State Bank of India Vs ACIT (ITAT Mumbai)
Summary: ITAT Mumbai allowed two appeals of separate State Bank of India branches for AY 2016-17 and held that the branches could not be treated as assessees in default for non-deduction of TDS on Leave Fare Concession reimbursements involving a foreign leg during the period when the Madras High Court’s interim directions were operative. The Tribunal noted that the Supreme Court had subsequently settled the substantive issue against SBI by holding that foreign-leg LTC/LFC was not exempt under section 10(5) and attracted the employer’s TDS obligation under section 192.
However, for the relevant period, SBI was bound by the Madras High Court’s interim order stating that LTC reimbursement would not amount to income enabling deduction of tax at source. Following the Agra Bench decision in SBI v. CIT and the consistent Ahmedabad Bench decisions, the Mumbai Bench held that SBI had no option but to comply with the binding judicial direction and therefore could not be treated as an assessee in default under section 201(1).
The lead appeal concerned LFC of Rs. 2,88,426, on which the AO had computed tax of Rs. 86,528 and interest of Rs. 79,606, aggregating to Rs. 1,66,134. The Tribunal allowed the lead appeal and applied the same decision mutatis mutandis to the connected appeal; both appeals were allowed.
Cases Discussed
- State Bank of India Vs Assistant Commissioner of Income Tax, Civil Appeal No. 8181 of 2022, dated 04.11.2022 (Supreme Court) — considered on the substantive issue; foreign-leg LTC/LFC was held outside section 10(5), with TDS obligation under section 192.
- State Bank of India Vs CIT (Appeals), ITA No. 514/Agra/2024, dated 28.03.2025 (ITAT Agra) — followed; SBI could not be treated as assessee in default for the period covered by the binding Madras High Court interim no-TDS direction.
- State Bank of India Vs ITO, ITA Nos. 453 & 454/Ahd/2026, dated 26.03.2026 (ITAT Ahmedabad) — noted as a consistent coordinate-bench decision on identical facts.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These two appeals are filed by two different branch / entities of State Bank of India against the separate orders of the learned CIT(A), both for Assessment Year 2016-17. Though, the appeals were heard on different dates, yet, based on a similar set of facts and having common grounds of appeal, therefore, both the appeals are decided by a common order. To appreciate the facts, the facts in ITA No. 3841/Mumbai/2026 is treated as the lead case. The decision taken in this appeal would apply mutatis mutandis in ITA No. 2221/Mumbai/2026. In ITA No. 3841/Mumbai/2026, the assessee has raised the following grounds of appeal.
“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/centres as part of leave travel concession (“LTC”) 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 income and that no tax was to be deducted thereon. The CIT(A) ought to have appreciated that if the LTC was not to be treated as income of the employees as per the order of the Hon’ble Madras High Court, the same even otherwise would not require withholding of tax under section 192 of the Act.
4.The CIT(A) further erred in not appreciating that the Madras High Court vide its said order dated 16th February 2015 having directed the Appellant not to deduct at source on LTC had further stated that if the writ petition challenging the Circular was dismissed, the employees would be liable to pay tax on the LTC amount paid by the Appellant and, therefore, the CIT(A) ought to have quashed the order of the AO holding the Appellant to be an assessee in default.
5. The CIT(A) erred in not quashing the order of the AO holding the Appellant to be an assessee in default for the reason that the Appellant, even if it wanted to, could not have deducted tax at source on LTC paid during the year under consideration in view of the orders of the Hon’ble Madras High Court till the time they were in force as acting contrary to the orders of the Hon’ble Court would have amounted to contempt of Court.
6. The CIT(A) erred in not following the judgment of the Hon’ble Kerala High Court in State Bank of India v. CIT (ITA no. 45 of 2025) where the Hon’ble Court after considering the above set of facts held that the Appellant was justified in not deducting tax at source in view of the interim directions issued by the Madras High Court asking the Appellant not to deduct tax at source.
