Signatures Builders Pvt ltd, New Delhi V. DCIT Circle-23(2), New Delhi

ITA 7055/DEL/2019

AI Insights

The case involves M/s Signature Builders Pvt. Ltd., which appealed against the order of the CIT (Appeals) sustaining additions and disallowances made by the Assessing Officer for the Assessment Year 2016-17. The primary contention was regarding the disallowance of Rs. 54,90,600 for non-deduction of TDS on payments made to HUDA, which the assessee argued were not liable for TDS under a bona fide belief. The Tribunal considered various precedents and the specific circumstances of the payments made to HUDA, ultimately deciding in favor of the assessee. Additionally, the Tribunal addressed the issue of a provision of Rs. 24,82,965 made towards gratuity and leave encashment, which was upheld as non-allowable under the relevant sections of the Income Tax Act.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 121875 (ITAT-DELHI)
• Duration Of Justice: 11 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: G
• Next Hearing Date: 04-12-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 25-05-2011
• Other Referred Cases: BPTP Ltd. Vs PCIT, M/s Santur Infrastructure Pvt. Ltd., M/s Sarv Estate Pvt. Ltd., RPS Infrastructure Ltd. vs ACIT, Bank of Nova Scotia vs CIT, DCIT (TDS) vs The Joint Secretary Organizing Committee For Winter Games, Virgin Mobile India Pvt. Ltd vs JCIT (TDS)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ANANYA KAPOOR; AMARBIR SINGH
• Keywords: Bonafide belief; Question of law; Non-deduction of tax; Reasonable cause; Valuation report; Reassessment proceedings; TDS
• Section: 147; 37; 40(a)(ia); 194C; 201(1); 113

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘G’: NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER ITA No.7055/DEL/2019 [Assessment Year: 2016-17] M/s Signature Builders Pvt. Ltd. 1309, 13 th Floor, Dr. Gopal Das Bhawan, 28 Barakhambha Road, Connaught Place, New Delhi-110001 Vs DCIT, Circle-23(2), New Delhi PAN-AAPCS8794K Assessee Revenue Assessee by Ms. Ananya Kapoor, Adv. & Sh. Amarbir Singh, CA Revenue by Sh. Abhishek Kumar, Sr. DR Date of Hearing 05.12.2022 Date of Pronouncement 13.12.2022 ORDER PER SHAMIM YAHYA, AM, This appeal by the assessee is directed against the order of Ld. CIT (Appeals)-8, New Delhi, dated 18.06.2019 for the Assessment Year 2016- 17. 2. The grounds of appeal read as under:- i. That the assessment order passed u/s 143(3)of the Income Tax Act, 1961 (“the Act”) dated 30.12.2018 and the disallowances/additions made therein by the Assessing Officer (“the AO”) and as upheld by the Commissioner of Income Tax (Appeals) (“CIT(A)”) are illegal, bad in law and without jurisdiction. ii. That, in view of the facts and circumstances of the case, the AO/CIT(A) has erred in making/sustaining addition of Rs. 79,73,565/- (Rs. 54,90,600 + Rs. 24,82,965/-) and 2 ITA No.7055/Del/2019 has erred by not accepting the returned income of Rs. (78,66,863/-). iii. That, in view of the facts and circumstances, the AO/CIT(A) has erred in making/sustaining the addition/disallowance of Rs.54,90,600/ u/s40(a)(ia) of the Income Tax Act, 1961. The said addition/disallowance is illegal, bad- in-law, without jurisdiction and is not sustainable in law. iv. That, in view of the facts and circumstances of the case, the AO/CIT(A) erred in not appreciating that the Appellant is not liable to deduct tax on the payment made, and hence no disallowance u/s 40(a)(ia) could be made. v. That, in view of the facts and circumstances, the AO/CIT(A) has erred in making/sustaining the addition/disallowance of Rs.24,82,965/-. vi. The said addition/disallowance is illegal, bad-in-law, without jurisdiction and is not sustainable in law. vii. That, in view of the facts and circumstances of the case, the AO/CIT(A) erred in not appreciating that the said expenditure is an allowable expense and thus the addition of Rs. 24,82,965/- is illegal and liable to be deleted. viii. That, in view of the facts and circumstances of the case, the CIT(A) has erred in not taking into consideration the application for additional evidence which was filed u/r 46A. The said evidence is vital for determination of the case and the CIT(A) ought to have appreciated the evidences filed by the Appellant. ix. That the explanations given, evidence produced and material placed and made available on record have not been properly considered and judicially interpreted and the same do not justify the additions made. x. That the additions made are based on mere surmises and conjunctures and the same cannot be justified by any material on record and against the principle of natural justice. 