TaxTMI 
TaxTMI 
2022 (1) TMI 173
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....technical issue stating that order made by Assessing Officer is time barred and relevant notice has not been issued to make the addition. For the sake of convenience, the grounds as well as the facts narrated in ITA No.98/SRT/2019, for A.Y.2012-13, have been taken into consideration for deciding the above appeals en masse. 4. The grounds of appeal raised by the assessee in lead case in ITA No.98/SRT/2019, are as follows: "1. The learned Commissioner of Income Tax (Appeals) Valsad erred in confirming the order of ITO (TDS)- Valsad, holding the assessee liable for default of TCS of Rs. 7,55,889/- and interest amounting to Rs. 5,29,122/-. 2. The learned Commissioner of Income Tax (Appeals)- Valsad erred in interpreting the definition of "Scrap" U/s 206(C)(1). 3. The learned Commissioner of Income Tax (Appeals)-Valsad failed to appreciate that since the assessee held a bonafide belief regarding interpretation of definition of scrap u/s 206, it could not have been treated as an assessee deemed to be in default. 4. The learned Commissioner of Income Tax (Appeals)-Valsad has erred in law as well as on facts in directing to treat the assessee in defau....
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....06C of the I. T. Act, 1961. During course of survey proceedings, statement of Shri Abdulrab Ataulla Khan, Prop. of M/s. Allana Scrap Traders was recorded on oath 04.01.2O17. In this statement, in answer to question No. 2, he stated that: "I am a Proprietor of M/s Allana scrap Traders. I am responsible for all the work related to management, financial and operational work in Allana Traders. I have no knowledge regarding TCS/ TDS applicability in this business, therefore no TAN has been taken. My PAN: AJGPK0047E. This concern is engaged in the business of trading of scrap materials as per audit report in A.Y.2012-13." Further, vide question No. 7 of the statement, his attention was drawn with regard to the provisions of section 206C, as per which he was required to obtain TAN and make TCS on the scrap sale, however he failed to do so. In response to which, he replied that: "No TCS is made as I had no knowledge that TCS was to be made out of such receipt, however, I will consult this matter with my C.A and if required, I will make TCS after obtaining the TAN and revert back to your office on 09. 01.2017." 7. On the date of survey proceedings, summon u/s 131 of ....
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....on (b), is restricted to scrap generated from the manufacture or mechanical working of materials undertaken by the seller himself. (e) The provision regarding 'assessee in default' or not, whether buyer has paid tax in accordance with the provision of the Act. In this regard, the collector assessee cannot the treated as 'assessee in default' under section 206C(6 &6A) &206C(7) only when it files declaration in Form No.27BA duly certified by the Accountant as required under first proviso to sub-section (6A) of section 206C of the Incometax Act, bearing the late payment interest u/s 206C(7) by the collector assessee. In the present case, the collector; assessee has claimed that buyers have paid the taxes but no corresponding evidences such as copies of returns of income, declarations in Form 27BA and late payment interest u/s 206C (7) etc. have been filed on record to substantiate its claim. (f) Further, the assessee's argument that he has no knowledge about TCS from scrap, is not acceptable. (g) Audit report, books of accounts, return of income etc. speak out the collector assessee deals in sale of scrap and hence it is crystal clear tha....
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.... cases were filed in various High Courts across the country and all the High Court's e.g. Kerala, A. P. Gujarat, Punjab & Haryana, Orissa. However, the Hon'ble Supreme Court in the case of Union of India v. A. Sanyasi Rao (1996) 219 ITR 330 (SC) upheld the constitutional validity of both these sections. In this regard, in order to have clarity, the observation of Apex Court in the case of Union of India vs. A. Sanyasi Rao (1996) 219 ITR 330 (SC) is absolutely relevant and the same is as under: "Considered in the light of the practical difficulties envisaged by the revenue to locate persons and to collect the tax due in certain trades, if the legislature in its wisdom thought that it would facilitate the collection of tax due from such specified traders on presumptive basis) there is nothing in the said legislative measure to offend Article 14 of the Constitution. Section 44AC read with section 206C is not hit by Article 14 of the Constitution." 9. In view of the above facts, assessing officer held that assessee, without any reasonable cause, has failed to collect TCS u/s 206C(1) Rs. 7,55,889/- i.e. @ 1% on the sale to the tune of Rs. 7,55,88,938/- and also faile....
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....ted as assessee in default as per proviso to section 206C(6A) of the Act. Therefore, she prays that all the appeals filed by the assessee may be dismissed. 14. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. It is an admitted fact that assessee is a scrap dealer, and as per the opinion of the assessing officer, the assessee ought to have collected TCS as per provision of section 206C of the Act. Survey conducted at the assessee's premises, revealed that the assessee had not taken TAN number and did not collect TCS on scrap sale. Thus, Assessing Officer treated the assessee as "assessee in default" and computed the demand in accordance with section 201/201A r.w.s, 206C of the Act. We note that during the appellate proceedings the assessee filed copies of form no. 27C which are 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....
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.... cases the Form 27BA have been furnished in respect of various counter parties/purchaser during the appellate proceedings, before the ld CIT(A), hence assessee should not be treated as "assessee in default" u/s 206C of the Act. 16. Learned Counsel pleads that for 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, there....