7. The CIT(A) erred in observing that the legal obligation to deduct tax was reinstated once the interim order passed by the Hon’ble Madras High Court was vacated without appreciating that the order of the Single Judge of the Hon’ble Madras High Court was challenged before the Division bench and later the Division bench’s order before the Hon’ble Supreme Court and that the Hon’ble Supreme Court in SLP(C) no. 16734 of 2023 has ordered the Appellant bank from not making any recoveries from its employees during the pendency of the petition.
8. Without prejudice to above grounds, the CIT(A) erred in not holding that the Appellant could not have been deemed to be an assessee in default under section 201(1) of the Act if the employee had furnished the return of income, taken into account such sum for computing income and paid the tax due on income declared by the employee.
The appellant craves leave to add, amend, alter or delete and/or modify the above grounds of appeal before or during the course of hearing.”
2. Brief facts of the case are that the appellant-assessee is a branch of State Bank of India. The Assessing Officer, ITO (TDS), Circle 2(2), (hereinafter referred to as “the AO”), passed an order under Section 201/201(1A) for AY 2016-17 on 22-03-2023. The Assessing Officer noted that a similar order was passed by his predecessor for non-deduction of TDS on reimbursement of Leave Travel Concession (LTC).The Hon’ble Supreme Court, in State Bank of India vs. ACIT, in Civil Appeal No. 8181 of 2014, dated 04-11-2022, dismissed the appeal of the State Bank of India and the stand of the revenue/ AO was upheld. On the basis of such primary observation, the AO also issued a show-cause notice under Section 201/201(1A) on 04-01-2023. In the show-cause notice, the assessee was required to furnish details of copies of Form 16 of employees/ officers of Bank, copies of bills and dates of payments in respect of employees who had availed LTC/LFC. The details of TDS made, if not made, the AO also required the assessee to furnish reasons for non-deduction of TDS. The AO recorded that the assessee Bank filed its reply through email on 31-01-2023. The contents of the reply of the assessee are not recorded/mentioned in the assessment order.The AO recorded that some of the employees of the assessee Bank have availed Leave Fair Concession (LFC) of Rs. 2,88,426/-, wherein travel outside India was involved. As per Section 10(5), exemption in respect of LFC is allowed only if the employee travels to any place within India. If the employee travels outside India using a circuitous route, but the source and destination are situated in India, the amount of LTC on account of LFC cannot be claimed under Section 10(5). The Assessing Officer recorded that the benefit of Section 10(5) is not applicable where the travel includes a foreign leg.The Assessing Officer treated the assessee Bank as an assessee in default for non-deduction of TDS under Section 192, and TDS at the rate of 30% of the LFC amount was brought to tax.The Assessing Officer, in paragraph 7 of his order, recorded that one Anil Wasudeo Kaldalkar availed LFC of Rs. 2,88,426/- on 14-08-2015. The default tax under Section 201(1) was worked out at Rs. 86,528/- and interest for 92 months at the rate of 1.00% per month was calculated at Rs. 79,606/-. Accordingly, the AO determined the total tax liability at Rs. 1,66,134/-.
3. Aggrieved by the order of the AO, the assessee filed an appeal before the CIT(A). Before the learned CIT(A), the assessee filed a detailed statement of facts as well as written submissions. The assessee, in its statement of facts, contended that the AO issued a show-cause notice initiating proceedings under Section 201(1)/201(1A), seeking details of LFC claimed by its employees and reimbursed by the assessee Bank, and as to why the assessee should not be treated as an assessee in default for non-deduction of tax on reimbursement of LFC involving foreign travel to its employees. The assessee filed its reply dated 31-03-2023 explaining as to why it should not be treated as an assessee in default for non-deduction of tax on reimbursement of LFC involving foreign travel and prayed for dropping the proceedings. It was contended that the assessee Bank had not deducted tax at source on reimbursement of LFC amount on account of specific directions of the Hon’ble High Court of Madras in its order dated 16-02-2015 in Writ Petition No. 11991 of 2014. In the said order, the Hon’ble High Court held that the amount of LFC paid to an employee would not amount to income for the purpose of TDS. It was directed that if the writ petition is dismissed, the employees would be liable to pay tax on the amount of LFC paid by the Bank. In view of the order of the Hon’ble High Court, the Bank has not deducted tax at source on reimbursement of LFC amount. Non-deduction of tax due to the High Court order. The question of invoking the provisions of Section 201(1) read with Section 201(1A) and treating the assessee in default does not arise. The assessee also referred to the contents of the order of the Madras High Court. In addition to, the assessee also filed detailed written submissions. The submissions of the assessee are reproduced/scanned on pages 7 to 17 of the order of the learned CIT(A). The assessee, in its written submissions, reiterated its earlier stand, including various statements between the Federation of Banks and associations of various bank employees/officers. The assessee also stated that there was a bona fide belief that even where the journey undertaken by employees involves a foreign leg, the employees are entitled to exemption when the employee’s designated place is in India and he actually visits the place as designated. The Bank had honestly and fairly formed an opinion and was under a bona fide belief that the LFC claim for travel within India cannot be denied merely because the journey also includes visits outside India. On the issue of bona fide belief, the assessee also relied upon a number of decisions of the higher courts.
