2020 (4) TMI 120 - AT - Income Tax

Bank not liable for tax deduction on foreign travel reimbursement due to bona fide belief

State Bank of India Versus Addl. Commissioner of Income Tax, TDS Range – 3, Bangalore

The Tribunal found that the banking institution had a reasonable cause for not deducting tax on foreign travel reimbursement, as it was due to a bona fide ... Penalty u/s 271C - default pursuant to orders under section 201(1)) for not making TDS payments made towards foreign travel - assessee-bank has failed to deduct TDS but in proceedings u/s 201 of the Act, the assessee has accepted the claim and paid the amounts - HELD THAT:- As decided in own case [2019 (11) TMI 1138 - ITAT BANGALORE] fact that non-deduction of TDS has come out in the survey operations u/s 133A of the Act. We found that the assessee has not deducted TDS and explained reasonable cause in the penalty proceedings and the assessee’s action is not wanton but on a bona fide belief. As decided in SYNDICATE BANK, NGV KORAMANGALA, BANGALORE, SYNDICATE BANK, NGV YELHANKA, BANGALORE, SYNDICATE BANK, GANGANAGAR, BANGALORE [2019 (7) TMI 1266 - ITAT BANGALORE] the 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. - Decided in favour of assessee. Issues:Assessment of penalty under section 270 1C for non-deduction of tax at source on reimbursement of Leave Travel Concession (LTC) to employees for foreign travel.Analysis:The present appeals were filed against the levy of penalty under section 270 1C of the Income Tax Act for not deducting tax at source on payments made towards foreign travel reimbursement. The assessee, a banking institution, was treated as an assessee in default for not deducting TDS from payments made for foreign travel, resulting in orders under section 201(1) raising demands for two assessment years. The penalty proceedings under section 271C were initiated, and the orders of the Assessing Officer were confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] for both years.The Appellate Tribunal noted that in a similar case involving the assessee, the penalty was deleted by observing that the non-deduction of TDS was due to a bona fide belief and not intentional. The Tribunal referred to previous decisions and held that the assessee had reasonable cause for not deducting tax, as the error was due to a misinterpretation of the provisions of section 10(5) of the Act. The Tribunal found that the assessee had diligently collected evidence to support the exemption claimed by employees for LTC, and there was no evidence of connivance or forged claims. The Tribunal concluded that the penalty under section 271C should be deleted.The Tribunal further considered a decision by the Karnataka High Court which held that the admission of substantial questions of law by the High Court leads credence to the bona fides of the assessee, and in such cases, the penalty under section 271C is not sustainable. Following this reasoning, the Tribunal directed the Assessing Officer to delete the penalty and allowed the grounds of appeal raised by the assessee.In conclusion, the Tribunal found that there was a reasonable cause for the non-deduction of tax by the assessee bank, and therefore, the penalty under section 271C was not sustainable. The Tribunal directed the Assessing Officer to delete the penalty, and the appeal filed by the assessee was allowed.