M/s. Wire One, Lucknow V. The Income Tax Officer (TDS)-I, Lucknow

ITA 220/LKW/2020

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 0665 (ITAT-LUCKNOW)
• Duration Of Justice: 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 08-07-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Question of law; TDS; Set aside
• Section: 113; 20

Judgement Text

I.T.A. NO.220/LKW/2020 ASSESSMENT YEAR:2015-16 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI A. D. JAIN, VICE PRESIDENT AND SHRI T. S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.220/LKW/2020 ASSESSMENT YEAR:2015-16 M/S WIRE ONE, D-10, INDUSTRIAL AREA, TALKATORA, LUCKNOW. PAN:AABFW1759R VS. INCOME TAX OFFICER (TDS)-1, LUCKNOW. (APPELLANT) (RESPONDENT) O R D E R PER T.S. KAPOOR:A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LEARNED CIT(A)-2, LUCKNOW DATED 06/06/2020 PERTAINING TO AS SESSMENT YEAR 2015- 2016. 2. LEARNED COUNSEL FOR THE ASSESSEE, AT THE OUTSET, SUBMITTED THAT THE CASE OF THE ASSESSEE IS DULY COVERED IN FAVOUR OF T HE ASSESSEE BY THE ORDER OF LUCKNOW BENCH OF THE TRIBUNAL IN THE CASE OF LAL A BHARAT LAL & SONS VS. INCOME TAX OFFICER (TDS)-1 IN I.T.A. NOS. 14 TO 16/ LKW/2019 DATED 19/02/2020 WHEREIN THE TRIBUNAL HAS HELD THAT TCS I S NOT APPLICABLE TO A TRADER. IT WAS SUBMITTED THAT ASSESSEE IS A PARTNE RSHIP FIRM TRADING IN FERROUS AND NON-FERROUS METALS AND THE TOTAL TURNOV ER OF THE ASSESSEE APPELLANT BY SHRI RAKESH GARG, ADVOCATE RESPONDENT BY SHRI AJAY KUMAR, D.R. DATE OF HEARING 03/11/2020 DATE OF PRONOUNCEMENT 16 /1 2 /20 20 I.T.A. NO.220/LKW/2020 ASSESSMENT YEAR:2015-16 2 INCLUDED TRADING OF SCRAP AS WELL AS MANUFACTURED G OODS. THE AUTHORITIES BELOW HELD THAT THE ITEM SOLD BY THE ASSESSEE WAS S CARP THEREFORE, SECTION 206C WAS APPLICABLE. IT WAS FURTHER SUBMITTED THAT BEFORE THE AUTHORITIES BELOW IT WAS EXPLAINED THAT SECTION 206C WAS APPLIC ABLE ONLY WHEN THE GOODS SOLD WERE SCRAP AND SCRAP HAS BEEN DEFINED TO INCLUDE SCRAP WHICH HAS BEEN GENERATED FROM MANUFACTURE OR MECHANICAL W ORKING OF MATERIALS WHICH IS NOT USABLE AS SUCH BECAUSE OF BREAKAGE, CU TTING UP, WEAR AND OTHER REASONS. IT WAS SUBMITTED THAT AS PER THIS D EFINITION, THE SCRAP MUST BE FROM THE MANUFACTURE OR MECHANICAL WORKING OF MA TERIALS WHEREAS IN THE PRESENT CASE THE TURNOVER WAS PRIMARILY DUE TO TRAD ING GOODS AND TO SUPPORT HIS CONTENTION THAT THE MAJOR SALES MADE BY THE ASS ESSEE WAS ON ACCOUNT OF TRADING GOODS ONLY, OUR ATTENTION WAS INVITED TO TRADING AND PROFIT & LOSS ACCOUNT, PLACED AT PAGE 113 OF THE PAPER BOOK WHERE A COPY OF TRADING AND PROFIT & LOSS ACCOUNT WAS PLACED AND WHERE THE SALE ON ACCOUNT OF TRADING AND ON ACCOUNT OF MANUFACTURING WAS SEPARATELY MENT IONED. IT WAS FURTHER BROUGHT TO OUR NOTICE THAT IN THE VAT ASSESSMENT AL SO THE ASSESSEE DECLARED THE SALES PRIMARILY DUE TO TRADING AND WHICH HAS B EEN ACCEPTED BY THE DEPARTMENT ALSO. TO FURTHER SUPPORT HIS ARGUMENTS, LEARNED COUNSEL FOR THE ASSESSEE TOOK US TO COPY OF AUDIT REPORT WHEREI N IN QUANTITATIVE DETAILS IN TAX AUDIT REPORT, THE MAIN ITEMS OF SALES WERE D UE TO TRADING ONLY. THEREFORE, IT WAS SUBMITTED THAT THE JUDGMENT OF LU CKNOW BENCH OF THE TRIBUNAL IN LALA BHARAT LAL & SONS IS SQUARELY APPL ICABLE TO THE ASSESSEE. 