IN INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA Before Shri Waseem Ahmed, Accountant Member and Shri K.Narsimha Chary, Judicial Member ITA No.310/Kol/2014 Assessment Years:2006-07 Income Tax Officer, M/s Stoll Berg India Pvt. Ward-11(1), P7 Ltd., 2, St. Georges Gate V/s. Chowringhee Road, 6 t h Floor, Hastings, Square, 6 t h Floor, Kolkata-700 022 Kolkata-700 069 [PAN No.AAFCS 0189 L] Appellant Respondent By Appellant Shri Arup Chatterjee, JCIT-SR-DR By Respondent Shri Ashim Kumar Sinha, FCA Date of Hearing 15-09-2016 Date of Pronouncement 19-10-2016 O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by Revenue is against order of Commissioner of Income Tax (Appeals)-XII, Kolkata dated 20.11.2013. Assessment was framed by ITO Ward- 11(1), Kolkata u/s 143(3) of Income Tax Act, 1961 (hereinafter referred to as Act ) vide his order dated 31.12.2008 for assessment year 2006-07. grounds raised by Revenue per its appeal are as under:- 1. That on facts and in circumstances of case and as per law Ld. CIT(A) erred in deleting addition amounting Rs.576773/- on account of income from undisclosed source. 2. That on facts and in circumstances of case and as per law Ld. CIT(A) erred in deleting addition without appreciating that addition made by AO on basis of facts available on record and confirmation of party consequence to inspection conducted by Deputed Inspector during assessment proceedings. ITA No.310/Kol/2014 A.Y. 2006-07 ITO Wd-11(1) Kol. vs. M/s Stoll Berg India Pvt. Ltd. Page 2 3. That on facts and in circumstances of case and as per law Ld. CIT(A) erred in deleting addition of Rs.2424763/- on account of repairing expenses which was treated by AO as capital in nature. 4. That on facts and in circumstances of case and as per law Ld. CIT(A) erred in deleting addition without appreciating that addition made by AO on basis of facts available on record that assessee derived enduring benefit by spending amount under head repair. Shri Arup Chatterjee, Ld. Senior Departmental Representative appeared on behalf of Revenue and Shri Ashim Kumar Sinha, Ld. Authorized Representative appeared on behalf of assessee. 2. Facts in brief are that assessee in present case is Private Limited Company and engaged in business of manufacturing and trading of metallurgical chemicals. assessee for year under consideration has filed its return of income declaring income of 87,56,630/- which is comprising of income under head business and profession . Thereafter case was selected for scrutiny assessment under CASS AST module and accordingly notice u/s 143(2) of Act was issued. assessment was framed u/s 143(3) at total income of 1,17,58,166/- by disallowing certain expenses which are discussed below. 3. First issue raised by Revenue in ground No. 1 and 2 are that Ld. CIT(A) erred in deleting addition of Rs.5,76,773/- (1,21,629 + 4,55,144) on account of income from undisclosed source. assessee during year has shown purchase from several parties. During course of assessment proceedings, AO observed certain difference in amount of purchases shown by assessee and details received from respective party in response to notice issued u/s. 133(6) of Act. difference in purchases is as follows:- Sl.No. Name of party Purchase by Sale by party Amount of assessee difference 1 AVM Sales Pvt. Ltd 8731196 8852825 121629 2 Everett Keihin Cargo 461802 1054622 592820 Logistics Pvt. Ltd. ITA No.310/Kol/2014 A.Y. 2006-07 ITO Wd-11(1) Kol. vs. M/s Stoll Berg India Pvt. Ltd. Page 3 On question by AO about difference shown above, assessee made submission which stands as under:- A. AVM Sales Pvt. Ltd. difference of 121629 is arising on account of debit note issued by assessee to party which has not been accounted for books of account of party. B. Everett Keihin Crago logistics Pvt. Ltd. assessee submitted that following cheques have not been issued to party though party has given its claim in its books of account as received from assessee. Cheque No. Amount (Rs) 047409 2,30,300.00 531691 1,10,444.02 103003 1,14,700.00 Assessing Officer deputed Departmental Inspector to conduct inquiry about cheque issued by assessee to party. Departmental Inspector in its report has confirmed receipt of 4,55,144/- by party from assessee with help of bank statement. Accordingly, AO observed that payment of 4,55,144/- has been made by assessee from its undisclosed source which is not reflected in its regular books of account. In view of above, AO has disallowed sum of 5,76,773/- (4,55144 + 1,21,629) and added to total income of assessee. 