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2019 (12) TMI 1106 - AT - Income TaxPenalty u/s 271C - Non deduction of TDS on payment of External Development Charges (EDC) - HELD THAT - Firstly, the assessee was not required to deduct TDS as the payment of EDC was not made out of any statutory and contractual liability to HUDA with whom the assessee has no privity of contract; secondly, the assessee has reasonable cause for non-deduction of tax at source by the assessee company; thirdly it is not the case of the Revenue authorities that the assessee has intentionally avoided the deduction of TDS by bringing on record contumacious conduct of the assessee; and fourthly, with continuous clarifications by the CBDT and DTCP discussed in the preceding paras, the issue became debatable if the TDS is to be deducted or not on the EDC providing reasonable cause to the assessee not to deduct the TDS. Consequently, penalty levied by the AO and confirmed by the ld. CIT (A) is not sustainable in the eyes of law, hence ordered to be deleted. So, the appeal filed by the assessee is allowed.
Issues Involved:
1. Limitation for passing the penalty order under Section 271C. 2. Justification and legality of penalty under Section 271C for non-payment of External Development Charges (EDC). 3. Applicability of Section 194C on payments of EDC to Haryana Urban Development Authority (HUDA). 4. Reasonable cause for non-deduction of tax at source under Section 273B. 5. Recognition of HUDA as a statutory body and its tax obligations. 6. Assessment of penalty amount and its justification. Detailed Analysis: 1. Limitation for Passing the Penalty Order: The appellant contended that the penalty order dated 11.01.2018 was void as it was barred by limitation under Section 275(1)(c) of the Income-tax Act, 1961. However, this issue was not elaborated upon in the judgment, and the focus was primarily on the applicability and justification of the penalty. 2. Justification and Legality of Penalty under Section 271C: The Assessing Officer (AO) initiated penalty proceedings under Section 271C after noting that the assessee had not deducted TDS on the payment of EDC amounting to ?10,11,00,000/-. The AO held that the assessee was statutorily bound to deduct TDS and levied a penalty of ?20,22,000/- at 2% of the EDC amount. 3. Applicability of Section 194C on Payments of EDC to HUDA: The core issue was whether TDS was required to be deducted on EDC payments made to HUDA. The Tribunal examined the relationship and concluded that the payment was made to HUDA on behalf of the Director, Town & Country Planning (DTCP), a Government Department, under Section 196. Therefore, the assessee had no liability to deduct TDS as the payment was not made in pursuance of any work contract with HUDA but under statutory obligations to DTCP. 4. Reasonable Cause for Non-Deduction of Tax at Source under Section 273B: The Tribunal noted that prior to the CBDT circular dated 23.12.2017, there was no clarity on the deduction of tax on EDC. This lack of clarity provided a "reasonable cause" under Section 273B, justifying the non-deduction of TDS by the assessee. Furthermore, a clarification from DTCP dated 29.06.2018 stated that no TDS was required on EDC payments, reinforcing the assessee's position. 5. Recognition of HUDA as a Statutory Body and its Tax Obligations: The Tribunal acknowledged that HUDA is a statutory body under the Haryana Development Authority Act, 1977, which pays taxes on its income, including EDCs collected from developers. This recognition further supported the Tribunal's view that the assessee was not required to deduct TDS on payments made to HUDA. 6. Assessment of Penalty Amount and Its Justification: The Tribunal referred to the Supreme Court's decision in CIT vs. Bank of Nova Scotia, emphasizing that penalty under Section 271C cannot be levied in the absence of contumacious conduct by the assessee. The Tribunal found no evidence of intentional avoidance of TDS deduction by the assessee. Given the continuous clarifications by CBDT and DTCP, the issue was deemed debatable, providing reasonable cause for the assessee's actions. Conclusion: The Tribunal concluded that the assessee was not required to deduct TDS on EDC payments made to HUDA. The penalty levied by the AO and confirmed by the CIT (A) was found unsustainable and was ordered to be deleted. The appeal filed by the assessee was allowed, and the order was pronounced in open court on 18th December 2019.
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