2016 (12) TMI 1811 - AT - Income Tax

Tribunal rules in favor of assessee, citing reasonable cause for not collecting TCS on scrap sale

The Income Tax Officer (TDS), Patiala. Versus Sh. Tarsem Lal Prop.

The Income Tax Officer (TDS), Patiala. Versus Sh. Tarsem Lal Prop. - TMI Issues Involved:1. Whether the assessee was liable for penalty under section 271CA of the Income Tax Act, 1961 for default in collecting tax at source (TCS) on the sale of scrap.2. Whether the goods sold by the assessee qualified as 'scrap' under the definition provided in section 206C of the Income Tax Act, 1961.3. Whether the belief of the assessee that the goods sold were not scrap constituted a reasonable cause for not collecting TCS.4. Whether the payment of due taxes by the buyers of the scrap nullified the need for penalty under section 271CA.Detailed Analysis:1. Liability for Penalty under Section 271CA:The Revenue's primary grievance was against the action of the CIT (Appeals) in deleting the penalty levied under section 271CA for default in collecting TCS. The Assessing Officer had initiated penalty proceedings because the assessee failed to collect TCS on the sale of old iron scrap during the financial year 2010-11, as required under section 206C(1) of the Income Tax Act, 1961. Despite the assessee's reliance on a judgment from the Bangalore Tribunal, the Assessing Officer followed the CBDT letter F.No.275/17/2013-IT(B) dated 16.7.2013 and imposed the penalty.2. Definition of 'Scrap':The assessee contended that the goods sold did not fall within the definition of scrap as provided in the Explanation to section 206C of the Act. The goods sold were reusable items and had not arisen out of manufacturing or mechanical work. The CIT (Appeals) rejected this contention but acknowledged that the belief of the assessee was a reasonable cause for not levying the penalty.3. Reasonable Cause for Not Collecting TCS:The CIT (Appeals) found that the belief of the assessee that the goods sold were not scrap constituted a reasonable cause for not collecting TCS. The CIT (Appeals) relied on the judgment of the ITAT, Bangalore Bench in the case of Wipro GE Medical System Ltd., which held that since taxes had been paid by the buyers, no loss had been caused to the exchequer, thus constituting a reasonable cause for not levying the penalty.4. Payment of Due Taxes by Buyers:The CIT (Appeals) noted that the purchasers of the scrap had disclosed the same in their returns of income and paid due taxes. The ITAT Chandigarh Bench, in a similar case, had upheld the CIT(Appeals)'s decision to delete the penalty since the tax demand had already been paid by the buyers, and the assessee was not treated as an assessee in default for non-collection of TCS.Conclusion:The Tribunal upheld the order of the CIT (Appeals), agreeing that the assessee had reasonable cause for not collecting TCS. The belief that the goods sold were not scrap was found to be based on reasonable grounds. The Tribunal also noted that no demand was raised on the assessee for non-collection of TCS, and only interest was charged, indicating that the revenue did not treat the assessee as in default. Therefore, the Tribunal dismissed the appeal of the Revenue and upheld the deletion of the penalty under section 271CA.Order:The appeal of the Revenue is dismissed.