Bank Not Assessee in Default for LFC TDS Non-Deduction During HC Protection | ITAT

Case Details: SBI Morena Tiraha Ambah Branch vs. Income-tax Officer, TDS - [2026] 186 taxmann.com 1035 (Agra - Trib.) 

Judiciary and Counsel Details

• Sunil Kumar Singh, Judicial Member & M. Balaganesh, Accountant Member
• Dinesh Nair, CA for the Appellant.
• Anil Kumar, Sr. DR for the Respondent.

Facts of the Case

The assessee, a public sector bank, provided Leave Fare Concession (LFC) to its employees. Certain employees undertook journeys that included visits to foreign countries/foreign stop-overs. The bank did not deduct tax at source on these LFC payments, taking the position that such amounts were not taxable as salary under section 192. Consequently, the ITO (TDS) treated the bank as an assessee in default under section 201 for non-deduction of tax at source on LFC paid for journeys involving a foreign stop-over and levied consequential interest under section 201(1A).

On appeal, the CIT(A) upheld the order of the AO. The matter then reached the Agra Tribunal.

The Tribunal noted that the issue on merits regarding the allowability of exemption under section 10(5) where the journey involves a foreign leg had already been settled against the assessee by the judgment of the Hon’ble Supreme Court, and there was no dispute regarding this legal position.
However, the limited controversy before the Tribunal was whether the assessee could be treated as an “assessee in default” under section 201(1) for non-deduction of tax at source during the relevant period. 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. Although the subsequent decision of the Hon’ble Supreme Court settled the issue on merits, it could not retrospectively fasten liability under section 201(1) for a period during which the assessee was acting in compliance with judicial orders.

ITAT Held

The Tribunal observed that a person can be treated as an assessee in default under section 201(1) only when there is a failure to deduct tax despite 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. Accordingly, the assessee could not be treated as an assessee in default under section 201(1) for the impugned period.

List of Cases Referred to

• State Bank of India v. CIT [2025] 180 taxmann.com 837 (Kerala) (para 3),
• All India State Bank Officers Federation v. State Bank of India [2022] 140 taxmann.com 221/447 ITR 559 (Madras) (para 3)
• State Bank of India Bhavnagar Para Branch v. ITO, TDS [2026] 184 taxmann.com 706 (Ahmedabad – Trib.) (para 3).