STATE BANK OF INDIA,BALADIYA vs. ITO TDS 4, GANDHIDHAM, GANDHIDHAM

Since, the issue involved in all the appeals are common and identical therefore these appeals have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. The grounds of appeal as well as facts narrated in ITA No.177/Rjt/2026 for assessment year 2017-18, have been taken into consideration for deciding these appeals en masse. 3. The grounds of appeal raised by the assessee in lead case, in ITA No.177/Rjt/2026 are as follows: 3 “1. In our case assessing officer has disallowed exemption u/s.10(5) of Income Tax Act, on the base of differences in interpretation of law and treated us an assessee in default and passed order against us u/s 201(1) and 201(1A) of the Income Tax Act and we filed appeal against said order before CIT (Appeals), which is dismissed and order was issued u/s 250 of the Income Tax Act. 2. The Kerala High Court has held in a recent judgement that State Bank of India (SBI) cannot be treated as an "Assessee in Default" under section 201 of the Income Tax Act for not deducting Tax at Source (TDS) on Leave Travel Concession (LTC) payments, as it was bound by an interim order which prohibited such deduction. The copy of said order is attached herewith. 3. Therefore against said order u/s. 250 and u/s. 201(1) and 201(1A), we prefer to file appeal before ITAT and furnished facts of the case along with said appeal along with relevant documentary evidences and we demand the withdrawal of the same from your honour by allowing our appeal on the basis of grounds and evidences furnished by us.” 4. Brief facts qua the issue are that in this case the proceedings u/s 201(1) & (1A) of the Act was initiated on the basis of the information received from DCIT, TDS Circle-2(2). Mumbai. The information is related to Leave Fare Concession (hereinafter referred as LFC)/ Leave Travel Concession (hereinafter referred as LTC) paid to employees for the tour which included foreign travel. During the year under consideration, assessee- bank has paid LFC/LTC to its employees, however the TDS has not been deducted on such payment. On receipt of information necessary query has been made from the assessee bank under proceedings u/s 201(1) & (1A) of the Act. As per information available and reply furnished by the bank, it was observed by the assessing officer that during the year under consideration, the assessee- bank has made payment of LFC/LTC on account of foreign travel to the following employees on which TDS was not deducted- Sr.No. Name of Employee Amount of LFC/LTC Date of payment 1 Shri Nirajkumar Makani 366168 29.06.2016 2 Shri Rajendra Berawala 506760 20.07.2016

The Assessing officer noted that the Hon'ble Supreme Court in its judgment (Civil Appeal No.8181 of 2022 dtd.04.11.2022) has held that, "Leave Travel Concession (LTC)/LFC is not for foreign travel and is meant for travel within India. The moment employee undertake travel with a foreign leg, it is not a travel within India and hence not covered under the provisions of Section 10(5) of the Income Tax Act and the court dismissed the appeal filed by State Bank of India against the Delhi High Court judgment which held that the amount received by the SBI employees towards their LTC claims is not liable for the exemption as these employees had visited foreign. The Revenue had held SBI to be an "assessee in default", for not deducting the tax at source of its employees.

Since, the assessee has not deducted tax at source as envisages u/s.192(1) of the Act, the assessee was vide, show cause notices issued on dated. 14.06.2023, and 10.07.2023 & 07.08.2023, requested to submit the following details: 1. Total amount of payment made to employees under the head LFC during F.Y. 2016-17. 2. List of employees who have availed LFC during F.Y. 2016-17 3. Details of payment made to these employees viz. date of payment 4. Details of TDS made on such payment if any. 5. Copy of Form 16 of such employees for F.Y. 2016-17

In response, the assessee- bank has vide its letter dated. 29.07.2023 submitted part details which is as under:

Consequently, vide submission dated 29.08.2023, assessee- bank submitted copy of Form 12BA& Form No 16 in respect of above employees. Perusing submission of the assessee, particularly the above table (as submitted by assessee bank) clearly indicates that the bank has paid Rs.8,72,928/- in aggregate to (two) employees viz. Shri Nirajkumar Makani and Rajendra Berawala way of Leave Fare Concession (for foreign travel) on which TDS was required to deduct @30%, but did not deduct by the assessee bank. Moreover, neither the gross salary received by respective employees as shown in Form No.16 nor the Form 12BA submitted which is meant for perquisites, indicates payment of LFC to the respective employees and corresponding TDS thereon. Considering the above and in view of provisions of Sec. u/s.192(1) of the I.T.Act, 1961, it was mandatory on the part of the assessee bank to deduct tax on such LFC payments made to the respective employees, however, assessee bank completely failed to do so and thereby violated the provisions of Sec. 192 of the Act. As such, the assessee bank vide this office letter dtd. 14.06.2023 and 10.07.20238 07.08.2023 was requested to show cause as to why it should not treated as assessee in default" for non-deduction of tax at source from LFC payment and accordingly TDS liability should not be determined by passing the order u/s 201(1) & (1A) of the Act. However, in response, the assessee merely 6 furnished Form 12BA &Form 16 in respect of above employees. Assessee bank never offered any explanation for non-deduction of tax at source from LFC payment made to the employees. Accordingly, a final show cause was issued to the assessee bank on 20.09.2023 proposing working out of aggregate TDS liability of Rs.4,89,711/- ((261878/-u/s. 201) plus (227833/-8 201(1A)] of the Act for failure to deduct tax at source from LFC payment. The assessee bank was requested to furnish its reply on or before 25.09.2023. However, neither any explanation was received from the assessee -bank on specified date nor was any adjournment sought. Thus, assessing officer noted that it evident that assessee bank made payment to its employee during the period under consideration on account of foreign travel under head LFC payments to the tune of Rs. 2,89,692/- However, no TDS was deducted on such payments which was otherwise obligatory in nature to the assessee bank. Even assessee's bank employee's form no 16 & 12BA form is silent over such payments. It was onus of the bank assessee to deduct TDS of such payments as per prescribed provisions of section 192 of the Act. But here it is not so. Thus, assessee bank is an assessee in default for non-deduction of TDS u/s 192 of the Act and liable for proceedings u/s 201 of the Act. On perusal of the details it was seen that during the year under consideration the assessee bank has made payment towards LTC/LFC on which tax has not been deducted at source. In view of the above decision delivered by Hon'ble Supreme Court, the TDS liability was determined as under: Sr. Name of Amount Amount of Applicable rate Default TDS Interest TOTAL No. Employee of LTC/LFC & of TDS u/s Months default u/s 201 Taxable Date of Co 192(1)/interest (1A) salary Payment in Rs. u/s 201(1A) 1 Nirajkum 1330164 366168/- 30% 1% PM 87 109850/- 95569 205419 ar Makani 29.06.2016 Months 2 Rajendra 1481537 506760 30% 1%PM 87 152028 132264 284292 Berawala 20.07.2026 Month 261878 227833 489711 Total 7 The total TDS liability is arrived at Rs.26,1878/-u/s.201(1) of the Act. Further in view of the provisions of sec. 201(1A) of the Act assesse is liable for interest @ 1% on TDS liability for the default period mentioned above. The amount of interest is arrived at Rs.22,7833/. Thereby the total TDS liability was determined at Rs.4,89,711/- (261878 plus 227833).

Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the action of Assessing Officer observing as follows: “The appellant has submitted in its submission that as evident from its assertion the Bank has strived to ensure that there is compliance of the guidelines issued in connection with reimbursement of LFC as well as the provisions of the Act and non deduction of tax was only on account of the specific directions of the Hon'ble Madras High Court and that the Bank cannot be faulted for any act, which could not be completed at that point in time due to the specific directions of the Hon'ble Court, which were binding on the Bank and violation of which, would have rendered the Bank liable for contempt. It has been contended that SBI's interests were protected by an interim order of the Madras High Court dated February 16, 2015 (WP No. 11991 of 2014), and that deducting tax would have violated this stay. The writ petition filed before the Hon'ble High Court of Madras was dismissed on 24.6.2022. On 08-08-2022 Division bench of the Hon'ble High Court of Madras in Writ Appeal 1653/2022 filed against the judgment dated 24/06/2022 stayed the judgment and ordered that during-pendency of this appeal, no recovery shall be affected from their salary onwards the petitioners. The Supreme Court's ruling dated 04.11.2022 established the law that the LFC for foreign travel was never exempt under Section 10(5). Therefore, the tax was always deductible in accordance with the provisions of the Act. From the available documents the sequence of events are as follows- As observed above there was no stay from 24.06.2022 to 08.08.2022 and from 08.06.2023 to 28.08.2023, implying that recovery of the whole LTC amount paid became applicable. However, the appellant neither deducted tax on LFC/LTC nor made recovery despite the clear Supreme Court decision in Civil Appeal No. 8181 of 2022. The deduction or recovery of the amount was certain following the Supreme Court's decision. For as soon as the stay is vacated, the legal obligation to deduct tax is reinstated. The deductor was required to comply with the provision of TDS as confirmed by the Hon'ble Supreme Court of India. The stay only provide temporary relief from the obligation. Once the legal position is clarified the obligation to deduct tax and the consequences of the past failure become applicable. The deductor is liable to pay the TDS and interest for all periods where the deduction was legally required to be made but not made. While there was no active stay order preventing the deduction, the appellant neither deducted tax on LFC nor made recovery. The obligation of deducting tax is distinct from the payment or recovery of tax. Even if recovery proceedings were suspended or the bank was prevented from recovering amounts from employees, the duty to deduct TDS, based on the taxability of the income still exists. In a similar and identical case, in the case of the State Bank Of India, Chennai vs ACIT, TDS, Chennai on 27 June, 2025 THE INCOME-TAX APPELLATE TRIBUNAL 'A' BENCH, CHENNAI in I.T.A. No.1465/Chny/2024 have made the following observations. "Coming to the next aspect regarding the sequence of events and position after 24.06.2022 as discussed by the Id. CIT(A) in para 5.10 at page 15 of the impugned order, which is reproduced hereunder: 5.10 The sequence of events and position after 24-06-2022 is as under: i. The writ petition is dismissed in 24-06-2022 and the stay is vacated. ii. From 24-06-2022 onwards the petitioners undertaking that the whole amount of LTC paid must be recovered is applicable. 9 iii. On 08-08-2022 Division bench of the Hon'ble High Court of Madras in Writ Appeal 1653/2022 filed against the judgment dated 24/06/2022 stayed the judgment and ordered that during-pendency of this appeal, no recovery shall be affected from their salary onwards the petitioners. iv. The bank had authority to recover the whole amount of reimbursement given after 24.06.2022 and the bank has not done this. If the bank has recovered the amount from the employee there is no question of TDS as there is no LTC reimbursement. v. On 08-08-2022 Division bench of the Hon'ble High Court of Madras stayed the order dated 24-06-2022 and the order of Apex Court in State Bank of India against the Assistant Commissioner of Income Tax in Special Leave Appeal (C) No.9876 of 2020, SLP No. 9876 of 2020/ CIVIL APPEAL NO 8181 OF 2022 is dated 04.11.2022. From 04-11-20022 onwards the appellant has to deduct TDS on foreign LTC reimbursement given. vi. On 08.08.2023 Hon'ble Division Bench of the Madras High Court allowed the W.A No. 1653/2022 quashed the Circulars dated 07.04.2014 issued by IBA and the letter dated 15.04.2014 issued by the Bank, vii. From 08.06.2023 the employees are eligible for foreign LTC and the bank is liable to deduct TDS according to decision of the Apex Court in [2022] 144 taxmann.com 131 (SC) SUPREME COURT OF INDIA State Bank of India Assistant Commissioner of Income-tax. viii. The Apex Court on 28.08.2023 has stayed the operation of the judgment of the Madras High Court in W.A No. 1653 /2022 and the Bank is directed not to make any recoveries from its employees during the pendency of the SLP. Thus from 28.08.2023 the Bank cannot make any recovery from employee. 10. On perusal of the above, we note that according to the Id. CIT(A) the receipt from LTC of foreign tour are taxable and the assessee is liable to deduct TDS has attained finality. Further, we note that the assessee is not able to deduct TDS in view of order of stay by Hon'ble High Court of Madras. Further, it is noted that the interim stay was granted on an undertaking by the assessee that amount paid towards LTC would be refunded by the individual officers concerned, in case dismissal of writ appeal by the Hon'ble High Court. Admittedly, the dispute is before the Hon'ble Supreme Court in SLP and vide order dated 28.08.2023, the Hon'ble Supreme Court was pleased to stay the operation of the judgement of Hon'ble High Court in W.A. 1653/2022, wherein, the assessee is directed not to make any recoveries from its employees during the pendency of the SLP. We find no dispute in this regard by both the parties. We note the Id. CIT(A) observed that there was no stay from 24.06.2022 to 08.08.2022 and from 08.06.2023 to 28.08.2023 and that the assessee neither deducted tax on LTC nor made recovery, accordingly held the order of the Assessing Officer is correct in holding that the assessee is in default for non-deduction of TDS during 24.06.2022 to 08.08.2022 and from 08.06.2023 to 28.08.2023. We find no infirmity in the order of the Id. CIT(A) as we completely agree with the reasons recorded from paras 5.8 to 5.10 of the impugned order in confirming the order of the Assessing Officer." As discussed in the foregoing paras, the stay order merely suspended the obligation to deduct, not the eventual liability to pay the tax and the corresponding interest for the delay.

