Facts of the Case

The assessee companies were engaged in real estate business and had made payments towards External Development Charges (EDC) to HUDA on behalf of other entities. During TDS verification, it was found that no TDS was deducted on such payments, which according to the Assessing Officer (AO), were liable under Section 194I (rent).

The AO treated the assessee as assessee in default u/s 201/201(1A) and raised demand.

Subsequently, the CIT (TDS) invoked Section 263 on the ground that as per later Delhi High Court judgment in Puri Construction Pvt. Ltd., EDC payments fall under Section 194C (contract) and not Section 194I.

Thus, the AO’s order was considered erroneous and prejudicial to revenue, and revision proceedings were initiated.

Issues Involved

  1. Whether revision u/s 263 can be invoked when the issue is already pending before CIT(A).
  2. Whether AO’s order can be treated as erroneous and prejudicial to revenue.
  3. Whether EDC payments to HUDA attract TDS u/s 194C or 194I.
  4. Whether subsequent judicial developments can justify revision u/s 263.

Petitioner’s Arguments (Assessee)

  • The AO passed order after due inquiry and application of mind.
  • At the time of passing order, Delhi High Court decision in BPTP Ltd. was prevailing.
  • Subsequent judgment (Puri Construction) cannot be used to invoke Section 263.
  • Issue is debatable, as different judicial views exist.
  • The matter is already pending before CIT(A).
  • No loss to revenue since:
    • HUDA is a taxable entity, and
    • Tax would ultimately be recovered.
  • When two views are possible, revision u/s 263 is not permissible.

Respondent’s Arguments (Revenue)

  • AO wrongly applied Section 194I instead of 194C.
  • As per Delhi High Court in Puri Construction Pvt. Ltd., EDC is contractual.
  • Hence, AO’s order is:
    • Erroneous, and
    • Prejudicial to revenue.
  • Therefore, invocation of Section 263 is justified.

Court Findings / Order

  • The issue of TDS on EDC is already pending before CIT(A).
  • The matter is not settled, especially since:
    • Supreme Court has stayed operation of the Delhi High Court judgment in Puri Construction.
  • AO adopted one of the possible views, hence order cannot be termed erroneous.
  • Revision u/s 263 cannot be invoked where:
    • Issue is debatable, and
    • Matter is sub-judice before appellate authority.
  • Further, AO applied higher TDS rate (10% u/s 194I) compared to 2% u/s 194C, hence:
    • No prejudice to revenue exists.

Final Order:

  • Section 263 order quashed
  • Appeals of assessee allowed

Important Clarification

  • Pending appeal before CIT(A) bars revision u/s 263 on same issue.
  • Subsequent change in law/judgment cannot render earlier order erroneous.
  • Two possible views doctrine protects AO’s order.
  • Higher tax deduction applied negates “prejudice to revenue”.
  • EDC issue (194C vs 194I) remains litigative and unsettled, especially with Supreme Court stay.

Sections Involved

  • Section 194C – TDS on contracts
  • Section 194I – TDS on rent
  • Section 201 & 201(1A) – Assessee in default & interest
  • Section 263 – Revision of erroneous order

 Link to download the order -  https://itat.gov.in/public/files/upload/1735628116-ssRKeE-1-TO.pdf

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