Income Tax Appellate Tribunal - Jaipur
Chandmal Sancheti, Jaipur vs Assessee on 16 August, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI BHAGCHAND, AM & SHRI LALIET KUMAR, JM
vk;dj vihy la-@ITA Nos. 344 & 345/JP/2015
fu/kZkj.k o"kZ@Assessment Years : 2008-09 & 2009-10
Chandmal Sancheti, cuke Income Tax Officer,
Porp.- M/s Hindustan Sales Vs. TDS-2, Jaipur.
Corporation, 144-B, Saket
Colony, Vijay Bari, Path No. 7,
Sikar Road, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/TAN No.: JPRC 02319 C
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (CA)
jktLo dh vksj ls@ Revenue by : Shri R.A. Verma (Addl.CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 05/08/2016
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 16/08/2016
vkns'k@ ORDER
PER: LALIET KUMAR, J.M. Both the appeals filed by the assessee arose against the order dated 11/03/2015 passed by the ld CIT(A)-III, Jaipur for the A.Y. 2008- 09 & 2009-10. The common effective grounds of both the appeals are as under:-
2 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) "1 The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the findings of the AO that provisions of section 206C is applicable on traders of scrap.
2. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in holding that as the declaration in Form No. 27C is not furnished within the prescribed period, the assessee is liable to collect tax at source u/s 206C. He has further erred in ignoring the various case laws relied upon by the assessee.
3. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in upholding the order of the AO in charging interest u/s 206C(7) by not accepting the contention of the assessee that since all the persons to whom scrap is sold have paid the tax with interest or claimed refund of tax, there is no loss of interest to revenue and therefore no demand u/s 206C(7) should be raised on assessee. He has further erred in ignoring the various case laws relied upon by the assessee.
4. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in giving the directions to the AO to give credit to the assessee in respect of those items of scraps which are of useable nature and for which Form No. 27C were also filed in time ignoring the fact that provisions of section 206C is applicable only on those items which are not useable as such."
2. Both the appeals of the assessee are being heard together, therefore, for the sake of convenience, common order is being passed.
3 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS)
3. The assessee is a trader of iron scrap and in the course of business had purchased major portion of scrap from Alang, Bhavnagar, Gujarat wherein it was generated from ship breaking. On such purchases from Alang, Bhavnagar, Gujarat, he has paid TCS U/s 206C of the Income Tax Act, 1961 (in short the Act), the assessee has sold these scrap items to other parties in Rajasthan. However, it was noticed that the assessee has not collected TCS on such sale of scraps from the buyers. The assessee was called upon vide letter dated 22/08/2013 to submit the details of purchase and sale of scrap along with stock register for financial year 2007-08 and 2008-09. The ld Assessee was called upon by the above said notice to reply to the following queries:
Against the above sale, you have claimed that some items were non-scrap'. While verifying the bill vouchers of such sales, it was seen that in some cases, you have paid TCS on purchase of such 'non-scrap' items whereas you have not collected TCS yourself on sale of the same. You are requested to clarify the same.
You are therefore required to show cause as to why necessary order treating you in default in respect of collection of 1% TCS on the above sales u/s 206C(6A) and accordingly interest thereon u/s 206C(7) may not be passed.
Your reply should reach in the office of the undersigned on 23-12-2013 at 11.30AM. Please note that in case of failure to 4 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) reply to' this show cause notice, it shall be presumed that you have no objection in treating above mentioned sale as being without collection of tax and order treating you as "assessee in default " in respect of the above amount shall be passed on the basis of available facts on the record.
The assessee has filed the reply and the ld Assessing Officer has summarized the arguments advanced by the assessee with the following facts:
4.2 The main arguments advanced by the assessee for the period under consideration through his letters dated 16.09.2013, 25.10.2013, 15.11.2013 & 24.12.2013 are as under:
(a) The assessee contends that it is clear from the definition of scrap as provided in Explanation (b) to Section 206C that scrap includes only such waster which arises from manufacture or mechanical working of material and such waste should not be usable as such.
(b) He has contended that this provision is applicable only when the scrap is generated by the manufacturer i.e. at the first point of sale only and not to second or subsequent sale. Therefore, since assessee is a trader and neither engaged in manufacture nor in mechanical working, the provisions of section 206C are not applicable in its case.
5 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS)
(c) He has further contended on the basis of the above that he does not fall within the definition of seller and buyer for the purchase/sale of scrap.
