2015 (10) TMI 1080 - AT - Income Tax

Addition u/s 69 - 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 - CIT(A) deleted the addition - 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. The relevant facts available on record clearly indicate that the non-reconciliation of entries/bank funds transfers which were actually forming parts of the books of accounts were the basis of addition made by the AO and further the AO has duly accepted that the bank accounts are forming part of books of accounts. 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 of the Act and we do not find any error in the order of CIT(A). - Decided against revenue. Disallowance of machinery repair expenses - CIT(A) deleted the addition - Held that - From the perusal of the balance sheet of the assessee it is clear that an addition of 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 12, 98, 213/- are revenue in nature and there is no error in the findings of CIT(A). We uphold the same - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition under Section 69 of the Income Tax Act.
2. Deletion of addition treating machinery repair expenses as capital expenses.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 69:

The first issue pertains to the addition of Rs. 33,38,164 made by the Assessing Officer (AO) under Section 69 of the Income Tax Act, which was deleted by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO observed discrepancies between the credits/deposits in the bank statements and the receipts shown in the books of the assessee, leading to the addition under Section 69 for unexplained investments.

The CIT(A) deleted the addition, noting that the bank accounts were declared and part of the audited books of accounts. It was highlighted that the assessee followed a double-entry bookkeeping system, ensuring that all transfers were properly accounted for, and any discrepancies would have resulted in an unbalanced balance sheet, which was not the case. The CIT(A) further noted that the conditions for invoking Section 69 were not met as the investments were recorded in the books, and the explanation provided by the assessee was satisfactory and uncontroverted by the AO.

The Tribunal upheld the CIT(A)'s decision, stating that Section 69 applies only if investments are not recorded in the books of account. Since the bank balances were shown in the audited balance sheet and reconciliation statements were provided, the conditions for Section 69 were not fulfilled. Thus, the addition was deemed untenable, and the ground of the Revenue was dismissed.

2. Deletion of Addition Treating Machinery Repair Expenses as Capital Expenses:

The second issue relates to the addition of Rs. 12,98,213 made by the AO, treating machinery repair expenses as capital expenses. The AO argued that the expenses were substantial and should be capitalized, allowing depreciation instead.

The CIT(A) deleted the disallowance, noting that the AO's conclusion was based on the appearance of the machinery rather than concrete evidence. The CIT(A) emphasized that regular repair and maintenance are necessary for business operations, especially for old machinery. The AO failed to establish that new machinery was installed or that the expenses provided an enduring benefit. The CIT(A) concluded that the expenses were revenue in nature and should be allowed.

The Tribunal supported the CIT(A)'s findings, observing that the assessee had consistently incurred machinery repair expenses over the years. The expenses were primarily for consumables and maintenance of old machinery, particularly boilers, which require regular upkeep. The Tribunal found no error in the CIT(A)'s decision and upheld the deletion of the addition, dismissing the Revenue's ground.

Conclusion:

The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s orders on both issues. The Tribunal found that the additions under Section 69 and for machinery repair expenses were not justified based on the facts and evidence presented. The decision was pronounced in the open court on 9/9/15.