Principal Commissioner could not initiate Section 263 proceedings as the issue was pending before CIT (A).
Summary in Key Points:
- Issue: Whether the Principal Commissioner of Income-tax (PCIT) was justified in initiating revision proceedings under Section 263 of the Income-tax Act, 1961, when the Assessing Officer (AO) had already passed an order under Section 201/201(1A) regarding the same transaction.
- Facts: The assessee made payments to HUDA (Housing Development Authority) on behalf of two companies for external/infrastructure development charges (EDC). The AO treated these payments as rental payments under Section 194I and determined a liability under Section 201/201(1A). The PCIT, relying on a High Court decision, held that the payments should be treated under Section 194C and cancelled the AO’s order. The assessee appealed against the PCIT’s order.
- Decision: The ITAT held that the PCIT’s revision order was invalid and should be set aside. The ITAT reasoned that the AO’s order was not erroneous at the time it was passed and was a debatable issue pending before the Commissioner (Appeals).
Decision:
The ITAT ruled in favor of the assessee, setting aside the revision order passed by the PCIT. The ITAT clarified the following:
- Debatable Issue: The AO’s order classifying the payments as rental payments under Section 194I was a debatable issue at the time it was passed, as the applicability of Section 194C was also being considered.
- Pending Appeal: The issue regarding the applicability of Section 194C was pending before the Commissioner (Appeals) at the time the PCIT initiated the revision proceedings.
- Premature Revision: The ITAT held that the PCIT should not have initiated revision proceedings under Section 263 when the matter was already under appeal.
Important Note: This case highlights the importance of following proper procedures and avoiding premature revisions in tax matters. The ITAT’s decision emphasizes that the PCIT should not interfere in ongoing appeals and should allow the competent authorities to resolve the issues under consideration. This decision ensures that taxpayers are not subjected to unnecessary revisions and promotes the smooth and efficient functioning of the tax administration system.
IN THE ITAT DELHI BENCH ‘C’
IREO (P.) Ltd.
v.
CIT (TDS)-1
Yogesh Kumar U.S., Judicial member
and S. Rifaur Rahman, Accountant member
and S. Rifaur Rahman, Accountant member
IT Appeal No.2369, 2370, 2371, 2372 and 2373 (DEL) of 2024
[Assessment Year 2015-16]
[Assessment Year 2015-16]
DECEMBER 31, 2024
Ruchesh Sinha, Adv. for the Appellant. Dayainder Singh Sidhu, CIT DR for the Respondent.
ORDER
S. Rifaur Rahman, Accountant Member. – The assessees have filed appeals against the separate orders of ld. Commissioner of Income-tax (TDS), New Delhi (hereinafter referred to ‘ld. CIT (TDS)’) all dated 26.03.2024 for AY 2015-16.
2. Since the issues are common and the appeals are connected, hence the same are heard together and being disposed off by this common order. We take up the assessee’s appeal being ITA No.2369/Del/2024 for AY 2015-16 as lead case to adjudicate the issues under consideration.
3. The relevant facts of the case are, assessee is engaged in the business of real estate including residential flats and commercial space. An information was received from ITO, TDS Ward 73(4), Delhi. Based on the information, the case of the assessee was taken up for deep verification on the compliance of TDS provisions. Accordingly, notices for verification were issued to the assessee and served on the assessee. Further other informations were also received from ITO, TDS Ward 73(4), Delhi and Ward 76 (1), Delhi that assessee had made certain payment to HUDA in the nature of external/infrastructure development charges on behalf of M/s. Nucleus Conbuild Pvt. Ltd. and M/s. Adson Software Pvt. Ltd. on which no TDS was deducted which should have been covered for TDS deduction u/s 194I of the Income-tax Act, 1961 (for short ‘the Act’). The details of payment to HUDA were reproduced at page 2 of the assessment order. Based on the information available with the AO, the total payment comes to Rs.1,62,52,000/-. A show-cause notice was issued to the assessee why the above payment should not be treated as payment in the nature of rental services and explain reasons for non-deduction of TDS on it. Vide letter dated 23.03.2022, assessee submitted that the amount of External Development Charges (EDC) is the payment of levy or fees to State Government of Haryana, hence it is outside the provisions of Chapter-XVII of the Act and therefore, no TDS provisions are applicable. After considering the submissions of the assessee, the AO rejected the same and relied on the CBDT Office Memorandum dated 23.02.2017 clarifying that payment in the nature of EDC are not to Government but to Haryana Urban Development Authority (HUDA) which is the developing authority of State Government of Haryana and is taxable entity under the Act.
4. Accordingly, he determined the liability u/s 201/201(1A) of the Act of Rs.21,67,55,380/- and a chart showing the determination of such liability u/s 201/201(1A) is reproduced at the assessment order itself.
5. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) and as per the information, it is still pending before the ld. CIT (A).