(d) He has also argued that the scrap generated from ship breaking is not scrap as per the definition of 'scrap' given in Sec. 206C. According to him, when a ship is discarded, due to some bye-laws, technical issues or environment issues, it has to be broken by the ship breakers and the discarded ship is called "scrap ship" in commercial language, and after dismantling the ship, all the material which is extracted from the ship was called, "scrap/waste generation from ship scrapping. There is no raw material in this process (there should be some raw material for manufacturing) & the final product is only scrap, "which may be cast iron scrap, non ferrous metal scrap, wooden scrap, melting scrap, machinery scrap, rerolling scrap etc. All these items are known as scrap in the commercial market. Disposal of these scrap item can be made only in scrap market.
(e) He has placed reliance on decision of the Hon'ble ITAT Ahmadabad Bench in case of Navine Fluorine International Vs. ACIT, TDS, Circle Surat ITA No.1213, 1214/Ahd/2010, Ramgopal O Maheshwari Vs. ITO, ITA No. 1169 & 1170/ Rajkot/2010 and Satyapal Amrik Singh & Company Vs. Union of India 1997, 228 ITR (Punjab & Haryana).
The ld Assessing Officer after discussing the legal provisions has 6 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) provided U/s 206C of the Act has held as under:-
The assessee has claimed that some sale out of his gross sale pertained to items which were not scrap. While verifying the bill vouchers of such sales, it was seen that in some cases, he had paid TCS on purchase of such 'non-scrap' items but he had not collected TCS himself on sale of the same. For this, his clarification was that such materials were old & used plates which are fit for re-rolling and could be used "as such". He has also enclosed a copy of Tariff of Central Excise & Customs, which also considers this to be separate from scrap.
However, his contention in this regard is not acceptable as the words "as such" in the context means that the material which is sold should have been in a condition to be used "as it is", i.e. as a plate only. The metal plates etc., which he has purchased, have come out of ship breaking and therefore, there is no way that it can be used as such. These plates were sold to manufacturers or rerolling mills which made different items out of these plates. Therefore, it cannot be said that these items were used "as such".
He has also claimed that sale to rerolling mills should not be included in scrap sales as these mills use the material purchased from him "as such". An Inspector was sent to study the process of rerolling mills. His report states that the rerolling mills use the material purchased and heat these
7 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) materials to produce "sariya, angle, patti etc." The process as stated in the Inspectors report is reproduced below:
"The mills are using raw material such as old and used metal plates in big sizes from ship breaking. These metal plates are cut in different sizes/ shapes as required through cutting machines. These bars are then put on a stand and through pusher sent to Bhatti (furnace) where these are heated to temperatures as high as 1200 to 1500 degrees. Then these are sent to rolling stand No. I, II, III & IV for long shaping and lastly on Vth stand for final shaping through manual process. After these processes, they put the bars on cooling bed and finally cut the same as large or small sizes for sale."
In view of the report of the Inspector, it is clear that the material sold by the assessee to the rerolling mills is used to produce other materials and the material sold by the assessee is not used as such by the purchaser. The sale of such material is therefore considered as "scrap" since it cannot be said that it has been used "as such" by the rerolling mills.
Similarly, the ld Assessing Officer has held that in cases where the declaration was submitted by the assessee, the benefit of proviso to sub-Section (6A) of Section 206C of the Act was extended, however, in respect of buyers, whose declaration has not been provided no demand 8 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) U/s 206C(6A) of the Act is being raised. It was held that the interest U/s 206C(7) shall be charged up to the month in which the returns have been filed by such buyers.
4. Being aggrieved by the order of the ld Assessing Officer, the assessee carried the matter before the ld CIT(A), who had partly allowed the appeal by observing as under:-
"4.4 I have carefully considered the findings of the AO as also submission of the appellant. It may be noted that the main issue under consideration to be adjudicated is that whether the assessee who is trading in sale in purchase of scrap was liable to collect TCS on sale of scrap. The AO's case is that even if the assessee is a trader he was required to collect the TCS on sale of scrap subject to the condition that it was not usable. The AO has also mentioned that when the assessee has purchased such scrap, TCS was collected on such purchases by the seller party. Alternatively the appellant has also contended that part of scrap was sold to the to the manufacturers and as per sec.206C(l A) when such scrap is sold to the manufacturing units the seller is not required to collect TCS on the sale amount provided that he has collected the declaration in Form No. 27C of IT Act.
