Nisarahmed Abdulsattar Vs ITO (ITAT Ahmedabad)
Introduction: The Income Tax Appellate Tribunal (ITAT) in Ahmedabad ruled on the case of Nisarahmed Abdulsattar Vs. Income Tax Officer (ITO) concerning the failure to collect Tax Collected at Source (TCS) on the sale of metal scrap. The issue revolved around whether the Assessment Order passed by the AO was within the limitation period.
Analysis: The appellant, an individual, operated M/s. A.S. Didwani Scrap Traders, engaged in trading in scrap. For the Assessment Year 2012-13, the appellant sold metal scrap to various parties but failed to deduct TCS at 1% as required under Section 206C of the Income Tax Act. Consequently, proceedings were initiated, and a show cause notice was issued to the appellant.
The appellant contended that they were engaged in trading defective sheets, not scrap, and hence, TCS provisions did not apply to their trading activities. However, both the Assessing Officer and the Commissioner of Income Tax (Appeals) rejected the appellant’s explanation and demanded TCS and interest.
The ITAT’s decision to quash the Assessment Order hinged on the argument that the order was passed beyond the limitation period. The ITAT cited various case laws supporting the position that proceedings under Section 201/201(1A) of the IT Act must be initiated within four years from the end of the financial year. In this case, the order was passed on 26-07-2017, which exceeded the four-year limitation period, making it untenable.
Based on order’s issuance beyond the limitation period, the ITAT Ahmedabad quashed the Assessment Order in Nisarahmed Abdulsattar Vs. ITO. This decision highlights the importance of adhering to the statutory limitation period in tax assessments.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
ITA No. 2505/Ahd/2018 is filed by the assessee as against the appellate order dated 29-11-2018 passed by the Commissioner of Income Tax (Appeals)-8, Ahmedabad arising out of the order passed under section 206C(6A) r.w.s. 206C(1) and 206C(7) of the Income Tax Act, 1961 for failure to Collect Tax at Source relating to the Asst. Year 2012-13.
2. The brief facts of the case is that the assessee is an individual and Proprietor of M/s. A.S. Didwani Scrap Traders and engaged in the business of Trading in Scrap as per Audit Report filed by the assessee. For the Assessment Year 2012-13, the assessee has sold metal scrap of Rs. 4,90,30,865/- to various parties. However the assessee failed to Tax Collect at Source (TCS) at 1% on such payment u/s. 206C of the Act. Accordingly, proceeding u/s. 206C(6A) and 206C(7) were initiated and show cause notice dated 27-06-2017 was issued to the assessee as to why TCS @ 1% u/s. 206C(6A) along with interest u/s. 206C(7) should not be levied for the above default.
2.1. The assessee replied that he is engaged in the business of Defective Sheets and not in the business of selling of scrap. As per section 206C definition of “Scrap” means Waste and scrap from the Manufacture or mechanical working of material which is definitely not usable as such because of breakage, cutting up, wear and other reasons”. The assessee further submitted it is engaged in trading of metal sheets only and not engaged any kind of manufacturing activity. As per the definition of scrap, which envisages that generated scrap is not usable as such, however the defective sheets are usable as such without any further processing. Hence, the provision of section 206C and collection of TCS is not applicable to the trading activities carried out by the assessee and requested to drop the proceedings initiated and the assessee is not to be treated in default as per the provisions of the Act.
2.2. The above explanation was not accepted by the Assessing Officer and thereby demanded @1% TCS of u/s. 206C(1) of Rs. 4,90,309/- and interest u/s. 206C(7) of Rs. 3,77,538/- vide order dated 26-07-2017.
3. Aggrieved against the same, the assessee filed an appeal before Commissioner of Income Tax (Appeals)-8, Ahmedabad. In spite of notices to the assesse, the assessee failed to appear, hence the ld. CIT(A) by exparte order, confirmed the addition made by the Assessing Officer and thereby dismissed the assessee appeal.
4. Aggrieved against the same, the assessee is in appeal before us challenging the following Grounds of Appeal.
1. The Ld. CIT(A) erred in law and in facts in confirming the demand of Rs. 4,90,309/- raised under section 206C being 1% TCS considering the sale of CRC Sheet as scrap, such demand is requested to be deleted.
2. The Ld. CIT(A) erred in law and in facts in confirming the imposition of interest of Rs. 3,7,538/- under section 206C(7) of the Income Tax Act, 1961, such demand is requested to be deleted.
4.1. The assessee also filed Additional Ground of Appeal:
1. he learned AO erred in passing the order under section 206C(1) r.w.s. 206C(1) and 206C(7) of the Income Tax Act, 1961, after limitation period and learned CIT(A) erred in confirming the order of AO, the order passed by AO is requested to be quashed.
4.2. The Ld. Counsel appearing for the assesse submitted the end of the financial year is 31-03-2012 and 4 years ends on 31-032106. The A.O. ought to have passed the order u/s. 206C(6A) on or before 31-03-2016. However the show cause notice was issued on 27-06-2017 and order u/s. 206C was passed on 26-07-2017 which is after 4 years period and barred by limitation. The Ld. A.R. submitted the following case laws in support of its his arguments as follows:
Order Passed After Limitation Period – Quashed
