2019 (1) TMI 145 - AT - Income Tax

Bank's Tax Deduction Reasonable, Penalty Deleted under Section 271C

State Bank of India Versus The ACIT (TDS), Jaipur

State Bank of India Versus The ACIT (TDS), Jaipur - TMI Issues Involved:1. Sustenance of penalty levied under Section 271C of the Income Tax Act.2. Non-deduction of tax under Section 192 on Leave Fare Concession (LFC) claims involving foreign travel.Issue-wise Detailed Analysis:1. Sustenance of Penalty Levied Under Section 271C:The assessee bank challenged the penalty levied by the AO under Section 271C for non-deduction of tax on LFC claims. The JCIT (TDS) imposed a penalty equal to the amount of tax not deducted, asserting that the bank intentionally did not deduct tax, knowing that LFC is applicable only for travel within India. The CIT(A) upheld this penalty, stating that the bank failed to provide material against the JCIT's observations.2. Non-Deduction of Tax Under Section 192 on LFC Claims Involving Foreign Travel:The facts of the case reveal that the assessee bank reimbursed LFC claims for travel that included a foreign leg, which was not eligible for exemption under Section 10(5) of the Act. The bank believed that the LFC claims were exempt if the designated place was in India, even if the journey included foreign travel. The bank had consistently followed this practice, and it was only after a survey by the Income Tax Department that the issue of taxability arose. The bank argued that it operated under a bona fide belief and had not willfully defaulted in deducting TDS.Reasonable Cause and Judicial Pronouncements:The bank contended that it had a reasonable cause for non-deduction of tax, citing Section 273B, which provides for waiver of penalty if reasonable cause is proven. Judicial precedents, including the Supreme Court's observations in Commissioner of Income Tax, New Delhi Vs. M/s Eli Lilly & Company (India) Pvt. Ltd., support the view that penalty under Section 271C is not automatic and can be waived if reasonable cause is shown. The bank argued that its consistent practice and bona fide belief constituted reasonable cause.Tribunal's Findings:The Tribunal examined whether the bank had a reasonable cause for not deducting tax. It noted that the bank had collected evidence of travel and was diligent in its verification process. The Tribunal found that the bank's error was in its judgment of the applicability of Section 10(5) and not intentional non-compliance. The Tribunal emphasized that the bank had a consistent practice of exempting LFC claims and had taken corrective steps after the issue was clarified post-survey.Conclusion:The Tribunal concluded that the bank had a reasonable cause for non-deduction of tax, and the penalty under Section 271C was not warranted. The penalty was directed to be deleted, and the appeal of the assessee was allowed.Order:The appeal of the assessee is allowed, and the penalty levied under Section 271C is deleted. The order was pronounced in the open Court on 31/12/2018.