The appellant has submitted that part of the scrap sold was useable in the shape MS Bar, angle, channel, MS Ingots, Pig Iron, Sillico Manganese etc. which are useable 9 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) and that provision of sec. 206C would not apply. The appellant has also submitted that the AG has accepted these facts and in AY 2009-10 excluded the sale of MS ingots and Pig Iron for working out the liability of collection of tax but in AY 2008-09 sale of such items were not excluded. Similarly in AY 2008-09 the AO excluded the sale of Sillico Manganese for determining the liability determined the liability u/s 206C but the sale of such items was not excluded in AY 2009-10 . The another contention of the appellant was that all such purchasers have shown such purchase in their books of accounts and also paid due taxes on the same and that such evidences were filed before the AO. It was accordingly stated that keeping in view the decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd. Vs. CIT 293 ITR 163 the assessee should not be held in TCS default and demand u/s 206C (6A) may not be raised. On careful consideration of relevant facts it may be noted that the definition of scrap used the word, waste and scrap from the manufacture or mechanical working of material which is definitely not useable as such because of breakage and cutting up and scrap does not mean that it should come out from manufacturing process which needs any raw material or finished goods. It may further be mentioned that the issue as to whether the traders dealing in scrap are required to collect TCS on the sales has further been clarified by the CBDT vide clarification 10 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) dated 18.05.2012 mentioning that the scrap generated with the traders was also subject to TCS.
Therefore I find merit in the findings of the AO that the appellant was required to collect TCS on the sale of scrap except the scrap that was subsequently useable. As regards the another contention of the appellant that when the scrap has been sold to the manufacturers who has used the same for manufacturing purposes and not for trading and in such cases TCS was not be collected provided that From No. 27C are furnished, it may be noted that though such provision is there in the Act as per sec. 206C(1A) but such credit can only be given when the Form No. 27C are furnished within the prescribed time and before a prescribed authority. In the Rule 37 it is clearly provided that such declarations shall be furnished on or before 1.1th day of the month next following to die month in which the declaration is furnished. The World 'Shall' indicate that furnishing of such declaration in the prescribed time is mandatory and the AO may not have any discretion on the same.
As regards, the contention of the appellant that in some items of scrap which are useable and for which credit has been given in a particular assessment year and for the same item the credit was not given in another A.Y. by the AO and that for such items Of scrap of useable the AO should have been given and liability of TCS should not have been raised, such contention Can be accepted and 11 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) AO is directed to give credit to the assessee in respect of those items of scraps which are of useable nature and for which Form No. 27C were also filed in time. Similarly in respect of alternative contention of the appellant that when the purchasing parties have shown such purchase in their books of accounts and also paid due taxes by way of filing of income tax return and all such evidences are already filed before the AO, keeping in view the decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd. Vs. CIT 293 ITR 163, the assessee is not to be treated to be in TCS default, the AO is directed to verify such claim and if it is found that the purchasing parties have shown such purchases in their books of account and have paid due taxes on the same then demand raised against the assessee u/s 206C(6A) may be deleted to such extent. However it will not affect the demand raised u/s 206C(7A) of IT Act on account of charging of interest. Subject to such verification as directed above the ground of appeal is treated to be partly allowed.
5. Being aggrieved by the order of the ld CIT(A), the assessee preferred appeal before us. The ld AR of the assessee has submitted that the assessee is not pressing ground No. 4 of the appeal, therefore, the Bench is required to decide grounds No. 1 to 3 of the appeal.
For the purposes of ground No. 1, the ld AR of the assessee has 12 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) submitted that the term scrap used in Section 206C of the Act is explained in Explanation (b) to Section 206C in the following manner:-
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;"
It was further submitted that the scrap has two ingredients (characteristics), which are required to be fulfilled before treating the articles as scrap:
(i) It should arise from the manufacture or mechanical working of the material.
(ii) It should not be usable as such.
On the basis of the above said two ingredients, it was the contentions of the assessee that the assessee is neither manufacturing nor mechanical working of the material is carried out by the assessee, therefore, the assessee cannot be considered a person dealing in the scrap. It was held that the definition of scrap itself facilitates the first sale and not the subsequent sale. It was submitted that since the assessee is intermediary and waste/scrap sold to the third party, therefore, provisions of Section 206C of the Act are not attracted. It was submitted that the sale made by the assessee do not attract the provision of Section 206 of the Act. It was further contended that the scrap seller do
13 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) not include the reseller of the scrap and therefore, provisions of Section 206C of the Act should not be applied to the assessee. It was further submitted that the material sold should not be usable as such. It was submitted that the scrap sold by the assessee consists of various usable items/materials like MS bar, angel, channel, M.S. Ingot, Pig Iron, Sillico Manganese etc. which are usable in nature. Therefore, it was contended that the provisions of Section 206C of the Act should not apply. It was further submitted that the executive instruction issued by the CBDT bearing No. F. No. 275/86/2011-IT(B) dated 18/05/2012 is not binding and cannot override the stated provision of the Act and therefore, the lower authorities were wrong in applying the provisions of Section 206C of the Act on the assessee. It was further submitted that the appeal of the assessee is required to be allowed on this ground.