3. Brief facts of the case are that the AO noted that the assessee has paid Rs.1,83,02,000/- towards External Development Charges (EDC) to Haryana Development Authorities without deduction of TDS. The assessee in response to AO’s notice in this regard, stated that it is under a bona fide belief that HUDA is an authority fall under the provision of 3 ITA No.7055/Del/2019 section 196(i) of the Act. Hence, it is not liable to deduct the TDS on the payment made to HUDA. However, the AO did not accept the explanation and rejected the assessee’s claim. 4. Upon assessee’s appeal, the Ld. CIT(A) noted that there is no denial to the fact that a sum of Rs.1,83,02,000/- was paid to HUDA during the year on account of External Development charges. But the same was paid on behalf of the Directorate of Town Country Planning (DTCP) State Government of Haryana and not to Haryana Urban Development Authority (HUDA) as alleged by the Ld. A.O. That the same is also evident from the agreement dated 18.06.2014 with DTCP wherein it has been categorically stated that the owner shall pay the EDC as per schedule date and time as and when demanded by the DGTCP 1- 8 Haryana as mentioned in para 3 (iv) page no. 3 of the said agreement. However, the Ld. CIT(A) was not convinced, he upheld the disallowance holding as under:- “The contentions of the AR have been considered and the order of the AO has also been perused. It is seen that there is no denial by the AR to the fact that the payments were made to HUDA and no deduction of TDS was made on these payments. It is interesting to note that the assessee had furnished a different explanation for non-deduction .of TDS before the AO, which is mentioned by the AO in his order on top of page 2. There, the assessee had submitted that it was under a bona fide belief that HUDA is an authority which falls under the provisions of section 196(i) of the Income Tax Act. It is further noticed from the order of the AO that there is an official memorandum issued by the TPL division of the Income Tax on 23.03.2017 which states that HUDA is a taxable entity under the Income Tax Act. Considering the facts and circumstances of the case, it is held that the appellant was liable to deduct TDS on payments made to HUDA, which he has failed to do so and therefore the action of the AO in making the disallowance of Rs. 54,90,600/-(30% of Rs. 1,83,02,000/-) is hereby upheld.” 4 ITA No.7055/Del/2019 5. Against the above order, the assessee is in appeal before us. 6. We have heard both the parties and perused the records. At the outset, the ld. Counsel for the assessee submitted that the issue is squarely covered in favour of the assessee by the decision of the Hon’ble Delhi High Court in the case of BPTP Ltd. Vs PCIT [2020] 113 taxmann.com 587 (Del), decision of ITAT Delhi Bench in the case of M/s Santur Infrastructure Pvt. Ltd. in ITA No.6844/Del/2019, for Assessment Year 2015-16, order dated 18.12.2019 and in the case of M/s Sarv Estate Pvt. Ltd. In ITA Nos.5337 & 5338/Del/2019 for Assessment Years 2014-15 and 2015-16, vide order dated 13.09.2019. 7. Per contra, Ld. DR submitted that the facts in these cases are not applicable here, hence, he pleaded that the order of the Assessing Officer should be upheld. 8. Upon careful consideration, we find that the decision quoted by the ld. Counsel for the assessee dully supported the proposition canvassed. The head note of the decision of the Delhi High Court in the case of BPTP Ltd. (supra) in this regard may be gainfully referred as under:- “Section 194, read with section 147 of the Income-tax Act, 1961 - Deduction of tax at source - Dividend (Payment of EDC) - Assessment years 2012-13 and 2013-14 - Assessee was engaged in business of real estate - For relevant years, assessment in case of assessee was completed under section 143(3) - After expiry of four years from end of relevant year, Assessing Officer initiated reassessment proceedings on ground that EDC paid by assessee to Haryana Urban Development Authority (HUDA) were subject to TDS under section 194 and in absence of TDS, amount would be subject to disallowance under section 40(a)(ia) and as a result, certain income had escaped assessment - Assessee's objection to initiation of reassessment proceedings was rejected - It was noted from records that Assessing Officer had not given any basis for 5 ITA No.7055/Del/2019 forming his opinion that how EDC which was in nature of statutory fee, was subject to deduction of tax at source under section 194 - Moreover, in absence of any failure on part of assessee to disclose entire information relating to payments of EDC at time of assessment, reassessment proceedings could not be initiated by virtue of first provisio to section 147 - Whether in view of aforesaid, impugned reassessment proceedings deserved to be quashed - Held, yes [Paras 27 and 30] [In favour of assessee].” 