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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ : NEW DELHI
Before: SHRI R.K. PANDA & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
Appellant, M/s. Santur Infrastructure Pvt. Limited (hereinafter referred to as ‘the assessee’) by filing the present appeal sought to set aside the impugned order dated 19.06.2019 passed by Commissioner of Income-tax (Appeals) – 31, New Delhi affirming the penalty order dated 11.01.2018 passed u/s 271(1)(c) of the Income-tax Act, 1961 (for short ‘the Act’), qua the assessment year 2015-16 on the grounds inter alia that :-
“1. Under the facts and circumstances of the case, the penalty order dt. 11.01.2018 passed u/s 271C of the Income Tax Act,1961 by the ld. Assessing Authority and upheld by the Ld. First Appellate Authority is void as it is barred by limitation as prescribed u/s 275(1)(c) of the Act and the same deserves to be quashed.
2. Under the facts and circumstances of the case, the penalty u/s 271C of the Act levied by the ld. Assessing Authority on the appellant is injudicious and bad at law as no such payment of EDC has been made by the Appellant company.
3. Under the facts and circumstances of the case, the Ld. Assessing Authority has grossly erred in arriving at a finding that the assessee has not yet complied with the provisions f section 194C on payments of EDC to HUDA as the same can not be termed as payment to contractors.
4. Without prejudice to the above and under the facts and circumstances of the case, the ld. First Appellate Authority has grossly erred in upholding the Penalty order of Id. Assessing Authority as the penalty u/s 271 C should not be levied in accordance to the provisions of section 273B of the Income Tax Act, 1961 as the appellant has proved that there was reasonable cause for non-deduction of tax at source ON the payment of external development charges to HUDA.
5. Without prejudice to the above and under the facts and circumstances of the case, the ld. Assessing Authority as well as the ld. First Appellate Authority has passed their orders without application of mind that the Haryana urban development authority (HUDA) itself is a statutory body set up under Haryana Development Authority Act, 1977 which pays taxes on their incomes including on the EDC's collected from various developers.
Without prejudice to the above and under the facts and circumstances of the case, the ld. Assessing Authority has grossly erred in levying penalty of Rs. 20,22,0001- u/s 271C of the Act alleging that the appellant was liable to deduct tax at source on the payment for External Development Charges (EDC) amounting to Rs.10,11,00,000/- made to Haryana Urban Development Authority (HUDA) which is highly injudicious, unwarranted, against the facts of the case and bad at law."
Briefly stated the facts necessary for adjudication of the controversy at hand are : on the basis of information come on record during the survey proceedings conducted under section 133A of the Act at the business/office premises of Haryana Urban Development Authority (HUDA), Assessing Officer (AO) noticed that the Tax Deducted at Source (TDS) was not made on payment of External Development Charges (EDC) and consequently, initiated the penalty proceedings u/s 271C of the Act. AO proceeded to hold that the assessee was statutorily bound to deduct TDS on the amount of Rs.10,11,00,000/- nor brought on record any evidence if the non-deduction/non-deposit of tax at source was beyond the control of the assessee company, thus assessee company has no reasonable cause within the meaning of section 273B of the Act for non-deduction of tax at source and consequently, levied the penalty of Rs.20,22,000/- @ 2% of the EDC amount u/s 271C of the Act.
3. Assessee carried the matter by way of an appeal before the ld. CIT (A) who has confirmed the penalty levied by the AO by dismissing the appeal. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
Undisputedly, demand drafts for payment of EDC were issued in the name of Chief Administrator, HUDA for an amount of Rs.10,11,00,000/- for the year under assessment. It is also not in dispute that HUDA has shown EDC as current liability in the balance sheet but, in the notice of accounts forming part of the balance sheet, it has shown that the EDC has been received for execution of various external development works, as and when the development works are carried out the EDC liabilities are reduced accordingly. It is also not in dispute that HUDA is engaged in acquiring land, developing it and finally handing over to the customers for a price. It is also not in dispute that EDC are fixed by HUDA from time to time by issuing letters/circulars. It is also not in dispute that the assessee has not credited the amount of EDC paid to Shri Vardhman Infra Heights Pvt. Ltd. in its P&L account.