Aggrieved by the order of the CIT(A), the assessee is in further appeal before this Tribunal.

Learned Counsel for the assessee submitted written submission before us, which are reproduced below: (1) The LTC was paid to one employee by the branch i.e. to Mr. Mukesh Pandit, amounting to Rs.4.94.480/- on dated 30-09-2016 and the corresponding tax and interest demanded by Income Tax Department thereon is Rs.1,48,344/- (u/s.201(1)) and 1,26,092/- (u/s.201(1A)) respectively. Hence total tax liability raised by ITD is Rs.2,74,436/-. Said foreign travel was done by employee to foreign countries namely Italy, France, Switzerland and Austria. (2) The contention of the assessee has consistently been that during the year under consideration, it was bound by the interim orders passed by the Hon'ble Madras High Court in W.P. No.11991 of 2014, wherein vide order dated 16.02.2015 it was specifically clarified that the LFC payments would not amount to income so as to enable deduction of tax at source and further that if the writ petition was ultimately dismissed, the employees would be liable to pay tax. The assessee has submitted that in view of such binding judicial directions, it could not have deducted tax at source and any such deduction would have amounted to disobedience of the order of the Hon'ble High Court. The copy of said judicial pronouncements were attached in original written submission (Appeal) before your honour's bench. (3) Our client, SBI has considerable merit in the aforesaid contention. The interim directions of the Hon'ble Madras High Court were in force during the relevant previous year and the assessee, being a party (respondent) to the proceedings, was duty bound to comply with the same. The obligation under section 192 of the Act to deduct tax at source cannot be read in isolation and must yield to binding judicial orders. Therefore, the failure to deduct tax in such circumstances cannot be equated with a default contemplated under section 201(1) of the Act. (4) We further state that an identical issue has been considered by the Co-ordinate Bench of the Tribunal in the case of State Bank of India in ITA No.514/Agr/2024, ITA No. 453 & 454/Ahd/2026 dated 26-03-2026 and ITA No.339/Ahd/2026 dated 09-04- 2026, wherein after considering the decision of the Hon'ble Supreme Court as well as the interim orders of the Hon'ble Madras High Court, ITAT held that the assessee bank could not be treated as an assessee in default since it was bound to follow the interim directions of the Hon'ble High Court. The Tribunal categorically observed that the assessee had no option but to comply with the orders of the Hon'ble High Court and non-deduction of tax in such circumstances could not invite the rigours of section 201(1) and 201(1A) of the Act. The copy of judgements of said Tribunal Orders are attached herewith. (5)More importantly, the Hon'ble Kerala High Court in ITA No.45 of 2025 (order dated 18th November 2025) has examined this issue in detail and has held in favour of the assessee. The relevant findings of the Hon'ble High Court, which have a direct bearing on the said issue, are reproduced below for ready reference: "The interim order granted by this Court is explained to the effect that any amount paid to the petitioner towards LTC or re-imbursement of LTC pursuant to the impugned order would not amount to 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 Bank." "It is only when the appellant-assessee, after having a liability to deduct tax, fails to do so, the question of invoking Section 201 of the Act and treating it as an 'assessee in default' could be arived. Here, the Hon'ble Madras High Court found, prima facie, that the amount paid would not be the income of a payee so as to deduct tax. Therefore, the provisions of Section 201(1) of the Act are not attracted to the case at hand.” "The appellant-assessee was under an obligation not to deduct tax at source and therefore, the assessee cannot be held to be assessee in-default for non-deduction of tax at source on impugned LFC payments." The Hon'ble Kerala High Court has thus clearly held that where the assessee was restrained by judicial orders from deducting tax at source, the provisions of section 201 of the Act cannot be invoked and the assessee cannot be treated as an assessee in default. The copy of said judgement of Kerala High Court was attached by us in the original submission (Appeal) furnished to your honour's bench.

