2012 (11) TMI 1148 - AT - Income Tax

Assessee's Appeal Dismissed: Expenditure on Machinery Replacement Not Allowed

M/s Sri Balasubramania Mills Ltd. Versus The Assistant Commissioner of Income Tax

M/s Sri Balasubramania Mills Ltd. Versus The Assistant Commissioner of Income Tax - TMI Issues involved: Claim for expenditure incurred towards replacement of machinery disallowed by Assessing Officer and CIT(Appeals), appeal filed by assessee challenging the disallowance.Summary:In the appeal filed by the assessee, the grievance was that the claim for expenditure incurred towards replacement of machinery was not allowed by the Assessing Officer and confirmed by the CIT(Appeals). The assessee argued that each replaced machine only helped maintain existing production and quality levels without increasing production capacity.The facts revealed that the claim for replacement of Simplex (Speed Frames), Draw Frames (auto leveler), and Cards amounting to `138.30 lakhs was initially disallowed by the assessing authority. The CIT(Appeals) allowed the claim, which was later confirmed by the Tribunal and the jurisdictional High Court. However, upon further appeal by the Revenue, the matter was remitted back to the Assessing Officer with specific directions regarding the treatment of the claim under Section 31(i) and Section 37 of the Act.Upon reconsideration, the CIT(Appeals held that the claim could not be allowed based on precedents set by the Hon'ble Apex Court in relevant cases. The issue of whether the claim could be considered as current repairs or revenue outgo was decided against the assessee based on legal interpretations.During the hearing, the assessee's representative argued that the replacement of machines over fifty years old did not result in an increase in capacity, thus the expenses should be allowed as revenue outgo. On the other hand, the Departmental Representative supported the orders of the lower authorities.After reviewing the submissions and orders, it was observed that the replacements were not of parts but entire machinery components. The jurisdictional High Court's decision in a similar case clarified that expenditure on replacement of machinery could not be treated as revenue outgo post the concept of block of assets. Therefore, the CIT(Appeals) was justified in disallowing the expenditure claimed by the assessee.In conclusion, the appeal filed by the assessee was dismissed, and the order was pronounced in the Court on Monday, the 5th of November, 2012, at Chennai.