The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) recently provided opportunity of re-adjudication on TDS exemption for foreign travel Leave Travel Concession (LTC) default under Sections 201(1) and 201(1A) of the Income Tax Act due to Bonafide belief of Assessee.
The Assessee-State Bank of India Corporate Centre has challenged the order passed under Section 201(1) read with Section 201(1A) of the Income Tax Act on various grounds passed by Assessing Officer.
The Assessing Officer (AO) observed that the assessee bank was allowing tax exemption on leave fare concession (‘LFC’)/ leave travel concession (‘LTC’) reimbursement where the employees have taken circuitous routes in which foreign leg was included.
It was also observed that the assessee has not included the LTC/LFC amount to the salary of the employees as perquisite and has also not deducted TDS on the reimbursed amount. The assessee has claimed the impugned amount as exemption under Section 10(5) of the Income Tax Act.
The Assessing Officer further observed that the exemption of the LFC was allowed only when the employee travels to a place within India and the same was not exempt under Section 10(5) of the Act if the travel extends to a place outside India though the end destination was within India.
The Assessing Officer Vide show cause notice dated 07.03.2016 sought for details of list of employees who had undertaken foreign tours and had claimed leave travel concession during the impugned year and also in relation to default of non-deduction of taxes from such LTC payments to the employees
The assessee submitted that the amount was exempted under section 10(5) of the Income Tax Act and Rule 2B of the Income Tax Rules, and that the foreign leg of the travel was undertaken enroute to the designated place in India. The Income Tax Department disagreed, stating that the exemption cannot be availed if the employee has traveled to a foreign destination, even if the ultimate destination was in India.
The Department held the bank as the ‘assessee in default’ and passed an order under Section 201(1) and 201(1A) of the Income Tax Act. The assessee argued that it was not liable to deduct TDS on LTC provided to employees, even if there was a foreign leg involved, and that it was not an assessee by default.
During the appellate proceedings the Counsel for the assessee argued that the maximum time limit for passing an order under Section 201(1) or 201(1A) of the Income Tax Act was one year from the end of the financial year. The Counsel for the assessee further argued that the case of assessee was beyond the said period and that the impugned order was to be held as invalid.
The Bench consisting of two members, the Judicial Member Kavitha Rajagopal and the Accountant Member Om Prakash Kant remanded the issues back to the file of the Assessing Officer for verifying whether the employees has declared the said LTC in their return of income and have duly paid taxes on the same.
The tribunal bench further added that “We direct the Assessing Officer to give sufficient opportunity of being heard to the assessee. As we have not adjudicated the other grounds of appeal raised by the assessee, they are left open for adjudication if required. Therefore, the appeals filed by the assessee are allowed for statistical purposes.”
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