ITO (TDS), Patiala V. Sh. Rakesh Kumar, Patiala

ITA 559/CHANDI/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3795 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 12-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Bonafide belief; Non-deduction of tax; Reasonable cause; Non compliance
• Section: 10

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.559/CHD/2016 (ASSESSMENT YEAR : 2011-12) THE INCOME TAX OFFICER(TDS), VS. SH.RAKESH KUMAR PROP. PATIALA. M/S AGGARWAL METALS, SIRHIND ROAD, PATIALA. PAN: ABUPK8160E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANJIT SINGH, DR RESPONDENT BY : SHRI VIBHOR GARG DATE OF HEARING : 03.10.2016 DATE OF PRONOUNCEMENT : 30.12.2016 O R D E R PER ANNAPURNA GUPTA, A.M . : THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAIN ST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), PATIALA DATED 22.2.2016 FOR ASSESSMENT Y EAR 2011-12, DELETING THE PENALTY LEVIED UNDER SECTION 271CA OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) FO R DEFAULT IN COLLECTING TAX AT SOURCES(TCS). 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS FOLLOWS : 2 (I) THE LD.CIT(A) IS ERRED IN HOLDING THAT AS NO DEMAND ON ACCOUNT OF NON COLLECTION OF TAX AT SOURCE HAS BEEN RAISED BY THE AO, THE ACTION OF THE AO CLEARLY ESTABLISHME NT THAT SHE HAS NOT TREATED THE APPELLANT AS ASSESSEE IN DEFAULT AS FAR AS TCS IS CONCERNED. (II) THE LD.CIT(A) IS ERRED IN DELETING PENALTIES U/S 271CA R.W.S 274 OF THE I.T. ACT/1961 FOR THE A.Y.2011-12 EVEN THE LD.CIT(A) HIMSELF HOLD THAT GOODS SOLD BY THE APPEL LANT ARE COVERED IN THE DEFINITION OF 'SCRAP' IN THE TER MS OF THE EXPLANATION (B) TO THE SECTION 206C OF THE I.T. ACT , 1961 AND ITS SALE IS LIABLE FOR TCS NOT ONLY AT THE FIRS T STAGE BUT ALSO AT EACH STAGE OF SALE AS PROVIDED IN SECTI ON 206C OF THE I.T. ACT, 1961. (III) THE LD.CIT(A) IS ERRED IN DELETING PENALTIES U/S 271CA R.W.S.274 OF THE I.T. ACT, 1961 IGNORING THAT NEITH ER THE ASSESSEE DEDUCTOR COLLECTED TAX AT SOURCE WHILE SEL LING OLD IRON SCRAP NEITHER COLLECTED FORM NO.27C FROM THE B UYER IN THE DUPLICATE AT THE TIME OF SALE AND DEPOSITED TO THE INCOME TAX DEPARTMENT ON OR BEFORE 7TH DAY OF NEXT MONTH IN WHICH SALE OF SCRAP WAS MADE. (IV) THE LD.CIT(A) IS ERRED IN DELETING THE PENALT Y U/S 271CA FOR NON-COLLECTION TAX AT SOURCE U/S 206C IGNORING THE FACT THAT THE ASSESSEE HAS COMMITTED D EFAULT FOR NON COLLECTION OF TAX AT SOURCE AS REQUIRED UND ER THE PROVISIONS OF SECTION 206C OF THE I.T. ACT, 1961. (V) THE LD. CIT(A) IS ERRED IN DELETING THE PENALT Y U/S 271CA IGNORING THAT THE ASSESSEE CONTINUOUSLY DENYI NG FROM THE START TO THE END THAT HE HAD PURCHASED SCR AP EVEN IN THE AUCTION SELLERS HAS CLASSIFIED THE MATE RIAL AS SCRAP. 