharayu Khot & S.R. Joshi. IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY 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 theRespondents. ---------- 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 2.This Petition under Article 226 of the Constitution ofIndia 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 dated4 May 2017 of nil deduction of tax for the period 4May 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 setaside; andRespondent No. 1, canceling the certificate dated4 May 2017 of nil deduction of tax for the period 4May 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 setaside; and (b) The Commissioner of Income Tax (Appeals) (“CIT[A]”)- Respondent No. 3 be directed todecide the Petitioner's pending Appeal for theassessment year 2012-13 in respect of a demandof Rs. 6.68 Crores. The hearing of which had takendecide the Petitioner's pending Appeal for theassessment year 2012-13 in respect of a demandof Rs. 6.68 Crores. The hearing of which had taken 902-WP-2701-17.doc on 15 February 2017, when detailed writtensubmissions were filed, within a time frame; 3.So far as relief (b) above is concerned, Mr. SureshKumar, learned Counsel for the Revenue, on instructions ofCIT(A)-Respondent No. 3 states that the pending Appeal inrespect of assessment year 2012-13 would be disposed of on orbefore 1 March 2018. Statement accepted. In view of the abovestatement, this relief is not being pressed by the Petitioner. 4.The relevant facts leading to the filing of thisPetition are that the Petitioner is engaged in providingtelecommunication 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 addedservices. Petitioner has huge accumulated losses. Its return ofincome for the Assessment Years 2014-15 to 2016-17, are lossreturns aggregating to Rs. 1330.00 Crores and in which anaggregate claim to a refund of Rs. 121.00 Crores has been made. 902-WP-2701-17.doc 5.In the course of its business, Petitioner receivesvarious payments for services rendered which are subject to taxdeduction at source under Chapter XVII of the Act. However,according to the Petitioner it would not be liable to paycorporate tax in the immediate future in view of the likely lossfor the assessment year 2018-19 and the huge carried forwardlosses. 6.Therefore, on 27 February 2017, Petitioners appliedto the Respondent No. 1 seeking an issuance of nil/lowerwithholding taxes under Section 197 of the Act. This was toenable the Petitioner to receive its payments from variousparties which are subject to tax deduction at source, withoutdeduction at source. In support of the above, the applicationpointed out that their accumulated losses carried forward as on1 April 2014 is over Rs. 4000.00 Crores – both as per MATprovisions and under the normal provisions. Further, thePetitioner had filed loss returns for Assessment Years 2015-16and 2016-17. It was also submitted that the estimated loss for 6.Therefore, on 27 February 2017, Petitioners appliedto the Respondent No. 1 seeking an issuance of nil/lowerwithholding taxes under Section 197 of the Act. This was toenable the Petitioner to receive its payments from variousparties which are subject to tax deduction at source, withoutdeduction at source. In support of the above, the applicationpointed out that their accumulated losses carried forward as on1 April 2014 is over Rs. 4000.00 Crores – both as per MATprovisions and under the normal provisions. Further, thePetitioner had filed loss returns for Assessment Years 2015-16and 2016-17. It was also submitted that the estimated loss for 902-WP-2701-17.docAssessment Year 2017-18 is approx. Rs. 1000.00 Crores. Thus,there will be no assessable profit under the Act for theassessment year in 2018-19 in view of huge carry forwardlosses. Besides, the application points out that there was anamount of Rs. 101.53 Crores up to 10 February 2017 receivableas refund from the Revenue. It was also pointed out that thefinancial health of the Petitioner is such that it has taken longterm debts, at huge interest payments. Therefore, the amountswhich are blocked on account of tax deduction at sourceaggravates its financial hardship including cash crunch.Lastly, it was pointed out that the amount of Rs. 6.68 Croreswhich is the outstanding tax demand for the assessment year2012-13 was on account of an issue which already standsconcluded in its favour by an order of the Tribunal dated 27May 2016, on identical issues for assessment years 2009-10 to2012-13 (upto July 2011). This demand of Rs. 6.68 Crores isthus, likely to be set aside by the CIT(A) as he would be boundby the order of the Tribunal. It was pointed out so far as thedemand for the balance amount of Rs. 28.00 Lakhs is concerned 902-WP-2701-17.doc it is on account of wrong/unsustainable demand arising from anincorrect processing of TDS statement on application of TRACESSystem. 