2025 (8) TMI 826 - AT - Income Tax

Order under Section 206C(6A) upheld but AO must give assessee a fair hearing before fresh order

The ITAT Lucknow upheld the validity of the order passed under section 206C(6A), finding no unjustified delay as the action was initiated promptly after a ... Order passed u/s 206C (6A) - limitation provided for the purpose of completing the assessment - HELD THAT:- Survey under 133A of the Act was conducted at the office premises of the Director of Geology and Mining on 04.03.2015 and it is only then that the Revenue Authorities became aware of the fact of non-collection of tax at source by various District Magistrates and District Mining Officers. Subsequently, the orders were passed on 30.03.2015 i.e. with minimum delay. Therefore, it cannot be said that alleged delay was unjust, arbitrary, whimsical or for invalid reasons. Accordingly, since the action was taken within the reasonable time, following the decision of M/s. Mass Awash Pvt Ltd [2017 (7) TMI 664 - ALLAHABAD HIGH COURT] the validity of the order passed by AO u/s 206C(6A) of the Act is upheld and the additional ground is accordingly dismissed. AO had not issued any notice before completing the assessment; no show cause notice had been issued prior to the judgement - We observe that the order is in the form of a show cause notice where the allegation against assessee had been spelled out, but the response of the assessee to the same is not recorded. Considering that the assessee specifically took the plea before the Ld. CIT(A), that the AO had passed the order ex parte without giving of any opportunity of hearing to the assessee, we are of the view that it was the duty of the CIT(A) to consider the submissions of the assessee that the TCS calculation had been made on an amount that was far in excess of the amount on which tax was to be collected. The failure of the Ld. CIT(A) to consider this on the technicality that the assessee had not filed an application under Rule 46A of the Income Tax Rules, 1961 to our mind overlooks the specific ground raised by the assessee that it had not been provided any opportunity before finalization of the order determining the extent of the short collection by the assessee. Therefore, we deem it appropriate to restore the entire matter back to the file of the Assessing Officer, so that the Assessing Officer may consider the submissions and evidences placed by the assessee before the Ld. CIT(A) and thereafter pass a fresh order in accordance with law, after giving due opportunity to the assessee to be heard in this regard. 1. ISSUES PRESENTED and CONSIDERED 1. Whether the assessee is a 'person' liable under section 206C(6A) of the Income Tax Act, 1961, and whether the proceedings against the assessee under this provision are legally sustainable. 2. Whether the proviso to sub-section (6A) of section 206C has been properly considered by the authorities in the impugned order. 3. Whether the assessment/order under section 206C(6A) was passed in violation of principles of natural justice due to absence of notice or opportunity of hearing. 4. Whether the impugned order was passed ex parte and prior to the date fixed for hearing, thereby vitiating the order. 5. Whether the demand raised under section 206C(6A) is based on correct calculation of tax and whether the calculation is sustainable in law. 6. Whether the CIT(A) erred in refusing to adjudicate on grounds raised by the assessee citing non-compliance with Rule 46A of the Income Tax Rules, 1961. 7. Whether the impugned order is non-speaking and cryptic, thus unsustainable. 8. Whether the assessee was denied due and proper opportunity of hearing before the CIT(A), rendering the order bad in law. 9. Whether the proceedings under section 206C(6A) are barred by limitation. 10. Whether TCS is collectible on the entire royalty amount or only on royalty from sand excavation, excluding brick kiln and other miscellaneous receipts. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Liability under Section 206C(6A) and Consideration of Proviso - The legal framework involves section 206C(1C) and (6A) of the Income Tax Act, which mandates collection of tax at source (TCS) on certain receipts related to mining and quarrying activities. - The Court noted that during a survey under section 133A, it was found that lease/licenses/contracts for mining or quarrying were granted to non-public sector companies, and tax was not collected by the persons responsible under section 206C(1C). - The assessee argued that District Mining Officers do not enter into contracts or transfer rights and thus are not liable persons under section 206C(6A). - The Tribunal observed that 'mining' includes extraction of minerals or geological materials and that even brick kiln operations involving excavation fall within the ambit of mining for TCS purposes. - The CIT(A) and Tribunal upheld that the assessee failed to collect TCS as mandated, and no proof was provided that buyers had paid the tax directly to the government. - The proviso under sub-section (6A) was not specifically detailed in the order, but the Tribunal found no merit in the claim that it was ignored, as the primary liability to collect TCS remained with the assessee. - Conclusion: The assessee is liable under section 206C(6A) and the proviso does not exempt the assessee from TCS collection