2024 (3) TMI 311 - AT - Income Tax

HUDA External Development Charges exempt from TDS under sections 194C/194I, penalty under section 271C unsustainable

DCIT, Central Circle-31, New Delhi Versus New India City Developers Pvt. Ltd.

ITAT Delhi upheld CIT(A)'s decision allowing assessee's appeal regarding disallowance under section 40(a)(ia) for External Development Charges paid to ... Disallowance u/s 40(a)(ia) - External Development Charges(EDC) paid to HUDA without deduction of tax at source - TDS on EDC u/s 194C/194I - HELD THAT:- We find that the issue in dispute is no longer res integra in view of case of Regards Developers P Ltd 2023 (2) TMI 501 - ITAT DELHI] wherein it was held that where assessee paid external development charges to Haryana Urban Development Authority (HUDA) without deduction of tax at source, since such payment to HUDA was deposited in consolidated Fund of State and consequently assessee was not required to deduct tax on such payment, levy of penalty under section 271C upon assessee was not sustainable. The entire order of the Tribunal is already reproduced in the order of the ld. CIT(A) and hence the same is not reiterated herein for the sake of brevity. Since the relief is granted by the ld. CIT(A) by following the order of this Tribunal referred supra, we do not find any infirmity in the said order of the ld. CIT(A). Accordingly, the grounds raised by the revenue are dismissed. Issues involved:The issues involved in the judgment are related to the disallowance of External Development Charges (EDC) paid to HUDA without deduction of tax at source, interpretation of tax provisions under the Income-tax Act, 1961, and the applicability of penalties under different sections of the Act.Disallowance of EDC without TDS:The appeal pertains to the disallowance of Rs. 2,07,54,440/- on account of EDC paid to HUDA without deduction of tax at source. The revenue contended that the CIT(A) erred in law and on facts by deleting the addition. The revenue argued that EDC payments to HUDA are taxable and not covered by Section 196. The CIT(A) ignored the CBDT clarification that TDS provisions are applicable on EDC payments. The revenue also claimed that EDC payments are covered under service contracts and therefore, provisions of section 194C should apply. Additionally, the revenue challenged the reliance on a judgment of ITAT Delhi, arguing that it covers Section 271C and not Section 40(a)(ia).Assessment and Reassessment Proceedings:Despite the absence of the assessee, the appeal was heard based on available records. The assessment for the AY 2014-15 was reopened by the AO under section 147 of the Act due to EDC payments made without TDS. The assessee's submission highlighted the nature of the payments made to HUDA and the absence of a requirement for TDS under section 196. The AO, however, held that EDC payments fall under section 194C/194I, leading to disallowance under section 40(a)(ia) in the reassessment proceedings.Validity of Disallowance and Tribunal Decision:The assessee did not challenge the jurisdiction under section 147 before the CIT(A) or the Tribunal. The CIT(A) deleted the disallowance under section 40(a)(ia) based on the Tribunal's decision in a similar case. The Tribunal found that the issue was no longer res integra based on a previous decision, where it was held that payment to HUDA without TDS was not subject to penalty under section 271C. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal.Conclusion:The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the disallowance of EDC payments made to HUDA without deduction of tax at source. The decision was based on the interpretation of relevant tax provisions and previous tribunal rulings.