On the other hand, Ld. DR for the revenue also submitted written submission, which are reproduced below: The issue raised in the present appeal is no longer res integra and stands conclusively settled by the Hon'ble Supreme Court in State Bank of India v. Assistant Commissioner of Income Tax, Civil Appeal No. 8181 of 2022, decided on 04.11.2022 1. Statutory Obligation under Section 192 The Hon'ble Supreme Court has categorically held that the obligation to deduct tax at source under Section 192 is a statutory duty of the employer. The employer is required to compute the "estimated income" of the employee based on material available at the time of payment. 2. Distinct Nature of Deduction and Payment of Tax The Court clarified that the obligation to deduct tax is distinct from the ultimate tax liability of the employee. Failure to deduct TDS, where legally required, renders the employer an "assessee in default" under Section 201 3. No Defence of Bona Fide Mistake Where Facts Are Available It has been expressly held that where all relevant documents and facts are available with the employer, the plea of bona fide mistake is not sustainable. The employer is expected to apply its mind and comply strictly with statutory provisions. 4. Strict Interpretation of Exemption Provisions The Supreme Court reaffirmed that exemption provisions (such as Section 10(5) in that case) must be strictly construed, and any deviation from statutory conditions disentitles the benefit 13 Application to Present Case In view of the authoritative pronouncement of the Hon'ble Supreme Court: The statutory obligation of TDS cannot be diluted by interpretational latitude. Once the material on record indicates that the conditions for exemption/deduction are not satisfied, non-deduction automatically attracts consequences under Section 201. The plea of ambiguity, administrative practice, or bona fide belief is legally untenable where statutory requirements are clear. Accordingly, the issue is fully covered by the judgment of the Hon'ble Supreme Court. The matter is settled law and does not give rise to any debatable question. The appeal of the assessee is devoid of merit and deserves to be dismissed.

