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Facts
The assessee, Mahagun (India) Pvt. Ltd. (and Mahagun Real Estate Pvt. Ltd. in a connected appeal), was treated as an assessee in default for non-deduction of TDS on lease rent paid to NOIDA Authorities for A.Y. 2012-13, leading to a demand of Rs.62,76,444/-. This arose from a second round of proceedings under Section 201(1)/201(1A) of the Income Tax Act, 1961. The assessee contended it acted in bona fide belief based on NOIDA Authority's communication that Section 194-I was inapplicable, and that a subsequent Delhi High Court judgment on this issue was prospective.
Held
The tribunal found force in the assessee's plea, acknowledging its bona fide belief and the prospective application of the Delhi High Court's judgment (Rajesh Projects (supra)) which clarified the TDS obligation. Since the assessment year (A.Y. 2012-13) preceded the prospective judgment date (16th February 2017), the cause of action for treating the assessee as in default under Sections 201(1)/201(1A) was not available to the Revenue. The tribunal also noted a similar relief granted by a co-ordinate bench in an identical factual matrix, leading to the quashing of the impugned orders for both appeals.
Key Issues
1. Whether the assessee could be treated as 'assessee in default' for non-deduction of TDS on lease rent paid to NOIDA Authorities for A.Y. 2012-13, given the prospective nature of the Delhi High Court's ruling on the matter. 2. Whether a second round of proceedings under Section 201(1)/201(1A) was justified without fresh notice, where the assessee had a bona fide belief regarding the non-applicability of TDS provisions.
Sections Cited
Section 201(1), Section 201(1A), Section 194-I, Section 133A, Section 148, Section 263
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Income Tax Appellate Tribunal, DELHI BENCH “E” DELHI
Before: SHRI PRADIP KUMAR KEDIA & SHRI YOGESH KUMAR US
The appeal of the assessee concerns challenge to proceedings under Section 201(1)/201(1A) whereby demand of Rs.62,76,444/- has been raised on the assessee treating the assessee as assessee in default in the second round of proceedings. The AO, by order dated 29.03.2019 passed under Section 201(1)/201(1A) of the Act, held the assessee as ‘assessee in default’ towards non-deduction of TDS on lease rent paid to NOIDA Authorities.
Assailing the action of the AO and CIT(A), the ld. counsel for the assessee submitted at the outset that the AO has passed two orders under Section 201(1)/201(1A) dated 22.02.2013 and 29.03.2019 for A.Y. 2012-13 in question. The impugned order passed under Section 201(1)/201(1A) dated 29.03.2019 arises in the second round of proceedings under the same provisions of the Act. The first order was also passed under Section 201(1)/201(1A) vide order dated 22.03.2013 pursuant to certain defaults coming to the light of the Department in the survey proceedings under Section 133A of the Act. In the second round, the AO has yet again invoked provisions of Section 201(1) & 201(1A) for default in non-deduction of TDS by the Assessee on payments made to NOIDA Authorities towards lease rents. In this regard, the ld. counsel submitted that the Hon’ble Delhi High Court in the case of Rajesh Projects (India) Pvt. Ltd. vs. CIT (TDS)-II & Ors., as reported in (2017) 78 taxmann.com 263 (Del) was called upon to adjudicate the identical issue. The Hon’ble Delhi High Court essentially observed that it is not correct to say that NOIDA Authority is not subjected to TDS provisions on lease rent and thus payer is under statutory obligation to deduct TDS under Section 194-I of the Act. Default in non deduction of TDS would consequently lead to applicability of Section 201(1)/201(1A) of the Act. The ld. counsel however in the same vain, pointed out that the Hon’ble Delhi High Court in its wisdom has restricted the applicability of the conclusion drawn with prospective effect. In the instant case, the assessment year involved is A.Y. 2012-13 whereas the judgment rendered by the Hon’ble Delhi High Court is dated 16th February, 2017. The ld. counsel thus submitted that in his humble opinion, the default committed towards non deduction under Section 194-I prior to the delivery of the judgment requires to be viewed benignly. The ld. counsel further pointed out that the assessee acted bona fide in the light of the specific letters issued by the NOIDA Authority in English as well as in Hindi on different occasions, copy of which is placed in the paper book. As per such letters, it was communicated that NOIDA Authority is not renting the properties to allotees and the lease rent charged by NOIDA Authority do not fall within the meaning of rent under Section 194-I of the Act. The ld. counsel submitted that based on legal interpretation made by the NOIDA Authority towards non applicability of the provisions of Section 194-I on payments of lease rentals, the assessee has not deducted TDS in good faith. It is only after the enunciation of law by the Hon’ble Delhi High Court, the true position of law has come to surface. Under the circumstances, where the applicability of the judgment rendered by the Hon’ble Delhi High Court has been made prospectively, the assessee should not be embroiled with the provisions of Section 201(1)/201(1A) at this belated stage.
The ld. counsel further submitted that in the instant case where the order under Section 201(1)/201(1A) was already passed in the first round, the assessee is under bona fide belief that defaults in deduction of TDS under various provisions have been taken into account and therefore, second round of proceedings under the same provision of the Act (without issue of notice either under Section 148 or under Section 263) is not justified.
The ld. counsel thus urged for suitable relief in the matter.
The ld. DR for the Revenue, on the other hand, relied upon the First Appellate Order passed by the CIT(A) and in furtherance submitted that in the light of the judgment rendered in Rajesh Projects (supra), the action of the Department cannot be faulted.
We have carefully considered the rival submissions and perused the material available on record.
The applicability of Section 201(1)/201(1A) qua non- deduction of TDS obligated under Section 194-I in relation to lease rent payment to NOIDA Authority by the assessee is under controversy.
8.1 It is the case of the assessee that the assessee cannot be held as ‘assessee in default’ so as to attract the provisions of Section 201(1)/201(1A) in the peculiar factual matrix. The assessee contends that (i) the assessee acted under bona fide belief that payment towards lease rental is not susceptible to provisions of Section 194-I in view of specific communications made by the NOIDA Authorities on the applicability of Section 194-I of the Act; (ii) the proceedings under Section 201(1) and 201(1A) has already been completed and this is only a second round of proceedings under the same provisions; (iii) the applicability of the observations and conclusions in Rajesh Projects (surpa) is prospective. The Hon’ble High Court has visualized the difficulties of the tax payers and made the operation of judgment prospective in its wisdom and therefore, the cause of action if any, arising from Rajesh Projects (supra) is not available to the Revenue in A.Y. 2012-13 in question.
On appraisal of the factual matrix and the position of law, we find considerable force in the plea raised on behalf of the Assessee. The assessee has successfully demonstrated the existence of bona fide belief. This demonstration on standalone basis enables us to exonerate the assessee from the clutches of Section 201(1) and 201(1A) of the Act. We however further find that the operation of the judgment in Rajesh Projects (supra) have been made prospective as mentioned in paragraph 20 of the judgment. The cause of action under Section 201(1)/201(1A) in pursuance of the judgment of the Hon’ble Delhi High Court is thus not available to the Revenue for A.Y. 2012-13 in question. We also find that in the identical factual matrix, the Co-ordinate Bench in order dated 15.12.2023 has granted relief similar to what is claimed in the present case. Thus, we have no hesitation to set aside the first appellate order and quash the impugned order dated 29.03.2019 passed under Section 201(1) and 201(1A) of the Act under challenge.
In the result, both the captioned appeals of the assessee are allowed. Order was dictated and pronounced in the open Court on 04 September, 2024.