Income Tax Appellate Tribunal - Delhi
Deputy Commissioner Of Income Tax vs Hcl Infosystems Ltd. on 24 June, 2004
Equivalent citations: (2005)95TTJ(DELHI)1093
ORDER
1. These eight appeals filed by the Revenue against the consolidated order passed by the learned CIT(A)-XXV, New Delhi, dt. 17th Aug., 2000, for financial years 1989-90 to 1996-97 involve a common issue relating to alleged short deduction of TDS in respect of salary paid to the employees in the form of leave travel allowance treating the same as exempt and, consequently, action in treating the assessee-company as a person in default under Section 201(1) and in levy of interest in respect of the said amount under Section 201(1A).
2. In this case, the assessee-company, while deducting tax at source from the salary paid to its employees, did not include leave travel allowance paid during the year under consideration treating the same as exempt under Section 10(5) on the basis of declaration filed by the said employees confirming of having actually spent the said allowance on travel. A survey under Section 133A conducted in the assessee's case, however, revealed that the assessee-company did not obtain any documentary evidence with regard to the LTA having been actually spent by the employees except the declarations made by them for incurring the travel expenses. Based on these findings of the survey, the AO was of the opinion that having regard to the assessee's failure to verify the incurring of actual expenditure on travel by its employees out of leave travel allowance, there was a short deduction of tax from salary inasmuch as the said allowance was treated as exempt under Section 10(5) without ascertaining as to whether the concerned employees were actually eligible for exemption. He, therefore, required the assessee-company to show cause why it should not be treated as person in default in respect of such short deduction and interest under Section 201(1A) should not be levied in respect of such amount. In reply, it was submitted on behalf of the assessee-company that the employer under Section 192(1) is liable to deduct tax only on the basis of estimated income and the Act does not cast an obligation on the employer to precisely compute the taxable income of the employees for the purpose of deduction of tax at source. It was also submitted on behalf of the assessee-company that it was under bona fide belief having regard to the declaration filed by its employees that the leave travel allowance paid to them was exempt under Section 10(5) and the estimate of salary income made on the basis of such bona fide belief was an honest estimate. It was also submitted that the employees claiming the leave travel allowance were required to take atleast five days leave and the allowance was paid only after the employees furnished a declaration to the effect that they have actually travelled and incurred expenses in respect thereof. The assessee-company also referred to the circulars issued by CBDT year after year regarding TDS from salaries and pointed out that the same did not contain any instructions for the DDOs to obtain evidence in the form of train/air tickets, etc., while treating the LTA as exempt under Section 10(5) for the purpose of computing estimated income on salaries and deducting tax at source thereon. The assessee-company, therefore, pleaded before the AO that it cannot be treated as a person in default under Section 201(1) in respect of alleged short deduction of tax, if any, on this count and consequently, no interest under Section 201(1A) could be charged. Reliance was placed on behalf of the assessee-company on the following case law in support of its case on this issue :
(a) Gwalior Rayon Silk Co. Ltd. v. CIT
(b) Orient Paper & Industries Ltd. v. CIT 68 Taxation 32 (MP)
(c) Eicher Good Earth Ltd. v. ITO (1998) 98 Taxman 229 (Del)(Mag)
(d) Nestle India Ltd. v. Asstt. CIT (1997) 61 ITD 444 (Del)
(e) ONGC v. ITO (1998) 60 TTJ (Ahd) 408.
