2006 (1) TMI 82

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....achine and doubling frame costing Rs. 18,63,666 for the assessment year 1996-97, draw frame, simplex machine and doubling frame costing Rs. 25,03,443 for the assessment year 1997-98 and blow room and ring frame costing Rs. 37,47,933 for the assessment year 1998-99, was disallowed by the Assessing Officer, who was of the opinion that replacement of old by new machinery cannot be treated as revenue expenditure and allowed depreciation. The expenditure was treated as capital expenditure. Aggrieved by the said orders, the assessee filed an appeal before the Commissioner of Income-tax (Appeals), who allowed the appeal, holding that the cost of replacement of machinery is to be treated as revenue expenditure by applying the decision of the Income....

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....omplete spinning mill which is capable of manufacturing yarn and hence each replaced machinery could not be considered as an independent one and no intermediate marketable product was produced. In view of the ratio laid down by this court in the decision cited supra, we hold that the expenditure on replacement of machinery is revenue expenditure and therefore, the Tribunal was right in allowing the claim of the assessee. Accordingly, we answer the questions (a) and (b) in the affirmative, against the Revenue and in favour of the assessee. With regard to question (c), this court, in the decision cited supra, explained the principle or object of introducing the concept of "block of assets" in detail. It is apposite to refer to the follo....