By TIOL News Service

NEW DELHI , MAR 20, 2018: THE issue is - Whether mere presumption regarding status of Noida Authority as "Local Authority" will absolve payer from his negligence in not withholding TDS on payment of lease rent to Noida Authority. NO IS THE ANSWER.

Facts of the case:

The Assessee i.e., NOIDA SEZ Authority, had made payment of lease rent to Noida Authority during the relevant year, on which no TDS was deducted u/s 194-I. The AO therefore passed orders u/s 201(1) / 201(1A) for non-deduction of tax and also initiated the penalty proceedings. The assessee submitted before A.O. the details with explanatory note that TDS deduction was not applicable in the case of Noida Authority. The AO was however of the view that "Noida Authority was not exempt u/s 10(20) as it was not Local Authority." The AO therefore, held that assessee had no reasonable cause for non-deduction of TDS on the payments of lease rent paid to Noida Authority. He also levied penalty u/s 271(1)(c) for all A.Ys vide separate orders.

On appeal, the FAA noted that there was no dispute regarding not deduction of tax on the amounts paid as lease rent to Noida Authority. In response, the assessee submitted that this lapse happened because of the claim of Noida Authority that it was not liable for deduction of tax at source. The FAA did not accept this contention because the deductee could not influence the deductor in not following the law.

Tribunal held that,

++ the provision of Section 273B provides that penalty need not be imposed on the person or the assessee as the case may be for failure to deduct TDS, if the assessee proves that there was a reasonable cause for the said failure. The AO in the order u/s 201(1) / 201(1A), specifically noted the explanation of assessee in which it was submitted by assessee that assessee requested the Noida Authority to clarify their position whether their income is exempt, but, no reply have been received from them. Prior to it, the Writ Petition of Noida Authority was dismissed by Allahabad High Court. The AO therefore rejected the contention of assessee and passed the order for recovery of the short deduction with interest. The assessee in the penalty proceedings claimed that income of the Noida Authority exempt u/s 10(20), which fact was also not proved by the assessee because it was incorrect. Therefore, the assessee had been negligent in not deducting TDS on lease rent paid to Noida Authority without any justification. Since assessee failed to prove its bonafide through any relevant and cogent evidence, therefore, assessee cannot take benefit of Section 273B.

(See 2018-TIOL-402-ITAT-DEL)