3. LEARNED D. R., ON THE OTHER HAND, SUBMITTED THAT IN LALA BHARAT LAL & SONS THE ASSESSEE WAS NOT A MANUFACTURER WHEREAS IN THE PRESENT CASE THE ASSESSEE IS A MANUFACTURER WHICH IS APPARENT FROM T HE ORDER PASSED U/S 206C ITSELF. IN THIS RESPECT OUR ATTENTION WAS INV ITED TO THE ORDER DATED 29/03/2019 PASSED U/S 206C OF THE ACT. THEREFORE, IT WAS PRAYED THAT THE I.T.A. NO.220/LKW/2020 ASSESSMENT YEAR:2015-16 3 JUDGMENT RELIED ON BY LEARNED COUNSEL FOR THE ASSES SEE IS NOT APPLICABLE AND THEREFORE, THE APPEAL FILED BY THE ASSESSEE BE DISMISSED. 4. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THOUGH IT IS A FACT THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF COPPER WIRE BUT THE MAIN PART OF THE TURNOVER OF THE ASSESSEE IS DUE TO TRADING I N SCRAP WHICH IS EVIDENT FROM THE COPY OF PROFIT & LOSS ACCOUNT, PLACED AT P AGE 113 OF THE PAPER BOOK WHEREIN THE SALE FROM TRADING HAS BEEN NOTED A T RS.7,73,99,687/- AND SALE FROM MANUFACTURING HAS BEEN NOTED AT RS.1,18,4 1,997/-. THE SALE FIGURE MATCHES WITH THE FIGURE NOTED BY THE ASSESSI NG OFFICER BUT THE A.O. INSTEAD OF MENTIONING THE SALE DUE TO TRADING MENTI ONED THIS SALE TO BE ON ACCOUNT OF SCRAP. THE SALES ON ACCOUNT OF TRADING A ND ON ACCOUNT OF MANUFACTURING IS FURTHER CORROBORATED FROM THE COPY OF TAX AUDIT REPORT WHICH SHOWS THE SALE AND PURCHASE OF SCRAP ON ACCOU NT OF TRADING ACTIVITIES. WE FURTHER FIND THAT IN THE SAME TAX AUDIT REPORT, THE CONSUMPTION OF RAW MATERIAL HAS BEEN DECLARED TO 24,800 KGS. AGAINST W HICH THE YIELD HAS BEEN DECLARED AT 99.30% WHICH MEANS THAT THE SCRAP OUT O F MANUFACTURING ACTIVITIES WAS ONLY 0.7% OF THE CONSUMPTION. THESE TWO DOCUMENTS OF PROFIT & LOSS ACCOUNT AND TAX AUDIT REPORT CLEARLY ESTABLISH THAT THE ASSESSEE HAD PRIMARILY DEALT INTO TRADING ACTIVITIES AND THE RE IS VERY LITTLE SCRAP WHICH WAS OBTAINED DURING THE COURSE OF MANUFACTURING. T HE LUCKNOW BENCH OF THE TRIBUNAL IN THE CASE OF LALA BHARAT LAL & SONS (SUPRA) HAS HELD THAT THE TCS U/S 206C IS APPLICABLE ONLY IF THE SCRAP IS OBT AINED DURING THE COURSE OF MANUFACTURING. THE RELEVANT FINDING OF THE TRIBUNA L IS REPRODUCED BELOW: 4. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS NOT A MANUFACTURER AND IS ONLY A DEALER IN SCRAP. DURING THE YEARS UNDER CONSIDERAT ION, AS NOTED IN THE ASSESSMENT ORDERS, THE ASSESSEE HAD SOLD SCR AP, WHICH I.T.A. NO.220/LKW/2020 ASSESSMENT YEAR:2015-16 4 INCLUDED UNBURNED TRANSFORMER COILS FROM VARIOUS DI STRIBUTION COMPANIES OF UPPCL. WE FIND THAT WHETHER A TRADER I N SCRAP IS LIABLE TO BE FASTENED WITH LIABILITY TO COLLECT TCS UNDER SECTION 206C CAME UP FOR CONSIDERATION OF THE ITAT AHMEDABA D B BENCH IN THE CASE OF NAVINE FLUORINE INTERNATIONAL LTD. VS. ACIT(TDS) [SUPRA], WHEREIN, THE ITAT