2019 (11) TMI 1138 - AT - Income Tax

Tribunal rules in favor of assessee, penalty deleted under section 271C due to Reasonable Cause.

State Bank of India, Bengaluru Versus Addl. CIT, TDS Range-3, Bengaluru

State Bank of India, Bengaluru Versus Addl. CIT, TDS Range-3, Bengaluru - TMI Issues Involved:1. Non-deduction of TDS on Leave Travel Concession (LTC) by the assessee-bank.2. Imposition of penalty under section 271C of the Income-tax Act, 1961.3. Validity of the assessee-bank’s claim of Reasonable Cause for non-deduction of TDS.4. Applicability of section 10(5) of the Income-tax Act and Rule 2B of the IT Rules.Issue-wise Detailed Analysis:1. Non-deduction of TDS on Leave Travel Concession (LTC):The primary issue revolves around the assessee-bank's failure to deduct TDS on LTC payments made to its employees. During a survey operation under section 133A on 26/12/2013, it was found that the bank did not deduct TDS on LTC reimbursements, treating them as exempt under section 10(5) of the Act. The Assessing Officer (AO) determined that the bank was an 'assessee in default' under section 201 of the Act, as the LTC reimbursements included travel outside India and circuitous routes, which are not covered under section 10(5) and Rule 2B. Consequently, a demand of Rs. 31,085 was raised.2. Imposition of Penalty under Section 271C:Following the confirmation of the AO's findings by the CIT(A), the AO issued a show-cause notice under section 271C for non-deduction of TDS. Despite the assessee’s explanation and reliance on judicial decisions, the AO imposed a penalty of Rs. 31,085, stating that the bank failed to add LTC reimbursements to the employees' total income, thus violating the provisions of section 10(5) and Rule 2B.3. Validity of the Assessee-bank’s Claim of Reasonable Cause:The assessee argued that there was a Reasonable Cause for not deducting TDS, as they believed in good faith that no TDS was required. The Tribunal examined the assessee’s claim, noting that the non-deduction of TDS was discovered during a survey and that the bank had accepted and paid the demand raised under section 201. The Tribunal found that the bank’s actions were based on a bona fide belief and not wanton negligence.4. Applicability of Section 10(5) and Rule 2B:The Tribunal referenced the case of Syndicate Bank vs. ACIT, where it was held that no penalty can be imposed if the High Court admits an appeal on substantial questions of law, indicating that the issue is debatable. The Tribunal also considered the Supreme Court’s stance that employers are not required to collect evidence for LTC claims under section 192. The Tribunal concluded that the bank's error was in judgment rather than intentional non-compliance, and thus, there was Reasonable Cause under section 273B.Conclusion:The Tribunal held that the penalty under section 271C was not sustainable due to the Reasonable Cause demonstrated by the assessee-bank. The Tribunal directed the AO to delete the penalty and allowed the appeals of the assessee. This decision applied to all related appeals, as the facts were similar and identical.Final Order:The appeals filed by the assessee in ITA Nos. 1118 to 1121, 1123, 1168 to 1172 & 1237 & 1238/Bang/2018 were allowed, and the penalty imposed under section 271C was directed to be deleted. The order was pronounced in the open court on 18th November 2019.