Sec. 271C of Income Tax Act, 1961— Penalty —Penalty levied under section 271C is directed to be deleted as assessee was under bona fide belief that there is no tax liability on LTC portion paid to employees since the same was exempted from tax u/s 10(5) .

Facts: Assessee went on appeal before Tribunal and raised the ground that whether CIT(A) has grossly erred in upholding penalty u/s 271C without appreciating the fact that the appellant was under bona fide belief that there is no tax liability on LTC portion paid to employees since the same was exempted from tax u/s 10(5) (which deals with incomes which do not form part of total income) under the facts and circumstances of the case and thereby appellate order sustaining penalty is liable to be set aside.

Held, that assessee bank has undertaken reasonable steps in terms of verifying the assessee's claim towards their LTC claims and is aware of employees travelling to foreign countries as part of their travel itinerary but at the same time, there is an error of judgment on part of the assessee bank in understanding and applying the provisions of section 10(5), therefore, we are unable to accept the Revenues contention that the assessee bank has not deducted the tax intentionally, fully knowing that the LTC is applicable for travel in India only and no foreign travel is allowable as it is a case of error of judgment and no malafide can be assumed on part of the bank. Further, nothing has been brought on record which in any ways suggest connivance on part of the assessee bank or forged claims submitted by the employees and which has been discovered by the Revenue during the course of its examination. As fairly submitted by the assessee bank, while calculating the estimated tax liability of its employees, it always consider LTC claim as exempt under section 10(5) and the same position being followed and accepted consistently in the past years, was followed in the current financial year as well. However, for the first time, after the survey by the tax departments this issue arose for consideration and after the judgment of the Tribunal, the matter got clarified and the assessee bank has duly complied and deposited the outstanding demand along with interest and has taken corrective steps in subsequent years as well. Thus, in the entirety afflicts and circumstances of the case, there was reasonable cause in terms of section 273 for not deducting tax by the assessee Bank. In the result, the penalty's levied under section 271C is hereby directed to be deleted. - STATE BANK OF INDIA V/s ADDI. CIT - [2020] 26 ITCD Online 108 (ITAT-BANGALORE)