Mahagun (India) Pvt. Ltd. Vs ACIT (ITAT Delhi)
The ITAT Delhi considered the assessee’s challenge to the orders of the Commissioner of Income Tax (Appeals)-28, New Delhi dated 29.06.2022, arising from orders passed by the Assessing Officer under Sections 201(1) and 201(1A) of the Income Tax Act, 1961 for Assessment Year 2012-13. In ITA No.1899/Del/2022, the Assessing Officer, by order dated 29.03.2019, had treated the assessee as an “assessee in default” for non-deduction of TDS on lease rent paid to NOIDA Authorities and raised a demand of Rs.62,76,444/-.
The assessee submitted that the impugned proceedings represented a second round of proceedings under Sections 201(1) and 201(1A), following an earlier order dated 22.03.2013. It was contended that the assessee had not deducted TDS on lease rent paid to NOIDA Authorities based on a bona fide belief supported by specific communications issued by the NOIDA Authority in English and Hindi stating that the lease rent did not fall within the meaning of “rent” under Section 194-I. The assessee also relied upon the Delhi High Court judgment in Rajesh Projects (India) Pvt. Ltd. vs. CIT (TDS)-II & Ors., reported in (2017) 78 taxmann.com 263 (Del), which dealt with the applicability of TDS provisions to lease rent paid to NOIDA Authority.
In Rajesh Projects, the Delhi High Court held that annual lease rent paid to NOIDA Authority was subject to TDS under Section 194-I. However, as noted by the Tribunal, the operation of the judgment was made prospective. The assessee therefore contended that the cause of action arising from that judgment could not be applied to Assessment Year 2012-13. The assessee further submitted that, having already faced proceedings under Sections 201(1) and 201(1A), the initiation of another round under the same provisions, without notice under Section 148 or action under Section 263, was also not justified.
The Revenue relied upon the first appellate order and submitted that, in view of the judgment in Rajesh Projects, the Department’s action could not be faulted.
The Tribunal, after considering the rival submissions and material on record, found considerable force in the assessee’s plea. It held that the assessee had successfully demonstrated the existence of a bona fide belief. According to the Tribunal, this demonstration, on a standalone basis, enabled the assessee to be exonerated from the provisions of Sections 201(1) and 201(1A) of the Act.
The Tribunal further observed that the operation of the judgment in Rajesh Projects had been made prospective, as mentioned in paragraph 20 of that judgment. It therefore held that the cause of action under Sections 201(1) and 201(1A) pursuant to the Delhi High Court judgment was not available to the Revenue for AY 2012-13 in question. The Tribunal also noted that, in an identical factual matrix, the Co-ordinate Bench in ITA No.997/Del/2020, order dated 15.12.2023, had granted similar relief.
On these grounds, the ITAT Delhi set aside the first appellate order and quashed the impugned order dated 29.03.2019 passed under Sections 201(1) and 201(1A). The Tribunal thus allowed the appeal in ITA No.1899/Del/2022.
In ITA No.1900/Del/2022, concerning Mahagun Real Estate Pvt. Ltd. and AY 2012-13, the Tribunal recorded that the grievance was identical and held that the observations in the preceding paragraph would apply mutatis mutandis. Accordingly, the impugned order dated 25.03.2019 passed under Sections 201(1) and 201(1A) in that appeal was also quashed.
Thus, both captioned appeals were allowed. The order was dictated and pronounced in the open Court on 04 September 2024.
For context on the underlying Section 194-I issue, TaxGuru has reported the Delhi High Court decision in Rajesh Projects (India) Pvt. Ltd. Vs CIT (TDS), which addressed TDS on annual lease rent paid to GNOIDA. :contentReference[oaicite:0]{index=0} TaxGuru also hosts the corresponding Delhi High Court judgment PDF. :contentReference[oaicite:1]{index=1}
Cases Discussed
- Rajesh Projects (India) Pvt. Ltd. Vs CIT (TDS), (2017) 78 taxmann.com 263 (Del) — The Delhi High Court decision was relied upon for the applicability of Section 194-I to annual lease rent paid to NOIDA Authority and, importantly for the present case, its prospective operation.
FULL TEXT OF THE ORDER OF ITAT DELHI
The captioned appeal has been filed by the assessee against the orders of the Commissioner of Income Tax (Appeals)-28, New Delhi (‘CIT(A)’ in short) dated 29.06.2022 arising from the respective orders dated 29.03.2019 and 25.03.2019 passed by the Assessing Officer (AO) under Section 201(1)/201(1A) of the Income Tax Act, 1961 (the Act) concerning A.Y. 2012-13 in the two appeals captioned above.
ITA No.1899/Del/2022 – A.Y. 2012-13
2. The appeal of the assessee concerns challenge to proceedings under Section 201(1)/201(1A) whereby demand of Rs.62,76,444/- has been raised on the assessee treating the assessee as assessee in default in the second round of proceedings. The AO, by order dated 29.03.2019 passed under Section 201(1)/201(1A) of the Act, held the assessee as ‘assessee in default’ towards non-deduction of TDS on lease rent paid to NOIDA Authorities.
