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2022 (7) TMI 173 - AT - Income TaxLevy of penalty u/s 271C - reasonable cause within the meaning of section 273B for non deduction of TDS on EDC charges towards Town and Country Planning, Government of Haryana - As submitted by assessee the payments made to HUDA were only for the purpose of facilitating the payments due on account of EDC charges towards Town and Country Planning, Government of Haryana and when the payments are made to the Government or local authority, no tax is required to be deducted - HELD THAT - As receipts on account of EDC are being deposited in the Consolidated Fund of the State, accordingly directions were issued to colonizer like present assessee, to not deduct TDS. The Co-ordinate Benches in M/s. Perfect Constech P. Ltd. case 2020 (12) TMI 1158 - ITAT DELHI and RPS Infrastructure Ltd. 2019 (9) TMI 39 - ITAT DELHI have held that assessee was not required to deduct tax at source at the time of payment of EDC. Thus levy of penalty u/s 271C of the Act cannot be sustained. The grounds raised in the appeals are allowed.
Issues Involved:
1. Applicability of TDS on External Development Charges (EDC) paid to HUDA. 2. Legitimacy of the penalty imposed under Section 271C of the Income Tax Act, 1961. 3. Jurisdiction and authority of the Additional Commissioner of Income Tax to impose the penalty. 4. Interpretation of various circulars and clarifications regarding TDS on EDC. Issue-wise Detailed Analysis: 1. Applicability of TDS on External Development Charges (EDC) paid to HUDA: The primary issue revolves around whether TDS was applicable on the payments made by the assessee to HUDA for EDC. The assessee argued that these payments were made to the Government or a local authority, which exempts them from TDS under Section 194C. The assessee relied on a clarification from the Town and Country Planning, Government of Haryana, which stated that no TDS was to be deducted on payments made to the Government for EDC. The Revenue, however, contended that HUDA is neither a government department nor a local authority, and thus, payments made to it should be subject to TDS. 2. Legitimacy of the penalty imposed under Section 271C of the Income Tax Act, 1961: The assessee was penalized under Section 271C for non-deduction of TDS on EDC payments. The assessee argued that there was no obligation to deduct TDS as the payments were made to the Government through HUDA, which was merely an executing agency. The Tribunal noted that similar cases had been adjudicated by the ITAT Delhi Bench, where it was held that no TDS was required on EDC payments made to HUDA. The Tribunal also considered the clarification from the Town and Country Planning, Government of Haryana, which directed colonizers not to deduct TDS on such payments. Consequently, the Tribunal found that the penalty under Section 271C was not justified. 3. Jurisdiction and authority of the Additional Commissioner of Income Tax to impose the penalty: The assessee challenged the authority of the Additional Commissioner of Income Tax to impose the penalty, arguing that only a Joint Commissioner of Income Tax could do so under Section 271C. The Tribunal did not delve deeply into this issue, as the primary contention regarding the applicability of TDS on EDC payments was resolved in favor of the assessee. 4. Interpretation of various circulars and clarifications regarding TDS on EDC: The Tribunal examined Circular No. 681 of CBDT and other related circulars to determine the applicability of TDS on EDC payments. The Tribunal noted that the CBDT had clarified that TDS was applicable on payments made to HUDA, as it is a taxable entity under the Income Tax Act. However, the Tribunal gave weight to the clarification from the Town and Country Planning, Government of Haryana, which explicitly stated that no TDS was to be deducted on EDC payments. The Tribunal also relied on previous judgments from the ITAT Delhi Bench, which supported the assessee's position that no TDS was required on EDC payments to HUDA. Conclusion: The Tribunal concluded that the assessee was not required to deduct TDS on EDC payments made to HUDA, as these payments were made to the Government through HUDA acting as an executing agency. The Tribunal found that the penalty under Section 271C was not sustainable and directed its deletion. The orders of the lower authorities were set aside, and the appeals were allowed in favor of the assessee.
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