Tribunal sets aside penalty under Income Tax Act citing reasonable cause for non-deduction of TDS.

The Tribunal allowed the appeal, setting aside the penalty imposed under Section 271C of the Income Tax Act for the assessment year 2012-13. The Tribunal found that there was a reasonable cause for the assessee's non-deduction of TDS on LTC payments for foreign travel, citing past decisions where penalties were deleted due to similar circumstances. The order was pronounced on 28th February 2020.

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Issues Involved:
1. Confirmation of penalty levied under Section 271C of the Income Tax Act.
2. Non-deduction of TDS on Leave Travel Concession (LTC) for foreign travel.
3. Reasonable cause for non-deduction of TDS.
4. Applicability of past tribunal and high court decisions.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty Levied Under Section 271C:
The primary issue concerns the confirmation of the penalty levied by the Assessing Officer (AO) under Section 271C of the Income Tax Act. The penalty was imposed due to the assessee's failure to deduct TDS on LTC payments made to employees for foreign travel. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the penalty, leading the assessee to file an appeal before the Tribunal.

2. Non-deduction of TDS on LTC for Foreign Travel:
A survey conducted under Section 133A revealed that the assessee, a banking institution, provided LTC to its employees, some of whom undertook foreign travel. The exemption under Section 10(5) of the Act is only applicable to travel within India. The survey officials determined that the assessee should have deducted TDS on LTC amounts for foreign travel, as these were not eligible for the said exemption. Consequently, an order under Section 201(1) was passed, and a penalty of Rs. 2,56,835/- was levied under Section 271C.

3. Reasonable Cause for Non-deduction of TDS:
The assessee argued that there was a reasonable cause for not deducting TDS, as the non-deduction was based on a bona fide belief. The Tribunal considered the assessee's reliance on previous tribunal decisions, where penalties under similar circumstances were deleted. Specifically, the Tribunal referenced the case of Syndicate Bank, where it was held that the non-deduction of TDS was due to an error of judgment and not intentional or mala fide. The Tribunal also noted that the assessee had accepted the claim and paid the amounts during proceedings under Section 201 of the Act.

4. Applicability of Past Tribunal and High Court Decisions:
The Tribunal relied on past decisions, including the case of Syndicate Bank and State Bank of India, where penalties under Section 271C were deleted due to the reasonable cause demonstrated by the assessees. The Tribunal highlighted that the Karnataka High Court, in the case of CIT v. Ankita Electronics Pvt. Ltd., held that the admission of substantial questions of law by the High Court indicates that the issue is debatable, thereby supporting the bona fides of the assessee. Similarly, the ITAT Jaipur Bench in the case of State Bank of India deleted the penalty, emphasizing that the employer is not statutorily obligated to collect evidence for LTC claims under Section 10(5).

Conclusion:
The Tribunal concluded that the issue under consideration is squarely covered by previous decisions, establishing that there was a reasonable cause for the assessee's non-deduction of TDS on LTC payments for foreign travel. The Tribunal set aside the order passed by the CIT(A) and directed the AO to delete the penalty levied under Section 271C for the assessment year 2012-13. The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 28th February 2020.

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