7.Thereafter, Respondent No. 1 called for variousdetails from the Petitioner. On the same being submitted, theywere examined by Respondent No. 1. Thereafter, on 4 May2017, Respondent No. 1 issued a certificate under Section 197of the Act, directing the deduction of tax at nil rate by thevarious persons listed in the certificate while making paymentsto the Petitioner under Sections 194, 194A, 194C, 194I, 194Hand 194J of the Act. This would result in a relief of Rs. 238.90Crores as the same would not be deducted as tax at source.Thus, obviating the need for filing of refund claim with theRevenue for the assessment year 2018-19. 8.Thereafter, on 16 August 2017, Respondent No. 1informed the Petitioner that he is reviewing cases wherecertificate under Section 197 of the Act has been issued in cases 902-WP-2701-17.docwhere huge outstanding tax demand is pending. Consequently,the above communication requested the Petitioner to furnish thedetails of outstanding tax demands. The Petitioner responded tothe same by its letter dated 20 August 2017, giving the details ofthe tax outstanding. It reiterated its submissions made in theapplication made on 27 February 2017. Besides pointing outthat a further refund of Rs. 34.37 Crores was due to them fromthe Revenue for tax deducted at source in the subjectassessment year, for the period prior to the issue of certificate. 9.Thereafter, on 30 August 2017, Respondent No. 1issued a Show Cause Notice to the Petitioner, calling upon it toshow cause as to why the certificate dated 4 May 2017 shouldnot be reviewed/ canceled. This was on account of outstandingdemand of taxes payable. Besides, relying upon the extract ofCentral Action Plan 2017-18 issued by CBDT which directs theOfficers to follow the instructions/certificate issued by the CBDTand also mentions of Certificates being issued where largedemands are pending. The Petitioner responded by letter dated 902-WP-2701-17.doc 9.Thereafter, on 30 August 2017, Respondent No. 1issued a Show Cause Notice to the Petitioner, calling upon it toshow cause as to why the certificate dated 4 May 2017 shouldnot be reviewed/ canceled. This was on account of outstandingdemand of taxes payable. Besides, relying upon the extract ofCentral Action Plan 2017-18 issued by CBDT which directs theOfficers to follow the instructions/certificate issued by the CBDTand also mentions of Certificates being issued where largedemands are pending. The Petitioner responded by letter dated 902-WP-2701-17.doc 7 September 2017 to the notice dated 30 August 2017 whilereiterating its reply dated 20 August 2017 and called forwithdrawal of the notice. 10.Thereafter, on 7 September 2017, a personalhearing was granted and on 23 October 2017, the impugnedorder was issued. By the impugned order, the certificate dated4 May 2017 issued under Section 197 of the Act, was canceled.The impugned order holds that while issuing the certificatedated 4 May 2017 the existing demand of Rs. 6.90 Crores wasas recorded in the impugned order “Apparently, the demand wasnot considered on the basis that this demand was under a coveredissue”. This i.e “covered issue” in terms of Rule 28AA(2) of theIncome Tax Rules 1961 (Rules), cannot be a subject ofconsideration while granting the certificate. Further, it holdsthat in view of the current financial status, the future liability, ifany, which may arise on assessment or otherwise against thecompany, would be impossible to recover. 902-WP-2701-17.doc 11.Before considering the rival submissions urgedon behalf of the respective parties, it would be useful toreproduce 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 orsum payable to any person, income-tax is requiredto be deducted at the time of credit or, as the casemay be, at the time of payment at the rates in forceunder the provisions of sections 192, 193, 194,194A, 194C, 194D, 194G, 194H, 194-I, 194J,194K, 194LA and 195, the Assessing Officer issatisfied] that the total income of the recipientjustifies the deduction of income-tax at any lowerrates or no deduction of income-tax, as the case maybe, the Assessing Officer shall, on an applicationmade by the assessee in this behalf, give to him suchcertificate as may be appropriate.where, in the case of any income of any person orsum payable to any person, income-tax is requiredto be deducted at the time of credit or, as the casemay be, at the time of payment at the rates in forceunder the provisions of sections 192, 193, 194,194A, 194C, 194D, 194G, 194H, 194-I, 194J,194K, 194LA and 195, the Assessing Officer issatisfied] that the total income of the recipientjustifies the deduction of income-tax at any lowerrates or no deduction of income-tax, as the case maybe, the Assessing Officer shall, on an applicationmade by the assessee in this behalf, give to him suchcertificate as may be appropriate. (2) Where any such certificate is