2022 (11) TMI 978 - AT - Income Tax

TCS as per section 206C - sale of scarp - Declarations beyond the time prescribed by law - scrap as generated by assesses during manufacturing process and not that dealt with as trader of scrap - HELD THAT - No limitation is prescribed in the Act for filing of declaration as required under section 206C(1A) of the Act, and the assessee having filed delayed declaration under a bona fide belief, we are not in agreement with the ld.CIT(A) that these declarations could not have been entertained by the ld.CIT(A). As noted above even the Revenue has considerably delayed action on its end.The assessee alone therefore cannot be held accountable and made to suffer for the delay at its end in filing nthe requisite declarations for claiming exemption from TCS. These declarations, which have been acknowledged as received by the Department, ought to have been considered by the CIT(A) for adjudicating the issue. The assessee having filed declarations relating to substantial portion of the sale of scrap in the present case, and noting the fact that the issue now has become very old with almost 15 years have been elapsed since financial year to which the issue relates , we are of the view that the assessee be given benefit of declaration filed by it, and be not held as assessee-in-default for the tax not collected at source. Accordingly, interest charged on the same, is also directed to be deleted. Appeal of the assessee is allowed.

Summary

Issues Involved:

1. Determination of tax liability for non-collection of Tax Collection at Source (TCS).
2. Charging of interest under section 206C(7) of the Income Tax Act, 1961.
3. Timeliness and validity of filing declarations under section 206C(1A) for exemption from TCS.

Detailed Analysis:

1. Determination of Tax Liability for Non-Collection of TCS:

The assessee sold scrap worth Rs.2,19,55,691/- without making TCS. The AO treated the assessee as 'assessee-in-default' for not making TCS as per section 206C(1) and determined a liability of Rs.2,19,556/- under section 206C(6). The assessee argued that the scrap sold was not generated from manufacturing activities but was obtained from ship breakers, thus not qualifying for TCS. The CIT(A) rejected this argument, referencing the Special Bench of ITAT, Rajkot's decision in M/s Bharti Auto Products, which held that TCS provisions apply to all scrap sales, whether generated from manufacturing or purchased. Consequently, the CIT(A) upheld the AO's order.

2. Charging of Interest under Section 206C(7):

The AO also charged interest of Rs.1,58,080/- under section 206C(7) for late collection of TCS. The CIT(A) upheld this interest charge, noting that the assessee had delayed filing declarations and that these declarations were only for part of the sales. The CIT(A) found no merit in the assessee's arguments and upheld the interest liability.

3. Timeliness and Validity of Filing Declarations under Section 206C(1A):

The assessee contended that the order under section 206C(6)/(7) was passed after a considerable delay, which should render it invalid. The AO's order was passed five years after the relevant financial year, and the CIT(A)'s order was passed seven years later. The assessee also argued that they had filed the required declarations from buyers for exemption under section 206C(1A), but these were filed late due to a bona fide belief that TCS was not applicable until the Special Bench's decision clarified the law. The CIT(A) did not admit these declarations as evidence, citing their late submission and partial coverage of sales.

The Tribunal noted that there is no prescribed timeline for filing declarations under section 206C(1A). The assessee provided a reasonable cause for the delay, explaining that the belief about TCS applicability changed only after the Special Bench's decision. The Tribunal found that the declarations were eventually filed and acknowledged by the Department. Given the significant delay by the Revenue in taking action, the Tribunal held that the assessee should not be penalized for the delay in filing declarations. Therefore, the Tribunal directed that the assessee should not be treated as 'assessee-in-default' and ordered the deletion of the interest charged.

Conclusion:

The Tribunal allowed the appeal, ruling that the assessee should not be held liable for non-collection of TCS or the associated interest, given the reasonable cause for the delay in filing declarations and the lack of a prescribed timeline for such filings. The appeal was thus decided in favor of the assessee.