2019 (8) TMI 848 - AT - Income Tax

Assessee's Appeals Upheld: Penalties under Section 271-C Income Tax Act Not Justified

The Tribunal allowed all appeals by the assessee, holding that the imposition of penalties under Section 271-C of the Income Tax Act was not justified. ... Validity of 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:- As decided in SYNDICATE BANK, NGV KORAMANGALA AND ORS VERSUS ACIT (TDS) [2019 (7) TMI 1266 - ITAT BANGALORE] 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 u/s 271(1)(c). 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. - Decided in favour of assessee. Issues Involved:1. Validity of imposition of penalty under Section 271-C of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Validity of Imposition of Penalty under Section 271-CBackground:The appeals concern different branches of a nationalized bank challenging the imposition of penalties under Section 271-C of the Income Tax Act, 1961, for failing to deduct tax at source on Leave Travel Allowance (LTA) reimbursements. The issue arises from identical facts and circumstances across all cases.Legal Provisions:- Section 10(5) of the Income-Tax Act, 1961: Provides for the exemption of LTA under specific conditions, including travel within India.- Rule 2B of the Income Tax Rules, 1961: Outlines the conditions for LTA exemption.- Section 271-C: Imposes penalties for failure to deduct tax at source.- Section 273B: Provides relief from penalties if the taxpayer can demonstrate a reasonable cause for the failure.Facts:The bank reimbursed LTA to employees for journeys that included travel outside India but concluded within India, without deducting tax at source. The bank believed that if the final destination was within India, the entire LTA was exempt. The Department disagreed, leading to penalties under Section 271-C.Tribunal's Previous Decision:In similar cases involving the same bank, the Tribunal had previously allowed the appeals and deleted the penalties imposed under Section 271(1)(c) of the Act.Arguments:- Assessee’s Argument: The bank argued that its failure to deduct tax was based on a reasonable belief that the LTA was exempt if the final destination was within India. They cited the Hon'ble Karnataka High Court's decisions and other Tribunal rulings to support their claim of reasonable cause.- Department’s Argument: The Department maintained that the bank should have deducted tax at source for LTA reimbursements involving travel outside India, irrespective of the final destination being within India.Judicial Precedents:- Hon'ble Supreme Court in CIT v. M/s Eli Lilly & Company (India) Pvt. Ltd.: Highlighted that penalties under Section 271-C are not automatic and can be waived if reasonable cause is proven.- Hon'ble Karnataka High Court in The Rajajinagar Co-operative Bank Limited: Emphasized that a bona fide mistake can constitute a reasonable cause under Section 273B, thus negating the penalty.Tribunal’s Analysis:- The Tribunal noted that the bank’s appeal against the order holding it as an assessee in default was admitted by the Hon'ble Karnataka High Court, indicating that the issue was debatable.- The Tribunal referenced the Hon'ble Karnataka High Court’s decision in Ankita Electronics Pvt. Ltd., which held that the admission of a substantial question of law by the High Court lends credence to the bona fides of the assessee, thereby negating the penalty.Conclusion:Given the debatable nature of the issue and the reasonable cause demonstrated by the bank, the Tribunal held that the imposition of penalty under Section 271-C was not justified. The penalties were directed to be deleted for all the appeals.Result:All appeals by the assessee were allowed, and the penalties imposed under Section 271-C were deleted.Pronouncement:The judgment was pronounced in the open court on August 14, 2019.