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

ITA 560/CHANDI/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3801 (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

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.560/CHD/2016 (ASSESSMENT YEAR : 2011-12) THE INCOME TAX OFFICER(TDS), VS. SH.TARSEM LAL PROP. PATIALA. M/S B.T STEELS (INDIA), AMLOH ROAD, MANDI GOBINDGARH. TAN: PTLT11152B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANJIT SINGH, DR RESPONDENT BY : NONE 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 4.2.2016 FOR ASSESSMENT YE AR 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 COLLECTION IN COMPLIANCE WITH THE PROVISIONS OF 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 DEM AND ON ACCOUNT OF NON-COLLECTION OF TAX AT SOURCE HAS BE EN RAISED BY THE AO, THE ACTION OF THE AO CLEARLY ESTABLISHMENT 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 APPELLANT ARE COVERED IN THE DEFINITION OF SCRAP IN THE TERMS OF THE EXPLANATION (B) TO THE SECTION 20 6C OF THE I.T. ACT, 1961 AND ITS SALE IS LIABLE FOR TCS NOT ONLY AT THE 1 ST STAGE BUT ALSO AT EACH STAGE OF SALE AS PROVIDED IN SECTION 206C OF THE I. T. ACT, 1961. (III) THE LD.CIT(A) IS ERRED IN DELETING PENALTIES 271 CA R.W..S. 274 OF THE I.T. ACT, 1961 IGNORING THAT NEITHE R THE ASSESSEE DEDUCT THE COLLECTED TAX AT SOURCE WHI LE SELLING OLD IRON SCRAP NEITHER COLLECTED FORM NO. 27C FROM THE BUYER IN THE DUPLICATE AT THE TIME OF SALE A ND DEPOSITED TO THE INCOME TAX DEPARTMENT ON OR BEFORE 7 TH DAY OF NEXT MONTH IN WHICH SALE OF SCRAP WAS MADE. (IV) THE LD.CIT(A) IS ERRED IN DELETING THE PENALTY U /S 271CA FOR NON-COLLECTION TAX AT SOURCE U/S 206C IGNORING THE FACT THAT THE ASSESSEE HAS COMMITTED DEFAULT FOR NON COLLECTION OF TAX AT SOURCE AS REQU IRED UNDER THE PROVISIONS OF SECTION 206 OF THE I.T. ACT, 1961. (V) THE LD.CIT(A) IS ERRED IN DELETING THE PENALTY U/S 271CA IGNORING THAT THE ASSESSEE CONTINUOUSLY DENYING FROM THE START TO THE END THAT HE HAD PURCHASED SCRAP EVEN IN THE AUCTION SELLERS HAS CLASSIFIED THE MATERIAL AS SCRAP. 3 3. THE ONLY GRIEVANCE OF THE REVENUE IN THE PRESEN T APPEAL IS AGAINST THE ACTION OF THE CIT (APPEALS) I N DELETING THE PENALTY LEVIED UNDER SECTION 271CA OF THE INCOME TAX ACT, 1961 FOR DEFAULT IN COLLECTION OF T AX AT SOURCE. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS AN INDIVIDUAL. HE IS RUNNING THE BUSINESS OF PUR CHASE AND SALE OF OLD IRON SCRAP. THOUGH ON PURCHASE OF T HE SCRAP, THE TAX WAS BEING COLLECTED BY THE PARTIES F ROM THE ASSESSEE HAD MADE PURCHASES YET ON THE SALE OF THI S SCRAP, THE ASSESSEE HAD NEITHER COLLECTED TAX AT SO URCE NOR DEPOSITED THE SAME INTO GOVERNMENT ACCOUNT, AS REQU IRED UNDER SECTION 206C(1) OF THE I. T. ACT, 1961. THERE FORE, PENALTY PROCEEDINGS UNDER SECTION 271CA OF THE I. T . ACT, 1961 WERE INITIATED. THE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE ON 03.05.2013 AS TO WHY PENALTY UNDER SECTION 271CA OF THE INCOME TAX ACT MAY NOT BE IMPO SED AS THE ASSESSEE HAD FAILED TO COLLECT TCS ON SALE O F SCRAP DURING THE FINANCIAL YEAR 2010-11 AS REQUIRED UNDER THE PROVISIONS OF SECTION 206C OF THE ACT. IN RESPONSE TO SHOW CAUSE NOTICE THE ASSESSEE FILED HIS REPLY ON 14.10. 