Sh. Makhan Lal Gupta, Mandi Gobindgarh V. ITO (TDS), Patiala

ITA 190/CHANDI/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5035 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 06-09-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 04-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NOS.190 & 191/CHD/2016 ASSESSMENT YEARS: 2011-12,2012-13. SH. MAKHAN LAL GUPTA, VS. I.T.O (TDS) PROP. RAJASTHAN IRON TRADERS, PATIALA LOHA BAZAR, MANDI GOBINDGARH PUNJAB PAN NO. ABSPG0879N (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI. VIBHOR GARG DEPARTMENT BY : SHRI. S.K. MITTAL DATE OF HEARING : 28/06/2017 DATE OF PRONOUNCEMENT : 13/07/2017 ORDER PER DR. B.R.R. KUMAR, AM BOTH THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST THE COMMON ORDER OF LD. CIT(A), PATIALA DT. 28/01/2016. 2. SINCE THE GROUNDS RAISED AND ISSUES INVOLVED IN BOTH THE APPEALS ARE IDENTICAL, THE SAME WERE HEARD TOGETHER AND ARE BEI NG DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. WE SHALL BE TAKING ITA NO. 190/CHD/2016 AS THE LEAD CASE FOR DISPOSING OF ALL THE APPEALS TOGETHER. 3. THE GROUNDS RAISED IN THIS APPEAL ARE AS UNDER: 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 DISPU TED, 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 MEDICA L COLLEGE & HOSPITAL VS. DCIT (2015) 122 DTR 379 (KOL) (TRI), SINCE EVEN THERE IS WRONG INTERPRETATION TO JUDGMENT OF HINDUSTAN COCA COLA BEVERAGES(P) LTD. VS. CIT 211 CTR 545 (SC ), CIRCULAR 275/17/2013-IT(B) DT. 16/07/2013. 2 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND DALE 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 ACT, ON ITS SUBSEQUENT SALES MADE BY HI M. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ISSUED A SHOW CA USE NOTICE TO THE APPELLANT AS TO WHY HE SHOULD NOT BE TREATED AS ASSESSEE IN D EFAULT U/S 206C(1)/206C(7) FOR NON COLLECTION OF TAX AT SOURCE ON SALE OF SCRA P AND CONSEQUENTLY FOR FAILURE TO PAY INTEREST U/S 206C(7), WHICH IS MANDATORY. IN RESPONSE TO THIS SHOW CAUSE NOTICE AND IN SUBSEQUENT PROCEEDINGS, THE ASSESSEE FILED HIS REPLY CONTESTING THE PROPOSED ACTION OF THE ASSESSING OFFICER BY STA TING THAT THE GOODS IN QUESTION WERE NOT SCRAP IN TERMS OF SECTION 206C OF THE ACT SINCE ASSESSEE FAILED TO DO SO, THE ASSESSING OFFIC ER BY TREATING THE APPELLANT AS ASSESSEE IN DEFAULT U/S 206C(1) IMPOSED TCS LIABILI TY @ 1% AND CHARGED INTEREST AT AN AVERAGE RATE OF 13% 5. BEFORE THE LD. CIT(A) THE APPELLANT SUBMITTED HI S ARGUMENT AS UNDER: THE FIRST CLAIM OF THE APPELLANT IS THAT THE ORDER UNDER APPEAL IS ILLEGAL AND IMPROPER AS SUCH THE SAME IS LIABLE TO BE SET A SIDE OR AMENDED ACCORDINGLY. THE APPELLANT IS NOT LIABLE FOR PAYMENTS OF TCS BECAUSE THE APPELLANT PU RCHASED UNSERVICEABLE RAIL LINE FROM RAILWAY AUTHORITIES AND THE APPELLANT SOLD THE SAME TO DIFFERENT DEALERS AS ROLLING MATERIAL. THE UNSERVICEABLE RAIL LINE IS ALSO USED IN THE SAME CONDITION FOR FOLLOWING PURPOSES:- A) THE PERSONS RESIDING IN VILLAGES USE A UNSERVICE ABLE RAIL LINE IN PLACE OF GIRDERS IN THEIR ROOFS, BECAUSE THE SAME COSTS CHEAPER TO THEM AS CO MPARE TO GIRDERS. B) THE UNSERVICEABLE RAIL LINE IS ALSO USED AS POLE S BY TELEPHONE AND ELECTRICITY DEPARTMENT. SINCE THE UNSERVICEABLE RAIL LINE WAS NOT SCRAP AS SUCH I WAS NOT LIABLE FOR COLLECTIONS OF TCS. THE RAILWAYS AUTHORITIES SOLD THE OLD RAIL IN TERMS OF LENGTH OF THE RAIL AND NOT WEIGHT. THE SALE SHOWING BOTH LENGTH OF THE RAIL PROVED THAT TH E SALE WAS NOT SCRAP. SCRAP CANNOT BE SOLD IN TERM OF LENGTH. THUS, IT IS QUITE EVIDEN CE THAT APPELLANT PURCHASED OLD RAIL LINE AND NOT SCRAP. THE LEARNED INCOME TAX OFFICER HAS WRONGLY MENTIONE D IN THE ASSESSMENT ORDER THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF PURCHASE AN D