Facts of the Case

The assessee companies, engaged in real estate development, made payments towards External Development Charges (EDC) to HUDA on behalf of other entities. The Assessing Officer (AO), based on information from TDS authorities, held that such payments were liable for TDS under Section 194I (rent) and accordingly raised demand under Sections 201/201(1A).

Subsequently, the CIT (TDS) invoked Section 263, relying on the Delhi High Court judgment in Puri Construction Pvt. Ltd., holding that EDC payments fall under Section 194C (contract payments), thereby treating the AO’s order as erroneous and prejudicial to revenue.

 

Issues Involved


  1. Whether invocation of Section 263 is valid when the issue is debatable.
  2. Whether EDC payments to HUDA attract TDS under Section 194I or Section 194C.
  3. Whether an order can be considered erroneous and prejudicial to revenue when AO has taken a plausible view.
  4. Whether revision is permissible when the same issue is pending before CIT(A).

Petitioner’s Arguments


  • The AO passed the order after detailed enquiry and application of mind.
  • At the time of assessment, the prevailing legal position (Delhi HC in BPTP Ltd.) supported applicability of Section 194I.
  • Subsequent judgment (Puri Construction Pvt. Ltd.) cannot be used to invoke Section 263.
  • The issue is debatable, and when two views are possible, revision is not permissible.
  • No prejudice to revenue exists since:
    • TDS under Section 194I (10%) is higher than Section 194C (2%).
    • HUDA is a taxable entity and income is disclosed.
  • The Delhi HC ruling relied upon by CIT is stayed by the Supreme Court, hence not final.

Respondent’s Arguments


  • The AO failed to apply correct legal provisions.
  • As per Delhi High Court in Puri Construction Pvt. Ltd., EDC payments fall under Section 194C.
  • Therefore, the AO’s order is erroneous and prejudicial to the interest of revenue.
  • Revision u/s 263 is justified to correct the legal position.

Court Order / Findings


  • The issue of TDS applicability on EDC payments is debatable and unsettled.
  • The AO had adopted a plausible view after due enquiry.
  • The matter was already pending before CIT(A), hence revision was not justified.
  • The reliance on Puri Construction Pvt. Ltd. was misplaced since:
    • It was a subsequent development, and
    • Its operation has been stayed by the Supreme Court.
  • No prejudice to revenue exists, especially when AO applied a higher TDS rate (10%).

Important Clarification


  • Subsequent judicial developments cannot render an earlier order erroneous for Section 263 purposes.
  • Where two views are possible, and AO adopts one, revision is invalid.
  • Pendency of the same issue before CIT(A) bars invocation of Section 263.
  • Higher TDS deduction negates “prejudice to revenue” condition.
  • Stay by Supreme Court makes reliance on High Court ruling non-final.

Sections Involved

  • Section 194I – TDS on Rent
  • Section 194C – TDS on Contracts
  • Section 201 & 201(1A) – Consequences of failure to deduct TDS
  • Section 263 – Revision of orders prejudicial to revenue


    Link to download the order -  https://itat.gov.in/public/files/upload/1735628158-xEmr8a-1-TO.pdf


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