9. Further, Delhi Bench of ITAT in the case of M/s Santur Infrastructure Pvt. Ltd.(supra), vide order dated 18.12.2019 has held as under:- 16. In view of what has been discussed above, we are of the considered view that firstly, 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; secondly, the assessee has reasonable cause for non-deduction of tax at source by the assessee company; thirdly 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; and fourthly, with continuous clarifications by the CBDT and DTCP discussed in the preceding paras, 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. Consequently, penalty levied by the AO and confirmed by the ld. CIT (A) is not sustainable in the eyes of law, hence ordered to be deleted. So, the appeal filed by the assessee is allowed.” 10. Similarly, Delhi Bench of ITAT in the case of M/s Sarv Estate Pvt. Ltd. (supra) has held as under:- “8. After considering the aforesaid submissions and relevant dings given in the impugned orders, though we may fell persuaded with some of the arguments raised by the Ld. Counsel, however, we find that under the facts and circumstances it is clearly borne out that assessee did had bonafide reason for not deducting the TDS. Firstly, for the reason that the license was granted by DTCP which is a Governing authority and it has clarified that EDC charges are paid to HUDA; and secondly, DTCP has issued a clarification to 6 ITA No.7055/Del/2019 the effect that no TDS is required to be deducted precisely. Precisely on similar set of facts, this Tribunal in the case of RPS Infrastructure Ltd. vs ACIT has deleted the penalty after observing and holding as under “11. We have heard the rival submissions, perused the relevant findings given in the orders passed bg the authorities below and the various judgments and materials relied upon by both the sides. On going through the facts, we note that dispute is with regard to non- deduction of tax in respect of payment of EDC charges made by the assessee to HUDA. As per the AO, HUDA is neither a local authority nor Government, thus, the payments made to it by the assessee on account of EDC charges were liable for TDS under section 194C of the Act. Since, assessee has failed to deduct the TDS; therefore, it is liable for penalty under section 27IC of the Act. On the other hand, the case of the assessee is that obligation to pay EDC charges is arising out of the license granted by DTCP and these payments are to be made for obtaining the license and as per the direction of the DTCP, the same have been paid to HUDA. Further, these payments are not in the nature of payment or in pursuance of works contract. There is no privity of contract between the assessee and the HUDA. On the contrary, the agreement is between Assessee Company and the DTCP which admittedly is a Government Department as agreement has been signed by DTCP on behalf of Governor of Haryana. We are of the view that we need not go in all these issues. From the facts, it is evident that the payments have been made by the assessee to HUDA which is an authority of Haryana Government created by enactment of Legislature for carrying out developmental activities in the state of Haryana. Such Authorities admittedly are not in the category of local authority or Government. These payments were made during the year 2013-2016 and during this period, that is, prior to issue of CBDT Circular dated 23.12.2017, there was no clarity as regard the deduction of tax on these payments. We are of the view that the assessee was under a bonafide belief that no tax is required to be deducted at source on such payments, firstly, for the reason that agreement was between DTCP, who is Governmental authority and licence was granted by the Government and EDC charges was directed to be paid to HUDA, therefore, this could led to reasonable cause that TDS was not required to be deducted; Secondly, DTCP had issued a clarification dated 29.06.2018 to the effect that no TDS was/is required to be deducted in respect of payments of EDC 7 ITA No.7055/Del/2019 and this clarification issued by DTCP, covers both past and future as the words used are was/ is. This shows that Governmental authority itself has demanded not to deduct TDS. In case even if tax was required to be deducted, on such payment but not deducted under a bonafide belief then no penalty shall be leviable under section 271C of the Act as there was no contumacious conduct by the assessee. Our view is fully supported from the judgment of the Hon’ble Supreme Court in the case of Commissioner of income tax vs bank of Nova Scotia, 380 ITR 550, wherein the Hon’ble Court has held as under: “2. The matter was pursued by the Revenue before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal vide order dated 31.03.2006 entered the following findings: 1. 