An assessee cannot be labeled an 'assessee in default' under Section 201 of the Income Tax Act for failing to deduct TDS if such non-deduction was made in strict compliance with binding interim judicial orders of a High Court.

O R D E R

PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:

Both appeals have been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)-12, (in short “Ld. CIT(A)”), ADDL/JCIT(A)-2, Siliguri vide orders dated 12.01.2026 & 22.12.2025 passed for A.Y. 2016-17. Since common facts and issues for consideration are involved for both the appeals before us, both the appeals are being disposed by way of a common order.

2. The assessee has taken the following grounds of appeal:

ITA No. 453/Ahd/2026 (A.Y. 2016-17)

“1. The Learned Commissioner of Income-tax (Appeals) ("CIT(A)") erred in confirming the order of the Assessing Officer ("AO") holding the appellant to be an assessee in default for failing to deduct tax at source under section 192 of the Income tax Act, 1961 (the Act).

2. The CIT(A) erred in not appreciating that the Appellant had issued e-Circular no CDO/P&HRD-PM/7/2014-15 dated 15th April 2014 stating that the employees shall not be entitled to visit overseas countries/ centers as part of leave travel concession ("LTC") which Circular was challenged by the All India State Bank Officers Federation & Ors, before the Madras High Court by way of a writ petition (WP no. 11991 of 2014) and that the Madras High Court had vide its order dated 25 April 2014 granted interim stay of the Circular.

3. The CIT(A) further erred in not appreciating that tax was not deducted at source by the Appellant on the LTC paid to its employees during the year under consideration in view of the specific interim directions issued by the Hon'ble Madras High Court in its order dated 16th February 2015 by which the Court held that the LTC paid or reimbursed would not amount to income and that no tax was to be deducted thereon. The CIT(A) ought to have appreciated that if the LTC was not to be treated as income of the employees as per the order of the Hon'ble Madras High Court, the same even otherwise would not require withholding of tax under section 192 of the Act

4. The CIT(A) further erred in not appreciating that the Madras High Court vide its said order dated 16 February 2015 having directed the Appellant not to deduct at source on LTC had further stated that if the writ petition challenging the Circular was dismissed, the employees would be liable to pay tax on the LTC amount paid by the Appellant and, therefore, the CIT(A) ought to have quashed the order of the AD holding the Appellant to be an assessee in default.

5. The CIT(A) erred in not quashing the order of the AG holding the Appellant to be an assessee in default for the reason that the Appellant, even if it wanted to, could not have deducted tax at source on LTC paid during the year under consideration in view of the orders of the Hon'ble Madras High Court till the time they were in force as acting contrary to the orders of the Hon'ble Court would have amounted to contempt of Court.

6. The CIT(A) erred in not following the judgment of the Hon'ble Kerala High Court in State Bank of India v. CIT (ITA no 45 of 2025) where the Hon'ble Court after considering the above set of facts held that the Appellant was justified in not deducting tax at source in view of the interim directions issued by the Madras High Court asking the Appellant not to deduct tax at source.

7. The CIT(A) erred in observing that the legal obligation to deduct tax was reinstated once the interim order passed by the Hon'ble Madras High Court was vacated without appreciating that the order of the Single Judge of the Hon'ble Madras High Court was challenged before the Division bench and later t