2022 (11) TMI 1053 - AT - Income Tax

Penalty u/s 271C - TDS u/s 194C - payments for Infrastructure Development Charges (IDC) has been made to Department of Town Country, Haryana ( DTCP ) which itself is a government department - HELD THAT - As decided in M/S. TULIP INFRATECH PRIVATE LIMITED 2022 (7) TMI 328 - ITAT DELHI 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. Thus levy of penalty u/s 271C of the Act cannot be sustained. The grounds raised in the appeals are allowed.

Summary

Issues Involved:
1. Opportunity of being heard and principles of natural justice.
2. Dismissal of appeal due to filing error.
3. Disposal of appeal on merits.
4. Default on account of non-deduction of tax at source (TDS) under section 194C.
5. Applicability of TDS on payments to a government department.
6. Application of mind by the Assessing Authority regarding the nature of the Department of Town & Country, Haryana (DTCP).
7. Classification of payments to DTCP as payments to contractors.
8. Reasonable cause for non-deduction of TDS under section 273B.

Issue-wise Detailed Analysis:

1. Opportunity of Being Heard and Principles of Natural Justice:
The appellant argued that the First Appellate Authority erred in passing orders under section 250 of the Income Tax Act, 1961, without giving the assessee an opportunity to be heard, which is against the principle of natural justice. The Tribunal noted that the appeal was dismissed without a hearing on merits, which was a procedural lapse.

2. Dismissal of Appeal Due to Filing Error:
The appeal was dismissed by the CIT(A) because it was filed in the wrong jurisdiction. The Tribunal observed that the CIT(A) should have either not admitted the appeal or rejected it to be presented before the appropriate appellate authority. Once admitted, the disposal should have been in accordance with the powers defined under section 251(1)(b) of the Act.

3. Disposal of Appeal on Merits:
The Tribunal noted that the CIT(A) did not dispose of the appeal on merits but dismissed it due to a jurisdictional error. The Tribunal emphasized that the appropriate course would have been to restore the appeal to the files of the appropriate appellate authority to decide afresh.

4. Default on Account of Non-Deduction of TDS under Section 194C:
The appellant was penalized for not deducting TDS on Infrastructure Development Charges (IDC) paid to DTCP, Haryana. The Tribunal referred to previous judgments where it was held that payments made to government authorities for EDC (External Development Charges) do not require TDS deduction.

5. Applicability of TDS on Payments to a Government Department:
The appellant contended that since the payments were made to a government department (DTCP), TDS under section 194C was not warranted. The Tribunal supported this view, citing previous decisions where it was established that payments to government departments for EDC do not attract TDS.

6. Application of Mind by the Assessing Authority:
The appellant argued that the Assessing Authority failed to consider that DTCP is a nodal department for urban development in Haryana. The Tribunal noted that the Assessing Authority did not apply its mind to the nature of DTCP and the payments made.

7. Classification of Payments to DTCP as Payments to Contractors:
The Tribunal referred to previous judgments where it was held that payments for EDC to DTCP are not payments to contractors and thus do not require TDS deduction under section 194C.

8. Reasonable Cause for Non-Deduction of TDS under Section 273B:
The appellant argued that there was a reasonable cause for non-deduction of TDS on IDC payments to DTCP. The Tribunal agreed, citing previous cases where it was held that no penalty should be levied if there was a reasonable cause for non-deduction of TDS.

Conclusion:
The Tribunal allowed the appeal, set aside the penalty order, and decided in favor of the assessee on grounds 4 to 8. The Tribunal emphasized that the issue of TDS on payments to government departments like DTCP for EDC is covered by previous judgments, which held that no TDS is required. The Tribunal restored the appeal to the appropriate appellate authority for a fresh decision.