Income Tax Appellate Tribunal - Chandigarh
Sh. Lakshmi Kant Data, Mandi Gobindgarh vs Ito (Tds), Patiala on 13 July, 2017
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.192 & 193/Chd/2016
Assessment Years: 2011-12........
Sh. Lakshmi Kant Date, Vs. The I .T.O(TDS)
Prop. Jai Hind Trading Co., Patiala
Dharam Mill Road,
Mandi Gobindgarh (Punjab)
PAN No. AFFPD6132G
(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. 12/01/2016.
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. 192/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 assesee'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.
4. Brief facts of the case are that the assessee is engaged in the business of purchase and sale of old iron scrap mainly from Indian railways in auction, 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 assessee as to why the assessee should not be treated in default u/s 206C(1) for non collection of tax collection 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 subsequent proceedings, the assessee has filed his reply contesting the proposed action of the assessing officer by stating that the goods in question are not scrap covered in section 206C and no TCS is collectable. The assessing officer was not convinced with the assessee's explanation. Accordingly, 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.
5. The Assessing Officer while imposing liability u/s 206C(1)/206C(7) relied on the following facts:
1. The assessee has purchased scrap in auction on which TCS was collected by the seller.
2. The assessee has sold this scrap to traders without any processing or manufacturing on it.
3. The material is fully covered in definition of scrap as contained in explanation (b) to section 206C and the material purchased by the assessee has been classified as scrap as it is not usable as such. The contention of the assessee that it has been used as raw material for rolling material will not change the fact that it is scrap and it has been used by the rolling mills only after detailed and complex process of melting and processing. This scrap is then re-rolled into its final product.
4. The appellant has made sale of this material to both the manufactures and traders. The appellant has treated this material as 'Scrap' and obtained Form 27C from the manufactures and no TCS is to be collected on these sales. However, while selling the same material to the traders, the assessee has treated this material as raw material and no TCS had been deducted.
5. The CBDT circular F.No. 275/17/2013-IT(B) dated 16/07/2013 has clarified the position regarding application of the provisions of section 206C of the I.T. Act, 1961. It states that the position of law on this issue is very clear and unambiguous. Sellers, as defined in explanation 206C of the Act, 1961 in India, are required to collect tax at source from a buyer who obtain in any sale, by way of auction, tender or any other mode minerals including coal. Hence, TCS is required to be collected by the seller at each point of sale and not only at first point.
However TCS may not be collected by the seller if in case the buyer:
i. Furnishes to the seller a duly verified declaration in the prescribed form (Form 27C) that such goods are to be utilized for the purposes of manufacturing processing or producing articles or things and not for trading, or ii. Buys such goods in the retail sale for personal consumption or iii. Furnishes a certificate from the jurisdictional Assessing Officer u/s 206C(9) of the Act for non collection of the TCS.
6. The Assessing Officer is of the view that it is established that the assessee deals in purchase and sale of iron scrap which is being covered under the definition of scrap as per provision of section 206C and is liable for treated as an assessee in default u/s 206C(1) for not collecting tax at source on sale of scrap to different parties. Ultimately liability for tax u/s 206C(1), being not there does not dilute the requirements for the non compliance of which interest was levied u/s 206C(7).
7. Ld. CIT held that the appellant has made sale of scrap material purchase in auction on which TCS is duly collected by Indian Railways which is classified as Scrap by the Railway Authorities. However, while selling the same material to the traders, the assessee had treated this material as raw material and no TCS had been made on it. The AO 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 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 assessee 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.
The Ld.CIT(A) held that 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. and upheld the addition made by the Assessing officer.
8. Before us the ld.AR argued that the material which was purchased from the Indian Railways consisting of following :
a) Rail-Lines,
b) CST 9 Plates,
c) ST Sleepers,
d) Tie-Bars,
e) Fish Plates with Nut Fittings 8.1 He further stated that the goods were sold as such after segregation process, supports the belief that these goods were not to be treated as 'Scrap' subjected it to TCS. The assessee admittedly not engaged in manufacturing activity and the list of scrap items noted about would also indicate that the same has not arisen out of manufacturing or mechanical working. The goods especially rail lines were reusable as such and the assessee has also disposed of these goods as such.
8.2 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".
10. 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. We accordingly, set aside the orders of the authorities below and allow both the appeals of the assessee.
11. In the result, both the appeals of the assessee are allowed.
The order is pronounced on 13/07/2017 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