2022 (8) TMI 191 - AT - Income Tax

Penalty u/s 271(1)(c) - no reasonable cause within the meaning of section 273B for non deduction of TDS on EDC - AR submitted that the payments made to HUDA were only for the purpose of facilitating the payments due on account of EDC charges towards Town and Country Planning, Government of Haryana - HELD THAT - As the Co-ordinate Bench orders in M/s. Perfect Constech P. Ltd. 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. In case of TDI Infrastructure Ltd 2022 (7) TMI 388 - ITAT DELHI the Bench, to which one of us was in quorum, had taken into consideration a clarification memo no DTCP/ACCFTS/AO(AQ) /CAO/2894/2018 dated 19.06.18 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.

Issues Involved:
1. Imposition of penalty under Section 271C for non-deduction of TDS on payments made to HUDA.
2. Applicability of TDS provisions under Section 194C on payments made to HUDA.
3. Retrospective application of CBDT Office Memorandum dated 23rd December 2017.
4. Classification of HUDA as a government entity or a development authority.
5. Consideration of EDC as capital receipt and its implications on TDS.
6. Validity of a single penalty order for multiple assessment years.

Detailed Analysis:

1. Imposition of Penalty under Section 271C for Non-Deduction of TDS:
The assessee argued that the penalty imposed for non-deduction of TDS on payments made to HUDA was unwarranted. The Assessing Officer (AO) had imposed a penalty under Section 271C for non-deduction of TDS under Section 194C, based on the CBDT Office Memorandum dated 23rd December 2017. The Tribunal found that the assessee had a reasonable cause for not deducting TDS, as the payments were made to a government entity and there was ambiguity regarding the applicability of TDS provisions. The Tribunal referred to previous rulings where it was held that penalties under Section 271C are not justified if there is no contumacious conduct by the assessee.

2. Applicability of TDS Provisions under Section 194C on Payments Made to HUDA:
The AO contended that TDS was applicable on payments made to HUDA as it is a development authority and not a government entity. The Tribunal, however, noted that the payments were made to HUDA through the Director General, Town and Country Planning (DTCP), a government department. It was highlighted that the payments were not made pursuant to any contract between the assessee and HUDA but were levied by the DTCP for carrying out external development work. The Tribunal concluded that the assessee was not required to deduct TDS on these payments, aligning with previous decisions in similar cases.

3. Retrospective Application of CBDT Office Memorandum Dated 23rd December 2017:
The assessee argued against the retrospective application of the CBDT Office Memorandum, which clarified that payments to HUDA are subject to TDS. The Tribunal agreed with the assessee, stating that the Office Memorandum could not be applied retrospectively to impose penalties for periods before its issuance. The Tribunal emphasized that the assessee had a bona fide belief, supported by the DTCP's directions, that no TDS was required on such payments.

4. Classification of HUDA as a Government Entity or a Development Authority:
The AO classified HUDA as a development authority and not a government entity, thereby subjecting it to TDS provisions. The Tribunal, however, noted that HUDA, being a statutory body under the Haryana Urban Development Authority Act, 1977, received payments through a government department (DTCP). The Tribunal referred to various judicial precedents distinguishing between a body created by statute and one governed by statute, concluding that HUDA's classification as a development authority did not necessitate TDS on payments made to it.

5. Consideration of EDC as Capital Receipt and Its Implications on TDS:
The assessee contended that EDC payments were capital receipts and thus not subject to TDS. The AO had noted that HUDA showed EDC as a current liability in its balance sheet, used for external development works. The Tribunal referred to the Supreme Court's ruling in the case of New Okhla Industrial Development Authority, which supported the view that no TDS is required on capital receipts. The Tribunal concluded that, given the ambiguity and the bona fide belief of the assessee, no penalty for non-deduction of TDS was justified.

6. Validity of a Single Penalty Order for Multiple Assessment Years:
The assessee challenged the validity of a single penalty order covering multiple assessment years. The Tribunal did not specifically address this issue in detail but implicitly accepted the assessee's appeal, setting aside the penalty imposed for the relevant assessment years.

Conclusion:
The Tribunal allowed the appeals, setting aside the penalties imposed under Section 271C for non-deduction of TDS on payments made to HUDA. The Tribunal's decision was based on the bona fide belief of the assessee, the ambiguity regarding the applicability of TDS provisions, and the retrospective application of the CBDT Office Memorandum. The Tribunal emphasized that the payments were made to a government department (DTCP) for external development work, and there was no contumacious conduct by the assessee warranting the imposition of penalties.

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