HELD THAT TO FALL UNDER THE DEFINITION OF SCRAP AS GIVEN IN THE EXPLANATION TO SECTION 206C OF THE ACT, THE TERM WASTE AND SCRAP ARE O NE AND WHICH SHOULD ARISE FROM MANUFACTURE AND IF THE SCRAP IS N OT COMING OUT OF MANUFACTURE, THEN THE ITEMS DO NOT FALL UNDE R THE DEFINITION OF SCRAP AND THUS NOT LIABLE TO TCS. TH E FINDINGS OF THE ITAT AHMEDABAD BENCH, AS CONTAINED IN PARAS 12 AND 13, ARE REPRODUCED BELOW: 12. THE EXPLANATION TO SECTION 206 C OF THE IT ACT PROVIDES THE MEANING OF SCRAP MEANS 'WASTE AND SCRA P' FROM MANUFACTURE OR MECHANICAL WORKING OF MATERIAL WHICH IS DEFINITELY NOT USABLE AS SUCH BECAUSE OF BREAKAGE, CUTTING UP, WEAR AND OTHER REASONS. IN TH E ABOVE DEFINITION THE IMPORTANT WORDS USED IN THE DEFINITION OF SCRAP ARE 'WASTE AND SCRAP' - 'FROM MANUFACTURE' AND 'WHICH IS'. THE WORD 'WASTE AND SCRAP' ARE ONE ITEM. THEREAFTER, THE WORD USED IS ' FROM' THE MANUFACTURE OR MECHANICAL WORKING OF MATERIAL. IT WOULD MEAN THAT THE WASTE AND SCRAP BEING ONE ITEM SHOULD ARISE FROM THE MANUFACTURE OR MECHANICAL WOR KING OF MATERIAL. IT IS, THEREFORE, NECESSARY TO READ TH E WORDS WASTE AND SCRAP TOGETHER WHICH ARE GENERATED OUT OF MANUFACTURING PROCESS OF THE ASSESSEE. THE WORDS WA STE AND SCRAP SHOULD HAVE NEXUS WITH THE MANUFACTURING OR MECHANICAL WORKING OF MATERIAL. THEREAFTER, THE WOR D USED IS 'WHICH IS' DEFINITELY NOT USABLE. THE WORD 'IS' AS USED IN THIS DEFINITION OF THE SCRAP MEANT FOR SING ULAR ITEM I.E. 'WASTE AND SCRAP'. THE WORD WASTE NAVINE FLUORINE INTERNATIONAL LTD. VS ACIT, TDS CIR, SURAT 'WHICH IS' DENOTES TO SINGULAR ITEM AND THUS THE SINGULAR ITEM WOULD BE WASTE AND SCRAP. THE WORDS WASTE AND SCRAP THUS CANNOT BE READ DIFFERENTLY AS IS ARGUED BY THE LEARNED DR. THE LIST OF SCRAP SOLD BY THE ASSESSEE IS REPRODUCED ABOVE WHICH ARE NOT CONNECTED WITH MANUFACTURE OR MECHANICAL WORKING OF MATERIAL. THE FINDINGS OF THE LEARNED CIT(A) ARE BASED ON PRESUMP TION ONLY THAT SINCE THE ASSESSEE IS ENGAGED IN MANUFACT URE OF I.T.A. NO.220/LKW/2020 ASSESSMENT YEAR:2015-16 5 FLUORINE AND OTHER REFRIGERATED GASES, THEREFORE, E NTIRE SCRAP IS GENERATED OUT OF ITS MANUFACTURING ACTIVIT IES. THE FINDINGS OF THE LEARNED CIT(A) ARE NOT BASED ON ANY MATERIAL OR EVIDENCE. THE ASSESSEE IS ADMITTEDLY EN GAGED IN MANUFACTURING OF FLUORINE AND OTHER REFRIGERATED GASES AND LIST OF SCRAP ITEMS NOTED ABOVE WOULD INDICATE THAT SAME CANNOT BE USED FOR MANUFACTURING OR MECHANICAL WORKING OF MATERIAL OF FLUORINE AND OTHER REFRIGERA TION GASES. BY THE NATURE OF THE SCRAP ITEMS NOTED ABOVE , THE SAME CANNOT BE USED WHILE MANUFACTURING GASES OR DO ING ANY MECHANICAL WORKING OF THE MATERIAL FOR THE GASE S. THE ITEMS OF THE SCRAP IN THE CASE OF THE ASSESSEE WOULD NOT FORM PART OF THE DEFINITION OF THE SCRAP AS IS PROVIDED IN EXPLANATION (B) TO SECTION 206 C OF THE IT ACT. THUS, THE EXPLANATION IS WRONGLY APPLIED IN THE CASE OF T HE ASSESSEE. 13. 