3. BRIEF FACTS RELATING TO THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF OLD IRON SCRAP. IT WAS NOTICED THAT THE ASSESSE E HAD NOT COLLECTED AND DEPOSITED TAX AT SOURCE ON THE SA LE OF SCRAP MADE BY IT TO TRADERS. ORDER UNDER SECTION 206C(1)/206(7) OF THE ACT WAS PASSED IN WHICH IT WA S HELD THAT SINCE TAXES HAD BEEN PAID BY BUYERS OF THE SCR AP, THE ASSESSEE COULD NOT BE TREATED AS ASSESSEE IN DEFAUL T FOR 3 NON COLLECTION OF TAX AT SOURCE AS PER THE PROVISIO NS OF SECTION 206C(1D) BUT AT THE SAME TIME INTEREST UNDE R SECTION 206C(7) WAS CHARGED FROM THE DATE ON WHICH TAX WAS COLLECTIBLE TO THE DATE ON WHICH RETURN WAS FI LED BY THE BUYER AMOUNTING IN ALL TO RS.1,48,930/-. FURTH ER, PENALTY PROCEEDINGS UNDER SECTION 271CA OF THE ACT WERE INITIATED. THEREAFTER, SINCE NO REASONABLE CAUSE W AS GIVEN BY THE ASSESSEE FOR NON COMPLIANCE WITH THE PROVISI ONS OF TCS, PENALTY AMOUNTING TO RS.12,80,988/- WAS LEVIED @ 100% ON THE TCS NOT COLLECTED. 4. AGGRIEVED BY THE SAME, THE MATTER WAS CARRIED I N APPEAL BEFORE THE LD. CIT (APPEALS). DETAILED ARGU MENTS WERE MADE BY THE ASSESSEE WHICH ARE REPRODUCED AT P ARA 5.1 OF THE CIT (APPEALS)S ORDER. BRIEFLY PUT, THE ASSESSEE CONTENDED THAT THE PENALTY U/S 271CA HAD BEEN WRONG LY LEVIED SINCE: 1. HE WAS NOT LIABLE TO COLLECT TAX AT SOURCE ON THE GOODS SOLD ,AT ALL AS THE GOODS SOLD DID NOT FALL WITHIN THE DEFINITION OF SCRAP AS PROVIDED IN EXPLANATION TO SECTION 206C OF THE ACT. THE ASSESSE E CONTENDED THAT THE GOODS SOLD HAD NOT ARISEN OUT O F MANUFACTURING OR MECHANICAL WORK OF MATERIAL IN HAND AND ALSO THAT THE ITEMS WERE RE-USABLE AND HAD BEEN DISPOSED OFF AS SUCH, THEREFORE THEY DID NOT QUALIFY AS SCRAP FOR THE PURPOSE OF TAX COLLECTION AT SOURCE ON SALE. 4 2. THAT SINCE NO DEMAND WAS RAISED ON THE ASSESSE E, HE WAS NOT AN ASSESSEE IN DEFAULT FOR THE PURPOSE O F SECTION 206C AND, THEREFOR NO PENALTY WAS LEVIABLE UNDER SECTION 271CA OF THE ACT. 3. THAT THE BELIEF OF THE ASSESSEE, THAT THE GOOD S SOLD WERE NOT SCRAP, WAS A BONAFIDE BELIEF AND CONSTITUTED REASONABLE CAUSE FOR NOT COLLECTING TAX AT SOURCE. 4. THAT NO LOSS HAD BEEN CAUSED TO THE REVENUE SINCE DUE TAXES HAD BEEN PAID BY THE BUYERS AS HELD IN THE ORDER PASSED UNDER SECTION 206C(1) OF THE AC T IN ASSESSEES CASE. 5. THE LD. CIT (APPEALS) REJECTED ASSESSEES CONTENTION THAT THE GOODS SOLD DID NOT QUALIFY AS S CRAP AND THAT THE ASSESSEE HARBORED A BONAFIDE BELIEF T HAT THE GOODS WERE NOT SCRAP AND HENCE NOT EXIGIBLE TO TCS BUT AT THE SAME TIME THE LD. CIT (APPEALS) AGREED WITH THE ASSESSEES CONTENTION THAT THERE WAS A REASONABLE C AUSE FOR NOT LEVYING PENALTY. THE LD. CIT (APPEALS) REL IED UPON THE JUDGMENT OF THE I.T.A.T., BANGALORE BENCH IN TH E CASE OF WIPRO GE MEDICAL SYSTEM LTD. (2005) 24 CCH 001 (BANG TRIB.) AND HELD THAT SINCE TAXES HAD BEEN PAI D BY THE BUYERS NO LOSS HAD BEEN CAUSED TO THE EXCHEQUER ON ACCOUNT OF ASSESSEES DEFAULT IN NOT COLLECTING TCS AND THIS CONSTITUTED REASONABLE CAUSE FOR NOT LEVYING P ENALTY. 