4. Aggrieved, assessee preferred appeal before Ld. CIT(A) whereas assessee made submission, which stands as under:- i) Difference with AVM Sales Corpn Ltd. It was submitted that ledger copy of assessee in books of account of AVM Sales Corpn. Ltd. was not provided, therefore, it was difficult to point out exact difference. Therefore, it was not possible for assessee to make detailed and relevant reply to AO for having difference in amount of purchase. Assessee was also apprehended that debit note issued to party might not have ITA No.310/Kol/2014 A.Y. 2006-07 ITO Wd-11(1) Kol. vs. M/s Stoll Berg India Pvt. Ltd. Page 4 been accounted in books of account of AVM Sales Corpn. Ltd. amount of difference as found out by AO is insignificant in relation to volume of transactions that AVM Sales Corpn. Ltd. i.e. 1.5% of total transactions. assessee also submitted that lower amount of purchase was shown in books of account and so profit has been enhanced by 1,21,629/-. Therefore, making further addition to total income of assessee will amount to double taxation. Ld. CIT(A) after considering submission of assessee has deleted addition made by AO by observing as under:- 5.2.3 Decision: I have considered facts of case and submissions put forth on behalf of appellant. ape had not accounted for purchases to this extent, presumably on account of debit note passed on by it, but which was not allowed by seller. There is no material brought on record to show that appellant had suppressed its purchases and payments have been made to seller. Assessing Officer has made addition merely on basis of statement of account given by seller and without verifying reconciliation statement of appellant. Having regard to fact and circumstances, Assessing Officer is hereby directed to verify reconciliation statement along with supporting evidence of appellant with regard to details of sales as recorded in books of seller, and then make any addition of unexplained difference, if any, while giving effect to this order. Thus, this ground of appeal is decided accordingly. (ii) difference with M/s Everett Logistics Pvt. Ltd. assessee before Ld. CIT(A) submitted that report of Inspector is incorrect as it clearly states that cheque payment of 4,55,144/- has been made from undisclosed source. Once payment has been made through banking channel, which has been disclosed in books of account, then how this can be alleged that payment was made from undisclosed source. There was no defect in audited books of account of assessee and no flaw has been reported by AO. Ld. CIT(A) after considering submission of assessee has deleted addition made by AO by observing as under:- 5.3 Decision: I have carefully considered facts and submissions of appellant. appellant has categorically denied to have issued three cheques in question from its bank account maintained with HDFC Bank. Therefore, conclusion reached by Assessing Officer that amount of Rs.4,55,144/- represented ITA No.310/Kol/2014 A.Y. 2006-07 ITO Wd-11(1) Kol. vs. M/s Stoll Berg India Pvt. Ltd. Page 5 by three cheques found credited in third party account is undisclosed income of appellant without bringing any material on record either in form of corresponding purchase bills of any other evidence does not appear to be justified. in case of ITO Vs. Mayur Agarwal (2010) 133 TTJ 1: (2010) 43 DTR 116 (Tribunal-Agra), where AO alleged that assessee purchased goods from one NFP through bank draft, which was not found recorded in books of account of assessee-Assessee denied transaction with NFP , but Assessing Officer made addition u/s. 69, which was deleted by CIT(A) holding that merely relying or averments of NFP addition could not be made, Hon'ble Agra Bench of ITAT held that no addition could be made merely on basis of evidence procured from third party unless opportunity of cross- examination was allowed to assessee. addition so made was deleted by ITAT. facts of case are more or less similar to those of reported case. I am of view that ingredients of section 69 are not satisfied in this case. On facts and in circumstances of case and following decision of Hon'ble Agra Bench of ITAT, I am of view that Assessing Officer was not justified in making impugned addition. addition of Rs.4,55,154/- made by him on account of undisclosed income is deleted. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. Both parties before us relied in order of lower authorities as favourable to them. 5. We have heard rival contentions of both parties and perused materials available on record. From foregoing discussion, we find that AO has made addition on account of difference in transactions on purchase between books of assessee and books of party. addition of 1,21,629/- being difference between assessee and AVM Sales Corporation Ltd., we find that assessee has shown less purchase in its books of account and this is not case where assessee is claiming more expense in form of purchase which is having effect in reduction of profit. We further find that assessee by showing less amount of purchase is showing more taxable profit in books of account. As such, we agree with view of Ld. AR that further addition of 1,21,629/- will amount to double taxation. In case this transaction has been booked outside books of account then also entire amount cannot be added to total income of assessee. In that case, only amount of profit involved in undisclosed transactions and capital employed in that transaction can be brought to net of tax. In this regard, Ld. DR has not brought anything to ITA No.310/Kol/2014 A.Y. 2006-07 ITO Wd-11(1) Kol. vs. M/s Stoll Berg India Pvt. Ltd. Page 6 prove that such transaction was booked outside books of accounts account. order of AO is also silent with regard to claim of assessee that difference arising on account of debit note issued by assessee. In absence of complete information about difference found by AO, we are inclined not to interfere in order of Ld. CIT(A). We uphold accordingly. Hence, addition of 1,21,629/- deserves to be deleted. Similarly, for addition of 4,55,144/- we find that AO has made addition on ground that such transaction was made from undisclosed bank account. From facts of case, we find that no detail of such undisclosed bank account has been furnished by AO. On other hand, as per submission of assessee, transaction was made from disclosed bank account and therefore addition cannot be sustained on ground that transaction was made from undisclosed source. In this case also we concur with view of Ld. AR and in rejoinder Ld. DR has not brought anything contrary to finding of Ld. CIT(A) as well as argument made by Ld. AR. Accordingly, we do not find any reason to interfere in order of Ld. CIT(A). We uphold accordingly. This ground of Revenue is dismissed. 6. Next issue raised by Revenue in Ground No. 3 and 4 are that Ld. CIT(A) erred in deleting addition made by AO for Rs.2424,763/- on account of repairing expenses which was treated by AO as capital in nature. 7. assessee has claimed expense for repairs to building and repairs for plants of Rs. 6,57,662.00 and of 17,67,101/- respectively which was disallowed by AO by holding same as capital in nature. 8. Aggrieved, assessee preferred appeal before Ld. CIT(A). assessee before ld. CIT(A) submitted that details of repair to building and plant along with item of work / material used were furnished at time of assessment and all repairing works are current repair and therefore eligible for deduction u/s 30/31 & 37 of Act. Even expenditure is enduring in nature but it has impact on revenue of business, it shall be treated as revenue in nature treating year under dispute is 4th year of business of assessee and it is common practice to yearly shut ITA No.310/Kol/2014 A.Y. 2006-07 ITO Wd-11(1) Kol. vs. M/s Stoll Berg India Pvt. Ltd. Page 7 down factory for its maintenance of machine and building. No such disallowance was made in earlier AY even though such expenses were claimed by assessee and in spite of fact that factory was comparatively new then now accordingly Ld. CIT(A) deleted addition made by AO by observing as under:- 5.4.3 Decision: I have considered facts of case, and submissions put forth on behalf of appellant. I have also gone through details expenses incurred by app under heads repair to building and repairs to plant & machinery . It may be noted from details of expenditure incurred on maintenance of plant and machinery at Rs.17,67,101/- included items such as (i) purchase of stores & spares (local); purchase of spares & spare parts (imported), other charges of import of stores & spares; custom duty for stores & spares imported (Rs.105,055); and repairs to plant at Rs.3,75,894/-. From