I have heard, both the parties and perused the material available on record. I note that stay order of the Hon’ble Madras High Court was started from 25.03.2014 and it was up to 24.03.2022, therefore all the appeals of these different assessees, fall under this period, where the State Bank of India (employer), supposed to obey the order of the Hon’ble Madras High Court and therefore, SBI-employer did not deduct the TDS on LTC. Therefore, taking into account these facts, I find that the issue is squarely covered, in favour of the assessee by the judgment of the Coordinate Bench of ITAT Ahmedabad in the case of State Bank of India Bhavnagar Para Branch, in ITA No.453 & 454/Ahd/2026, vide order dated 26.03.2026, wherein it was held as follows: “11. We have heard the rival contentions and perused the material available on record. 12. At the outset, we note that the issue on merits regarding allowability of exemption under section 10(5) of the Act in cases where the journey involves a foreign leg now stands concluded against the assessee by the judgment of the Hon'ble Supreme Court dated 04.11.2022. There is no dispute on this legal position and the same is duly acknowledged. However, the limited controversy before us is whether, in the peculiar facts of the present case, the assessee can be treated as an "assessee in default" under section 201(1) of the Act for non-deduction of tax at source during the relevant period. 13. The contention of the assessee has consistently been that during the year under consideration, it was bound by the interim orders passed by the Hon'ble Madras High Court in All India State Bank Officers Federation v. State Bank of India [2022] 140 taxmann.com 221/447 ITR 559 (Madras)/W.P. No.11991 of 2014, wherein vide order dated 16.02.2015 it was specifically clarified that the LFC/LTC payments would 14 not amount to income so as to enable deduction of tax at source and further that if the writ petition was ultimately dismissed, the employees would be liable to pay tax. The assessee has submitted that in view of such binding judicial directions, it could not have deducted tax at source and any such deduction would have amounted to disobedience of the order of the Hon'ble High Court. 14. We find considerable merit in the aforesaid contention of the assessee. The interim directions of the Hon'ble Madras High Court were in force during the relevant previous year and the assessee, being a party to the proceedings, was duty bound to comply with the same. The obligation under section 192 of the Act to deduct tax at source cannot be read in isolation and must yield to binding judicial orders. Therefore, the failure to deduct tax in such circumstances cannot be equated with a default contemplated under section 201(1) of the Act. 15. We further find that an identical issue has been considered by the Co-ordinate Bench of the Tribunal in the case of State Bank of India v. CIT (Appeals) [2025] 173 taxmann.com 730 (Agra - Trib.) /ITA No.514/Agr/2024, wherein after considering the decision of the Hon'ble Supreme Court as well as the interim orders of the Hon'ble Madras High Court, ITAT held that the assessee bank could not be treated as an assessee in default since it was bound to follow the interim directions of the Hon'ble High Court. The Tribunal categorically observed that the assessee had no option but to comply with the orders of the Hon'ble High Court and non-deduction of tax in such circumstances could not invite the rigours of section 201(1) and 201(1A) of the Act. 16. More importantly, the Hon'ble Kerala High Court in State Bank of India v. CIT [2025] 180 taxmann.com 837 (Kerala)/ ITA No. 45 of 2025 (order dated 18th November 2025) has examined this issue in detail and has held in favour of the assessee. The relevant findings of the Hon'ble High Court, which have a direct bearing on the issue before us, are reproduced below for ready reference: "The interim order granted by this Court is explained to the effect that any amount paid to the petitioner towards LTC or re-imbursement of LTC pursuant to the impugned order would not amount to 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 Bank. " "It is only when the appellant-assessee, after having a liability to deduct tax, fails to do so, the question of invoking Section 201 of the Act and treating it as an 'assessee in default' arises. Here, the Madras High Court found, prima facie, that the amount paid would not be the income of a payee so as to deduct tax. Therefore, we are of the opinion that the provisions of Section 201(1) of the Act are not attracted to the case at hand." "The appellant-assessee was under an obligation not to deduct tax at source and therefore, the assessee could not be held to be assessee in-default for non- deduction of tax at source on impugned LFC payments."

Since, I have adjudicated the issue by taking the lead case in ITA No. 177/Rjt/2026 for assessment year 2017-18 and the facts and grounds of appeal in other assessee’s case are similar and identical, therefore the observations and the decision rendered in ITA No.177/Rjt/2026 are applicable mutatis and mutandis to other appeals also that is, in ITA No.179/Rjt/2026, 268/Rjt/2026, 270/Rjt/2026, 297/Rjt/2026, 303/Rjt/2026, 370/Rjt/2026 and 374/Rjt/2026.

In the combined result, all appeals filed by the assessee, are allowed.