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The assessee has filed the appeal against order dated 27.06.2019 for the assessment year 2014-15 passed by the CIT(A)-31, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. 'FAA') arising out of an appeal before it against the order dated 12/01/2018 passed u/s 271C of the Income Tax Act, 1961 (hereinafter referred as 'the Act') by the ACIT, Range- 76, New Delhi (hereinafter referred as the Ld. AO).

Pivotal Infrastructure Ltd.

2. The background to the issue are that a survey u/s 133A was carried out at the business/office premises of the Haryana Urban Development Authority (HUDA) by the DCIT (TDS), Panchkula who forwarded the details and findings of the survey. On detailed examination of the survey report and verification of the facts of the case of assessee, the LD.AO noticed that TDS was not made on payment of External Development Charges (EDC) and accordingly penalty u/s 271C was initiated. In response, the assessee filed stating that 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 Ld. Ld. AO examined the submission of assessee and mentioned that in the present case, the assessee has paid EDC to HUDA for carrying out civil works, construction work and other related works. The Ld. AO noticed that demand drafts for EDC payment were issued in the name Chief Administrator, HUDA. The Ld. AO further mentioned that HUDA Develops Urban Infrastructure for which it was receiving EDC charges from various parties. Although EDC was shown as Current liability in the balance sheet by the HUDA, but in the Notes to the accounts forming part of balance sheet shows that EDC are received for execution for various External Development works and as and when development work is carried out, the EDC liabilities are reduced accordingly. Then the Ld. AO examined business model of HUDA and on the basis of statement recorded during the course of survey of Sh. Ram Kumar, Senior Ld. AO, HUDA, he noticed that HUDA was engaged in acquiring land, developing it and finally handing over to the customers for a price. The lands were developed by HUDA though the same were identified and acquired by Urban Estate Department, Haryana Government, but the ownership and possession was transferred to HUDA for payment of consideration. The Ld. AO also examined scope of External Development Work (EDW) as per Haryana Development and Regulation of Urban Area Act, 1975 which includes water supply, sewerage, drains, necessary provision for treatment and disposal of Pivotal Infrastructure Ltd.

sewage, sullage and storm water, roads, electrical works, solid waste management and disposal etc. The EDC charges are fixed by HUDA from time to time by issuing letters/circulars. It was noted by the Ld. AO that all the demand drafts for EDC charges were drawn in favour of Chief Administrator, HUDA though routed through Director General, Town and Country Planning, Government of Haryana. In view of the above mentioned facts, the Ld. AO was of the view that HUDA is taxable entity who was rendering services for External Development Work and receiving the consideration for such services. Accordingly, in view of Circular No. 681 of CBDT dated 08/03/1994, the TDS was applicable on EDC charges. Thereafter, the LD.AO has reproduced various circulars dated 15.01.2002, 08.07.2002, 25.09.2009 and 14.08.1996 issued by Accounts Officer, for Chief Controller of Finance, HUDA, Panchkula vide which EDC charges were fixed. Finally, the Ld. AO was of the view the assessee has paid EDC for the works carried out by HUDA and hence the same was liable for TDS u/s 194C Ld. AO also noticed that certain tax deductor sought clarification regarding applicability of TDS provisions on EDC charges paid to HUDA and the CBDT vide OI in F.No. 370133/37/2017-TFL dated 23/12/2017 has clarified that when EDC is paid to Government of Haryana, the same would be exempt from TDS provisions. It was further clarified by the CBDT that in the instant case, it appears that the developer has made the payment in the nature of EDC not to the Government but to the HUDA which is a Development Authority of State Government of Haryana and is a taxable entity under the Income Tax Act, 1961 and hence TDS provisions would be applicable on EDC payable by the developer to HUDA. 2.1 Accordingly after referring to the provisions of section 271C and the decisions of the various authorities particularly the decision of Hon'ble High Court in the case of CIT(TDS) vs M/s IKEA Trading Hong Kong Ltd in 179 Taxman 309 (Del), the Ld. AO has held that there is no time limit for initiation of penalty, and for imposition of penalty u/s 271C, order u/s 201(1)/201(1A) is Pivotal Infrastructure Ltd.

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 271C 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 assesse 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 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 :