TMI Blog2022 (1) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... s taken into account such amount for computing income in such return of income; and has paid the tax due on the income declared by him in such return of income. Such certificate should be obtained from a Chartered Accountant as per proviso to section 206C(6A) of the Act, in Form 27BA, as prescribed by CBDT. Respectfully following the Judgment of Bharat Hotels Ltd, [ 2015 (12) TMI 1469 - KARNATAKA HIGH COURT] we note that in assessee`s case under consideration, order passed by the assessing officer under section 206C(6)/(6A) r.w.s 206C(7) for AY.2012-13 and A.Y. 2013-14 are barred by limitation and therefore we quash both the orders of the assessing officer and hence we allow the appeal of the assessee. Interpreting the term Scrap as defined in clause (b) to Explanation to section 206C - For AY 2014-15 to AY 2016-17 as noted that assessee under consideration is a trader in scrap. His products are not a result of manufacturing process carried out by him. Thus, assessee being trader, not covered in definition of scrap , since scrap is not generated from manufacturing or mechanical working of material, therefore the assessee is not covered in definition of scrap . Hence, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollection of TCS on sale of scrap to manufacturer where Form No.27C have been filed with the department even though the same were filed inordinately late and after the detection of default by the Department. 5. The learned Commissioner of Income Tax (Appeals) Valsad has erred in law as well as on facts in directing to treat the assessee in default for non-collection of TCS on sale of scrap where Form No.27BA have been filed with the department and respective buyers have discharged tax accordingly. 6. The assessee craves leave to add, alter, amend any ground of appeal. 5. The assessee has raised two additional grounds, on legal issue, which are reproduced below: 1. On the facts and circumstances of case as well as law on the subject, that the order passed by learned assessing officer dated 15.01.2018 u/s 206C(6)/(6A) r.w.s 206C(7), for AY 2012-13 to 2016-17, is bad in law as much as same is passed in gross violation of principle of natural justice or without issuing showcause notices and deserves to be quashed as such 2.On the facts and circumstances of case as well as law on the subject, that the order passed by learned assessing officer, dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served upon the assessee collector and various details (including above details) were called for from him. In response to this summons part details were submitted by assessee on 11.01.2017. The assessee was asked to file further details up to 23.01.2017, however, assessee could not filed further details. Later on various reminder letters were issued to the assessee, however, assessee did not reply to the assessing officer. 8. After this, assessing officer discussed the various provisions of TCS in para 4 of his assessment order and finally he held that arguments of the assessee collector for not colleting tax on sale of scrap were not acceptable in view of the following reasons: (a) It is a fact that neither the assessee has collected tax on the sale of scrap as a 'seller' as required in the provisions of section 206(1) nor has it submitted the declarations received from the buyers in the office of the competent authority within the time limit as provided in Explanation (IB) to section 206C (1) of the I.T. Act. (b) The definition of scrap says Scrap from manufacture of mechanical working of materials is ceased to be operative in view of the clarification i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the definition of scrap. (h) Has the assessee's case was not covered by survey action by this office, the assessee could have been benefited by contravening the provisions of section 206C (1) r. w. explanations (LA) (IB). The assessee took chance with the department. (i) Has the revenue not detected such default by way of Survey action, it could have enjoyed the fruits of non-collection of tax on the sale of scrap and would have caused loss to the revenue. (j) It is pertinent to note here that nowhere the assessee has tried to give any reasonable cause for committing such default. As held by the Hon'ble Delhi High Court in the case of Wood-ward Governor India (P) Ltd. v. CIT [2002] 253 ITR 745 (Delhi),the initial burden is on the assessee to show that there existed reasonable cause which was the reason for the failure referred to in the concerned provision. 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 probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state circumstances, which assuming them to be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the declarations in Form 27C as required under the explanation (1A) and (1B) to section 206C(1) of the I.T. Act, 1961 in the office of the Competent Authority. The tax liability of the assessee including interest was worked out by assessing officer as follows: Nature of Payment/Section F.Y Short collection Amount Rate of interest/ default period U/s. 201A r.w. sec. 206C(7) Total Demand Scrap Sale/ 206C 2011-12 7,55,889/- 1% 70 Months 5,29, 122/- 12,85,011/- This way, the assessing officer made addition to the tune of ₹ 12,85,011/-. 10. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the action of the Assessing Officer. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us. 11. Shri Jayraj P. Dhakan, Learned Counsel for the assessee pleads before us, on merits, stating that assessee filed copies of form no. 27C and all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e all signed in the month of October 2018 and claimed that the assessee should not be treated as assessee in default as per proviso to section 206C(6A) of the Act as all the buyers had filed their returns of income u/s 139 of the Act and paid the taxes due thereon. We note that assessee-collector is doing trading, under proprietorship firm name viz: M/s Allana Traders, of paper scrap, old newspaper, old duplex kraft paper, white paper as well as waste paper cone, etc. On 04.01.2017, a survey action was conducted to check TCS compliance. Admittedly, as observed by assessing officer, the assessee has neither obtained TAN nor has collected TCS as required by section 206C of the Act. Accordingly, assessing officer treated assessee as assessee in default u/s 206C of the Act. 15. The assessing officer framed assessment order under section 201(1)/201(1A) read with section 206C (6 and 6A/206C(7) of the Income Tax Act. The summary of additions made by assessing officer, year-wise, are as follows: Sr. No AY Turnover S.206C(1) [TCS] S.206C(7) [Interest] Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years 2012-13 and 2013-14, orders passed by the assessing officer are time barred and for that assessee has raised additional grounds of appeal. We note that additional grounds raised by the assessee goes to the route of the matter and it is purely a question of law. Moreover, the facts necessary for adjudication of additional grounds are already on record and no further facts or documentary evidences are required to be brought on record. Hence additional grounds raised by the assessee should be admitted, and for this, we rely on the judgment of Hon'ble Supreme Court in the case of CIT vs. Sinhgad Technical Education Society (Civil Appeal No.11080 of 2017), order dated 29.08.2017, wherein the Hon'ble Supreme Court held as follows: 18) The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, whereas the impugned order is passed by the Assessing Officer on 15.01.2018, under section 206C(6)/(6A) r.w.s 206C(7) of the Act. Likewise, for financial year 2012-13, relevant to assessment year 2013-14, the four years from the end of the financial year, is elapsed on 31.03.2017, whereas the impugned order is passed by the Assessing Officer on 15.01.2018, under section 206C(6)/(6A) r.w.s 206C(7) of the Act. Hence, both the orders were passed by the assessing officer after four years from the end of the relevant financial year. Hence, both the orders are time barred as held by the Coordinate Bench of ITAT Jaipur in the case of M/s EID Mohammad Nizamuddin, in ITA No. 316/JPR/2018, order dated 29.08.2018, wherein it was held as follows: 6. We have considered the rival submissions as well as the relevant material on record. There is no dispute that Section 206C or any other provisions of the Income Tax Act do not provide any limitation for passing the order by the Assessing Officer U/s 206C(6)/206C(7) of the Act holding the assessee in default due to failure to collect tax at source. However, non-providing the limitation in the statute would not confer the jurisdiction/power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 153(1)(a) thereof which prescribes the time-limit for completing the assessment, which is two years from the end of the assessment year in which the income was first assessable. It is well-known that the assessment year follows the previous year and, therefore, the time-limit would be three years from the end of the financial year. This seems to be a reasonable period as accepted under section 153 of the Act, though for completion of assessment proceedings. The provisions of re-assessment are under sections 147 and 148 of the Act and they are on a completely different footing and, therefore, do not merit consideration for the purposes of this case. 19. Even though the period of three years would be a reasonable period as prescribed by section 153 of the Act for completion of proceedings, we have been told that the Income-tax Appellate Tribunal has, in a series of decisions, some of which have been mentioned in the order which is under challenge before us, taken the view that four years would be a reasonable period of time for initiating action, in a case where no limitation is prescribed. 20. The rationale for this seems to be quite clear if there is a time-limit fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a situation worse than if it had contested its liability. 25. We may also note that under section 191 of the Act, the primary liability to pay tax is on the person whose income it is that is the deductee. Of course, a duty is cast upon the deductor that is the person who is making the payment to the deductee, to deduct tax at source but if he fails to do so, it does not wash away the liability of the deductee. It is still the liability of the deductee to pay the tax. In that sense, the liability of the deductor is a vicarious liability and, therefore, he cannot be put in a situation which would prejudice him to such an extent that the liability would remain hanging on his head for all times to come in the event the Income-tax Department decides not to take any action to recover the tax either by passing an order under section 201 of the Act or through making an assessment of the income of the deductee. The Hon ble High Court was of the view that the time limit for completing the assessment as per Section 153(1)(a) is two years from the end of the assessment year in which the income was first assessable which