Income Tax Appellate Tribunal - Chandigarh
Sh. Makhan Lal Gupta, Mandi Gobindgarh vs Ito (Tds), Patiala on 13 July, 2017
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. Rajas than I ron 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 being 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 asessee's 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 206C(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 order qua the 'initiation' of penalty u/s 271CA is misuse of jurisdiction pursuant KPC Medical 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.
24. 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 him. During the assessment proceedings, the assessing officer issued a show cause notice to the appellant as to why he should not be treated as assessee in default u/s 206C(1)/206C(7) for non collection of tax 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 in subsequent proceedings, the assessee filed his reply contesting the proposed action of the assessing officer by stating that the goods in question were not scrap in terms of Section 206C of the Act Since assessee failed to do so, the assessing officer by treating the appellant as assessee in default u/s 206C(1) imposed TCS liability @ 1% and charged interest at an average rate of 13%
5. Before the Ld. CIT(A) the appellant submitted his 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 purchased 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 unserviceable rail line in place of girders in their roofs, because the same costs cheaper to them as compare to girders.
b) The unserviceable rail line is also used as poles 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 the sale was not scrap. Scrap cannot be sold in term of length. Thus, it is quite evidence that appellant purchased old rail line and not scrap.
The learned Income Tax Officer has wrongly mentioned in the assessment order that the appellant is engaged in the business of purchase and sale of old iron scrap (first page of the assessment order). There is not a single purchase or sale bill of scrap. The learned Income Tax Officer wrongly presumed that the appellant deals in old iron scrap.
The learned Income Tax Officer has applied judgement 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 material. The appellant sold the rolling material in the same condition in which the same was purchase by the appellant.
During the assessment proceedings request was made in the then Income Tax Officer and Joinit Commissioner of Income Tax Chandigarh to inspect the material purchased by me from railway department. After inspection 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 under the definition of scrap as given in section 206(c)(11) explanation (b). Thus, the appellant 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 Railway and which is classified as scrap by the Railway Authorities. However, while selling the same material to the traders, the appellant had treated this material as raw material and made no TCS on it. The AO has treated the appellant in default 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 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 appellant was not required to furnish form 27C obtained from the manufacturers. The 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. Also, the 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 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, 1961.
8. Before us the ld.AR argued that the material which was purchased from the Indian Railways areloose rolling material and rails. We have gone through the facts of the case.
48.1 As per Explanation (b) to Section 206C of the Act, "Scrap" has been defined as under:
"(b) " Scrap" means waste and scrap from the manufacture 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 mechanical working of material;
ii) It is definitely not usable as such;
iii) It is unusable because of breakage, cutting up, wear and other reasons.
9. In the fact of this case the item purchased by the assessee neither falls in the category of waste and scrap from the manufacturer nor mechanical working of material. Further the material is also usable 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 they were not waste and scrap as such the items were useful and therefore did 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 Ltd. Vs. ITO [2013] 85 DTR 0121(ASR) held that the material which is definitely 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 Navine 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 mechanical working of material which Is definitely not usable as such because of breakage, cutting up, wear and other reasons"-Word "waste and scrap" are one item and thereafter, the word used is "from" the manufacture or mechanical working of material which would mean that the waste and scrap should arise from the manufacture or mechanical working of material-waste and scrap should 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 required to deduct tax under S. 206C(6) of the IT Act on the items of scrap as noted above. Resultantly, no interest could be charged under s. 206C(7) of the IT Act.
5We accordingly, set aside the orders of the authorities 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. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER AG Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The Departmental Representative