4. The learned CIT(A), after considering the submissions of the assessee, upheld the order of the Assessing Officer by referring to various appeals pending before him. The learned CIT(A), while confirming the action of the AO, also referred to the decision of the Hon’ble Apex Court in Civil Appeal No. 8181 of 2022 dated 04-11-2022 and rejected the plea of bona fide belief. Further aggrieved, the assessee has filed the present appeal before the Tribunal.
5. We have heard the submissions of the learned Authorized Representative (learned AR) of the assessee and the learned Senior Departmental Representative (learned Senior DR) for the Revenue. The learned AR of the assessee submits that the appeal relates to AY 2016-17 in treating the assessee Bank as an assessee in default, the AO initiated action only after the decision of the Hon’ble Apex Court dated 04-11-2022. Before the AO, the assessee filed detailed written submissions. The submissions of the assessee are not recorded. Before the learned CIT(A), the assessee again filed written submissions and contended that there was a bona fide belief and there was an order of the High Court of Madras for not deducting tax at source on reimbursement of LFC. Subsequent to the decision of the Hon’ble Apex Court, considering the peculiar facts that there was sufficient cause for not deducting tax at source, various Benches of the Tribunal allowed similar appeals. The decision of the Agra Bench of the Tribunal in SBI vs. CIT in ITA No. 514/Agra/2024 dated 28-03-2025, which has been followed by the Ahmedabad Bench in ITA Nos. 453 and 454/Ahd./2026 in SBI Bhavnagar vs. ITO (TDS), and again followed in SBI Local Head Office, Gandhinagar in ITA No. 339/Ahd./2026, and again in SBI Vadodara vs. ITO (TDS) in ITA No. 365/Ahmedabad/2026. Copies of all such decisions have been filed.
6. The learned AR of the assessee also furnished a chronology of the relevant facts about the interim order passed by the Madras High Court in April 2024 and the subsequent final order of the Madras High Court in 2022, as well as the decision of the Hon’ble Apex Court in November 2022. The learned AR of the assessee submits that the assessee Bank was following the binding interim order of the Madras High Court and was under a bona fide belief and, in such circumstances, cannot be treated as an assessee in default. Moreover, on similar issues, there are a series of decisions. The period covered in the appeal relates to the period covered by the interim order of the Madras High Court.
7. On the other hand, the learned Senior DR for the Revenue supported the orders of the lower authorities. The learned Senior DR submits that after the decision of the Hon’ble Apex Court, the assessee Bank cannot take the plea of bona fide belief for non-deduction of tax on reimbursement of LFC.
8. We have considered the rival submissions of both the parties and have gone through the orders of the lower authorities carefully. We have also deliberated upon the various case laws relied upon by the learned AR of the assessee. We find that there is no dispute that during the relevant period under consieation, the order of the Madras High Court was in operation. The AO initiated action only in the month of January 2023, which is after vacation of the interim order and decision of Apex Court in November 2022. We find that, on a similar set of facts, on similar grounds, the Coordinate Bench of the Agra Tribunal passed the following order.