6. On the other hand, the ld DR has relied upon the order passed by the authorities below. More particularly paragraph No. 4.3 and 5 to substantiate that the assessee comes within the definition of scrap dealer and such provision of Section 206C of the Act are attracted.
7. We have heard the rival contentions of both the parties and perused the material available on the record. Before we adjudicate the 14 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) issue, it will be useful to reproduce relevant provisions of applicable section, sub-Section and explanation of Section 206C of the Act, which provides as under:
206C. PROFITS AND GAINS FROM THE BUSINESS OF TRADING IN ALCOHOLIC LIQUOR, FOREST PRODUCE, SCRAP, ETC.
(1) Every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said 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 column (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 :
Table Sl. No. Nature of goods Percentage
(i) Alcoholic liquor for human One per cent consumption
(ii) Tendu leaves Five per cent
(iii) Timber obtained under a forest Two and one-
lease half per cent
(iv) Timber obtained by any mode Two and one-
other than under a forest help per cent
lease.
(v) Any other forest produce not Two and one-
being timber or tendu leaves help per cent
(vi) Scrap One per cent]
(vii) Minerals, being coal or lignite One per cent]
or iron ore
15 ITA 344 & 345/JP/2015_
Chandmal Sancheti Vs ITO (TDS)
Provided that every person, being a seller shall at the time, during the period beginning on the 1st day of June, 2003, and ending on the day immediately preceding the date on which the Taxation Laws (Amendment) Act, 2003, comes into force, of debiting of the amount payable by the buyer to the account of the buyer or of receipt of such amount from the said 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 column (2) of the Table as it stood immediately before the 1st day of June, 2003, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax in accordance with the provisions of this section as they stood immediately before the 1st day of June, 2003.
(1A) Notwithstanding anything contained in sub-section (1), no collection of tax shall be made in the case of a buyer, who is resident in India, if such buyer furnishes to the person responsible for collecting tax, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the goods referred to in column (2) of the aforesaid Table are to be utilised for the purposes of manufacturing, processing or producing articles or things or for the purposes of generation power and not for trading purposes.
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11) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (9) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.
Explanation For the purposes of this section,--
16 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS)
(a) "accountant" shall have the meaning assigned to it in the explanation to sub-section (2) of section 288; (aa) "buyer" with respect to--
(i) sub-section (1) means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the Table in sub- section (1) or the right to receive any such goods but does not include,--
(A) a public sector company, the Central Government, a State Government, and an embassy, a High Commission, legation, commission, consulate and the trade representation, of a foreign State and a club ; or (B) a buyer in the retail sale of such goods purchased by him for personal consumption;
(ii) sub-section (1D) means a person who obtains in any sale, goods of the nature specified in the said sub- section;
(ab) "jewellery" shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2;
(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;
(c) "seller" means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society and also includes an individual or a Hindu undivided family whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause
(a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which the goods of the nature specified in the Table in sub-
17 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) section (1) 1or sub-section (1D) are sold.] [or services referred to in sub-section (`1D) are provided]. From bare reading of the provisions and its headings, it is abundantly clearly that the provision is applicable to the profit and gains from the business of trading in Alcohol, liquor, forest produce, scrap etc., therefore, the contention of the ld AR for the assessee that the provisions of Section 206C are not applicable to the assessee, as he is merely a subsequent trader, in our view, is not correct, as the heading of section uses the word " trading ". Moreover, the definition of seller reproduced hereinabove clearly shows that the seller includes a reseller also, who is into trading of scrap. Sub-section (1A) of Section 206C of the Act clearly defines the exceptions for not collecting the TCS , only in such cases when the scrap is used for the purposes of manufacturing, processing or producing articles or things or for the purposes of generation of bar and not for trading purposes. Thus, bare reading of Section clearly provides that if the goods of the nature specified in table are being traded, then the exemption from collecting the TCS are not attracted. Therefore, in our view, the contention of the ld AR is required to be rejected as the assessee is trading into the scrap and therefore, the provisions of Section 206C of the Act are attracted and the assessee was duty bound to collect the TCS on the sale on the "nature of goods"
18 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) (scrap) at the rate specified in the table.