details, it is abundantly clear that expenditure has been incurred for current repairs and replacement of plant and machinery and purchase of new parts & stores, which by no stretch of imagination could be treated as expenditure of capital in nature. Similar is expenditure incurred for repairs and maintenance of building. In case of Indian Ginning and Pressing Co. Ltd. v. CIT [2011] 252 ITR 577 (Guj), where assessee incurred expenditure on repairs to godown used for business purpose so as to convert it into n administrative office, Hon'ble Gujarat High Court held that expenditure was allowable as revenue expenditure, since business asset had retained its character and only its use had changed, and use at both points of lime, i.e. before and after expenditure was incurred, related to business of assessee without there being any addition to or expansion of profit making apparatus of assessee. In C.R. Corera & Bros. v. CIT [1963] 49 ITR 188 (Mad.), it has been held that it cannot be taken as matter of assumption that merely because large sum is expended on repairs to machinery it must necessarily amount to reconstruction making expenditure capital in nature. In case of CIT v Tea Estate (P) Ltd. [1972] 198 ITR 535 (Cal), jurisdictional High Court held that where replacement is made of physically, commercially and functionally inseparable part of entire asset, expense incurred in relation to such transaction must be treated as admissible revenue expenditure. In another case of Cultural Enterprises Corporation v. CIT [1992] 196 ITR 488 (Cal), even where sum of money is spent for repairs in particular year because of fact that regular repairs are allowed to fall into arrears and repairs on extensive scale have to be undertaken to remedy effect of several year s negligence, jurisdictional High Court held that expenses for such arrears repairs are allowable, simple test that must be constantly borne in mind is that as result of expenditure which is claimed as expenditure for repairs what is really being done is to preserve and maintain already existing asset. object of ITA No.310/Kol/2014 A.Y. 2006-07 ITO Wd-11(1) Kol. vs. M/s Stoll Berg India Pvt. Ltd. Page 8 expenditure is not to bring new asset into existence, nor is its object obtaining of new or fresh advantage New Shorrock Spg. & Mfg. Co. Lt. v. CIT [1956] 30 ITR 338(Bom.)/R.B. Bansilal Abirchand Spg. & Wvg., Mills v. CIT [1957] 31 ITR 427 (Nag)/N.N. Kotak v. CIT [1952] 21 ITR 18 (Bom). In CIT v. Chowgule & Co. (P) Ltd. [1995] 214 ITR 523(Bom), Hon'ble Bombay High Court held that words current repairs do not mean petty repairs or repairs necessitated by wear and tear during particular year. Payment on account of current repairs must be understood in contradistinction to payments for additions or improvement . simple test that must be constantly borne in mind is that as resulted of expenditure which is claimed as n expenditure for repairs what is really being done is to preserve and main and already existing asset. object of expenditure should not be to bring new asset into existence nor to obtain new or different advantage. Considering facts if case and settled principles of law, object of expenditure incurred by appellant is not to bring new asset into existence or to obtain new or different advantage, but to preserve and maintain already existing asset. Therefore, expenditure claimed under both heads, viz., repairs to building and repairs to plant and machinery are allowable as revenue expenditure. consequent additions made by Assessing Officer are deleted. appeal of appellant on this ground is allowed. Being aggrieved by this order of Ld. CIT(A) Revenue is appeal before us. 9. Before us both parties relied on order of Authorities Below as favourable to them. Ld. AR of assessee further submitted that it is well settled law that advantage of enduring benefit is not decisive to distinguish between revenue and capital expense. Enduring benefit or advantage might endure to assessee s business either in capital field or in non-capital field. Therefore, in every case, enquiry must be directed as such to character of expenditure as to nature of advantage derived therefrom. When expenditure although enduring in character has its impact on running of business, it is revenue in nature. 10. We have heard rival contentions of both parties and perused materials available on record. From foregoing discussion, we find that repair expense incurred by assessee for its machine and building were treated as capital in nature. Therefore, AO has disallowed. same, however were deleted by Ld. CIT(A) by observing these expense as revenue in nature. From facts of case, we find that ITA No.310/Kol/2014 A.Y. 2006-07 ITO Wd-11(1) Kol. vs. M/s Stoll Berg India Pvt. Ltd. Page 9 by incurring expense on repair of machines and building in such fixed asset, no fixed assets is coming into existence although benefit was enduring in nature. Therefore, there was no capital asset coming into existence. We agree with argument placed by Ld. AR of assessee. In similar circumstances, Hon'ble Bombay High Court in case of CIT Vs. Chowgule & Co. Pvt. Ltd. (1995) 214 ITR 523 (Bom) has considered expression current preceding repairs as under: propositions that emerge for grant of deduction under s. 31 may be summed up thus : (i) amount should be paid on account of current repairs. (ii) "Current repairs" means repairs undertaken in normal course of user for purpose of preservation, maintenance or proper utilisation or for restoring it to its original condition. (iii) "Current repairs" do not mean only petty repairs or repairs necessitated by wear and tear during particular year. (iv) Such repairs should not bring into existence nor obtain new or different advantage. (v) quantum of expenditure nor fact that on process of repairs, there was substantial replacement of parts of machine or ship, is decisive of true nature of expenditure. (vi) original cost of asset is not at all relevant for ascertainment of true nature of expenditure on repairs. (vii) replacement cost of asset may, however, at times be used as indicator of true character of expenditure. If expenditure on repairs added to written down value or disposal value exceeds replacement cost of asset, presumption is possible that it is not revenue expenditure but expenditure of capital nature. Such presumption, of course, would be rebuttable. (viii) expression "current" preceding `repairs' appears to have been used by legislature with view to restricting allowance to expenditure incurred for preservation and maintenance thereof in its current state in contradiction to that incurred on any improvement or on addition thereto. In present case, Tribunal, on investigation of nature of repairs undertaken by assessee, recorded categorical finding of fact that it did not result in emergence of new ship but amounted, in substance, to current repairs to existing ship. These findings have not been challenged by Revenue. fact that old parts of ship were replaced by new parts, is not relevant for determining whether expenditure was on "current repairs" or not. replacement of old parts by new parts does not mean that new asset was brought into existence in relation to ship in question. replacement of parts was only in process of current repairs of ship. expenditure claimed in this case, therefore, amounts to `current repairs' which is allowable as deduction under s. 31. New Shorrock Spg. & Mfg. Co. Ltd. vs. CIT (1936) 30 ITR 338 (Bom), CIT vs. Sheikhpura Transport Co. Ltd. (1961) 41 ITR 336 (P&H), CIT vs. Coimbatore Motor Transport Co-operative Society (1968) 70 ITR 165 (Mad), CIT vs. Khalsa Nirbhai Transport Co. (P) ITA No.310/Kol/2014 A.Y. 2006-07 ITO Wd-11(1) Kol. vs. M/s Stoll Berg India Pvt. Ltd. Page 10 Ltd. (1971) 82 ITR 741 (P&H), C.R. Corera vs. CIT (1963) 49 ITR 188 (Mad) and Addl. CIT vs. Desai Bros. (1977) 108 ITR 14 (Guj) relied on fact that written down value together with expenditure incurred on repairs excluded original cost of asset is not valid ground for disallowance of expenditure as current repairs. Respectfully following aforesaid judgments, we find no reason to interfere in order of Ld. CIT(A). We hold accordingly. This ground of Revenue is dismissed. 11. In result, Revenue s appeal stands dismissed. Order pronounced in open court on 19/10/2016 Sd/- Sd/- (K.Narsimha Chary) (Waseem Ahmed) Judicial Member Accountant Member *Dkp, Sr.P.S - 19/10/2016 Kolkata Copy of Order Forwarded to:- 1. Appellant-ITO Ward, 11(1), P7, Chowringhee Square, 6th Fl, Kol-69 2. Respondent-M/s Stoll Berg India Pvt. Ltd.,2, St. Georges Gate Road, 6th Floor, Hastings, Kolkata-22 3. Concerned CIT 4. - CIT (A) 5. , DR, ITAT, Kolkata 6. Guard file. By order /True Copy/ Income Tax Officer, Ward-11(1), Kolkata v. M/s Stoll Berg India Pvt. Ltd