(PER : HONOURABLE MS.JUSTICE HARSHA DEVANI)
1. In all these appeals under section 260A of the Income Tax Act, 1961 (hereinafter referred to as the "Act") the appellant - revenue has challenged the order dated 26.05.2017 made by the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot (hereinafter referred to as the "Tribunal"), by proposing the following common questions, stated to be the substantial questions of law:
"[A] Whether the Appellate Tribunal has substantially erred in law and on facts in deleting the addition made of Rs. 1,30,85,783/u/ s. 206C(1) of the Income Tax Act on account of noncollection of TCS on sale of scrap and interest charged u/s.206C(C) in spite of the fact that the assessee was trader of scrap and the provision of section 206(1) was applicable to the assessee?
[B] Whether the Appellate Tribunal has violated the Rule 46A(3) of the Income Tax Rule by not giving opportunity to the AO after admitting evidences in the form of photographs, samples?"
2. The assessment years are 2009-10, 2010-11, 2011-12 and 2012-13 and 2013-14, respectively. A survey came to be conducted in the premises of the respondent assessee on 11.12.2013. During the course of survey, it was observed that the assessee used to import garments, cut them into smaller pieces and sell them in India. It was also found that the assessee used to sell scrap like wastage of packing material, loose cartons, plastic bags, etc. The Assessing Officer held that the assessee was selling scrap and should have collected tax at source on the sales as per the provisions of section 206C of the Act and that the assessee was liable to pay interest under section 206C(7) of the Act.
3. The assessee carried the matter in appeal before the Commissioner (Appeals), who held that insofar as the plastic bags, cartons, packing material, etc. are concerned, the same were in the nature of pure scrap, and, therefore, tax should have been collected at source by the assessee on such material. Insofar as the second category of items is concerned, the Commissioner (Appeals) observed that the assessee had during the years under consideration sold mutilated rags, industrial wipers and chindi. The modus operandi employed by the assessee was that it used to import fumigated garments and remove the buttons, chains and zips from such garments. The remaining garments were cut into smaller piece to create rags, wipers or chindi, as per the specifications and as per the orders placed by various buyers. The assessee had explained in its submissions that the products have further been used for different applications and that the products manufactured by the assessee are classified under the Excise Laws under the Heads 63.09 and 63.10. During the course of the appeal proceedings, the Commissioner (Appeals) had also called for photographs and actual samples of the products manufactured by the assessee, and after perusing them, found that even though in common parlance what was being sold by the assessee could be held to be waste material, it was actually not so. The assessee was actually processing the imported garments to cut them into smaller pieces as per the requirements of various end users. The rags were even being further used for manufacturing knitwear, blankets, mattresses, pillows, etc. The chindis were being used for manufacture of bathroom mats, coasters, and similar items; while the industrial wipers were being utilized by various industries for cleaning of hands and machinery, etc. during the manufacturing activity. The Commissioner (Appeals) further noted that the expression "scrap" as defined in Explanation (b) to section 206C of the Act refers to the incidental residue derived from certain types of manufacture, which is recoverable. He noted that the rags, wipers and chindi were recovered by carrying out physical operations, that is, by carrying out the physical operation of cutting on the imported garments and what was created was not an item that was not usable as such. According to the Commissioner (Appeals), the items brought into existence by the assessee were raw material for production of some other items and definitely usable as such and, therefore, sale of chindi, wipers and rags would not amount to sale of scrap. In view of the above findings of fact recorded by him, the Commissioner (Appeals) held that the assessee was not required to collect tax on the sale of the second category of items, that is, chindi, wipers and rags.
4. The revenue carried the matter in appeal before the Tribunal, which agreed with the findings recorded by the Commissioner (Appeals) and dismissed the appeals.
5. Mrs. Mauna Bhatt, learned senior standing counsel for the appellant, submitted that the material sold by the respondent assessee was clearly in the nature of scrap and as such, in view of the provisions of section 206C of the Act, the assessee was liable to deduct tax at source on the sale of such scrap. It was submitted that the rags, wipers or chindi generated on account of cutting garments would clearly fall within the definition of "scrap" as defined under clause (b) of the Explanation to section 206C of the Act. It was further submitted that during the course of the appellate proceedings, the Commissioner (Appeals) had relied upon the additional evidence in the form of the photographs and samples produced by the assessee and no opportunity of hearing had been provided in that regard to the department in terms of rule 46 of the Income Tax Rules. It was, accordingly, urged that the appeals do give rise to substantial questions of law as proposed or as may be deemed fit by this court and the appeal deserves to be admitted.