2013 AND RELIED ON A JUDGEMENT IN THE CASE OF WIPRO GE M EDICAL SYSTEMS LTD (2005) 24 CCH 0001 BANGALORE TRIBUNAL G IVEN BY HONBLE I.T.A.T. THE ASSESSING OFFICER DID NOT A CCEPT THE SAID JUDGEMENT FOR THE REASON THAT THE SAME HAD NOT REACHED FINALITY AND CHOSE TO FOLLOW CBDT LETTER F.NO.275/17/2013-IT(B) DATED 16.7.2013 WITH REGARD TO 4 THE APPLICATION OF SECTION 206C. SINCE THE ASSESSE E DEDUCTOR HAD NOT COLLECTED TCS AT THE RATE OF 1% ON SALES OF RS.5,45,66,201/- AS REQUIRED UNDER THE PROVISION S OF CHAPTER XVII BB OF THE INCOME TAX ACT, 1961 AND ALS O FAILED TO SUBMIT ANY REASONABLE CAUSE FOR NON COLLE CTION OF TAX AT SOURCE, THE ASSESSING OFFICER HELD THAT THE ASSESSEE WAS LIABLE TO PAY, BY WAY OF PENALTY UNDER SECTION 271CA A SUM EQUAL TO THE AMOUNT OF TAX WHICH HE FAILED TO COLLECT AT SOURCE. 5. 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 6.2 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 W ITHIN THE DEFINITION OF SCRAP AS PROVIDED IN EXPLANATION TO SECTION 206C OF THE ACT.THE ASSESSEE CONTENDED THAT THE GOODS SOLD HAD NOT ARISEN OUT OF MANUFACTURING OR MECHANICAL WORK OF MATERIAL IN HAND AND ALSO THA T THE ITEMS WERE RE-USABLE AND HAD BEEN DISPOSED OFF AS SUCH, THEREFORE THEY DID NOT QUALIFY AS SCRAP FO R THE PURPOSE OF TAX COLLECTION AT SOURCE ON SALE. 2. THAT SINCE NO DEMAND WAS RAISED ON THE ASSESSEE, HE WAS NOT AN ASSESSEE IN DEFAULT FOR THE 5 PURPOSE OF SECTION 206C AND, THEREFORE 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. 6. 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 T HE 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. THUS, THE LD. CIT (APPEALS) DELETED THE PENALTY LEV IED BY THE ASSESSING OFFICER. 6 7. 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. 8. 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. 9. 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. L D. CIT(APPEALS) IN THE SAID CASE, WE FIND, DELETED THE PENALTY 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 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 7 GE MEDICAL SYSTEMS LTD AND HELD THAT THERE WAS 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 C AUSE FOR FAILURE TO COMPLY WITH THE PROVISIONS OF LAW. THE ORDER OF THE CIT( APPEAL) WAS THEREFORE UPHELD BY THE ITA T. THE RELEVANT PARA OF THE ITAT ORDER, DELETING THE LEVY OF PENALTY IS 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 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 8 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 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 9 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. 10. AS STATED ABOVE THE FACTS IN THE PRESENT CASE ARE 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 HAS BEEN CLAIMING THAT THE GOODS SOLD BY IT DID NOT QUALIFY AS SCRAP AS DEFINED IN T HE EXPLANATION TO SECTION 206C OF THE INCOME TAX ACT, 1961. THE ASSESSEE HAS CLAIMED THAT IT HAD PURCHASED GOOD S BEING ALUMINIUM CABLES, CSR CONDUCTOR, TRANSFORMERS , PARTS OF THE ABOVE-MENTIONED TRANSFORMERS AND ELECT RIC OR 10 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 A ND COPPER PARTS OF DIESEL GENERATOR MOTORS WHICH ALSO WERE