EDC Payment TDS Dispute: ITAT Sets Aside TDS Default Order, Directs Fresh Inquiry regarding Income Tax Return Filings [Read Order]

The New Delhi Bench of Income Tax Appellate Tribunal (ITAT) set aside an ex-parte order holding the assessee in default under Section 201(1) of the Income Tax Act, 1961 for non-deduction of TDS on ₹4.60 crore paid as External Development Charges (EDC) to HUDA. The matter was remanded to the Assessing Officer to verify HUDA’s return filings, with relief to follow if conditions under the proviso to Section 201(1) were satisfied.

The Present appeal arose from an ex parte CIT(A) order dated 10.02.2025 confirming the AO's order under sections 201(1)/201(1A) holding the assessee in default for Rs. 17,20,400 for non-deduction of TDS under section 194C and Aggrieved with the action of Ld. Addl./JCIT (Appeal) the assessee had approached the ITAT for relief.

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The Section 201(1) of the Income Tax Act, 1961 explained that: Consequences of failure to deduct or pay

“Where any person, including the principal officer of a company,—(a) who is required to deduct any sum in accordance with the provisions of this Act; or(b)referred to in sub-section (1A) of section 192, being an employer,does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax”

The Assessee, Deputy Gothwal Constructions P. Ltd., paid External Development Charges (EDC) of Rs. 4,60,00,000 to HUDA on behalf of 17 landowners who were granted a development license under the Haryana Development and Regulation of Urban Areas Act, 1975. The AO held the assessee in default for Rs. 17,20,400 for non-deduction of TDS under section 194C.

Further, the Assessee stated that: (i) it was not the license holder but merely remitted EDC on behalf of the 17 landowners; (ii) HUDA was a collecting agency for DTCP Haryana, not a contractor; (iii) no contractual relationship existed; and (iv) HUDA disclosed these receipts in its income tax return and paid tax thereon, invoking the proviso to section 201(1).

The Assessee, represented by C.S. Aggarwal, Ravi Pratap Mall and Madhur Aggarwal, submitted that it had no TDS obligation as hearing notices from CIT(A) were not received, denying proper opportunity and the development license was granted to 17 landowners, not the assessee, under the Haryana Development and Regulation of Urban Areas Act, 1975.

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The Counsel also stated that the assessee merely remitted EDC amounts on behalf of the landowners who were the actual license holders and HUDA was only a collecting agency for DTCP, not a contractor, and no contractual relationship existed between the assessee and HUDA/DTCP. Accordingly, provisions of section 194C require a contractor-contractee relationship which was absent.

Further, the Counsel relied on the Supreme Court’s decision in Hindustan Coca Cola Beverage Pvt. Ltd. reported in 293 ITR 226 (SC) and GE India Technology Centre Pvt. Ltd. reported in 327 ITR 456 (SC), wherein the assessee could not be held to be in default for non-deduction of tax at source.

On the other hand, the Revenue, represented by the Senior Departmental Representative, Rajesh Kumar Dhanesta, relied on the Delhi High Court decision in Puri Constructions Pvt. Ltd. [2024] 462 ITR 326 (Del), arguing the case was squarely covered by that judgment. The Delhi High Court held that EDC payments to HSVP (similar statutory body like HUDA) for external development work fall within the ambit of section 194C and attract TDS liability.

Further, the Counsel stated that merely because HSVP was constituted under a statutory enactment and performed governmental functions does not make it "Government" for TDS exemption purposes under section 196, and therefore EDC payments are covered under section 194C with TDS required to be deducted.

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The Tribunal consisted of Vice-President, Mahavir Singh and Accountant Member, Sanjay Awasthi, heard and reviewed the matter.

The Tribunal, after considering the submissions made, observed that prima facie the Puri Constructions Pvt. Ltd. [2024] 462 ITR 326 (Del.) would apply but stated a potential factual distinction that the license was granted to 17 individuals, not the assessee. However, due to lack of fact-finding by lower authorities, the Tribunal could not determine the impact of this distinction.

Further, the Tribunal found merit in the assessee's alternative submission regarding HUDA's disclosure of EDC receipts in its return. Relying on Hindustan Coca Cola Beverage Pvt. Ltd. reported in 293 ITR 226 (SC) and the proviso to section 201(1) effective from 01.07.2012, the Tribunal held that a person is not in default if the payee: (i) filed return under section 139; (ii) included the sum in computing income; and (iii) paid tax due, with an accountant's certificate.

Accordingly, the Tribunal set aside the impugned order and remanded the matter to the AO to verify whether conditions under the first provision to section 201(1) were satisfied. If fulfilled, no liability under sections 201(1)/201(1A) arises.

Thus, the Appeal was allowed for statistical purposes. The Order was pronounced in the open court on 17.12.2025.

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