SH.RAMESH KUMAR MAHAJAN, JAMMU V. INCOME TAX OFFICER (TDS), SRINAGAR

ITA 147/ASR/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0802 (ITAT-AMRITSAR)
• Duration Of Justice: 3 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-10-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 25-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: TDS
• Section: 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No.147/Asr/2019 Assessment Year: 2011-12 Ramesh Kumar Mahajan, Prop. M/s Ramesh & Co. Skalzangling, Leh Ladakh. [PAN: ACGPM4451K] (Appellant) Vs. ITO, (TDS), Srinagar. (Respondent) Appellant by Sh. P. N. Arora, Adv. Respondent by Sh. S.M. Surendra Nath, Sr.DR Date of Hearing 10.10.2022 Date of Pronouncement 14.10.2022 ORDER Per:Anikesh Banerjee, JM: The instant appeal of the assessee is directed against the order of the ld. Commissioner of Income Tax(Appeals)-2,Ludhiana, [in brevity the CIT(A)] bearing appeal No.65/ROT/IT/CIT(A)-2/LDH/2018-19, date of order 10.12.2018, the order passed u/s 250 (6) of the Income Tax Act 1961, [in brevity the Act] for I.T.A. No.147/Asr/2019 Assessment Year: 2011-12 2 A.Y. 2011-12.The impugned order is emanated from the order of the ld. Income Tax Officer (TDS), Srinagar, (in brevity the AO) order passed u/s 206C (1) r.w.s. 6A/7 of the Act date of order 05.05.2016. 2. The assessee has filed an application for condonation of delay of 02 days wherein, assessee has stated that delay was caused during sending the appeal from Srinagar to Amritsar. The delay in filing the appeal of 02 days is unavoidable circumstance for assessee. Therefore, the delay of 02 days is condoned. 3. The assessee has taken the following grounds which are reproduced as below: “1) That the Ld. CIT (Appeals) is not justified in treating the Assessee as Assessee in default for non-collection of tax at source on sale of scrap. 2) That on the facts & circumstances of the case, the Ld. CIT (Appeals) has not been justified in holding that the Assessee is required to deduct the tax at source on the sale of scrap. 3) That on the facts & circumstances of the case, the Ld. CIT (Appeals) has not been justified in holding that definition of scrap applies to the Assessee. I.T.A. No.147/Asr/2019 Assessment Year: 2011-12 3 4) That on the facts & circumstances of the case, the Ld. CIT (Appeals) has not been justified in holding that the judicial pronouncements relied upon by the Assessee have distinguishable facts from the facts of the case of the Assessee. 5) That the order passed by the Ld. CIT (Appeals) is perverse and legally unstable.” 4. The brief fact of the case is that the assessee is a trader of scrap and during the year total turnover was Rs.5,37,39,402/-. The assessee was default in collection of TCS u/s 206C from sale of scrap. The nature of goods is basically sale/purchase of all types of condemn /Kandam scrap like old kandam vehicles, kandam motor parts, metal scrap, rubber scrap and clothing rags, plastic scrap, empty bottles etc. The assessee purchased the goods in auction and sold to the party. The ld. AO levied the tax @ 1% amount to Rs.5,37,394/- on the sale turnover of the assessee and calculated the tax u/s 206C r.w.s. 6A/7 of the Act for short collection of tax under the Act. The aggrieved assessee filed an appeal before the appellate authority. The ld. CIT(A) upheld the order of the ld. AO. Aggrieved assessee filed an appeal before us. I.T.A. No.147/Asr/2019 Assessment Year: 2011-12 4 5. The ld. Counsel for the assessee filed a written submission which kept in the record. The ld. Counsel argued that the assessee had not collected the tax because the scrap is not coming under the definition of section 206C of the Act. In his argument the ld. Counsel has drawn our attention in Paper Book of assessee. The relevant para of the APB is extracted as follows:- “Itis further relevant to point out that it was explained before the ITO (TDS)Srinagar that the assessee is engaged in the business of sale/purchase of all types of Kandam scrap like old Kandam Vehicles, Kandam Motor Parts, Metal Scrap, Rubber Scrap, Clothing Rags, Plastic Scrap, Empty Bottles etc. The assessee made purchases through auction of Military Kandam Goods by MST Ltd. New Delhi, a Govt, of India Undertaking auctioneer of army Kandam Goods. It is submitted that for the purpose of TCS the word scrap has been defined in Explanation (b) of Section 206C of the Income Tax Act, 1961, to mean waste and scrap from the manufacture or mechanical work or material which is definitely not usable as such because of breakage, cutting up, wear and other reasons. It would include only such waste and scrap which arises from manufacture or mechanical working of material. Further, such waste should not be usable as such. Accordingly, it would not include any waste or scrap:- I.T.A. No.147/Asr/2019 Assessment Year: 2011-12 5 a) which does not arise from manufacture or mechanical working of material or b) which is usable as such. Thus the following are not covered: a) waste or scrap arising from packing materials, newspapers, old machinery scrapped etc. which cannot be said to arise from manufacture. b) by-products generated from the manufacturing process as the same could be used as such or c) scrap derived from dismantling of constructed buildings. From the above definition, it is quite clear that the scrap to be covered under section 206C of the Income Tax Act should arise from the manufacture or mechanical working of material and in the instant case scrap did not arise from manufacture/mechanical work of material, & Moreover the assessee