was considered as reasonable period for passing the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons stated above, all these petitions succeed. The impugned notices / summonses are held to be invalid and the same are hereby quashed and set aside and the respondents herein are hereby restrained by writ of prohibition from proceedings with the impugned notices / summonses which are, as such, hereby quashed and set aside. Rule is made absolute accordingly in each of the petitions. In the facts and circumstances of the case, there shall be no order as to costs. Thus, the Hon ble High Court has specifically dealt with the issue of applicability of amendment brought to the provisions of Section 201 of the Act and held that the proceedings in the assessment year 2007-08 and 2008-09 had become time barred as the limitation U/s 201(3) has already expired and otherwise amendment cannot be applicable retrospectively. The Hon ble Gujarat High Court in the case of CIT (TDS) Vs. Anagram Wellington Assets Management Co. Ltd. (supra) has again considered this issue and held in para 7 as under: 7. It is true that it is the duty of the assessee to deduct TDS and the question is whether it is likely to cause any loss to the revenue if it is not deducted in time. If TDS is not deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviso to sub-section (3) did not legalize the cases where action had already been taken, but was meant for only such cases which were pending at the time of insertion of sub-section (3) to Section 201 of the Act. 24. Thus, for the reasons given above, we find that the Tribunal was correct in holding that the order passed under Sec.201 (1) and (1A) of the Act on 28.1.2008 for the assessment year 2002-03, would be barred by limitation as the period of limitation would be four years from the end of the financial year in question. As such, we answer the first question raised in this appeal, in favour of the respondent assessee and against the Revenue. 25. Now, coming to the second question of law, it is true that in view of the first question having been decided in favour of the assessee, this question remains only academic in nature. However, since the question would be relevant for the other assessment years (more particularly, assessment year 2004-05 and 2005-06), the appeals regarding which assessment years are also connected with this appeal, learned counsel for both the parties submitted that this question may also be considered and decided in this appeal, which wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein would not be for payment of interest after the period of deposit of tax by the Recipient. Thus, a consistent view has been taken by the various Hon ble High Courts on this issue that when no limitation is provided in the statute then a period of four years is considered as reasonable for passing the order U/s 201(1)/201(1A) of the Act. The provisions of Section 206C of the Act are analogous and a measure for compliance of collection of tax at source as a similar measure for compliance of deduction of tax at source is provided U/s 201 of the Act. The department has accepted those decisions and consequently brought amendment to the provisions of Section 201 and thereby provided the limitation for passing the orders U/s 201(1)/201(1A) of the Act which was inline with the view taken by the Hon ble High Courts on this issue. Though, subsequently an amendment vide Finance Act, 2014 was again brought in the said provisions of Section 201 enlarging the period of limitation, however, the said amendment is not retrospective. Accordingly, the liability of tax collected at source is also a vicarious liability of the assessee to assist the department in the measure to avoid any possibilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent assessee, and have perused the record. Question No.1: 9. The first question relates to limitation for initiating action for failure to deduct and pay the tax deducted at source (TDS). For the relevant assessment year (and up to 1.4.2010), there was admittedly no limitation provided under Section 201 of the Act for initiating action for failure to deduct TDS. It was only by the Finance Act, 2009 that sub-section (3) was inserted, initially providing for a period of limitation of two years from the end of the financial year in which the statement is filed; and four years from the end of the financial year in which the payment is made or credit is given. A proviso was also inserted in the said sub-section (3) providing that for financial year commencing on or before 1.4.2007, orders may be passed at any time on or before 30.1.2011. The relevant sub-section (1) and sub-section (1A) of Section 201, as it stood at the time relevant for the assessment year 2002-03, is reproduced below: 201: Consequences of failure to deduct or pay (1) Where any person, including the principal officer of a company - (a) who is required to deduct any sum in accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s '6 years' to be given effect from 1.4.2010. It may be noted, by Finance (No.2) Act, 2014, sub-section (3) has further undergone an amendment with effect from 1.10.2014, whereby limitation of 7 years period from the end of the financial year has been provided. Such is the provision of law which we have to consider while deciding the first question. 