3. The AO, however, did not find the aforesaid explanation furnished by the assessee to be satisfactory and considering that no efforts whatsoever were made by the assessee to verify as to whether the concerned employees claiming LTA had indeed travelled and incurred expenditure on such travel, he held that the assessee-company was wrong in treating the LTA paid to its employees as exempt under Section 10(5) while estimating the salary income for the purpose of TDS which resulted in the short deduction of tax. Accordingly, he treated the assessee-company as person in default in respect of such short deduction relying on the decision of Hyderabad Bench of Tribunal in the case of Dr. Reddy Laboratories Ltd. v. ITO (1996) 56 TTJ (Hyd) 38 : (1996) 58 ITD 104 (Hyd) and also charged interest under Section 201(1A) in respect of the amount of such short deduction quantified by him for the years under consideration. Aggrieved by the orders passed by the AO under Section 201(1)/201(1A), the assessee-company preferred appeals before the learned CIT(A) and the submissions made before the AO were reiterated on behalf of the assessee-company before the learned CIT(A) in support of its case. The learned CIT(A) found merits in the submissions so made on behalf of the assessee-company and proceeded to cancel the demand raised by the AO under Section 201(1) as well as the interest charged under Section 201(1A) for all the eight years under consideration for the following reasons given in para 15 of his impugned order :
"15. I have considered the submissions of the appellant which are well founded. The employees are allowed LTA after availing 5 days leave by them and on submission of statement giving details of journey performed containing place visited, mode of travel, number of persons and fare, etc. Sometime, the amount sanctioned to the employee is less than the amount claimed and is based on the entitlement of the employee. No detail of ticket number, etc. were being obtained by the appellant-company. The CBDT has been issuing circulars every year for guidance of the DDOs for deduction of tax at source from the salary income paid to the employees. However, unfortunately, no specific format or guidelines have been issued for obtaining the relevant details to verify that the journey has actually been performed by the employees. The Hon'ble Andhra Pradesh High Court in the case of P.V. Rajgopal v. Union of India had referred to the CBDT circular issued every year to provide guidance to the DDOs. The Court had observed that the circulars advised the drawing and disbursing authority to satisfy itself that the computation of taxable salary income is in order with reference to deduction available to the employee. This does not convert him into an ITO or an adjudicating authority as many erroneously believe. All that it means is that the assessee must declare his claim so that with reference to Section 201, proviso, he can say that he had good and sufficient reasons not to deduct tax at source in respect of any income to avoid imposition of penalty. The appellant had accepted the claim of the employees of having performed journey and allowed them the leave travel allowance and considered the same to be exempt from taxation as per Section 10(5) read with Rule 2B of the IT Rules. The employer has no reason to suspect or doubt that the declarations given by the employees are not correct, particularly when the Tax Department has not prescribed any specific details or format in which the declarations are to be submitted by the employees. Further, it is for the AO adjudicating in the individual assessment of the employee to examine this fact whether the claim of exemption under Section 10(5) of the IT Act has been made correctly or not. The employer cannot be given the responsibility of the adjudicating authority to sit in judgment over the claim of the employee which can only be done by the AO. There is nothing on record to show that the conduct of the employer was mala fide and the payments have been made without deduction of tax as source with some ulterior motive. It may further be noted that no additions for wrong claim of leave travel allowance have been made by the AO in the case of the individual employees most of whom have been filing their individual returns. Considering these facts and also keeping in view the decision of Hon'ble Andhra Pradesh High Court in P.V. Rajgopal's case (supra) as well as the various decisions of learned Tribunal, Delhi Bench, I am of the view that the learned AO was not justified in rejecting the claim of exemption of LTA under Section 10(5) of the Act and considering the same as a taxable income of the employee and determining short deduction of tax under Section 201(1) of the Act. The short deductions of tax determined by the learned AO for the respective years for LTA are, therefore, deleted."
4. Aggrieved by the aforesaid relief given by the learned CIT(A), the Revenue is in appeal before us.
5. The learned Departmental Representative submitted before us that the exemption under Section 10(5) in respect of leave travel allowance granted to the employees was available only if the allowance so granted was actually spent by the concerned employees on their travel. He submitted that for the purpose of treating the said allowance as exempt under Section 10(5) for the purpose of computing the estimated income from salary as well as tax deductible thereon, it was incumbent upon the assessee-company in its capacity as employer to verify from actual evidence that the allowance granted to its employees was actually spent by them and the assessee-company having failed to do so while treating the same as exempt, there was a short deduction of tax as rightly quantified by the AO in the order passed under Section 201(1). He pointed out that the self-declarations filed by the concerned employees could not be considered as an evidence/proof of the expenditure actually incurred by the employees and the assessee-company, therefore, was not justified in relying on the same for treating the LTA as exempt for the purpose of TDS without actually verifying the incurring of such expenditure on evidence. He contended that this vital aspect, however, was not fully appreciated by the learned CIT(A) while allowing relief to the assessee by his impugned order and urged that the same is, therefore, liable to be set aside restoring back the order of the AO passed under Section 201(1)/201(1A).