6. Ld. CIT (TDS), Delhi-1 on examination of records of the present case for the assessment Year 2014-15 relating to EDC payment made to HUDA observed that the AO has initiated the proceedings u/s 201/201(1A) determining the penal interest u/s 194I of the Act. However, the decision of the Hon’ble Delhi High Court in the case of Puri Construction (P.) Ltd. v. Addl.CIT [2024] 462 ITR 326 (Delhi) has settled the current issue that the payment of EDC to HUDA falls u/s 194C of the Act not under section 194I of the Act as followed by the AO in the assessment order passed u/s 201/201(1A) of the Act. Based on the settled position of law that EDC falls under payment to contractors, therefore, the provisions of section 194C are attracted. Therefore, he held that the order passed u/s 201/201(1A) of the Act by the AO is considered as erroneous and prejudicial to the interest of Revenue. Since the issue was settled by Hon’ble Delhi High Court on the date of initiating the revision proceedings, ld. PCIT issued notice u/s 263 of the Act to the assessee. In response, the assessee submitted that it is not prejudicial to the interest of Revenue because if somebody fails to deduct tax at source, the same is not prejudicial to the Government revenue because Government will get the whole due tax liability along with the interest at the time of filing of ITR from the persons to whom payments failed to be deducted. Further, it was submitted that order passed u/s 201/201(1A) is not an assessment order. After considering the detailed submissions of the assessee, ld. PCIT rejected the same. Ld. PCIT relying on the decision of Puri Construction (P) Ltd. (supra) held that the payment of EDC charges shall attract the provisions of section 194C of the Act. Accordingly, ld. PCIT cancelled the earlier order passed by the AO by observing that the order passed u/s 201/201(1A) of the Act is not in accordance with law and also is erroneous and prejudicial to the interest of Revenue. Accordingly, AO was directed to enquire and examine the applicability of TDS provisions u/s 194C of the Act in respect of EDC payment made to HUDA after giving opportunity to the assessee.
7. Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :-
“1. That on the facts and circumstances of the case, the CIT (TDS) has erred in law in invoking the provisions of section 263 of the Income Tax Act, 1961.
2. That the CIT (TDS) while invoking the provisions of section 263 has not considered that the prerequisite conditions to invoke the said section i.e. the order should be “erroneous” insofar as “it is prejudicial to the interests of the revenue”, both are not satisfied in this case.
3. That the view taken by the CIT (TDS) while invoking the provision of 263 is against the settled jurisprudence that when two views are possible, the one which is beneficial to an assessee shall be taken.
4. That the view taken by the CIT (TDS) that the ratio of the decision of the Hon’ble Delhi High Court in the case of Puri Construction (Pvt. Ltd.) v. Addl. CIT shall apply to the present assessee/appellant is not correct.”
8. At the time of hearing, ld. AR for the assessee submitted that chronology of dates and events, the same are reproduced below :-
| S.No. | Date | Description | Remarks |
| 1. | 28.11.2019 | Decision of ‘BPTP Ltd. v. PCIT’ of Delhi High Court (Kindly refer S.No. 7, page no.121 of the case law paper book | In this case, before Delhi High Court, the department nontended that nn the payment to HUDA of EDC dravges, the provision of seition 194-1 shall be applicable. This was the order, which hold the field wheh the TDS order in the present cases was passed. |
| 2. | 26.03.2022 | After detailed enquiry order u/s 201/201(1A) was passed | Specific notices were issued ann venly were given, and the nssesrment order was aftered after due application of mind. |
| 3. | 13.02.2024 | Date of passing of the order by Delhi High Court in the case of Puri Construction (supra). (Kindly refer S.No.6, of the case law paper book). | Delhi High Court aeld that the pcovinions of ecction l9aC shall bc apalicabln on EDC payment. |
| 4. | 20.08.2024 | Date of the interim order of the Supreme Court staying the operation of the Delhi High Court order in case of Puri Construction (supra) and other batch matter (Kindly refer S.No.12, of the case law paper book.) | The Hon’ble Supreme Court has stayed the operations of the Delhi High Court in a number of batch matters filed taking the case of “Natureville Promoters Private” as the lead case, which was also part of the batch of Puri Construction group of cases. Its writ number i.e. 11232/2019 is also mentioned in the order of Puri Construction. Thus, the matter has not yet become final and is yet to be settled by the Supreme Court. |
9. Ld. AR for the assessee further submitted in the written submissions which is reproduced below for the sake of clarity :-
“5.1 It is a settled law that the subsequent change of law shall not attract the provision of section 263. In this case, the Ld. AO has taken a plausible view after considering the issue in great detail, while holding that the provision of section 194C shall be applicable via-a-vis provision of section 194I on the EDC payment. (Reliance is placed on the case laws enclosed as S.No.1-5 of the case laws paper book).
5.2 In this case, both the condition that the order should be ‘prejudicial’ and also ‘erroneous’ to the interest of revenue is not satisfied, as the Ld. AO has applied the section which has a higher TDS rate of 10% u/s 194I vis-a-vis 2% stipulated in section 194C.