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 EXPLANATION (B) TO SECTION 206 C OF THE IT ACT IN THE CASE OF THE ASSE SSEE. THEREFORE, THE ASSESSEE CANNOT BE HELD TO BE IN DEF AULT. THE ASSESSEE IS NOT REQUIRED TO DEDUCT TAX U/S 206 C (6) OF THE IT ACT ON THE ITEMS OF SCRAP AS NOTED ABOVE. RESULTANTLY, NO NAVINE FLUORINE INTERNATIONAL LTD. VS ACIT, TDS CIR, SURAT INTEREST COULD BE CHARGED U/S 206C (7) OF THE IT ACT. WE ACCORDINGLY, SET ASIDE THE OR DERS OF THE AUTHORITIES BELOW AND ALLOW BOTH THE APPEALS OF THE ASSESSEE. 5. FURTHER, WE FIND THAT THE SPECIAL BENCH OF THE R AJKOT BENCH OF THE TRIBUNAL IN THE CASE OF M/S BHARTI AU TO PRODUCTS VS. CIT-II IN ITA NOS.391&392/RJT/2011, HELD THAT IRRESPECTIVE OF MANUFACTURING, ALL THE TRADERS IN SCRAP ARE LIAB LE TO COLLECT TCS UNDER THE PROVISIONS OF SECTION 206C OF THE ACT . 6. WE FURTHER FIND THAT THE AHMEDABAD BENCH OF ITAT IN THE CASE OF ITO(TDS) VS. PRIYA BLUE INDUSTRIES PVT. LT D. IN ITA NO.2207/AHD/2011, VIDE ORDER DATED 14/5/2015, AGAIN RELIED ON THE ORDER OF THE AHMEDBAD BENCH OF THE ITAT IN THE CASE OF NAVINE FLUORINE INTERNATIONAL LTD. VS. ACIT(TDS) [SUPRA] AND HELD THAT THE WORDS WASTE AND SCRAP SHOULD HAVE NEXUS WITH MANUFACTURING OR MECHANICAL WORKING OF MATERIALS. FOR THE I.T.A. NO.220/LKW/2020 ASSESSMENT YEAR:2015-16 6 SAKE OF COMPLETENESS, THE FINDINGS OF THE AHMEDBAD BENCH OF THE ITAT ARE REPRODUCED BELOW: WE FIND THAT ITAT 'B' BENCH, AHMEDABAD IN ITA NOS. 1213 AND 1214/AHD/2010 DATED 15.02.2011 IN CASE OF NAVINE FLUORINE INTERNATIONAL LTD VS. ACIT, TDS CIR CLE SURAT, FOR A Y 2009-10 & 2010-11, INTER ALIA HELD T HAT TERM 'WASTE AND SCRAP' ARE ONE ITEM. THE 'WASTE AND SCRAP' MUST BE FROM MANUFACTURE OR MECHANICAL WORKI NG OF MATERIAL WHICH IS DEFINITELY NOT USABLE AS SUCH BECAUSE OF BREAKAGE, CUTTING UP, WARE AND TO OTHER REASONS. IT WOULD MEAN THAT THESE WASTE AND SCRAP BEING ONE ITE M SHOULD ARISE FROM MANUFACTURE OR MECHANICAL WORKING OF MATERIAL. THE WORDS WASTE AND SCRAP SHOULD HAVE NEX US WITH MANUFACTURING OR MECHANICAL WORKING OF MATERIA LS. THEREFORE, THE WORD USED IS 'WHICH IS' DEFINITELY N OT USABLE. THE WORD 'IS' AS USED IN THIS DEFINITION OF THE SCRAP MEANT FOR SINGULAR ITEM I.E. 'WASTE AND SCRAP '. AS STATED ABOVE, ASSESSEE IS ENGAGED IN SHIP BREAKING ACTIVITY AND AS GIVEN TO UNDERSTAND THESE ITEMS/ PR ODUCTS IN QUESTION ARE FINISHED PRODUCTS OBTAINED FROM THE ACTIVITY. THEY CONSTITUTE SIZABLE CHUNK OF PRODUCTI ON DONE BY SHIP BREAKERS. THOUGH SUCH PRODUCTS MAY BE COMMERCIALLY KNOWN AS 'SCRAP' THEY ARE DEFINITELY N OT 'WASTE AND SCRAP'. THE ITEMS IN QUESTION ARE 'USABL E AS SUCH' AND THEREFORE DOES NOT FALL WITHIN THE DEFINI TION OF SCRAP AS GIVEN IN OF SECTION 206C(1). HAVING SAID S O, WE RESTORE THE ISSUE TO ASSESSING OFFICER WITH DIRECTI ON TO GRANT RELIEF TO ASSESSEE UNDER THE PROVISION OF 206 C(1) OF ACT, WITH REGARDS TO ONLY SALE OF SCRAP ARISING OUT OF MANUFACTURING ACTIVITY IN COURSE OF SHIP BREAKING A FTER PROVIDING DUE OPPORTUNITY OF HEARING TO ASSESSEE. 