6. The learned counsel for the assessee, on the other hand, reiterated all the arguments raised before the authorities below and further submitted that the leave travel allowance granted to employees in the years under consideration was treated as exempt by the assessee-company for the purpose of estimating their salary income and deducting tax thereon after satisfying itself that a leave of minimum five days had been taken by the concerned employees and declaration of having spent the amount of such allowance on the actual travel was furnished by them. He contended that the estimate of salary income thus was made by the assessee-company for the purpose of tax deduction at source on the basis of bona fide belief that the declarations filed by the concerned employees were correct and, in any case, such estimate based on the bona fide belief was an honest estimate. Relying on the several decisions cited before the AO as well as before the learned CIT(A), he contended that Section 192 requires any person responsible for paying any income chargeable under the head "Salaries" to make the estimate of such salary income and deduct tax therefrom and if such estimate is bona fide and honest, the person responsible for deducting tax at source cannot be held liable as person in default for short deduction of tax, if any, under Section 201(1). He contended that the primary liability to pay the tax on salary income is that of the employee whereas the employer is fixed with the secondary liability of deducting tax from such salary income and for the purpose of discharging such liability, he is not expected to compute the salary income precisely but to estimate the same bona fidely and honestly as provided in Section 192 and as further clarified in the instructions issued by CBDT from time-to-time. He contended that the estimate so made by the assessee-company was bona fide and honest in the facts and circumstances of the case as already explained and the learned CIT(A), therefore, was fully justified in setting aside the order of the AO passed under Section 201(1)/201(1A). He, therefore, strongly supported the order of learned CIT(A) and urged that the same may be upheld.
7. We have considered the rival submissions and also perused relevant material on record. We have also gone through the various case law cited by the learned counsel for the assessee in support of the assessee's case. A resume of all these decisions indicates that if the estimate of salary income made by the employer for the purpose of deduction of tax at source is bona fide and honest, the requirements of Section 192 stand complied and the employer in such case cannot be made liable for the amount of short deduction of tax, if any, as well as interest payable thereon under Section 201(1A). It is, therefore, pertinent to ascertain as to whether estimate of salary income made by the assessee in the present case was honest and fair and the same was based on bona fide belief. In this regard, the learned counsel for the assessee has demonstrated before us that the leave travel allowance paid by the assessee-company to its employees was treated as exempt while making such estimate after satisfying that the concerned employees had availed leave of minimum five days for the purpose of their travel and declarations were obtained from them to the effect that the allowance so granted was actually spent by them on such travel. He has also filed copies of some of such declarations obtained from the concerned employees at pages Nos. 27 to 36 of his paper book which show that a categoric declaration was obtained from the concerned employees of having incurred the leave travel expenditure and in the said declaration the employees had also undertaken to produce the receipts/evidence in support of such expenditure as and when required. The learned counsel for the assessee has also invited our attention to the circulars issued by CBDT to the DDOs from time-to-time in connection with the tax deduction from salaries to show that they were not specifically required even by CBDT to verify the evidence regarding the incurring of actual expenditure by the concerned employees before treating the LTA as exempt under Section 10(5) for the purpose of estimating the salary income and deducting tax therefrom. Having perused these declarations filed by the concerned employees as well as the Board's instructions issued in this regard to the DDOs, we find that there was sufficient material available on record for the assessee to entertain a bona Me belief that the LTA granted to its employees was exempt under Section 10(5) and thus, the estimate of salary made by it for the purpose of deduction of tax at source for salary income as required by the provisions of Section 192 based on such bona fide belief was certainly a fair and honest estimate. It, therefore, follows that the obligation cast on the assessee-company under Section 192 was duly discharged by the assessee-company and there being nothing brought on record by the Revenue to show any instance of any of the employees having not actually incurred the LTA granted to them on their travel, we are of the view that there was no case to treat the assessee-company as an assessee in default in respect of the short deduction, if any, of the tax deducted at source from such salary income merely because the actual proof/evidence of having actually incurred the leave travel allowance on travel expenses was not verified by it. As such, considering all the facts and circumstances of the case as well as the legal position emanating from the various judicial pronouncements cited by the learned counsel for the assessee, we are of the considered opinion that the assessee-company had complied with the requirements of Section 192 and there was no case to treat it as an assessee in default under Section 201(1) as well as to charge interest under Section 201(1A). In that view of the matter, we hold that the learned CIT(A) was fully justified in cancelling the orders passed by the AO under Section 201(1)/201(1A) for the years under consideration and upholding his impugned order, we dismiss the appeals filed by the Revenue.
8. In the result, the appeals of the Revenue are dismissed.