Delhi High Court Sets Aside TDS Deduction Order for E-Commerce Firm, Citing ‘Mechanical’ Issuance and Lack of Reasoning

In a significant ruling on November 7, 2023, the Delhi High Court has quashed an order by the Deputy Commissioner of Income Tax concerning the rate of Tax Deducted at Source (TDS) applicable to Shreyash Retail Private Ltd., an e-commerce retail company. The court’s decision pointed out a crucial lapse in the administrative process, emphasizing that the order was “mechanically” issued without due application of mind.

The bench, led by Chief Justice Satish Chandra Sharma and Justice Tushar Rao Gedela, criticized the respondent, Deputy Commissioner of Income Tax TDS Circle 77(1), for issuing a certificate allowing a TDS deduction at 0.5% instead of the 0.01% sought by the petitioner. The court’s observation was stark: “We find that the reasons furnished by the Respondent No. 1 qua the Application i.e., as to why the Petitioners’ request that TDS should not be deducted at a rate of 0.01% (zero point zero one per cent), hinges on broad generalizations…and accordingly has been issued mechanically reflecting non-application of mind.”

The ruling scrutinized the non-speaking nature of the impugned order and asserted that a lack of proper reasoning does not stand up to judicial scrutiny, a principle supported by precedent from the apex court.

The court’s intervention has set a precedent for the Income Tax Department to adhere to procedural rigour and provide adequate reasoning in its orders, especially when deviating from requests made by taxpayers.

The order has been remanded back to the respondent for a fresh, expedited determination in accordance with the law. This decision underscores the judiciary’s role in ensuring that statutory bodies do not overstep their bounds and maintain transparency and fairness in their administrative actions.

Date of Decision: 07.11.2023

SHREYASH RETAIL PRIVATE LTD VS DEPUTY COMMISSIONER OF INCOME TAX  TDS CIRCLE