7. THE HON'BLE HIGH COURT, IN CIT(TDS) VS. M/S PRI YA BLUE INDUSTRIES PVT. LTD. (SUPRA), VIDE ORDER (APB:14-2 2), DATED 3/11/2015, PASSED IN ITA NO.604 OF 2015, UPHOLDING THE ABOVE FINDINGS OF THE TRIBUNAL, OBSERVED AS FOLLOWS: '5. FROM THE FACTS AS NARRATED HEREINABOVE, IT IS A PPARENT THAT THE RESPONDENT ASSESSEE HAD COLLECTED AND PAID TAX AT SOURCE (TCS) ON THE SEVEN ITEMS AS ENUMERATED IN THE ORDERS PASSED BY THE COMMISSIONER (APPEALS) AS WELL AS I.T.A. NO.220/LKW/2020 ASSESSMENT YEAR:2015-16 7 THE TRIBUNAL AND HAD NOT COLLECTED TAX AT SOURCE ON THE FOLLOWING FOUR ITEMS 1. OLD AND USED PLATES 2. NON-EXCISABLE (EXEMPTED) LIKE FURNITURE, WOOD, E TC. 3. TRADING OF SCRAP (MELTING) 4. HIGH SEAS SALE. 6. THE TRIBUNAL, AFTER CONSIDERING THE DEFINITION O F SCRAP UNDER CLAUSE (B) TO SECTION 206C OF THE ACT, HAS NO TED THAT THE ASSESSEE IS ENGAGED IN SHIP BREAKING ACTIV ITY AND THE ITEMS IN QUESTION ARE FINISHED PRODUCTS OBTAINE D FROM THE ACTIVITY AND CONSTITUTE SIZEABLE CHUNK OF PRODU CTION DONE BY SHIP BREAKERS. THOUGH SUCH PRODUCTS MAY BE COMMERCIALLY KNOWN AS 'SCRAP' THEY ARE NOT 'WASTE A ND SCRAP', AS SUCH ITEMS ARE USABLE AS SUCH, AND, THER EFORE, DO NOT FALL WITHIN THE DEFINITION OF SCRAP AS ENVIS AGED HI THE EXPLANATION TO SECTION 206C(1) OF THE ACT. 7. SECTION 206C OF THE ACT BEARS THE HEADING, 'PROF ITS AND GAINS FROM THE BUSINESS OF TRADING IN ALCOHOLIC LIQ UOR, FOREST PRODUCE, SCRAP ETC.' AND PROVIDES THAT EVERY PERSON, BEING A SELLER SHALL, AT THE TIME OF DEBITI NG OF THE AMOUNT PAYABLE BY THE BUYER TO THE ACCOUNT OF THE B UYER OR AT THE TIME OF RECEIPT OF SUCH AMOUNT FROM THE S AID BUYER IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, COLLECT FROM THE BUYER OF ANY GOODS OF THE NATURE SPECIFIED IN COLUM N (2) OF THE TABLE BELOW, A SUM EQUAL TO THE PERCENTAGE SPECIFIED IN THE CORRESPONDING ENTRY IN COLUMN (3) OF THE SAID TABLE, OF SUCH AMOUNT AS INCOME-TAX. THE NATUR E OF GOODS SPECIFIED AT SERIAL NO.(VI) IS SCRAP, AND THE PERCENTAGE PROVIDED IS 1%. THE EXPRESSION OF SCRAP IS DEFINED UNDER CLAUSE (B) TO THE EXPLANATION TO SECT ION 206 OF THE ACT, TO MEAN WASTE AND SCRAP FROM MANUFACTURE OR MECHANICAL WORKING OF MATERIALS WHIC H IS DEFINITELY NOT USABLE AS SUCH BECAUSE OF BREAKAGE, CUTTING UP, WEAR AND OTHER REASONS. ON A PLAIN READ ING OF THE SAID EXPRESSION, IT IS EVIDENT THAT ANY MATERIA L WHICH IS USABLE AS SUCH WOULD NOT FALL WITHIN THE AMBIT O F THE I.T.A. NO.220/LKW/2020 ASSESSMENT YEAR:2015-16 8 EXPRESSION 'SCRAP' AS ENVISAGED UNDER CLAUSE (B) OF THE EXPLANATION TO SECTION 206C OF THE ACT. 8. THE TRIBUNAL, IN THE IMPUGNED ORDER, HAS RECORDE D THAT THE ITEMS/PRODUCTS IN QUESTION OBTAINED FROM THE AC TIVITY OF SHIP BREAKING ARE USABLE AS SUCH AND, THEREFORE, DO NOT FALL WITHIN THE DEFINITION OF SCRAP. HOWEVER, S INCE THE ASSESSEE HAD NOT COLLECTED TAX AT SOURCE ON ITEMS O THER THAN ITEMS OBTAINED OUT OF THE MANUFACTURING ACTIVI TY IN THE COURSE OF SHIP BREAKING, THE TRIBUNAL HAS REMIT TED THE MATTER TO THE ASSESSING OFFICER FOR THE PURPOSE GRA NTING RELIEF TO THE ASSESSEE UNDER THE PROVISIONS OF SECT ION 206C (1) OF THE ACT WITH REGARD TO ONLY SALE OF SCR AP ARISING OUT OF MANUFACTURING ACTIVITY IN THE COURSE OF SHIP BREAKING AFTER PROVIDING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THE TRIBUNAL AFTER RECORDING A FIND ING OF FACT TO THE EFFECT THAT THE PRODUCTS OBTAINED BY TH E ASSESSEE IN THE COURSE OF SHIP BREAKING ACTIVITY AR E USABLE AS SUCH, AND, THEREFORE, DO NOT FALL WITHIN THE DEF INITION OF SCRAP HAS REMITTED THE MATTER TO THE ASSESSING OFFI CER TO GRANT RELIEF ACCORDINGLY. ESSENTIALLY, THEREFORE, T HE IMPUGNED ORDER OF THE TRIBUNAL IS BASED UPON A FIND ING OF FACT WHICH DOES NOT GIVE RISE TO ANY QUESTION OF LA W. 9, INSOFAR AS THE COURSE OF ACTION ADOPTED BY THE T RIBUNAL IN REMITTING THE MATTER TO THE ASSESSING OFFICER TO DECIDE IN RELATION TO WHICH OF THE ITEMS THE ASSESSEE IS E NTITLED TO RELIEF UNDER THE PROVISIONS OF SECTION 206C(1) O F THE ACT IS CONCERNED, NO FAULT CAN BE FOUND IN THE APPR OACH ADOPTED BY THE TRIBUNAL, INASMUCH AS, OUT OF THE FO UR ITEMS OF WHICH TAX WAS NOT COLLECTED AT SOURCE, THE MATTER HAS MERELY BEEN REFERRED TO THE ASSESSING OF FICER FOR THE PURPOSE OF EXAMINING AS TO WHAT EXTENT RELI EF IS REQUIRED TO BE GRANTED TO THE ASSESSEE UNDER THE PROVISIONS OF SECTION 206C(1) OF THE ACT HAVING REG ARD TO THE FINDINGS OF FACT RENDERED BY IT.' 8. THUS, THE HON'BLE HIGH COURT HELD THAT THE EXPRE SSION SCRAP IS DEFINED IN CLAUSE (B) OF THE EXPLANATION TO SECTION 206C OF THE ACT TO MEAN WASTE AND SCRAP FROM MA NUFACTURE OF MECHANICAL WORKING OF MATERIALS, WHICH IS DEFINI TELY NOT USEABLE AS SUCH, BECAUSE OF BREAKAGE, CUTTING UP, W EAR AND OTHER REASONS; AND THAT A PLAIN READING OF THE EXPR ESSION SCRAP I.T.A. NO.220/LKW/2020 ASSESSMENT YEAR:2015-16 9 AS ENVISAGED UNDER THE PROVISIONS CONTAINED IN CLAU SE (B) OF THE EXPLANATION TO SECTION 206C OF THE ACT, SHOWS THAT ANY MATERIAL WHICH IS USEABLE AS SUCH, WOULD NOT FALL WITHIN THE AMBIT OF SCRAP. THE ORDER OF THE TRIBUNAL WAS UPHELD AS B EING ONE ON FACTS. 9. THE TRIBUNAL, IN DHASAWALA TRADERS VS. ITO (AP B:8-13), VIDE ORDER DATED 1/9/2016 IN ITA NO.979,980 AND 1535/AHD/2015, FOLLOWING THE HON'BLE GUJARAT HIGH C OURT JUDGMENT IN CIT(TDS) VS. M/S PRIYA BLUE INDUSTRIES PVT. LTD. (SUPRA), HELD THAT WHERE THE ASSESSEE HAD NOT GENER ATED ANY SCRAP IN MANUFACTURING ACTIVITY, AS CONTEMPLATED UN DER THE EXPLANATION TO SECTION 206C OF THE ACT, AND WHERE T HE ASSESSEE WAS ONLY A TRADER, HAVING NOT SOLD SCRAP AS SUCH, B UT HAVING SOLD PRODUCTS WHICH WERE RE-USEABLE AND HAD RESULTE D FROM SHIP BREAKING ACTIVITY, HE WAS NOT SUPPOSED TO COLLECT T AX UNDER SECTION 206C OF THE ACT. THE RELEVANT PORTION OF T HE ORDER OF THE TRIBUNAL READS AS FOLLOWS: 8. A PERUSAL OF THE PARAGRAPH-6 OF THE ABOVE JUDGM ENT WOULD INDICATE THAT CERTAIN ITEMS GENERATED OUT OF SHIP BREAKING ACTIVITY MIGHT BE KNOWN COMMERCIALLY AS 'S CRAP' BUT THEY ARE NOT WASTE AND SCRAP. THESE ITEMS ARE R E- USABLE AS SUCH, AND THEREFORE, WOULD NOT FALL WITHI N THE DEFINITION OF 