is only trader of scrap and not the manufacturer. Therefore, the provisions of section 206C of the Income Tax Act are not attracted. Reliance is also placed in the case of Navine Fluorine International Ltd. vs. CIT, 2011 45 SOT 86 (Ahmedabad) in which it was held that in the case of sale of waste and scrap the provision of section 206C I.T.A. No.147/Asr/2019 Assessment Year: 2011-12 6 will apply only to those seller who are engaged in manufacturing or mechanical working of materials. The explanation to section 206C of the IT Act provides the meaning of scrap means “waste and scrap” from manufacture or mechanical working of material which is definitely not useable as such because of breakage, cutting up, wear and other reasons. In the above definition the important word used in the definition of scrap are “waste and scrap” “from manufacture” and “which is”. The word “waste and scrap” are one term. Thereafter, the word used is from the manufacture or mechanical working of material. It would mean that the waste and scrap being one term should arise from the manufacture or mechanical working of material. It is, therefore, necessary to read the word waste and scrap together which are generated out of manufacturing process of the assessee. The words waste and scrap should have nexus with the manufacturing or mechanical working of material. It is further relevant to point out that Finance Act 2003 has added scrap to the list of items covered by section 206C w.e.f. 1.6.2003 [effectively deferred to 8.9.2003 due to amendment by the Taxation Laws (Amendment) Ordinance, 2003]. “Scrap” has been defined to mean “waste and scrap from the manufacture or mechanical working I.T.A. No.147/Asr/2019 Assessment Year: 2011-12 7 of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons”. The exclusions contained in the definition are significant. The scrap in question must emanate from the manufacturing or mechanical process. Therefore, it appears that no tax is required to be collected when for instance a company scraps its cars that are not its stock-in- trade. Similarly, no tax is required to be collected when old newspapers and magazines are disposed of. Likewise when an industry sells out scrap it will collect tax at source from buyer. If the purchaser is an industry such scrap becomes raw material for him. Likewise, ITAT Ahmedabad in the case of Navine Fluorine International Ltd. vs. ACIT 14 ITR (Trib) 481 (Ahd) and Rajkot Bench in the case of Nathulal P. Lavti vs. ITO [2012] 65 DTR 133: 143 TTJ 509 (Rajkot)(Trib): 30 CCH 0314 (Rajkot Trib) had held that where a trader sells scrap he is not liable to collect Tax at Source as it is not a scrap for him but stock in trade for him. However special bench in the case of Bharti Auto Products vs. CIT [2013] 157 TTJ 0001 (Rajkot) (SB) has held that where a person has imported scrap and gave a declaration to the custom authority that the product imported is a scrap, provision of section 206C are applicable. Similarly the containers like the drums, jars in which raw material comes are not scrap as the same has not emanated from I.T.A. No.147/Asr/2019 Assessment Year: 2011-12 8 manufacturing or mechanical process. As such no tax is required to be collected at source on sale of such containers. Refer - Navine Fluorine International Ltd. vs. ACIT 14 ITR (Trib) 481 (Ahd). Thus, it is crystal clear that the provisions of section 206C are not at applicable to the present facts and circumstances of the case. As such the demand created may kindly be deleted.” 6. The ld. Sr. DR vehemently argued and relied on the section 206C (1A) and mentioned thatno search declaration was filed before the assessing authority related to the directions made in section 206C(1A) read with Rule 37Cof the Income Tax Rule, 1962 (in brevity the Rule) that the scraps are utilised for the purpose of manufacturing not for trading. The ld. Sr Dr further relied on the order of the revenue authorities. 7. We heard the rival submission and relied on the documents available in the record. In the appeal order the appellate authority had clearly explained for non- allowance of assessee’s plea in relation to the collection of TCS from the party. The assessee has clarified the issue before the bench related to nature of scrap which is not come under the purview of definition of section 206C in the word ‘scrap’. Accordingly, the assessee is denied to collection of TCS from the party. I.T.A. No.147/Asr/2019 Assessment Year: 2011-12 9 On the other hand, the revenue is raised the point for non-submission- of declaration U/r 37C of the Ruleby the asseeseeper se important here. The issue was not properly agitated before both the revenue authorities. In our opinion the issue should be further adjudicated by the revenue in relation to the submission made by the assessee on definition of scrap& the point was raised by the ld. Sr Dr. In view of these discussions, as also bearing in mind the entirety of the case, we deem it fit and proper to remit the matter to the assessing authority after giving an opportunity for hearing, for adjudication de novo in accordance with the law and by way of a speaking order. Ordered, accordingly. 8. In the result, the appeal bearing ITA No. 147/Asr/2019 is allowed for statistical purposes. Order pronounced in the open court on 14.10.2022 Sd/- Sd/- (Dr. M. L. Meena) (ANIKESH BANERJEE) Accountant Member Judicial Member AKV Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT I.T.A. No.147/Asr/2019 Assessment Year: 2011-12 10 (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By Order