Non-filing of Form 27C: ITAT denies TCS Exemption u/s 206C to Seller [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT), in its recent ruling held that the Assessing Officer (AO) and the Commissioner of Income Tax (Appeal) [CIT(A)] rightly imposed the Tax liability on the seller of the scrap under Section 206C of the Income Tax Act, 1961 and dismissed the appeal of the assessee.

The CIT(A), Ahmedabad's decision infuriated the assessee, filed an appeal with the Appellate Tribunal for the A.Y. 2012–13.

The assessee, who is in the business of supplying building materials, MS Plate, Iron Bara, and other ferrous and non-ferrous metals, filed returns in virtue of Section 143(3) of the Income Tax Act. The AO remarked that the assessee traded scrap to M/s. Neesa Infrastructure Ltd. valued approximately 2 crores of rupees, but no TCS had been made.

The order of the AO that the assessee has a tax liability with interest of around Rs. 4 lakhs in accordance with Sections 206C(1) and 206C(7) of the Income Tax Act were contested by the assessee before the CIT(A).

As a response, the CIT(A) rendered a judgement that was similar to AO, and the assessee, feeling disgruntled by the decision, filed an appeal with the Tribunal.

Jinesh Shah, presenting on behalf of the assessee, stated that the TCS did not pertain to the sale of scrap since the assessee engaged in trading rather than manufacturing.

The counsel claimed that in Circular No. 18  dated 21.05. 2012, the definition of TCS for scrap traders was clarified, and that if the buyer declares the seller in writing via Form 27C under the Income Tax Act that they are purchasing the goods for manufacturing, processing, or producing goods instead of for trading, the seller is not obligated to collect the tax from them.

Mukesh Jain, a representative for the department, highlighted the CIT (A)'s and the assessment order as sources of assistance. The assessee sold scrap during the year under consideration, according to the counsel, but did not receive TCS for it.

Furthermore, the counsel noted the Special Bench of the Tribunal's ruling in Bharti Auto Product v. CIT (2013) 92 DTR 345, which managed to hold that the word "seller" does not mandate that the person selling scrap must generate the scrap themselves and that, as an outcome, such an obligation cannot be read into the section.

The Bench of Suchitra Kamble denied the tax exemption to the seller on trade of scrap and directed it to follow the order made by the AO and CIT(A) as no declaration was made by the buyer under Form 27C of the Income Tax Act that not to use the scrap for trade. 

Furthermore, it was noted from the Central Board of Direct Taxes (CBDT) Circular that there was no requirement that the goods to be eligible for scrap should be produced/manufactured by the seller itself.

To Read the full text of the Order CLICK HERE

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