2020 (1) TMI 159 - AT - Income Tax

TCS u/s 206C(1) in respect of scrap sale - assessee treated in default for non-deduction of tax, passed order U/s 201(1)/201(1A) - HELD THAT - As in the case of Shri Azizbhai A. Lada Vs ITO 2018 (1) TMI 1554 - ITAT AHMEDABAD wherein trading of scrap was not held to be liable to deduction of tax U/s 206C(1) - No merit in the order of the A.O. treating the assessee in default for non-deduction of tax U/s 206C(1) of the Act in respect of scrap sales affected by him during the year under consideration Levy of penalty u/s 271CA of the Act for default in collecting tax at source u/s 206CA - HELD THAT - Assessee has nowhere substantiated its claim for not liable to deduct the tax on the plea of sale of such scrap to the manufacturer/ processor of articles or things for the purpose of generation of power and not for trading purposes. Further the assessee has not filed Form No. 27 to the Chief Commissioner or Commissioner in terms of Section 201(1)/201(1A) of section 206C of the Act. It was not the case of the assessee that he was selling the scrap generated out of ship trading. Thus the nature of scrap business was not fully substantiated by the assessee so as to bring it out of mischief of section 206C(1) of the Act. - Restore the matter back to the file of the AO for deciding the issue afresh in the light of judicial pronouncement discussed hereinabove and also assessee is required to file the nature of scrap sold by him whether it is to be utilized by manufacturer or producer of articles and not for trading purposes. Both the appeals of the assessee are allowed for statistical purposes.

Summary

Issues Involved:
1. Imposition of penalty under Section 271CA read with Section 274 of the Income Tax Act, 1961.
2. Treating the assessee as in default under Sections 201(1) and 201(1A) of the Income Tax Act, 1961 for non-deduction of tax at source under Section 206C(1).

Detailed Analysis:

Issue 1: Imposition of Penalty under Section 271CA read with Section 274
The assessee contended that no penalty should be imposed for default in collecting tax at source under Section 206CA, as there is a consistent view by various ITAT Benches that no penalty is imposable in such cases. The assessee cited the ITAT Chandigarh Bench case of ITO(TDS) Vs Sh. Tarsem Lal, which held that a reasonable belief based on prevailing circumstances constituted a reasonable cause for not collecting tax at source. The Hon’ble Delhi High Court in Woodward Governor India Pvt. Ltd. Vs. CIT also supported this by stating that the absence of reasonable cause is essential for levying penalty under Section 271C, and the initial burden is on the assessee to show a reasonable cause for failure to deduct tax at source.

The ITAT agreed with the assessee, noting that the belief harbored by the assessee constituted a reasonable cause, as the goods sold were not categorically established as scrap. The Tribunal found that the assessee had an honest belief based on reasonable grounds that the goods sold were not scrap, thus constituting a reasonable cause for not collecting tax at source. Therefore, the penalty imposed under Section 271CA was deemed to lack merit.

Issue 2: Default under Sections 201(1) and 201(1A) for Non-Deduction of Tax at Source under Section 206C(1)
The Assessing Officer (A.O.) observed that the assessee, engaged in the business of scrap trading, was liable to deduct tax under Section 206C(1) for scrap sales. The A.O. treated the assessee as in default for non-deduction of tax and passed an order under Sections 201(1) and 201(1A). The CIT(A) confirmed this action. However, the assessee argued that the scrap sold did not fall under the definition of "scrap" as per Section 206C(1), citing the ITAT Ahmadabad Bench's decision in Shri Azizbhai A. Lada Vs ITO, which held that items from ship breaking activities, though commercially known as "scrap," are reusable and do not fit the definition of scrap under Section 206C(1).

The ITAT found merit in the assessee's argument, noting that the items sold by the assessee did not fit into the category of scrap as explained by the Hon’ble Gujarat High Court. The Tribunal held that the assessee could not be treated as in default under Section 206C(1) for the impugned sales, as the items sold were not waste and scrap but reusable products. Hence, the assessee was not liable for tax collection at source under Section 206C(1).

Conclusion and Directions:
The ITAT directed the matter back to the A.O. for fresh consideration, emphasizing the need for the assessee to substantiate the nature of the scrap sold and whether it was for manufacturing or trading purposes. The appeals were allowed for statistical purposes, and the Tribunal instructed the A.O. to decide the issue afresh in light of judicial pronouncements and the nature of the scrap business substantiated by the assessee.

Final Judgment:
Both appeals of the assessee were allowed for statistical purposes, and the matter was remitted back to the A.O. for fresh adjudication, ensuring compliance with judicial precedents and proper substantiation of the nature of the scrap sold by the assessee.

Order pronounced in the open court on January 3, 2020.