5 THUS, THE LD. CIT (APPEALS) DELETED THE PENALTY LEV IED BY THE ASSESSING OFFICER. 6. AGGRIEVED BY THE SAME, THE REVENUE FILED THE PRESENT APPEAL BEFORE US. DURING THE COURSE OF HEA RING BEFORE US, IT WAS BROUGHT TO THE NOTICE OF THE BENC H THAT ON IDENTICAL SET OF FACTS THE I.T.A.T., CHANDIGARH BENCH IN THE CASE OF ITO(TDS), PATIALA VS. SHRI O.P. GUPTA (HUF) IN ITA NOS.341 & 342/CHD/2016 DATED 20.6.2016 DELET ED THE LEVY OF PENALTY UNDER SECTION 271CA OF THE ACT. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. 8. WE HAVE GONE THROUGH THE ORDER OF THE ITAT IN THE CASE OF SH. OM PRAKASH GUPTA HUF IN ITA NO. 341 AND 342/CHANDIGARH/2016 DATED 20.06.2016. WE FIND THAT THE FACTS IN THAT CASE ARE IDENTICAL TO THAT IN THE PRESENT CASE, IN THAT THE ASSESSEE IN THE SAID CASE WAS ALS O IN THE BUSINESS OF PURCHASE AND SALE OF OLD IRON SCRAP AND THOUGH TAX HAD BEEN COLLECTED BY THE PARTIES FROM W HOM THE ASSESSEE HAD PURCHASED SCRAP, YET THE ASSESSEE HAD FAILED TO COLLECT TAX AT SOURCE ON SALES MADE BY IT AND THEREFORE PENALTY UNDER SECTION 271CA WAS LEVIED. LD. CIT (APPEALS) IN THE SAID CASE, WE FIND, DELETED THE PE NALTY LEVIED SINCE HE FOUND THAT THE PURCHASERS OF SCRAP FROM THE ASSESSEE HAD DISCLOSED THE SAME IN THEIR RETUR NS OF INCOME AND PAID DUE TAXES THEREON AND THE ASSESSEE HAD 6 THEREFORE NOT BEEN TREATED AS AN ASSESSEE IN DEFAUL T FOR NON-COLLECTION OF TAX AT SOURCE. LD. CIT( APPEALS) FOLLOWED THE DECISION OF THE BANGALORE BENCH IN THE CASE OF WIPRO GE MEDICAL SYSTEMS LTD AND HELD THAT THERE W AS REASONABLE CAUSE FOR NOT LEVYING PENALTY SINCE SUFF ICIENT COMPLIANCE HAD BEEN MADE AS THE TAX DEMAND HAD ALRE ADY BEEN PAID. THE ITAT IN ITS ORDER, CONCURRED WITH TH E FINDINGS OF THE CIT(APPEALS) AND FURTHER HELD THAT THE BELIEF OF THE ASSESSEE THAT THE GOODS SOLD BY IT WE RE NOT COVERED IN THE DEFINITION OF SCRAP THOUGH NOT ACCEP TED BY THE CIT( APPEALS) ON MERIT, CONSTITUTED REASONABLE CAUSE FOR FAILURE TO COMPLY WITH THE PROVISIONS OF LAW. THE ORDER OF THE CIT( APPEALS) WAS THEREFORE UPHELD BY THE IT AT. THE RELEVANT PARAS OF THE ITAT ORDER, DELETING THE LEVY OF PENALTY ARE AS UNDER: 5. AFTER CONSIDERING RIVAL SUBMISSIONS, I AM NOT INCLINED TO INTERFERE WITH THE ORDER OF THE LD. CIT(APPEALS) IN CANCELING THE PENALTY. THE LD. CIT(APPEALS) HAS RECORDED SPECIFIC FINDING OF FACT THAT ASSESSEE FURNISHED COMPLETE DETAILS OF SALES OF SCRAP MADE TO VARIOUS TRADERS ALONGWITH COPIES OF THEIR INCOME TAX RETURNS OF RELEVANT ASSESSMENT YEAR PROVING THAT PAYMENT OF DUE TAXES HAVE BEEN MADE BY THE RESPECTIVE PURCHASERS. IT WAS ALSO RECORDED THAT NO DEMAND ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE HAS BEEN RAISED BY THE ASSESSING OFFICER AND