ACIT 14(1), MUMBAI V. RAJSHREE INDUSTRIES, MUMBAI

ITA 7484/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92572 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 19-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Capital expenditure
• Section: 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ' D ' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI SANJAY ARORA , ACCOUNTANT MEMBER ITA NO. 7484/MUM/2013 (ASSESSMENT YEAR: 2009 - 10 ) A C I T - 14(1) VS. M/S. RAJSHREE INDUSTRIES ROOM NO. 202, 2ND FLOOR EARNEST HOUSE, NARIMAN POINT MUMBAI 400021 3C, BLOCK NO. 4, JAI HIND BLDG. 2ND FLOOR, DR. ATMARAM MERCHANT ROAD, BHULESHWAR MUMBAI 400002 PAN - AAGFR9081E APPELLANT RESPONDENT APPELLANT BY: SHRI SANJAY PUNGLIA RESPONDENT BY: SHRI RUSHABH MEHTA DATE OF HEARING: 21.05. 2015 DATE OF PRONOUNCEMENT: 21.05.2015 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY CIT(A) - 25, MUMBAI AND IT PERTAINS TO A.Y. 2009 - 10. 2. FOLLOWING GROUNDS WERE URGED BEFORE THE TRIBUNAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT U/S. 69 OF ACCOUNT OF DIFFERENCE IN CLOSING STOCK SHOWS IN THE BOOKS VIS - A - VIS THE STOCK STATEMENT SUBMITTED TO THE BANK, IN VIEW OF HON'BLE PUNJAB AND HARYANA HIGH COURT JUDGEMENT IN THE CASE OF DEVGON RICE AND GENERAL MILLS VS. CIT 263 ITR 391 (2003). 2. FURTHER, THE LD. CIT(A) ERRED IN RELYING ON THE JUDGEMENT OF HON'BLE BOMBA Y HIGH COURT IN THE CASE OF CIT VS. ACROW INDIA LTD. (2008) 298 ITR (BOM.) AS THE FACTS OF THE CASE ARE DIFFERENT. 3. THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FINDING THE A.O. THAT THE MACHINERY IS OWNED BY THE ASSESSEE AND WHATEVER REPAIRS AND MAINTE NANCE WORK HAS BEEN DONE IS FOR ENDURING BENEFIT FOR THE ASSESSEE IN FUTURE AND HENCE THE SAME IS IN NATURE OF CAPITAL EXPENDITURE. ITA NO. 7484/MUM/2013 M/S. RAJSHREE INDUSTRIES 2 3. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE STATED IN BRIEF. ASSESSEE - FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF PLASTIC ARTICLES. IT HAS SET UP ITS UNIT IN THE NOTIFIED BACKWARD STATE AND THEREFORE IT WAS ENTITLED TO CLAIM DEDUCTION UNDER SECTION 80IB(10) OF THE ACT. FOR THE YEAR UNDER CONSIDERATION ASSESSEE DECLARED TOTAL INCOME AT ` 1.11 CRORES AFTER CLAIMING DEDUC TION UNDER SECTION 80IB(10) OF THE ACT. DURING THE COURSE OF SCRUTINY PROCEEDINGS THE AO NOTICED THAT THERE IS DIFFERENCE IN THE FIGURES OF STOCK STATEMENT SUBMITTED BY THE ASSESSEE WITH THE UNION BANK OF INDIA FOR THE MONTH ENDED MARCH, 2009 AND CLOSING S TOCK VALUE AS DECLARED IN THE BALANCE SHEET AND ALSO OBSERVED THAT THE ASSESSEE FAILED TO RECONCILE THE DIFFERENCE IN THE STOCK VALUE AS PER BANK STATEMENT AND ITS BOOKS OF ACCOUNT. 4. IN RESPONSE THERETO THE ASSESSEE - FIRM SUBMITTED THAT ASSESSEE HAS TAKEN S ECURED LOAN S FROM BANKS AGAINST HYPOTHECATION OF STOCK AND BOOK DEBTS AND ASSESSEE HAS TO SUBMIT MONTHLY STATEMENT OF STOCK AND DEBTORS TO THE BANK BY 10 TH OF THE NEXT MONTH AS PER THE NORMS OF THE BANK. BUT GOING BY THE BOOKS OF ACCOUNT AND ACTUAL STOCK THERE WAS NO DIFFERENCE , SINCE A HIGHER VALUE WAS SHOWN FOR BANK PURPOSES. AO REJECTED THE CONTENTION OF ASSESSEE AND ADDED A SUM OF ` 24,10,667/ - AS UNEXPLA INED INVESTMENT UNDER SECTION 69 OF THE ACT, REFERABLE TO THE DIFFERENCE IN STOCK VALUE. 5. SIMILARLY, AO NOTICED THAT ASSESSEE DEBITED A SUM OF ` 3,43,281/ - ON ACCOUNT OF REPAIRS AND MAINTENANCE OF MACHINERY. ACCORDING TO THE AO IT IS IN THE NATURE OF CAPITAL EXPENSES AND THEREFORE DISALLOWED THE CLAIM OF DEDUCTION. AO ACCORDINGLY COMPLETED THE ASSESSMENT ON A TOTAL TAXABLE INCOME OF ` 1,38,80,160/ - . 6. