State Bank of India Vs ITO TDS (ITAT Rajkot)
Summary: ITAT Rajkot allowed four appeals filed by different branches of State Bank of India concerning Assessment Years 2016-17 and 2017-18 and arising from proceedings under Sections 201(1), 201(1A) and 271C of the Income Tax Act, 1961. The controversy related to non-deduction of tax at source under Section 192 on Leave Fare Concession (LFC) payments to employees whose journeys involved a foreign leg. Although the Supreme Court had subsequently held in State Bank of India v. Assistant Commissioner of Income-tax, Civil Appeal No. 8181 of 2022, that foreign-leg travel does not qualify for exemption under Section 10(5), the Tribunal followed its earlier decision in SBI’s case and coordinate-bench rulings holding that SBI could not be treated as an assessee in default for the relevant period because it was operating under binding interim directions of the Madras High Court. Those directions had clarified that LFC payments would not constitute income enabling deduction of tax at source while the proceedings remained pending.
The Tribunal relied particularly upon the Kerala High Court decision in ITA No.45 of 2025 and coordinate-bench decisions, including State Bank of India, Bhavnagar v. ITO and State Bank of India in ITA No.514/Agr/2024. It held that a subsequent Supreme Court ruling settling the substantive taxability issue could not retrospectively create a default for a period during which SBI was complying with binding judicial directions. Accordingly, the demand under Sections 201(1) and 201(1A) was deleted. Since the quantum appeal was allowed, the connected penalty under Section 271C was also held unsustainable, and all four appeals were allowed.
