Case Law Details
Brief of the Case
ITAT Ahmedabad held In the case of ITO vs. M/s Bharat Agro Industries that section 69 comes into operation only if investments are not recorded in the books of account maintained by the assessee which is not the case looking to the facts of the assessee wherein the bank balances are shown in the audited balance sheet and reconciliation statement for various entries which were not tallied duly put on record before the lower authorities and also filed along with Paper Book. Further the AO has himself recorded in his order that assessee has disclosed all the bank accounts in his regular books of account and only because of the reason that some of the entries would not tally at the time of hearing resulted into such additions. Therefore, looking to the above facts there remains no scope of any addition under section 69.
Facts of the Case
The assessee filed its return of income for AY 2009-10 on 31.08.2009 declaring income of Rs.66,760/-. The return was processed under section 143(1) and thereafter selected for scrutiny under CASS and notice u/s 143(2). The AO framed the assessment order under section 143(3) on 30th December, 2011 by making certain additions. The major addition was u/s 69 in relation to untallied entries /credits /deposits /clearings as appearing in four bank statements shown by the assessee in its books and due to lack of satisfactory explanation/details AO made an addition of Rs.33,38,164. Further addition was made on account of disallowance of machinery repair expenses. The AO made the disallowance for the very reason that substantial amount was incurred in relation to repair of plant and machinery and the same was, therefore, required to be capitalized and allowed depreciation on the same as per the rates prescribed.
Contention of the Assessee
Addition u/s 69
The ld counsel of the assessee submitted that all the bank accounts which have been referred to by the AO in his assessment order were duly incorporated in the books of accounts maintained by the assessee and bank reconciliation statement have also been filed. The ld. AR further submitted that there was not a single entry which remained untallied and the assessee is following double entry book keeping system and the books of accounts of the appellant firm were duly audited under section 44AB. There is no question of any such discrepancy to arrive.
Addition on account of repair of plant & machinery
The ld counsel of the assessee submitted that most of the expenses pertain to purchase of chemicals and other consumable items in order to operate the boiler and conveyor belts etc. smoothly and it cannot be said from the nature of these expenses that any new plant or machinery came into being. Machine repair expenses are regular feature of the firm, because most of machineries are very old, being installed in the year 1984.
Further he submitted that merely photographs of plant taken by the Inspector with the help of professional photographer were appended to the assessment order. Even, the ld. AO had failed to conduct any enquiry with the vendors, who had issued repair bills to the appellant firm. Therefore, the conclusion of the ld. AO regarding installation of new machines was merely on the basis of conjecture and surmises.
Contention of the Revenue
Addition u/s 69
The ld counsel of the revenue supported the order of AO.
Addition on account of repair of plant & machinery
The ld counsel of the revenue submitted that the WDV of fixed assets as on 31.3.2009 of the assessee was of Rs.78,27,027/- and the expenses incurred for repair and maintenance of machinery amounting to Rs.12,98,213/- is a substantial amount and needs to be capitalized and further duly supported the finding made by the AO.
Held by CIT (A)
Addition u/s 69
The CIT (A) deleted the addition made by AO. It was held that the conditions required to invoke the provisions of section 69 were not applicable to the assessee because they were duly recorded in the books of account. Further Perusal of the assessment order reveals that the AO has not identified the investments made by the appellant during the year under consideration. This way the first precondition of section 69 is not fulfilled. The facts available on record clearly indicate that the interbank fund transfers against which the impugned addition is made forms part of the books of accounts. This way, it can be said that the impugned investment was recorded in the books of accounts. This way the second precondition of section 69 is not fulfilled in the case of the appellant. The appellant has also furnished complete reconciliation to explain the proper accounting of these fund transfers. The AO has not disproved the explanation offered by the appellant. In view of these facts it can be said that the appellant had furnished an explanation which remains uncontroverted and this way the third precondition of section 69 is not fulfilled. This way all the conditions as mentioned u/s 69 are not fulfilled in this case. In view of these facts also, the addition made by the AO is untenable.
Addition on account of repair of plant & machinery
CIT (A) after considering the submission of the assessee deleted the disallowance due to lack of finding on the part of AO to establish the facts and circumstances of such new plant and machinery to substantiate his finding. It was held that the appellant is regularly claiming repair and maintenance expenses in the earlier years and the same was allowed. The AO has not allowed any repair and maintenance expenses for the year under consideration. The AO has failed to bring cogent evidences on record to prove the fact that repair and maintenance expenses were not incurred. During the assessment proceedings as well as appellate proceedings the appellant has filed copy of account of machinery repair expenses. Perusal of these expenses reveals that these are normal repair and maintenance expenses which has been incurred in small denominations and accordingly, I hold that these expenses are revenue in nature and deserves to be allowed.
Held by ITAT
Addition u/s 69
ITAT held that section 69 comes into operation only if investments are not recorded in the books of account maintained by the assessee which is not the case looking to the facts of the assessee wherein the bank balances are shown in the audited balance sheet and reconciliation statement for various entries which were not tallied, as observed by AO but duly put on record before the lower authorities and also filed along with Paper Book. Further the AO has himself recorded in his order that assessee has disclosed all the bank accounts in his regular books of account and only because of the reason that some of the entries would not tally at the time of hearing resulted into such additions. Therefore, looking to the above facts there remains no scope of any addition under section 69.
Addition on account of repair of plant & machinery
ITAT held that after examining the machinery repair expenses ledger accounts, it is clear that majority of the expenses which have been incurred regularly round the year are less than Rs.10,000/- and in very few cases has exceeded Rs.20,000/-. From the perusal of the balance sheet of the assessee it is clear that an addition of Rs.11.24 lacs has been made by the assessee under the head boiler account, which was the capital expenses incurred by the assessee and depreciation has been charged accordingly. The expenses under machinery repair and maintenance have been mainly incurred in relation to boilers which are used to get boiled rice and as a part of the plant come into contact with steam generated from the boiler, thereby getting corroded and require frequent replacement. Similarly consumable stores like rubber rings, hardware items which assist in movement of conveyor belts also need to be replaced regularly due to wean and tear. As such the machinery repair and maintenance expenses incurred by the assessee at Rs.12,98,213/- are revenue in nature and there is no error in the findings of CIT(A).
Accordingly appeal of the revenue dismissed.