given, the personresponsible for paying the income shall, until suchcertificate is cancelled by the Assessing Officer,deduct income-tax at the rates specified in suchcertificate or deduct no tax, as the case may be.responsible for paying the income shall, until suchcertificate is cancelled by the Assessing Officer,deduct income-tax at the rates specified in suchcertificate or deduct no tax, as the case may be. (2A) The Board may, having regard to the (2) Where any such certificate is given, the personresponsible for paying the income shall, until suchcertificate is cancelled by the Assessing Officer,deduct income-tax at the rates specified in suchcertificate or deduct no tax, as the case may be.responsible for paying the income shall, until suchcertificate is cancelled by the Assessing Officer,deduct income-tax at the rates specified in suchcertificate or deduct no tax, as the case may be. (2A) The Board may, having regard to the convenience of assessees and the interests of revenue,by notification in the Official Gazette, make rulesspecifying the cases in which, and the circumstancesunder which, an application may be made for thegrant of a certificate under sub-section (1) and theconditions subject to which such certificate may begranted and providing for all other mattersconnected 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 madeby a person under sub-rule (1) of rule 28 is satisfiedthat existing and estimated tax liability of a personjustifies the deduction of tax at lower rate or nodeduction of tax, as the case may be, the AssessingOfficer shall issue a certificate in accordance withthe provisions of sub-section (1) of section 197 fordeduction of tax at such lower rate or no deductionof tax.by a person under sub-rule (1) of rule 28 is satisfiedthat existing and estimated tax liability of a personjustifies the deduction of tax at lower rate or nodeduction of tax, as the case may be, the AssessingOfficer shall issue a certificate in accordance withthe provisions of sub-section (1) of section 197 fordeduction of tax at such lower rate or no deductionof tax. (2) The existing and estimated liability referred to insub-rule (1) shall be determined by the AssessingOfficer after taking into consideration thefollowing:-sub-rule (1) shall be determined by the AssessingOfficer after taking into consideration thefollowing:- (I)tax payable on estimated income of the previousyear relevant to the assessment year;year relevant to the assessment year; (ii) tax payable on the assessed or returned income, asthe case may be, of the last three previous years;the case may be, of the last three previous years; (iii) existing liability under the Income-tax Act, 1961and Wealth-tax Act, 1957;and Wealth-tax Act, 1957; (iv) advance tax payment for the assessment yearrelevant to the previous year till the date of makingapplication under sub-rule (1) of rule 28;relevant to the previous year till the date of makingapplication under sub-rule (1) of rule 28; (v) tax deducted at source for the assessment yearrelevant to the previous year till the date of makingapplication under sub-rule (1) of rule 28;relevant to the previous year till the date of makingapplication under sub-rule (1) of rule 28; and (vi) tax collected at source for the assessment yearrelevant to the previous year till the date of makingapplication under sub-rule (1) of rule 28.relevant to the previous year till the date of makingapplication under sub-rule (1) of rule 28. (3) The certificate shall be valid for such period of theprevious year as may be specified in the certificate,unless it is cancelled by the Assessing Officer at anytime before the expiry of the specified period.previous year as may be specified in the certificate,unless it is cancelled by the Assessing Officer at anytime before the expiry of the specified period. (4) The certificate for no deduction of tax shall be validonly with regard to the person responsible fordeducting the tax and named therein.only with regard to the person responsible fordeducting the tax and named therein. (3) The certificate shall be valid for such period of theprevious year as may be specified in the certificate,unless it is cancelled by the Assessing Officer at anytime before the expiry of the specified period.previous year as may be specified in the certificate,unless it is cancelled by the Assessing Officer at anytime before the expiry of the specified period. (4) The certificate for no deduction of tax shall be validonly with regard to the person responsible fordeducting the tax and named therein.only with regard to the person responsible fordeducting the tax and named therein. (5) The certificate referred to in sub-rule (4) shall beissued direct to the person responsible for deductingthe tax under advice to the person who made anissued direct to the person responsible for deductingthe tax under advice to the person who made an 902-WP-2701-17.doc application for issue of such certificate.” 