Further , the contention of the assessee that as per the definition of scrap reproduced hereinabove only the person dealing in manufacturing or mechanical working of material shall be liable to be recovered under this provision, in our view, is not correct interpretation. It is a matter of fact that Section 206C provides the category of persons namely seller dealing in the nature of goods on which TCS is required to be collected. The nature of goods has been defined in the table and in that table the nature of goods also includes the scrap. Therefore, the definition of scrap, as per the table and as per the explanation of the Act is only indicative of the "nature of goods" on which the TCS is required to be collected however the definition of " scrap" by no stretch of imagination indicates the person, who is dealing in such goods i.e manufacturer or dealer. Scrap, as defined in the explanation to the Section only talks about the waste and scrap from the manufacturing or mechanical working. This definition of "scrap" provides waste and scrap from the manufacture or mechanical working of materials which is definitely not usable shall be treated as scrap. Even the assessee himself had paid TCS in terms of section 206C for the purchase of goods under consideration, in our view the nature of goods shall remain the 19 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) same i.e scrape and purchase of goods by the assessee shall not change its character . Further the definition of scrap if read in conjunction with sub-section (1A) of Section 206C, it clearly suggests that the scrap is only indicative of nature of goods and it is not indicative of the person from whom the TCS is required to be collected. The definition of scrap in view of the Bench, does not suggest that the scrap should be generated by the seller himself. The only condition of the scrap is that the scrap should be waste and scrap from the manufacturing or mechanical working of material, which is definitely not usable as such on account of breakage, cutting up, wear and other reasons. In our opinion, the provisions of Section 206C of the Act are applicable to the present case as the assessee is a trader and dealing in the scrap generated from the mechanical working of the material (breaking of the ship). Further it is not necessary that such mechanical working (breaking of the ship) should be carried out by the assessee himself. The assessee is, therefore, liable to deduct tax at source U/s 206C of the Act on the sale of scrap. In fact, the admission of the assessee is the best evidence to admit the liability. The assessee himself has admitted that the assessee is dealing in the scrap generated from the breaking of the ship and had purchased the scarp. The contention of the 20 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) ld AR that since the iron scrap like steel, ingots, iron etc. is being used by the industries without any change, is not correct as the nature of goods shall remain same , therefore, it comes under the definition of the scrap. In our view, the material sold by the assessee cannot be used as such without any modification by the buyer of the said scrap. As the said material/goods come from the breaking of the ship, these goods were sold to the manufacturer/rerolling mills, as scrap therefore, the goods (scrap) sold by the assessee were not usable as such and therefore, the assessee was required to deduct TCS from the buyer. In view thereof, the ground No. 1 of the assessee's appeal is decided against the assessee.
8. The 2nd ground of the assessee's appeal is with respect to declaration in Form No. 27C is not furnished within the prescribed period; the assessee is liable to collect tax at source u/s 206C. He has further erred in ignoring the various case laws relied upon by the assessee. The ld Assessing Officer has allowed the ground to the extent of the certificate made available by the assessee up to day of assessment from the manufacturer. However, the ld Assessing Officer has not granted the relief in respect of the buyers, whose declaration were not provided up to day of the finalization of the assessment by the 21 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) assessee. The ld CIT(A) in the appeal has directed the ld Assessing Officer to verify such claims and if it is found that the purchasing parties have shown such purchases in the books of account and has also issued declaration as required in law, then in that eventuality, the addition made U/s 206C(CA) is directed to be deleted. Further the ld CIT(A) has held that the assessee was required to furnish declaration from the buyers in form 27D of the Income Tax Rules, 1962 (in short the Rules) and the assessee was required to submit the certificate within the time limits specified below as per action points mentioned along with Form 27D in the following manner :
ACTION POINTS
1. The certificate of collection of tax at source under sub-
section (5) of section 205C to be furnished by the collection shall be in Form 27D.
2. The certificate shall specify:-
(a) valid permanent account number (PAN) of the collectee;
(b) valid tax deduction and collection account number (TAN) of the collector;
(c) (i) book identification number or numbers where deposit of tax collected is without production of 22 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) challan in case of an office of the Government;
(ii) challan identification number or numbers in case of payment through bank;
(d) receipt number of the relevant quarterly statement of tax collected at source which is furnished in accordance with the provisions of rule 31AA.
3. The certificate shall be furnished within the time limits specified below:
Quarter ending Due date (1) (2) 30th June 30th July of the financial year 30th September 30th October of financial year 31st December 3oth January of financial year 31st March 30th May of the financial year immediately following the financial year in which collection is made.
4. The collector may issue a duplicate certificate in Form NO.
27D if the collectee has lost the original certificate so issued and makes a request for issuance of a duplicate certificate and such duplicate certificate is certified as duplicate by the collector.