6. This court has considered the submissions advanced by the learned senior standing counsel for the appellant and has perused the orders passed by the Tribunal, the Commissioner (Appeals) and the Assessing Officer.
7. The question involved in the present case is as to whether rags, wipers or chindi produced by the respondent assessee by cutting garments, would fall within the ambit of "scrap" as defined under clause (b) of the Explanation to section 206C of the Act.
8. Clause(b) of the Explanation to section 206C of the Act defines "scrap" to mean waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons.
9. On a plain reading of the above definition, it is evident that the scrap is something that is generated from manufacture or mechanical working of materials. In the present case, both, the Commissioner (Appeals) as well as the Tribunal, have recorded concurrent findings of fact to the effect that the manufacturing activity of the assessee was to cut garments into smaller pieces to create rags, wipers or chindi, as per the specifications and as per the orders placed by various buyers. It has also come on record that the products manufactured by the assessee are classified under the Excise Laws under headings 63.09 and 63.10. Categorical findings of fact had been recorded by the Commissioner (Appeals) to the effect that the assessee was actually processing the imported garments to cut them into smaller pieces as per the requirements of various end users and the rags were being further used for manufacturing knitwear, blankets, mattresses, pillows, etc. and the chindis were being used for manufacturing bathroom mats, coasters, and similar items, while the industrial wipers were utilized for various industries for cleaning of hands and machinery, etc. during the manufacturing activity. It has further been found that the items brought into existence by the assessee were used as raw material for production of some other items and were definitely usable as such. The expression "scrap" as defined under clause (b) of the Explanation to section 206C of the Act, clearly provides that scrap means waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such. In the facts of the present case, the rags, wipers or chindi are actually products manufactured by the assessee and are used as such by the buyers for the purpose of manufacturing other items and are not products which cannot be used as such because of breakage, cutting up, wear and other reasons. The articles manufactured by the respondent assessee, therefore, would not fall within the ambit of the expression "scrap" as envisaged in clause (b) of the Explanation to section 206C of the Act.
10. In the above view of the matter, and more particularly considering the concurrent findings of fact recorded by the Commissioner (Appeals) and the Tribunal, no infirmity can be found in the impugned order passed by the Tribunal in holding that the rags, wipers or chindi sold by the appellant would not fall within the meaning of "scrap" so as to attract the provisions of section 206C of the Act making the assessee liable to deduct tax at source under the said provision.
11. Insofar as the proposed question [B] regarding the Assessing Officer not being given an opportunity after admitting evidence in the form of photographs and samples is concerned, this court is in agreement with the view adopted by the Tribunal that where additional evidence is obtained by the first appellate authority on its own motion, there is no requirement in law that he should invariably consult/confront the Assessing Officer with such additional evidence. If the additional evidence furnished by the assessee before the first appellate authority is in the nature of clinching evidence leaving no further room for any doubt or controversy, in such a case no useful purpose would be served by forwarding such evidence/material to the Assessing Officer to obtain his report and in such exceptional circumstances, the said requirement can be dispensed with. In the facts and circumstances of the present case, the additional evidence was only in the nature of the photographs and samples of the articles manufactured by the assessee. In the opinion of this court, considering the nature of the additional evidence produced by the assessee no useful purpose would have been served by forwarding such evidence/material to the Assessing Officer to obtain his report as such evidence was in the nature of clinching evidence leading no further room for any doubt or controversy. Under the circumstances, the second question proposed by the appellant also does not merit acceptance.
12. In the light of the above discussion, it is not possible to state that the impugned order passed by the Tribunal, suffers from any legal infirmity so as to give rise to any question of law, much less, a substantial question of law, warranting interference. The appeals, therefore, fail and are accordingly summarily dismissed.
13. Registry to place a copy of this order in the connected matters.