ONLY INTEREST HAS BEEN CHARGED. IT IS, THEREFORE, CLEARLY ESTABLISHED THAT REVENUE DEPARTMENT HAS NOT TREATED THE ASSESSEE AS ASSESSEE IN DEFAULT AS FAR AS TCS IS CONCERNED. THE LD. CIT(APPEALS) WAS, THEREFORE, JUSTIFIED IN FOLLOWING DECISION OF 7 BANGLORE BENCH IN THE CASE OF WIPRO GE MEDICAL SYSTEMS LTD. IN WHICH THE TRIBUNAL HAS CONSIDERED REASONABLE CAUSE FOR NOT LEVYING THE PENALTY WHEN SUFFICIENT COMPLIANCE WAS MADE BECAUSE OF THE TAX DEMAND HAD ALREADY BEEN PAID. SINCE TAXES HAVE ALREADY BEEN PAID BY THE BUYERS AND THERE WAS NO TAX DEMAND REMAINED. THEREFORE, LD. CIT(APPEALS) CORRECTLY HELD THAT THERE WAS REASONABLE CAUSE FOR FAILURE TO COMPLY WITH PROVISIONS OF LAW. FURTHER, THE ASSESSEE SINCE BEGINNING HAS BEEN CLAIMING THAT ASSESSEE IS NOT COVERED BY THE DEFINITION OF SCRAP IN TERMS OF SECTION 206C OF THE ACT. THE EXPLANATION OF THE ASSESSEE WAS SUPPORTED BY ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF NAVINE FLOURINE INTERNATIONAL LTD. V ACIT (SUPRA). EVEN THOUGH THE LD. CIT(APPEALS) DID NOT ACCEPT THIS CONTENTION OF THE ASSESSEE ON MERIT BUT THE FACTS DISCUSSED ABOVE CLEARLY CONSTITUTE THAT THERE WAS A REASONABLE CAUSE FOR FAILURE TO COMPLY WITH PROVISIONS OF LAW. SINCE, THERE IS NO DEMAND ARISES AGAINST THE ASSESSEE AND ALL TAXES HAVE BEEN PAID AND NO LOSS TO REVENUE HAVE BEEN CAUSED, THEREFORE, IT IS NOT A FIT CASE FOR LEVY OF PENALTY AGAINST THE ASSESSEE. HON'BLE DELHI HIGH COURT IN THE CASE OF WOODWARD GOVERNOR INDIA P.LTD. VS CIT 253 ITR 745 HELD AS UNDER : LEVY OF PENALTY UNDER SECTION 271C OF THE INCOME-T AX ACT, 1961, FOR FAILURE TO DEDUCT TAX AT SOURCE, IS NOT AUT OMATIC. IN ORDER TO BRING IN APPLICATION OF SECTION 271C, IN THE BACKDROP OF THE OVERRIDING NON OBSTANTE CLAUSE IN SECTION 273 B, ABSENCE OF REASONABLE CAUSE, EXISTENCE OF WHICH HAS TO BE ESTABLISHED, IS A SINE QUA NON. BEFORE LEVYING PENALT Y, THE CONCERNED OFFICER IS REQUIRED TO FIND OUT THAT EVEN IF THERE WAS ANY FAILURE TO DEDUCT TAX AT SOURCE, THE SAME WAS 8 WITHOUT REASONABLE CAUSE. THE INITIAL BURDEN IS ON THE ASSESSEE TO SHOW THAT THERE EXISTS REASONABLE CAUSE WHICH WAS THE REASON FOR THE FAILURE. THERE- AFTER, THE O FFICER HAS TO CONSIDER WHETHER THE EXPLANATION OFFERED BY THE ASS ESSEE OR OTHER PERSON AS REGARDS THE REASON FOR FAILURE, WAS O N ACCOUNT OF REASONABLE CAUSE. 6. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE DISCUSSION AND FINDINGS RECORDED BY LD. CIT(APPEALS), I DO NOT FIND ANY MERIT IN THE APPEALS OF THE REVENUE. BOTH APPEALS OF THE REVENUE ARE, ACCORDINGLY, DISMISSED. 