ITAT Delhi Sets Aside Section 201(1)/201(1A) Demand on NOIDA Lease Rent — Bona Fide Belief and Prospective Operation of Delhi HC Ruling Shield Assessee

Background and Context

The Income Tax Appellate Tribunal, Delhi Bench, recently delivered a significant ruling in favour of Mahagun (India) Pvt. Ltd. by annulling TDS default proceedings initiated under Section 201(1) and Section 201(1A) of the Income Tax Act, 1961 for Assessment Year 2012-13. The decision carries important implications for assessees who made lease rent payments to NOIDA Authority prior to the Delhi High Court's landmark clarification on the applicability of Section 194-I to such payments.

The appeals in question — ITA No.1899/Del/2022 and ITA No.1900/Del/2022 — arose from the orders passed by the Commissioner of Income Tax (Appeals)-28, New Delhi dated 29.06.2022, which had upheld the Assessing Officer's findings against both group entities.

Facts of the Case

Assessee and Nature of Transaction

Mahagun (India) Pvt. Ltd. and its group concern Mahagun Real Estate Pvt. Ltd. are the assessees before the Tribunal. Both entities had made payments towards lease rent to NOIDA Authority during the relevant financial year corresponding to AY 2012-13. The central question was whether such payments attracted the TDS obligation under Section 194-I of the Income Tax Act, 1961, and whether failure to deduct tax at source rendered the assessees liable as "assessee in default" under Section 201(1) and Section 201(1A).

First Round of Proceedings

The Assessing Officer had initially passed an order under Section 201(1)/201(1A) as far back as 22.03.2013, following survey proceedings conducted under Section 133A of the Act, during which certain defaults in TDS compliance had come to the Department's notice.

Second Round — The Impugned Orders

Subsequently, without invoking Section 148 or taking recourse to Section 263, the Assessing Officer initiated fresh proceedings under the same provisions. By order dated 29.03.2019, the Assessing Officer again treated Mahagun (India) Pvt. Ltd. as an assessee in default for non-deduction of TDS on lease rent paid to NOIDA Authority and raised a demand of Rs. 62,76,444/-. A similar order dated 25.03.2019 was passed against Mahagun Real Estate Pvt. Ltd.

These orders formed the subject matter of the appeals before the CIT(A), which were dismissed, and thereafter before the ITAT.

Arguments Raised on Behalf of the Assessee

The assessee's counsel presented a multi-pronged challenge before the Tribunal:

1. Bona Fide Belief Based on NOIDA Authority's Own Communications

The assessee placed on record specific communications issued by NOIDA Authority, both in English and Hindi, on different occasions. These letters explicitly conveyed that NOIDA Authority was not renting properties to allottees in the conventional sense and that the lease rent charged by it did not fall within the definition of "rent" under Section 194-I of the Income Tax Act, 1961.

Relying on this position, the assessee had consciously refrained from deducting TDS on the lease rent payments. The counsel urged that this constituted a genuine and bona fide belief rather than a deliberate evasion, thereby negating the element of default.