'SCRAP' AS ENVISAGED IN THE EXPLANATI ON TO SECTION 206C(1). THE ASSESSEE HAS ALSO CONTENDED TH AT IT WAS ENGAGED IN THE SALE OF MS PIPE, IRON WHICH WERE OBTAINED FROM SHIP BREAKING INDUSTRIES. THE ASSESSE E HIMSELF HAS NOT GENERATED ANY SCRAP IN MANUFACTURIN G ACTIVITY, AS CONTEMPLATED IN THE EXPLANATION. HE WA S A TRADER. THEREFORE, THE ASSESSEE HAS NOT SOLD SCRAP AS SUCH. HE HAS SOLD THE PRODUCTS RESULTED FROM SHIP BREAKING ACTIVITY, WHICH ARE REUSABLE. THUS, THE AS SESSEE WAS NOT SUPPOSED TO COLLECT TAX UNDER SECTION 206C OF THE ACT. THE ID. AO HAS ERRED IN RAISING THE DEMAND . I ALLOW ALL APPEALS AND DELETE ADDITIONS. 9. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE A RE ALLOWED. 10. IN AZIZBHAI A LADA VS. ITO, VIDE ORDER (APB:1 -7) DATED 10/1/2018, PASSED IN ITA NO.765/AHD/2015, AGAIN, FO LLOWING THE HON'BLE GUJARAT HIGH COURT DECISION IN CIT(TDS ) VS. M/S I.T.A. NO.220/LKW/2020 ASSESSMENT YEAR:2015-16 10 PRIYA BLUE INDUSTRIES PVT. LTD. (SUPRA), DECIDED T HE MATTER IN FAVOUR OF THE ASSESSEE, HOLDING AS FOLLOWS: 9. IF THE FACTS OF THE CASE IN HAND ARE CONSIDERE D IN THE LIGHT OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT (SUPRA), WE FIND THAT THE ITEMS SOLD BY THE ASSESSEE DO NOT FIT INTO THE CATEGORY OF SCRAP AS EXPLAINED BY THE HON'BLE HIGH COURT (SUPRA). THEREF ORE, IN OUR CONSIDERED OPINION, THE ASSESSEE CANNOT BE T REATED AS AN ASSESSEE IN DEFAULT AND ON THE IMPUGNED SALES CANNOT BE TREATED AS SALE OF SCRAP THEREBY MAKING T HE ASSESSEE OUT OF THE PURVIEW OF SECTION 206C OF THE ACT. .. 11. FACTS BEING SIMILAR, RESPECTFULLY FOLLOWING THE FINDINGS OF THE HON'BLE JURISDICTIONAL HIGH COURT (SUPRA), W E DO NOT FIND ANY MERIT IN THE IMPUGNED DEMAND RAISED BY THE A.O. 12. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE AFORE-STATED DECISIONS OF THE HON'BLE JURISDICTIONA L HIGH COURT, WE SET ASIDE THE FINDINGS OF THE ID. CIT(A) AND DIRECT THE A.O. TO DELETE THE IMPUGNED DEMAND. 11. THE FACTS IN EITHER DHASAWALA TRADERS VS. ITO (SUPRA), OR AZIZBHAI A LADA VS. ITO (SUPRA), HAVE NOT BEEN SHOWN TO BE ANY DIFFERENT FROM THOSE OF THE CASE AT HAND. THE ONLY ARGUMENT IS THAT THE HON'BLE HIGH COURT HAS NOT TAK EN INTO CONSIDERATION THE SPECIAL BENCH DECISION IN THE CAS E OF M/S BHARTI AUTO PRODUCTS VS. CIT-II (SUPRA). THIS ARG UMENT, HOWEVER, WE FIND, IS PRIMA FACIE UNSUSTAINABLE. TH IS IS SO, BECAUSE A BARE PERUSAL OF THE JUDGMENT OF THE HON'B LE HIGH COURT (SUPRA) REVEALS THAT THE FOLLOWING SUBSTANTIA L QUESTIONS OF LAW HAD BEEN RAISED BEFORE THEIR LORDSHIPS: '(A) WHETHER THE APPELLATE TRIBUNAL HAS SUBSTANTIAL LY ERRED IN LAW IN INTERPRETING THE TERM SCRAP AS DEFI NED IN CLAUSE (B) TO EXPLANATION TO SECTION 206C OF THE IN COME TAX ACT BY HOLDING THAT THE WORDS 'WASTE AND SCRAP' IS A SINGULAR ITEM AND NOT DISTINCT? I.T.A. NO.220/LKW/2020 ASSESSMENT YEAR:2015-16 11 (B) WHETHER THE APPELLATE TRIBUNAL HAS SUBSTANTIALL Y ERRED IN LAW IN PLACING RELIANCE UPON THE CASE OF N AVIN FLOURINE CHEMICALS DESPITE THE FACT THAT THE HON'BL E SPECIAL BENCH IN THE CASE OF BHARTI AUTO PRODUCTS H AD HELD THAT THE WORDS 'WASTE AND SCRAP' ARE TWO DIFFE RENT AND DISTINCT WORDS? (C) WHETHER THE APPELLATE TRIBUNAL HAS SUBSTANTIALL Y ERRED IN DELETING THE ORDER PASSED UNDER SECTION 20 1(1) OF THE INCOME TAX ACT OF RS.40,16,418/- AND INTERES T CHARGED UNDER SECTION 201(1A) OF THE ACT OF RS.23,29,522? 12. THE QUESTION OF LAW AT ITEM (B) ABOVE IS THE ONE THAT IS PRESENTLY UNDER THE SCANNER. THIS QUESTION OF LAW SPECIFICALLY RAISES THE ISSUE AS TO WHETHER THE TRIBUNAL WAS NOT INCORRECT IN OVERLOOKING BHARTI AUTO PRODUCTS (SB) [SUPRA]. T HE LORDSHIPS, IN PARA 8 OF THE JUDGMENT, HAVE UNAMBIGUOUSLY HELD THAT SINCE THE TRIBUNAL HAD REMITTED THE MATTER TO THE ASSESSI NG OFFICER AFTER RECORDING A FINDING OF FACT THAT THE PRODUCTS OBTAINED BY THE ASSESSEE IN THE COURSE OF SHIP BREAKING ACTIVIT Y, ARE USEABLE AS SUCH, DUE TO WHICH, THEY DO NOT FALL WITHIN THE DEFINITION OF SCRAP, THE ORDER OF THE TRIBUNAL, BEING BASED ON A FINDING OF FACT, DID NOT GIVE RISE TO ANY QUESTION OF LAW. TH E FACTUAL MATRIX REMAINS MUCH THE SAME IN THE CASE AT HAND. HERE ALSO, THE ASSESSEE IS A TRADER IN SCRAP. THEIR PRODUCTS ARE NOT A RESULT OF MANUFACTURING PROCESS CARRIED OUT BY THEM . 13. IN THE ABOVE VIEW OF THE MATTER, IT CANNOT AT A LL BE HELD THAT WHILE PASSING THEIR JUDGMENT, THE LORDSHIPS, I N CIT(TDS) VS. M/S PRIYA BLUE INDUSTRIES PVT. LTD. (SUPRA), O VERLOOKED THE SPECIAL BENCH ORDER IN BHARTI AUTO PRODUCTS (SB) [SUPRA]. 14. EVEN OTHERWISE, THIS DECISION OF THE HON'BLE HI GH COURT HAS BEEN FOLLOWED BY THE TRIBUNAL IN DHASAWALA TRA DERS VS. ITO (SUPRA) AND AZIZBHAI A LADA VS. ITO (SUPRA). THE ORDER IN AZIZBHAI A LADA VS. ITO (SUPRA) IS RENDERED BY A CO-ORDINATE BENCH OF THE TRIBUNAL, TO WHICH, NO CONTRARY DECISI ON HAS BEEN CITED BY THE DEPARTMENT BEFORE US. FURTHER NEITHER DHASAWALA TRADERS VS. ITO (SUPRA) NOR AZIZBHAI A LADA VS. I TO (SUPRA) HAVE BEEN SHOWN TO BE UPSET EITHER ON APPEAL OR OTH ERWISE. 15. IN THIS VIEW OF THE MATTER, RESPECTFULLY FOLLOW ING CIT(TDS) VS. M/S PRIYA BLUE INDUSTRIES PVT. LTD. (SUPRA), WE I.T.A. NO.220/LKW/2020 ASSESSMENT YEAR:2015-16 12 DECIDE THE GROUNDS OF APPEALS TAKEN BY THE ASSESSEE IN FAVOUR OF THE ASSESSEE. 16. SINCE WE HAVE DECIDED THE APPEALS ON MERIT, THE STAY PETITIONS HAVE BECOME INFRUCTUOUS AND HENCE THE SAM E ARE DISMISSED AS INFRUCTUOUS. 5. IN VIEW OF THE ABOVE DECISION OF LUCKNOW BENCH O F THE TRIBUNAL, WE DIRECT THE ASSESSING OFFICER TO ALLOW RELIEF TO THE ASSESSEE ON ACCOUNT OF SALE OF SCRAP DUE TO TRADING ACTIVITY AND ARRIVE AT THE DEMAND OF TCS, IF ANY, ON THE SALES OF SCRAP OBTAINED DURING THE COURSE OF MA NUFACTURING. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. . (ORDER PRONOUNCED IN THE OPEN COURT ON 16/12/2020 IN ACCORDANCE WITH RULE 34(4) OF THE I.T.A.T. RUL ES) SD/. SD/. ( A. D. JAIN ) ( T. S. KAPOOR ) VICE PRESIDENT ACCOUNTANT MEMBER DATED:16/12/2020 *SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSISTANT REGISTRAR