2019 (1) TMI 145 - AT - Income Tax

Penalty levied u/s 271C - demand u/s 201(1) - non-deduction of tax u/s 192 on reimbursement of Leave Fare Concession (LFC) claim, to the extent of foreign leg of travel of 12 employees of the assessee bank - Held that - The assessee bank has undertaken reasonable steps in terms of verifying the assessee s claim towards their LFC claims and is aware of employees travelling to foreign countries as part of their travel itinerary but at the same time, there is an error of judgment on part of the assessee bank in understanding and applying the provisions of section 10(5). Therefore, we are unable to accept the Revenue s contention that the assessee bank has not deducted the tax intentionally, fully knowing that the LFC is applicable for travel in India only and no foreign travel is allowable as it is a case of error of judgment and no malafide can be assumed on part of the bank. Nothing has been brought on record which in any ways suggest connivance on part of the assessee bank or forged claims submitted by the employees and which has been discovered by the Revenue during the course of its examination. As fairly submitted by the assessee bank, while calculating the estimated tax liability of its employees, it always consider LFC claim as exempt under section 10(5) and the same position, being followed and accepted consistently in the past years, was followed in the current financial year as well. However, for the first time, after the survey by the tax department, this issue arose for consideration and after the judgment of the Tribunal, the matter got clarified and the assessee bank has duly complied and deposited the outstanding demand along with interest and has taken corrective steps in subsequent years as well. There was reasonable cause in terms of section 273B of the Act for not deducting tax by the assessee Bank. In the result, the penalty so levied under section 271C is hereby directed to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Sustenance of penalty levied under Section 271C of the Income Tax Act.
2. Non-deduction of tax under Section 192 on Leave Fare Concession (LFC) claims involving foreign travel.

Issue-wise Detailed Analysis:

1. Sustenance of Penalty Levied Under Section 271C:
The assessee bank challenged the penalty levied by the AO under Section 271C for non-deduction of tax on LFC claims. The JCIT (TDS) imposed a penalty equal to the amount of tax not deducted, asserting that the bank intentionally did not deduct tax, knowing that LFC is applicable only for travel within India. The CIT(A) upheld this penalty, stating that the bank failed to provide material against the JCIT's observations.

2. Non-Deduction of Tax Under Section 192 on LFC Claims Involving Foreign Travel:
The facts of the case reveal that the assessee bank reimbursed LFC claims for travel that included a foreign leg, which was not eligible for exemption under Section 10(5) of the Act. The bank believed that the LFC claims were exempt if the designated place was in India, even if the journey included foreign travel. The bank had consistently followed this practice, and it was only after a survey by the Income Tax Department that the issue of taxability arose. The bank argued that it operated under a bona fide belief and had not willfully defaulted in deducting TDS.

Reasonable Cause and Judicial Pronouncements:
The bank contended that it had a reasonable cause for non-deduction of tax, citing Section 273B, which provides for waiver of penalty if reasonable cause is proven. Judicial precedents, including the Supreme Court's observations in Commissioner of Income Tax, New Delhi Vs. M/s Eli Lilly & Company (India) Pvt. Ltd., support the view that penalty under Section 271C is not automatic and can be waived if reasonable cause is shown. The bank argued that its consistent practice and bona fide belief constituted reasonable cause.

Tribunal's Findings:
The Tribunal examined whether the bank had a reasonable cause for not deducting tax. It noted that the bank had collected evidence of travel and was diligent in its verification process. The Tribunal found that the bank's error was in its judgment of the applicability of Section 10(5) and not intentional non-compliance. The Tribunal emphasized that the bank had a consistent practice of exempting LFC claims and had taken corrective steps after the issue was clarified post-survey.

Conclusion:
The Tribunal concluded that the bank had a reasonable cause for non-deduction of tax, and the penalty under Section 271C was not warranted. The penalty was directed to be deleted, and the appeal of the assessee was allowed.

Order:
The appeal of the assessee is allowed, and the penalty levied under Section 271C is deleted. The order was pronounced in the open Court on 31/12/2018.