Chief Manager (Admin), State Bank of India (RBO) Vs Addl. CIT (TDS) (ITAT Agra)
Income Tax Appellate Tribunal (ITAT), Agra bench, has set aside penalties imposed on the State Bank of India (SBI) for alleged short deduction of tax at source (TDS) on Leave Fare Concession (LFC) reimbursements provided to its employees. The penalties, levied under Section 271C of the Income Tax Act, 1961, for assessment years 2012-13 and 2013-14, related to reimbursements for LFC journeys that involved travel to overseas destinations en route to a final place in India.
The dispute arose because the tax authorities contended that the exemption available under Section 10(5) of the Income Tax Act for LFC is strictly for travel within India. They argued that any journey involving a foreign leg, even if the ultimate destination was in India, fell outside the scope of this exemption and was therefore taxable, requiring the employer (SBI) to deduct TDS on the reimbursement.
SBI’s position was that it had a genuine and bona fide belief that the LFC reimbursements were exempt under Section 10(5), and thus no TDS was required. The bank maintained that as long as the designated destination was within India, the entire reimbursement was considered exempt, irrespective of whether the travel route included an international segment. SBI highlighted that this belief was reinforced by an interim order dated February 16, 2015, from the Madras High Court in a similar matter (MP No. 2 of 2014, WP No. 11991/2014), which had allowed a banking institution not to deduct TDS on such reimbursements.
Following assessment proceedings, the tax department issued orders under Section 201(1)/201(1A) against SBI, raising a demand for short deduction of TDS amounting to Rs. 3.40 Lacs for AY 2012-13. Subsequently, a penalty of Rs. 1.67 Lacs was imposed under Section 271C for this alleged short deduction, on the grounds that the bank had not provided a satisfactory explanation.
SBI challenged the penalty before the Commissioner of Income Tax (Appeals) [CIT(A)], arguing its bona fide belief and citing the Madras High Court interim order. The bank also referred to the Supreme Court decision in the case of Pricewaterhouse Coopers P. Ltd (25 Taxmann.com 400), which held that penalty under Section 271C is not warranted for inadvertent and bona fide errors without an intention to conceal income.
However, the CIT(A) dismissed SBI’s appeal, confirming the penalty. The CIT(A) noted that the issue of taxability of LFC reimbursements for journeys involving foreign travel had ultimately been decided against the assessee by the Supreme Court (reported as 144 Taxmann.com 131). The CIT(A) also refused to condone a significant delay of 961 days in the filing of SBI’s first appeal.
Aggrieved, SBI appealed to the ITAT, Agra. The Tribunal considered the facts and arguments, acknowledging that the issue of TDS on LFC reimbursements involving overseas travel was indeed debatable until finally settled by the Supreme Court. Crucially, the ITAT accepted SBI’s contention that its non-deduction of TDS was based on a bona fide belief, supported by the interim protective order from the Madras High Court.
The ITAT then applied the ratio of the Supreme Court judgment in Pricewaterhouse Coopers P. Ltd, which established that penalty under Section 271C is not automatically leviable merely because there was a short deduction of TDS. The apex court had held that such a penalty is not attracted when the assessee’s failure was due to a bona fide error or when there was no intention to evade tax or conceal income.
Applying this principle to the facts of the case, the ITAT concluded that SBI’s conduct stemmed from a bona fide understanding of the law and a debatable issue, not from a deliberate attempt to evade tax or conceal income. Therefore, the Tribunal found that the imposition of penalty under Section 271C was not justified.
The ITAT deleted the penalty for AY 2012-13. Regarding the delay in filing the first appeal, the ITAT also commented that the CIT(A) should have been lenient and condoned the delay, considering the nature of the assessee (a public sector undertaking), the recurring nature of the issue, and potential communication challenges in the faceless assessment regime, especially when the assessee claimed unawareness of the penalty order for a considerable period. However, since the penalty itself was being deleted, the issue of condonation of delay became academic for the outcome of the appeal.
As the facts and circumstances for AY 2013-14 were identical, the ITAT applied the same reasoning and deleted the penalty for that year as well. Both appeals by SBI were accordingly allowed.
Appellant by : Shri Deepak Maheshwari (Advocate)
FULL TEXT OF THE ORDER OF ITAT AGRA