in the facts of the case. Issue 3 & 4: Violation of Principles of Natural Justice and Ex Parte Order - The assessee contended that no notice or opportunity of hearing was provided before passing the order under section 206C(6A), rendering the order violative of natural justice. - The Tribunal noted that the order passed by the Assessing Officer was in the form of a show cause notice, but the assessee's response was not recorded and the order was passed ex parte before the scheduled hearing. - The CIT(A) dismissed the appeal partly on the ground that the assessee had not filed an application under Rule 46A to admit additional evidence, which the Tribunal found to be a technicality overlooking the fundamental right to be heard. - The Tribunal held that failure to provide opportunity to contest the TCS calculation was a procedural lapse. - Conclusion: The matter is restored to the Assessing Officer to provide the assessee a proper opportunity of hearing and to consider the submissions before passing a fresh order. Issue 5: Correctness of TCS Calculation and Demand Raised - The assessee argued that TCS was only collectible on royalty from sand excavation (Rs. 18,31,695/-) and not on other receipts such as brick kiln excavation, government department payments, enforcement application fees, or miscellaneous receipts. - The Assessing Officer and CIT(A) rejected this segregation, holding that brick kiln excavation is part of mining and liable to TCS. - The Tribunal observed that the assessee had not brought this segregation to the AO during TDS proceedings and had not complied with procedural requirements to admit such evidence. - However, since the assessee raised this issue before the CIT(A) and claimed no opportunity was given to contest the calculation, the Tribunal ordered reconsideration of the TCS calculation after hearing the assessee. - Conclusion: The correctness of TCS calculation is to be reconsidered by the AO after due opportunity to the assessee. Issue 6: CIT(A)'s Refusal to Adjudicate Due to Non-Compliance with Rule 46A - The CIT(A) declined to admit additional evidence or consider grounds raised by the assessee on the basis that Rule 46A was not complied with. - The Tribunal held that Rule 46A is procedural and should not be used to deny the assessee the right to be heard on substantive issues raised. - The Tribunal emphasized that the CIT(A) should have considered the assessee's submissions on merits rather than rejecting them on technical grounds. - Conclusion: CIT(A)'s refusal to adjudicate on grounds due to non-compliance with Rule 46A was erroneous. Issue 7: Non-Speaking and Cryptic Nature of the Impugned Order - The assessee contended that the CIT(A) order was non-speaking and cryptic. - The Tribunal did not find detailed discussion on this point but implicitly agreed that the order lacked adequate reasoning, especially regarding the procedural lapses and calculation issues. - Conclusion: The impugned order requires reconsideration with proper speaking reasons. Issue 8: Denial of Due and Proper Opportunity of Hearing Before CIT(A) - The assessee argued denial of opportunity before CIT(A). - The Tribunal noted that the CIT(A) dismissed grounds without proper hearing and without considering the merits of the submissions. - Conclusion: The CIT(A) erred in not providing due opportunity; the matter is remanded for fresh adjudication. Issue 9: Limitation for Proceedings Under Section 206C(6A) - The assessee relied on earlier ITAT Lucknow Bench decisions holding that orders under section 206C(6A) passed beyond four years were barred by limitation. - The Revenue contended that the order was passed promptly after discovery in a survey conducted on 04.03.2015 and thus within reasonable time. - The Tribunal examined precedents including those from various High Courts and the Supreme Court regarding limitation for proceedings under sections 201(1), 201(1A), and 206C(6A). - It was noted that no specific limitation period is prescribed under section 206C(6A), and judicial precedents hold that limitation must be reasonable and fact-dependent, not fixed arbitrarily at four years. - The jurisdictional High Court's binding decision rejected a fixed four-year limitation and held that delay must be unreasonable, arbitrary, or whimsical to invalidate proceedings. - Since the survey and order were within a short span, the Tribunal held the proceedings were within reasonable time and not barred by limitation. - Conclusion: Proceedings under section 206C(6A) are not barred by limitation in the instant case. Issue 10: Applicability of TCS on Different Types of Royalty Receipts - The assessee contended that TCS is collectible only on royalty from sand excavation and not on brick kiln or other receipts. - The Tribunal noted that brick kiln excavation involves removal of sand and is thus covered under the definition of mining for TCS purposes. - The assessee's attempt to segregate receipts was not presented before the AO during assessment and was rejected by CIT(A) on procedural grounds. - Given the procedural lapse in not providing opportunity to contest, the Tribunal remanded the matter for AO to consider these contentions afresh after hearing the assessee. - Conclusion: The issue of applicability of TCS on various receipts requires fresh consideration with due opportunity to the assessee.