Appeal allowed, penalty set aside under section 271C. No TDS liability on payments through Government Department.

The ITAT Delhi allowed the appeal of the assessee, setting aside the penalty of ? 83,80,000 imposed under section 271C of the Income Tax Act, 1961. The ITAT held that the assessee was not liable to deduct tax at source on External Development Charges paid to Haryana Urban Development Authority as the payment was made through a Government Department and not directly to HUDA. The judgment was pronounced on 29th December 2020.

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Issues:
Imposition of penalty under section 271C of the Income Tax Act, 1961 for failure to deduct tax at source on External Development Charges (EDC) paid to Haryana Urban Development Authority (HUDA).

Detailed Analysis:

1. Imposition of Penalty by AO and CIT (A):
The Assessing Officer (AO) imposed a penalty of Rs. 83,80,000 under section 271C of the Income Tax Act, 1961, for the failure to deduct tax at source on the EDC paid to HUDA. The Commissioner of Income Tax (Appeals) [CIT (A)] upheld this penalty in the order dated 21.06.2019 for Assessment Year 2014-15.

2. Grounds of Appeal by Assessee:
The assessee challenged the penalty before the ITAT Delhi, raising several grounds of appeal questioning the legality and justification of the penalty imposed under section 271C of the Act. The grounds included contentions regarding contravention of provisions, vague show cause notice, imposition beyond the limitation period, lack of reasonable opportunity, and biased decision-making.

3. Arguments of Authorized Representative and Departmental Representative:
The Authorized Representative argued that the payment of EDC was made in accordance with the license granted by the Department of Town and Country Planning (DTCP) and not under any statutory obligation towards HUDA. On the other hand, the Departmental Representative emphasized section 194C of the Act, contending that tax deduction at source was required on payments to entities like HUDA.

4. ITAT Decision and Reasoning:
After considering the submissions and evidence on record, the ITAT observed that the payment of EDC was made to HUDA through DTCP, a Government Department, and not directly as part of a contractual obligation with HUDA. The ITAT noted that HUDA received the EDC for executing external development works on behalf of DTCP. Citing precedents and similar cases, the ITAT concluded that the assessee was not liable to deduct tax at source on the EDC payment to HUDA. Therefore, the ITAT held that the penalty under section 271C was not sustainable.

5. Final Decision and Order:
The ITAT allowed the appeal of the assessee, setting aside the order of the CIT (A) and directing the deletion of the penalty of Rs. 83,80,000 imposed under section 271C of the Income Tax Act, 1961. The judgment was pronounced on 29th December 2020 by the ITAT Delhi.

This detailed analysis outlines the key issues, arguments, and the ITAT's decision regarding the imposition of penalty under section 271C of the Income Tax Act, 1961, for failure to deduct tax at source on External Development Charges paid to Haryana Urban Development Authority.

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