Income Tax Appellate Tribunal - Chandigarh
Ito (Tds), Patiala vs Sh. Tarsem Lal, Mandi Gobindgarh on 30 December, 2016
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 against the order of learned Commissioner of Income Tax (Appeals), Patiala dated 4.2.2016 for assessment year 2011-12, deleting the penalty levied under section 271CA of the Income Tax Act, 1961 (in short 'the Act') for 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 :
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(i) The Ld. CIT(A) is erred in holding that as no demand on account of non-collection of tax at source has been 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 206C of the I.T. Act, 1961 and its sale is liable for TCS not only at the 1st 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 271CA r.w..s. 274 of the I.T. Act, 1961 ignoring that neither the assessee deduct the collected tax at source while selling old iron scrap neither collected form No. 27C from the buyer in the duplicate at the time of sale and deposited to the income tax Department on or before 7th 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 required 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.
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3. The only grievance of the revenue in the present appeal is against the action of the CIT (Appeals) in deleting the penalty levied under section 271CA of the Income Tax Act, 1961 for default in collection of tax at source.
4. The brief facts of the case are that the assessee is an individual. He is running the business of purchase and sale of old iron scrap. Though on purchase of the scrap, the tax was being collected by the parties from the assessee had made purchases yet on the sale of this scrap, the assessee had neither collected tax at source nor deposited the same into government account, as required under section 206C(1) of the I. T. Act, 1961. Therefore, 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 imposed as the assessee had failed to collect TCS on sale of 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 Medical Systems Ltd (2005) 24 CCH 0001 Bangalore Tribunal given by Hon'ble I.T.A.T. The Assessing Officer did not accept 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 assessee deductor had not collected TCS at the rate of 1% on sales of Rs.5,45,66,201/- as required under the provisions of chapter XVII BB of the Income Tax Act, 1961 and also failed to submit any reasonable cause for non collection 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 in appeal before the Ld. CIT (Appeals). Detailed arguments were made by the assessee which are reproduced at para 6.2 of the CIT (Appeals)'s order. Briefly put, the assessee contended that the penalty u/s 271CA had been wrongly 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 within 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 that the items were re-usable and had been disposed off as such, therefore they did not qualify as scrap for 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 goods 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 Act in assessee's case.
6. The Ld. CIT (Appeals) rejected assessee's contention that the goods sold did not qualify as scrap and that the assessee harbored a bonafide belief that the goods were not scrap and hence not exigible to TCS but at the same time the Ld. CIT (Appeals) agreed with the assessee's contention that there was a reasonable cause for not levying penalty. The Ld. CIT (Appeals) relied upon the judgment of the I.T.A.T. , Bangalore Bench in the case of Wipro GE Medical System Ltd. (2005) 24 CCH 001 (Bang Trib.) and held that since taxes had been paid by the buyers no loss had been caused to the exchequer on account of assessee's default in not collecting TCS and this constituted reasonable cause for not levying penalty.
Thus, the Ld. CIT (Appeals) deleted the penalty levied by the Assessing Officer.
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7. Aggrieved by the same, the Revenue filed the present appeal before us. During the course of hearing before us, it was brought to the notice of the Bench 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 deleted 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 authorities below and considered the material available on record.
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 also in the business of purchase and sale of old Iron scrap and though tax had been collected by the parties from whom 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. Ld. 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 returns of income and paid due taxes thereon and the assessee had therefore not been treated as an assessee in default 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 sufficient compliance had been made as the tax demand had already been paid. The ITAT in its order, concurred with the findings of the CIT(Appeals) and further held that the belief of the assessee that the goods sold by it were not covered in the definition of scrap though not accepted by the CIT(Appeals) on merit, constituted reasonable cause for failure to comply with the provisions of law. The order of the CIT( appeal) was therefore upheld by the ITAT. The relevant para of the ITAT order, deleting the levy of penalty is as under:
5. Af ter considering rival submissions, I am not i n c l i n e d t o i n t e r f e r e wi t h t h e o r d e r o f t h e l d .
CIT(Appeals) in canceling the penalty. The ld. CIT (Appeals) has recorded specif ic f inding of f act th at assessee f urnished co mplete details of sales of scrap made to various traders a l o n g wi t h c o p i e s o f t h e i r I n c o me T a x r e t u r n s o f r e l e v a n t a s s e s s me n t y e a r p r o v i n g t h a t p a y m e n t o f 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 Off icer and only interest has been charged. It is, theref ore, clearly established that Revenue Department has n o t t r e a t e d t h e a s s e s s e e a s a s s e s s e e i n d e f au l t as f ar as T CS is concerned. T h e l d . C IT ( A p p e a l s ) was, theref ore, jus tif ied in f ollowing decis ion of Banglore Bench in the case of Wipro GE Medical Systems Ltd. in wh i c h the Tribunal has considered reasonable cause f or not levying the penalty wh e n s uff icient co mpl iance wa s made 8 because of the tax demand had already been paid. Since taxes have already been paid by the b u y e r s a n d t h e r e wa s n o t a x d e m a n d r e m a i n e d . Theref ore, ld. CIT(Appeals) correctly held that t h e r e wa s r e a s o n a b l e c a u s e f o r f a i l u r e t o c o m p l y w i t h p r o v i s i o n s o f l a w. Further, the assessee since beginning has been claiming that assessee is not covered by the def initio n of "scrap" in t e r ms of Section 206C of th e Act. The e x p l a n a t i o n o f t h e a s s e s s e e wa s s u p p o r t e d b y o r d e r o f IT A T A h me d a b a d B e n c h i n t h e c a s e o f N a v i n e F l o u r i n e I n t e r n a t i o n a l L t d . V A C IT ( s u p r a ) . E v e n t h o u g h t h e l d . C IT ( A p p e a l s ) d i d n o t a c c e p t t h i s c o n t e n t i o n o f t h e a s s e s s e e o n me r i t b u t t h e f acts discussed above clearly constitute that there wa s a reasonable cause for f ailure to c o m p l y wi t h p r o v i s i o n s o f l a w. Since, there is no demand arises against the assessee and all taxes have been paid and no loss to revenue have been caused, theref ore, it is not a f it case f or levy of penalty against the assessee. Hon'ble Delhi High Court in the case of W o o d wa r d G o v e r n o r I n d i a P . L t d . V s C IT 2 5 3 I T R 7 4 5 h e l d a s under :
"Levy of penalty under section 271C of the Income-tax Act, 1961, for failure To deduct tax at source, is not automatic. In order to bring in application of Section 271C, in the backdrop of the overriding non obstante clause in section 273B, absence of reasonable cause, existence of which has to be established, is A sine qua non. Before levying penalty, 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 officer has to consider whether the explanation offered by the assessee or 9 other person as regards the reason for failure, was on account of reasonable cause".
6. Considering the f acts of the case in the light of the above discussion and f indings recorded by l d . C IT ( A p p e a l s ) , I d o n o t f i n d a n y m e r i t i n t h e 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 but on sale of scrap it has failed to collect tax at source. In the present case also the Ld.CIT(Appeals) has recorded specific finding of fact that the assessee had furnished complete details of sale of scrap made to various traders along with copies of the income tax returns of relevant assessment year proving that payment of due taxes had been made by the respective purchasers. It was also recorded that no demand on account of non-deduction of tax at source had been raised by the assessing officer and only interest had been charged therefore clearly the 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 the Explanation to section 206C of the Income Tax Act, 1961. The assessee has claimed that it had purchased goods being Aluminium cables, CSR conductor, Transformers, parts of the above-mentioned Transformers and electric 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 and 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 engaged in any manufacturing activity of the goods. The assessee stated that the description and details of the goods would show that they had not arisen out of any manufacturing activity or as a result of any mechanical working of any material in the hands of the sellers. Further the goods had been purchased from the above sellers and disposed of being of no use to them. The assessee stated that the goods were reusable as such and had been disposed of as such. Thereafter referring to the definition of scrap given in the Explanation to section 206C, the assessee stated that for the purposes of section 206C scrap meant waste and scrap obtained from manufacture or mechanical working of material which was not usable as such because 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 scrap given in the Explanation to section 206C, the assessee believed that the goods did not qualify as scrap for the purpose of tax collection at source under section 206C , which was reasonable belief being neither illogical or irrational ,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 CIT(A) order.
11. We find that the belief harboured by the assessee, considering the facts narrated above constituted a reasonable belief which an ordinary person in the prevailing circumstances would have harboured. It is not the case that the assessee was found liable to collect tax at source on the goods sold by it since the goods were categorically found to qualify as scrap as such, as provided in the definition of the same in the Explanation to section 206C. In fact the assessee was found liable to collect tax at source since the assessee had accepted 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 of scrap. In such circumstances, where as a matter of fact it has not been categorically established that the goods were scrap and waste as such which could not be used further , the facts narrated by the assessee , which we find had not been controverted by the revenue, reveal that the assessee harboured an honest belief based on reasonable grounds that the goods sold were not scrap. The same constituted reasonable cause for not collecting tax at source even though the Ld. CIT( appeal) did not accept this contention of the assessee on merit. The Hon'ble Delhi High Court 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 that which would constrain a person of average intelligence and ordinary prudence. It can be described as a probable cause. It means an honest 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 person 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 frivolous, 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 collecting tax at source ,the absence of which is essential for levying penalty as held by the Delhi High Court in the case of woodward governor (supra).We therefore uphold the order of the Ld. CIT(Appeals) deleting the levy of penalty 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 t h December, 2016
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*Rati*
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT
5. The DR
Assistant Registrar,
ITAT, Chandigarh