Sh. Rajinder Kumar, Mandi Gobindgarh V. ITO (TDS), Patiala

ITA 189/CHANDI/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5050 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 05-09-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 04-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Section: 2

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NOS.189/CHD/2016 ASSESSMENT YEARS: 2012-13 SH. RAJINDER KUMAR VS. THE I.T.O (TDS) PROP. ANKUSH STEEL INDUSTRIES PATIALA DHARAM MILL ROAD, MANDI GOBINDGARH(PUNJAB) PAN NO. ACIPK4283D TAN NO. PTLR10826E (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI. VIBHOR GARG DEPARTMENT BY : SHRI. S.K. MITTAL DATE OF HEARING : 29/06/2017 DATE OF PRONOUNCEMENT : 26/07/2017 ORDER PER DR. B.R.R. KUMAR, AM THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER OF LD. CIT(A), PATIALA DT. 12/01/2016. 2. IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. BECAUSE THE ACTION FOR INVOKING THE PROVISIONS OF SECTION 206C(1) BY TREATING ASESSEES IN DEFAULT, FOR NON DEDUCTION OF TAX ON SCRAP IS BEING CHALLENGED ON FACTS & LAW AND ADDITIONALLY THE QUANTUM OF CHARGE IS DISPUTED, WHILE THE IMPUGNED ORDER OVERLOOKS THE CONSIDERATION OF TAX NEUTRAL EFFECT. 2. BECAUSE THE ACTION FOR CHARGING INTEREST U/S 206 C(7) UPTO THE DATE OF FILING RETURN BY THE ULTIMATE RECEIPT OF SCRAP IS BEING CHALLENGED ON FACTS & LAW. 3. BECAUSE THE ADVERSE FINDINGS IN APPELLATE ORDE R QUA THE INITIATION OF PENALTY U/S 271CA IS MISUSE OF JURISDICTION PURSUANT KPC ME DICAL COLLEGE & HOSPITAL VS. DCIT (2015) 122 DTR 379 (KOL) (TRI), SINCE EVEN THE RE IS WRONG INTERPRETATION TO JUDGMENT OF HINDUSTAN COCA COLA BEVERAGES(P) LTD. V S. CIT 211 CTR 545 (SC), CIRCULAR 275/17/2013-IT(B) DT. 16/07/2013. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF OLD IRON SCRAP, ON PURCHASE OF WHICH TAX WAS COLLECTED BY THE SELLERS, BUT THE ASSESSEE DID NOT COLLECT TAX ( TCS) UNDER THE PROVISIONS OF S. 206C OF THE INCOME TAX ACT, ON ITS SUBSEQUENT SA LES MADE BY HIM. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ISSUE D A SHOW CAUSE NOTICE TO THE APPELLANT AS TO WHY HE SHOULD NOT BE TREATED AS ASS ESSEE IN DEFAULT 2 U/S 206C(1)/206C(7) FOR NON COLLECTION OF TAX AT SO URCE ON SALE OF SCRAP AND CONSEQUENTLY FOR FAILURE TO PAY INTEREST U/S 206C(7 ), WHICH IS MANDATORY. IN RESPONSE TO THIS SHOW CAUSE NOTICE AND IN SUBSEQ UENT PROCEEDINGS, THE ASSESSEE FILED HIS REPLY CONTESTING THE PROPOSED AC TION OF THE ASSESSING OFFICER BY STATING THAT THE GOODS IN QUESTION WERE NOT SCRAP I N TERMS OF SECTION 206C OF THE ACT. FURTHER, THAT THESE PURCHASERS HAVE DULY RECOR DED THESE PURCHASES IN THEIR BOOKS OF ACCOUNT AND TAX HAS BEEN PAID ON RESULTANT INCOME. NOT CONVINCED, THE ASSESSING OFFICER HAD DECLARED THE ASSESSEE AS ASSESSEE IN DEFAULT AND CHARGED INTEREST AMOUNTING TO RS. 1,08,193/- ON TCS OF RS. 8,32,252/- WHICH WAS REQUIRED TO BE COLLECTED ON SALE OF RS. 3,87,90,556 /- FOR THE PERIOD OF DEFAULT. 