STATE BANK OF INDIA WAGHAWADI,BHAVNAGAR vs. ITO TDS WARD 1, AHMEDABAD, AHMEDABAD

The assessee has raised the following grounds of appeal: 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. 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.

The facts of the case are that the assessee received Show Cause notices dated 13.03.2023 and 23.03.2023. Consequent thereto, an order under sections 201 and 201(1A) of the Income-tax Act, 1961 vide No. ITBA/COM/F/17/2022-23/1051785650(1) dated 31.03.2023 was passed against the assessee and a Notice of Demand under section 156 of the Act dated 31.03.2023 was served, raising a demand of Rs.5,44,125/- (Rupees Five Lakh Forty-Four Thousand One Hundred Twenty-Five only).As per the said order, the aforesaid demand was raised on account of alleged short deduction/non-deduction of tax at source in respect of "Leave Fare Concession" paid to certain employees who had undertaken travel to foreign destinations, including journeys involving a foreign leg, during the Financial Year 2015-16. Being aggrieved by the said order passed under sections 201 and 201(1A) of the Act, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) on 12.03.2024. However, the said appeal came to be dismissed vide order passed under section 250 of the Income-tax Act, 1961 dated 11.02.2026. 4. Heard the argument of both the parties and perused the material available on record.

At the outset, both the parties fairly submitted that the issue raised by the assessee in the present appeals stands covered by the order of the Tribunal in the case of State Bank of India, Bhavnagar Vs. ITO for A.Y 2016-17 in ITA Nos. 453 & 454/Ahd/2026 dated 26.03.2026. For the sake of ready reference, the operative portion of said order is reproduced as under:

The Hon’ble 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.

In the present case also, the facts are materially identical. The assessee was operating under the binding interim directions of the Hon’ble Madras High Court during the relevant period and therefore could not have deducted tax at source. The subsequent decision of the Hon’ble Supreme Court, though settling the issue on merits, cannot retrospectively fasten liability under section 201(1) of the Act for a period during which the assessee was acting in compliance with judicial orders.

We also find force in the argument of the assessee that the scheme of section 201 of the Act itself contemplates that a person can be treated as an assessee in default only when there is a failure to deduct tax in spite of a legal obligation to do so. In the present case, such legal obligation stood eclipsed by the interim directions of the Hon’ble High Court.

In view of the above discussion, respectfully following the decision of the Hon’ble Kerala High Court in ITA No.45 of 2025 and the decision of the Co- ordinate Bench in ITA No.514/Agr/2024, we hold that the assessee cannot be - 6– treated as an assessee in default under section 201(1) of the Act for the impugned period. Consequently, the interest charged under section 201(1A) also does not survive.

Accordingly, we direct the Assessing Officer to delete the demand raised under section 201(1) and 201(1A) of the Act…”

In the absence of any change in factual matrix and legal proposition brought to our notice, the appeal of the assessee is hereby allowed.

In the result, the appeal of the assessee is allowed.

As regard to ITA No.1583/Ahd/2026 for AY 2017-18 is identical to that of ITA No.1582/Ahd/2026 for 2016-17. Hence, the same is also allowed.

In the result, both the appeals of the assessee are allowed.

""थ" / The Respondent. 3. संबंिधत आयकर आयु" / Concerned CIT 4. आयकर आयु"(अपील) / The CIT(A)- 5. िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड" फाईल / Guard file.