2007 (4) TMI 199

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....n the facts and circumstances of the case, the Tribunal was right in allowing a deduction of the amounts spent on replacement of machinery as revenue expenditure? 2. Whether, on the facts and circumstances of the case, replacement of independent complete machinery can be treated as revenue expenditure? 3. Whether, on the facts and circumstances of the case, the Tribunal was right in deciding the issue of replacement of machinery without going into the concept of block of assets 4. Whether, on the facts and circumstances of the case, the Tribunal was right in holding that excise duty and sales tax collection does not form part of the turnover, for the purpose of calculation of deduction under section 80 HHC ?" 2. The Revenue is t....

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....ther the expenditure on replacement of machinery is capital or revenue is not determined by the treatment given in the books of account or in the balance-sheet. The claim has to be determined only by the provisions of the Act and not by the accounting practice of the assessee. In the instant case, the Appellate Tribunal, finding that the replacement of machinery is revenue expenditure, held that the claim of the assessee cannot be dis-allowed, 6. This court in CIT v. Janakiram Mills Ltd. [2005] 275 ITR 403 held that all plant and machinery put together amounts to a complete spinning mill which is capable of manufacturing yarn and hence, each replaced machine could not be considered as an independent one and no intermediate marketable pro....

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....rcular describing the concept of block of assets is explained by the Central Board of Direct Taxes by Circular No. 469, dated September 23, 1986, reported in [1986] 162 ITR (St.) 21, 24. In the instant case, no acquisition of any new asset, much less capital of any enduring advantage resulted to the assessee-respondent. The assessees replaced the worn out part of machineries without discontinuing their production activities. No claim for depreciation was ever made before any authorities either by the assessees or by the Revenue to consider the question as block of assets nor was there any necessity to do so. The Department did not raise any objection before the Tribunal regarding the claim of allowance on the premise of the block of assets ....