2020 (7) TMI 25 - AT - Income Tax

Penalty u/s 271C - non deducting tax at source from the payment towards LTC consisting of foreign travel - HELD THAT - Assessee bank has undertaken reasonable steps in terms of verifying the assessee's claim towards their LTC 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). We are unable to accept the Revenues contention that the assessee bank has not deducted the tax intentionally, fully knowing that the LTC 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 hank. Further, 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 LTC 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 departments 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. We are of the considered view that 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's levied under section 271C is hereby directed to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:

1. Legality of penalty levied under section 271C of the Income Tax Act.
2. Compliance with TDS provisions on salaries.
3. Interpretation of Section 10(5) of the Income Tax Act.
4. Bona fide belief and reasonable cause for non-deduction of TDS.
5. Applicability of Section 273B for reasonable cause.

Detailed Analysis:

1. Legality of Penalty under Section 271C:

The primary issue revolves around the legality of the penalty imposed under section 271C of the Income Tax Act. The assessee challenged the order of the Commissioner of Income Tax (Appeals) upholding the penalty levied for non-deduction of TDS on leave travel concession (LTC) reimbursements that included foreign travel. The Tribunal examined whether the penalty was justified under the given circumstances.

2. Compliance with TDS Provisions on Salaries:

The case facts reveal that during a survey under section 133A, the Assessing Officer (AO) found that the assessee, a banking institution, reimbursed LTC to employees for foreign travel without deducting TDS. The AO treated these reimbursements as exempt under section 10(5) and passed an order under section 201(1), raising a demand of ?6,62,454/-. The Tribunal noted that the assessee had paid the entire demand under sections 201(1) and 201(1A).

3. Interpretation of Section 10(5):

The Tribunal deliberated on the interpretation of Section 10(5) read with Rule 2B, which deals with exemptions for travel within India. The assessee argued that it had a bona fide belief that LTC reimbursements, including foreign travel, were exempt from TDS. The Tribunal acknowledged that the interpretation of Section 10(5) was debatable and that the assessee had consistently followed the same procedure for many years without any objections from revenue authorities.

4. Bona Fide Belief and Reasonable Cause for Non-Deduction of TDS:

The Tribunal considered the assessee's argument that it had a bona fide belief and reasonable cause for not deducting TDS on LTC reimbursements. The assessee contended that it followed a consistent methodology guided by the Indian Bank Association and had no mala fide intention. The Tribunal referred to a similar case, Syndicate Bank vs ACIT, where the penalty was deleted due to the bona fide belief of the assessee.

5. Applicability of Section 273B for Reasonable Cause:

The Tribunal evaluated whether the assessee had reasonable cause under Section 273B for not deducting TDS. It referred to the decision in State Bank of India vs ACIT, where the ITAT Jaipur Bench deleted the penalty under similar circumstances. The Tribunal concluded that the assessee had a reasonable cause for non-deduction of TDS, as it had consistently followed the same procedure and believed that LTC reimbursements were exempt under Section 10(5).

Conclusion:

The Tribunal, after considering the submissions and precedents, directed the AO to delete the penalty levied under section 271C. The appeal filed by the assessee was allowed, and the Tribunal emphasized that the assessee had a reasonable cause for not deducting TDS on LTC reimbursements, thereby justifying the deletion of the penalty. The order was pronounced on 30th June 2020.