Income Tax Appellate Tribunal - Rajkot
Ito, Tds-4,, Gandhidham vs Safari Fine Clothing Pvt. Ltd.,, ... on 26 May, 2017
vk;dj vihyh; vf/kdj.k] jktdksV U;k;ihB] jktdksVA
IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH, RAJKOT
[Conducted through E-Court at Ahmedabad]
loZJh egkohj izlkn] U;kf;d lnL; ,oa vejthr flag] ys[kk lnL; ds le{kA
(BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER &
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER)
आयकर अपील सं./I.T.A. Nos.732, 733, 734, 735 & 736/Rjt/2014
&
CO Nos.13, 14, 15, 16 & 17/Rjt/2015
(in ITA Nos.732, 733, 734, 735 & 736/Rjt/2014 respectivel y)
( नधा रण वष / Assessment Years: 2009-10, 2010-11, 2011-12, 2012-13
& 2013-14)
Income-Tax Officer, बनाम/M/s. Safari Fine Clothing
TDS-4, Vs. Pvt. Ltd.,
Gandhidham. Shed-280/281,
A-Type, Sector-3, KASEZ,
Gandhidham.
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAJCS 0565 Q
(अपीलाथ /Appellant) .. ( यथ / Respondent)
& Cross Objector
Assessee by : Ms. Usha N. Shrote, Sr. D.R.
Revenue by : Shri Kalpesh Doshi, A.R.
ु वाई क तार ख /
सन Date of Hearing 04/05/2017
घोषणा क तार ख /Date of Pronounce ment 26/05/2017
आदे श / O R D E R
PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER :
These five appeals have been filed by the Revenue are directed against the orders of the Commissioner of Income Tax(Appeals)-II, Rajkot (identically dated 26/09/2014) pertaining to Assessment Years ITA Nos.732 to 736/Rjt/2014 and CO Nos. 13 to 17/Rjt/2015(in ITA Nos.732 to 736/Rjt/14) Safari fine Clothing Pvt. Ltd. vs. ITO Asst.Year -2009-10 -2- (AYs) 2009-10, 2010-11, 2011-12, 2012-13 & 2013-14. The Assessee has also filed Cross Objections thereof. Since the issues are common. These appeals were heard together and are being disposed of by this consolidated order for the sake of convenience.
2. All these appeals and Cross Objections have common Grounds. Therefore, we would like to discuss all appeals as well as Cross Objections simultaneously:
i. The learned CIT(A) erred in law as well as facts of the case in deleting the order passed u/s.206C(6) of the IT Act of Rs.9,04,858/-(for A.Y. 2009-10), Rs.24,97,271/-(for A.Y. 2010-
11), Rs.32,97,026/-(for A.Y.2011-12), Rs.10,20,866/-(for A.Y.2012-13) & Rs.9,99,324/-(for A.Y. 2013-14).
ii. The learned CIT(A) erred in deleting the addition of the interest charged u/s.206C(7) of the IT Act. The charging of interest u/s.206C(7) is consequential in nature in the appeal under reference.
iii. The CIT(A) has violated the rule 46A of the IT Rule by not giving opportunity to the AO after admitting additional evidences in the form of photographs, samples.
iv. The learned CIT(A) erred in law as well as on facts of the case by ignoring the facts that the remand report has to be called for from the AO for the additional/fresh evidences produce by the assessee before him for verification.
ITA Nos.732 to 736/Rjt/2014 and CO Nos. 13 to 17/Rjt/2015(in ITA Nos.732 to 736/Rjt/14) Safari fine Clothing Pvt. Ltd. vs. ITO Asst.Year -2009-10 -3-
3. The relevant facts as culled out from the materials on record are as under:-
3.1 During the course of survey, it was observed that appellant was importing garments, cutting them into smaller pieces and selling them in India. It was also observed that the appellant was also selling scrap like wastage of packing material, loose cartoons, plastic bags etc. The Assessing Officer (AO) held that the appellant was selling scrap and thus should have collected tax at source on the sales made as per provisions of Section 206C. It was held that the appellant was liable to pay interest u/s.206C(7). The TCS default and the interest liability has been computed by the AO for the various assessment years as under:-
A.Y. Demand u/s. Demand u/s. Total
206C(6A) 206C(7)
2009-10 9,06,739 5,84,846 14,91,585
2010-11 25,00,157 13,12,582 38,12,739
2011-12 33,04,512 13,38,327 46,42,839
2012-13 10,23,991 3,00,380 13,24,371
2013-14 10,05,870 1,57,254 11,63,124
2014-15 6,08,700 42,425 6,51,125
Total 93,49,969 37,35,814 1,30,85,783
4. Before the AO as well as during appellate proceedings, it was contended by the appellant as under:-
ITA Nos.732 to 736/Rjt/2014 and CO Nos. 13 to 17/Rjt/2015(in ITA Nos.732 to 736/Rjt/14) Safari fine Clothing Pvt. Ltd. vs. ITO Asst.Year -2009-10 -4-
(i). "The appellant company has imported used fumigate garments from the various countries.
(ii). The said goods imported are specifically covered as finished goods under the Custom Tariff Act. The goods are liable to custom duty also.
(iii). The appellant has carried out various processes on-such garments as per their types, quality, and synthetics. The various processes are carried out to make a finished product which is usable as finished, product in the market.
(iv). It is respectfully submitted that the goods are bifurcated into the following categories:
(a) Mutilated Rags
(b) Industrial Wipers
(c) Chindi
(v) The goods are manufactured as per the order placed by various buyers. The buyer of the product uses goods for different application.
(a) Mutilated rags are used for Ladies overcoat, Knit wares, blankets, winter wears and various produced like garments inner supports, sofa sets, mattresses, pillows etc.
(b) Chindi are used for manufacturing of Bigfoot Bath Mat, Granny square rug, jumbled jola, kitchen scrubbers, coffee coaster, plastic bag basket and so many such other items.
(c) Industrial wipers are used to by various industries for the manufacturing activities.
(vi). All the above items are used as raw-material by the buyers. The buyers use the product for various manufacturing activities for their end use.
(vii). The product manufacturing by the appellant is also having separate title under Excise laws under the head 63.09 and 63.10.
The appellant is also liable to pay excise duty if the same has been sold under DTA area.
ITA Nos.732 to 736/Rjt/2014 and CO Nos. 13 to 17/Rjt/2015(in ITA Nos.732 to 736/Rjt/14) Safari fine Clothing Pvt. Ltd. vs. ITO Asst.Year -2009-10 -5-
(viii). It is also respectfully submitted by the assessee that the imported garments are completely capable to be used as they are and if those garments are sold in domestic market, then sale of Indian Made readymade garments suffers badly. Therefore to protect and promote readymade garments industries of India, the government has directed to sale those garments in domestic market only after making different products which can be used as raw-material. Therefore, in the present case the appellant is not allowed to further trade the imported garments to be sold in the open market as per the instruction no. F.No.450/2/99-Cus. IV given by Government of India, Ministry of Finance, Department of Revenue and Central Board of Excise & Customs, dtd. 8th May 2000.
(ix). As per section 206C (11b) of the IT. Act, 1961 "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
(x). The Hon'ble ITAT Rajkot in the case of Bharti Auto Products 157 TTJ 1 (Rajkot) has defined waste vide para no. 25 means "waste is something unusable or unwanted material, according to oxford dictionary waste is something which has been "eliminated or discarded as no longer useful or required" Now, in case of appellant company the goods sold are very much regarded as useful and required for the purpose of manufacturing by the buyers in their production items.
(xi) The Hon'ble ITAT has further considered the definition of scrap means "something which is left over after the greater part has been used or consumed, "scrap" thus refers to the incidental residue derived from certain types of manufacture, which is recoverable without further processing".
(xii). The Hon'ble ITAT has also defined manufacturing and the process of the appellant company completely changes the usage of product by changing the shape, properties and structure of the ITA Nos.732 to 736/Rjt/2014 and CO Nos. 13 to 17/Rjt/2015(in ITA Nos.732 to 736/Rjt/14) Safari fine Clothing Pvt. Ltd. vs. ITO Asst.Year -2009-10 -6- product. And therefore the appellant in commercial terms carrying out manufacturing activities by physical operation on the garments. The product which comes out of the whole activities is not a product which is left over or unusable and therefore it would not be regarded as scrap as per the definition given under the Income Tax Law.
(xiii). It is further stated that the raw material as well as finished goods of the appellant company are not regarded as scrap under the Indirect tax laws also.
(xiv). Assessee further stated that from the above it can be concluded that appellant company selling the goods is not a scrap and not liable for collection of tax from the seller.
(xv). The Ld. AO has not considered the actual activities of the appellant company and has wrongly applied the provisions of section 206C (6A) of the IT Act and wrongly considered the "appellant in default" in account of failure to collect tax at source.
(xvi). It has been held in the case of CIT Vs. M/s Adisankara Spinning Mills (P) Ltd. ITA No. 1194 of 2010 (Madras High Court) that in the Process of manufacture of cotton yarn, cotton waste came to be generated and the use of the said waste by another manufacturer shows that it was used as raw material by purchaser. Even the learned Departmental representative stated before the Tribunal that the cotton waste disposed of by the respondent-assessee, was re-used as raw material for manufacture of lower count of cotton yarn and it does not come under definition of scrap as defined in Explanation (b) of Section 206C of the Act.
(xvii). Thus, from the above it can be concluded that if the goods sold to another person used it as raw material than it could not be considered as scrap for the purpose section 206C of the I. T. Act. ITA Nos.732 to 736/Rjt/2014 and CO Nos. 13 to 17/Rjt/2015(in ITA Nos.732 to 736/Rjt/14) Safari fine Clothing Pvt. Ltd. vs. ITO Asst.Year -2009-10 -7-
5. Learned DR vehemently relied upon the order of the AO.
6. We have gone through the relevant record and heard the rival submissions. It is undisputed fact that assessee running its company in SEZ area, where Government provide some incentives to the entrepreneur.
6.1 It has been held in the case of Bharti Auto 37 taxmann.com 37 has held 'scrap' to mean "something which is left over after the greater part has been used or consumed. Scrap thus refers to the incidental residue derived from certain types of manufacture, which is recoverable without further processing".
6.2. Learned AR has also relied upon the judgment of Jurisdictional High Court [2016] 65 taxmann.com 206 (Gujarat) in the case of CIT(TDS) vs. Priya Blue Industries (P.) Ltd.
"Section 206C of the Income Tax Act, 1961 - Collection of tax at source (Scrap) - Whether any material which is usable as such would not fall within ambit of expression 'scrap' as envisaged under clause (b) of Explanation to Section 206C - Held, yes - Whether since products obtained in course of ship breaking activity are usable as such, they do not fall within definition of scrap and assessee engaged in ship breaking activity would have no obligation to collect tax at source on sale of scrap and it was held in the favour of the assessee".
7. In this said judgment, the co-ordinate Bench of the Tribunal (ITAT Ahmedabad) in ITA Nos.1213 and 1214/Ahd/2010 dated 15.02.2011 in ITA Nos.732 to 736/Rjt/2014 and CO Nos. 13 to 17/Rjt/2015(in ITA Nos.732 to 736/Rjt/14) Safari fine Clothing Pvt. Ltd. vs. ITO Asst.Year -2009-10 -8- the case of Navine Fluorine International Ltd. vs. ACIT, TDS Circle Surat, for A.Y. 2009-10 & 2010-11 inter alia held that term "waste and scrap" are one item. The "waste and scrap" must be from manufacture of mechanical working of material which is definitely not usable as such because of breakage, cutting up, ware and to other reasons. It would mean that these waste and scrap being one item should arise from manufacture or mechanical working of material. The words waste and scrap should have nexus with manufacturing or mechanical working of materials. Therefore, the word used is "which is" definitely not usable. The word "is" as used in this definition of the scrap meant for singular item i.e. "waste and scrap".
8. So far as Rule 46A is concerned that as per the Department learned CIT(A) has violated the Rule 46A of the IT Rules by not giving opportunity to the AO after admitting additional evidences in the form of photographs, samples etc is concerned. Same is covered by the ITAT Mumbai Bench in the matter of ITO vs. Industrial Roadways [2008] 112 ITD 293 (Mumbai):
"It has been held that Whether purpose of rule 46A is to place fetters on rights of an appellant to produce additional evidence before first appellate authority and not on rights of first appellate authority to call for production of any fresh evidence or information - Held, yes - Whether where additional evidence is obtained by first appellate authority on its own motion, there is no requirement, in law, that he should invariably consult/confront Assessing Officer with such additional evidence - Held, yes -Whether if additional evidence furnished by assessee before first appellate authority is in nature of a ITA Nos.732 to 736/Rjt/2014 and CO Nos. 13 to 17/Rjt/2015(in ITA Nos.732 to 736/Rjt/14) Safari fine Clothing Pvt. Ltd. vs. ITO Asst.Year -2009-10 -9- clinching evidence leaving no further room for any doubt or controversy, in such a case no useful purpose would be served by forwarding evidence/material to Assessing Officer to obtain his report and in such exceptional circumstances, said requirement may be dispensed with and it was held in the favour of the assessee".
9. So far as the charging of interest u/s. 206C(7) of IT Act is concerned and same is consequential in nature.
10. On the account of foregoing observation, we dismiss the appeal of the Department as we do not find any infirmity in the order passed by the learned CIT(A). Assessee has given enough material to rely us on the order passed by the learned CIT(A). Therefore, we dismiss the appeal of the Department and upheld the order of the learned CIT(A).
11. As ITA No.733/Rjt/2014, ITA No.734/Rjt/2014, ITA No.735/Rjt/2014 & ITA No.736/Rjt/2014 are for the consequential and same appeals involved common issues, therefore, do not require separate adjudication.
12. In the result, all five appeals of the Department are dismissed.
13. So far as Cross Objections Nos. 13/Rjt/2015, 14/Rjt/2015, 15/Rjt/2015, 16/Rjt/2015 & 17/Rjt/2015, in all the Cross Objections, appellant has taken common objections for addition of small amount u/s. 206C(6) of Income Tax Act.
ITA Nos.732 to 736/Rjt/2014 and CO Nos. 13 to 17/Rjt/2015(in ITA Nos.732 to 736/Rjt/14) Safari fine Clothing Pvt. Ltd. vs. ITO Asst.Year -2009-10
- 10 -
14. In all the Cross Objections, assessee has taken common grounds, since we have upheld the order of the learned CIT(A) and we do not find any infirmity in the order, passed by the learned CIT(A). Therefore, all the Cross Objections are dismissed.
15. In the result, all five appeals in ITA Nos. 732/Rjt/2014, 733/Rjt/2014, 734/Rjt/2014, 735/Rjt/2014 & 736/Rjt/2014 are dismissed and all five Cross Objections Nos. 13/Rjt/2015, 14/Rjt/2015, 15/Rjt/2015, 16/Rjt/2015 & 17/Rjt/2015 are also dismissed.
This Order pronounced in Open Court on 26/05/2017
Sd/- Sd/-
vejthr flag महावीर साद
(लेखा सद य) ((या)यक सद य)
( AMARJIT SINGH ) ( MAHAVIR PRASAD )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 26/05/2017
Priti Yadav, Sr.PS
ITA Nos.732 to 736/Rjt/2014 and CO Nos. 13 to 17/Rjt/2015(in ITA Nos.732 to 736/Rjt/14) Safari fine Clothing Pvt. Ltd. vs. ITO Asst.Year -2009-10
- 11 -
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं,धत आयकर आयु.त / Concerned CIT
4. आयकर आयु.त(अपील) / The CIT(A)-II, Rajkot.
5. /वभागीय )त)न,ध, आयकर अपील य अ,धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड4 फाईल / Guard file.
आदे शानुसार/ BY ORDER, स या/पत )त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील$य अ%धकरण, अहमदाबाद / ITAT, Ahmedabad True Copy
1. Date of dictation 11/05/2017 (dictation-pad 12 pages attached at the end of this appeal- file)
2. Date on which the typed draft is placed before the Dictating Member 12/05/2017
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S 16/05/2017
5. Date on which the fair order is placed before the Dictating Member for pronouncement...16/05/2017
6. Date on which the fair order comes back to the Sr.P.S./P.S...23/05/2017.
7. Date on which the file goes to the Bench Clerk 26/05/2017
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................