State Bank of India Vs ITO (ITAT Mumbai)
The appeals before the Income Tax Appellate Tribunal (ITAT), Mumbai, arose from orders of the Commissioner of Income Tax (Appeals) for Assessment Year 2016–17, wherein the assessee was held to be an “assessee in default” under Section 201(1) for failure to deduct tax at source on Leave Fare Concession (LFC) payments made to employees.
The assessee, a banking entity, had granted LFC benefits to employees and treated such payments as exempt under Section 10(5) of the Income Tax Act while computing tax deduction under Section 192. During assessment, it was found that certain employees undertook travel involving a foreign leg, yet no tax was deducted. The Assessing Officer, relying on the Supreme Court judgment dated 04.11.2022, held that exemption under Section 10(5) is limited to travel within India and is not available where foreign travel is involved. Accordingly, the assessee was treated as an assessee in default and demand under Section 201(1) along with interest under Section 201(1A) was raised.
Before the CIT(A), the assessee contended that it had acted under a bona fide belief, followed industry practice, and complied with Rule 2B. It also relied on interim orders of the Madras High Court, which had directed that LFC payments would not be treated as income for the purpose of tax deduction during the pendency of writ proceedings. The CIT(A), however, rejected these arguments, holding that the law as clarified by the Supreme Court was binding and that exemption was not available where travel included a foreign leg. The order of the Assessing Officer was thus upheld.
