Delhi High Court Set Asides Assessment Order under Income Tax Act

Delhi High Court Set Asides Assessment Order under Income Tax Act

The Court observed that non-examination of slow and ageing inventory was not considered by the relevant authority

The Delhi High Court has set aside an order passed u/S 197(1) of the Income Tax Act, 1961 since the provision for slow and ageing inventory was not examined by the Assessing Officer.

A Division Bench of the High Court of Delhi, comprising Justices Manmohan and Navin Chawla, dealt with the matter titled Cloudtail India Private Limited v The Commissioner of Income Tax (Tds) Delhi & Anr

The present petition was filed challenging the order passed by the Respondent – Authorities, u/S 197(1) of the Income Tax Act, 1961 for the Assessment Year 2021-22 whereby the Petitioner's Form 13 application for nil/lower withholding tax certificate was rejected.

The Petitioner – Company submitted that the Assessing Officer passed the assessment order accepting the returned income for the AY 2018-19 even after the Petitioner had provided an explanation with respect to the inventory provision in which it was emphasised that the treatment for slow and ageing inventory was revenue neutral. The Petitioner further submitted that the deduction of tax u/S 194O of the Act at the rate of 1 per cent would result in huge refund of taxes causing severe hardship to the Petitioner.

The Petitioner contended that the scope of scrutiny u/S 197 read with Rule 28AA of the IT Rules is limited and as the Assessing Officer had neither followed the procedure prescribed therein, nor given any reasons in the impugned order, the order was liable to be quashed.

The Respondent – Authorities submitted that reasons were provided for rejecting Petitioner's Form 13 application for nil/lower withholding tax certificate. It was further submitted by the Respondent that the provision for slow and ageing inventory was not examined by the Assessing Officer as there was limited scrutiny for the Assessment Year 2018-19. The Respondent, therefore, agreed to send the matter back to the Assessing Officer for re-examination as the provision creating slow and ageing inventory in relation to the relevant Assessment Year was not claimed as a deduction.

The Court noted the submission of the Respondent – Authorities to send the matter for re-examination and, therefore, set aside the order u/S 197(1) of the Act for the Assessment Year 2021-22 and remanded the matter for fresh consideration.