It is also not in dispute that Agreement between the land owners intended to set up a Group Housing Society dated 30.11.2010 was entered into between M/s. Dial Softech Pvt. Ltd., Shri Tek Ram, Smt. Saroj Singhal, Smt. Luxmi Devi and Smt. Sunehra Devi c/o M/s. Santur Infrastructure Pvt. Ltd. and the Governor of Haryana acting through the Director, Town & Country Planning (DTCP), Haryana, whereby owner undertakes to pay proportionate EDC as
per rate, schedule, terms and conditions contained in the Agreement.
6. When we examine the question “as to whether TDS on payment of EDC to HUDA was not to be deducted by assessee because levy is made by DTCP having control over the EDC and not HUDA as contended by the ld. AR for the assessee” in the light of the aforesaid undisputed facts, we are of the considered view that the assessee has no liability to deduct TDS in respect of the payment made to a Government Department, DTCP in this case, u/s 196 of the Act as the payment was made to HUDA on behalf of DTCP only.
It is the case of the assessee that the payment of EDC has been made for carrying out any work in pursuance of the contract entered into between assessee and DTCP, which is a Government Department, and not in pursuance of any contract between the assessee and HUDA. This proposition mooted out by assessee is sustainable because payment of EDC were made by the assessee not for carrying out any specific work to be done by HUDA for and on behalf of the assessee rather DTCP, a Government Department of Haryana, levy these charges for carrying out external development from the developer and engages the services of the HUDA for execution of the work.
On the other hand, ld. DR for the Revenue laid emphasis on section 194C of the Act and contended that HUDA is neither a Government Department not a local authority, hence payment made to it is subject to deduction of TDS u/s 194C of the Act.
We are of the considered view that when payment of EDC has been made by the assessee in accordance with licence granted by the DTCP, the payment made to HUDA was not made in pursuance of any work contract or under statutory obligation meaning thereby that when the assessee has no privity of contract with HUDA rather the assessee has privity of contract with DTCP, a Government Department of Haryana, as per Agreement (supra) and the HUDA has merely received the payment for and on behalf of DTCP, the assessee was not required to deduct the TDS.
Ld. DR for the Revenue by relying upon the Office Memorandum F.No.370133/37/2017-TPL dated 23.12.2017 issued by the Central Board of Direct Taxes (CBDT) contended that there is no ambiguity that HUDA is a taxpayer entity under the Income- tax Act and as such, TDS provisions would be applicable on EDC payable by developer to HUDA.
When we examine aforesaid contention raised by the ld.DR for the Revenue in the light of the facts and circumstances of the case in which EDC have been paid to HUDA for Financial Years 2013-14, 2014-15, 2015-16 & 2016-17 (upto December 2016) as mentioned by the ld. CIT (A) in para 2.1 of his order, it goes to prove that prior to 23.12.2017, the date of CBDT circular, there was no clarity whatsoever as to the deduction of tax on EDC.
When there was no clarity with the assessee prior to 23.12.2017, if TDS was to be deducted by the assessee on payment of EDC, it provided a “reasonable cause” u/s 273B of the Act that TDS was not required to be deducted.
Ld. AR for the assessee contended that DTCP had issued a clarification dated 29.06.2018 to the effect that no TDS was/is required to be deducted in respect of payment of EDC and relied upon the order passed by the coordinate Bench of the Tribunal in case of RPS Infrastructure Ltd. vs. ACTI in 5806, 5349/Del/2019 order dated 23.07.2019 wherein it is held that, “on the basis of letter supra issued by DTCP that the letter covers both past and future transactions and TDS was not required to be deducted.” We have perused the order passed by the Tribunal in case of RPS Infrastructure Ltd. (supra) in which letter (supra) has been examined, it is clear that TDS was/is not required to be deducted in respect of deduction of EDC. So, in view of the matter, we are of the considered view that when DTCP, a Department of Government of Haryana, has itself clarified not to deduct the TDS, no penalty is leviable u/s 271C on the assessee.
Even otherwise, for argument sake, even if it is assumed that tax is required to be deducted on EDC but not deducted under bonafide belief that the provisions contained u/s 271C are not attracted, no penalty can be levied.
Hon’ble Supreme Court in the case of CIT vs. Bank of Nova Scotia 380 ITR 550 upheld the findings returned by the tribunal that, “if there is no contumacious conduct of the assessee, penalty u/s 271C cannot be levied.” Operative part of the judgment supra is extracted for ready perusal as under :-
"2. The matter was pursued by the Revenue before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal vide order dated 31.03.2006 entered the following findings: "11. We have carefully considered the rival submissions. In the instant case we are not dealing with collection of tax u/s 201(1) or compensatory interest u/s 201(1A). The case of the assessee is that these amounts have already been paid so as to end dispute with Revenue. In the present appeals we are concerned with levy of penalty u/s 271-C for which it is necessary to establish that there was contumacious conduct on the part of the assessee. We find that on similar facts Hon'ble Delhi High Court have deleted levy of penalty u/s 271-C in the case of Itochu Corporation 268 ITR 172 (Del) and in the case of CIT v. Mitsui & Company Ltd. 272 ITR 545. Respectfully following the aforesaid judgments of Hon'ble Delhi High Court and the decision of the ITAT, Delhi in the case of Television Eighteen India Ltd., we allow the assessee's appeal and cancel the penalty as levied u/s 271C."
Being aggrieved, the Revenue took up the matter before the High Court of Delhi against the order of the Income Tax Appellate Tribunal. The High Court rejected the appeal only on the ground that no substantial question of law arises in the matter.
4. On facts, we are convinced that there is no substantial question of law, the facts and law having properly and correctly been assessed and approached by the Commissioner of Income
Tax (Appeals) as well as by the Income Tax Appellate Tribunal. Thus, we see no merits in the appeal and it is accordingly dismissed." 15. Furthermore, coordinate Bench of the Tribunal in case of DCIT (TDS), ACIT (TDS) and JCIT (TDS), Dehradun vs. The Joint Secretary Organizing Committee for Winter Games also decided the identical issue by relying upon the decision rendered by Hon’ble Supreme Court in case of CIT vs. Bank of Nova Scotia (supra) and deleted the penalty u/s 271C by returning following findings :-
"31. We have carefully considered the rival contentions and perused the orders of the lower authorities. On looking to the facts of the case as discussed by us in appeal of the assessee and revenue in 201(1) and 201(1A) proceedings above, we find that the belief of the assessee is bonafide and failure to deduct tax at source u/s 194C of the Act is for a reasonable cause. The ld Assessing Officer could not show any contemptuous conduct on part of the assessee for non-deduction of tax at source. There could also not be any reason for non-deduction as assessee has made most of the payments to the public sector undertaking. The Hon'ble Supreme Court in the case of CIT Vs. Bank of Nova Scotia in 380 ITR 550 has approved the decision of the Hon'ble Delhi High Court wherein, it has been held that it is necessary to establish 'contumacious conduct' on the part of the assessee for failure to deduct tax at source for levy of penalty u/s 271C of the act. In the present case, all the recipients have also furnished a certificate that they have received the payment. In view of this, we reverse the order of the ld CIT (A) confirming the levy of the penalty of ₹ 1152461/- u/s 271C of the Act in absence of any finding to show contumacious conduct on the part of the assessee. Ld OA id directed to delete the penalty-levied u/s 271C of the act. Accordingly, appeal of the assessee in for AY 2010-11 is allowed."
In view of what has been discussed above, we are of the considered view that firstly, the assessee was not required to deduct TDS as the payment of EDC was not made out of any statutory and contractual liability to HUDA with whom the assessee has no privity of contract; secondly, the assessee has reasonable cause for non-deduction of tax at source by the assessee company; thirdly it is not the case of the Revenue authorities that the assessee has intentionally avoided the deduction of TDS by bringing on record contumacious conduct of the assessee; and fourthly, with continuous clarifications by the CBDT and DTCP discussed in the preceding paras, the issue became debatable if the TDS is to be deducted or not on the EDC providing reasonable cause to the assessee not to deduct the TDS. Consequently, penalty levied by the AO and confirmed by the ld. CIT (A) is not sustainable in the eyes of law, hence ordered to be deleted. So, the appeal filed by the assessee is allowed. Order pronounced in open court on this 18th day of December, 2019.