The Income Tax Appellate Tribunal (ITAT), Jaipur bench has deleted the penalty proceedings against the State bank of India ( SBI ) for not deducting TDS on LTC to its employees on travel outside India.
Recently, the Income Tax Tribunal had held that the Leave Travel Concession (LTC) provided to the employees of SBI is not covered under section 10(5) of the Income Tax Act in cases where a foreign destination is involved. It was also held that TDS provisions would be applicable on reimbursement of expenditure incurred by the bank.
Following the decision, the department initiated penalty proceedings against the Bank alleging that the Bank has not deducted the tax intentionally, fully knowing that the LFC is applicable for travel in India only and no foreign travel is allowable as it is a case of error of judgment and no malafide can be assumed on part of the bank.
It was contended on behalf of the Bank that it was under a genuine and bona fide belief that it was not under any obligation to deduct tax at source consequently, penalty was not leviable under Section 271C as the respondent in the case has discharged its burden of showing reasonable cause for failure to deduct tax at source.
Also Read: Budget 2019 Expectations: Govt may Double Income Tax Threshold Limit
The Tribunal noted that the assessee bank has been diligent, and has collected and brought on record evidence to show that its employees had actually utilized the amount paid towards leave travel concession.
The Tribunal said that “To our mind, it is important to be consistent but at the same time, one needs to be mindful of what been submitted by the employees towards their LFC claims. It appears that the assessee bank has looked at these 12 employees’ claim broadly, as in other cases, in terms of actual travel being undertaken, the designated place being in India and the amount of claim not exceeding the economy fare of the national carrier by the shortest route to the place of destination.”
It was held that the assessee bank has undertaken reasonable steps in terms of verifying the assessee’s claim towards their LFC claims and is aware of employees traveling to foreign countries as part of their travel itinerary but at the same time, there is an error of judgment on part of the assessee bank in understanding and applying the provisions of section 10(5) of the Act.
“Therefore, we are unable to accept the Revenue’s contention that the assessee bank has not deducted the tax intentionally, fully knowing that the LFC is applicable for travel in India only and no foreign travel is allowable as it is a case of error of judgment and no malafide can be assumed on part of the bank. Further, nothing has been brought on record which in anyways suggest connivance on part of the assessee bank or forged claims submitted by the employees and which has been discovered by the Revenue during the course of its examination,” the Tribunal said.
While deleting the penalty, the Tribunal said that that there was a reasonable cause in terms of section 273B of the Act for not deducting tax by the assessee Bank.
“As fairly submitted by the assessee bank, while calculating the estimated tax liability of its employees, it always considers LFC claim as exempt under section 10(5) and the same position, being followed and accepted consistently in the past years, was followed in the current financial year as well. However, for the first time, after the survey by the tax department, this issue arose for consideration and after the judgment of the Tribunal, the matter got clarified and the assessee bank has duly complied and deposited the outstanding demand along with interest and has taken corrective steps in subsequent years as well,” the Tribunal added.
Subscribe Taxscan Premium to view the Judgment
