The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that penalty u/s 271C of the Income Tax Act,1961 based on mere assumption without supporting evidence is not sustainable hence it is invalid.
The assessee was represented by Shri Salil & Sh. Shailesh Gupta and the revenue was represented by Sh. Parikshit Singh, Sr. DR
On survey u/s 133A was carried out at the business/office premises of the Haryana Urban Development Authority (HUDA) by the DCIT (TDS) the Assessing Officer (AO) noticed that TDS was not made on payment of External Development Charges (EDC) and penalty u/s 271C was initiated. The assessee replied by stating that the provisions of section 194C were not applicable on payment, of EDC because the payment was made to the Government and not to the HUDA.
The AO held that there is no time limit for initiation of penalty, and for the imposition of penalty u/s 271C, order u/s 201(1)/201(1A) is not necessary and imposed a penalty and on appeal, the CIT(A) dismissed the same.
The assessee contended that the payments made to HUDA were only to facilitate the payments due on account of EDC charges towards Town and Country Planning, Government of Haryana. It was submitted that when the payments are made to the Government or local authority, no tax is required to be deducted.
It was contended by revenue that HUDA was neither a Government department nor a local authority and any payment being made to it was to be subjected to TDS u/s 194C of the Act.
It was evident that the payments have been to HUDA which was an authority of the Haryana Government created by the enactment of Legislature for carrying out developmental activities in the state of Haryana and these payments were made during the year 2013-2016 which is before CBDT Circular dated 23.12.2017, there was no clarity as regards the deduction of tax on these payments.
The Tribunal comprising Sh. G S Pannu, president and sh. Anubhav Sharma, Judicial member viewed that since there was no clarity about the taxability and levy of penalty u/s 271C of the Act cannot be sustained on the mere assumption without supporting evidence. The Bench set aside the impugned orders and allowed the appeal of the assessee.
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