2016 (12) TMI 1804 - AT - Income Tax

Penalty u/s 271CA for default in collecting tax at Sources(TCS) - Reasonable belief - 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 - HELD 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. 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 2001 (4) TMI 34 - DELHI HIGH COURT . We therefore uphold the order of the Ld. CIT( appeal) deleting the levy of penalty under section 271CA - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessee was liable to collect tax at source (TCS) on the goods sold.
2. Whether the goods sold by the assessee qualified as "scrap" under the definition provided in Section 206C of the Income Tax Act, 1961.
3. Whether the penalty under Section 271CA was correctly levied for non-collection of TCS.
4. Whether there was a reasonable cause for the assessee's failure to collect TCS.
5. Whether the payment of taxes by the buyers of the scrap constituted a reasonable cause for not levying the penalty.

Issue-wise Detailed Analysis:

1. Liability to Collect TCS:
The primary issue was whether the assessee was liable to collect TCS on the goods sold. The Revenue contended that the assessee failed to collect TCS on the sale of old iron scrap, which was required under Section 206C of the Income Tax Act, 1961. The assessee argued that the goods sold did not qualify as "scrap" and hence were not subject to TCS.

2. Definition of "Scrap":
The assessee contended that the goods sold did not fall within the definition of "scrap" as provided in the Explanation to Section 206C of the Act. The goods sold were not waste or scrap obtained from manufacturing or mechanical working of materials and were reusable. The CIT(A) rejected this contention, holding that the goods sold did qualify as scrap.

3. Penalty under Section 271CA:
The Revenue imposed a penalty under Section 271CA for the assessee's failure to collect TCS. The CIT(A) deleted the penalty, reasoning that the buyers had paid the due taxes, causing no loss to the Revenue. The CIT(A) relied on the ITAT Bangalore Bench's judgment in the case of Wipro GE Medical System Ltd., where it was held that payment of taxes by the buyers constituted reasonable cause for not levying the penalty.

4. Reasonable Cause for Failure to Collect TCS:
The CIT(A) and the ITAT found that the assessee had a reasonable belief that the goods sold were not scrap and hence not subject to TCS. This belief was based on the nature of the goods and their reusability. The ITAT concurred with the CIT(A) that this belief constituted a reasonable cause for the assessee's failure to collect TCS.

5. Payment of Taxes by Buyers:
Both the CIT(A) and the ITAT noted that the buyers of the scrap had paid the due taxes, and no demand was raised on the assessee for non-collection of TCS. Only interest was charged, indicating that the Revenue did not treat the assessee as in default. The ITAT upheld the CIT(A)'s decision, citing that no loss was caused to the Revenue, and reasonable cause existed for not levying the penalty.

Conclusion:
The ITAT upheld the CIT(A)'s order deleting the penalty under Section 271CA, agreeing that the assessee had a reasonable cause for not collecting TCS. The appeal of the Revenue was dismissed, and it was concluded that the assessee's belief about the nature of the goods sold and the payment of taxes by the buyers constituted a reasonable cause for the failure to collect TCS. The decision emphasized that the absence of reasonable cause is essential for levying a penalty under Section 271CA.