12.Mr. Tarun Gulati, learned Counsel, in supportof the Petition, submits as under:- (a) The impugned order dated 23 October 2017cancelling the certificate dated 4 May 2017, iswithout jurisdiction as Rule 28AA(3) of the Rulescould not be invoked in the present facts; cancelling the certificate dated 4 May 2017, iswithout jurisdiction as Rule 28AA(3) of the Rulescould not be invoked in the present facts; (b) The impugned order is arbitrary as it cancels avalid certificate under Section 197 of the Act,ignoring the fact that the existing liability of thePetitioner would continue to be nil onconsideration of the factors as provided underRule 28AA(2) of the Rules;valid certificate under Section 197 of the Act,ignoring the fact that the existing liability of thePetitioner would continue to be nil onconsideration of the factors as provided underRule 28AA(2) of the Rules; (c) The impugned order completely ignores the test ofproportionality. At the highest, according to theRevenue, the unpaid tax demand is Rs. 6.90proportionality. At the highest, according to theRevenue, the unpaid tax demand is Rs. 6.90 902-WP-2701-17.doc Crores. While undisputedly, Petitioner is entitledto refund of Rs. 7.30 Crores (being the depositmade), consequent to the order dated 27 May2016 passed by the Tribunal in respect ofAssessment Years 2009-10 to 2012-13. Theaforesaid amount continues to be retained by theRevenue and it could be easily adjusted againstthe demand of Rs. 6.90 Crores. In any event, therelatively meagre amount of Rs. 6.90 Crores of taxdemand as against a refund of over Rs. 121.00Crores would not justify denial of the benefit ofabout Rs. 238.00 Crores as available under Section197 of the Act. ; (d) Lastly, it is submitted that the amount of Rs. 6.68Crores is on account of an order for AssessmentYear 2012-13 which is pending before the CIT(A).This issue to the knowledge of all concerned isconcluded in favour of the Petitioner and keptCrores is on account of an order for AssessmentYear 2012-13 which is pending before the CIT(A).This issue to the knowledge of all concerned isconcluded in favour of the Petitioner and kept 902-WP-2701-17.doc pending deliberately. This, even after the hearingwas 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 23October 2017 and submits as under:- (d) Lastly, it is submitted that the amount of Rs. 6.68Crores is on account of an order for AssessmentYear 2012-13 which is pending before the CIT(A).This issue to the knowledge of all concerned isconcluded in favour of the Petitioner and keptCrores is on account of an order for AssessmentYear 2012-13 which is pending before the CIT(A).This issue to the knowledge of all concerned isconcluded in favour of the Petitioner and kept 902-WP-2701-17.doc pending deliberately. This, even after the hearingwas 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 23October 2017 and submits as under:- (a) An equally efficacious alternative remedy underSection 264 of the Act as an by way of a Revisionto be Commissioner of Income Tax (CIT), againstthe impugned order dated 23 October 2017,cancelling the certificate dated 4 May 2017 isavailable to the Petitioner. Therefore, this Courtshould not entertain the Petition to exercise itsextraordinary jurisdiction; Section 264 of the Act as an by way of a Revisionto be Commissioner of Income Tax (CIT), againstthe impugned order dated 23 October 2017,cancelling the certificate dated 4 May 2017 isavailable to the Petitioner. Therefore, this Courtshould not entertain the Petition to exercise itsextraordinary jurisdiction; (b) Cancellation of the certificate dated 4 May 2017became necessary in view of the fact that thefinancial condition of the Petitioner-company hasbecame necessary in view of the fact that thefinancial condition of the Petitioner-company has 902-WP-2701-17.doc further deteriorated. Thus, putting in jeopardy therecovery of any liability, which may arise against the Petitioner-company on account of futureassessment or otherwise. Therefore, necessitatingthe cancellation of the nil withholding taxcertificate dated 4 May 2017; (c) The existing demand of Rs. 6.90 Crores whichcontinued to be pending. This cannot be ignoredmerely because, according to the Petitioner, thedemand is unsustainable and would be set aside inappeal due to the issue being considered in itsfavour;continued to be pending. This cannot be ignoredmerely because, according to the Petitioner, thedemand is unsustainable and would be set aside inappeal due to the issue being considered in itsfavour; (d) No prejudice would be caused to the Petitioner incase the nil withholding certificate dated 4 May2017 is withdrawn. This, for the reason that theamounts so received by the Revenue on account ofwithholding tax would be refunded if no taxcase the nil withholding certificate dated 4 May2017 is withdrawn. This, for the reason that theamounts so received by the Revenue on account ofwithholding tax would be refunded if no tax 902-WP-2701-17.doc demand is payable in future by the Petitioner. 