THE ASSTT. COMMISSIONER OF INCOME TAX (OSD), TDS CIRCLE,, AHMEDABAD vs. BANSAL SHIP BREAKERS PVT. LTD.,, BHAVNAGAR

The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-8, Ahmedabad (‘CIT(A)’ in short), dated 21.11.2016 arising [ACIT(OSD) vs. Bansal Ship Breakers Pvt. Ltd.] A.Y. 2008-09 - 2 - in the assessment order dated 24.03.2014 passed by the Assessing Officer (AO) under s. 206C(1) r.w.s. 206C(6), 206C(6A) and 206C(7) of the Income Tax Act, 1961 (the Act) concerning AY 2008-09.

The Revenue in its appeal has challenged the action of the CIT(A) in reversing the tax imposed under s. 206C(1) r.w.s. 206C(6), 206C(6A) of the Act amounting to Rs.27,60,838/- and interest thereon amounting to Rs.23,19,104/- imposed by the AO under s. 206C(7) of the Act.

When the matter was called for hearing, the learned DR for the Revenue relied upon the order of the AO and submitted that the assessee has failed to collect TDS at the time of sale of ‘scrap’ of arising on dismantling of ships on certain items aggregating to Rs.16,98,13,542/- with contravention of Section 206C of the Act. The learned DR for the Revenue contended that the entire ship purchases for scrapping/breaking/recycling is ‘scrap’ for the purposes of Section 206C of the Act and the assessee has failed to collect TCS on certain sales of items (scrap) arising from such ship breakers.

The learned AR, on the other hand, relied upon the order of the CIT(A) and submitted that the assessee company is engaged in the business of ship breaking where the ships are demolished and sold in the market on itemized basis as ‘finished product’. The learned AR for the assessee referred to the tabulated statement as appearing in at page nos. 3 & 4 of the order of the CIT(A) and submitted that the items which are liable for TCS has been subjected to the provisions of the Act and the assessee has duly collected TCS on these items as tabulated marked ‘Part-A’. The assessee has also furnished Form 27- C and low tax collection certificate under s. 206C(9) in the cases where TCS has not been collected. However, the subject matter of [ACIT(OSD) vs. Bansal Ship Breakers Pvt. Ltd.] A.Y. 2008-09 - 3 - dispute is towards sale of items listed in ‘Part-B’ of the tabular chart where the assessee has not collected TCS on such items as they are not liable for TCS collection under s.206C(1) of the Act. The learned AR pointed out that the items sold as per ‘Part-B’ comprises of plates, machinery and machinery parts, fuels and oils, firewood and wooden items, articles of iron & steel anchor and some miscellaneous items which are ‘usable as such’ as finished product without alterations. In the context, the learned AR referred to the Explanation (b) to Section 206C of the Act which defines expression ‘scrap’ to mean ‘waste and scrap’ which is not usable as such i.e. in the same form as generated. The learned AR contended that the items falling in ‘Part-B’ of the tabulated statement as pointed out above are usable in the same form and therefore do not fall within the definition of expression ‘scrap’ and thus not susceptible to the provisions of Section 206C of the Act. The learned AR relied upon the decision of the co-ordinate bench of Tribunal in ITO vs. M/s. Priya Blue Industries Pvt. Ltd. ITA No. 2207/Ahd/2011 order dated 14.05.2015 in this regard which was, in turn, approved by the Hon’ble Gujarat High Court in the case of CIT(TDS) vs. Priya Blue Industries P. Ltd. [2016] 381 ITR 0210 (Guj). The learned AR also pointed out that based on the submissions made in the subsequent year in response to notice issued under s.206C(6) r.w.s. 206C(6A) & 206C(7) of the Act in relation to AYs 2010-11, 2011-12 & 2012-13, placed in the similar circumstances, the AO himself has acquisitioned with the plea of the assessee for non- application to obligation to collect TCS. The proceedings under s.206C of the Act were consequently dropped by specific orders in other assessment years. The learned AR accordingly submitted that there was no justification for the AO to invoke the provisions of Section 206C of the Act in respect of grouped in Part B of tabulated statements of facts and CIT(A) has rightly decided the issue in favour of the assessee. [ACIT(OSD) vs. Bansal Ship Breakers Pvt. Ltd.] A.Y. 2008-09 - 4 -

We have carefully considered the rival submissions and perused the orders of the authorities below. The applicability of provision of Section 206C of the Act on sale of certain items of ‘scrap’ arising from ship breaking activity is in question. The CIT(A) has dealt with issue as under:

I have noticed that there is no violation of the provisions of section 206C of the Act in view of either the sale of specified products being that of non-excisable, non-scrap products (to the extent of Rs.16,98,13,542/- ), or the same being against receipt of declarations in prescribed form number 27C (to the extent of Rs,9,39,36,107/-). It has already been held, while dealing with the first ground of appeal, that the non-excisable products are obtained from the ships and sold as it is without undergoing any manufacturing process thereon and the same therefore cannot partake the character of scrap within the meaning of section 206C of the Act. The appellant therefore cannot be burdened with the liability of TCS in connection with sale of such products. It is therefore held that in so far as the sale of Rs. 16,98,13,542/- towards various non excisable products was concerned, the appellant could not have been treated as assessee in default. However, the AO has written in his remand report that "out of amount of Rs.16,98,13,542/- which includes non excisable, old and used plates etc, the items on which no relief is available as per judgment discussed above are clearly liable for TCS." But the AO has not given any working whether this amount includes such items on which relief is not available. At the time of assessment also the AO has not pointed out any discrepancy in the chart of sale provided by the assessee which shows a sale of Rs.16,98,13,542/- in part 'B' which contains used plates, machinery and machinery part, fuel and oil, fire wood and wooden items and articles of iron steel anchor. These are the items obtained by the assessee in the course of ship breaking activity and these are 'usable as such' on which as per court decision in the case of Priya Blue.......(supra), no TCS is to be collected, and therefore, do not fall within the definition of 'scrap’. Hence, the items shown in Part ‘B' of the chart given by the assessee to the AO at the time of assessment amounting to Rs. 16,98,13,542/- are not under the purview of the [ACIT(OSD) vs. Bansal Ship Breakers Pvt. Ltd.] A.Y. 2008-09 - 6 -

It is the case on behalf of the assessee that non residuary items are outside the purview of Explanation (b) to Section 206C of the Act where the ‘waste and scrap’ arising from ship breaking is usable as such without modification. Sale of such items capable of being used as such is outside the ambit of Section 206C of the Act. We find merit in the plea raised on behalf of the assessee in the light of decision of Hon’ble Gujarat High Court in the case of CIT(TDS) vs. Priya Blue Industries P. Ltd. [2016] 381 ITR 0210 (Guj). Thus, on first [ACIT(OSD) vs. Bansal Ship Breakers Pvt. Ltd.] A.Y. 2008-09 - 7 - principles, the items sold which are capable of being used as such are discharged from the obligations fastened under s.206C of the Act. The CIT(A) in our view has looked into the controversy objectively after taking cognizance of remand report and replies of the assessee and in the light of evidence placed before it. The action of the CIT(A) is in tune with law and cannot be faulted. We thus decline to interfere.

In the result, the appeal of the Revenue is dismissed.