TaxTMI 
TaxTMI 
2012 (4) TMI 244
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....th the years, the facts and circumstances are identical and, therefore, we may take up for discussion the appeal of the assessee for the assessment year 2005-06 in order to appreciate the controversy. 4. In the assessment year 2005-06, the assessee company filed a return of income on 29.10.2005 declaring a total income of Rs 45,31,250/-. The assessee company is engaged in manufacture of cotton yarn towel and knit fabric in its textile mill. In the course of assessment proceedings, the Assessing Officer noticed that assessee had claimed expenses on account of 'modernization and replacement expenses' amounting to Rs. 1,15,52,698/- as a deduction under section 37(1) of the Act. The said expenditure represented cost of replacement of 5040 ring frames and balancing machines and was claimed as a revenue expenditure deductible under section 37(1) of the Act. On being asked to justify as to why such expenditure was claimed as a revenue expenditure in the Income-tax proceedings, while in the account books the same was capitalized as capital expenditure, the assessee explained that replacement of ring frames and balancing machines was not done with a view to bring into existence a new ass....
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....to be treated as a capital expenditure. In coming to the above conclusion, the Assessing Officer also noticed that the assessee itself has treated the same as capital expenditure in its account books. 6. In appeal before the Commissioner of Income-tax (Appeals), it was contended that the replacement of Ring Frames did not bring into existence in any new asset which increased the installed capacity of the textile mill. According to the assessee, by replacement of the old ring frames, assessee had made substantial savings in terms of repair expenditure and manufacturing expenditure had also come down sharply. It was also stated that treatment in the account books is not a final deciding factor. As per the assessee, even if capital expenditure is debited to the Profit & Loss account, the same cannot be allowed in the computation of income as deduction and on similar lines, if revenue expenditure is capitalized, the same cannot be denied as deduction in the computation of income merely because of the entries in the account books. 7. The Commissioner of Income-tax (Appeals), after considering the submissions of the assessee and discussing in detail the relevant case law on the sub....
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....horities below as well as the ratio of the Hon'ble Supreme court in the case of Saravana Spg. Mills (P) Ltd (supra) as also the judgment in the case of CIT v. Sri Mangayarkarasi Mills (P) Ltd. [2009] 315 ITR 114/182 Taxman 141 (SC) to contend that the lower authorities made no mistake in treating the impugned expenditure as not allowable under section 37(1) of the Act as revenue expenditure. 10. We have carefully considered the rival submissions. Factually speaking, the claim of the assessee is with regard to expenditure incurred on replacement of ring frames and balancing machines in a textile mill. The said expenditure has been claimed as a revenue expenditure allowable in terms of section 37(1) of the Act. However, the Revenue has treated the same as a capital expenditure. Notably, the assessee has also incurred expenditure on account of acquiring new spindles and ring frames during the year which has been treated by the assessee as a capital expenditure and there is no dispute on that aspect. However, for the impugned expenditure, while it treated the same as a capital expenditure in account books, in the Income-tax proceedings, same has been claimed as a revenue expenditure....
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....ew asset for the business. Further, in Lakshmiji Sugar Mills (P) Co. v. CIT AIR 1972 SC 159 it has been held by this court that bringing into existence a new asset or an enduring benefit for the assessee amounts to capital expenditure. We have already explained why replacement, in this case, amounts to bringing into existence a new asset and also an enduring benefit for the assessee. It is clear then that expenditure of the assessee here is not of a revenue nature and thus, cannot be claimed as a deduction under s. 37 of the Act." In view of the aforesaid, in our view, the lower authorities made no mistake in rejecting the claim of the assessee that the cost of ring frames and balancing machines was a revenue expenditure under section 37(1) of the Act. Quite clearly, as per the Hon'ble Apex Court, the expenditure incurred on replacement of individual machineries in a spinning mill, which is also case before us, amounts to bringing into existence not only a new asset, but also an enduring benefit to the assessee which qualifies to be regarded as a "capital expenditure" and thus not allowable under section 37(1) of the Act. As a consequence, we therefore uphold the action of the R....
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....er section 37(1) of the Act has resulted because of the subsequent judgment of the Hon'ble Supreme Court and, therefore, the same could not be visualized by the assessee at the time of advance-tax payment and, therefore, the chargeability of interest under sections 234B and 234C was not justified. In such a situation the assessee cannot be fastened with the liability for payment of interest under sections 234B and 234C, and reliance was placed on the following decisions: (i) Haryana Warehousing Corpn. v. Dy. CIT [2000] 75 ITD 155 (Delhi) (TM); (ii) Balkrishna Breeding Farms (P.) Ltd. v. Chief CIT [2005] 276 ITR 20/147 Taxman 148 (Kar); and, (iii) Prime Securities Ltd. v. Asstt.CIT (Investigation) [2011] 333 ITR 464 (Bom) It was, therefore, contended that the said additional Ground be admitted for adjudication as it involved a pure question of law. 16. On the other hand, the learned Departmental Representative opposed the prayer of the assessee by pointing out that no such plea has been raised before the lower authorities and that the claim of the assessee was found untenable by the Assessing Officer even prior to the judgment of the Hon'ble Su....