1. We have carefully considered the rival submissions. In the instant case we are not dealing with collection of tax u/s 201(1) or compensatory interest u/s 2O1(1A). The case of the assessee is that these amounts have already been paid so as to end dispute with Revenue. In the present appeals we are concerned with levy of penalty u/s 271-Cfor which it is necessary to establish that there was contumacious conduct on the part of the assessee. We find that on similar facts Hon'ble Delhi High Court have deleted levy of penalty u/s 271-C in the case of Itochu Corporation 268 ITR 172 (Del) and in the case of CIT v. Mitsui & Company Ltd. 272 ITR 545. Respectfully following the aforesaid judgments of Hon'ble Delhi High Court and the decision of the ITAT, Delhi in the case of Television Eighteen India Ltd., we allow the assessee's appeal and cancel the penalty as levied u/s 271- C." 3. Being aggrieved, the Revenue took up the matter before the High Court of Delhi against the order of the Income Tax Appellate Tribunal. The High Court rejected the appeal only on the ground that no substantial question of law arises in the matter. 4. On facts, we are convinced that there is no substantial question of law, the facts and law having properly and correctly been assessed and approached by the Commissioner of Income Tax (Appeals) as well as by the Income Tax Appellate Tribunal. Thus, we see no merits in the appeal and it is accordingly dismissed. ” 12. The above judgment has been followed by the Coordinate Bench of the ITAT DELHI in the case of DCIT 8 ITA No.7055/Del/2019 TDS) , ACIT, TDS AND JOT, TDS, Dehradun Versus The Joint Secretary Organizing Committee For Winter Games whereby the penalty levied under section 271C has been deleted by recording the following findings: “31. We have carefully considered the rival contentions and perused the orders of the lower authorities. On looking to the facts of the case as discussed by us in appeal of the assessee and revenue in 201(1) and 2O1(1A) proceedings above, we find that the belief of the assessee is bonafide and failure to deduct tax at source u/s 194C of the Act is for a reasonable cause. The Id Assessing Officer could not show any contemptuous conduct on part of the assessee for non¬deduction of tax at source. There could also not be any reason for non- deduction as assessee has made most of the payments to the public sector undertaking. The Hon'ble Supreme Court in the case of CIT Vs. Bank of Nova Scotia in 380 ITR 550 has approved the decision of the Hon'ble 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 27IC of the act In the present case, all the recipients have also furnished a certificate that they have received the payment. In view of this, we reverse the order of the Id CIT (A) confirming the levy of the penalty of 3 1152461/- u/s 27IC of the Act in absence of any finding to show contumacious conduct on the part of the assessee. Ld OA id directed to delete the penalty-levied u/s 27IC of the act. Accordingly, appeal of the assessee in ITA No. 1576/Del/2015 for AY2010-11 is allowed.” Similarly in the case of Virgin Mobile India Pvt. Ltd versus JCIT (TDS) , Range-51, Room No. 406, New Delhi No.- ITA No. 3431/Del/2015 dt. November 28, 2018, the Coordinate Bench of ITAT has deleted the penalty levied under section 27 IC of the Act. 13. In view of the above facts and the analysis, we hold that there was a reasonable cause for non-deduction of tax at source by the assessee company. Further, in the absence of any findings that the assessee has deliberately avoided the TDS provision and as such there is no contumacious conduct on the part of the assesse. Accordingly, we reverse the findings of the lower authorities and direct the AO to delete the penalty for all the three years. 