STATE BANK OF INDIA AUNDH BR,PUNE vs. ASSISTANT COMMISSIONER OF INCOME-TAX, TDS, TDS CIRCLE, PUNE, PUNE

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI R. K. PANDA, VICE PRESIDENT AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपील सं. / ITA No.639/PUN/2026 िनधा�रण वष� / Assessment Year : 2016-17 State Bank of India Aundh Vs. ACIT, TDS Circle, Pune. BR, Khond Arcade Parihar Chowk, Aundh, Pune- 411007. PAN : AAACS8577K Appellant Respondent Assessee by : Shri Dinesh Nair (Virtual) Revenue by Shri Umesh Phade : Date of hearing : 14.05.2026 Date of pronouncement : 05.08.2026 आदेश / ORDER PER VINAY BHAMORE, JM: This appeal filed by the assessee is directed against the order dated 22.12.2025 passed by Ld. Addl./JCIT(A)-2, Siliguri [‘Ld. CIT(A)’] for the assessment year 2016-17. 2. The appellant 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

2 ITA No.639/PUN/2026 visit overseas countries/ centers 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

3 ITA No.639/PUN/2026 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.” 3. Facts of the case, in brief, are that the assessee is a branch of State Bank of India and has not deducted TDS u/s 192(1) of the IT Act on Leave Fare Concession (LFC)/ Leave Travel Concession (LTC) paid to its employee regarding Foreign Travel. Therefore, proceedings u/s 201(1) of the IT Act was initiated and a letter intending to pass an order u/s 201(1)/ (1A) of the IT Act to determine the liability was issued to the assessee with regard to the employee to whom LFC on foreign tour was granted, however, TDS was not made. The assessee bank furnished information that only one employee Mr. Mahadevo Ganesh Padhye has been paid LFC of Rs.2,55,772/- involving foreign travel during assessment year 2016-17 on which TDS was not deducted u/s 192(1) of the IT Act. Therefore, a show cause notice was issued to the assessee to

4 ITA No.639/PUN/2026 furnish his explanation as to why order u/s 201(1)/ (1A) of the IT Act should not be passed in respect of default of non-deduction of TDS on LFC payments made to its employee in connection with foreign travel, however, the assessee did not furnish any reply to the above show cause notice. The Assessing Officer, vide order dated 30.03.2023 treated the assessee as ‘an assessee in default’ u/s 201(1)/ 201(1A) of the IT Act and determined the TDS liability of Rs.79,034/- u/s 201(1) of the IT Act along with interest of Rs.74,292/- u/s 201(1A) of the IT Act. 4. Being aggrieved with the above order dated 30.03.2023, the assessee preferred an appeal before Ld. CIT(A). After considering the reply and submissions of the assessee, Ld. CIT(A) dismissed the appeal filed by the assessee. 5. It is the above order against which the assessee is in appeal before this Tribunal. 6. We have heard Ld. Counsels from both the sides and perused the material available on record including the paper book furnished by the assessee. In support of its contentions, the assessee has placed reliance on a decision passed by coordinate bench of this Tribunal in the case of State Bank of India Agra in ITA

5 ITA No.639/PUN/2026 No.514/Agr/2024 order dated 28-03-2025 wherein similar issue of treating the assessee as an assessee in default u/s 201(1) & 201(1A) of the IT Act for non-deduction of TDS u/s 192(1) of the IT Act on LFC/LTC payment to its employee involving foreign travel was under consideration. In this regard, we find that coordinate bench of this Tribunal in the above case of other branch of State Bank of India has decided the controversy in favour of assessee bank by observing as under :- “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

6 ITA No.639/PUN/2026 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 14-06-2022. 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 assessee in-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. 5. The appeal stand allowed in terms of our above order.” 7. Respectively following the above decision passed by coordinate bench of this Tribunal in the case of State Bank of India Agra in ITA No.514/Agr/2024 order dated 28-03-2025 (other Branch of State Bank of India), we are of the considered opinion that the impugned order dated 30.03.2023 passed by the Assessing Officer (TDS) u/s 201(1)/ 201(1A) of the IT Act treating the assessee as an assessee in default is not justified, since the assessee was prevented by sufficient & reasonable cause in not deducting the TDS. In this regard, judgement passed by Hon’ble High Court of Kerala in the case of State Bank of India vs. Commissioner of Income-tax [2025] 180 taxmann.com 837 (Kerala)[18-11-2025] is also relevant wherein Hon’ble Court in the case of State Bank of India Poovar Branch held that the appellant-assessee was justified in not having deducted the tax by observing as under :-

7 ITA No.639/PUN/2026 “7. It is on the face of the afore, provisions of Section 201 of the Act requires to be analysed so as to consider the question as to whether the appellant could be treated as an 'assessee in default'. Under Section 192 of the Act, the appellant had a statutory duty to deduct income tax while making payments to the employee 'at the time of payment'. 8. The provisions of Section 201 of the Act, to the extent relevant herein, read as under: - "201 Consequences of failure to deduct or pay. (1) Where any person, including the principal officer of a company,-- (a) who is required to deduct any sum in accordance with the provisions of this Act; or (b) referred to in sub-section (1A) of section 192, being an employer, does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax if such payee-- (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed: Provided further that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax.

8 ITA No.639/PUN/2026 (1A) Without prejudice to the provisions of subsection (1), if any such person, principal officer or company as is referred to in that sub- section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,-- (i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200:" A reading of sub-section (1) to Section 201 of the Act would show that steps thereunder can be taken, and the assessee/payer deemed to be an 'assessee in default' when he; i. does not deduct tax ii. does not pay, or iii. after deducting fails to pay whole or any part of the tax as required under the Act. Here, provisions of Section 201 of the Act have to be read along with Section 192 of the Act, which provides for actual deduction of tax at source. But in the case at hand, when so visualised, there cannot be any dispute that the appellant-assessee could not have made any deduction in view of the interim order issued as noticed earlier. 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. For the same reasons, the provisions of sub-section (1A) of Section 201 of the Act providing for the levy of interest are also not attracted. 9. The issue can be addressed from yet another angle, also. Section 192 of the Act, as noticed earlier, provides for making deductions while making payments to the employee. At the time of such payment, the interdiction by the Madras High Court did not permit the appellant to deduct tax, since the appellant-assessee was

9 ITA No.639/PUN/2026 directed to make such payments without deduction of tax. The Court, however, cautiously made it clear that it is for the employees to pay tax directly on the amount paid by the bank, if ultimately, the writ petition is dismissed. Therefore, the appellant could not be called upon to make payment on a later date- after the dismissal of the writ petition in 2022- ignoring the liability of the payee to satisfy the tax. 10. We also take note of the first proviso to Section 201(1) of the Act, as per which the payer is not to be treated as an 'assessee in default' if a payee has furnished the return of income under the Act, taking into account the amount received for computing the income. The circumstances like the one herein are taken care of, through the first proviso to Section 201 of the Act. 11. We also notice the judgment of the Madras High Court in Leema Resorts (P.) Ltd. v. C.G. Suryakant [1995] 129 CTR 317/215 ITR 618/[1996] 85 Taxman 475 (Madras), wherein a more or less similar issue arose for consideration. In that case, the appellants were the tenants of the premises concerned in the appeal. The appellants were found guilty of contempt of court for having wilfully disobeyed certain orders of the Court in an appeal filed against the order of the learned Single Judge. In the contempt appeal, the enforcement of the order was postponed in view of the undertaking made by the appellants to pay a certain sum of rupees ten lakhs on or before 01.08.1994. The amount of rupees ten lakhs was paid on 01.08.1994. The Division Bench recorded the payment of rupees ten lakhs on the previous day and permitted the appellants to make a deposit of rupees three lakhs in the manner stated thereunder. After payments were made as above, a notice was issued by the income tax department to the appellant in the contempt appeal, inviting attention to the provisions of Section 194-I of the Act introduced in June 1994, as per which 20% ought to have been deducted when rent exceeding Rs.1,20,000/- was paid in a financial year. The appellant in such circumstances approached the court seeking permission to deduct 20% of the amount already paid pursuant to the order noticed earlier. Considering this issue, the Court found as under: - "One more question that remains for consideration is as to whether the petitioners should be subjected to the proceedings that are now initiated against them by notice dated September 2, 1994, which is extracted above. We have already extracted the relevant portion of our order dated August 2, 1994, which directed the mode of payment. Further, the petitioners/appellants in Contempt Appeal No. 5 of 1994, were required to pay under the teeth of punishment imposed in the contempt proceedings. Our order did not give any scope or option to the appellants in the contempt appeal to deduct 20 per cent, of the amount payable to the respondents at source. In

