2020 (7) TMI 438 - AT - Income Tax

TCS u/s 206C(1) - Purchase by the assessee as scarp subjected to TCS - Assessee is dealing in scraped material and has purchased railway scrap in auction - First contention of the assessee is that the material sold by the assessee which was purchased from the railways in the auction does not fall in the definition of scrap as provided in clause (b) of Section 206C - HELD THAT - Scrap sold by the railway was certainly not usable due to its breakage or wear and tear and it was also subjected to TCS for which the assessee has not raised any objection. Once the assessee has accepted the goods purchased from the railway as scrap and allowed the TCS then the resale of the same goods by the assessee will not part take a different character. In view of the undisputed fact that what was purchased by the assessee is scarp subjected to TCS then the resale of the same material is also be treated as scrap and there is no scope of re-classification of the these goods at the time of sale. No merits or substance in the contention of the assessee. The decisions relied upon by the assessee are on specific facts of those cases and therefore, would not help the case of the assessee. As regards the contention of the assessee that some of the sales considered by the AO as scrap was actually sale of new goods. We note that the AO has considered the sale on the basis of the spot verification. However, now the assessee has also placed certain sale bills in support of his contention that the sales to the extent of ₹ 1,88,60,145/- is sale of new iron goods and not scrap. Since, this is a factual aspect of the matter and needs proper a verification. Therefore, we set aside on this issue to the record of the Assessing Officer for verification of the same by considering the evidence filed by the assessee and then decide the same. Needless to say the assessee be given an appropriate opportunity of hearing before passing the fresh order on this issue. Appeal of the assessee is partly allowed for statistical purposes

Summary

Issues:
1. Interpretation of Section 206C of the Income-tax Act regarding the definition of scrap.
2. Determination of liability under Section 206C(6A) and interest under Section 206C(7) for non-collection of tax at source.
3. Dispute regarding classification of goods sold by the assessee as scrap or new iron goods.
4. Consideration of evidence and verification of sales to determine the nature of goods sold.

Interpretation of Section 206C - Definition of Scrap:
The appeal involved a dispute over the applicability of Section 206C of the Income-tax Act to the assessee's transactions involving the sale of scrap material purchased from railways. The assessee argued that the material purchased did not fall within the definition of scrap as per the Act. However, the tribunal held that the definition of scrap includes waste material from manufacturing or mechanical working that is unusable due to breakage, cutting, wear, or other reasons. Since the material purchased from railways was subjected to tax collection at source (TCS) as scrap, the resale by the assessee could not be reclassified. The tribunal rejected the assessee's argument and upheld the applicability of Section 206C to the transactions.

Determination of Liability and Interest:
The Assessing Officer had held the assessee in default for not collecting tax at source under Section 206C(6A) and imposed interest under Section 206C(7). The tribunal noted that the assessee had not collected tax while selling the scrap to various parties, leading to the initiation of proceedings by the AO. Despite the assessee's contentions, the tribunal upheld the order of the AO, confirming the default and the liability determined. The tribunal found no merit in the assessee's arguments and upheld the decision regarding liability and interest under the relevant sections of the Act.

Dispute over Classification of Goods:
A key contention in the appeal was the classification of goods sold by the assessee as either scrap or new iron goods. The assessee claimed that certain sales considered as scrap were actually sales of new goods. The tribunal observed that while the AO had based the classification on spot verification, the assessee provided sales bills supporting the assertion that a significant amount of sales constituted new iron goods. Recognizing the factual nature of this issue, the tribunal set aside the matter for verification by the AO based on the evidence submitted by the assessee. The tribunal directed the AO to reexamine the sales and provide the assessee with an opportunity for a hearing before making a fresh determination on this aspect.

In conclusion, the tribunal partly allowed the appeal for statistical purposes, addressing the interpretation of Section 206C, confirming the liability under relevant sections, and directing a reexamination of the classification of goods sold by the assessee. The decision emphasized the importance of adhering to tax collection provisions and ensuring accurate classification of goods to determine tax obligations correctly.