3. Assailing the action of the AO and CIT(A), the ld. counsel for the assessee submitted at the outset that the AO has passed two orders under Section 201(1)/201(1A) dated 22.02.2013 and 29.03.2019 for A.Y. 2012-13 in question. The impugned order passed under Section 201(1)/201(1A) dated 29.03.2019 arises in the second round of proceedings under the same provisions of the Act. The first order was also passed under Section 201(1)/201(1A) vide order dated 22.03.2013 pursuant to certain defaults coming to the light of the Department in the survey proceedings under Section 133A of the Act. In the second round, the AO has yet again invoked provisions of Section 201(1) & 201(1A) for default in non-deduction of TDS by the Assessee on payments made to NOIDA Authorities towards lease rents. In this regard, the ld. counsel submitted that the Hon’ble Delhi High Court in the case of Rajesh Projects (India) Pvt. Ltd. vs. CIT (TDS)-II & Ors., as reported in (2017) 78 taxmann.com 263 (Del) was called upon to adjudicate the identical issue. The Hon’ble Delhi High Court essentially observed that it is not correct to say that NOIDA Authority is not subjected to TDS provisions on lease rent and thus payer is under statutory obligation to deduct TDS under Section 194-I of the Act. Default in non deduction of TDS would consequently lead to applicability of Section 201(1)/201(1A) of the Act. The ld. counsel however in the same vain, pointed out that the Hon’ble Delhi High Court in its wisdom has restricted the applicability of the conclusion drawn with prospective effect. In the instant case, the assessment year involved is A.Y. 2012-13 whereas the judgment rendered by the Hon’ble Delhi High Court is dated 16th February, 2017. The ld. counsel thus submitted that in his humble opinion, the default committed towards non deduction under Section 194-I prior to the delivery of the judgment requires to be viewed benignly. The ld. counsel further pointed out that the assessee acted bona fide in the light of the specific letters issued by the NOIDA Authority in English as well as in Hindi on different occasions, copy of which is placed in the paper book. As per such letters, it was communicated that NOIDA Authority is not renting the properties to allotees and the lease rent charged by NOIDA Authority do not fall within the meaning of rent under Section 194-I of the Act. The ld. counsel submitted that based on legal interpretation made by the NOIDA Authority towards non applicability of the provisions of Section 194-I on payments of lease rentals, the assessee has not deducted TDS in good faith. It is only after the enunciation of law by the Hon’ble Delhi High Court, the true position of law has come to surface. Under the circumstances, where the applicability of the judgment rendered by the Hon’ble Delhi High Court has been made prospectively, the assessee should not be embroiled with the provisions of Section 201(1)/201(1A) at this belated stage.
4. The ld. counsel further submitted that in the instant case where the order under Section 201(1)/201(1A) was already passed in the first round, the assessee is under bona fide belief that defaults in deduction of TDS under various provisions have been taken into account and therefore, second round of proceedings under the same provision of the Act (without issue of notice either under Section 148 or under Section 263) is not justified.
5. The ld. counsel thus urged for suitable relief in the matter.
6. The ld. DR for the Revenue, on the other hand, relied upon the First Appellate Order passed by the CIT(A) and in furtherance submitted that in the light of the judgment rendered in Rajesh Projects (supra), the action of the Department cannot be faulted.
7. We have carefully considered the rival submissions and perused the material available on record.
8. The applicability of Section 201(1)/201(1A) qua non- deduction of TDS obligated under Section 194-I in relation to lease rent payment to NOIDA Authority by the assessee is under controversy.
8.1 It is the case of the assessee that the assessee cannot be held as ‘assessee in default’ so as to attract the provisions of Section 201(1)/201(1A) in the peculiar factual matrix. The assessee contends that (i) the assessee acted under bona fide belief that payment towards lease rental is not susceptible to provisions of Section 194-I in view of specific communications made by the NOIDA Authorities on the applicability of Section 194-I of the Act; (ii) the proceedings under Section 201(1) and 201(1A) has already been completed and this is only a second round of proceedings under the same provisions; (iii) the applicability of the observations and conclusions in Rajesh Projects (surpa) is prospective. The Hon’ble High Court has visualized the difficulties of the tax payers and made the operation of judgment prospective in its wisdom and therefore, the cause of action if any, arising from Rajesh Projects (supra) is not available to the Revenue in A.Y. 2012-13 in question.
9. On appraisal of the factual matrix and the position of law, we find considerable force in the plea raised on behalf of the Assessee. The assessee has successfully demonstrated the existence of bona fide belief. This demonstration on standalone basis enables us to exonerate the assessee from the clutches of Section 201(1) and 201(1A) of the Act. We however further find that the operation of the judgment in Rajesh Projects (supra) have been made prospective as mentioned in paragraph 20 of the judgment. The cause of action under Section 201(1)/201(1A) in pursuance of the judgment of the Hon’ble Delhi High Court is thus not available to the Revenue for A.Y. 2012-13 in question. We also find that in the identical factual matrix, the Co-ordinate Bench in ITA No.997/Del/2020 order dated 15.12.2023 has granted relief similar to what is claimed in the present case. Thus, we have no hesitation to set aside the first appellate order and quash the impugned order dated 29.03.2019 passed under Section 201(1) and 201(1A) of the Act under challenge.
ITA No.1900/Del/2022 – A.Y. 2012-13
10. The grievance in ITA No.1900/Del/2022 in the case of Mahagun Real Estate Pvt. Ltd. as captioned above, are identical. The observations thus in the preceding paragraph for another group concern shall apply mutatis mutandis. In pari materia, the impugned order passed under Section 201(1)/201(1A) dated 25.03.2019 in ITA No.1900/Del/2022 is also quashed.
10. In the result, both the captioned appeals of the assessee are allowed.
Order was dictated and pronounced in the open Court on 04 September, 2024.
