2023 (2) TMI 27 - AT - Income Tax

Penalty under Section 271C deleted as time-barred; TDS on EDC payments deemed debatable

The Commissioner concluded that the penalty under Section 271C could not be imposed without an order under Section 201(1)/201(1A) of the Income Tax Act. ... Penalty u/s 271C - Addition @ 2% of the EDC amount paid to HUDA on which the TDS was to be deducted u/s 194C - debatable issue - whether there was reasonable cause/bona fide reason within the meaning of Section 273B of the Act for not deducting the TDS? - HELD THAT:- Cases of m/s RPS Infrastructure Ltd. [2019 (9) TMI 39 - ITAT DELHI], Shree Vardhman Developers Pvt. Ltd. [2022 (11) TMI 1053 - ITAT DELHI] and Tulip Infratech Pvt. Ltd. [2022 (7) TMI 328 - ITAT DELHI] clearly that on payment of “EDC” to the HUDA, no TDS is liable to be deducted, hence we are inclined not to interfere with the decision of the learned Commissioner, in deleting the penalty on this count. Appeal filed by the Revenue/Department stands dismissed. Issues Involved:1. Whether the Additional Commissioner of Income Tax (Addl. CIT) can impose a penalty under Section 271C without passing an order under Section 201(1)/201(1A) of the Income Tax Act.2. Whether penalty under Section 271C can be levied when there is confusion or debate on the issue.3. Whether there was reasonable cause or bona fide reason under Section 273B for not deducting TDS.4. Whether penalty can be levied when the conduct of the appellant is not contumacious.5. Whether the penalty order is barred by limitation.Detailed Analysis:1. Authority to Impose Penalty:The learned Commissioner examined whether the Addl. CIT could impose a penalty under Section 271C without an order under Section 201(1)/201(1A). The Commissioner concluded that the penalty could not be levied in this context, considering the procedural requirements.2. Debatable Issue:The Commissioner noted that the issue of whether TDS should be deducted on payments made as External Development Charges (EDC) to HUDA was debatable. The Assessee had not been required to deduct TDS on EDC payments before the financial year 2013-14. This was supported by a CBDT memorandum dated 23rd December 2017, indicating that the matter required clarification.3. Reasonable Cause/Bona Fide Reason:The Commissioner referred to the Punjab and Haryana High Court judgment in the case of DLF Utilities Ltd. vs. DCIT, which stated that agreements were with the Governor of Haryana, suggesting payments were made to the Government. The Directorate of Town and Country Planning, Haryana, also advised that no TDS was to be deducted for EDC payments. The Delhi High Court in Hindustan Coca Cola Beverages (P) Ltd. vs. JCIT held that if the issue of TDS deduction was debatable, there was a reasonable cause for the failure to deduct TDS.4. Contumacious Conduct:The Commissioner found no contumacious conduct by the Assessee. The Tribunal in M/s RPS Infrastructure Ltd. vs. ACIT held that the Assessee had a bona fide belief that no TDS was required on EDC payments, as the agreement was with a governmental authority and the payments were directed to HUDA. The Directorate of Town and Country Planning had also issued a clarification that no TDS was required.5. Limitation:The Commissioner observed that the penalty proceedings should have been completed by 30.09.2017, as the genesis of the penalty was a letter dated 21.03.2017. Since the penalty was levied on 22.01.2018, it was deemed time-barred. This conclusion was supported by the Supreme Court's dictum in K.M. Sharma vs. ITO, which emphasized strict construction of limitation periods in fiscal statutes.Conclusion:The Commissioner deleted the penalty under Section 271C, citing precedents and the lack of clarity on the TDS requirement for EDC payments. The Tribunal upheld this decision, referencing similar cases where it was held that no TDS was required on EDC payments to HUDA. The Tribunal did not address the limitation issue, as the decision on merits rendered it unnecessary. Consequently, the appeal by the Revenue/Department was dismissed.