Further Rule 37 of the Rules, requires that every person meaning the person responsible for deducting tax under Chapter XVII-B shall, in respect of previous year, deliver or cause to be delivered to the Director General of Income Tax (Systems), the returns mentioned in column (1) 23 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) of the Table below in Form No. specified in the corresponding entry in column (2) of the said Table by the end of the month falling in the financial year immediately following the previous year. Since the assessee has furnished the details on 23/12/2013 and 25/2/2014, therefore, the ld CIT(A) has not given the benefit of the declaration submitted by the assessee , as the declaration was filled with delay of several years . The ld AR of the assessee has submitted that it is an admitted position that the assessee has collected declaration form and submitted on 23/12/2013 and 25/2/2014, therefore, though, the assessee has submitted declaration at the appellate stage but in view of the judgments passed by the various Tribunals and Courts, the benefit of the declaration should be given to the assessee. The ld AR has further relied on the following case laws:
1. CIT Vs. Adisankara Spinning Mills (P.) Ltd. 226 Taxman 44 (Mad.) (HC) (Magz.) In this case, the High Court in Para 2 of the order held as under:-
"As far as the second question is concerned, the Tribunal has noted in paragraph 3 that the assessee had obtained Form 27C from the buyers of the cotton waste. In the course of the appellate proceedings, the same was also filed before the assessing authority by applying the provisions of section 154 of the Act. The Tribunal held that the assessee having filed the statutory form, viz., Form 27C, the technical breach was liable to be condoned by following the decision of this court in the case of CIT v. A.N. Arunachalam [1994] 208 ITR 481/75 Taxman 529 (Mad.). Therefore, we do not find any scope to entertain the said question."
2. CIT (TDS) Vs. Siyaram Metal Udyog (P.) Ltd. 2016 ITL 4028 (Guj.) (HC) In this case, the AO made addition on the ground that the assessee had breached section 206C of the Income Tax Act, 1961 in case of sale of scrap and that the 24 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) assessee had not submitted Form-27C comprising of the buyer's declaration to the Commissioner of Income-tax in time. The Tribunal held that there is no dispute about the fact that the assessee has belatedly submitted relevant Form No. 27C collected from its buyers. The same were placed on record before the assessing officer itself who declined to accept the same in view of delay in submission thereof. There is no issue qua genuineness of these Forms. The co-ordinate Bench decision of Tribunal in case of Bharti Metals already holds that such a belated submission of relevant Form is a procedural lapse only. The Revenue is unable to point any distinction on facts or law therein. Thus, addition with the aid of section 206C could not be made. The High Court held as under:-
"In terms of the explanation clause (aa) any person who purchases the goods in retail sale for personal consumption would not be included within the definition of term 'buyer'. It is therefore, that under sub section (1A) of section 206C, calculation of tax under sub-section 1 would not be made, if the buyer furnishes to the person responsible for the tax a declaration in writing in prescribed form declaring that the goods in question are to be utilized for the purposes of manufacturing process or producing articles or things or for the purpose of generation of power and not for trading purposes. The declaration to be made in sub-section (1A) of section 206C thus would enable the Revenue authorities to, as and when the need so arises make proper verifications. This sub-section itself does not provide for any time limit within which, such declaration is to be made. The time limit, of course, would be found in Rule 37C of Income Tax Rules, 1962. The main thrust of sub-section 1A of section 206C thus is to make a declaration as prescribed, upon which, the liability to collect tax at source under sub-section (1) would not apply. When there was no dispute about such a declaration being filed in a prescribed format and there was no dispute about the genuineness of such declaration, mere minor delay in filing the said declaration would not defeat the very claim. The Tribunal therefore, viewed such delay liberally and in essence held that there was substantial compliance with the requirement of filing the declaration."
3. Karnataka Forest Development Corporation Ltd. Vs. ITO, TDS 2015 ITL 1007 (Bang.) (Trib.) Section 206C(1A) mandates that any person responsible for collecting tax under section 206C(1) need not do so if he obtains a declaration from the buyer that he is purchasing the goods for use in manufacturing, processing or producing articles or things. It does not say that such declaration has to be obtained at the very same moment when a sale is affected. A reading of sub section (1B) clearly brings out this since obligation of the assessee to file a copy of the declaration arises only when the declaration is furnished to him by the buyer. The point of reference is furnishing of declaration by the buyer and not the month or date on which sale is affected by the assessee. Even if it is considered that there is a breach on the part of the assessee in not obtaining the declaration from the buyer the moment a sale was 25 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) affected, and in filing it before the CCIT or CIT, as the case may be, a similar breach was considered to be only technical and one that could be condoned by Hon'ble Madras High Court in the case of Adisankara Spg. Mills (P.) Ltd. Thus, assessee could not have been deemed as one in default under section 206C(6D) of the Act or liable for interest under section 206(7).
