STATE BANK OF INDIA, BHACHAU BRANCH,BHACHAU vs. THE JOINT COMMISSIONER OF INCOME TAX, TDS ADDL/JCIT(TDS)RANGE, RAJKOT, RAJKOT

आयकर अपीलीय अिधकरण, राजकोट �यायपीठ, राजकोट। In The Income Tax Appellate Tribunal, “SMC” Rajkot Bench, Rajkot, Before Dr. Arjun Lal Saini, Accountant Member आयकरअपीलसं./ITA No. 962/Rjt/2026 [ �नधा�रणवष�/Assessment Year: 2016-17 ] State Bank of India RPL Projectsite The Deputy Commissioner of Income Branch Motikhavdi Tax, Vs. Khambhaliahighwa Jamnagar 361142- Circle-TDS, Room No:601,6th Floor, Gujarat, Pratyaksh Kar Bhavan, Race Course, Ring Road, Rajkot, Gujarat, 360001, �थायीलेखासं./जीआइआरसं./PAN/GIR No.: RKTR00193E (अपीलाथ�/Appellant) (��यथ�/Respondent) आयकरअपीलसं./ITA No. 978/Rjt/2026 [ �नधा�रणवष�/Assessment Year: 2017-18 ] State Bank of India, The Joint Commissioner of Income Bhachau Branch, 370140, Rajkot Tax, TDS, ADDL/JCIT(TDS) Range, Vs. Gujarat Room No. 503, 5th Floor, Pratyaksh Kar Bhavan, Race Course, Ring Raod, Rajkot, Gujarat- 360001, �थायीलेखासं./जीआइआरसं./PAN/GIR No.: RKTS02988G (अपीलाथ�/Appellant) (��यथ�/Respondent) Appellant by : Shri Dinesh Nair, Ld. AR Respondent by : Shri Ganesh Iyer, Ld. Sr. DR Date of Hearing : 22/10/2026 23/10/2026 Date of Pronouncement :

:: ORDER :: Per, Dr. Arjun Lal Saini, AM:

Captioned these two appeals filed by the assessee, pertaining different to Assessment Years 2016-17 & 2017-18, are directed against the separate orders passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”)

ITA No. 962 & 978 /Rjt/2026 State Bank of India by Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC) Delhi, which in turn arise out of separate orders passed by the assessing officer under section 201 and 271C (penalty order), of the Income tax Act 1961.

ITA No. 962 & 978 /Rjt/2026 State Bank of India during the relevant period, in Uo instant case, in order to verify the correctness of the TDS liability and compliance with the TDS provisions of the appellant, the Assessing Officer (AO) initiated proceedings under section 201(1) of the Act. Consequently, vide order passed under sections 201 and 201(1A) dated 31.03.2023, the AO held the appellant to be an "assessee in default for non-deduction of TDS on an amount of Rs. 20,69,011/- 4. Heard the argument of both the parties and perused the material available on record. 5. 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: “…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 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. 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 Coordinate Bench of the Tribunal in the case of State Bank of India in 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 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: Page 3 of 5

ITA No. 962 & 978 /Rjt/2026 State Bank of India “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.” 17. 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. 18. 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. 19. 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. 20. 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 Coordinate Bench in ITA No.514/Agr/2024, we hold that the assessee cannot be 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. 21. Accordingly, we direct the Assessing Officer to delete the demand raised under section 201(1) and 201(1A) of the Act…” 6. In the absence of any change in factual matrix and legal proposition brought to our notice, the appeal of the assessee is hereby allowed. 7. In the result, the appeal of the assessee is allowed.

ITA No. 962 & 978 /Rjt/2026 State Bank of India in facts and law and the revenue is unable to produce any material to controvert the aforesaid findings of the Division Bench (supra). I find no reason to interfere in the said order of the Division Bench. Therefore, respectfully following bindings precedent of the Co-ordinate Bench, and I delete the quantum addition and penalty and, allow these appeals of the assessee.

Order is pronounced in the open Court on 23/10/2026.

Sd/- [ Dr. Arjun Lal Saini ] लेखा सद�/Accountant Member राजकोट/Rajkot िदनांक/ Date: 23/10/2026 Copy of the order forwarded to :  The assessee  The Respondent  CIT  The CIT(A) By order  DR, ITAT, RAJKOT  Guard File Sr. Private Secretary ITAT, Rajkot

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