2022 (7) TMI 737 - AT - Income Tax

Penalty u/s 271C - Non deduction of tds u/s 194C - payment made to the Government and not to the HUDA - Assessee has paid EDC to HUDA for carrying out civil works, construction work and other related works - HELD THAT - As case was called for hearing on 12/7/22 none appeared for the appellant. The report of registry shows notice stand issued on 17/10/19. As the issue involved has been examined on various occasion by co-ordinates benches. No further notice is required. Arguments of Ld Sr. DR were heard who submitted that HUDA is a taxable entity and the notification relied by assessee of directions to not deduct tax at source is of later in time then the relevant assessment year. He also relied the Circular of CBDT whereby directions have been issued for deduction of TDS in payments made to authorities like HUDA. It was submitted that HUDA was neither Government department nor a local authority. Therefore any payment being made to it was to be subject to TDS u/s 194C of the Act. Giving thoughtful consideration to the matter on record it can be observed that the Co-ordinate Bench orders in M/s. Perfect Constech P. Ltd. case 2020 (12) TMI 1158 - ITAT DELHI and in RPS Infrastructure Ltd. 2019 (9) TMI 39 - ITAT DELHI which is also relied in M/s Santur Infrastructure Pvt Ltd 2019 (12) TMI 1106 - ITAT DELHI cast sufficient light on the controversy where in it is held that assessee builder or developers or colonizers are not required to deduct tax at source at the time of payment of EDC to the HUDA and otherwise also there is no justification of penalty. As in case of TDI Infrastructure Ltd 2022 (7) TMI 388 - ITAT DELHI issued by the Directorate of Town and Country Planning, Haryana which made it very obvious that 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. Once the fact of receipt of amounts received by HUDA being deposited in Consolidated Fund of State is established, there can be no second opinion that Assessee was rightly directed by DTCP, Haryana to not deduct the TDS. Even otherwise no intentional default is attributed to assessee and the default, if any, was on account of ambiguity which had arisen out of a direction contained in a statutory document, so no penalty can be justified u/s 271C of the Act, which is meant to address contumacious conduct - Levy of penalty u/s 271C of the Act cannot be sustained - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of TDS on External Development Charges (EDC) paid to HUDA.
2. Justification of penalty under Section 271C for non-deduction of TDS.
3. The relationship between the assessee and HUDA/DTCP.
4. Statutory obligations and contractual relationships concerning EDC payments.
5. Validity of penalty proceedings under Sections 201(1)/201(1A).
6. Clarifications and directions issued by CBDT and DTCP regarding TDS on EDC.

Detailed Analysis:

1. Applicability of TDS on External Development Charges (EDC) paid to HUDA:
The primary issue revolves around whether TDS is applicable on EDC payments made to HUDA. The Ld. AO contended that TDS was applicable based on Circular No. 681 of CBDT dated 08/03/1994, stating that HUDA is a taxable entity rendering services for external development work. However, the Tribunal noted that payments were made to HUDA through the Director General, Town and Country Planning (DTCP), a government department, and not directly under any contractual obligation between the assessee and HUDA. The Tribunal held that the payment of EDC was not for specific work done by HUDA for the assessee but was a statutory obligation imposed by the DTCP.

2. Justification of penalty under Section 271C for non-deduction of TDS:
The Tribunal examined whether the penalty under Section 271C was justified. It referred to previous judgments, including the case of CIT(TDS) vs M/s IKEA Trading Hong Kong Ltd and noted that there was no contumacious conduct by the assessee. The Tribunal observed that there was ambiguity regarding the deduction of TDS on EDC payments, and the assessee had a bona fide belief, supported by DTCP's clarification, that no TDS was required. Therefore, the penalty under Section 271C was deemed not sustainable.

3. The relationship between the assessee and HUDA/DTCP:
The Tribunal emphasized that there was no master-servant or contractual relationship between the assessee and HUDA. The payments were made as a statutory obligation to the DTCP, which then routed the funds to HUDA for external development work. This lack of a direct contractual relationship further supported the Tribunal's view that TDS was not applicable.

4. Statutory obligations and contractual relationships concerning EDC payments:
The Tribunal highlighted that EDC payments were statutory obligations imposed by the DTCP under the Haryana Development and Regulation of Urban Area Act, 1975. These payments were not made under a contract but were mandatory charges for obtaining licenses for colonization. The Tribunal held that such statutory payments do not attract TDS provisions.

5. Validity of penalty proceedings under Sections 201(1)/201(1A):
The Tribunal noted that the Ld. AO had initiated penalty proceedings under Sections 201(1)/201(1A) without a clear basis, as there was no contractual relationship necessitating TDS deduction. The Tribunal found that the penalty proceedings were invalid due to the lack of a clear statutory requirement for TDS on EDC payments.

6. Clarifications and directions issued by CBDT and DTCP regarding TDS on EDC:
The Tribunal considered clarifications from CBDT and DTCP. The CBDT had clarified that TDS was not required when EDC was paid to the Government of Haryana. The DTCP had also issued a clarification stating that no TDS was required on EDC payments. These clarifications supported the Tribunal's decision to set aside the penalty, as the assessee had acted based on these authoritative directions.

Conclusion:
The Tribunal concluded that the levy of penalty under Section 271C was not justified. The payments made by the assessee to HUDA through DTCP were statutory obligations and not contractual payments requiring TDS deduction. The Tribunal set aside the penalty order and allowed the appeal, emphasizing the absence of contumacious conduct and the bona fide belief of the assessee based on clarifications from DTCP and CBDT.