Bank liable for TDS default on LTC/LFC/HTC reimbursements to employees under Section 201(1)(1A) despite interim relief

ITAT Delhi held that the bank was in default under Section 201(1)(1A) for failing to deduct TDS under Section 192 on LTC/LFC/HTC reimbursements to employees. Despite an interim Madras HC order suggesting such payments wouldn't constitute income requiring TDS deduction, the SC in State Bank of India v. Assistant Commissioner of Income Tax affirmed Delhi HC's ruling that banks must deduct TDS on employee LTC bill payments. The interim Madras HC stay provided no relief to the assessee bank following the SC decision.

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Issues Involved:
1. Verification of Form 26A by the Assessing Officer (AO).
2. Applicability of the first proviso to section 201(1) of the Income Tax Act.
3. Treatment of the deductor as an assessee in default.
4. Confirmation of the AO's order treating the assessee as in default under section 201(1) and levying interest under section 201(1A).

Summary:

Issue 1: Verification of Form 26A by AO
The Revenue questioned whether the CIT(A) was justified in setting aside the verification part to the AO after upholding the AO's finding in principle, especially when the assessee had never filed Form 26A before the CIT(A). The Tribunal noted that the CIT(A) directed the AO to provide the opportunity to the appellant to produce the calculation of tax deduction and charge the tax rate accordingly.

Issue 2: Applicability of First Proviso to Section 201(1)
The CIT(A) observed that the benefit of the proviso to section 201(1) is not available to the assessee as the deductor had never filed Form 26A before the AO or CIT(A). However, the CIT(A) allowed the assessee to claim the benefit of the proviso on production of Form 26A before the AO as per law.

Issue 3: Treatment of Deductor as Assessee in Default
The CIT(A) held that the responsibility to deduct tax is distinct from the liability of the deductee to pay tax on such income. The CIT(A) rejected the argument that it amounts to double recovery of tax but allowed the benefit of proviso to section 201 if the deductees included such LTC amounts in their Income Tax Return.

Issue 4: Confirmation of AO's Order
The Tribunal found no infirmity in the CIT(A)'s observations and rejected the grounds raised by the Revenue, thus upholding that the assessee is not liable to deduct TDS on LTC/LFC bills.

Appeals of the Assessee:
The assessee raised common grounds across multiple assessment years questioning the AO's and CIT(A)'s orders, particularly the denial of exemption under section 10(5) for LTC involving a foreign leg. The Tribunal observed that the Hon'ble Supreme Court in SBI Vs. ACIT held that the assessee ought to have deducted tax at source on LTC payments, reinforcing that foreign travel is not covered under section 10(5).

Interim Stay by Madras High Court:
The Tribunal noted the interim stay by the Madras High Court, which held that any amount paid towards LTC would not amount to income for TDS purposes. However, the Supreme Court's decision in SBI Vs. ACIT overruled this, affirming the liability of the assessee to deduct tax at source on LTC payments.

Conclusion:
The Tribunal dismissed the appeal of the Revenue and the appeals of the assessee, holding the assessee in default for non-deduction of tax on LTC/LFC/HTC reimbursements, following the Supreme Court's decision.

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