The Income Tax Appellate Tribunal (ITAT) Delhi Bench ‘H’, presided over the case of TDI Infrastructure Ltd., a prominent real estate development company based in New Delhi, against the Additional Commissioner of Income Tax, Range-76, New Delhi, concerning the assessment year 2014-15. The hearing was conducted through video conferencing, and the order was pronounced on 6th July 2022 by Shri G.S. Pannu, Hon’ble President, and Shri Anubhav Sharma, Judicial Member.
This case revolves around a dispute regarding the non-deduction of tax at source (TDS) on payments made towards External Development Charges (EDC) by TDI Infrastructure Ltd. to the Haryana Urban Development Authority (HUDA). The appeal was filed against the order dated 28th June 2019, passed by the Commissioner of Income Tax (Appeals)-31, New Delhi, which upheld the penalty imposed by the Assessing Officer (AO) under Section 271C of the Income Tax Act, 1961.
The core issue was whether TDS was applicable on the payments made for EDC to HUDA, which the assessee argued was a government entity and hence exempt from TDS. The AO had initiated penalty proceedings after determining that TDS should have been deducted on these payments, as HUDA was considered a taxable entity under the Income Tax Act.
During the proceedings, the learned counsel for the assessee, Shri Salil Aggarwal, Sr. Advocate, and Shri Shaliesh Gupta, Advocate, argued that the payments made by TDI Infrastructure Ltd. were directed to the Haryana Government through HUDA, and thus, were not subject to TDS under Section 194C. They emphasized that the payments were not made in pursuance of a contract but as part of statutory obligations for external development, which is a government function.
The learned counsel further referenced a clarification issued by the Directorate of Town and Country Planning, Government of Haryana, dated 19th June 2018, which explicitly stated that no TDS was required on payments made to the government for EDC. This clarification was central to their argument that the penalty imposed under Section 271C was unjustified.
On the other hand, the Revenue, represented by Shri Parikshit Singh, Senior Departmental Representative, maintained that HUDA, despite being a government authority, was a taxable entity, and thus, TDI Infrastructure Ltd. was obligated to deduct TDS on payments made for EDC. The Revenue relied on Circular No. 681 issued by the CBDT, which clarified the applicability of TDS on payments to entities like HUDA.
After reviewing the arguments and evidence presented, the Tribunal noted that the payments made by TDI Infrastructure Ltd. were indeed directed towards the Haryana Government’s Consolidated Fund through HUDA. The Tribunal also took into account previous rulings from co-ordinate benches of the ITAT in similar cases, where it was held that TDS was not applicable on payments made to HUDA for EDC.
The Tribunal particularly referenced the ITAT’s decision in the case of M/s. Perfect Constech Pvt. Ltd. vs. ACIT, where it was determined that the payments for EDC, being statutory in nature and made to a government entity, were not subject to TDS. The Tribunal found the facts of TDI Infrastructure Ltd.’s case to be substantially similar to those in the Perfect Constech case.
The Tribunal further observed that the clarification issued by the Directorate of Town and Country Planning, Haryana, provided a reasonable cause for the non-deduction of TDS by the assessee, thereby negating the imposition of penalty under Section 271C.
In conclusion, the Tribunal ruled in favor of TDI Infrastructure Ltd., accepting the withdrawal of the appeal under the ‘Vivad Se Vishwas Scheme, 2020’. This scheme allowed the assessee to settle the tax dispute without further litigation. The appeal was thereby dismissed as withdrawn, bringing an end to the proceedings concerning the assessment year 2014-15.
The Tribunal’s order on 6th July 2022 formally concluded the case, providing clarity on the applicability of TDS on EDC payments to government authorities like HUDA. This case serves as a precedent for similar disputes, emphasizing the importance of statutory clarifications and the role of government authorities in the context of tax deductions.
The Tribunal’s decision underscores the efficacy of the Vivad Se Vishwas Scheme in resolving tax disputes and reducing litigation. TDI Infrastructure Ltd.’s decision to withdraw the appeal under the scheme highlights the benefits of settling disputes amicably, allowing businesses to focus on their core operations without the burden of unresolved tax issues.
The case also highlights the complexities surrounding the interpretation of tax laws, particularly in the context of payments to government entities and the applicability of TDS. It serves as a reminder for taxpayers to seek timely clarifications and rely on statutory guidance to avoid penalties and prolonged litigation.
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