Delhi HC Quashes DLF Home Developers’ TDS Default Over HUDA Charges, Applying Its Earlier Ruling on Section 194I

By order dated 22 March 2023, the Assessing Officer treated the petitioner as an assessee in default under Sections 201(1) and 201(1A) of the Income Tax Act, 1961, for failing to deduct tax under Section 194-I on external development charges paid to HUDA.

In DLF Homes Panchkula (P.) Ltd. v. Joint Commissioner of Income Tax (OSD), the Delhi High Court had held on 24 March 2023 that the petitioner and similarly situated parties could not be treated as assessees in default under Section 194-I; the Supreme Court later affirmed that decision in the petitioner’s own case.

After the Assessing Officer continued to pursue the demand, the petitioner sought rectification under Section 154. The application was rejected on 31 August 2026, principally on the basis that the High Court judgment post-dated the original order.

The petitioner challenged the rejection and the original order by writ petition.

Sections 194-I, 201(1) and 201(1A) of the Income Tax Act, 1961 concern tax deduction at source and the consequences of failure to deduct or pay tax; Section 154 permits rectification of a mistake apparent from the record.

The Court referred to DLF Homes Panchkula (P.) Ltd. v. Joint Commissioner of Income Tax (OSD), which held that the petitioner and similarly situated parties could not be treated as assessees in default under Section 194-I in respect of the payments at issue.

The petitioner relied on ACIT v. Saurashtra Kutch Stock Exchange Ltd., arguing that failure to consider a binding judicial decision may constitute an apparent mistake, and on CBDT Circular No. 68 dated 17 November 1971.

The Court did not decide whether the later High Court judgment itself satisfied Section 154: it observed that the relevant passage in Saurashtra Kutch referred to the Gujarat High Court’s view and was not a specific approval by the Supreme Court, and left that question open.

The Court considered the Section 154 question unnecessary to resolve because the underlying issue—whether the petitioner could be treated as an assessee in default for not deducting tax under Section 194-I—had already been decided in the petitioner’s favour in DLF Homes Panchkula.

The Assessing Officer’s original order and the subsequent rectification order were therefore contrary to the law laid down by the High Court.

The Court also declined to require an appeal, finding that recourse to the Appellate Authority would be a redundant formality and an inefficacious remedy in the circumstances.

It expressly left open the question whether a subsequent judgment constitutes a mistake apparent from the record for purposes of Section 154.

Pending applications were disposed of.