“3. From the facts, it is quite clear that the impugned LFC payments involving foreign LFC are not exempted u/s 10(5) as per the final decision of Hon’ble Apex Court in assessee’s own case (supra). It has been held by Hon’ble Court that the when the assessee-bank claimed exemption towards leave travel concession (LTC) granted to its employees, since travel of said employees was not from one place in India to another place in India but involved a foreign leg, benefit of exemption under section 10(5) could not be granted to assessee. The Hon’ble Court further held that the obligation of deducting tax is distinct from payment of tax. The assessee cannot claim ignorance about the travel plans of its employees as during settlement of LTC Bills the complete facts would be available before the assessee about the details of their employees’ travels. Therefore, it cannot be a case of bona fide mistake, as all the relevant facts were before the Assessee employer and he was therefore, fully in a position to calculate the ‘estimated income’ of its employees. The contention that there may be a bona fide mistake by the assessee-employer in calculating the ‘estimated income’ cannot be accepted since all the relevant documents and material were before the assessee- employer at the relevant point of time and the assessee employer therefore ought to have applied his mind and deducted tax at source as it was his statutory duty u/s 192(1) of the Act. The issue thus attained finality in favor of the revenue. 4. At the same time, it could be seen that the impugned payments pertain to LFC granted by assessee bank for the period 15-02-2016 to 24-02-2016 when the operation of interim order dated 16-02-2015 of Hon’ble High Court of Madras was in operation, the relevant portion of which read as under: –
“6. The interim order granted by this court is explained to the effect that any amount paid to the petitioner towards LTC or reimbursement of LTC pursuant to the impugned order would not amount to the income so as to enable the bank to deduct tax at source. It is made clear that if the writ petition is dismissed, the employees are liable to pay tax on the amount paid by the bank.”
The Hon’ble Court thus restrained the assessee bank not to deduct tax at source on such reimbursement. Finally, the decision has been rendered by Hon’ble High Court of Madras in case titled as All India State Bank Officers Association vs. SBI (140 Taxmann.com 221; dt. 14-06-2022) holding that withdrawal of additional facility would not infringe services rights or service conditions of officers of respondent bank and therefore, there was no perversity in respect of decision taken for withdrawal of additional concession granted to officers of respondent bank to travel abroad under LTC. It is thus clear that at the time of impugned payments, the interim order of Hon’ble High Court of Madras was in force which assessee bank was bound to follow. We concur that assessee bank had no option but not to deduct TDS on such reimbursements as per the interim order of Hon’ble Madras High Court. The directions given by the Hon’ble High Court were binding on the assessee and had the assessee deducted tax at source on impugned payment, it would have been contrary to the orders of Hon’ble High Court which could have amounted to contempt of court order. Finally, the decision in the aforesaid case has been rendered by Hon’ble High Court on 1406-2022. Under these circumstances, we would hold that assessee bank, by interim order of Hon’ble High Court of Madras, was under an obligation not to deduct tax at source and therefore, the assessee could not be held to be assesseein-default for non deduction of tax at source on impugned LFC payments. We order so. The impugned demand as raised against the assessee stand deleted.
9. We find that the order of the Agra Tribunal has been consistently followed by the Ahmedabad Tribunal in a series of appeals, which has been relied by ld AR of the assessee. Thus, considering the consistent decision of the Tribunal, wherein all the facts have already been considered, a consistent view has been taken that, under the specific circumstances and held that due to the interim order of the Madras High Court, the assessee Bank was under an obligation not to deduct tax at source and, therefore, the assessee-bank cannot be treated as an assessee in default for not making TDS on the impugned LFC payments.
10. In view of the aforesaid factual discussion and respectfully following the decision of the Coordinate Bench, the grounds of appeal raised by the assessee are allowed.
11. In the result, the appeal of the assessee is allowed.
ITA No. 2221/Mum/2026
12. Considering the fact that the assessee has raised similar grounds of appeal and the facts of this appeal are also similar, the decision taken in ITA No. 3841/Mumbai/2026 will apply mutatis mutandis. In the result, this appeal of the assessee is also allowed.
13. In the final result, both the appeals of the assessee are allowed.
Order was pronounced in open court on 09/09/2026.