9. AS STATED ABOVE THE FACTS IN THE PRESENT CASE A RE IDENTICAL TO THAT IN THE ABOVE CASE. THE ASSESSEE IN THE PRESENT CASE IS ALSO A DEALER OF IRON SCRAP WHO HAS PURCHASED SCRAP BY PAYING TAX COLLECTED AT SOURCE B UT ON SALE OF SCRAP IT HAS FAILED TO COLLECT TAX AT SOURC E. IN THE PRESENT CASE ALSO THE LD. CIT(APPEALS) HAS RECORDED SPECIFIC FINDING OF FACT THAT THE ASSESSEE HAD FURN ISHED COMPLETE DETAILS OF SALE OF SCRAP MADE TO VARIOUS T RADERS ALONG WITH COPIES OF THE INCOME TAX RETURNS OF RELE VANT ASSESSMENT YEAR PROVING THAT PAYMENT OF DUE TAXES H AD BEEN MADE BY THE RESPECTIVE PURCHASERS. IT WAS ALS O RECORDED THAT NO DEMAND ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE HAD BEEN RAISED BY THE ASSESSING OFFI CER AND ONLY INTEREST HAD BEEN CHARGED THEREFORE CLEARLY TH E REVENUE HAD NOT TREATED THE ASSESSEE AS AN ASSESSEE IN DEFAULT AS FAR AS TCS IS CONCERNED. FURTHER IN THE PRESENT CASE ALSO THE ASSESSEE SINCE BEGINNING HAS BEEN CLA IMING THAT THAT THE GOODS SOLD BY IT DID NOT QUALIFY AS S CRAP AS DEFINED IN THE EXPLANATION TO SECTION 206C OF THE I NCOME 9 TAX ACT, 1961. THE ASSESSEE HAS CLAIMED THAT IT HA D PURCHASED GOODS BEING ALUMINIUM CABLES, CSR CONDUC TOR, TRANSFORMERS, PARTS OF THE ABOVE-MENTIONED TRANSFOR MERS AND ELECTRIC OR ELECTRONIC METERS WHICH WERE MEANT FOR FURTHER USE TO THE CONSUMERS, FROM M/S PUNJAB STATE POWER CORPORATION LIMITED AND GOODS BEING TRACTION GENERATOR MOTORS AND COPPER PARTS OF DIESEL GENERAT OR MOTORS WHICH ALSO WERE USABLE BY THE CONSUMERS FRO M M/S DIESEL LOCOMOTIVE MODERNISATION WORKSHOP BOTH O F WHICH WERE NOT ENGAGED IN ANY MANUFACTURING ACTIVIT Y OF THE GOODS. THE ASSESSEE STATED THAT THE DESCRIPTIO N AND DETAILS OF THE GOODS WOULD SHOW THAT THEY HAD NOT A RISEN OUT OF ANY MANUFACTURING ACTIVITY OR AS A RESULT OF ANY MECHANICAL WORKING OF ANY MATERIAL IN THE HANDS OF THE SELLERS. FURTHER THE GOODS HAD BEEN PURCHASED FROM THE ABOVE SELLERS AND DISPOSED OF BEING OF NO USE TO TH EM. THE ASSESSEE STATED THAT THE GOODS WERE REUSABLE AS SUCH AND HAD BEEN DISPOSED OF AS SUCH. THEREAFTER REFERR ING TO THE DEFINITION OF SCRAP GIVEN IN THE EXPLANATION TO SECTION 206C, THE ASSESSEE STATED THAT FOR THE PURPOSES OF SECTION 206C SCRAP MEANT WASTE AND SCRAP OBTAINED FROM MANUFACTURE OR MECHANICAL WORKING OF MATERIAL WHICH WAS NOT USABLE AS SUCH BECAUSE OF BREAK AGE WEAR AND TE AR AND OTHER REASONS. THE ASSESSEE STATED THAT CONSID ERING THE FACTS OF THE GOODS PURCHASED AND SOLD BY IT AN D THE DEFINITION OF SCRAP GIVEN IN THE EXPLANATION TO SEC TION 206C, THE ASSESSEE BELIEVED THAT THE GOODS DID NOT QUALIFY AS SCRAP FOR THE PURPOSE OF TAX COLLECTION AT SOURC E UNDER 10 SECTION 206C, WHICH WAS REASONABLE BELIEF BEING NE ITHER ILLOGICAL OR IRRATIONAL, AND THEREFORE NO TAXES HAD BEEN COLLECTED AT SOURCE ON THE SALE MADE OF THESE GOODS . THE RELEVANT SUBMISSIONS MADE BY THE ASSESSEE DURING PE NALTY PROCEEDINGS VIDE ITS LETTER DATED 29/05/2013 ARE REPRODUCED HEREUNDER: 2.1 SCRAP HAS BEEN DEFINED IN THE EXPLANATION TO SEC. 2 06C, WHICH IS REPRODUCED HEREUNDER FOR PERUSAL OF YOUR