Sh. Lakshmi Kant Data, Mandi Gobindgarh V. ITO (TDS), Patiala

ITA 192/CHANDI/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5017 (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
• Keywords: Non compliance

Judgement Text

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.192 & 193/CHD/2016 ASSESSMENT YEARS: 2011-12.. SH. LAKSHMI KANT DATE, VS. THE I.T.O(TDS) PROP. JAI HIND TRADING CO., PATIALA DHARAM MILL ROAD, MANDI GOBINDGARH (PUNJAB) PAN NO. AFFPD6132G (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. 12/01/2016. 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. 192/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 O F SECTION 206C(1) BY TREATING ASSESEES 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 M EDICAL COLLEGE & HOSPITAL VS. DCIT(2015) 122 DTR 379 (KOL) (TRI), SINCE EVEN THER E 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. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF OLD IRON SCRAP MAINLY FROM IND IAN RAILWAYS IN AUCTION, 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 HIM. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING O FFICER ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THE ASSESSEE SHOUL D NOT BE TREATED IN DEFAULT U/S 206C(1) FOR NON COLLECTION OF TAX COLLECTION AT SOURCE 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 SUBSEQUENT P ROCEEDINGS, THE ASSESSEE HAS FILED HIS REPLY CONTESTING THE PROPOSED ACTION OF THE ASSESSING OFFICER BY STATING THAT THE GOODS IN QUESTION ARE NOT SCRAP CO VERED IN SECTION 206C AND NO TCS IS COLLECTABLE. THE ASSESSING OFFICER WAS NOT C ONVINCED WITH THE ASSESSEES EXPLANATION. ACCORDINGLY, 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 O N SALE OF RS. 3,87,90,556/- FOR THE PERIOD OF DEFAULT. 5. THE ASSESSING OFFICER WHILE IMPOSING LIABILITY U /S 206C(1)/206C(7) RELIED ON THE FOLLOWING FACTS: 1. THE ASSESSEE HAS PURCHASED SCRAP IN AUCTION ON WHICH TCS WAS COLLECTED BY THE SELLER. 2. THE ASSESSEE HAS SOLD THIS SCRAP TO TRADERS WIT HOUT ANY PROCESSING OR MANUFACTURING ON IT. 3. THE MATERIAL IS FULLY COVERED IN DEFINITION OF S CRAP AS CONTAINED IN EXPLANATION (B) TO SECTION 206C AND THE MATERIAL PURCHASED BY THE ASSE SSEE HAS BEEN CLASSIFIED AS SCRAP AS IT IS NOT USABLE AS SUCH. THE CONTENTION OF THE ASSESSEE THAT IT HAS BEEN USED AS RAW MATERIAL FOR ROLLING MATERIAL WILL NOT CHANGE THE FACT THAT IT IS SCRAP AND IT HAS BEEN USED BY THE ROLLING MILLS ONLY AFTER DETAILED AND COMPLEX PROCESS OF MELTING AND P ROCESSING. THIS SCRAP IS THEN RE-ROLLED INTO ITS FINAL PRODUCT. 4. THE APPELLANT HAS MADE SALE OF THIS MATERIAL TO BOTH THE MANUFACTURES AND TRADERS. THE APPELLANT HAS TREATED THIS MATERIAL AS SCRAP AND OBTAINED FORM 27C FROM THE MANUFACTURES AND NO TCS IS TO BE COLLECTED ON THESE SALES. HOWEV ER, WHILE SELLING THE SAME MATERIAL TO THE TRADERS, THE ASSESSEE HAS TREATED THIS MATERIAL AS RAW MATERIAL AND NO TCS HAD BEEN DEDUCTED. 