A C I T - 14(1) Room No. 202, 2nd Floor Earnest House, Nariman Point Mumbai 400021 Vs. M/s. Rajshree Industries 3C, Dr. tmaram Merchant Road, Bhuleshwar Mumbai 400002
May, 26th 2015
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) M/s. Rajshree Industries
Room No. 202, 2nd Floor 3C, Block No. 4, Jai Hind Bldg.
Earnest House, Nariman Point Vs. 2nd Floor, Dr. Atmaram
Mumbai 400021 Merchant Road, Bhuleshwar
PAN - AAGFR9081E
Appellant by: Shri Sanjay Punglia
Respondent by: Shri Rushabh Mehta
Date of Hearing: 21.05.2015
Date of Pronouncement: 21.05.2015
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 Bombay 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 maintenance work has been done is for enduring benefit for
the assessee in future and hence the same is in nature of capital
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M/s. Rajshree Industries
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 deduction 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 stock 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
4. In response thereto the assessee-firm submitted that assessee has
taken secured loans from banks against hypothecation of stock and book
debts and assessee has to submit monthly statement of stock and debtors to
the bank by 10th 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 unexplained 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 average 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
3 ITA No. 7484/Mum/2013
M/s. Rajshree Industries
under section 69 of the Act is not in accordance with law. It was further
submitted that assessee incurred certain expenditure for maintenance and
upkeep of the plant and machinery. Manufacturing process of the assessee's
product is highly machine intensive and requires various kinds of machines
and moulds in the process. Due to wear and tear of machinery assessee
incurred expenditure 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 merely 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 difference; further, assessee filed quantitative reconciliation of
closing stock shown in the Balance Sheet with that submitted 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
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 observed, upon verification of the bills, that the
impugned expenditure consists of large number of bills 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
4 ITA No. 7484/Mum/2013
M/s. Rajshree Industries
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 the
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 passed 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 21st May, 2015.
(Sanjay Arora) (D. Manmohan)
Accountant Member Vice President
Mumbai, Dated: 21st May, 2015
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
ITAT, Mumbai Benches, Mumbai