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.... hand, ld DR for the revenue submits that orders are passed by the assessing officer within reasonable time limit. We note that for financial year 2011-12, relevant to assessment year 2012-13, the four years from the end of the financial year, is elapsed on 31.03.2016, 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 ....
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.... Act would be four years. The Hon'ble Delhi High Court in the case of CIT Vs. NHK Japan Broadcasting (supra) has considered and decided this issue in para 18 to 25 as under: "18. Insofar as the Income-tax Act is concerned, our attention has been drawn to section 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 mentione....
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....ether the revenue could have initiated proceedings after a lapse of four years. The answer to that would of course have to be in the negative in view of the reason that we have already indicated above. The fact that the assessee agreed to pay the tax voluntarily cannot put the assessee 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....
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....ed section 201(3) as amended by Finance Act No.2 of 2014. Under the circumstances, the impugned notices / summonses cannot be sustained and the same deserve to be quashed and set aside and writ of prohibition, as prayed for, deserves to be granted. 16. In view of the above and for the 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 Wellingto....
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....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. 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 re....
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....nue is permitted to charge interest even after the Recipient has deposited the tax, the same would amount to undue enrichment of the Revenue, as even after receiving the tax, it would continue to get interest on the amount which has already been paid or deposited with it. As such, the liability of the assessee herein 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 A....
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....the Act for not deducting TDS, from the date when the payment was made by the assessee to the Recipient, till the date the tax was deposited by the Recipient? 8. We have heard Sri K V Aravind, learned counsel for the Revenue as well as Sri Rupesh Jain, learned counsel appearing with Sri D Prasanth Kumar for the respondent 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 rele....
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....ich payment is made or credit is given, in any other case: Provided that such order for a financial year commencing on or before the 1st day of April, 2007 may be passed at any time on or before the 31st day of March, 2011." Then by Finance Act, 2012, the period of '4 years' mentioned in clause (ii) of subsection (3) was amended as '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 ....
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....ble period would be as provided under Section 153(1) of the Act, which is two years from the end of the assessment year in which the income was first assessable, that is, three years from the end of the financial year in question. Accordingly, he submitted that two years period from the end of assessment year 2002-03 or three years from the end of the financial 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 ....
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....ion of law, the same should be taken within a reasonable period, which would depend upon the facts of the case and the provisions of the Act under which action has to be taken. This is necessary, also because if any right has accrued in favour of a person or party by passage of time, same cannot be unsettled by a statutory authority at any time or after an indefinite 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. ....
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....nd not the payer. However, under the Income-tax Act, a provision has been made requiring the payer to deduct the tax from the account of the Recipient and deposit the same with the Department. In the present case, what we notice is that the respondent assessee had not deducted any tax at source at the time of making payment to the Recipient-KKFH PL. As such, the respondent assessee 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 D....
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....isions in the Finance (II) Bill, 2009, it was clearly stated that 'to provide sufficient time for pending cases, it is proposed to provide that such proceedings for a financial year beginning from 1st April, 2007 and earlier years can be completed by the 31st March, 2011. As such, the memorandum itself clarified that the proviso is for pending cases, and not decided cases. The Circular 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 perio....
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....e Industries Pvt Ltd, has been recently explained and reconciled by Lucknow ITAT Bench, in case of M/s Lala Bharat Lal & Sons vs. ITO (TDS), in ITA No.14,15, & 16/LKW/2019, order dated 19.02.2020, wherein it was held as follows: "4. We have heard the rival parties and have gone through the material placed on record. We find that it is an undisputed fact that the assessee is not 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 t....
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....nation is wrongly applied in the case of the assessee. 13. Considering the facts noted above, we are of the view that the authorities below have wrongly applied the meaning of scrap as is provided in Explanation (b) to section 206 C of the IT Act in the case of the assessee. Therefore, the assessee cannot be held to be in default. The assessee is not required to deduct tax u/s 206 C (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 Fl....
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.... following four items 1. Old and used plates 2. Non-excisable (exempted) like furniture, wood, etc. 3. Trading of scrap (melting) 4. High seas sale. 6. The Tribunal, after considering the definition of scrap under clause (b) to section 206C of the Act, has noted that the assessee is engaged in ship breaking activity and the items in question are finished products obtained from the activity and constitute 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 ....
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....xtent relief is required to be granted to the assessee under the provisions of section 206C(1) of the Act having regard to the findings of fact rendered by it." 8. Thus, the Hon'ble High Court held that the expression "scrap" is defined in clause (b) of the Explanation to section 206C of the Act to mean 'waste' and 'scrap' from manufacture of mechanical working of materials, which is definitely 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, an....
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....ourt, we set aside the findings of the Id. CIT(A) and direct the A.O. to delete the impugned demand." 11. The facts in either 'Dhasawala Traders vs. ITO' (supra), or 'Azizbhai A Lada vs. ITO' (supra), have not been shown to be any different from those of the case at hand. The only argument is that the Hon'ble High Court has not taken into consideration the Special Bench decision in the case of 'M/s Bharti 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....