14.Before dealing with the rival submissions onmerits, we shall first deal with the preliminary objection of theRespondent to entertain this Petition. The objection is that aneffective efficacious alternative remedy to challenge theimpugned order under Section 264 of the Act, is available.Therefore, this Petition should not be entertained. It issubmitted that a Revision under Section 264 of the Act would lieto the Commissioner of Income Tax (CIT). This is so for thereason that under Section 264 of the Act, Revision lies from anyorder passed by any authority – subordinate to CIT other thanan order which is appealable and from which an appeal hasbeen filed or an order to which Section 263 of the Act isapplicable. In fact, this Court in Larsen & Toubro Ltd. &Another v/s. CIT 326 ITR 514 has held that an order passedunder Section 197 of the Act, is amenable to Revision underSection 264 of the Act. 902-WP-2701-17.doc 902-WP-2701-17.doc 15.However, as correctly pointed out by thePetitioner in this case, the impugned order dated 23 October2017 as recorded therein, has been issued/ decided with theconcurrence of the CIT (TDS). This was not so in the case ofLarsen & Toubro (supra). It is also not disputed before us thatin this case, the Revision would be before the same authoritywho gave the concurrence or to an authority of equalrank/designation. 16.In the above view, the decision of this Court inLarsen & Toubro Ltd., (supra) would not apply to the presentfacts. As in this case, the Revision i.e. alternative remedy wouldin facts be from “Caesar to Caesar.” Therefore, in such a case analternative remedy would be a futile/empty formality and notan efficacious remedy. (Please see Ram & Shyam Co. v/s. Stateof Haryana1985 (3) SCC 267). 17.In the above circumstances and in the presentfacts, there is no merit in preliminary objection taken by the 902-WP-2701-17.doc Revenue. Therefore, we proceed to examine the issue arisingherein and decide the same. 18.Section 197 of the Act permits/ allows anassessee to make an application to the Assessing Officer, that inits case, the deduction of tax under the Sections specifiedtherein should be at lower rates or at nil rates instead of thenormal rate prescribed under the Act. The Assessing Officer, ifsatisfied, with the application made, bearing in mind theprovisions of the Act and the Rules, is obliged to grant thecertificate. Therefore, there is a right given to an assessee toapply for nil/ lower rate of withholding tax under Section 197 ofthe Act and an obligation upon the Assessing Officer to grant thesame, if the conditions specified therein are satisfied. Thus, it isclear that the order passed under Section 197 of the Act is anorder which is a quasi judicial order and must be supported byreasons. The Assessing Officer is also in terms of Section 197(2)of the Act read with Rule 28AA (3) of the Rules empowered tocancel a certificate already granted under Section 197(1) of the 902-WP-2701-17.doc Act. This power of cancellation which in effect withdraws theearlier certificate to the prejudice of the Assessee would berequired to stand the tests applicable to a rejection of anapplication made under Section 197 of the Act. It is undisputedthat the cancellation of the earlier certificate will be effectiveonly from the date, the order of cancellation is passed. 19.The Petitioner's primary grievance is that theimpugned order dated 23 October 2017, canceling thecertificate dated 4 May 2017 is completely without jurisdiction.It is not open to the Assessing Officer to even initiate reviewproceedings in the absence of any change in circumstanceswhich existed while granting certificate dated 4 May 2017. It isnot disputed that Section 197(2) of the Act empowers theAssessing Officer to cancel the certificate issued under Section197(1) of the Act with regard to lower and/or nil withholdingtax issued under Section 197(1) of the Act. However, it issubmitted that there is no change in the financial and othercircumstances as existing when the certificate dated 4 May 2017 902-WP-2701-17.doc was issued and when the impugned order canceling the abovecertificate was passed. Therefore, the impugned order is withoutjurisdiction. 902-WP-2701-17.doc was issued and when the impugned order canceling the abovecertificate was passed. Therefore, the impugned order is withoutjurisdiction. 