14. In the result, all the three appeals of the assessee are allowed. ” 9 ITA No.7055/Del/2019 10. Accordingly following the aforesaid observations, we hold that no penalty is leviable u/s 271C and same is directed to be deleted.” 11. Upon careful consideration, we find that the issue is squarely covered by the aforesaid case laws. No contrary decisions has been brought to our notice by the Ld. DR. Therefore, following the ratio laid down in the decision of the Hon’ble Delhi High Court in the case of BPTP Ltd. Vs PCIT (supra) and other decision of the Tribunal of Delhi Bench, we set-aside the order of the authorities below and decide the issue in favour of the assessee. 12. The another issue raised in this case relates to the addition of Rs.24,82,965/-. The AO on this issue observed that the assessee has made a provision of Rs.24,82,965/- towards gratuity and leave encashment expenses. The assessee was asked to provide the explanation regarding allowability of such provision. The assessee explained as under:- “......... The detail of provision of Rs.24,82,965/- made towards gratuity and leave encashment expenses not paid during the year enclosed. And that out of the same excess provision of Rs.9,60,000/- was reversed in the AY 2017-18. Accordingly, the provision of Rs.16,16,925/- on relates to the current year which remain unpaid. ...........” 13. The Assessing Officer was not convinced. Hence, he upheld as under:- “The reply of the assessee has been considered but found the same untenable. The assessee itself admitted that it is a provision and out which, the excess provision of Rs.9,66,040/- has been reversed in the A.Y. 2017-18 and the remaining was remain unpaid in the A.Y. 2017-18 also. Therefore, it itself suggest that the amount which has been claimed as expenses 10 ITA No.7055/Del/2019 towards leave and gratuity is only a provision and such expenses are not fall under the definition of “expenditure” under section 37 of 40A(7) of the act. Accordingly, the provision towards leave encashment and gratuity of Rs.24,82,965/- is hereby disallowed. However, such expenses are capitalised under the Work in progress, therefore, the closing WIP is hereby reduced by the similar amount.” 14. Upon assessee’s appeal, the Ld. CIT(A) noted assessee’s submission as under:- “During the course of appellate proceedings, the AR of the appellant has contended that since the assessee company is maintaining their books of account on mercantile basis and as such the provision was required be made for all the liabilities, accordingly the provision for gratuity of Rs. 12,82,385/- and leave encashment of Rs. 12,00,580/- was made as per the actuarial valuation report for the year ended 31.03.2016. The above said provision was reduced to Rs. 9,31,183/- for gratuity and to Rs.5,85,742/- for leave encashment by the actuarial valuer for the year ended 31.03.2017. Accordingly the provision was reversed to that extent. It is further contended by the AR that only the provision towards gratuity and leave encashment was reduced by Rs 9,66,040/- but a further sum of Rs. 9,97,440/- (Rs 4,91,899/- out of gratuity provision and Rs.5,05,541/- out of leave encashment provision) was duly added back in the computation of income for the A.Y. 2017-18.” 15. The Ld. CIT(A) was not fully convinced. He confirmed the addition with direction to provide part relief as under:- “The contentions of the AR have been considered and the order of the AO has also been perused. Since the amount involved is just a provision, which needs to be added back as it is not an expenditure u/s 37 or 40A(7) of the Act, therefore, the action of the AO in making the disallowance of Rs.24,82,965/- is hereby confirmed. However, the claim of the appellant that it has already- added back some amount in the computation of income in AY 2017-18 on this account, may be verified by the AO and relief if any may be allowed to the appellant on verification of the records.” 16. Against the above order, the assessee is in appeal before the Tribunal. 11 ITA No.7055/Del/2019 17. We have heard both the parties and perused the records. The Ld. Counsel for the assessee did not make any specific pleading on this issue. We note that Ld. CIT(A) has correctly appreciated the matter and granted due relief also. Hence, we do not find any infirmity in the order of the Ld. CIT(A) in this regard. Hence, we affirm the same. 18. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 13 th December, 2022. Sd/- Sd/- [CHANDRA MOHAN GARG] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER Delhi; Dated: 13.12.2022. f{x~{tÜ f{x~{tÜf{x~{tÜ f{x~{tÜ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi