TaxTMI 
TaxTMI 
2015 (8) TMI 1064
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....er of Income Tax (Appeals) erred in directing the Assessing Officer to treat the aggregate expenditure of C.62,92,686/- incurred during the year on replacement of various items of textile machinery as capital expenditure. 2. The facts of the case are that the assessee is a company engaged in the business of manufacture of yarn. During the Asst. Year 1995-96, the assessee replaced one draw frame, two speed frames, two ring frames, two transformers, and one Uster Evenness Tester, totaling to C.62,96,685/-. The said expenditure was claimed as revenue expenditure allowable under sec.37 of the Act.. The Assessing Officer treated the said expenditure as capital expenditure and allowed depreciation. The assessee succeeded before the Tribunal an....
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....side by this Court as there was confusion between the tests to be applied in respect of s.31 vis-à-vis the test to be applied in case of s.37 of the IT Act. Without expressing any opinion on the merits of the case we remit the matter to CIT(A) who will decide the question in accordance with law." Meanwhile, the Hon'ble Supreme Court in the case of Sri Mangayarkarasi Spinning Mills (P) Ltd. (315 ITR 114) held that expenditure of an assessee for replacement of parts of textile mills for spinning yarn is not revenue expenditure under sec.37 of the I.T. Act. 4. The appeal of the assessee was taken up by the Commissioner of Income Tax (Appeals) as directed by the Hon'ble Supreme Court to decide the issue in accordance with l....
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....ure not allowable as deduction under sec.37 of the Act. The Co-ordinate Bench held as under :- "5. We have heard both the sides, perused the records and gone through the orders of the authorities below. The only issue for adjudication before us is whether the expenditure incurred for the purpose of replacement of Draw Frame is revenue expenditure or capital expenditure. The learned CIT(Appeals) by considering the entire facts of the case and also the decisions of various High Courts and the Hon'ble Supreme Court including the decision in the case of CIT v. Ramaraju Surgical Cotton Mills Ltd. (supra) and by following the decision in the case of CIT v. Mangarkarasi Mills Ltd. (supra) has held that replacement of Draw Frame ....
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....achinery in question such as Ring Frames, Draw Frames and Speed Frame is purchased for the first time, then it is a capital asset, on which depreciation should be granted. Whereas, it is submitted that the sale of a worn out machinery and replacement thereof by new machinery can only be treated as reduction and addition to the block of assets, which is a part of replacement. It is also submitted that while under the law, as it stood prior to 1988-89, the fact of treating the entire mill as an integrated unit may have had the effect of treating the replacement of machinery as replacement of parts of a larger whole and thus treated as revenue expenditure and once the concept of block of assets has been brought in by the Parliament from the as....