10. Admittedly, at the relevant time relating to assessment year 2002-03, there was no limitation provided for initiating proceedings under Section 201. The Tribunal has, after considering the various decisions of the Apex Court, as well as the Delhi, Kerala, Punjab Haryana High Courts, held that the proceedings having been initiated by the Revenue beyond the period of four years from the end of the relevant financial year, would be barred by limitation. Challenging the same, Sri K V Aravind, learned counsel for the Revenue has vehemently argued that when there is no limitation provided under the Act, proceedings can be initiated at any stage and at any time. In the alternative, he submitted that even if it is held that proceedings are to be initiated within a reasonable time, then too, the period of seven years from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial year would, in the present case, be 31.3.2005 and any proceedings initiated after such date, would be beyond limitation. He contends that since sub-section (3) which was first inserted in Section 201 of the Act, was with effect from 1.4.2010, as such, the same would not be applicable in the present case. He, however, submitted that initially the period of limitation provided under the said sub-section was also the same as provided under Section 153(1) and thus, he contends that the same should be considered as the reasonable period of limitation for initiating proceedings under Section 201 for the assessment year 2002-03. 13. Sri Rupesh Jain, learned counsel for the respondent assessee has further submitted that the proviso to sub-section (3) of Section 201 would not be applicable to the case at hand, as it relates to pending cases and not cases which have already been decided, regarding which reliance has been placed by him on CBDT Circular dated 3.6.2010, as well as the Memo issued with the Finance (No.2) Bill 2009. 14. It is settled law that where there is no limitation provided under the Act, limitation for initiating any action would then be a reasonable peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period, as the same would amount to unsettling a settled position, which can only be done within a reasonable period, and not at any time in the future after an unlimited period. 16. Now what we have to consider is, what would be the reasonable period within which proceedings under Section 201 of the Act could be initiated in the present case. The Delhi High Court in the case of CIT v NHK Japan Broadcasting Corpn. [2008] 305 ITR 137/172 Taxman 230, was dealing with a similar case under Section 201 of the Income-tax Act. After considering the case of Bhatinda District Co-operative Milk Producers Union Ltd (supra) and other relevant cases on the subject, it has held in paragraphs 18 and 19 of the said judgment as under: 18. Insofar as the Income-tax Act is concerned, our attention has been drawn to S. 153(1)(a) thereof which prescribes the time limit for completing the assessment, which is two years from the end of the assessment year in which the income was first assessable. It is well known that the assessment year follows the previous year and, therefore, the time limit would be three years from the end of the financial years. This seems to be a reasonable period as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee also did not disclose the same in its return of income filed under Section 206 of the Act. 19. It is also noteworthy that in the case of the Recipient-KKFHPL, the assessment for the relevant assessment year 2002-03 was completed under Section 143(3) of the Act on 28.2.2005, where the receipt of the amount from the respondent assessee had been disclosed and the requisite tax had presumably been paid by the Recipient. The question of deduction of tax at source or payment of the same, was not raised by the Revenue at that time. In the case of the respondent assessee also, the assessment proceedings for the assessment year 2002-03 had again been completed, in which the payments made to the Recipient- KKFHPL had been disclosed. The question of not having deducted TDS and deposited the same with the Department, was also not raised at that stage. 20. The law provides for time limit for completion of assessments and reassessments (Section 153) which is two years from the end of the assessment year (or three years from the end of the financial year). As such, if at all the proceedings for failure to deduct or pay TDS were to be initiated, it ought to have been reasonably do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 3.6.2010, issued by the CBDT, also clearly specifies that the said proviso would be for pending cases and not decided cases. With regard to the applicability of the amendment made by the Finance Act, 2009 with effect from 1.4.2010, it was also clarified to be from the assessment year 2011-12 and subsequent years. As such, it is clear that proviso to sub-section (3) did not legalize the cases where action had already been taken, but was meant for only such cases which were pending at the time of insertion of sub-section (3) to Section 201 of the Act. 24. Thus, for the reasons given above, we find that the Tribunal was correct in holding that the order passed under Sec.201 (1) and (1A) of the Act on 28.1.2008 for the assessment year 2002-03, would be barred by limitation as the period of limitation would be four years from the end of the financial year in question. As such, we answer the first question raised in this appeal, in favour of the respondent assessee and against the Revenue. 