Shiv Sai Infrastructure (P) Ltd. vs ACIT: Penalty Proceedings for AY 2017-18

Shiv Sai Infrastructure (P) Ltd. vs ACIT: Penalty Proceedings for AY 2017-18

Case Number: ITA 5713/DEL/2019

Appellant: Shiv Sai Infrastructure (P) Ltd., New Delhi

Respondent: ACIT Circle-77, New Delhi

Assessment Year: 2017-18

Case Filed On: 2019-07-01

Order Type: Final Tribunal Order

Date of Order: 2019-09-11

Pronounced On: 2019-09-11

Background

The case involves Shiv Sai Infrastructure (P) Ltd. as the appellant and the Assistant Commissioner of Income Tax, Circle-77, New Delhi, as the respondent. The dispute centers around the penalty proceedings initiated under Section 271C of the Income Tax Act, 1961, for the assessment year 2017-18.

Reason for Filing the Case

Shiv Sai Infrastructure (P) Ltd. filed the case challenging the order of the Assessing Officer (AO) dated 17.6.2019, which levied a penalty of Rs. 39,40,000 under Section 271C for failure to deduct tax at source on payments made for external development charges (EDC) to the Haryana Urban Development Authority (HUDA). The appellant contended that the AO’s order was erroneous, illegal, and without jurisdiction.

Tribunal Proceedings

On 11th September 2019, the tribunal, comprising Shri Amit Shukla, Judicial Member, and Dr. B.R.R. Kumar, Accountant Member, heard the case.

The appellant was represented by Shri Raj Kumar Gupta, CA, while the respondent was represented by Shri N.K. Bansal, Sr. DR.

Arguments Presented

The appellant argued that the levy of penalty under Section 271C was unjustified and against the principles laid down in various judicial pronouncements. They contended that:

• No TDS was required on the payment of Rs. 19,70,00,000 made to HUDA as EDC charges since the payment was made on behalf of the Government of Haryana, thus falling under the exemption provided in Section 196 of the Income Tax Act.
• The payment was made to HUDA as per the directions of the Director Town & Country Planning (DTCP), Government of Haryana, and there was no direct contractual obligation with HUDA.
• The DTCP had issued a clarification on 19.06.2018 stating that no TDS was required on such payments, which supported the appellant’s bona fide belief that TDS was not applicable.
• The penalty notice issued was defective and lacked the necessary jurisdiction to initiate and levy penalty under Section 271C.

The respondent, on the other hand, supported the AO’s order and argued that the penalty was rightly levied as the appellant had failed to deduct TDS on the EDC payments made to HUDA.

Tribunal’s Decision

The tribunal considered the rival submissions and the material placed on record. The key points from the tribunal’s order are as follows:

Levy of Penalty Under Section 271C

The tribunal observed that the payment of EDC charges was made by the appellant to HUDA on the instructions of the DTCP, Government of Haryana. The tribunal noted that the DTCP, vide its clarification dated 19.06.2018, explicitly stated that no TDS was required on such payments, thereby validating the appellant’s bona fide belief that TDS was not applicable.

Reasonable Cause Under Section 273B

The tribunal emphasized that the appellant had a reasonable cause for not deducting TDS on the EDC payments, as they were made on behalf of the Government of Haryana, and the DTCP had confirmed the non-applicability of TDS. The tribunal referenced various judicial pronouncements, including the Supreme Court’s judgment in CIT vs. Bank of Nova Scotia, which supported the appellant’s case.

Deletion of Penalty

In light of the above observations, the tribunal held that there was a reasonable cause for the appellant’s failure to deduct TDS, and no penalty under Section 271C was leviable. The tribunal directed the AO to delete the penalty.

Conclusion

The tribunal upheld the appellant’s challenge against the levy of penalty under Section 271C for the assessment year 2017-18. The tribunal quashed the penalty proceedings and directed the AO to delete the penalty, deeming it invalid and unsustainable in law.

Order pronounced on: 11/09/2019

Signatories:

SHRI AMIT SHUKLA, Judicial Member

DR. B.R.R. KUMAR, Accountant Member

Dated: 11/09/2019

Copy forwarded to:

• Appellant
• Respondent
• CIT
• CIT (Appeals)
• DR: ITAT

ASSISTANT REGISTRAR

ITAT NEW DELHI

Shiv Sai Infrastructure (P) Ltd. vs ACIT: Penalty Proceedings for AY 2017-18