10 ITA No.639/PUN/2026 such a situation, the proviso to section 201 of the Act is attracted as it specifically empowers the concerned Assessing Officer to extend the benefit to such an assessee and not to treat him as the assessee in default in respect of the tax. On this question also, we have heard learned senior standing counsel for the Department, who fairly submitted that as the petitioners were obliged to make payment pursuant to the order of this court, they cannot be treated as defaulters and they would fall within the proviso to section 201 of the Act, and the Assessing Officer would be suitably advised in this regard, on an application filed by the petitioners pursuant to the notice dated September 2, 1994. As the case falls under the proviso to section 201(1) of the Act and as the submission of learned senior standing counsel is also to the same effect, and in addition to this it is also submitted by learned senior standing counsel that the Assessing Officer would be advised, accordingly, we do not consider it necessary to issue any such direction as prayed for in this miscellaneous petition as it would be sufficient to place the submissions made by learned standing senior counsel for the Department on record." (Underlining supplied) Thus, it is clarified by the Madras High Court that the appellant therein is not to be proceeded against for payments already made pursuant to the orders issued, as per which there was no scope for tax deduction at source. We are of the opinion that the same is the position herein also, as the appellant, having complied with the orders of the Madras High Court, cannot be treated as an 'assessee in default' under the provisions of Section 201 of the Act. 12. The Apex Court in State of U.P. v. Prem Chopra [2022] 2 SCR 990, considering the effect of an interim order granted by the Court, once the main matter itself is disposed of, has observed as under:- "24. From the above discussion, it is clear that imposition of a stay on the operation of an order means that the order which has been stayed would not be operative from the date of passing of the stay order. However, it does not mean that the stayed order is wiped out from the existence, unless it is quashed. Once the proceedings, wherein a stay was granted, are dismissed, any interim order granted earlier merges with the final order. In other words, the interim order comes to an end with the dismissal of the proceedings. In such a situation, it is the duty of the Court to put the parties in the same position they would have been but for the interim order of the court, unless the order granting interim stay or final order dismissing the proceedings specifies otherwise. On the dismissal of the

11 ITA No.639/PUN/2026 proceedings or vacation of the interim order, the beneficiary of the interim order shall have to pay interest on the amount withheld or not paid by virtue of the interim order." (underlining supplied) Thus, though the effect of an interim order would come to an end upon the final disposal of the main case that would be subject to the observation to the contrary in the interim order or the final judgment. Applying this principle to the case at hand, even though the main writ petition/writ appeal has been later disposed of insofar as the interim order has directed the treatment of the amount paid without deduction of tax in the manner laid down therein, the appellant bank cannot be treated as an assessee in default. 13. Sri. Jayashankar also contended that insofar as steps under Section 201 of the Act were initiated with reference to the deduction within the State of Kerala, the interim orders issued by the Madras High Court were of no consequence, and hence the appellant cannot seek refuge thereunder. But we are of the opinion that since the Act is an all-India statute and since what was challenged before the Court was the circular issued by the bank at the instance of the Association of Bank employees, the appellant cannot be faulted for having honoured the stay orders issued by the Madras High Court. Therefore, the afore contention raised is only to be rejected. 14. We also take note of the fact that the Apex Court, by judgment dated 04.11.2022 in State Bank of India v. Assistant Commissioner of Income-tax [2022] 144 taxmann.com 131/449 ITR 192/[2023] 290 Taxman 129 (SC)/Civil Appeal No.8181 of 2022, has found that, as against payments made by the appellant bank to its employees towards LTC, it was bound to deduct tax at source. But this finding was with respect to the Assessment Year 2013-14 (financial year 2012-13). In the case at hand, during the financial year 2015-16 relevant to the assessment year 2016-17, the interim directions issued by the Madras High Court governed the field, and the appellant- assessee was justified in not having deducted the tax. In the result, this appeal would stand allowed, answering the questions formulated in favour of the assessee and against the revenue.” 8. Respectfully following the above judgement of Hon’ble High Court of Kerala in the case of State Bank of India vs. Commissioner of Income-tax [2025] 180 taxmann.com 837

12 ITA No.639/PUN/2026 (Kerala)[18-11-2025], we deem it appropriate to set-aside the order passed by Ld. CIT(A) and direct the Assessing Officer (TDS) to not to treat the assessee as an assessee in default u/s 201(1)/ 201(1A) of the IT Act for non-deduction of TDS on impugned LFC payment and cancel the impugned demand. Thus, the grounds of appeal raised by the assessee are allowed. 9. In the result, the appeal filed by the assessee is allowed. Order pronounced on this 05th day of August, 2026. Sd/- Sd/- (R. K. PANDA) (VINAY BHAMORE) VICE PRESIDENT JUDICIAL MEMBER पुणे / Pune; �दनांक / Dated : 05th August, 2026. Sujeet/DOC Sujeet Kumar Digitally signed by Sujeet Kumar Sharma Sharma Date: 2026.08.06 12:36:27 +05'30' आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The Addl./JCIT(A)-2, Siliguri. 4. The Pr. CIT/CIT concerned. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B” ब�च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // Assistant Registrar आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.