Regards Developers Pvt. Ltd. vs Addl. CIT – Penalty for Non-Deduction of TDS on External Development Charges (AY 2017-18)

Regards Developers Pvt. Ltd. vs Addl. CIT – Penalty for Non-Deduction of TDS on External Development Charges (AY 2017-18)

Case Number: ITA 6535/DEL/2019

Appellant: Regards Developers Pvt. Ltd., New Delhi

Respondent: Addl. CIT, Range-78, New Delhi

Assessment Year: 2017-18

Order Type: Final Tribunal Order

Date of Order: 2022-11-30

Pronounced on: 2022-11-30

Introduction

This case revolves around the imposition of a penalty on Regards Developers Pvt. Ltd. for the alleged non-deduction of Tax Deducted at Source (TDS) on payments made to the Haryana Urban Development Authority (HUDA) for External Development Charges (EDC) during the assessment year 2017-18. The primary question was whether these payments necessitated TDS deduction under the Income Tax Act, 1961, and whether the penalty imposed under Section 271C was justified.

Background of the Case

Regards Developers Pvt. Ltd. filed its return of income for the assessment year 2017-18. During a survey conducted under Section 133A of the Income Tax Act, 1961, at the premises of HUDA, the Assessing Officer (AO) observed that the company had made substantial payments to HUDA for External Development Charges (EDC) without deducting TDS. The AO argued that these payments fell under the purview of Section 194C of the Income Tax Act and, therefore, required TDS deduction. Consequently, a penalty of Rs. 61,38,000 was imposed on the company under Section 271C for non-compliance.

Arguments by the Appellant

The appellant, Regards Developers Pvt. Ltd., contested the penalty, asserting that the payments made to HUDA were statutory payments required by the Haryana government and did not fall under any contractual obligation that would necessitate TDS deduction. The appellant argued that HUDA, being a government authority engaged in urban development, did not qualify as an entity requiring TDS deduction under Section 194C of the Income Tax Act.

Furthermore, the appellant claimed that there was no willful neglect or contumacious conduct in their failure to deduct TDS. The company acted under a bona fide belief that TDS was not applicable to these payments, a belief later supported by a clarification issued by the Directorate of Town and Country Planning (DTCP), Haryana, which stated that TDS was not required on EDC payments.

Tribunal’s Observations and Findings

The Income Tax Appellate Tribunal (ITAT) carefully examined the facts and relevant legal precedents. The Tribunal noted that the issue of TDS on EDC payments to HUDA had been previously adjudicated in several cases, including M/s Vipul Ltd. vs ACIT and RPS Infrastructure Ltd. vs ACIT, where it was held that payments made to HUDA for EDC did not require TDS deduction.

The Tribunal observed that HUDA is a government authority created by an act of the legislature for the purpose of urban development, and the payments made by the appellant were in compliance with the statutory requirements imposed by the Haryana government. The Tribunal also noted that the DTCP, Haryana, had issued a clarification stating that TDS was not required on such payments, further supporting the appellant’s position.

Conclusion and Ruling

In light of the above observations, the Tribunal concluded that the penalty imposed under Section 271C was not justified. The Tribunal ruled that Regards Developers Pvt. Ltd. was not required to deduct TDS on the EDC payments made to HUDA and that the appellant had acted in good faith based on the statutory guidelines and clarifications provided by the Haryana government. As a result, the Tribunal allowed the appeal and directed that the penalty be deleted.

Order: The appeal of Regards Developers Pvt. Ltd. is allowed, and the penalty imposed under Section 271C is hereby deleted.

This decision reaffirms the principle that statutory payments made to government authorities for specific purposes, such as urban development, may not necessarily require TDS deduction, and penalties for non-deduction should be carefully examined in light of the facts and applicable legal provisions.

Regards Developers Pvt. Ltd. vs Addl. CIT – Penalty for Non-Deduction of TDS on External Development Charges (AY 2017-18)