AO Cannot Hold Assessee in Default Under Section 194I for EDC Payments to HUDA.

Issue

Whether an assessee can be held in default under Section 194I (TDS on Rent) for non-deduction of tax on External Development Charges (EDC) paid to a state authority (HUDA), especially when the final order relies exclusively on this section even though other sections were mentioned in the SCN.

Facts

The assessee, for AY 2014-15 and 2015-16, made payments for External Development Charges (EDC) to the Haryana Urban Development Authority (HUDA).
No Tax Deducted at Source (TDS) was made on these payments.
The Assessing Officer (AO) issued a show-cause notice invoking Section 194I (TDS on Rent) and, without prejudice, also referred to Section 194C (TDS on Contracts).
However, the final orders passed by the AO held the assessee to be an “assessee in default” specifically and solely for non-deduction of TDS under Section 194I.

Decision

The High Court (implied) quashed the impugned orders.
It held that the department cannot take advantage by citing multiple provisions in a show-cause notice and then ultimately fasten the tax liability on a provision that is not applicable.
The court found that the provisions of Section 194I (Rent) are clearly not applicable to EDC charges paid to HUDA.
Since the AO’s final order was based only on the incorrect invocation of Section 194I, the entire order was legally invalid and was set aside.

Key Takeaways

Final Order Must Stand on its Own: An order of default must be sustainable under the specific section of law that it finally invokes. It cannot be saved by other sections that were only vaguely mentioned in the SCN.
EDC is Not Rent: External Development Charges paid to a government authority for the development of an area do not constitute “Rent” as defined under Section 194I.
Incorrect Section Invalidates Order: An assessee cannot be held in default for non-deduction of TDS under an incorrect and inapplicable section of the Act.
“Catch-All” SCNs: The department’s practice of citing multiple sections in an SCN in the hope that one will stick is a flawed approach and can be challenged.

IN THE ITAT DELHI BENCH ‘G’

Cogent Realtors (P.) Ltd.

Joint Commissioner of Income-tax (OSD), TDS^*

ANUBHAV SHARMA, Judicial Member
and Manish Agarwal, Accountant Member

IT Appeal Nos. 1656 and 1657 (Delhi) of 2025
[Assessment years 2014-15 and 2015-16]

OCTOBER 31, 2025

S.S. Nagar, CA for the Appellant. Manish Gupta, Sr. DR for the Respondent.

ORDER

Anubhav Sharma, Judicial Member. –These two appeals have been preferred by the assessee against order dated 31.01.2025 of the learned Commissioner of Income Tax (Appeals)-3, Gurgaon, arising out of orders dated 26.04.2021 for Assessment Year 2014-15 and dated 20.05.2022 for AY 2015-16, passed u/s 201(1)/201(1A) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the JCIT(OSD), TDS Circle, Gurgaon.

2. As the two appeals have common issue same were heard together and facts for AY 2014-15 shall be referred. On hearing both the sides, we find that the assessee company is engaged in the business of real estate. A survey u/s 133A(2) of the Act was conducted on the business premises of Haryana Urban Development Authority (HUDA) on 09.02.2017 and 10.02.2017. The information collected allegedly revealed that in AY2014-15 the payment of External Development Charges (EDC) totalling to Rs.9,40,10,000/- was made by the assessee to HUDA without deducting TDS. A proceedings u/s 201(1)/201(1A) were initiated and the impugned order was passed in the case of the assessee, whereby, the Assessing Officer has held that the assessee to be in default for nondeduction of TDS u/s 194I of the Act and the demand was created which was not sustained by the ld. CIT(A) for which the assessee is in appeal for two assessment years i.e. 2014-15 and 2015-16 before us.

3. The ld. Counsel for the assessee has primarily argued that the provisions of section 194I of the Act are not applicable and reliance was placed on the decision of Hon’ble Delhi High Court in the case of DLF Homes Panchkula (P.) Ltd. v. Jt. CIT (OSD) (Delhi), in which the SLP preferred by the Department has been dismissed as reported in Jt. CIT (OSD) v. DLF Homes Panchkula (P.) Ltd. (SC).

4. The ld. DR has countered the same by submitting that there is mere error in mentioning of section 194I of the Act and in fact the provisions of section 194C were applicable in these cases. He relied upon the impugned orders to submit that the provisions of section 194C are also mentioned by the Assessing Officer.

5. After taking into consideration the impugned orders, we find that while issuing notices calling upon assessee to show-cause, the Assessing Officer has invoked the provisions of section 194I of the Act initially and also without prejudice basis the provisions of section 194C of the Act were mentioned at page no.20 of the impugned orders for financial year 2014-15 relevant to Assessment Year 2015-16. However, while concluding the order in para no.3, the Assessing Officer specifically refers to assessee being in default for non-deduction of TDS u/s 194I of the Act. Though, the impugned order for financial year 2013-14 relevant to AY 2014-15, there is specific mention at the time of conclusion of application of section 194I of the Act. However, the impugned order of ld. CIT(A) specifically refers to invocation of section 194I of the Act in both the Assessment Years.

6. We are also of considered view that department cannot call for an advantage by citing multiple provisions in show cause and which are not finally invoked for fasting the tax liability. The impugned orders very categorically show that provisions of Section 194I of the Act have been invoked to hold assessee in default. Now, a with regard to applicability of section 194I of the Act there seems to be no doubt that the same is not applicable in regard to EDC Charges paid to HUDA as held by Hon’ble Delhi High Court in the case of DLF Home Panchkula Pvt. Ltd. (supra). Therefore, in the light of the aforesaid, we are inclined to sustain the grounds of appeal no.4 with its sub grounds and the appeals are allowed.

7. In the result, the appeals of the assessee are allowed. Impugned orders are quashed.