2021 (10) TMI 1054 - AT - Income Tax

TDS u/s 192 - Demand u/s 201(1)/201(1A) - withholding of tax on LFC paid to employees - assessee submitted that LFC was paid to the employees for the shortest route by the entitled class to the destination in India - HELD THAT - As decided in own case 2021 (2) TMI 28 - ITAT MUMBAI taxability of these amounts in the hands of the employees concerned, because that aspect of the matter is not really relevant as on now. We leave it at that for the time being. The coordinate bench decisions deal with only the issue of taxability of leave travel facility under section 10(5) and not with the broader question about the nature of tax deduction at source liability under section 192, as also the issue about bonafides of the stand of the assessee employer. These decisions, therefore, do not come in the way of our present decision. Once we hold, as we do in this case, that estimation of income, in the hands of the employees under the head' income from salaries', by the employer was bonafide and reasonable, the very foundation of impugned demands raised under section 201 r.w.s 192 ceases to hold good in law. We must, therefore, vacate these demands. Bearing in mind entirety of the case, we cancel the impugned demands under section 201 r.w.s. 192 as unsustainable in law. - Decided in favour of assessee.

Issues Involved:
1. Limitation of orders under section 201(1) and 201(1A).
2. Leave fare concession (LFC) involving en-route foreign travel.
3. Leave fare concession (LFC) involving domestic travel by circuitous route.
4. Bona fide belief regarding non-deduction of tax at source.

Detailed Analysis:

1. Limitation of Orders under Section 201(1) and 201(1A):
The assessee contended that the orders under section 201(1) and 201(1A) were barred by limitation and therefore void-ab-initio. The CIT(A) held that the provisions of section 201(3), as amended by the Finance Act, 2014, are retrospective and apply to the assessment years in question. The CIT(A) also noted that for the purpose of the time limit mentioned in section 201(3), the date of filing the original TDS returns is relevant and not the correction statement. The CIT(A) concluded that once a correction statement is filed, it partakes the character of a statement filed under section 200(3) and is subject to scrutiny. The Tribunal found that these observations by the CIT(A) were without basis and contrary to the facts of the case.

2. Leave Fare Concession (LFC) Involving En-route Foreign Travel:
The CIT(A) held the assessee as an assessee in default for not deducting tax at source on LFC provided to employees involving en-route foreign travel. The CIT(A) relied on Circular No. 8/2012 for the purpose of tax deduction on salary payments for the financial year 2012-13. The assessee argued that the exemption under section 10(5) is available even if the journey involves a foreign leg, provided the designated place is in India and the employee actually visits the place. The Tribunal observed that the statutory provisions under section 10(5) and Rule 2B do not indicate any requirement of taking the shortest route for traveling to any place in India or any restrictions on the route. The Tribunal concluded that the employer's estimation of income was bona fide and reasonable, and thus, the demands raised under section 201 r.w.s. 192 were vacated.

3. Leave Fare Concession (LFC) Involving Domestic Travel by Circuitous Route:
The CIT(A) enhanced the assessment under section 251(1)(a) and held the assessee as an assessee in default regarding the exemption of LFC paid to employees who undertook domestic travel by a circuitous route. The CIT(A) noted that the exemption provided under section 10(5) is after considering the shortest route to the designated destination. The Tribunal followed the principle laid down by the coordinate Bench in the assessee's own case and found that the employer's estimation of income was bona fide and reasonable. Therefore, the demands raised under section 201 r.w.s. 192 were vacated.

4. Bona Fide Belief:
The assessee argued that it had a bona fide belief that it was not liable to deduct tax at source on LFC provided to employees, and therefore, it could not be held as an assessee in default under section 201 and 201(1A). The Tribunal agreed with the assessee's contention, emphasizing that the employer's estimation of income was bona fide and reasonable. The Tribunal noted that the employer cannot be faulted for not deducting tax at source if the conduct was honest and fair.

Conclusion:
The Tribunal deleted the demands raised by the AO and sustained by the CIT(A) for the assessment years 2010-11 and 2011-12. The Tribunal upheld the plea of the assessee and directed the AO to delete the impugned demands raised under section 201 r.w.s. 192. The appeals were allowed, and the orders pronounced on 12th October 2021.

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