5. THE CBDT CIRCULAR F.NO. 275/17/2013-IT(B) DATED 16/07/2013 HAS CLARIFIED THE POSITION REGARDING APPLICATION OF THE PROVISIONS OF SECTION 206C OF THE I.T. ACT, 1961. IT STATES THAT THE POSITION OF LAW ON THIS ISSUE IS VERY CLEAR AND UNA MBIGUOUS. SELLERS, AS DEFINED IN EXPLANATION 206C OF THE ACT, 1961 IN INDIA, ARE REQUIRED TO COL LECT TAX AT SOURCE FROM A BUYER WHO OBTAIN IN ANY SALE, BY WAY OF AUCTION, TENDER OR ANY OTHER MO DE MINERALS INCLUDING COAL. HENCE, TCS IS REQUIRED TO BE COLLECTED BY THE SELLER AT EACH POIN T OF SALE AND NOT ONLY AT FIRST POINT. HOWEVER TCS MAY NOT BE COLLECTED BY THE SELLER IF I N CASE THE BUYER: I. FURNISHES TO THE SELLER A DULY VERIFIED DECLARATION IN THE PRESCRIBED FORM (FORM 27C) THAT SUCH GOODS ARE TO BE UTILIZED FOR THE PURPOSES OF M ANUFACTURING PROCESSING OR PRODUCING ARTICLES OR THINGS AND NOT FOR TRADING, O R II. BUYS SUCH GOODS IN THE RETAIL SALE FOR PERSONAL CON SUMPTION OR III. FURNISHES A CERTIFICATE FROM THE JURISDICTIONAL ASS ESSING OFFICER U/S 206C(9) OF THE ACT FOR NON COLLECTION OF THE TCS. 6. THE ASSESSING OFFICER IS OF THE VIEW THAT IT IS ESTABLISHED THAT THE ASSESSEE DEALS IN PURCHASE AND SALE OF IRON SCRAP WHICH IS B EING COVERED UNDER THE DEFINITION OF SCRAP AS PER PROVISION OF SECTION 206 C AND IS LIABLE FOR TREATED AS AN ASSESSEE IN DEFAULT U/S 206C(1) FOR NOT COLLECTING TAX AT SOURCE ON SALE OF SCRAP TO DIFFERENT PARTIES. ULTIMATELY LIABILITY FOR TAX U/S 206C(1), BEING NOT THERE DOES NOT DILUTE THE REQUIREMENTS FOR THE NON COMPLIANCE OF WHICH INTEREST WAS LEVIED U/S 206C(7). 7. LD. CIT HELD THAT THE APPELLANT HAS MADE SALE OF SCRAP MATERIAL PURCHASE IN AUCTION ON WHICH TCS IS DULY COLLECTED BY INDIAN RAILWAYS WHICH IS CLASSIFIED AS SCRAP BY THE RAILWAY AUTHORITIES. HOWEVER, WHILE SE LLING THE SAME MATERIAL TO THE TRADERS, THE ASSESSEE HAD TREATED THIS MATERIAL AS RAW MATERIAL AND NO TCS HAD BEEN MADE ON IT. THE AO HAS TREATED THE ASSESSEE IN DEFAULT IN RESPECT OF THE SALES MADE TO TRADERS AND ALLOWED THE BENEFIT IN VI EW OF FORMS NO. 27C , OBTAINED FROM 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 BECAUSE OTHERWISE ASSESSE E WAS NOT REQUIRED TO FURNISH FORM 27C OBTAINED FROM THE MANUFACTURERS. T HE COUNSEL OF THE APPELLANT HAS FAILED TO PUT UP REQUISITE 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 MATERIAL WHICH IS DEFINITELY NOT USABLE AS SUCH DUE TO BREAKAGE, CUTTING UP, WEAR AND OTHER REASONS AND TH E APPELLANT 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. THE LD.CIT(A) HELD THAT GOODS SOLD BY THE APPELLANT ARE COVERED IN DEFINITION OF SCRAP IN THE TERMS OF THE EXPLANATION (B) TO THE SEC. 206C OF THE I.T. ACT, 1961. AND UPHELD THE ADDITION MADE BY THE ASSESSING OFFI CER. 8. BEFORE US THE LD.AR ARGUED THAT THE MATERIAL WHI CH WAS PURCHASED FROM THE INDIAN RAILWAYS CONSISTING OF FOLLOWING : A) RAIL-LINES, B) CST 9 PLATES, C) ST SLEEPERS, D) TIE-BARS, E) FISH PLATES WITH NUT FITTINGS 8.1 HE FURTHER STATED THAT THE GOODS WERE SOLD AS S UCH AFTER SEGREGATION PROCESS, SUPPORTS THE BELIEF THAT THESE GOODS WERE NOT TO BE TREATED AS SCRAP SUBJECTED IT TO TCS. THE ASSESSEE ADMITTEDLY NOT EN GAGED IN MANUFACTURING ACTIVITY AND THE LIST OF SCRAP ITEMS NOTED ABOUT WO ULD ALSO INDICATE THAT THE SAME HAS NOT ARISEN OUT OF MANUFACTURING OR MECHANI CAL WORKING. THE GOODS ESPECIALLY RAIL LINES WERE REUSABLE AS SUCH AND THE ASSESSEE HAS ALSO DISPOSED OF THESE GOODS AS SUCH. 8.2 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. 10. 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 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. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND ALLOW BOTH THE APPEALS OF THE ASSESSEE. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. THE ORDER IS PRONOUNCED ON 13/07/2017 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