20.In the present facts, we note that impugnedorder dated 23 October 2017 cancels the certificate dated 4 May2017 on the ground that it was issued by mistake i.e. not havingconsidered Rule 28AA (2) of the Rules in the context of thepending demands. The Revenue has filed an affidavit in replydated 11 January 2018 of Respondent No. 1- Mr. M. AshokBabu, Joint Commissioner of Income Tax, opposing theadmission and also relies upon it at the final hearing. We findthat the order preceding the grant of the certificate has not beenannexed to the affidavit filed by the Revenue. This Court inLarsen & Toubro Ltd., (supra) has held that an issue ofcertificate must necessarily be preceded by an order underSection 197(1) of the Act. In fact the issue of certificate is theresult of an order holding that the applicant is entitled to acertificate under Section 197 of the Act. It must of necessity beso, as in the absence of the reasons being recorded, the 20/33 902-WP-2701-17.doc Certificate under Section 197 of the Act, would not be open tochallenge by the Revenue, as it would be impossible to state thatit is erroneous and prejudicial to the Revenue. The Revenuewould be helpless. Therefore, the recording of reasons isnecessary as only then it could be subject to Revision by theCommissioner of Income Tax under Section 263 of the Act. 21.Therefore, it appeared to us while correctingthe order which was dictated in Court on 16 January 2017 thatthe order prior to issuing the certificate dated 4 May 2017 oughtto have been communicated to the Petitioner along with thenotice, seeking to review the earlier certificate on account ofmistake. In the above circumstances we kept the petition onboard for directions on 23 January 2018 as this issue was notaddressed by the Revenue at the hearing. In fact the petitionerhad contended before us that the Respondent No. 1 had nojurisdiction to cancel the certificate dated 4 May 2017 in theabsence of any change in the circumstances. However, wewanted to hear and consider the Revenue’s response on theabove aspect of jurisdiction. Therefore, on 23 January 2018 we 902-WP-2701-17.docexpressed our prima faice view on the issue to the parties,particularly that the absence of the order leading to the grant ofthe certificate being given to the Petitioner, leads to an adverseinference against the Revenue i.e. all issues including Rule 28AA(2) of the Rules were considered in the order passed leading tothe issuing of Certificated dated 4 May 2017. We specificallyinvited the attention of the Revenue to the specific observationfound in para 7 of the decision of this Court in Larsen & ToubroLtd. (supra) and also to the decision of the Apex Court inLiberty Oil Mills Vs. U.O.I. 1984(3) SCC 465which whileconstruing the words “without assigning any reasons” held thatit does not do away with the requirement of reasons existing forthe decision, it only does away with communicating the same. Infact in this case the Section does not do away with requirementof issuing a reasoned order while issuing a Certificate underSection 197 of the Act. 22. At the request of the Revenue the petition wasposted for directions on 25 January 2018 to enable the 22. At the request of the Revenue the petition wasposted for directions on 25 January 2018 to enable the 902-WP-2701-17.docRespondent to respond on the above issue. On 25 January 2018,the Revenue did not make any submission to counter our primafacie view including our drawing an adverse inference onaccount of non furnishing of the order/reasons leading to theissue of the certificate dated 4 May 2017. Therefore, weconclude that there would have been reasons recorded in thefile before issuing a certificate dated 4 May 2017 and this oughtto have been furnished to the party before resting its case in theimpugned order on the ground that the aspect of Rule 28 AA ofthe Rules was not considered at the time of granting theCertificate. Further if the Revenue seeks to cancel the same onthe ground that a particular aspect has not been considered thenbefore taking a decision to cancel the certificate already granted,it must satisfy the requirement of Natural Justice by giving acopy of the same to the parties and hear them on it beforetaking decision to cancel the certificate. This is particularly so asin the present facts the show cause notices dated 16 August2017 and 30 August 2017 seeking to review the Certificatedated 4 May 2017 did not indicate that the review is being done 902-WP-2701-17.docas the Certificate dated 4 May 2017 was granted withoutconsidering the applicability of Rule 28 AA of the Rules in thecontext of the petitioner’s facts. Therefore, there was noopportunity/occasion for the petitioner to seek a copy of thereasons recorded while issuing a certificate dated 4 May 2017.Moreover, this becomes all the more important as we havefound on examination of facts that there is no change in facts asexisting on 4 May 2017 and as existing when the impugnedorder dated 23 October 2017 was passed. Thus, in the presentfacts, according to us, there is a flaw in the decision makingprocess which vitiates the impugned order dated 23 October2017. 