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE CIT(A) THAT THE MONTHLY STATEMENT SUBMITTED TO THE BANK IS BASED ON AVE RAGE VALUE OF PURCHASE MADE WHEREAS THE VALUE OF CLOSING STOCK IN THE BALANCE SHEET IS DETERMINED ACCORDING TO THE METHOD CONSISTENTLY AND REGULARLY FOLLOWED AS PER ACCOUNTING STANDARD - 2 ISSUED BY THE ICAI. IT WAS ALSO SUBMITTED THAT THERE WAS NO DIFFERENCE IN THE QUANTITATIVE DETAILS AS PER THE STOCK STATEMENT AND THAT SHOWN IN THE BOOKS OF ACCOUNT AND HENCE THE ADDITION MADE BY THE AO ITA NO. 7484/MUM/2013 M/S. RAJSHREE INDUSTRIES 3 UNDER SECTION 69 OF THE ACT IS NOT IN ACCORDANCE WITH LAW. IT WAS FURTHER SUBMITTED THAT ASSESSEE INCURRED CERTAIN EXPENDIT URE FOR MAINTENANCE AND UPKEEP OF THE PLANT AND MACHINERY. MANUFACTURING PROCESS OF THE ASSESSEES PRODUCT IS HIGHLY MACHINE INTENSIVE AND REQUIRES VARIOUS KINDS OF MACHINES AND MOUL DS IN THE PROCESS. DUE TO WEAR AND TEAR OF MACHINERY ASSESSEE INCURRED EXP ENDITURE TO THE TUNE OF ` 3,43,281/ - , WHICH IS ALLOWABLE AS REVENUE IN NATURE. 7. AS REGARDS THE DIFFERENCE IN CLOSING STOCK VALUATION, THE LEARNED CIT(A) OBSERVED THAT THE AO HAS MEREL Y RELIED UPON THE DECLARATION OF STOCK STATEMENT SUBMITTED BY THE ASSESSEE TO THE BANK BUT HAD HE GONE DEEP , TO THE ROOT CAUSE OF DIFFERENCE , IT WOULD HAVE BEEN NOTICED THAT THERE WAS NO QUANTITATIVE DIFFE RENCE ; FURTHER , ASSESSEE FILED QUANTITATIVE RECONCILIATION OF CLOSING STOCK SHOWN IN THE BALANCE SHEET WITH THAT SU BMITTED TO THE BANK. HE ALSO RELIED UPON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF ACROW INDIA LTD. 298 ITR 447 IN SUPPORT OF HIS CONCLUSION THAT ADDITION COULD NOT HAVE BEEN MADE BY THE AO ON THE BASIS OF THE STATEMENT GIVEN TO THE BANK , REGARDING VALUATION OF CLOSING STOCK , UNLESS SPECIFIC MATERIAL IS BROUGHT ON RECORD TO PROVE THAT THERE IS UNDERVALUATION OF STOCK. HE, THUS, SET ASIDE THE ADDITION MADE BY THE AO REFERABLE TO UNDERVALUATION OF STOCK. 8. WITH REGARD TO THE ISSUE AS TO WHETHER THE ASSESSEE INCURRED EXPENDITURE UNDER THE HEAD REPAIRS OF PLANT AND MACHINERY IN ORDER TO CREATE A NEW ASSET, THE LEARNED CIT(A) OBSERVED THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF MAINTAINING THE MACHINERY IN ITS PRESENT CONDITION AND HENCE SUCH EXPENDITURE CANNOT BE CONSIDERED AS CAPITAL EXPENDITURE. IN THIS REGARD HE ALSO REFERRED TO THE LEDGER STATEMENT AND COPIES OF THE BILLS. HE ALSO OBSERVE D , UPON VERIFICATION OF THE BILLS, THAT THE IMPUGNED EXPENDITURE CONSISTS OF LARGE NUMBER OF BILL S OF PETTY AMOUNT, FOR VARIOUS TYPES OF REPAIRS. 9. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. THE LEARNED D.R. STRONGLY RELIED UPON THE ORDER PASSED BY THE AO WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE MATERIAL PLACED BEFORE THE CIT(A) AND ALSO THE ITA NO. 7484/MUM/2013 M/S. RAJSHREE INDUSTRIES 4 DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF ACROW INDIA LTD. (SUPRA) TO SUBMIT THAT IN THE ABSENCE OF PROVING THAT THERE IS UNDERVALUATION OF STOCK AO SHOULD NOT MAKE ANY ADDITION BY MERELY BASING UPON THE STATEMENT GIVEN TO THE BANK. HE ALSO PLACED BEFORE US A PAPER BOOK CONSISTING OF 208 PAGES TO SUBMIT THAT COPIES OF THE INVOICES REGARDING REPAIRS AND MAINTENANCE WERE ALSO FILED AND ANALYSIS OF STOCK STATEMENT SUBMITTED TO THE BANK AND STOCK AS PER BALANCE SHEET WAS PLACED BEFORE TH E CIT(A) WHO HAS VERIFIED THE SAME AND NOTICED THAT THERE IS NO UNDERVALUATION OF STOCK . SIMILARLY THE EXPENDITURE INCURRED WOULD FALL IN THE CATEGORY OF REPAIRS AND MAINTENANCE. 10. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE WE ARE OF THE VIEW THAT THE ORDER PAS SED BY CIT(A), ON THIS TWO ISSUES , DOES NOT CALL FOR ANY INTERFERENCE. WE THEREFORE DISMISS THE APPEAL FILED BY THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MAY, 2015. SD/ - SD/ - ( SANJAY ARORA ) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 21 ST MAY, 2015 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 25 , MUMBAI 4. THE CIT 14 , MUMBAI CITY 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.