2004 (6) TMI 279 - AT - Income Tax

Short deduction of TDS - Salary payment to the employees in the form of leave travel allowance (LTA) - Assessee in default - Levy of interest - HELD THAT - We find that there was sufficient material available on record for the assessee to entertain a bona Me belief that the LTA granted to its employees was exempt u/s 10(5) and thus, the estimate of salary made by it for the purpose of deduction of tax at source for salary income as required by the provisions of s. 192 based on such bona fide belief was certainly a fair and honest estimate. It, therefore, follows that the obligation cast on the assessee-company u/s 192 was duly discharged by the assessee-company and there being nothing brought on record by the Revenue to show any instance of any of the employees having not actually incurred the LTA granted to them on their travel, we are of the view that there was no case to treat the assessee-company as an assessee in default in respect of the short deduction, if any, of the tax deducted at source from such salary income merely because the actual proof/evidence of halving actually incurred the leave travel allowance on travel expenses was not verified by it. As such, we are of the considered opinion that the assessee-company had complied with the requirements of s. 192 and there was no case to treat it as an assessee in default u/s 201(1) as well as to charge interest u/s 201(1A). In that view of the matter, we hold that the learned CIT(A) was fully justified in cancelling the orders passed by the AO u/s 201(1)/201(1A) for the years under consideration and upholding his impugned order, we dismiss the appeals filed by the Revenue. In the result, the appeals of the Revenue are dismissed.

Summary

Issues Involved:
1. Alleged short deduction of TDS on leave travel allowance (LTA).
2. Treatment of the assessee-company as a person in default u/s 201(1).
3. Levy of interest u/s 201(1A).

Summary:

1. Alleged Short Deduction of TDS on LTA:
The Revenue filed appeals against the consolidated order of CIT(A) concerning the alleged short deduction of TDS on salary paid in the form of LTA, which was treated as exempt by the assessee-company u/s 10(5). The AO found that the assessee-company did not obtain documentary evidence for the LTA expenditure, relying only on employee declarations. Consequently, the AO considered this a short deduction of tax and treated the assessee-company as a person in default u/s 201(1), also levying interest u/s 201(1A).

2. Treatment of the Assessee-Company as a Person in Default u/s 201(1):
The assessee-company argued that it deducted tax based on estimated income and bona fide belief in the declarations filed by employees. The CIT(A) found merit in the assessee's submissions, noting that the employer had no reason to doubt the declarations, especially since the CBDT had not prescribed specific formats for such declarations. The CIT(A) concluded that the employer cannot be held responsible for verifying the actual expenditure, which is the AO's duty during individual assessments. Thus, the CIT(A) canceled the demand raised by the AO u/s 201(1).

3. Levy of Interest u/s 201(1A):
The CIT(A) also canceled the interest charged u/s 201(1A), reasoning that the employer's actions were bona fide and based on honest estimates. The Tribunal upheld this view, emphasizing that the employer's estimate of salary income for TDS purposes was fair and honest, based on bona fide belief. The Tribunal noted that the employer had complied with the requirements of s. 192 and there was no evidence of employees not incurring the LTA on travel. Therefore, the Tribunal dismissed the Revenue's appeals, supporting the CIT(A)'s decision to cancel the orders passed by the AO u/s 201(1)/201(1A).

Conclusion:
The Tribunal concluded that the assessee-company had complied with the requirements of s. 192 and was not liable as a person in default u/s 201(1) nor for interest u/s 201(1A). The appeals filed by the Revenue were dismissed.