USABLE BY THE CONSUMERS FROM M/S DIESEL LOCOMOTIVE MODERNISATION WORKSHOP BOTH OF WHICH WERE NOT ENGAG ED IN ANY MANUFACTURING ACTIVITY OF THE GOODS. THE AS SESSEE STATED THAT THE DESCRIPTION AND DETAILS OF THE GOOD S WOULD SHOW THAT THEY HAD NOT ARISEN OUT OF ANY MANUFACTUR ING ACTIVITY OR AS A RESULT OF ANY MECHANICAL WORKING O F ANY MATERIAL IN THE HANDS OF THE SELLERS. FURTHER THE GOODS HAD BEEN PURCHASED FROM THE ABOVE SELLERS AND DISPO SED OF BEING OF NO USE TO THEM. THE ASSESSEE STATED TH AT THE GOODS WERE REUSABLE AS SUCH AND HAD BEEN DISPOSED O F AS SUCH. THEREAFTER REFERRING TO THE DEFINITION OF SCR AP GIVEN IN THE EXPLANATION TO SECTION 206C, THE ASSESSEE ST ATED THAT FOR THE PURPOSES OF SECTION 206C SCRAP MEANT W ASTE AND SCRAP OBTAINED FROM MANUFACTURE OR MECHANICAL WORKING OF MATERIAL WHICH WAS NOT USABLE AS SUCH BE CAUSE OF BREAK AGE WEAR AND TEAR AND OTHER REASONS. THE ASSESSEE STATED THAT CONSIDERING THE FACTS OF THE GOODS PURCHASED AND SOLD BY IT AND THE DEFINITION OF SCR AP GIVEN IN THE EXPLANATION TO SECTION 206C, THE ASSESSEE BE LIEVED THAT THE GOODS DID NOT QUALIFY AS SCRAP FOR THE PU RPOSE OF TAX COLLECTION AT SOURCE UNDER SECTION 206C , WHIC H WAS REASONABLE BELIEF BEING NEITHER ILLOGICAL OR IRRAT IONAL ,AND THEREFORE NO TAXES HAD BEEN COLLECTED AT SOURCE ON THE SALE MADE OF THESE GOODS. THE RELEVANT SUBMISSIONS MADE 11 BY THE ASSESSEE ARE REPRODUCED AT PARA 6.2 OF THE C IT(A) ORDER. 11. WE FIND THAT THE BELIEF HARBOURED BY THE ASSESSEE, CONSIDERING THE FACTS NARRATED ABOVE CONS TITUTED A REASONABLE BELIEF WHICH AN ORDINARY PERSON IN THE PREVAILING CIRCUMSTANCES WOULD HAVE HARBOURED. IT I S NOT THE CASE THAT THE ASSESSEE WAS FOUND LIABLE TO COLL ECT TAX AT SOURCE ON THE GOODS SOLD BY IT SINCE THE GOODS W ERE CATEGORICALLY FOUND TO QUALIFY AS SCRAP AS SUCH, AS PROVIDED IN THE DEFINITION OF THE SAME IN THE EXPLA NATION TO SECTION 206C. IN FACT THE ASSESSEE WAS FOUND LI ABLE TO COLLECT TAX AT SOURCE SINCE THE ASSESSEE HAD ACCEPT ED THE SAME AS SCRAP HAVING PAID TAXES ON THE SAME WHILE PURCHASING THE GOODS AND HAVING NOT CATEGORICALLY ESTABLISHED THAT THE GOODS WERE NOT IN THE NATURE O F SCRAP. IN SUCH CIRCUMSTANCES, WHERE AS A MATTER OF FACT IT HAS NOT BEEN CATEGORICALLY ESTABLISHED THAT THE GOODS W ERE SCRAP AND WASTE AS SUCH WHICH COULD NOT BE USED FUR THER , THE FACTS NARRATED BY THE ASSESSEE , WHICH WE FIND HAD NOT BEEN CONTROVERTED BY THE REVENUE, REVEAL THAT THE A SSESSEE HARBOURED AN HONEST BELIEF BASED ON REASONABLE GRO UNDS THAT THE GOODS SOLD WERE NOT SCRAP. THE SAME CONSTI TUTED REASONABLE CAUSE FOR NOT COLLECTING TAX AT SOURCE E VEN THOUGH THE LD. CIT( APPEAL) DID NOT ACCEPT THIS CON TENTION OF THE ASSESSEE ON MERIT. THE HONBLE DELHI HIGH C OURT IN THE CASE OF WOODWARD GOVERNOR INDIA PRIVATE LIMITED VS 12 CIT AND OTHERS 253 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. 12. 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 O RDER OF THE LD. CIT(APPEALS) DELETING THE LEVY OF PENALT Y UNDER SECTION 271CA OF THE ACT. THE APPEAL OF THE REVENUE IS ACCORDINGLY DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 TH DECEMBER, 2016 13 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH