Facts of the Case

The assessee companies were engaged in the business of real estate development including residential flats and commercial spaces.

During verification of TDS compliance, the Assessing Officer received information that the assessee had made payments towards External Development Charges (EDC) to HUDA (Haryana Urban Development Authority) on behalf of certain entities without deducting tax at source.

The Assessing Officer considered that the payments made to HUDA were in the nature of rent, thereby attracting TDS under Section 194I of the Income-tax Act, 1961. Consequently, proceedings were initiated under Sections 201 and 201(1A) for failure to deduct TDS.

The Assessing Officer determined liability treating the assessee as an assessee in default and raised a demand under the aforesaid provisions.

Subsequently, the PCIT invoked revisionary jurisdiction under Section 263, relying on the decision of the Delhi High Court in Puri Construction (P.) Ltd. vs Addl. CIT, wherein it was held that EDC payments to HUDA fall under Section 194C (contract payments) and not under Section 194I.

The PCIT therefore held that the order passed by the Assessing Officer was erroneous and prejudicial to the interests of the Revenue, and directed fresh examination of TDS liability under Section 194C.

Aggrieved by the revision order, the assessee filed appeals before the Income Tax Appellate Tribunal.

Issues Involved

  1. Whether the PCIT was justified in invoking revisionary powers under Section 263 of the Income-tax Act.
  2. Whether the order passed by the Assessing Officer under Sections 201/201(1A) could be considered erroneous and prejudicial to the interests of the Revenue.
  3. Whether EDC payments to HUDA attract TDS under Section 194I or Section 194C.
  4. Whether Section 263 can be invoked when the issue is debatable and already pending before CIT(A).

Petitioner’s Arguments (Assessee)

  • The conditions for invoking Section 263 were not satisfied, as the order passed by the Assessing Officer was neither erroneous nor prejudicial to the interests of the Revenue.
  • At the time the Assessing Officer passed the order, the Delhi High Court decision in BPTP Ltd. vs PCIT was prevailing, and therefore the view taken by the Assessing Officer was a plausible view.
  • The subsequent decision in Puri Construction (P.) Ltd. cannot retrospectively render the earlier assessment order erroneous.
  • The Supreme Court had stayed the operation of the Delhi High Court judgment in Puri Construction in related matters; therefore, the issue had not attained finality.
  • When two possible views exist, and the Assessing Officer adopts one of them after due enquiry, Section 263 cannot be invoked.
  • The issue was already pending before CIT(A), and therefore revisionary proceedings were unwarranted.

 

  • The Assessing Officer incorrectly treated the EDC payment under Section 194I.
  • As per the Delhi High Court ruling in Puri Construction (P.) Ltd. vs Addl. CIT, EDC payments to HUDA should fall under Section 194C.
  • Since the Assessing Officer failed to apply the correct legal position, the order became erroneous and prejudicial to the interests of the Revenue, justifying invocation of Section 263.

Court Findings / Tribunal Decision

  • The core issue involved TDS applicability on EDC payments made to HUDA.
  • At the time the Assessing Officer passed the order, the legal position was not settled, and the issue remained debatable.
  • The Delhi High Court judgment in Puri Construction (P.) Ltd. was delivered subsequently, and therefore it could not be used to declare the earlier order erroneous.
  • Further, the Supreme Court had stayed the operation of the Delhi High Court decision, indicating that the matter had not attained finality.
  • The Tribunal also noted that the issue was already pending before the CIT(A).
  • Importantly, the Assessing Officer applied Section 194I (10% TDS) whereas the PCIT proposed Section 194C (2% TDS), meaning there was no prejudice to the revenue.

Accordingly, the Tribunal held that the order of the Assessing Officer was neither erroneous nor prejudicial to the interests of the Revenue.

The revision order passed under Section 263 was therefore quashed.

Court Order

The Income Tax Appellate Tribunal set aside the order passed under Section 263 and allowed the appeals of the assessee.

Important Clarification

  • Revision under Section 263 cannot be invoked when the issue is debatable.
  • A subsequent judicial pronouncement cannot render an earlier order erroneous if the Assessing Officer had taken a plausible view at the time of passing the order.
  • Revisionary jurisdiction cannot be exercised when the same issue is pending before the appellate authority (CIT(A)).

Sections Involved

  • Section 194I – TDS on Rent
  • Section 194C – TDS on Payments to Contractors
  • Section 201 – Consequences of failure to deduct or pay TDS
  • Section 201(1A) – Interest for failure to deduct TDS
  • Section 263 – Revision of Orders Prejudicial to Revenue


    Link to download the order -  https://itat.gov.in/public/files/upload/1735628262-QjzSSs-1-TO.pdf

    Disclaimer

    This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.