20. Thus, respectfully following the Judgment of Hon`ble Karnataka High Court in the case of Bharat Hotels Ltd, (supra), we note that in assessee`s case under consideration, order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a manufacturer and is only a dealer in scrap. During the years under consideration, as noted in the assessment orders, the assessee had sold scrap, which included unburned transformer coils from various distribution companies of UPPCL. We find that whether a trader in scrap is liable to be fastened with liability to collect TCS under section 206C came up for consideration of the ITAT Ahmedabad B Bench in the case of Navine Fluorine International Ltd. vs. ACIT(TDS) [supra], wherein, the ITAT held that to fall under the definition of scrap as given in the Explanation to section 206C of the Act, the term waste and scrap are one and which should arise from manufacture and if the scrap is not coming out of manufacture, then the items do not fall under the definition of scrap and thus not liable to TCS. The findings of the ITAT Ahmedabad Bench, as contained in paras 12 and 13, are reproduced below: 12. The explanation to section 206 C of the IT Act provides the meaning of scrap means waste and scrap from manufacture or mechanical working of material which is definitely not usable as such because of breakage, cutting up, wear and other reasons. In the above definition th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (6) of the IT Act on the items of scrap as noted above. Resultantly, no interest could be charged u/s 206C (7) of the IT Act. We accordingly, set aside the orders of the authorities below and allow both the appeals of the assessee. 5. Further, we find that the Special Bench of the Rajkot Bench of the Tribunal in the case of M/s Bharti Auto Products vs. CIT-II in ITA Nos.391 392/Rjt/2011, held that irrespective of manufacturing, all the traders in scrap are liable to collect TCS under the provisions of section 206C of the Act. 6. We further find that the Ahmedabad Bench of ITAT in the case of ITO(TDS) vs. Priya Blue Industries Pvt. Ltd. in ITA No.2207/Ahd/2011, vide order dated 14/5/2015, again relied on the order of the Ahmedbad Bench of the ITAT in the case of Navine Fluorine International Ltd. vs. ACIT(TDS) [supra] and held that the words waste and scrap should have nexus with manufacturing or mechanical working of materials. For the sake of completeness, the findings of the Ahmedbad Bench of the ITAT are reproduced below: We find that ITAT 'B' Bench, Ahmedabad in ITA Nos. 1213 and 1214/Ahd/2010 dated 15.02.2011 in case of Navine Fluorine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute sizeable chunk of production done by ship breakers. Though such products may be commercially known as scrap they are not waste and scrap , as such items are usable as such, and, therefore, do not fall within the definition of scrap as envisaged in the Explanation to section 206C(1) of the Act. 7. Section 206C of the Act bears the heading, Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap etc. and provides that every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax. The nature of goods specified at serial No.(vi) is scrap, and the percentage provided is 1%. The expression of scrap is defined under clause (b) to the Explanation to section 206 of the Act, to mean waste and scrap from manufacture or mecha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tely not useable as such, because of breakage, cutting up, wear and other reasons; and that a plain reading of the expression scrap as envisaged under the provisions contained in clause (b) of the Explanation to section 206C of the Act, shows that any material which is useable as such, would not fall within the ambit of scrap . The order of the Tribunal was upheld as being one on facts. 9. The Tribunal, in Dhasawala Traders vs. ITO (APB:8-13), vide order dated 1/9/2016 in ITA No.979,980 and 1535/Ahd/2015, following the Hon'ble Gujarat High Court judgment in CIT(TDS) vs. M/s Priya Blue Industries Pvt. Ltd. (supra), held that where the assessee had not generated any scrap in manufacturing activity, as contemplated under the Explanation to section 206C of the Act, and where the assessee was only a trader, having not sold scrap as such, but having sold products which were re-useable and had resulted from ship breaking activity, he was not supposed to collect tax under section 206C of the Act. The relevant portion of the order of the Tribunal reads as follows: 8. A perusal of the paragraph-6 of the above judgment would indicate that certain items generated out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harti Auto (supra). This argument, however, we find, is prima facie unsustainable. This is so, because a bare perusal of the judgment of the Hon'ble High Court (supra) reveals that the following substantial questions of law had been raised before their Lordships: (A) Whether the Appellate Tribunal has substantially erred in law in interpreting the term Scrap as defined in clause (b) to Explanation to section 206C of the Income Tax Act by holding that the words 'waste and scrap' is a singular item and not distinct? (B) Whether the Appellate Tribunal has substantially erred in law in placing reliance upon the case of Navin Flourine Chemicals despite the fact that the Hon'ble Special Bench in the case of Bharti Auto Products had held that the words 'waste and scrap' are two different and distinct words? (C) Whether the Appellate Tribunal has substantially erred in deleting the order passed under section 201(1) of the Income Tax Act of ₹ 40,16,418/- and interest charged under section 201(1A) of the Act of ₹ 23,29,522? 12. The question of law at item (B) above is the one that is presently under the scanner. This question ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
