2022 (5) TMI 1344 - AT - Income Tax

Levied penalty u/s 271C - short deduction/non deduction of tax at source alleging default committed by the assessee u/s 194C on payment of External Development Charges (EDC) to Haryana Urban Development Authority (HUDA) - assessee contends that the payment to HUDA is, in effect, payment to State Government and therefore such payment is exempt from obligations to deduct TDS in view of Section 196 - HELD THAT - As identical issue has been examined by the Co-ordinate Bench in the case of Perfect Constech Pvt. Ltd. vs. Additional Commissioner of Income Tax 2020 (12) TMI 1158 - ITAT DELHI wherein found that the provisions of Section 194C are not applicable on payments to agencies like HUDA on behalf of the State Government. The imposition of penalty under Section 271C was consequently found to be unsustainable in the absence of default of Section 194C. The facts and issue being identical, in the light of the clarification noted above coupled with view taken by the Coordinate Bench in the identical facts situation, we see no reason to depart therefrom. Consequently, we find merit in the plea raised on behalf of the assessee for cancellation of penalty imposed under Section 271C of the Act. - Assessee appeal allowed.

Summary

Issues:
Penalty under section 271C for non-deduction of TDS on EDC payments to HUDA.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) concerning the penalty levied under Section 271C of the Income Tax Act, 1961 for Assessment Year 2014-15.
2. The grounds of appeal raised by the assessee challenged the penalty, arguing that TDS provisions were not applicable on payments made to HUDA for External Development Charges (EDC) under Section 194C of the Act.
3. The assessee claimed that no work or service was performed by HUDA under any contract, thus justifying the non-applicability of TDS provisions on EDC payments.
4. The Joint Commissioner of Income Tax levied a penalty under Section 271C on the assessee for not deducting TDS on EDC payments to HUDA, despite the assessee's submissions.
5. The assessee's appeal before the CIT(A) did not result in any relief, leading to the appeal before the Tribunal.
6. The Tribunal reviewed the case and found that the Directorate of Town and Country Planning, Haryana, clarified that TDS was not required on EDC payments to HUDA as it was an executing agency for the State Government.
7. Referring to a similar case, the Tribunal held that Section 194C was not applicable to payments to agencies like HUDA on behalf of the State Government, rendering the penalty under Section 271C unsustainable.
8. Based on the clarification and the precedent set by the Coordinate Bench, the Tribunal allowed the appeal, canceling the penalty imposed under Section 271C of the Act.

This detailed analysis of the judgment highlights the key arguments, decisions, and legal interpretations involved in the case regarding the penalty for non-deduction of TDS on EDC payments to HUDA.