SALE OF OLD IRON SCRAP (FIRST PAGE OF THE ASSESSMENT ORDER). THERE IS NOT A SINGLE PUR CHASE OR SALE BILL OF SCRAP. THE LEARNED INCOME TAX OFFICER WRONGLY PRESUMED THAT THE APPELL ANT DEALS IN OLD IRON SCRAP. THE LEARNED INCOME TAX OFFICER HAS APPLIED JUDGEMEN T IN THE CASE HINDUSTAN COCA COLA BEVERAGES(P) LTD. VS. CIT 11 CTR (SC) 545. IS NOT APPLICABLE IN THE CASE OF THE 3 APPELLANT BECAUSE WE DID NOT MANUFACTURE ANY MATERI AL. THE APPELLANT SOLD THE ROLLING MATERIAL IN THE SAME CONDITION IN WHICH THE SAME WA S PURCHASE BY THE APPELLANT. DURING THE ASSESSMENT PROCEEDINGS REQUEST WAS MADE IN THE THEN INCOME TAX OFFICER AND JOINIT COMMISSIONER OF INCOME TAX CHAND IGARH TO INSPECT THE MATERIAL PURCHASED BY ME FROM RAILWAY DEPARTMENT. AFTER INSP ECTION THE AUTHORITY WOULD HAVE COME TO THE CONCLUSION THAT THE UNSERVICEABLE RAIL LINE PURCHASED WAS NOT SCRAP AT ALL BUT WAS ROLLING MATERIAL. THE MATERIAL THAT IS OLD RAIL LINE IS NOT COVERED U NDER THE DEFINITION OF SCRAP AS GIVEN IN SECTION 206(C)(11) EXPLANATION (B). THUS, THE APPEL LANT DID NOT DEAL IN SCRAP. AS SUCH WAS NOT LIABLE TO COLLECT TCS. 7. LD. CIT(A) HELD THAT IT IS ESTABLISHED FACT THAT THE APPELLANT HAS MADE SALE OF SCRAP MATERIAL ON WHICH TCS DULY COLLECTED BY RA ILWAY AND WHICH IS CLASSIFIED AS SCRAP BY THE RAILWAY AUTHORITIES. HOWEVER, WHILE SELLING THE SAME MATERIAL TO THE TRADERS, THE APPELLANT HAD TREATED THIS MATERIA L AS RAW MATERIAL AND MADE NO TCS ON IT. THE AO HAS TREATED THE APPELLANT IN D EFAULT IN RESPECT OF THE SALES MADE TO TRADERS AND ALLOWED THE BENEFIT IN VIEW OF RETURNS FILED BY THE PURCHASE/SUBMISSIONS OF FORMS NO. 27C, OBTAINED FRO M MANUFACTURES, AND THE CONDUCT OF THE APPELLANT HIMSELF INDICATES THAT HE HAS TREATED THE MATERIAL SOLD AS SCRAP COVERED IN THE EXPLANATION(B) TO S. 206C B ECAUSE OTHERWISE APPELLANT WAS NOT REQUIRED TO FURNISH FORM 27C OBTAINED FROM THE MANUFACTURERS. THE COUNSEL OF THE APPELLANT HAS FAILED TO PUT UP REQUI SITE DOCUMENTARY EVIDENCE IN SUPPORT OF HIS CLAIM THAT THE SCRAP IN QUESTION IS REUSABLE AS SUCH AND IT IS NOT A RESULT OF MANUFACTURE OR MECHANICAL WORKING OF MATE RIAL WHICH IS DEFINITELY NOT USABLE AS SUCH DUE TO BREAKAGE, CUTTING UP, WEAR AN D OTHER REASONS. ALSO, THE APPELLANT HAS FAILED TO FURNISH ANY EVIDENCE THAT N O FURTHER PROCESSING WAS DONE BY THE PURCHASERS AND SUBSEQUENT PURCHASERS TI LL THE GOODS GOT CONVERTED INTO SOME FINAL PRODUCT. THE MERE ASSERTION WITHOUT ANY DOCUMENTARY EVIDENCE WILL NOT SUFFICE. IN VIEW OF THE ABOVE, I AM OF THE VIEW THAT GOODS SOLD BY THE APPELLANT ARE COVERED IN THE DEFINITION OF SCRAP IN THE TERMS OF THE EXPLANATION (B) TO THE SEC. 206C OF THE I.T. ACT, 1 961. 8. BEFORE US THE LD.AR ARGUED THAT THE MATERIAL WHI CH WAS PURCHASED FROM THE INDIAN RAILWAYS ARELOOSE ROLLING MATERIAL AND R AILS. WE HAVE GONE THROUGH THE FACTS OF THE CASE. 4 8.1 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. 9. IN THE FACT OF THIS CASE THE ITEM PURCHASED BY T HE ASSESSEE NEITHER FALLS IN THE CATEGORY OF WASTE AND SCRAP FROM THE MANUFACTUR ER 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. 9. CONSIDERING THE FACTS NOTED ABOVE, WE ARE OF THE 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 S. 206C(6) OF THE IT ACT ON THE ITEMS OF SCRAP AS NOTE D ABOVE. RESULTANTLY, NO INTEREST COULD BE CHARGED UNDER S. 206C(7) OF THE I T ACT. 5 WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORI TIES BELOW AND ALLOW BOTH THE APPEALS OF THE ASSESSEE. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. THE ORDER IS PRONOUNCED ON 13/07/17 IN THE OPEN COURT. SD/- SD/- (DIVA SINGH) (DR. B.R.R. KUM AR) JUDICIAL MEMBER ACCOUNTANT MEMBER AG COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DEPARTMENTAL REPRESENTATIVE