M/s. Vatika Limited vs Additional Commissioner Of Income Tax, Range-78, Delhi

“2.

We now advert to the assessee’s sole substantive grievance herein directed against both the learned lower authorities’ respective findings levying section 271 TDS non-deduction penalty of Rs. 5,94,000/- in its hands in the assessing Officer’s order dated 30.10.2023 as upheld in the lower appellate discussion.

4.

We have given our thoughtful consideration to the assessee’s and the Revenue’s vehement submissions reiterating their respective stands against and in support of the impugned penalty. We make it clear that the assessee/deductor appears to have paid external development charges “EDC” to the Haryana Uraban Development Authority “HUDA” without deducting any TDS thereupon. There does not appear to be further no quarrel that such builders/developers engaged in real estate development activity had to mandatorily pay such “EDS” charges as “HUDA” as per the recipients prescribed formula. And that the issue as to whether such EDC payments attracts TDS deduction or not came to be finally settled in the Revenue’s favour in (2024) 462 ITR 326(Del) in Puri Constructions (P) Ltd. vs. ACIT. This is what has made both the learned lower authorities have levied the impugned penalty for TDS non-deduction in the assessee’s hands. We are of the considered view that once the TDS deduction herein on such EDC charges had become a debatable issue, there was indeed a reasonable cause for the assessee not to have deducted the same forming mitigating circumstances so as to delete the impugned section 271C penalty. The same is directed to be deleted in very terms.

5.

This assessee’s appeal is allowed.”

“3.0

The Ld. Authorized Representative (AR) submitted that the imposition of penalty was incorrect in as much as the payment of EDC had been made by the assessee in accordance with the license granted by the Department of Town and Country Planning (DTCP) and the payment to HUDA was not made in pursuance of any works contract or under any statutory obligation meaning thereby that when the assessee had no privity of contract with HUDA, the assessee cannot be held liable for imposition of penalty u/s 271C of the Act. The Ld. Authorized Representative reiterated that the assessee had privity of contract with DTCP as per the agreement and that HUDA had merely received the payment for and on behalf of the DTCP. The Ld. Authorized Representative placed reliance on numerous orders of the ITAT wherein a similar levy of penalty had been directed to be deleted by the Co-ordinate Benches of this Tribunal.

4.0

Per contra, the Ld. Sr. Departmental Representative (DR) laid emphasis on section 194C of the Act and contended that HUDA was neither a Government Department nor a local authority and, therefore, any payment being made to it was to be subjected to deduction of tax at source u/s 194C of the Act.

5.0

We have heard the rival submissions and have also perused the material on record. It is seen that in Para 4.3.2, sub-paragraph (iv) of the order passed u/s 271C of the Act, the AO has himself noted that the demand draft of the EDC amounts are drawn in favour of the Chief Administrator, HUDA though routed through the Director General, Town and Country Planning, Sector-18, Chandigarh. He has also referred to the notes to accounts to the financial statements of HUDA wherein it has been stated that "other liabilities also include external development charges received through DGTCP, Department of Haryana for execution of various EDC works. The expenditure against which have been booked in Development Work in Progress, Enhancement compensation and Land cost." Undisputedly, the payment of EDC was issued in the name of Chief Undi 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. We note that similar view has been taken by the Co-ordinate Benches of ITAT Delhi in the cases of Santur Infrastructure Pvt. Ltd. vs. ACIT in ITA 6844/Del/2019 vide order dated 18.12.2019, Sarv Estate Pvt. Ltd. vs. JCIT in ITA No.5337 & 5338/Del/2019 vide order dated 13.09.2019 and Shiv Sai Infrastructure (Pvt.) Ltd. vs. ACIT in ITA No.5713/Del/2019 vide order dated 11.09.2019. A similar view was also taken by the Co-ordinate Bench of ITAT Delhi in case of R.P.S Infrastructure Ltd. vs. ACIT in 5805, 5806 & 5349/Del/2019 vide order dated 23.07.2019. Therefore, on an identical fact and respectfully following the orders of the Co-ordinate Benches as aforesaid, we hold that the impugned penalty u/s 271C of the Act is not sustainable. The order of the Ld. CIT (A) is set aside and the penalty is directed to be deleted.

6.0

In the final result, the appeal of the assessee stands allowed.”