G OODSELF. (B)'SCRAP' MEANS WASTE AND SCRAP FROM THE MANUFACTU RE OR MECHANICAL WORKING OF MATERIALS WHICH IS DEFINITELY NOT USABLE AS SUCH BECAUSE OF BREAKAGE, CUTTING UP, WEAR AND OTHER REASONS. THE ORDINARY MEANING OF SCRAP AND WASTE AS PROVIDED IN OXFORD ENGLISH DICTIONARY, WHICH HAS SIMILARITY IN WORDS, IS, AS UNDER (I)SCRAP - SMALL PIECE OR AMOUNT OF SOMETHING ESPECIALLY ONE THAT IS LEFTOVER AFTER GREATER PART HAS BEEN USED - MATERIAL DISCARD ED FOR REPROCESSING. (II)WASTE - ELIMINATED OR DISCARDED AS NO LONGER USEFUL OR RE QUIRED. THUS, 'WASTE AND SCRAP' MEANS SOMETHING LEFT BEHIND FROM THE BIGGER PART WHICH WAS NO MORE SERVICEABLE. THE EXPLANATION TO SECTION 206C OF THE INCOME-TAX A CT PROVIDES THE MEANING OF SCRAP, MEANS 'WASTE AND SCR AP' OBTAINED FROM MANUFACTURE OR MECHANICAL WORKING OF MATERIAL WHICH IS DEFINITELY NOT USABLE AS SUCH BECAUSE OF BREAKAGE, CUTTING UP, WEA R AND OTHER REASONS. IN THE ABOVE DEFINITION THE IMPORTANT WORDS USED IN TH E DEFINITION OF SCRAP ARE 'WASTE AND SCRAP' - 'FROM MANUFACTURE' AND 'WHICH I S'. THE WORD 'WASTE AND SCRAP' ARE SINGULAR AND ONE ITEM. THEREAFTER, T HE WORD USED IS 'FROM' THE MANUFACTURE OR MECHANICAL WORKING OF MATERIAL. IT W OULD MEAN THAT THE WASTE AND SCRAP BEING ONE ITEM SHOULD ARISE FROM TH E MANUFACTURE OR MECHANICAL WORKING OF MATERIAL. IT IS, THEREFORE, N ECESSARY TO READ THE WORDS WASTE AND SCRAP TOGETHER WHICH ARE GENERATED OUT OF MANUFACTURING PROCESS AND SHOULD HAVE DIRECT NEXUS WITH THE MANUFACTURING OR MECHANICAL WORKING OF MATERIAL. THEREAFTER, THE WORD USED IS 'WHICH IS ' DEFINITELY NOT USABLE. 3.1 DURING THE PERIOD UNDER REFERENCE, THE ASSESSEE HAD PURCHASED GOODS FROM M/S. PUNJAB STATE POWER CORPORATION LIMI TED (HEREINAFTER REFERRED TO AS 'PSPCL'), AS DETAILED HEREUNDER: 11 A)ALLUMINIUM CABLES (MEANT FOR TRANSMISSION OF ELECTRICAL ENERGY TO THE CONSUMER), B)ACSR CONDUCTOR (MEANT FOR TRANSMISSION OF ELECTRICAL ENERGY FROM POINT OF GENERATION THROUGH VARIOUS STAGES TO THE P OINT OF CONSUMER), C)TRANSFORMERS (MEANT FOR TRANSMISSION OF ELECTRICAL ENERGY BY CONVERTING AND STABILISING THE SAME FROM HIGH VOLTAGE TO LOWER LEV EL), D)PARTS OF THE ABOVE MENTIONED TRANSFORMERS, AND E)ELECTRIC/ELECTRONIC METERS (MEANT FOR RECORDING CONSUMPTION OF ELECTRICAL ENER GY TO THE CONSUMERS). IT IS WELL KNOWN THAT M/S. PSPCL IS ENGAGED IN GENE RATION AND DISTRIBUTION OF ELECTRICAL ENERGY AND TO THE KN OWLEDGE OF THE ASSESSEE IT IS NOT ENGAGED IN ANY MANUFACTURING ACTIVITY OF THE GOODS. THE PERUSAL OF THE DESCRIPTION AND DETAILS OF ABOVE MENTIONED GOOD S SHALL REFLECT THAT THESE GOODS HAVE NOT ARISEN OUT OF ANY MANUFACTURIN G ACTIVITY OR AS A RESULT OF ANY MECHANICAL WORKING OF ANY MATERIALS EVEN IN THE HANDS OF THE ABOVE MENTIONED SELLER. THESE GOODS HAD CERTAINLY BEEN PU RCHASED BY THE ABOVE SELLER