4. KPG Enterprise Vs. Income Tax Officer in appeal No. ITA no. 2384/Ahd/2012 order dated 14.08.2014. (Ahd.):
The relevant para of the judgment are reproduced as under:
"15. We find that section 206C (1A) reads as under:
"Notwithstanding anything contained in sub-section (1), no collection of tax shall be made in the case of a buyer, who is ITA No. 2384/A/2012 K.P.G. Enterprise, Bhavnagar AY 2010-11 resident in India, if such buyer furnishes to the person responsible for collecting tax, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the goods referred to in column (2) of the aforesaid Table are to be utilized for the purposes of manufacturing, processing or producing articles or things [or for the purposes of generation of power] and not for trading purposes."
A perusal of the aforesaid provision shows that the assessee is not legally obliged to collect the TCS from a buyer who furnishes a declaration to the assessee to the effect that the purchases made by such buyer are to be utilized for the purposes of manufacturing, processing or producing articles or things or for purposes or generation of power and not for trading purposes. Thus, in a case where such a declaration is furnished by the buyer to the seller, the seller is not obliged to collect TCS from such buyer and consequently the seller assessee cannot be treated as an assessee in default in respect of not collecting TCS from such buyer. We find that the Commissioner of Income Tax (Appeals) upheld the treatment of assessee as assessee in default in respect of those parties from whom the assessee already received declaration in Form 27C on the ground that such declaration was not furnished by the assessee to the Chief Commissioner or Commissioner as required by the provisions of section 206C(1B) of the Act.
16. We find force in the contention of the assessee that once the declaration referred to in section 206C(1A) was received by the assessee, then thereafter the assessee could not legally collect the TCS from such buyers and consequently the assessee cannot be treated as an assessee in default for not collecting TCS from such buyers. The above view finds support from the decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Valibhai Khanbhai Mankad (2013) 261 CTR 538 (Guj.) wherein it has been held that, ITA No. 2384/A/2012 K.P.G. Enterprise, Bhavnagar AY 2010-11 "Once the conditions of section 194C(3) were satisfied, the liability of the payer to 26 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) deduct tax at source would cease. The requirement of such payer to furnish details to the income tax authority in the prescribed form within prescribed time would arise later and any infraction in such a requirement would not make the requirement of deduction at source applicable." Our view also finds support from the decision of Mumbai Bench of the Tribunal in the case of Karwat Steel Traders Vs. ITO (2013) 37 taxmann.com 190(Mum.) wherein it was held that, "Where declaration in Form 15G/15H were received by the person responsible to deduct tax, there was no liability on him to deduct TDS. Since separate provisions were prescribed on default for non-filing or delayed filing of Form 15G/15H to Commissioner, non-filing of such form would not invoke disallowance u/s. 40(a)(ia) of the Act." We also find support from the decision of the Mumbai Bench of the Tribunal in the case of Vipin P. Mehta Vs. ITO (2011) 46 SOT 71 (Mum.) wherein it was held that, "Sub-section (1A) of section 197A of the Act merely requires the declaration to be filed by payee of interest and once it is filed, the payer of interest has no choice except to desist from deducting tax on interest."
17. In our considered view, the assessee cannot be treated as assessee in default for not collecting TCS from such buyers from whom the assessee received declaration as per provisions of section 206C(1A) of the Act.
18. We find that in the instant case, the assessee has not filed copy of declaration received by it u/s. 206C (1A) of the Act before the Assessing Officer for his verification. Therefore, in our considered view, it shall be just and fair to restore this part of the ground of appeal back to the file of Assessing Officer for proper verification and thereafter readjudication of the issue as per law in the light of the discussion made hereinabove after allowing the assessee a reasonable opportunity of hearing."
9. On the other hand, the ld DR has submitted that the rules framed under the Act are statutory and are binding and non-furnishing of the declaration within the time granted by the Rules will disentitle the assessee to have benefit of the declaration.
10. We have heard the rival contentions of both the parties and perused the material available on the record. In our view, the appeal is 27 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) continuation of the assessment proceedings and even if the declaration is filed by the assessee at the appellate stage in the prescribed format by disclosing all information as contemplated under Form 27 read with Rule 37 of the Rules, the benefit of declaration should be given to the assessee. The ld Assessing Officer/CIT(A) should extend the benefit of declaration to the assessee. Rule 27 though is couched in the mandatory language by using the word "Shall" but the Rule 37 has not given the consequences of not filing the declaration within time. In our view, the consequences of failure to file the declaration in the requisite format as mentioned in the Rules should be provided by the IT Act and not by the Rules. The Rules, in our opinion, cannot extend or restrict the provisions of the Parent Act. The Rules are framed by the Legislature by exercising its power under the Act and therefore, if any penalty provision by way of the exclusion of declaration benefit and submission of the declaration belatedly should be provided by the Act and the rules . The provision of sub-Section (1A) of section 206C, in our view, do not provide the consequences of the delayed filing of the declaration. Though, it provides that it is to be filed on or before the 7th day of the next following month in which declaration is furnished to him. Therefore, though there is delay in issuing the declaration by the buyer, 28 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) the assessee cannot be penalized or deprived from the benefit of the declaration given by the buyer. The only duty cast upon the seller to submit declaration in the following month in which the declaration received. No time limit has been provided by the statute on the buyer to submit the declaration in Form 27. In view thereof, the ground is required to be allowed. In the light of above, we deem it appropriate to remand the matter back to the file of the Assessing Officer with direction to verify whether the declaration has been filed by the assessee in the requisite form and what will the effect of filing of this declaration on the calculation of the TCS U/s 206 of the Act. It is, however, again clarified that the delay in filing the declaration shall not be a ground to the Assessing Officer to deny the benefit of the declaration to the assessee. In view thereof, the ground No. 2 of the appeal is allowed for the statistical purposes only.
11. The 3rd ground of the assessee's appeal is with respect to upholding the order of the AO in charging interest u/s 206C(7) by not accepting the contention of the assessee that since all the persons to whom scrap is sold have paid the tax with interest or claimed refund of tax, there is no loss of interest to revenue and therefore no demand u/s 206C(7) should be raised on assessee. He has further erred in ignoring 29 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) the various case laws relied upon by the assessee. The ld Assessing Officer in respect of ground No. 3 has held that the interest U/s 206C(7) shall be chargeable up to the month in which the returns have been filed by such buyers, which has been confirmed by the ld CIT(A) by observing that the demand raised U/s 206C(7) of the Act will not affect the charging of interest.
It is the contention of the ld AR of the assessee that the assessee obtained the copy of the return and declaration of buyers in respect of the fact that they have recorded the purchases made from the assessee and have shown in the books of account and filed the return of income. It is the contention of the ld AR that since the returns have been filed by the buyer of the scrap and said buyers have already paid the advance tax /TDS, which was more than the tax due, therefore, the finding of the authorities below have charging the interest, is without any basis as the tax, which is required to be collected by the assessee had already been deposited by the buyers and therefore, there is no loss of interest.
12. The ld DR has relied upon the orders passed by the authorities below.
30 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS)
13. We have heard the rival contentions of both the parties and perused the material available on the record. In our view, the assessee is duty bound to collect the TCS from the buyers in terms of Section 206C of the Act. However, the collection of TCS and deposit of the TCS is only exempted in respect of the cases where the declaration is being filed by the assessee in view of sub-section (1A) of Section 206C of the Act. In view thereof, the revenue is only entitled to the recovery of the interest on the unpaid tax amount/deposit/short tax deposited by the buyer. If the taxes deposited by the buyer is fair and more than the tax required to be deducted by the assessee then in that eventuality, no interest is payable. However, if the tax deposited by the buyer was found to be less than the amount to be deposited by the assessee then the assessee is liable to pay the interest up to the month in which the returns were been filed by such buyers. Since the declaration is required to be submitted in terms of Rule 37 read with Form 27, therefore, if the tax is not deposited up to the date when the TCS was required to be deducted then the assessee is liable to pay the interest, for example if the TCS is required to be deducted and paid and the due date as per rule 37 was 30th July of the year 2008 and the advance tax was deposited on 01/2/2009, then the assessee is liable to pay interest for 31 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS) the period 01/8/2008 up to the date of deposit of the advance tax. In the light of the above observation, this issue is also remanded back to the file of the Assessing Officer with direction to (i) to verify as to the date when the TCS was due by the seller/assessee, (ii) the date on which the advance tax was paid/deposited by the buyer, (iii) in case the advance tax is deposited prior to the due date of TCS, then no interest shall be charged. However, if the advance paid after the due date then the interest shall be charged for the intermediary period. The ld Assessing Officer is directed to verify all these facts in respect of both the assessment years. In view thereof, this ground of the appeal is also allowed for statistical purposes only.
14. In the result, both the appeals of the assessee are allowed partly.
Order pronounced in the open court on 16/08/2016.
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fnukad@Dated:- 16th August, 2016
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vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Shri Chandmal Sancheti, Jaipur.
2. izR;FkhZ@ The Respondent- The ITO, TDS-2, Jaipur.
32 ITA 344 & 345/JP/2015_ Chandmal Sancheti Vs ITO (TDS)
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 344 & 345/JP/2015) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar