TCS Liability: When assessee is not “assessee in default” question of interest does not arise, ITAT

The appellant is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacturing of CI Casting etc. The Income Tax Officer (TDS), Kolhapur conducted a survey operations u/s 133A of the Income Tax Act, 1961 (‘the Act’) on 13.02.2009. During the course of survey proceedings, it was found that the appellant company had sold scrap of Rs.98,35,715/- and Rs.12,95,840/- during the financial years 2007-08 and 2008-09 respectively without collection of tax deducted at source as provided u/s 206C of the Act.

Accordingly, a show-cause notice was issued to the appellant calling upon the assessee as to why the assessee should not be treated as an assessee in default. The appellant company filed explanation in response to the said show-cause notice stating that it had made the scrap sales to one customer, namely, Melting Point, Kolhapur from whom it had received declaration u/s 206C(IA) in Form No. 27C dated 11.05.2007 and the same were forwarded to the Commissioner of Income Tax, Kolhapur vide letter dated 15.05.2007.

The appellant company further stated that out of total scrap sales of Rs.98,35,715/- the appellant made sale to Melting Point, Kolhapur, to the extent scrap sales of Rs.59,27,699/- was made during the financial year 2007-08 and in respect of balance of scrap sales of Rs.39,07,726/- during the financial year 2007-08, the tax was collected at source and credited to the Central Government’s Account.

However, the TDS Officer by holding that the assessee had failed to deliver the copy of the declaration received in Form No. 27C received from Commissioner of Income Tax, Kolhapur held that the assessee is in default and passed an order directing the assessee to pay a sum of Rs. 67,160/- and interest thereon of Rs.28,127/- invoking the provisions of section 206C(7) of the Act.

Being aggrieved by the above order of the TDS Officer, an appeal was preferred before the ld. CIT(A), who vide impugned order taking cognizance of fact that the declaration in Form No.27C had been filed at the time of assessment, the assessee cannot be treated as assessee in default for TDS amount of Rs.67,160/-. However, the ld. CIT(A) confirmed the levy of interest u/s 206C(7) amounting to Rs. 28,127/-.

Being aggrieved by the above decision of the ld. CIT(A), the appellant is in appeal before the Income Tax Appellate Tribunal (ITAT).

ITAT Order:

8. We heard the ld. Sr. DR and perused the material on record. From the perusal of the order passed u/s 206C/206C(7) of the Act dated 28.03.2011, it would be clear that the TDS Officer had held that the assessee is in default for collecting tax at source on the sale of scrap made to one company, namely, Melting Point, Kolhapur on the ground that there was no proof of delivery of declaration obtained in Form No.27C from the Commissioner of Income Tax, Kolhapur. Accordingly, the TDS Officer demanded tax collection at source of Rs.67,160/- apart from interest thereon of Rs.28,127/-.

On appeal before the ld. CIT(A), the ld. CIT(A) clearly held that the assessee cannot be treated as an assessee in default on being satisfied that the appellant had obtained declaration in Form No.27C, however, ld. CIT(A) held the assessee liable to pay interest thereon. The finding of the ld. CIT(A) that the assessee cannot be treated as assessee in default attained finality as the Department is not in appeal challenging this decision. When the assessee cannot be treated as assessee in default, the question of holding the assessee liable to pay interest does not arise, as there was no liability to collect the tax at source. Hence, the findings of the ld. CIT(A) that the assessee is liable to pay interest u/s 206C(7) are reversed. Accordingly, the grounds filed by the assessee stand allowed.