AS SUCH AND HAD BEEN DISPOSED OF BEING NO MO RE OF USE TO THEM. PERTINENT TO MENTION HERE IS THE FACT THAT MOST OF THESE GOODS LIKE ALLUMINMM CABLES, ACSR CONDUCTORS, TRANSFORMERS AND TRANSFORMER PARTS, ETC. WERE REUSABLE AS SUCH AND MOST OF THESE GOODS HAD BEEN DISPOSED OF AS SUCH. 3.2 THE ASSESSEE HAD ALSO PURCHASED GOODS FROM M/S. DIESEL LOCOMOTIVE MODERNISATION WORKSHOP (HEREINAFTER REFE RRED TO AS 'DMW), DURING THE PERIOD UNDER REFERENCE, AS DETAILED HERE UNDER: A) TRACTION GENERATION MOTORS AND B) COPPER PARTS OF DIESEL GENERATORS/MOTORS. AGAIN 'M/S. DMW IS NOT ENGAGED IN MANUFACTURING ACT IVITY OF THE ABOVE GOODS AT PATIALA. THESE GOODS CAN IN NO MANNE R BE CALLED AS 'WASTE AND SCRAP' WHICH HAD ARISEN OUT OF ANY MANUFACTURIN G ACTIVITY OR AS A RESULT OF ANY MECHANICAL WORKING OF ANY MATERIALS EVEN IN THE HANDS OF THE ABOVE MENTIONED SELLER. 3.3 THE LIST OF GOODS PURCHASED BY THE ASSESSEE AND FURTHER SOLD HAS BEEN REPRODUCED IN FOREGOING PARAGRAPHS AND ITS PER USAL SHALL REFLECT THAT THESE DEFINITELY ARE NOT CONNECTED WITH MANUFACTURE OR MECHANICAL WORKING 12 OF MATERIAL. THE ASSESSEE IS ADMITTEDLY NOT ENGAGED IN MANUFACTURING AND LIST OF SCRAP ITEMS NOTED ABOVE WOULD INDICATE THAT SAME HAD NOT ARISEN OUT OF MANUFACTURING OR MECHANICAL WORKING OF MATER IAL. BY THE NATURE OF THE SCRAP ITEMS NOTED ABOVE, THE SAME CANNOT BE SAID TO HAVE BEEN USED FOR MANUFACTURING OF ELECTRICAL ENERGY IN THE HANDS OF PSPCL OR MANUFACTURING OF LOCOMOTIVES/PARTS BY DMW OR DOING ANY MECHANICAL WORKING OF THE MATERIAL FOR THE ABOVE PURPOSE. THE ITEMS OF THE SCRAP IN THE CASE OF THE ASSESSEE WOULD NOT FORM PART OF THE DEF INITION OF THE SCRAP AS IS PROVIDED IN EXPLANATION (B) TO SECTION 206C OF THE INCOME-TAX ACT. THUS, THE EXPLANATION HAS WRONGLY BEEN APPLIED IN THE CAS E OF THE ASSESSEE TO DECLARE HIM AS ASSESSEE IN DEFAULT. 4.1 THE ASSESSEE, DURING THE PERIOD UNDER REFERENCE HAD SOLD 'TRACTION GENERATOR MOTORS, ALLUMINIUM WIRES, TRANS FORMERS (DAMAGED), LAMINATION CORE (PART OF TRANSFORMERS), COPPER WIRE , BRASS METAL PATS AND OTHER SUCH ITEMS WHICH ARE DEFINITELY REUSABLE BESIDES PVC SCRAP SEPARATED FROM CABLES, LEAD EXTRACTED FROM ELECTRIC AL GOODS AND IRON GOODS (SCRAP). WHILE FURTHER SELLING THESE GOODS TO THE CUSTOMERS, THE ASSESSEE HAD NOT DEDUCTED/COLLECTED TAX AT SOURCE A S THESE GOODS WERE NOT SCRAP AS EXPLAINED HEREINABOVE AND THEREFORE THE GO ODS IN QUESTION WERE NOT LIABLE TO TAX DEDUCTION/COLLECTION AT SOURCE, MORE SO IN VIEW OF THE FACT THAT THESE GOODS ARE REUSABLE. YET THE LD. I.T.O., TDS, PATIALA, HAS CHOOSEN TO HOLD THE ASSESSEE AS AN ASSESSEE IN DEFAULT AND FOR ARRIVING AT SUCH CONCLUSION, THE LD. OFFICER HAS MADE THE OBSERVATIO N THAT THE ASSESSEE DEDUCTOR DEALS IN PURCHASE AND SALE OF IRON SCRAP A ND THAT THE SELLERS HAD COLLECTED TAX AT SOURCE FROM THE ASSESSEE WHILE MAK ING SALES OF ABOVE GOODS TO HIM. THE OBSERVATIONS HAVE BEEN MADE ON WRONG AP PRECIATION OF FACTS, AS EXPLAINED IN FORGOING PARAGRAPHS. 