2019 (7) TMI 1266 - AT - Income Tax

Assessee's Reasonable Cause Exempts LTA Tax Penalty

Syndicate Bank, NGV Koramangala, Bangalore, Syndicate Bank, NGV Yelhanka, Bangalore, Syndicate Bank, Ganganagar, Bangalore Versus The Assistant Commissioner of Income Tax (TDS), Range 3, Bangalore.

The Tribunal found that the Assessee had a reasonable cause for not deducting tax at source on Leave Travel Allowance (LTA) involving foreign travel, ... Penalty u/s. 271-C - LTA exemption for TDS under head salary - High Court has admitted the question whether the Assessee is guilty of non deduction of tax at source or not - debatable issue - HELD THAT:- M/S. ANKITA ELECTRONICS PVT LTD. [2015 (3) TMI 1029 - KARNATAKA HIGH COURT] as held mere admission of the appeal by the High Court on the substantial questions of law as have been quoted above, would make it apparent that the additions made were debatable. The Tribunal has thus rightly held that the admission of substantial questions of law by the High Court leads credence to the bona fide of the assessee and therefore, the penalty is not exigible under Section 271(1)(c) of the Act. Merely because the claim of the assessee has been rejected by the revenue authorities would not make the assessee liable for penalty - levy of penalty u/s.271C of the Act, in the given facts and circumstances of the case, cannot be sustained and the same is directed to be deleted. As far as the decision of the co-ordinate Bench in the case of Syndicate Bank [2019 (7) TMI 1163 - ITAT BANGALORE] is concerned, we are of the view that this issue has not been raised nor considered in that case. Since the imposition of penalty u/s.271C fails on this ground, we are of the view that there is no necessity to remand the issue to CIT(A) for consideration afresh, as was done by the Tribunal in the case referred to by the learned DR. We therefore hold that the imposition of penalty in the facts and circumstances of the case cannot be justified and the same is directed to be cancelled. Issues Involved:1. Validity of imposition of penalty on the Assessee under Section 271-C of the Income Tax Act, 1961 for failure to deduct tax at source on Leave Travel Allowance (LTA) reimbursements.Issue-Wise Detailed Analysis:1. Validity of Imposition of Penalty Under Section 271-C:Background:The appeals were filed by three branches of Syndicate Bank against the orders of CIT(A)-6, Bengaluru, concerning the imposition of penalties under Section 271-C of the Income Tax Act, 1961. The issue revolved around the Assessee's failure to deduct tax at source on LTA reimbursements for journeys undertaken outside India.Legal Framework:- Section 10(5) of the Income Tax Act, 1961: Provides for the exemption of LTA for travel within India.- Rule 2B of the Income Tax Rules, 1961: Specifies conditions under which LTA is exempt, limiting the exemption to actual travel costs within India.- Section 271-C of the Income Tax Act, 1961: Imposes penalties for failure to deduct tax at source.- Section 273B of the Income Tax Act, 1961: Provides that no penalty shall be imposed if there was a reasonable cause for the failure to deduct tax.Facts:The Assessee reimbursed LTA to its employees for journeys that included travel outside India but did not deduct tax at source, believing that the ultimate destination being India qualified for exemption under Section 10(5). A survey conducted under Section 133A revealed this non-compliance, leading to the imposition of penalties under Section 271-C.Arguments:- Assessee's Argument: The Assessee contended that the failure to deduct tax was based on a reasonable belief that LTA was exempt if the final destination was within India, even if the journey included foreign travel. They argued that the admission of substantial questions of law by the High Court indicated that the issue was debatable, thereby negating the imposition of penalties.- Revenue's Argument: The Revenue maintained that the Assessee was liable to deduct tax at source for LTA involving foreign travel, as the exemption under Section 10(5) was limited to travel within India. They emphasized that the Assessee's interpretation was incorrect and penalties were justified.Judicial Precedents:- Supreme Court in CIT, New Delhi Vs. M/s Eli Lilly & Company (India) Pvt. Ltd. & Ors.: Highlighted that penalties under Section 271-C are not automatic and can be waived if there is a reasonable cause for the failure to deduct tax.- Karnataka High Court in The Commissioner of Income Tax and Others Vs. The Rajajinagar Co-operative Bank Limited: Held that a bona fide mistake in interpreting tax provisions can constitute a reasonable cause under Section 273B, thereby exempting the Assessee from penalties.Tribunal's Findings:- The Tribunal noted that the Assessee's appeal against the quantum proceedings was admitted by the Karnataka High Court, indicating that the issue was debatable.- The Tribunal relied on the Karnataka High Court's decision in CIT v. Ankita Electronics Pvt. Ltd., which held that the admission of substantial questions of law by the High Court lends credence to the bona fides of the Assessee and precludes the imposition of penalties.- The Tribunal also considered the ITAT Jaipur Bench's decision in State Bank of India Vs. ACIT, which dealt with a similar issue and concluded that the Assessee had a reasonable cause for not deducting tax at source on LTA involving foreign travel.Conclusion:The Tribunal concluded that the Assessee had a reasonable cause for the failure to deduct tax at source, based on a bona fide belief that LTA was exempt if the final destination was within India. Consequently, the imposition of penalties under Section 271-C was not justified, and the penalties were directed to be deleted.Final Order:The appeals were allowed, and the penalties imposed under Section 271-C were cancelled. The judgment emphasized that the Assessee's interpretation, although incorrect, was made in good faith and was supported by substantial legal debate, thereby constituting a reasonable cause under Section 273B.Pronouncement:The judgment was pronounced in the open court on July 19, 2019.