2025 (3) TMI 1466 - AT - Income Tax

Penalty under Section 271C not imposed for short tax deduction on Leave Fare Concession; appeal delay condoned for fairness.

The Chief Manager (Admin) Versus Addl. CIT (TDS) Kanpur

The Tribunal ruled that the penalty under Section 271C of the Income Tax Act should not be imposed on the assessee for the short deduction of tax at ... Levy of penalty u/s 271C - short deduction of tax on LFC reimbursements to its employees - CIT(A) rejected the ground as this issue has ultimately been held against the assessee by Hon’ble Supreme Court [2022 (11) TMI 426 - SUPREME COURT] holding that the assessee was required to deduct tax at source on such reimbursements, also did not condone the delay of 961 days in the appeal - Aggrieved, the assessee is in further appeal before us - HELD THAT:- The assessee, following consistent stand as taken earlier, did not deduct tax at source on impugned reimbursements under a bona-fide belief that irrespective of en-route journeys, when the ultimate destination was in India, such reimbursements would be exempt u/s 10(5). The same is also supported by the fact that the Hon’ble High Court of Madras granted interim order favoring the assessee. Finally, the issue has been put to rest by Hon’ble Apex Court holding that the assessee would be required to deduct TDS on such reimbursements. On these facts, it could very well be said that deduction of TDS on impugned reimbursements was not free from doubt and it was a debatable issue which has ultimately been settled by Hon’ble Apex Court. However, the assessee could not be visited with impugned penalty for short deduction of TDS. The cited case law in the case of Pricewaterhouse Coopers P. Ltd [2012 (9) TMI 775 - SUPREME COURT] duly supports the case of the assessee. It was held by Hon’ble court that imposition of penalty was not warranted since the assessee had committed an inadvertent and bona fide error and not intended to conceal its income. We delete the impugned penalty. CIT(A), in our opinion, considering the recurring nature of issue, should have condoned the delay considering the fact that the assessee was a public sector undertaking and it would not stand to gain by filing the first appeal with such a delay. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are: Whether the imposition of penalty under Section 271C of the Income Tax Act for short deduction of tax at source on Leave Fare Concession (LFC) reimbursements is justified. Whether the assessee's belief that LFC reimbursements for journeys involving foreign travel were exempt under Section 10(5) constitutes a bona fide belief that negates the imposition of penalty. Whether the delay in filing the appeal should have been condoned by the Commissioner of Income Tax (Appeals) [CIT(A)].ISSUE-WISE DETAILED ANALYSIS1. Imposition of Penalty under Section 271CRelevant legal framework and precedents: Section 271C of the Income Tax Act deals with penalties for failure to deduct tax at source. Section 10(5) provides exemptions for LFC reimbursements for travel within India. The precedent set by the Supreme Court in Pricewaterhouse Coopers P. Ltd was considered, where penalties were not imposed for bona fide errors.Court's interpretation and reasoning: The Tribunal found that the assessee did not deduct tax at source on LFC reimbursements under a bona fide belief that such reimbursements were exempt under Section 10(5), even when the journey involved foreign travel, provided the ultimate destination was in India. This belief was supported by an interim order from the Madras High Court.Key evidence and findings: The Tribunal noted that the assessee followed a consistent practice and relied on the interim order by the Madras High Court. The Supreme Court's decision ultimately clarified the requirement to deduct TDS on such reimbursements, but the Tribunal recognized the issue as debatable at the time of the original transactions.Application of law to facts: The Tribunal applied the principle from Pricewaterhouse Coopers P. Ltd, determining that the assessee's error was bona fide and inadvertent, with no intention to conceal income. Therefore, the imposition of the penalty was not warranted.Treatment of competing arguments: The Tribunal acknowledged the CIT(A)'s reliance on the Supreme Court's decision requiring TDS deduction but emphasized the bona fide nature of the assessee's belief and the interim order supporting their position.Conclusions: The Tribunal concluded that the penalty under Section 271C should not be imposed due to the bona fide belief and lack of intent to evade tax.2. Condonation of Delay in Filing AppealRelevant legal framework and precedents: The Tribunal considered the procedural fairness and the need to condone delays, especially in cases involving public sector undertakings where communication gaps might occur.Court's interpretation and reasoning: The Tribunal found that the CIT(A) should have condoned the delay, considering the recurring nature of the issue and the communication challenges in a faceless regime.Key evidence and findings: The Tribunal noted that the assessee was not aware of the order until much later and had made persistent efforts to obtain it.Application of law to facts: The Tribunal applied principles of fairness and procedural justice, recognizing the potential for communication gaps in a faceless regime.Treatment of competing arguments: The Tribunal disagreed with the CIT(A)'s decision not to condone the delay, emphasizing the lack of any gain for the assessee by delaying the appeal.Conclusions: The Tribunal concluded that the delay should have been condoned, and the appeal was allowed.SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: The Tribunal stated, 'deduction of TDS on impugned reimbursements was not free from doubt and it was a debatable issue which has ultimately been settled by Hon'ble Apex Court.'Core principles established: The Tribunal reinforced the principle that penalties should not be imposed for bona fide errors where there is no intent to evade tax. It also highlighted the importance of considering procedural fairness in condoning delays.Final determinations on each issue: The Tribunal deleted the penalty under Section 271C and allowed the appeal, emphasizing the bona fide belief and procedural fairness. The decision applied to both assessment years in question.