TDS Penalty Appeal in Pivotal Infrastructure Ltd vs ACIT – ITA No. 6262/DEL/2019 (Assessment Year 2017-18)

Case Overview: Pivotal Infrastructure Ltd vs ACIT – ITA No. 6262/DEL/2019

Case Number: ITA 6262/DEL/2019

Appellant: Pivotal Infrastructure Ltd, Gurgaon

Respondent: Addl. CIT Spl. Range 76, New Delhi

Assessment Year: 2017-18

Order Type: Final Tribunal Order

Date of Order: 30th November 2022

Case Filed On: 24th July 2019

Bench: DR. B.R.R. KUMAR, ACCOUNTANT MEMBER, and SH. YOGESH KUMAR U.S., JUDICIAL MEMBER

Introduction

The case of Pivotal Infrastructure Ltd vs ACIT deals with an appeal filed by the appellant, Pivotal Infrastructure Ltd, challenging the imposition of a penalty under Section 271C of the Income Tax Act, 1961, for the assessment year 2017-18. The penalty was imposed for the non-deduction of TDS on payments made towards External Development Charges (EDC) to the Haryana Urban Development Authority (HUDA).

The appellant contested the penalty on the grounds that the payments were made to a government entity (HUDA) and hence were not subject to TDS under Section 194C. The case was first heard by the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the penalty, leading the appellant to file an appeal with the Income Tax Appellate Tribunal (ITAT), Delhi Bench.

Background of the Case

Pivotal Infrastructure Ltd, a real estate developer in Gurgaon, Haryana, paid EDC to HUDA as part of its statutory obligations under the Haryana Development and Regulation of Urban Areas Act, 1975. These charges were levied by the Haryana Government to fund external development works such as roads, water supply, sewerage, and other infrastructure projects within the state.

During a survey conducted under Section 135A at the office premises of HUDA, the Assessing Officer (AO) found that the appellant had not deducted TDS on the EDC payments made to HUDA. The AO held that HUDA, being a taxable entity, was not exempt from TDS, and initiated penalty proceedings under Section 271C for failure to deduct TDS as required under Section 194C of the Income Tax Act.

The appellant argued that the payments made to HUDA were statutory obligations imposed by the government and did not constitute payments for any contractual services rendered by HUDA. Therefore, the appellant contended that TDS was not applicable on such payments.

Proceedings at the ITAT

The appeal was heard by the ITAT, Delhi Bench ‘F’, on 28th November 2022, with the order pronounced on 30th November 2022. The bench comprised DR. B.R.R. KUMAR, ACCOUNTANT MEMBER, and SH. YOGESH KUMAR U.S., JUDICIAL MEMBER. During the hearing, the appellant’s counsel, Sh. Vijay Singla, CA, presented the case, while the Senior Departmental Representative (DR), Sh. Sanjay Nargas, represented the revenue.

Grounds of Appeal

The appellant raised several grounds in the appeal, including:

• The CIT(A) erred in upholding the penalty of Rs. 14,24,000 under Section 271C, arguing that the penalty was imposed without proper application of mind and was based on vague and inconsistent notices.
• The payment of EDC to HUDA was a statutory obligation and not a contractual payment, and therefore, TDS under Section 194C was not applicable.
• The appellant argued that there was no master-servant or contractual relationship between the appellant and HUDA, and the payments were made under compulsion, without any option or negotiation.
• The CIT(A) failed to appreciate that HUDA is a government entity, and the payments made to it were exempt from TDS under the provisions of the Income Tax Act.
• The appellant contended that the penalty was imposed without considering the principles of natural justice and was based on a misunderstanding of the facts and the law.

Tribunal’s Findings

The ITAT carefully examined the facts of the case, the submissions made by the DR, and the relevant legal provisions. The Tribunal observed that the issue of TDS applicability on payments made to HUDA had been examined in several cases by co-ordinate benches of the ITAT, where it was consistently held that payments made to HUDA by real estate developers for EDC are not subject to TDS under Section 194C.

The Tribunal referred to the decisions in similar cases, including M/s. Perfect Constech Pvt. Ltd. and RPS Infrastructure Ltd., where it was held that the payments made to HUDA were not for carrying out any specific work for the developers but were statutory payments made to a government entity for external development works. Therefore, these payments did not attract TDS under Section 194C, and consequently, the penalty under Section 271C was not justified.

The ITAT also considered the clarification issued by the Directorate of Town and Country Planning (DTCP), Haryana, which stated that EDC payments were to be deposited in the Consolidated Fund of the State and were not subject to TDS. The Tribunal noted that this clarification further supported the appellant’s contention that TDS was not applicable on EDC payments made to HUDA.

ITAT’s Conclusion and Order

Based on the above findings, the ITAT concluded that the penalty imposed under Section 271C was not sustainable. The Tribunal observed that the appellant had acted under a bonafide belief that TDS was not required on EDC payments to HUDA, and there was no contumacious conduct on the part of the appellant to warrant the imposition of a penalty.

The ITAT set aside the order of the CIT(A) and directed the AO to delete the penalty of Rs. 14,24,000 imposed under Section 271C of the Income Tax Act. The appeal filed by Pivotal Infrastructure Ltd was allowed in full.

Final Judgment

The final judgment in the case of Pivotal Infrastructure Ltd vs ACIT (ITA No. 6262/DEL/2019) reaffirms the position that TDS is not applicable on EDC payments made to HUDA, a government entity. The Tribunal’s decision to delete the penalty imposed under Section 271C emphasizes the importance of understanding the nature of statutory payments and the circumstances under which TDS provisions apply.

This case highlights the necessity for tax authorities to carefully assess the facts and legal provisions before imposing penalties and underscores the significance of following established legal precedents in similar cases. The appellant, Pivotal Infrastructure Ltd, successfully demonstrated that the non-deduction of TDS was based on a bonafide belief and that the penalty was unwarranted.

Bench: DR. B.R.R. KUMAR, ACCOUNTANT MEMBER, and SH. YOGESH KUMAR U.S., JUDICIAL MEMBER

Order Pronounced On: 30th November 2022

Result: The appeal is allowed, and the penalty under Section 271C is deleted.

TDS Penalty Appeal in Pivotal Infrastructure Ltd vs ACIT – ITA No. 6262/DEL/2019 (Assessment Year 2017-18)