2023 (5) TMI 912 - AT - Income Tax

Failure to collect tax u/s 206C while selling timber - non-collection of TCS u/s 206C while selling timber being 1% of total sales - non-consideration/omission on the part of Ld. CIT(A) not to consider Form no. 27C (Declaration form from purchasers filed as per section 206C(1A) - as per AR CIT(A) erred in not admitting and considering the additional evidence i.e. declaration Form No. 27C refer Rule 37C of the Income Tax Rules - HELD THAT - Before us, the assessee claims to have filed Form 27 as prescribed under sub-section (1A) of section 206C of the Act, which exempts him from collecting the tax at source and his grievance is that the Ld. CIT(A) has not considered it. We do not countenance this action of Ld. CIT(A). It is true that assessee did not collect tax at source (TCS) while effecting sales of timber. But he has provided the Form 27 given by the buyers which is as per sub-section (1A) of section 206C of the Act. Therefore, it need to be examined as per law by Ld CIT(A). Whether there is any period of limitation/time given in the statute for filing of Form 27 as the law stood at the relevant period in these appeals? - We note that sub-section (1B) of section 206C of the Act, is not properly worded/drafted and in this regard we note that the time limit mentioned in section 206C(1B) of the Act is on or before the 7th day of the month next following the month in which the declaration is furnished to him . The impugned order is set-aside and issue restored to AO, who shall examine the Form No. 27C declaration filed by the assessee as to the correctness of the same; and meanwhile the declaration Form No. 27C to be forwarded to the Ld. PCIT/Ld. CIT in accordance to law and examined as to whether it fulfill the condition given in Rule 37C declaration verified and countersigned by the Chartered Accountant stating that the buyers of timber from the assessee had duly paid the taxes on the same - Decided in favour of assessee for statistical purposes. Penalty levied u/s 221 - default on the part of assessee or deeming the assessee to be an assessee on default in making payment of tax collected as TCS u/s 206C - HELD THAT - Since we have already set aside the orders passed u/s 206C(1)/206C(7) of the Act pertaining to the assessee for AY. 2010-11 and AY. 2014-14 back to the file of the AO for considering the declaration Form no. 27C, the penalty levied for default in making payment u/s 221of the Act cannot be sustained on the principle that when the foundation goes, the super-structure falls. Therefore, the same are set aside.

Summary

Issues involved:
The judgment involves appeals by the assessee company against the order of the Ld. CIT(A)/NFAC for multiple assessment years regarding non-collection of tax under section 206C of the Income Tax Act, 1961 while selling timber.

Issue 1: Non-consideration of Form no. 27C by Ld. CIT(A)
The main grievance of the assessee was the non-consideration of Form no. 27C despite being filed, which is required under section 206C(1A) of the Act. The assessee argued that the Ld. CIT(A) erred in not admitting and considering the additional evidence, and pleaded for the declaration form to be examined to resolve the issue.

Issue 2: Obligation to collect Tax Collection at Source (TCS)
The controversy revolved around whether filing Form 27C from buyers would relieve the assessee from the obligation to collect TCS under section 206C(1) of the Act. The Tribunal examined the provisions of section 206C, which require the seller to collect tax from buyers of specified goods, unless the buyer furnishes Form 27C stating the goods' purpose for manufacturing, processing, or producing articles.

Judgment:
The Tribunal set aside the impugned order and restored the issue to the Assessing Officer (AO) for examination of the Form No. 27C declaration filed by the assessee. The AO was directed to forward the declaration to the Principal Commissioner or Commissioner for verification, and subsequently pass an order in accordance with the law after affording a reasonable opportunity of hearing to the assessee. The decision was based on the interpretation that the time limit for furnishing Form No. 27C declaration is directory, not mandatory, as per the provisions of section 206C(1B) of the Act.

Separate Judgment:
In a separate judgment, the penalty levied under section 221 of the Act for default in making payment of tax collected as TCS was set aside, as the orders passed under section 206C(1)/206C(7) were already set aside for considering the declaration Form no. 27C. The principle applied was that when the foundation goes, the super-structure falls.

The appeals of the assessee were allowed in both instances, and the orders were pronounced in the open court on 19/05/2023.