10. ONGOING THROUGH THE ABOVE WE FIND THAT THE BELIEF HARBOURED BY THE ASSESSEE, CONSIDERING THE F ACTS NARRATED ABOVE CONSTITUTED A REASONABLE BELIEF WHIC H AN ORDINARY PERSON IN THE PREVAILING CIRCUMSTANCES WOU LD HAVE HARBOURED. IT IS NOT THE CASE THAT THE ASSESSE E WAS FOUND LIABLE TO COLLECT TAX AT SOURCE ON THE GOODS SOLD BY IT SINCE THE GOODS WERE CATEGORICALLY FOUND TO QUAL IFY AS 13 SCRAP AS SUCH, AS PROVIDED IN THE DEFINITION OF THE SAME IN THE EXPLANATION TO SECTION 206C. IN FACT THE ASSES SEE WAS FOUND LIABLE TO COLLECT TAX AT SOURCE SINCE THE ASS ESSEE HAD ACCEPTED THE SAME AS SCRAP HAVING PAID TAXES O N THE SAME WHILE PURCHASING THE GOODS AND HAVING NOT CATEGORICALLY ESTABLISHED THAT THE GOODS WERE NOT I N THE NATURE OF SCRAP. IN SUCH CIRCUMSTANCES, WHERE AS A MATTER OF FACT IT HAS NOT BEEN CATEGORICALLY ESTABLISHED T HAT THE GOODS WERE SCRAP AND WASTE AS SUCH WHICH COULD NOT BE USED FURTHER, THE FACTS NARRATED BY THE ASSESSEE , WHICH WE FIND HAD NOT BEEN CONTROVERTED BY THE REVENUE, R EVEAL THAT THE ASSESSEE HARBOURED AN HONEST BELIEF BASED ON REASONABLE GROUNDS THAT THE GOODS SOLD WERE NOT SCR AP. THE SAME CONSTITUTED REASONABLE CAUSE FOR NOT COLLE CTING TAX AT SOURCE EVEN THOUGH THE LD. CIT( APPEAL) DID NOT ACCEPT THIS CONTENTION OF THE ASSESSEE ON MERIT. T HE HONBLE DELHI HIGH COURT IN THE CASE OF WOODWARD GOVERNOR INDIA PRIVATE LIMITED VS CIT AND OTHERS 2 53 ITR 745 HAS DEFINED REASONABLE CAUSE AS FOLLOWS: 'REASONABLE CAUSE' AS APPLIED TO HUMAN ACTION IS TH AT WHICH WOULD CONSTRAIN A PERSON OF AVERAGE INTELLIGENCE AND ORDI NARY PRUDENCE. IT CAN BE DESCRIBED AS A PROBABLE CAUSE. IT MEANS AN HONES T BELIEF FOUNDED UPON REASONABLE GROUNDS, OF THE EXISTENCE OF A STATE OF CIRCUMSTANCES, WHICH ASSUMING THEM TO BE TRUE, WOULD REASONABLY LEAD ANY ORDINARILY PRUDENT AND CAUTIOUS MAN, PLACED IN THE POSITION OF THE PER SON CONCERNED, TO COME TO THE CONCLUSION THAT SAME WAS THE RIGHT THING TO DO. THE CAUSE SHOWN HAS TO BE CONSIDERED AND ONLY IF IT IS FOUND TO BE FRIV OLOUS, WITHOUT SUBSTANCE OR FOUNDATION, THE PRESCRIBED CONSEQUENCES FOLLOW. 14 11. IN VIEW OF THE SAME WE AGREE WITH THE LD.CIT(A ) THAT THE ASSESSEE HAD REASONABLE CAUSE FOR NOT COLL ECTING TAX AT SOURCE ,THE ABSENCE OF WHICH IS ESSENTIAL FO R LEVYING PENALTY AS HELD BY THE DELHI HIGH COURT IN THE CAS E OF WOODWARD GOVERNOR (SUPRA). WE THEREFORE UPHOLD THE ORDER OF THE LD. CIT( APPEAL) DELETING THE LEVY OF PENALTY UNDER SECTION 271CA OF THE ACT. THE APPEAL OF THE R EVENUE IS ACCORDINGLY DISMISSED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 TH DECEMBER, 2016 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH