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2022 (1) TMI 173 - AT - Income TaxFailure to collect TCS u/s 206C(1) - trading of scrap - sale of scrap to manufacturer - Period of limitation - Assessee failed to submit the Form No.27BA and failed to furnish the declarations in Form 27C as required under the explanation (1A) and (1B) to section 206C(1) in the office of the Competent Authority - assessee submits that assessment order passed by u/s 206C(6)/(6A) r.w.s 206C(7) as barred by limitation and therefore deserves to be quashed - HELD THAT - Section 206C prescribes two window wherein, assessee seller does not require to collect TCS. First is obtain declaration (in Form 27C) from the counter party-purchaser, that goods so purchased 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 and in those cases assessee seller is not required to collect TCS on such transactions. The same is envisaged in Section 206C(1A) of the Act. The second window is to obtain certificate, to the effect that buyer has furnished his return of income u/s 139 of the Act and has taken into account such amount for computing income in such return of income; and has paid the tax due on the income declared by him in such return of income. Such certificate should be obtained from a Chartered Accountant as per proviso to section 206C(6A) of the Act, in Form 27BA, as prescribed by CBDT. Respectfully following the Judgment of Bharat Hotels Ltd, 2015 (12) TMI 1469 - KARNATAKA HIGH COURT we note that in assessee s case under consideration, order passed by the assessing officer under section 206C(6)/(6A) r.w.s 206C(7) for AY.2012-13 and A.Y. 2013-14 are barred by limitation and therefore we quash both the orders of the assessing officer and hence we allow the appeal of the assessee. Interpreting the term Scrap as defined in clause (b) to Explanation to section 206C - For AY 2014-15 to AY 2016-17 as noted that assessee under consideration is a trader in scrap. His products are not a result of manufacturing process carried out by him. Thus, assessee being trader, not covered in definition of scrap , since scrap is not generated from manufacturing or mechanical working of material, therefore the assessee is not covered in definition of scrap . Hence, in our considered opinion, the assessee cannot be treated as an assessee in default, therefore we allow appeals of the assessee.
Issues Involved:
1. Time-barred assessment orders. 2. Interpretation of the definition of "Scrap" under Section 206C(1). 3. Assessee's bona fide belief regarding the interpretation of the definition of scrap. 4. Non-collection of TCS on sale of scrap despite filing Form No. 27C late. 5. Non-collection of TCS on sale of scrap despite buyers discharging tax. Detailed Analysis: 1. Time-Barred Assessment Orders: The assessee argued that the assessment orders for AYs 2012-13 and 2013-14 were time-barred. The Tribunal noted that there is no specific time limit provided in the Income Tax Act for passing orders under section 201(1)/201(1A) read with section 206C (6 and 6A/206C(7). However, it was held that a reasonable period for passing such orders should be considered. The Tribunal referred to various judgments, including the Hon'ble Supreme Court's decision in Sinhgad Technical Education Society, and concluded that a four-year period from the end of the relevant financial year is a reasonable time limit. Since the orders were passed after four years from the end of the relevant financial years, they were deemed time-barred and quashed. 2. Interpretation of the Definition of "Scrap" under Section 206C(1): The assessee contended that it was a trader and not a manufacturer, and thus, the items sold did not fall under the definition of "scrap" as per Section 206C(1). The Tribunal examined the definition of "scrap" and noted that it refers to waste and scrap from the manufacture or mechanical working of materials. The Tribunal referred to several judgments, including the Gujarat High Court's decision in CIT vs. Priya Blue Industries Pvt. Ltd., which clarified that the definition of scrap is limited to materials generated from manufacturing or mechanical working processes. Since the assessee was a trader and not a manufacturer, the items sold did not qualify as "scrap" under Section 206C(1). 3. Assessee's Bona Fide Belief Regarding the Interpretation of the Definition of Scrap: The assessee argued that it held a bona fide belief that the items sold did not qualify as "scrap" under Section 206C(1). The Tribunal acknowledged this argument and noted that the assessee's interpretation was consistent with the definition provided by law. The Tribunal also considered the fact that the assessee had filed Form No. 27C, albeit late, indicating a genuine attempt to comply with tax obligations. 4. Non-Collection of TCS on Sale of Scrap Despite Filing Form No. 27C Late: The assessee filed Form No. 27C late, which led to the non-collection of TCS on the sale of scrap. The Tribunal noted that the assessee had filed the forms during the appellate proceedings and that the buyers had filed their returns and paid taxes accordingly. The Tribunal held that the late filing of Form No. 27C should not result in treating the assessee as in default, as the buyers had discharged their tax liabilities. 5. Non-Collection of TCS on Sale of Scrap Despite Buyers Discharging Tax: The Tribunal observed that the assessee had provided evidence that the buyers had filed their returns and paid taxes. It was held that the assessee should not be treated as in default under Section 206C(6A) as the buyers had complied with their tax obligations. The Tribunal emphasized that the primary liability to pay tax is on the buyer, and the seller's liability is vicarious. Conclusion: The Tribunal allowed the appeals filed by the assessee for AYs 2012-13 to 2016-17, quashing the time-barred assessment orders and holding that the assessee, being a trader and not a manufacturer, was not liable to collect TCS on the sale of scrap. The Tribunal also acknowledged the assessee's bona fide belief regarding the interpretation of the definition of scrap and the compliance efforts made by filing Form No. 27C and ensuring that buyers discharged their tax liabilities.
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