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TMI Blog2016 (12) TMI 1804X X X X Extracts X X X X X X X X Extracts X X X X ..... ategorically established that the goods were not in the nature of scrap. In such circumstances, where as a matter of fact it has not been categorically established that the goods were scrap and waste as such which could not be used further, the facts narrated by the assessee , which we find had not been controverted by the revenue, reveal that the assessee harboured an honest belief based on reasonable grounds that the goods sold were not scrap. The same constituted reasonable cause for not collecting tax at source even though the Ld. CIT( appeal) did not accept this contention of the assessee on merit. We agree with the Ld.CIT(A) that the assessee had reasonable cause for not collecting tax at source ,the absence of which is essential for levying penalty as held by the Delhi High Court in the case of Woodward governor [ 2001 (4) TMI 34 - DELHI HIGH COURT ] . We therefore uphold the order of the Ld. CIT( appeal) deleting the levy of penalty under section 271CA - Decided in favour of assessee. - ITA No. 559/Chd/2016 - - - Dated:- 30-12-2016 - SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER For the Appellant : Shri Manjit Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aders. Order under section 206C(1)/206(7) of the Act was passed in which it was held that since taxes had been paid by buyers of the scrap, the assessee could not be treated as assessee in default for non collection of tax at source as per the provisions of section 206C(1D) but at the same time interest under section 206C(7) was charged from the date on which tax was collectible to the date on which return was filed by the buyer amounting in all to ₹ 1,48,930/-. Further, penalty proceedings under section 271CA of the Act were initiated. Thereafter, since no reasonable cause was given by the assessee for non compliance with the provisions of TCS, penalty amounting to ₹ 12,80,988/- was levied @ 100% on the TCS not collected. 4. Aggrieved by the same, the matter was carried in appeal before the Ld. CIT (Appeals). Detailed arguments were made by the assessee which are reproduced at para 5.1 of the CIT (Appeals) s order. Briefly put, the assessee contended that the penalty u/s 271CA had been wrongly levied since: 1. he was not liable to collect tax at source on the goods sold ,at all as the goods sold did not fall within the definition of scrap as provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 20.06.2016. We find that the facts in that case are identical to that in the present case, in that the assessee in the said case was also in the business of purchase and sale of old Iron scrap and though tax had been collected by the parties from whom the assessee had purchased scrap, yet the assessee had failed to collect tax at source on sales made by it and therefore penalty under section 271CA was levied. Ld. CIT (Appeals) in the said case, we find, deleted the penalty levied since he found that the purchasers of scrap from the assessee had disclosed the same in their returns of income and paid due taxes thereon and the assessee had therefore not been treated as an assessee in default for non-collection of tax at source. Ld. CIT( Appeals) followed the decision of the Bangalore bench in the case of Wipro GE Medical Systems Ltd and held that there was reasonable cause for not levying penalty since sufficient compliance had been made as the tax demand had already been paid. The ITAT in its order, concurred with the findings of the CIT(Appeals) and further held that the belief of the assessee that the goods sold by it were not covered in the definition of scrap though not acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 961, for failure To deduct tax at source, is not automatic. In order to bring in application of Section 271C, in the backdrop of the overriding non obstante clause in section 273B, absence of reasonable cause, existence of which has to be established, is A sine qua non. Before levying penalty, the concerned officer is required to find out that even if there was any failure to deduct tax at source, the same was without reasonable cause. The initial burden is on the assessee to show that there exists reasonable cause which was the reason for the failure. There- after, the officer has to consider whether the explanation offered by the assessee or other person as regards the reason for failure, was on account of reasonable cause . 6. Considering the facts of the case in the light of the above discussion and findings recorded by ld. CIT(Appeals), I do not find any merit in the appeals of the Revenue. Both appeals of the Revenue are, accordingly, dismissed. 9. As stated above the facts in the present case are identical to that in the above case. The assessee in the present case is also a dealer of Iron scrap who has purchased scrap by paying tax collected at source bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 206C, which was reasonable belief being neither illogical or irrational, and therefore no taxes had been collected at source on the sale made of these goods. The relevant submissions made by the assessee during penalty proceedings vide its letter dated 29/05/2013 are reproduced hereunder: 2.1 Scrap has been defined in the explanation to Sec. 206C, which is reproduced hereunder for perusal of your goodself. (b) scrap means waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons. The ordinary meaning of scrap and waste as provided in Oxford English Dictionary, which has similarity in words, is, as under- (i)Scrap - Small piece or amount of something especially one that is leftover after greater part has been used - material discarded for reprocessing. (ii)Waste - eliminated or discarded as no longer useful or required. Thus, 'waste and scrap' means something left behind from the bigger part which was no more serviceable. The Explanation to section 206C of the Income-tax Act provides the meaning of scrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2 The assessee had also purchased goods from M/s. Diesel Locomotive Modernisation Workshop (hereinafter referred to as 'DMW), during the period under reference, as detailed hereunder: a)Traction Generation Motors and b) Copper Parts of Diesel Generators/Motors. Again 'M/s. DMW is not engaged in manufacturing activity of the above goods at Patiala. These goods can in no manner be called as 'waste and scrap' which had arisen out of any manufacturing activity or as a result of any mechanical working of any materials even in the hands of the above mentioned seller. 3.3 The list of goods purchased by the assessee and further sold has been reproduced in foregoing paragraphs and its perusal shall reflect that these definitely are not connected with manufacture or mechanical working of material. The assessee is admittedly not engaged in manufacturing and list of scrap items noted above would indicate that same had not arisen out of manufacturing or mechanical working of material. By the nature of the scrap items noted above, the same cannot be said to have been used for manufacturing of electrical energy in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods were scrap and waste as such which could not be used further, the facts narrated by the assessee , which we find had not been controverted by the revenue, reveal that the assessee harboured an honest belief based on reasonable grounds that the goods sold were not scrap. The same constituted reasonable cause for not collecting tax at source even though the Ld. CIT( appeal) did not accept this contention of the assessee on merit. The Hon ble Delhi High Court in the case of Woodward Governor India Private Limited vs CIT and others 253 ITR 745 has defined reasonable cause as follows: Reasonable cause as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as a probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinarily prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that same was the right thing to do. The cause shown has to be considered and only if it is found to be frivolous, without substance or foundation, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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