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

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 belief and misinterpretation of tax provisions. The Tribunal noted the diligent collection of evidence by the assessee to support the exemption claimed by employees for Leave Travel Concession (LTC), without evidence of connivance or forged claims. Relying on previous decisions and a Karnataka High Court ruling, the Tribunal concluded that the penalty under section 271C was not sustainable. The penalty was directed to be deleted, and the appeal by the assessee was allowed.

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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.

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