STATE BANK OF INDIA,NA vs. ARIVS.INCOME TAX OFFICER, TDS WARD-3, NAVSARI

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM &DR. A.L.SAINI, AM आयकरअपीलसं./ITA Nos.37 & 38/SRT/2018 (िनधा�रणवष� / Assessment Years: (2013-14 & 2014-15) (VirtualCourt Hearing) State Bank of India Income Tax Officer (TDS-3) Room No.607, Aaykar Regional Business Office-V, Navsari- Vs. Bhavan, Majura Gate, Surat- Tapi, 1st Floor, Shourya Apartment, 395001 Opp. Lunsikul Ground, Navsari- 396445 �थायीलेखासं./जीआइआरसं./PAN/GIR No.: AAACS 8577 K (Appellant ) (Respondent)

Assessee by :Shri Divyang J. Shah, C.A Respondent by :Shri Sita Ram Meena,– Sr-DR

सुनवाईकीतारीख/ Date of Hearing : 14/02/2022 घोषणाकीतारीख/Date of Pronouncement : 28/02/2022 आदेश / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: Captioned two appeals filed by the assessee, pertaining to assessment year(s) 2013-14 & 2014-15, are directed against the common order passed by Learned Commissioner of Income Tax(Appeals)-3, Surat [‘CIT(A)’ for short], all dated 17.07.2017, which in turn arise out of separate assessment orders passed by the Assessing Officer (“AO" for short) u/s 201(1A) r.w.s. 201(1A)of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), order dated 23.03.2016.

2.At the outset, Shri Divyang J Shah, Ld. Authorized Representative (AR) of the assessee states that both the assessee’s appeals are barred by limitation of 102 days. The assessee has moved a petition for condonation of delay requesting the Bench to condone the delay. The Ld. AR submits an affidavit explaining the reasons for late filing of both these appeals before the Tribunal. The contents of the affidavit is reproduced below:

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“I, H.H Patan (CM ADM), aged about 58 years, son of Shri Haidarkhan Pathan identified by PAN-ACSPP5651J at present office Address, Chief Manger (ADM), State Bank of India (SBI), Regional Business Office-V, Luncikui, Navsari, do solemnly affirm and state on oath as under: That it was advised by the legal consultant to file an appeal before the Hon'ble Income Tax Appellate Tribunal, Surat Bench for relief but the appeal has already become barred by time limitation. Nevertheless, the appeal is being filed before this Hon'ble ITAT accompanied by an application for condonation of delay as provided under section 5 of the Limitation Act, 1963. That in this way there is a delay of more than 90 days in filing an appeal before this Hon'ble ITAT. That the reason for delay in filing the appeal is that the then Chief Manager (Adm) had been taken VRS and the said post remained vacant for more than 3 months. The mater came into my notice after one month of taking the charge by me. That I hereby regretted for delay submission on my part. That I had no intention to jeopardize the interest of the revenue by delaying the filing of the appeal.”

4.On the other hand, Shri Sita Ram Meena, Ld. Sr. Departmental Representative (Sr.DR) for the Revenue, strongly opposed the prayer for condonation of delay and submits that delay in filing the appeal should not be condoned merely on the reasons that the then Chief Manager (Adm) had taken VRS scheme and said post of Chief Manager (Adm) of State Bank of India was lying vacant for three months. The assistant manager could file the appeals before Tribunal. Therefore, Ld. Sr.DR argues that delay in filing both the appeals may not be condoned.

4.We have heard both the parties on this preliminary issue. We note that the then Chief Manger (Adm) had applied for VRS scheme, therefore, said post was lying vacant for three months and for this reason appeals could not be filed before Tribunal.

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We are of the view that provisions of law have to be adhered strictly and that one cannot be allowed to act in leisure and make a mockery of enacted law, because law and provisions are laid down to benefit both sides of litigation. Be that as it may, we have to do justice and the Hon’ble Supreme Court in the case of Collector, Land Acquisition vs Mst. Katiji and others , reported in 167 ITR 471, (1988 SC 897) (7) has observed as follows:

“4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non- deliberate delay.” 5. When we weigh these two aspects then the side of justice becomes heavier and casts a duty on us to deliver justice. The reasons given in the affidavit for condonation of delay were convincing and these reasons would constitute reasonable and sufficient cause for the delay in filing these appeals. We, therefore, condone the delay in both the appeals and admit both the appeals for hearing.

