TaxTMI 
TaxTMI 
2026 (7) TMI 201
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.... "1. The Learned Commissioner of Income-tax (Appeals) ("CIT(A)) erred in confirming the order of the Assessing Officer ("AO") holding the appellant to be an assessee in default for failing to deduct tax at source under section 192 of the Income-tax Act, 1961 ('the Act). 2. The CIT(A) erred in not appreciating that the Appellant had issued e-Circular no. CDO/P&HRD-PM/7/2014-15 dated 15th April 2014 stating that the employees shall not be entitled to visit overseas countries/ centers as part of leave travel concession ("LT") which Circular was challenged by the All India State Bank Officers Federation & Ors. before the Madras High Court by way of a writ petition (WP no. 11991 of 2014) and that the Madras High Court had vide its order dated 25th April 2014 granted interim stay of the Circular. 3. The CIT(A) further erred in not appreciating that tax was not deducted at source by the Appellant on the LTC paid to its employees during the year under consideration in view of the specific interim directions issued by the Hon'ble Madras High Court in its order dated 16th February 2015 by which the Court held that the LTC paid or reimbursed would not amount to incom....
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....d furnished the return of income, taken into account such sum for computing income and paid the tax due on income declared by the employee." 3. Ld. Counsel for the assessee, at the outset, submitted that the issue in appeal is squarely covered by the decisions of the Coordinate Benches of various Tribunals, wherein the Tribunal held that the assessee is not in default u/s 201/201(1A) of the Act. Ld. Counsel for the assessee submitted that the assessee had earlier deducted TDS on the LTC paid to its employees; however, due to specific interim directions issued by the Hon'ble Madras High Court in its order dated 16.02.2015 holding that LTC paid or reimbursed to the employees would not amount to income and no tax was liable to be deducted, the assessee was prevented from making TDS and, therefore, should not be treated as an assessee-in-default within the meaning of the provisions of section 201/201(1A) of the Act for non deduction of TDS subsequent to the decision of the Hon'ble Madras High Court. 4. The assessee further made the following elaborate submissions at pages 4 to 8 of the paper book. "Ground No. 3 The CIT(A) further erred in not appreciating that t....
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....urt has clearly held that the Appellant cannot be faulted for having honoured the stay orders issued by the Hon'ble Madras High Court. (Para- 11, Page-83) 3. Referring to Section 201(1)/201(1A) liability it held: In the case at hand, when so visualised, there cannot be any dispute that the appellant-assessee could not have made any deduction in view of the interim order issued as noticed earlier. It is only when the appellant-assessee, after having a liability to deduct tax, fails to do so, the question of invoking Section 201 of the Act and treating it as an 'assessee in default' arises. Here, the Madras High Court found, prima facie, that the amount paid would not be the income of a payee so as to deduct tax. Therefore, we are of the opinion that the provisions of Section 201(1) of the Act are not attracted to the case at hand. For the same reasons, the provisions of sub-section (1A) of Section 201 of the Act providing for the levy of interest are also not attracted. (Para-8 concluding portion, Page-79) 4. Referring to the Hon'ble Supreme Court judgment dated 04.11.2022 the court observed that: (a) Apex court findings were for A....
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....tituted by any authority against them during the pendency of the writ appeal. (Para-7 of Page-37) (b) when the stay was restored on 28.08.2023 by the Hon'ble Supreme Court, it was mentioned that the petitioner-bank shall not make any recoveries from its employees during the pendency of the present petition. (Para-7 of Page-68) If the bank had recovered the tax amount, the subsequent intent of the Hon'ble High Court & Hon'ble Supreme court directing nonrecovery would have been defeated. 5. The Hon'ble Kerala High Court on the same issue observed as under: The Court, however, cautiously made it clear that it is for the employees to pay tax directly on the amount paid by the bank, if ultimately, the writ petition is dismissed. Therefore, the appellant could not be called upon to make payment on a later date- after the dismissal of the writ petition in 2022- ignoring the liability of the payee to satisfy the tax. (Para-9 of Page-79) 6. Reference is made to Hon'ble ITAT, Jaipur Bench judgment dated 13.03.2025 (ITA No.1391 (A.Y.2016-17)/JPR/2024) in the case of SBI wherein the following observations were made: (a) ....
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....proceeded against, while the employer is fastened with the recovery burden. (Para-8 of Page- 132)." 5. The Ld. Counsel for the assessee further, referring to the decision of the Hon'ble Kerala High Court, which is placed at pages 69 to 86 of the paper book, in ITA No.45 of 2025 dated 18.11.2025, submitted that recently the Hon'ble Kerala High Court held that the provisions of section 201/201(1A) are not attracted to the facts and circumstances of the assessee's case. Ld. Counsel further stated that the appeal against the decision of the Hon'ble Madras High Court, which granted interim stay, is still pending before the Hon'ble Supreme Court for adjudication. 6. Heard rival contentions and perused the orders of the authorities below. We observe that an identical issue came up for consideration before various Benches of the Tribunal, including the Coordinate Bench of Mumbai in the case of State Bank of India vs. ACIT in ITAs No.2886 and 2887/Mum/2024. The Tribunal, vide order dated 30.05.2025, held that the assessee cannot be treated as an assessee-in-default since the directions issued by the Hon'ble Madras High Court on 16.02.2015 were binding on the assessee during the period....