2020 (12) TMI 1158 - AT - Income Tax

Penalty proceedings u/s 271C - Failure to deduct TDS u/s 194C - 2% of the EDC amount paid to HUDA on which tax was alleged to be deducted at source u/s 194C - HELD THAT - Undisputedly, the payment of EDC was issued in the name of Chief Administrator, HUDA. It is also not in dispute that HUDA has shown EDC as current liability in the balance sheet, but in the Notes to the Accounts Forming part of the Balance Sheet, it has been shown that EDC has been received for execution of various external development works and as and when the development works are carried out, the EDC s liabilities are reduced accordingly. It is also not in dispute that HUDA is engaged in acquiring land, developing it and finally handing it over for a price. It is also not in dispute that EDC is fixed by HUDA from time to time. However, the fact of the matter remains that payment has been made to HUDA through DTCP which is a Government Department and the same is not in pursuance to any contract between the assessee and HUDA. Thus, the payment of EDC is not for carrying out any specific work to be done by HUDA for and on behalf of the assessee but rather DTCP which is a Government Department which levies these charges for carrying out external development and engages the services of HUDA for execution of the work. Therefore, it is our considered view that the assessee was not required to deduct tax at source at the time of payment of EDC as the same was not out of any statutory or contractual liability towards HUDA and, therefore, the impugned penalty was not leviable. - Decided in favour of assessee.

Summary

Issues:
Imposition of penalty under section 271C of the Income Tax Act, 1961 for failure to deduct tax at source on External Development Charges (EDC) paid to Haryana Urban Development Authority (HUDA).

Detailed Analysis:

1. Imposition of Penalty by AO and CIT (A):
The Assessing Officer (AO) imposed a penalty of ? 83,80,000 under section 271C of the Income Tax Act, 1961, for the failure to deduct tax at source on the EDC paid to HUDA. The Commissioner of Income Tax (Appeals) [CIT (A)] upheld this penalty in the order dated 21.06.2019 for Assessment Year 2014-15.

2. Grounds of Appeal by Assessee:
The assessee challenged the penalty before the ITAT Delhi, raising several grounds of appeal questioning the legality and justification of the penalty imposed under section 271C of the Act. The grounds included contentions regarding contravention of provisions, vague show cause notice, imposition beyond the limitation period, lack of reasonable opportunity, and biased decision-making.

3. Arguments of Authorized Representative and Departmental Representative:
The Authorized Representative argued that the payment of EDC was made in accordance with the license granted by the Department of Town and Country Planning (DTCP) and not under any statutory obligation towards HUDA. On the other hand, the Departmental Representative emphasized section 194C of the Act, contending that tax deduction at source was required on payments to entities like HUDA.

4. ITAT Decision and Reasoning:
After considering the submissions and evidence on record, the ITAT observed that the payment of EDC was made to HUDA through DTCP, a Government Department, and not directly as part of a contractual obligation with HUDA. The ITAT noted that HUDA received the EDC for executing external development works on behalf of DTCP. Citing precedents and similar cases, the ITAT concluded that the assessee was not liable to deduct tax at source on the EDC payment to HUDA. Therefore, the ITAT held that the penalty under section 271C was not sustainable.

5. Final Decision and Order:
The ITAT allowed the appeal of the assessee, setting aside the order of the CIT (A) and directing the deletion of the penalty of ? 83,80,000 imposed under section 271C of the Income Tax Act, 1961. The judgment was pronounced on 29th December 2020 by the ITAT Delhi.

This detailed analysis outlines the key issues, arguments, and the ITAT's decision regarding the imposition of penalty under section 271C of the Income Tax Act, 1961, for failure to deduct tax at source on External Development Charges paid to Haryana Urban Development Authority.