The Delhi bench of the Income Tax Appellate Tribunal (ITAT), held that the assessee was not required to deduct TDS as the payment of External Development Charges (EDC) was not made out of any statutory and contractual liability to HUDA with whom the assessee has no privity of contract.
The Appellant, M/s. Santur Infrastructure Pvt. Limited filed an appeal on the basis of information come on record during the survey proceedings conducted under section 133A of the Income Tax Act at the business/office premises of Haryana Urban Development Authority (HUDA), Assessing Officer (AO) noticed that the Tax Deducted at Source (TDS) was not made on payment of External Development Charges (EDC).
Consequently, it initiated the penalty proceedings u/s 271C of the Act. AO proceeded to hold that the assessee was statutorily bound to deduct TDS on the amount of Rs.10,11,00,000/- nor brought on record any evidence if the non-deduction/non-deposit of tax at source was beyond the control of the assessee company.
Thus assessee company has no reasonable cause within the meaning of section 273B of the Income Tax Act for non-deduction of tax at source and consequently, levied the penalty of Rs.20,22,000/- @ 2% of the EDC amount u/s 271C of the Act.
The division bench comprising of Judicial Member Kuldip Singh and Accountant Member R.K. Panda delivered the order based on an appeal filed by M/s. Santur Infrastructure Pvt. Limited.
While allowing the appeal, the Tribunal observed that the assessee was not required to deduct TDS as the payment of EDC was not made out of any statutory and contractual liability to HUDA with whom the assessee has no privity of contract.
The Tribunal also said that the assessee has reasonable cause for non-deduction of tax at source by the assessee company. It is not the case of the Revenue authorities that the assessee has intentionally avoided the deduction of TDS by bringing on record contumacious conduct of the assessee. With continuous clarifications by the CBDT and DTCP discussed, the issue became debatable if the TDS is to be deducted or not on the EDC providing reasonable cause to the assessee not to deduct the TDS.
In light of the decision of the Supreme Court in the case of CIT Vs. Bank of Nova Scotia in 380 ITR 550 has approved the decision of the Delhi High Court wherein, it has been held that it is necessary to establish ‘contumacious conduct’ on the part of the assessee for failure to deduct tax at source for levy of penalty u/s 271C of the act.
The Tribunal also added that all the recipients have also furnished a certificate that they have received the payment. Hence the Tribunal reverse the order of the ld CIT (A) confirming the levy of the penalty of 1152461/- u/s 271C of the Act in absence of any finding to show contumacious conduct on the part of the assessee.
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