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2020 (10) TMI 511 - AT - Income TaxPenalty u/s 271C - leave Travel Allowance (LTA) disallowance - HELD THAT - As decided in M/S. ANKITA ELECTRONICS PVT LTD. 2015 (3) TMI 1029 - KARNATAKA HIGH COURT assessee in the present case had disclosed all the materials on which it was claiming deduction. The matter as to whether the deduction was to be given or not, was taken up by the revenue authorities and it was held that certain deductions claimed by the assessee were to be disallowed. It is not disputed that the questions regarding the disallowance of the deductions claimed by the assessee is under consideration by the High Court, as the appeal filed by the assessee has been admitted, on the substantial questions of law which have been reproduced hereinabove. Mere admission of the appeal by the High Court on the substantial questions of law as have been quoted above, would make it apparent that the additions made were debatable. The Tribunal has thus rightly held that the admission of substantial questions of law by the High Court leads credence to the bona fide of the assessee and therefore, the penalty is not exigible u/s 271(1)(c) - Merely because the claim of the assessee has been rejected by the revenue authorities would not make the assessee liable for penalty - Decided in favour of assessee.
Issues Involved:
1. Validity of imposition of penalty on the Assessee under Section 271C of the Income Tax Act, 1961. Issue-Wise Detailed Analysis: 1. Validity of Imposition of Penalty on the Assessee under Section 271C of the Income Tax Act, 1961: The appeals by the Assessee, a nationalized bank, concern the validity of the imposition of penalty under Section 271C of the Income Tax Act, 1961. The core issue revolves around the Assessee's failure to deduct tax at source on Leave Travel Allowance (LTA) reimbursements for journeys that included travel outside India. Background and Legal Framework: The Assessee reimbursed LTA to its employees for journeys undertaken out of India but did not deduct tax at source, believing that if the destination was India, the entire LTA was exempt under Section 10(5) of the Income Tax Act. However, the Department held that tax should have been deducted for the portion of the journey outside India, leading to the Assessee being deemed in default under Sections 200(1) and 200(1A) of the Act and liable for penalty under Section 271C. Relevant Provisions: - Section 10(5): Provides exemption for LTA for travel within India. - Rule 2B: Outlines conditions for LTA exemption. - Section 271C: Imposes penalty for failure to deduct tax at source. - Section 273B: Provides relief from penalty if there is a reasonable cause for the failure. Arguments and Reasoning: The Assessee argued that the failure to deduct tax was based on a reasonable belief that the LTA was exempt if the destination was India, even if the journey included foreign travel. This belief was supported by the fact that the High Court had admitted an appeal on the substantial question of law regarding the interpretation of Section 10(5), indicating that the issue was debatable. Precedents and Judicial Decisions: 1. Supreme Court in CIT v. Eli Lilly & Co. (India) Pvt. Ltd.: Highlighted that penalty under Section 271C is not automatic and can be waived if there is a reasonable cause for failure to deduct tax. 2. Karnataka High Court in CIT v. The Rajajinagar Co-operative Bank Ltd.: Emphasized that bona fide mistakes and immediate corrective actions upon discovery can constitute a reasonable cause under Section 273B. 3. ITAT Jaipur in State Bank of India v. ACIT: Deleted the penalty under Section 271C for similar non-deduction of tax on LTA, recognizing the Assessee's bona fide belief and consistent past practice. Tribunal's Observations: The Tribunal noted that the Assessee's appeal against the order of default was admitted by the Karnataka High Court, indicating that the issue was debatable. Following the principles laid down in the aforementioned judicial decisions, the Tribunal concluded that the Assessee had a reasonable cause for not deducting tax at source and thus, the penalty under Section 271C could not be sustained. Conclusion: The Tribunal held that the imposition of penalty under Section 271C was not justified given the Assessee's bona fide belief and the debatable nature of the issue. Consequently, the penalty was directed to be deleted, and all the appeals by the Assessee were allowed. Final Judgment: The penalty levied under Section 271C of the Income Tax Act in the cases before the Tribunal was deleted, and the appeals by the Assessee were allowed. The judgment was pronounced in the open court on October 5, 2020.
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