2017 (4) TMI 533 - AT - Income Tax

Short deduction u/s. 192 - allowing exemption u/s. 10(5) towards the reimbursement of LTC/LFC claims of its employees - treating the assessee-Bank as an assessee in default u/s. 201(1) - Held that - On careful perusal of the provisions of s.10(5) we are of the view that the said provision was introduced in order to motivate the employees and also to encourage tourism in India and, therefore, the reimbursement of LTC/LFC was exempted, but, there was no intention of the Legislature to allow the employees to travel abroad under the garb of benefit of LTC available by virtue of s.10(5) of the Act. However, in the present case the employees of the assessee-Bank have travelled outside India and raised claims of their expenditure incurred therein. There is no dispute that the assessee-Bank may not be aware with the plan of travel of its employees initially, however, at the time of settlement of LTC/LFC bills, the employees should have placed comprehensive details before the assessee-Bank as to where they have travelled/visited and raised the claims, that means to say, the assessee-Bank was well aware of the fact that its employees have travelled in foreign countries too by availing LTC/LFC for which they were not entitled for exemption u/s. 10(5) of the Act. Such being the scenario, the assessee-Bank cannot now plead that it was under the bona-fide belief that the amounts claimed were exempt u/s. 10(5) of the Act. Thus, the Assessing Officer(TDS) was within her domain to term/charge that the assessee- Bank was under obligation to deduct TDS on such payments. Since the assessee- Bank had failed to do so, the A.O.(TDS) had rightly treated the assessee an assessee in default u/s. 201(1) of the Act. The assessee had relied on various case laws for the proposition that its estimate is bona fide and it cannot be held to be an assessee in default u/s. 201(1) of the Act. This contention of the assessee is without legal basis, since the assessee had made no effort to prove how its belief was formed that such foreign travel expenses would come within the ambit of sec. 10(5) of the I.T. Act. - Decided against assessee.

Summary

Issues Involved:
1. Confirmation of demands raised under sections 201(1) and 201(1A) of the Income Tax Act.
2. Eligibility of employees for exemption under section 10(5) for reimbursement of LTC/LFC claims.
3. Holding the assessee as 'an assessee in default' without proof that employees have not paid their taxes.

Detailed Analysis:

Issue 1: Confirmation of Demands Raised Under Sections 201(1) and 201(1A) of the Income Tax Act
The CIT(A) confirmed the demands raised by the Assessing Officer (A.O.) under sections 201(1) and 201(1A) of the Income Tax Act. The A.O. had conducted a survey under section 133A at the business premises of the assessee-Bank to verify TDS compliance on salary and perquisite payments. The A.O. found that the assessee-Bank had erroneously allowed LFC exemption under section 10(5) to its employees, including travel outside India, which was not in accordance with the provisions of section 10(5) read with Rule 2B of the Income Tax Rules. Consequently, the A.O. treated the assessee-Bank as 'an assessee in default' under section 201(1) for short-deduction under section 192 and raised demands accordingly.

Issue 2: Eligibility of Employees for Exemption Under Section 10(5) for Reimbursement of LTC/LFC Claims
The CIT(A) concluded that the employees of the assessee were not eligible for exemption under section 10(5) for expenditure incurred on LTC/LFC claims that included travel outside India. The CIT(A) emphasized that section 10(5) and Rule 2B clearly stipulate that the exemption is only for travel within India. The CIT(A) noted that the assessee-Bank, at the time of settling LTC/LFC bills, was aware that employees had traveled abroad and should have accordingly deducted TDS on such payments. The CIT(A) cited the ITAT, Lucknow Bench's decision in the case of State Bank of India vs. DCIT(TDS), Kanpur, which held that the employer must deduct TDS if the travel includes foreign destinations.

Issue 3: Holding the Assessee as 'an Assessee in Default' Without Proof That Employees Have Not Paid Their Taxes
The CIT(A) held that the assessee-Bank was 'an assessee in default' under section 201 of the Act, even without explicit proof that the employees had not paid their taxes. The CIT(A) reasoned that the assessee-Bank had facilitated its employees in violating section 10(5) by allowing exemptions for foreign travel. The CIT(A) rejected the assessee-Bank's argument that it was under a bona-fide belief that the LTC was exempt and that it had made a fair estimate of salary income for TDS purposes. The CIT(A) emphasized that the assessee-Bank had not applied the provisions of section 10(5) correctly and had allowed exemptions in a mechanical manner.

Conclusion:
The tribunal upheld the CIT(A)'s decision, confirming the demands raised under sections 201(1) and 201(1A) and holding the assessee-Bank as 'an assessee in default.' The tribunal found that the assessee-Bank had not made a bona-fide effort to verify the eligibility of its employees for exemption under section 10(5) and had allowed exemptions for travel outside India, which is not permissible under the Act. The tribunal dismissed the appeals of the assessee-Bank, emphasizing that the provisions of section 10(5) were clear and that the assessee-Bank had failed to comply with them.