2022 (7) TMI 534 - AT - Income Tax

Penalty u/s 271C - payment towards EDC charges to DGTCP Haryana through HUDA without deduction of TDS - Default for non deduction of tax at source as per provisions of Chapter XVII-B towards amount paid as External Development Charges (EDC) to Directorate of Town and Country Planning, Haryana (Haryana Government) (DGTCP) through banking channel favouring Haryana Urban Development Authority (HUDA) - HELD THAT - The issue is no longer res integra. The identical issue has come up for adjudication before the Co-ordinate Bench of Tribunal in the case of Spaze Tower Pvt. Ltd. 2022 (5) TMI 1344 - ITAT DELHI wherein found that the provisions of Section 194C are not applicable on payments to agencies like HUDA on behalf of the State Government. The imposition of penalty under Section 271C was consequently found to be unsustainable in the absence of default of Section 194C. The facts and issue being identical, in the light of the clarification noted above coupled with view taken by the Coordinate Bench in the identical facts situation, we see no reason to depart therefrom. Consequently, we find merit in the plea raised on behalf of the assessee for cancellation of penalty imposed under Section 271C of the Act. - Assessee appeal allowed.

Summary

Issues:
Imposition of penalty under Section 271C of the Income Tax Act for non-deduction of tax at source on payments made as External Development Charges (EDC) to Directorate of Town and Country Planning, Haryana (Haryana Government) through Haryana Urban Development Authority (HUDA) for AY 2014-15.

Analysis:
The appeal was filed against the penalty order under Section 271C of the Income Tax Act concerning non-deduction of tax at source on EDC payments. The issue revolved around whether the assessee was liable to deduct TDS on payments made to HUDA on behalf of the State Government. The Co-ordinate Bench previously addressed a similar issue in the case of Spaze Tower Pvt. Ltd. vs. JCIT, where it was clarified that payments to HUDA were considered as payments to the State Government, exempting them from TDS obligations under Section 196 of the Act. This interpretation was supported by a clarification from the Directorate of Town and Country Planning, Haryana, stating that since the payment for EDC was made to the TCP Deptt. of the State Govt., no TDS was required to be deducted.

The Co-ordinate Bench's decision in Perfect Constech Pvt. Ltd. vs. Additional Commissioner of Income Tax further reinforced that Section 194C was not applicable on payments to agencies like HUDA on behalf of the State Government. Consequently, the imposition of penalty under Section 271C was deemed unsustainable in the absence of a violation of Section 194C. The Tribunal, in line with the Co-ordinate Bench's findings, held that the penalty imposed under Section 271C for AY 2014-15 was not justified as the assessee did not breach the provisions of Chapter XVII B of the Act by making payments towards EDC charges without deducting TDS. Therefore, the appeal was allowed, and the penalty was canceled.

In conclusion, the Tribunal ruled in favor of the assessee, emphasizing that the payments made as EDC to HUDA were considered as payments to the State Government, exempting them from TDS obligations. The decision was based on the clarification provided by the Directorate of Town and Country Planning, Haryana, and supported by previous rulings of the Co-ordinate Bench, highlighting that the penalty under Section 271C was unwarranted in this scenario.