4. BEFORE THE LD. CIT(A) THE APPELLANT SUBMITTED HI S ARGUMENT AS UNDER: THE APPELLANT, DURING THE PERIOD UNDER REFERENCE, H AD PURCHASED VARIOUS GOODS MAINLY FROM INDIAN RAILWAYS, AS DETAILED HEREUNDER: A) RAIL-LINES, B) CST 9 PLATES, C) STS/EEPERS, D) TIE-BARS, E) FISH PLATES WITH NUT FITTINGS. THE PERUSAL OF ABOVE LIST OF GOODS PURCHASED AND FU RTHER SOLD AS SUCH AFTER SEGREGATION PROCESS, SUPPORTS THE BELIEF OF THE APP ELLANT THAT THESE GOODS WERE NOT TO BE TREATED AS 'SCRAP' FOR SUBJECTING IT TO T CS. THE APPELLANT IS ADMITTEDLY NOT ENGAGED IN MANUFACTURING ACTIVITY AND LIST OF S CRAP ITEMS NOTED ABOVE WOULD INDICATE THAT SAME HAD NOT ARISEN OUT OF MANUFACTUR ING OR MECHANICAL WORKING OF MATERIAL IN HIS HANDS. PERTINENT TO MENTION HERE THE FACT THAT THESE GOODS, ESPECIALLY RAIL-LINES WERE REUSABLE AS SUCH. THE AS SESSEE HAD DISPOSED OF THESE GOODS AS SUCH. THUS, THE EXPLANATION HAS WRONGLY BE EN APPLIED IN THE CASE OF THE APPELLANT TO HOLD HIM AS PERSON IN DEFAULT..... IT HAS BEEN HELD BY VARIOUS JUDICIAL FORUMS THAT T HESE AMENDMENTS ARE CLARIFICATORY IN NATURE AND, THUS, RETROSPECTIVELY APPLICABLE. IT IS A MATTER OF RECORD THAT THE APPELLANT DURING THE PROCEEDINGS BEFORE TH E I.T.O., TDS, PATIALA, HAD ADMITTEDLY PRODUCED THE REQUISITE EVIDENCE IN SUPPO RT OF THE ALTERNATE PLEA THAT HE CANNOT BE HELD AS 'PERSON IN DEFAULT AS THE PURC HASING PARTIES HAD TAKEN INTO ACCOUNT AIL THE PURCHASES FOR COMPUTING THEIR INCOM ES, WHILE RELYING ON THE ABOVE REFERRED AMENDED PROVISION OF LAW. THE I.T.O. , TDS, PATIALA, HAS NOT RAISED ANY TAX DEMAND IN VIEW OF THE EVIDENCE SO PRODUCED, ALTHOUGH GRANTING RELIEF ON THE JUDGEMENT OF HONBLE APEX COURT IN THE CASE O F HINDUSTAN COCA COLA BEVERAGES (P) LTD. VS CIJ (SUPRA).' 5. BEFORE THE LD.CIT(A), THE ASSESSEE HAS FURNISHED THIRD PARTY EVIDENCE IN SUPPORT OF HIS CLAIM THAT THE MATERIAL COVERED IS N OT SCRAP. 6. THE LD. CIT(A) HELD THAT IT IS AN ADMITTED FACT THAT THE APPELLANT HAS MADE SALE OF SCRAP MATERIAL PURCHASED IN AUCTION ON WHICH TCS IS DULY 3 COLLECTED BY THE RAILWAYS WHICH IS CLASSIFIED AS SC RAP BY THE RAILWAY AUTHORITIES. HOWEVER, WHILE SELLING THE SAME MATERIAL TO THE TRA DERS, THE APPELLANT HAD TREATED THIS MATERIAL AS RAW MATERIAL AND NO TCS HA D BEEN MADE ON IT. THE ASSESSING OFFICER HAS TREATED THE ASSESSEE IN DEFAU LT IN RESPECT OF THE SALES MADE TO TRADERS AND ALLOWED THE BENEFIT IN VIEW OF FORMS NO 27C, OBTAINED FROM MANUFACTURERS, AND THE CONDUCT OF THE APPELLAN T HIMSELF INDICATES THAT HE HAS TREATED THE MATERIAL SOLD AS SCRAP COVERED IN T HE EXPLANATION (B) TO S. 206C BECAUSE OTHERWISE APPELLANT WAS NOT REQUIRED TO FUR NISH FORM 27C OBTAINED FROM THE MANUFACTURERS. THE COUNSEL OF THE APPELLAN T HAS FAILED TO PUT UP REQUISITE DOCUMENTARY EVIDENCE IN SUPPORT OF HIS CL AIM THAT THE SCRAP IN QUESTION IS REUSABLE AS SUCH AND IT IS NOT A RESULT OF MANUFACTURE OR MECHANICAL WORKING OF MATERIAL WHICH IS DEFINITELY NOT USABLE AS SUCH DUE TO BREAKAGE, CUTTING UP, WEAR AND OTHER REASONS AND THE APPELLAN T HAS FAILED TO FURNISH ANY EVIDENCE THAT NO FURTHER PROCESSING WAS DONE BY THE PURCHASERS AND SUBSEQUENT PURCHASERS TILL THE GOODS GOT CONVERTED INTO SOME FINAL PRODUCT. THE MERE EXPLANATION WITHOUT ANY DOCUMENTARY EVIDENCE W ILL NOT SUFFICE. HOLDING THUS THE LD.CIT(A) ,FELT GOODS SOLD BY THE APPELLAN T ARE COVERED IN DEFINITION OF 'SCRAP' IN THE TERMS OF THE EXPLANATION (B) TO THE SEC. 206C OF THE I. T. ACT, 1961. 