7.The grounds of appeal raised by assessee in “lead case” in ITA No.37/SRT/2018, for A.Y 2013-14, are as follows: 1.The order of the learned ITO TDS-3, and the order of CIT (A)-3 on aspects agitated in this appeal, is bad in law, contrary to the provisions of law and facts of the case and without appreciation of the facts and circumstances of the case in their right perspective. 2.The learned ITO TDS-3 erred in passing an order under section 201(1) /201(1A) and in raising demand of Rs. 2,40,581/- (i.e. tax of Rs. 1,68,821/- and interest of Rs.71,760/-) on the basis that tax was not deducted at source on payment of Leave Travel Concession. The Id. CIT (A)-3, Surat also erred in passing the order without adjudicating all of the grounds of

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the appeal made before him and dismissing the adjudicated ground no. 2 of appeal and confirming the action of ITO (TDS-3). 3.The learned ITO TDS-3 erred in not granting sufficient opportunity of hearing to the Bank prior to passing the order under section 201(1) /201(1A). 4.The learned ITO TDS-3 erred in not appreciating that the benefit of Leave Travel Concession is available to the Bank's employee even in cases where the journey undertaken by an employee involves a foreign leg but the employee's designated place is in India and he actually visits the place as designated. 5.The learned ITO TDS -3 erred in making the following observation, holding as under: "2. During the course of verification, it was found that some of the employees of bank have claimed L.F.C. (Leave fare concession) for travelling to foreign countries. As per the provision of section 10(5) of the I.T. Act, the exemption of L.F.C. is allowed only if the employee travels to anyplace in India. " "3. If the employee travels out of India, the L.F.C. amount cannot be claimed as exempted u/s 10(5) of the I. T. Act and it has to be taxed as part of salary of the concerned employee. Accordingly the employer is required to deduct TDS on this amount u/s 192 after treating it as part of salary. The bank was requested to provide the details of LFC Claims in which there was foreign travel" The above observations are without any basis and are contrary to the facts of the case. The appellant objects to these observations / conclusions. 6.Without prejudice to the above, the learned ITO TDS -3 erred in not appreciating the bona fide belief of the Bank in granting benefit of Leave Travel Concession paid to the Bank's employees who travelled out of India and held the Bank to be an assessee in default. 7.Without prejudice to the above, the learned ITO TDS-3 erred in not appreciating that the employee is entitled to exemption under section 10(5) to the extent of expenses incurred for travel in India where the employee's designated place is in India and he actually visits the place as designated even in cases where the journey undertaken by an employee involves a foreign leg. 8.Without prejudice to the above, the learned ITO TDS-3 erred in applying a flat rate of 30% for computation of TDS instead of applying the actual income-tax rate applicable in case of each employee. But against the order of ITO TDS-3, The Ld. CIT (A)-3, Surat appreciated this plea of the bank in favor and pronounced that

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"The actual income tax rate applicable to the individual employee should be adopted for the TDS". 9.Without prejudice to the above, the learned ITO TDS-3 erred in computing interest from the date of sanction of LTC instead of considering the actual date of payment of the LTC in case of each employee. But against the order of ITO TDS-3.The Ld. CIT (A)-3, Surat appreciated this plea of the bank in favor and pronounced that: "TDS can be made only when actual disbursement or payment is made to employees and not when the sanction is given to the assessee. As a corollary the default also arises when payment is made without deducting tax and hence, the interest is also chargeable from the date of actual payment". 10.The learned ITO TDS-3 erred in not appreciating the submissions made by the Bank in the correct perspective. 11.Each one of the above grounds of appeal is without prejudice to the other. 12.The Bank reserves the right to amend, alter or add to the grounds of appeal.”

