Facts of the Case

  • The petitions relate to Financial Year 2013–14.
  • The petitioners challenged:
    • Penalty order dated 28.11.2022 passed under Section 271C, and
    • Demand notice issued under Section 156 of the Income Tax Act.
  • The dispute arose from alleged failure to deduct TDS on External Development Charges (EDC) paid to Haryana Urban Development Authority (HUDA).
  • A coordinate bench of the Delhi High Court had already ruled in favour of the petitioner in a related matter, holding that the petitioner cannot be treated as an assessee-in-default under Section 201/201(1A).

Issues Involved

  1. Whether penalty under Section 271C can be sustained when the assessee is not held to be in default under Section 201.
  2. Whether demand notice issued under Section 156 is valid in absence of a valid penalty order.

Petitioner’s Arguments

  • The petitioner argued that:
    • The issue of liability under Section 201/201(1A) had already been decided in its favour by a coordinate bench.
    • Once it is held that there is no default in deduction of TDS, penalty under Section 271C cannot survive.
    • Consequently, the demand notice issued under Section 156 is also invalid.

Respondent’s Arguments

  • The Revenue defended the penalty order and demand notice.
  • However, it did not dispute that the earlier judgment had ruled in favour of the petitioner regarding non-applicability of Section 201.

Court’s Findings / Order

  • The Court observed that:
    • The core issue (whether the petitioner was an assessee-in-default) already stood decided in favour of the petitioner.
    • Once the foundation (default under Section 201) fails, the penalty under Section 271C cannot stand.
  • Accordingly:
    • Penalty order dated 28.11.2022 was quashed.
    • Demand notice under Section 156 was also quashed.
  • The writ petitions were disposed of in favour of the petitioners.

Important Clarification

  • The judgment reinforces that:
    • Penalty under Section 271C is consequential in nature.
    • If the assessee is not held in default under Section 201, penalty proceedings automatically fail.
    • The ruling follows the principle of consistency with earlier coordinate bench decisions.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/RAS20072023CW172012022_115740.pdf

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