8. BEFORE US THE LD.AR CONTESTED THAT THE MATERIAL WAS NOT SCRAP WHERE AS THE LD. DR. STRONGLY RELIED ON THE ORDERS OF THE LO WER AUTHORITIES. 9. HEARD THE ARGUMENTS OF BOTH THE SIDES. 10. AS PER EXPLANATION (B) TO SECTION 206C OF THE A CT, SCRAP HAS BEEN DEFINED AS UNDER: (B) SCRAP MEANS WASTE AND SCRAP FROM THE MANUFA CTURE OR MECHANICAL WORKING OF MATERIALS WHICH IS DEFINITELY NOT USABLE AS SUCH BECAUSE OF BREAKAGE, CUTTING UP, WEAR AND OTHER REASONS THUS, IN VIEW OF THE EXPLANATION TO THE PROVISIONS OF SECTION 206C OF THE ACT, THE MEANING OF SCRAP HAS BEEN DEFINED AS UNDER:- I) IT IS A WASTE AND SCRAP FROM THE MANUFACTURE OR MEC HANICAL WORKING OF MATERIAL; II) IT IS DEFINITELY NOT USABLE AS SUCH; III) IT IS UNUSABLE BECAUSE OF BREAKAGE, CUTTING UP, WEA R AND OTHER REASONS. 4 11. IN THE FACT OF THIS CASE THE ITEM PURCHASED BY THE ASSESSEE NEITHER FALLS IN THE CATEGORY OF WASTE AND SCRAP FROM THE MANUFACT URER NOR MECHANICAL WORKING OF MATERIAL. FURTHER THE MATERIAL IS ALSO U SABLE AS SUCH IN THE CASE OF CIT (TDS) VS. PRIYA BLUE INDUSTRIES P. LTD. [2016] 381 ITR 0210(GUJ) HELD THAT ITEMS WHICH WERE USEFUL AND SAME DID NOT FALL WITHIN THE DEFINITION OF SCRAP AS GIVEN IN THE SECTION THEY MAY COMMERCIALLY KNOWN AS SCRAP TH EY WERE NOT WASTE AND SCRAP AS SUCH THE ITEMS WERE USEFUL AND THEREFORE D ID NOT FALL WITHIN THE DEFINITION OF SCRAP AS ENVISAGED IN THE EXPLANATION TO SECTION 206C(1) SIMILARLY IN THE CASE OF NAWANSHAHAR CO-OPERATIVE SUGAR MILLS LT D. VS. ITO [2013] 85 DTR 0121(ASR) HELD THAT THE MATERIAL WHICH IS DEFINITEL Y NOT USABLE AS SUCH BECAUSE OF BREAKAGE, CUTTING UP, WEAR AND OTHER REASONS CAN BE CONSIDERED AS WASTE AND SCRAP WHICH IS NOT SO IN THE PRESENT CASE. IN THE FACTS OF THE PRESENT CASE THE MATERIAL IS USABLE AS SUCH. IN THE CASE OF NAVI NE FLUORINE INTERNATIONAL LTD. VS. ACIT[2012] 14 ITR 0481 HELD THAT ACCORDING TO EXPLN.(B) TO S. 206C SCRAP MEANS WASTE AND SCRAP FROM MANUFACTURE OR MECHANIC AL WORKING OF MATERIAL WHICH IS DEFINITELY NOT USABLE AS SUCH BECAUSE OF B REAKAGE, CUTTING UP, WEAR AND OTHER REASONS-WORD WASTE AND SCRAP ARE ONE I TEM AND THEREAFTER, THE WORD USED IS FROM THE MANUFACTURE OR MECHANICAL W ORKING OF MATERIAL WHICH WOULD MEAN THAT THE WASTE AND SCRAP SHOULD ARISE FR OM THE MANUFACTURE OR MECHANICAL WORKING OF MATERIAL-WASTE AND SCRAP SHOU LD HAVE NEXUS WITH THE MANUFACTURING OR MECHANICAL WORKING OF MATERIAL. 12. CONSIDERING THE FACTS NOTED ABOVE, WE ARE OF TH E VIEW THAT THE AUTHORITIES BELOW HAVE WRONGLY APPLIED THE MEANING OF SCRAP AS IS PROVIDED IN EXPLN. (B) TO S. 206C OF THE IT ACT IN THE CASE OF THE ASSESSEE. THEREFORE, THE ASSESSEE CANNOT BE HELD TO BE IN DEFAULT. THE ASSESSEE IS NOT REQUI RED TO DEDUCT TAX UNDER SECTION 206C(6) OF THE IT ACT ON THE ITEMS OF SCRAP AS NOTED ABOVE. RESULTANTLY, NO INTEREST COULD BE CHARGED UNDER S. 206C(7) OF TH E IT ACT. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND ALLOW THE APPEAL OF THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. THE ORDER IS PRONOUNCED ON 26/07/2017 IN THE OPEN COURT. SD/- SD/- (DIVA SINGH) (DR. B.R.R. KUM AR) JUDICIAL MEMBER ACCOUNTANT MEMBER 5 AG COPY TO: 1. THE APPELLANT, 2.THE RESPONDENT, 3.THE CIT 4.THE CIT(A) 5.THE DR