8.The relevant material facts, as culled out from the material on record, are as follows. There was a survey action on 27th February, 2014, which was conducted by the Income-tax (TDS), Valsad [ITO ‘TDS Valsad’] under section 133A of the Act at the Regional Business Office –V, Navsari-Tapi of the Bank in Navsari. The statement u/s 131 of the Act, dated 28th February, 2014 of Chief Manager, Regional Business Office-V, Navsari was also recorded on oath. During the course of the survey, the ITO TDS Valsad asked the Bank to submit, inter alia, details of LTC availed by all the employees of the Bank. On perusal of the details submitted during the TDS assessment proceedings, the ITO TDS, Valsad was of the view that LTC benefit u/s 10(5) is not available if the employee has travelled out of India. In other words, the ITO TDS Valsad was of the view that if the employee has travelled out of India, the entire LTC paid in such a case was taxable in the hands of the employee. Subsequently ITO TDS-3 passed an order dated 23.03.2016 under section 201(1) read with section 201(1A) treating the entire LTC payment of Rs.6,59,352/- made to employees of SBI, Regional Business office-V

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of Navsari during financial year 2012-13 as taxable. In light of the above facts, the ITO TDS-3 has treated the Bank as an assessee in default for purpose of section 201 of the Act and raised the following demand for A.Y.2013-14 and 2014-15

Asst.Year LTC paid to Tax deductible Interest @1% p.m Total (Rs.) employees (RS.) @30% (Rs.) (Rs.) 2013-14 6,59,352/- 1,68,821/- 71,760/- 2,40,581/- 2014-15 25,81,160/- 7,92,958/- 2,66,185/- 10,59,143/-

9.Aggrieved by the order of AO, the assessee carried the matter in appeal before the Ld. CIT(A) who has confirmed the addition/demand made by the AO. Aggrieved, the assessee is in further appeal before us.

10.We have heard both the parties and noted that issue under consideration is squarely covered by the order of Hon'ble ITAT Mumbai Benches in the case of State Bank of India(supra) wherein the Tribunal has adjudicated the issue (relating to non - deduction of TDS with respect to LTC/ LFC amount paid to its employees by the State Bank of India) in favour of assessee.

11.On the other hand, Ld. Sr.DR for the Revenue relied on the order of assessing officer.

12.We note that issue under consideration is no longer res integra. The Co- ordinate Bench of ITAT Mumbai in the assessee`s own case (State Bank of India) (supra) has adjudicated the disputed issue under consideration, in favour of assessee, observing as follows:

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“7. As we proceed to adjudicate on connection of the impugned demands, it is important to bear in mind while dealing with the demands relating to a tax deduction of at source from payments of salaries that there is a subtle line of demarcation between what is taxable in the hands of the assessee and what is the amount of estimated income in respect of which tax is required to be deducted at source by the employer. Section 192 (1), which imposes tax withholding obligations on the employers in respect of payments for salaries, requires that tax deduction is made by the employer "on the estimated income of the assessee under this head (i.e., income from salaries) for that financial year". Thus, the tax withholding obligation is clearly in respect of "estimated income of the assessee" and not in respect of "taxable income of the assessee". The mere fact of taxability of a payment in not in respect of "taxable income the hands of an assessee under this head". Clearly, therefore, taxability of an income, in the hands of the employee concerned, under the head' income from salaries' per se is thus not sufficient to invoke the tax withholding obligations of the employer. There can be situations in which the employer genuinely and reasonably estimates income of the employees under the head salaries, and yet actual taxability of income under the head salaries of the related employees may be higher than employer's estimation. Therefore, while examining the question as to whether the employer has properly discharged his duties under section 192, all that is to be seen is whether the employer has reasonably, or bona fide, estimated the income of the employees and deducted tax in respect of such estimated income. As long as the conduct of the employer in this exercise is bona fide, he cannot be said to be wanting in his conduct under section 192. Explaining this legal position, in the oft-quoted landmark judgment in the case of Gwalior Rayon Co. Silk Co. Ltd. v. CIT [1983] 14 Taxman 99/140 ITR 832 (MP), Hon'ble Madhya Pradesh High Court judgment has, inter alia, observed that, "A duty is cast on an employer to form an opinion about the tax liability of his employee in respect of the salary income. While forming this opinion, the employer is undoubtedly expected to act honestly and fairly. But if it is found that the estimate made by the employer is incorrect, this fact alone, without anything more, would not inevitably lead to the inference that the employer has not acted honestly and fairly. Unless that inference can be reasonably raised against an employer, no fault can be found with him. It cannot be held that he has not deducted tax on the estimated income of the employee". We humbly bow to the law so laid down by Their Lordships, and this, in our humble understanding, the correct and applicable legal position consistently followed by several coordinate benches of this Tribunal. There is not even a whisper of dissent on this point. It is in this light that we have, therefore, proceed further. The question that we need to, therefore, address is whether the action of the employer in not deducting tax at source from the leave travel facility in question could be said to be reasonable or bona fide. Let us, in this backdrop, take a look at the related legal provisions under section 10(5) read with rule 2 B: Section 10(5)- exemption in respect of leave travel concession 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included ** ** **

