ACIT, CENTRAL CIRCLE-2, FARIDABAD vs. PROMPT ENGINEERING PVT. LTD., GURGAON

The short issue which needs to be adjudicated in the present appeal is, whether the assessee was required to deduct tax at source on the external development charges (EDC) paid to Haryana Urban Development Authority (HUDA)..

Briefly, the facts are, the assessee is a resident corporate entity engaged in the business of real estates development.

In course of assessment proceedings for the impugned assessment year, the assessing officer noticed that assessee has paid an amount of Rs.8,82,60,000 to HUDA towards EDC without deducting tax at source. Being of the view that assessee was required to deduct tax at source on payment of EDC, which the assessee has failed to do, the assessing officer invoking the provisions of section 40(a)(ia) of the Act disallowed 30% of the EDC paid, which works out to Rs.2,64,78,000. Assessee was successful in contesting the aforesaid disallowance before learned Commissioner (Appeals).

Before us, learned counsel appearing for the assessee as well as learned Departmental Representative fairly submitted that the issue on merits is squarely covered in favour of the assessee by the decision of the Hon'ble High Court in case of BPTP Ltd. vs. PCIT (2020) 421 ITR 51 and various decisions of the co-ordinate Bench.

Having carefully gone through the decision of Hon'ble Delhi High Court in case of BPTP Ltd. vs. PCIT (supra), we find that while dealing with an identical issue of non-deduction of TDS and EDC paid to HUDA, the Hon'ble High Court has observed that Revenue was unable to point out any specific provision which deals with EDC. In other words, the Hon’ble Court held that payment of EDC was not covered under any of the TDS provisions. In case of M/s. Splender Land Bus Ltd. vs. Additional CIT(supra), the co-ordinate Bench, after following the decision of another co-ordinate Bench in case of Spaze Tower Pvt. Ltd. vs. ACIT – dated 26.05.2022, has held that by not deducting tax on payment made to HUDA towards EDC, no violation of TDS provision was made. Thus, with due obedience to the ratio laid down in the judicial precedents cited before us, we hold that there was no legal requirement on assessee to deduct tax at source while making payment of EDC to HUDA.