Income Tax Appellate Tribunal - Chandigarh
Sh. Rajinder Kumar, Mandi Gobindgarh vs Ito (Tds), Patiala on 26 July, 2017
1
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND
SHRI Dr. B.R.R. Kumar, ACCOUNTANT MEMBER
ITA Nos.189/Chd/2016
Assessment Years: 2012-13
Sh. Rajinder Kumar Vs. The I .T.O (TDS)
Prop. Ankush S teel I ndustries Patiala
Dharam Mill Road,
Mandi Gobindgarh(Punjab)
PAN No. ACI PK4283D
TAN No. PTLR10826E
(Appellant) (Respondent)
Assessee By : Shri. Vibhor Garg
Department By : Shri. S.K. Mittal
Date of hearing : 29/06/2017
Date of Pronouncement : 26/07/2017
ORDER
PER Dr. B.R.R. KUMAR, AM
The present appeal has been filed by the assessee against the order of Ld. CIT(A), Patiala dt. 12/01/2016.
2. In this appeal assessee has raised the following grounds:
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.
3. Brief facts of the case are that the assessee is engaged in the business of purchase and sale 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 Income Tax 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 2 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. Further, that these purchasers have duly recorded these purchases in their books of account and tax has been paid on resultant income. Not convinced, 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 on sale of Rs. 3,87,90,556/- for the period of default.
4. Before the Ld. CIT(A) the appellant submitted his argument as under:
The appellant, during the period under reference, had purchased various goods mainly from Indian Railways, as detailed hereunder:
a) Rail-Lines,
b) CST 9 Plates,
c) STS/eepers,
d) Tie-Bars,
e) Fish Plates with Nut Fittings.
The perusal of above list of goods purchased and further sold as such after segregation process, supports the belief of the appellant that these goods were not to be treated as 'Scrap' for subjecting it to TCS. The appellant is admittedly not engaged in manufacturing activity and list of scrap items noted above would indicate that same had not arisen out of manufacturing or mechanical working of material in his hands. Pertinent to mention here the fact that these goods, especially Rail-Lines were reusable as such. The assessee had disposed of these goods as such. Thus, the Explanation has wrongly been applied in the case of the appellant to hold him as person in default.....
It has been held by various judicial forums that these amendments are clarificatory in nature and, thus, retrospectively applicable. It is a matter of record that the appellant during the proceedings before the I.T.O., TDS, Patiala, had admittedly produced the requisite evidence in support of the alternate plea that he cannot be held as 'Person in default as the purchasing parties had taken into account ail the purchases for computing their incomes, while relying on the above referred amended provision of law. The I.T.O., TDS, Patiala, has not raised any tax demand in view of the evidence so produced, although granting relief on the judgement of Honble Apex Court in the case of Hindustan Coca Cola Beverages (P) Ltd. Vs CIJ (Supra)."
5. Before the LD.CIT(A), the assessee has furnished third party evidence in support of his claim that the material covered is not scrap.
6. The Ld. CIT(A) held that It is an admitted fact that the appellant has made sale of scrap material purchased in auction on which TCS is duly 3 collected by the Railways 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 no TCS had been made on it. The Assessing Officer has treated the assessee in default in respect of the sales made to traders and allowed the benefit in view of Forms No 27C, obtained from manufacturers, 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 and 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 explanation without any documentary evidence will not suffice. Holding thus the Ld.CIT(A) ,felt 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.
8. Before us the Ld.AR contested that the material was not 'Scrap' where as the Ld. DR. strongly relied on the orders of the lower authorities.
9. Heard the arguments of both the sides.
10. 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.4
11. 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".
12. 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 Section 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. We accordingly, set aside the orders of the authorities below and allow the appeal of the assessee.
9. In the result, the appeal of the assessee is allowed.
The order is pronounced on 26/07/2017 in the open Court.
Sd/- Sd/-
(DIVA SINGH) (Dr. B.R.R. KUMAR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
5
AG
Copy to: 1. The Appellant, 2.The Respondent, 3.The CIT 4.The CIT(A) 5.The DR