Facts of the Case

The present writ petitions were filed by the petitioners, namely DLF Homes Panchkula Pvt. Ltd. and DLF Home Developers Ltd., challenging:

  • The penalty order dated 28.11.2022 passed under Section 271C of the Income Tax Act, 1961; and
  • The corresponding demand notice issued under Section 156 of the Act.

The dispute pertains to Financial Year 2013–14 and relates to the alleged failure of the petitioners to deduct tax at source (TDS) on External Development Charges (EDC) paid to Haryana Urban Development Authority (HUDA).

Issues Involved

  1. Whether penalty under Section 271C can be sustained when the petitioner is not treated as an assessee-in-default under Section 201/201(1A)?
  2. Whether demand notice under Section 156 based on such penalty is valid in law?
  3. Whether TDS was required to be deducted on External Development Charges (EDC) paid to HUDA?

Petitioner’s Arguments

  • The petitioners contended that the issue regarding liability to deduct TDS on EDC already stood settled in their favour by a coordinate bench of the Delhi High Court.
  • It was argued that once it has been held that the petitioner is not an assessee-in-default under Section 201/201(1A), the consequential penalty under Section 271C cannot survive.
  • The impugned penalty order and demand notice were therefore legally unsustainable.

Respondent’s Arguments

  • The Revenue supported the imposition of penalty and issuance of demand notice.
  • It relied on the alleged failure of the petitioners to deduct TDS on payments made towards EDC.

Court Findings / Order

  • It is undisputed that on merits, the issue had already been decided in favour of the petitioners in an earlier judgment of the coordinate bench.
  • Once the petitioners were held not liable as an assessee-in-default under Section 201/201(1A), the penalty under Section 271C cannot be sustained.
  • Consequently, the penalty order dated 28.11.2022 and the demand notice under Section 156 were quashed.
  • The writ petitions were disposed of accordingly.

Important Clarification

  • The Court reaffirmed that penalty proceedings under Section 271C are dependent on the foundational liability under Section 201.
  • If the primary liability to deduct TDS fails, penalty automatically collapses.
  • The judgment reinforces consistency in judicial decisions where identical issues have already been settled.

Link to download the order - 

https://delhihighcourt.nic.in/app/showFileJudgment/RAS20072023CW172012022_115740.pdf

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