5.3 The reliance placed by the CIT on the decisions of “Puri Construction” is not correct as it is well-settled that the Law applicable on the date when the Assessing Officer passed the order shall determine the erroneous nature of the order passed by the Assessing Officer. The order passed by the Commissioner cannot be justified by any subsequent pronouncement of law. In this case, at the time when the assessment order was passed the decision of BPTP Ltd v. PCIT was holding the field.
5.4 The view taken by the Del hi High Court in the case of “Puri Construction” has also not become final and the same has been stayed by the Hon’ble Supreme Court. Hence the view taken in such case as relied by the CIT while invoking provision of section 263 cannot be considered to be final.
5.5 It is a trite law that the CIT cannot impose his view on the view taken by the AO, when the AO has formed a specific view after issuing notices and after considering the reply of the assessee under consideration (Reliance is placed on the case laws enclosed as S.No. 8 and 9 of the case laws paper bock).
5.6 It is a trite law where two view arc possible and the AO has taken one of the possible views under consideration, provisions of 263 are not applicable. It is an admitted fact that in this case, the issue under consideration was debatable and hence there were divergent views of Delhi High Court first in the case of BPTP and then in the case of Puri Construction.
5.7 There is no loss to the revenue as, the HUDA is a taxable entity and the entire amount paid by the appellant shall be depicted in its return of income. The Ld. AO also para no. 6 of the order has observed that HUDA is a taxable entity. Therefore, there is no loss to the revenue.”
10. On the other hand, ld. DR for the Revenue brought to our notice para 2.1 of the 263 order and submitted that the AO has not followed the law and he proceeded to pass the order based on the submissions made before the Hon’ble High Court in the case of BPTP Ltd. (supra) and determined the liability on the basis that transaction under consideration is attracted u/s 194I of the Act. He relied on the findings of ld. PCIT at para 5.7 of the order.
11. Considered the rival submissions and material placed on record. We observed that the issue under consideration is payment of EDC to HUDA. The core issue under consideration is payment made to HUDA relating to payment of EDC whether this payment falls under TDS provision or not, however the AO no doubt proceeded to treat the payment made to HUDA as chargeable under the provisions of section 194I as rental payment and determined the liability u/s 201/201(1A) of the Act. The same issue on which assessee has preferred an appeal before the ld. CIT (A) is still pending for adjudication. However, in the meantime, Hon’ble Delhi High Court in the case of Puri Construction (P.) Ltd. v. Addl.CIT (supra) passed an order treating the EDC payment falls under the provisions of section 194C on 13.02.2024. By relying on the said decision, ld. PCIT has initiated the proceedings u/s 263 of the Act. This development on the subject of payment of EDC was not available with the AO at the time of passing the assessment order. The recent development forced the ld. PCIT to revise the assessment order treating the same as against the law as erroneous as well as prejudicial to the interest of Revenue. After considering the submissions of both the sides, we observed that the issue under consideration is already pending before ld. CIT(A) and the issue under consideration is not settled considering the fact that Hon’ble Supreme Court has stayed the operation of Hon’ble Delhi High Court decision in the case of Puri Construction (P.) Ltd. v. Addl.CIT (supra). After careful consideration, we are of the view that the issue under consideration is payment of EDC to HUDA which is pending before first appellate authority where the provisions of section 194I or 194C can also be the point of adjudication. However, ld. PCIT found that it is against the law and also observed that it is against the interest of Revenue. After careful consideration, we are of the view that the slab at which the AO calculated liability u/s 201/201(1A) is at 10% considering the same as rental payment. However, ld. PCIT has cancelled the relevant assessment order following the provisions of section 194C for which slab of 2% is applicable. It is not against the interest of Revenue.
12. After considering the overall facts on record, we observed that the order passed by the AO is not erroneous when the same was passed and also this is a debatable issue not settled considering the fact that the issue was pending before ld. CIT (A) and also ld. PCIT should not have proceeded to initiate proceedings u/s 263 of the Act when the same was pending before the ld. CIT (A). Let alone the fact that there is no prejudicial to the interest of Revenue in this case. Therefore, we are inclined to set aside the order passed u/s 263 of the Act and the same is quashed. Accordingly, this appeal being ITA No.2369/Del/2024 for AY 2015-16 filed by the assessee is allowed.
13. With regard to ITA Nos.2370 to 2373/Del/2024 for AY 2015-16, since the facts are exactly similar to ITA No.2369/Del/2024 for AY 2015-16 our above findings in ITA No.2369/Del/2024 are applicable mutatis mutandis in ITA Nos.2370 to 2373/Del/2024. Accordingly, the appeals being ITA Nos.2370 to 2373/Del/2024 filed by the assessee are allowed.
14. In the result, all the appeals filed by the assessees are allowed.