2018 (10) TMI 602 - AT - Income Tax

Default in collecting tax at source (TCS) - scrap sales - levy of interest u/s 201(1A)/206C(7) - Period of limitation - validity of SCN - scope of the term Scrap and buyer - the assessee is a dealer and not a manufacturer. It purchases scrap from various manufacturers and then carries out sorting of the scrap in different forms like copper, iron, plastics and PVC etc. and then sell the same in retail to various persons. Held that - so long as the show-cause as well as the final order states clearly the applicable provisions i.e, 206C(6)/206C(7) of the Act, merely the fact that in addition to relevant provisions, it makes a mention of additional provisions 201(1)/201(IA), the same will not make the proceedings invalid Even though there are no specific limitation provisions prescribed in Section 206C of the Act, however, the present proceedings under section 206C can be reasonably guided by the limitation provisions as contained in Section 201(3) of the Act. Admittedly, the Revenue has also not disputed the applicability of Section 201(3) of the Act as apparent from the assessment order. Given that there is no specific finding of the AO or the ld CIT(A) on the aspect of limitation, the matter is set-aside to the file of the ld CIT(A) for the limited purposes of determination whether the present proceedings are barred by limitation as prescribed under section 201(3) of the Act in light of above discussions and the legal propositions so laid down in the decisions referred supra.

Summary

Issues Involved:
1. Validity of the order under sections 201(1)/201(1A) and 206C(6)/206C(7) due to jurisdiction and other reasons.
2. Legality of the demand for ?79,551/- for short collection of TCS on scrap sales.
3. Appropriateness of the interest charge of ?76,368/- under sections 201(1A)/206C(7) for short collection of TCS.
4. Whether the notice and order were barred by limitation under section 201(3) of the Act.

Detailed Analysis:

1. Validity of the Order under Sections 201(1)/201(1A) and 206C(6)/206C(7):
The assessee challenged the validity of the order, arguing that the notice issued under sections 201(1)/201(1A) and 206C(6)/206C(7) was defective as these provisions pertain to different and independent requirements. The Tribunal noted that the proceedings initiated were related to non-collection of TCS and not TDS. It was observed that the mention of sections 201(1)/201(1A) in addition to 206C(6)/206C(7) was inadvertent and did not invalidate the proceedings. Reference was made to section 292B, which states that procedural defects do not invalidate proceedings if they are in substance and effect in conformity with the intent and purpose of the Act.

2. Legality of the Demand for ?79,551/- for Short Collection of TCS on Scrap Sales:
The assessee argued that the goods sold were not scrap for them as they were the principal traded items and not waste. The Tribunal referred to the definition of "scrap" under section 206C and the decision of the Special Bench in Bharti Auto Products Vs. CIT-II, which clarified that the term "scrap" includes waste from the manufacture or mechanical working of materials, irrespective of whether the seller is a manufacturer. The Tribunal upheld the Assessing Officer's finding that the items sold by the assessee were indeed scrap and the assessee was liable to collect TCS.

3. Appropriateness of the Interest Charge of ?76,368/- under Sections 201(1A)/206C(7) for Short Collection of TCS:
The interest charge was contested on similar grounds as the principal TCS demand. The Tribunal, aligning with its previous findings and the decision in Bharti Auto Products, upheld the interest charge, noting that the failure to collect TCS warranted the imposition of interest under section 206C(7).

4. Whether the Notice and Order were Barred by Limitation under Section 201(3) of the Act:
The assessee contended that the notice and order were barred by limitation, referencing the amendment by the Finance Act (No. 2), 2014, which extended the time limit to seven years. The Tribunal acknowledged the applicability of limitation provisions under section 201(3) to proceedings under section 206C, despite the lack of specific limitation provisions in the latter. The Tribunal referred to various judicial precedents, including the decisions in Vodafone Essar Mobile Services and Tata Teleservices, which held that amendments extending limitation periods do not apply retrospectively. Consequently, the Tribunal set aside the matter to the CIT(A) to determine whether the proceedings were barred by limitation, in light of these legal principles.

Conclusion:
The Tribunal upheld the Assessing Officer's findings regarding the liability for TCS and the associated interest charges. However, it remanded the case to the CIT(A) to ascertain whether the proceedings were initiated within the permissible time frame, as guided by the limitation provisions under section 201(3). The appeal was allowed for statistical purposes.