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(5) in the case of an individual, the value of any travel concession or assistance received by, or due to, him,— (a) from his employer for himself and his family, in connection with his proceeding on leave to any place in India; (b) from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service, Subject to such conditions as maybe prescribed (including conditions as to number of journeys and the amount which shall be exempt per head) having regard to the travel concession or assistance granted to the employees of the Central Government; Provided that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel (remaining statutory provision not reproduced as it is not considered to be relevant for the present discussion) Conditions for the purpose of section 10(5) as prescribed under rule 2 B of the Income-tax Rules, 1962 2B. (1) The amount exempted under clause (5) of section 10 in respect of the value of travel concession or assistance received by or due to the individual from his employer or former employer for himself and his family, in connection with his proceeding— (a) on leave to any place in India;

(b) to any place in India after retirement from service or after the termination of his service,

shall be the amount actually incurred on the performance of such travel subject to the following conditions, namely:—

(i) where the journey is performed on or after the 1st day of October, 1997, by air, an amount not exceeding the air economy fare of the national carrier by the shortest route to the place of destination; (ii) where places of origin of journey and destination are connected by rail and the journey is performed on or after the 1st day of October, 1997, by any mode of transport other than by air, an amount not exceeding the air-conditioned first class rail fare by the shortest route to the place of destination; and (iii) where the places of origin of journey and destination or part thereof are not connected by rail and the journey is performed on or after the 1st day of October, 1997, between such places, the amount eligible for exemption shall be:— (A) where a recognised public transport system exists, an amount not exceeding the 1st class or deluxe class fare, as the case may be, on such transport by the shortest route

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to the place of destination; and (B) where no recognised public transport system exists, an amount equivalent to the air- conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail. (remaining statutory provision not reproduced as it is not considered to be relevant for the present discussion) 8. A plain reading of the above provisions does not indicate any requirement of taking the shortest route for travelling to "any place in India" or putting any kind of restrictions the route to be adopted for going to such a destination. Quite to the contrary, the statutory provisions do envisage the possibilities of someone taking a route other than the shortest route, as is implicit in the restriction that "an amount not exceeding the air economy fare of the national carrier by the shortest route to the place of destination" will only be eligible for exemption under section 10(5). What is essentially implies, to give a simple example, is that if someone is based in Mumbai and he decides to go to Delhi via, let us say, Lucknow, Kolkata, or Chennai, the amount admissible for exemption under section 10(5) will be restricted to the price of direct flights between Mumbai and Delhi on the national carrier. This proposition is not even disputed by the income tax department. The question, however, arises whether when the same person goes to Delhi, via Dubai, the exempt leave travel concession being restricted to the price of Mumbai Delhi direct flight. Of course, the stand of the income tax department is that even the cost of the direct flight from Mumbai to Delhi, on the national carrier- assuming that it is less than Mumbai-Dubai-Delhi airfare, will not be admissible leave travel assistance exemption in such a case. That is the approach approved by the coordinate benches as well, and, therefore, we need not question that at this stage. The relevant question, however, is not the actual status of taxation; the relevant question is whether the assessee employer could be said to unreasonable or malafide in proceeding on the basis that in such a situation also, the cost of a direct flight between Mumbai Delhi on national airlines will be available for exemption under section 10(5). When we look at the detailed statement of facts, extracts from which have been extensively reproduced by us earlier in this order, we do not find anything wrong or unreasonable in the conduct of the assessee employer. There is no specific bar in the law on the travel, eligible for exemption under section 10(5), involving a sector of overseas travel, and, in the absence of such a bar, the assessee employer cannot be faulted for not inferring such a bar. The reimbursement is restricted to airfare, on the national carrier, by the shortest route- as is the mandate of rule 2B. The employee has actually travelled, as a part of that composite itinerary involving a foreign sector as well, to the destination in India. The guidance available to the assessee employer indicates that, in such a situation, the exemption under section 10(5) is available to the employee- though to the extent of farthest Indian destination by the shortest route, and that is what the assessee employer has allowed. In the light of this analysis of the legal position and the factual backdrop, whatever may be the position with respect of taxability of such a leave travel concession in the hands of the employee, the assessee employer cannot be faulted for not deducting tax at source from the leave travel concession facility allowed by him to the employees. As we hold so, we may add that we have not really addressed ourselves to the larger question with respect to the actual taxability of this leave travel concession in the