23.Apart from the above, we shall examine theissue of cancellation of certificate dated 4 May 2017 by theimpugned order dated 23 October 2017 and examine whetherthe same can be sustained on grounds specified therein, de horsthe issue of breach of natural justice. However, beforeexamining the other issues we must make it clear that we are 902-WP-2701-17.doc mindful of the fact that the Revenue Officers are best equippedto protect the interest of the Revenue. Therefore, at the time ofdisposing of an application for grant of nil or lower rate ofwithholding tax certificate, they must ensure that Revenue’sinterest are protected. However, this protection of Revenue’sinterest has as to be examined/weighed against the assessee’sright to nil or lower rate of withholding tax as provided byParliament in Section 197 of the Act. Therefore, the grant orrefusal to grant the certificate under Section 197 of the Act hasto be determined by the parameters laid down therein and Rule28 AA of the Rules. It cannot go beyond the said provisions todecide an application. This alone would ensure uniformity oftreatment of all applicants seeking the benefit of Section 197 ofthe Act. 24. Mr. Suresh Kumar, learned Counsel for theRevenue, states that the impugned order need not be examinedat all as the cancellation of a certificate in the present casewould not cause any prejudice to the Petitioner. In case, more 24. Mr. Suresh Kumar, learned Counsel for theRevenue, states that the impugned order need not be examinedat all as the cancellation of a certificate in the present casewould not cause any prejudice to the Petitioner. In case, more 902-WP-2701-17.doctaxes are paid then it is liable to, by virtue of tax deducted atsource, then consequent to final assessment the Petitioner wouldbe entitled to refund of excess tax paid. In support he placesreliance upon the decision of the Madras High Court in AnsaldoEnergia SpA. Vs. ITO2003(133) Taxmann 795. The abovesubmission completely ignores the provisions of Section 197 ofthe Act which provides a facility to an assessee who may not beliable to tax, to have the benefit of not having tax deducted atsource on his behalf being made completely nugatory. This is so,as in all cases an assessee would be entitled to refund afterassessment and no occasion to apply Section 197 of the Act canever arise. Further the decision of the Madras High Court inAnsaldo Energia SpA. (supra) has no application to the presentfacts. In the case before Madras High Court, the contention ofthe Petitioner was that no tax liability would arise as it stoodexempted by virtue of Section 49BBB of the Act. It was in theabove facts that the Madras High Court upheld the cancellationof a certificate by holding that whether or not the assessee isentitled to the benefit of Section 49BBB of the Act, is a matter of 902-WP-2701-17.doc determination during the assessment proceedings. Therefore, atthis stage, before the assessment is completed, it is not open tothe Assessee therein to contend that it is not liable to tax till itsclaim to exemption is determined during assessmentproceedings. In the present facts, the carry forward loss of thePetitioner are so huge that even if the Petitioner makes anyprofits in the subject assessment year, there would be no taxableincome for the subject Assessment Year. Thus, the aforesaiddecision 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 2017cancels the certificate dated 4 May 2017 on the following twogrounds:- (a) the financial condition of the Petitioner is suchthat any future tax payable may not bethat any future tax payable may not be recoverable from the Petitioner; and (b) there is outstanding tax demand of Rs. 6.90 Crores payable by the Petitioner. 26.So far as ground (a) above viz: the earliercertificate is cancelled because of the current financial health/condition of the Petitioner is such that it would be difficult torecover any future liability raised against the Petitioner-Company. A mere averment is made to above effect withoutindicating any basis for the conclusion. 27.Mr. Suresh Kumar, learned Counsel for theRevenue places reliance upon the affidavit in reply ofRespondent No. 1 Mr. N. Ashok Babu, Joint Commissioner ofIncome Tax, dated 11 January 2018 – wherein reference ismade to a meeting with the group CFO that the financial healthof the Company is very weak and also newspaper reports. It isnow well settled that the impugned order would stand or fall bythe reasons mentioned therein and the same cannot beimproved by an affidavit. In any case, in the present case, the 27.Mr. Suresh Kumar, learned Counsel for theRevenue places reliance upon the affidavit in reply ofRespondent No. 1 Mr. N. Ashok Babu, Joint Commissioner ofIncome Tax, dated 11 January 2018 – wherein reference ismade to a meeting with the group CFO that the financial