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TMI Blog2019 (1) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... a show cause was issued to the assessee and the submissions of the assessee were considered, however, the same were not found acceptable by the JCIT (TDS) and his findings are reproduced as under:- "5.3 In view of the facts mentioned above and considering the decisions of the Hon'ble ITAT, Chandigarh & Lucknow benches I am of the considered view that the assessee bank has not deducted the tax intentionally, fully knowing that the LFC is applicable for travel in India only and no foreign travel is allowable, still the assessee bank allowed the claims of the employees and made re-imbursement to them without making TDS under section 192 of the IT Act, 1961. It is, therefore, a fit case for imposition of penalty U/s 271C of the I.T. Act, 1961. Accordingly, I Impose penalty of Rs. 7,70,720/-, being equal to the amount of tax which the assessee failed to deduct." 3. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who has stated that the assessee has failed to bring any material against the observation made by the JCIT (TDS) at the time of appellate proceedings and he accordingly confirmed the levy of penalty U/s 271C of the IT Act. Now, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was not liable to deduct tax at source in respect of LTC provided to employees. In other words, the Bank had deducted appropriate tax at source on the basis of the prevalent law and there was no default on the part of the Bank in deducting tax at source. Accordingly, the Bank cannot be held to be an assessee in default within the meaning of section 271C. 4.5 It was further submitted by the ld AR that tax deduction at source (TDS) is a system for collection of direct taxes in India. The Income Tax Act, 1961 mandates that a specified percentage of tax is required to be deducted by the payer at the time of making certain payments to the payee. The requirement to deduct tax is there for payments such as payment of Commission, interest, salary, royalty, contract payment, brokerage etc. The Tax deducted has to be deposited by the payer to the revenue department on behalf of the payee. In case the payer doesn't deduct the tax at source, the payer is liable to pay penalty u/s 271C of the ITA. The provisions of Section 271C which provides for penalty for failure to deduct tax at source reads as follows:- "1) If any person fails to- a) deduct the whole or any part of the tax as r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 271C(1)(a) makes it clear that the penalty leviable shall be equal to the amount of tax which such person failed to deduct. We cannot hold this provision to be mandatory or compensatory or automatic because under Section 273B Parliament has enacted that penalty shall not be imposed in cases falling there under. Section 271C falls in the category of such cases. Section 273B states that notwithstanding anything contained in Section 271C, no penalty shall be imposed on the person or the assessee for failure to deduct tax at source if such person or the assessee proves that there was a reasonable cause for the said failure. Therefore, the liability to levy of penalty can be fastened only on the person who do not have good and sufficient reason for not deducting tax at source. Only those persons will be liable to penalty who do not have good and sufficient reason for not deducting the tax." 4.9 It was submitted that the Bank had honestly and fairly formed an opinion and arrived at the estimated income of the employees. As discussed above, the Bank was under the bona fide belief that LTC claim for travel within India cannot be denied just because the journey also includes visit outsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person having an ordinary prudence. The expression "reasonable" gives an impression that prima facie, if a person of average intelligence has acted and under those circumstances the said action was at that point of time not infringed the settled law then it can be reasonably held that assessee was prevented by a "reasonable cause" under those circumstances not to act as prescribed or determined by a case law. We are aware that ignorance of law is not an excuse but at the same time, it is not practical that every tax payer should be aware about the latest development of tax law; which are otherwise fast changing. We find that issue at hand was debatable at relevant point of time and assessee was prevented by a reasonable cause not to deduct TDS under the relevant provisions of Income Tax Act. In view of this, assessee is entitled for relief from penalty levied under the provision of 271C of the Act. Accordingly, same is directed to be deleted." 5. The ld DR is heard who has submitted that the provisions of Section 10(5) of the Act are clear and only the reimbursement of expenses which were incurred on travel of employees and his family to any place in India subject to certain con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place. Section 192(1) provides that any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year. Therefore, the assessee bank is required to estimate the income in respect of its employees for the relevant financial year. In the context of an employee who has availed Leave Fare Concession, as in the instant case, it is for the employee to submit to his employer, the declaration in support of his LFC claim along with the evidence of expenditure having been incurred towards the travel so undertaken by him and/or his family to the assessee bank. The concerned employee thus submits to the employer that his claim for reimbursement of LFC should be considered while estimating his taxable income but at the same time, the exemption should be provided by the assessee bank under section 10(5) and tax should not be estimated/determined and consequently, there should not be an deduction of tax a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the beneficiary of exemption under section 10(5) is an individual employee. There is no circular of Central Board of Direct Taxes (CBDT) requiring the employer under section 192 to collect and examine the supporting evidence to the declaration to be submitted by an employee(s). Therefore, it was held that an assessee-employer is under no statutory obligation under the Income-tax Act, 1961, and/or the Rules to collect evidence to show that its employee(s) had actually utilized the amount(s) paid towards leave travel concession(s)/conveyance allowance. 11. We thus find that there is nothing specific which has been provided by CBDT in its circular issued under section 192 for the relevant financial year. What has been reiterated is adherence to the provisions as contained in section 10(5) read with Rule 2B. Similarly, the Hon'ble Supreme Court has also held that an assessee employer is under no statutory obligation under the Income-tax Act, 1961, and/or the Rules to collect evidence to show that its employees had actually utilized the amount paid towards leave travel concession. Even though the same is not required as per decision referred supra, in the instant case, the assessee ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ign 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) of the Act. Therefore, we are unable to accept the Revenue's contention that the assessee bank has not deducted the tax intentionally, fully knowing that the LFC 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 bank. 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 LFC 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 department, this issue arose for consideration and after the judgment of the Tribunal, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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