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hands of the employees concerned, even though we have our prima facie reservations on the coordinate benches decisions holding taxability of these amounts in the hands of the employees concerned, because that aspect of the matter is not really relevant as on now. We leave it at that for the time being. The coordinate bench decisions deal with only the issue of taxability of leave travel facility under section 10(5) and not with the broader question about the nature of tax deduction at source liability under section 192, as also the issue about bona fides of the stand of the assessee employer. These decisions, therefore, do not come in the way of our present decision. Once we hold, as we do in this case, that estimation of income, in the hands of the employees under the head' income from salaries', by the employer was bona fide and reasonable, the very foundation of impugned demands raised under section 201 r.w.s 192 ceases to hold good in law. We must, therefore, vacate these demands. 9. In view of the above discussions, as also bearing in mind entirety of the case, we cancel the impugned demands under section 201 r.w.s. 192 as unsustainable in law. Ground no 3 is thus allowed, and all the remaining grounds of appeal are dismissed as infructuous. The assessee gets the relief accordingly. 10. As we part with the matter, we have a couple of observations to make. The first observation is this. Mr.Khlasa, learned Departmental Representative, upon being explained the legal position during the course of hearing, did not have much to say and he graciously left the matter to us. His short point, however, was that the fact that whether entire travel costs are borne by the employer or whether only the partial costs, limited to direct flight on the shortest route and as per the national carrier, are borne by the employer, is not unambiguous from the findings of the authorities below, and the matter should, at least for this verification, be restored to the file of the Assessing Officer. We see no merits in this plea. It has been a specific stand of the assessee all along that the leave travel facility extended by the assessee employer is restricted to the cost of direct flights, on the national carrier, by the shortest route taken, and that is reiterated in the statement of facts filed before the CIT(A) as well. This stand of the assessee remains uncontroverted. There is no reason to doubt the same and prolong the proceedings. In case the Assessing Officer finds that this relief is based on incorrect facts, its open to him to seek appropriate remedy by, inter alia, seeking a recall of this order, but, on our own and merely to double-check, we are not inclined to remit the matter to the file of the Assessing Officer. Inconvenience to the assessee and smallness of the amounts involved apart, this is a case of a public sector undertaking, and any unnecessary further prolonging of the proceedings can only at the cost of taxpayers' hard-earned monies. We must avoid that. The second point we must make is that we are alive to the fact that on materially identical facts, the coordinate benches have decided the matter against the assessee by holding that exemption under section 10(5) is not available to the employees on the facts of these cases. That does not, however, affect our conclusions, which are essentially based on our interpretation about the impact of section 192(1) so far as obligations of the assessee employer are concerned, and, in none of the cases cited before us, any findings are given about the mala fides, or even lack of bonafides, on the part of the assessee employer. There is thus no conflict between our decision and the coordinate bench decisions in similarly placed cases; the path we have followed is different, and so are the conclusions we have arrived at. With the greatest respect to the coordinate benches, but without the slightest hesitation, we are of the view that the core issue in appeal remained unaddressed in

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these coordinate bench decisions, and, therefore, even though these coordinate benches decisions are in respect of similarly situated cases, these decisions do not bind us on the conclusions. Finally, we must place on record our deep appreciation for a very well-drafted statement of facts and the grounds of appeal, which, in the absence of any assistance during the course of hearing, were indeed of immense help to us.”

13.Since the issue is squarely covered in favour of assessee by the decision of ITAT Mumbai Tribunal in assessee`s own case (supra). There is no change in fact and law. The Learned Sr.DR for the Revenue did not bring any contrary decision before us. The Ld. Sr.DR for the Revenue also fails to produce any material to controvert the aforesaid findings of ITAT Mumbai Benches.

Order pronounced on 28/02/2022 by placing the result on the notice board.

Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat/िदनांक/ Date:28/02/2022 Dkp Outsourcing Sr.P.S. Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr.CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // True Copy // Assistant Registrar/Sr. PS/PS ITAT, Surat rue copy/ Page | 11