healthof the Company is very weak and also newspaper reports. It isnow well settled that the impugned order would stand or fall bythe reasons mentioned therein and the same cannot beimproved by an affidavit. In any case, in the present case, the 902-WP-2701-17.docaffidavit relied upon newspaper items and discussion with thegroup CFO that the financial health of the company is veryweak. This is without giving any particulars. In any case thisalso supports the stand of the petitioner that its financialcondition was very weak both when it made the application on27 February 2017 for a certificate under Section 197 of the Act –wherein the Petitioner points out that it had carried forward lossof over Rs. 4900.00 Crores as per the return of income filed forthe year ending 31 March 2016 and now at the time when theimpugned order was passed. The impugned order dated 23October 2017 does not indicate, even remotely, what the profitsare likely to be in the near future, which the revenue may not beable to recover as it would be more than the carry forwardlosses. In fact the affidavit if anything supports the case of thepetitioner that they have huge carried forward losses and thereis no likelihood of any tax becoming payable in the subjectassessment year. 28. Moreover, it was urged by the petitioner that 902-WP-2701-17.docthe aforesaid further huge financial loss was one of theconsiderations which weighed with the Respondent No. 1 whilegranting certificate dated 4 May 2017 as even if the Companywere to turn the corner, the accumulated losses were so hugethat it was unlikely that any taxable income would be a subjectmatter of tax for the subject Assessment year. In fact, this Courthad occasion in Mckinsey and Company Inc. Vs. U.O.I. 324ITR 367 to consider the exercise of powers under Section197(2) of the Act by the Assessing Officer i.e. to cancel thecertificate granted earlier. This Court had observed that theAssessing Officer can exercise power under Section 197(2) ofthe Act for canceling the certificate which has been earlierissued/ granted. However, such a cancellation/ departure fromthe earlier view has to be made on valid and cogent reasons, i.e.when there is material on record to justify the departure. Theimpugned order does not indicate any such material, norRevenue is able to show us any such change in circumstanceswhich would warrant canceling certificate dated 4 May 2017.Therefore, the basis/ ground (a) of the impugned order is not 902-WP-2701-17.doc sustainable in the facts and renders the order bad. 29.So far as ground (b) above viz. outstanding taxdemand of Rs. 6.90 Crores is payable to the revenue by thepetitioner. Therefore, the certificate dated 4 May 2017 cannotbe sustained, resulting in its cancellation. We note that neitherSection 197 of the Act nor Rule 28AA of the Rules provide thatno certificate of nil/lower rate of withholding tax can begranted if any demand, howsoever minuscule, is outstanding. Infact Rule 28 AA(2) of the Rules requires the authority todetermine the existing/estimated liability taking intoconsideration various aspects including the estimated taxpayable for the subject assessment year and also the existingliability. The existing and estimated liability would also requiretaking into account the demands likely to be upheld by theappellate authorities. 30.In a case like this one where the petitionerstates that the issue is concluded by a decision dated 27 May 30.In a case like this one where the petitionerstates that the issue is concluded by a decision dated 27 May 902-WP-2701-17.doc2016 of the Tribunal in its own case, then the assessing officerhas to consider the same and give some modicum of reason whyit is prima facie not covered by the decision of the Tribunal. Thisis particularly so in the back ground of the petitioner’s Appealwith respect to the demand of Rs. 6.68 Crores being heard bythe CIT(A) as far back as in February 2017 and no order beingpassed thereon till date. Further, in the present case theimpugned order does not deal with the petitioner’s contentionthat the demand of Rs. 28.00 Lakhs is on account of mistake inapplication of TRACE system nor does it deal with thePetitioner's contention that the entire demand of Rs. 6.90Crorescan be adjusted against the refundable deposit of Rs. 7.30Crores, consequent to the order dated 27 May 2016 of theTribunal in its favour. 31.Therefore, the impugned order dated 23October 2017 seeking to cancel the certificate dated 5 May 2017is a non speaking order as it does not consider the petitioner’ssubmissions. Therefore, the basis/ ground (b) of the impugned 902-WP-2701-17.doc order is not sustainable in the above facts and renders theorder bad. 32.In the above view the impugned order dated23 October 2017 is quashed and set aside. 33.Writ Petition disposed of in the above terms. [RIYAZ I. CHAGLA J.] [M.S. SANKLECHA, J.]