2006 (1) TMI 92

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....ssment year 1993-94, the Assessing Officer, by an order dated March 28, 1996, disallowed the claim of the assessee in respect of replacement of old machinery by a new one on the ground that the same cannot be treated as a revenue expenditure; recalculated the benefit under section 80HHC by including the excise duty and sales tax to the total turnover; disallowed the claim of the deduction pertaining to loss on revaluation of the tools which is in the nature of capital asset; and also treated the compensation received from the insurance as a revenue receipt. Aggrieved by the said order, the assessee filed appeals before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals), by an order dated October 30, 1996, par....

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....overed by the decision of the Supreme Court in the CIT v. Sirpur Paper Mills Ltd. [1978] 112 ITR 776. The first and the second questions, viz., whether the replacement of machinery is capital or revenue and the replacement of independent complete machinery can be treated as revenue expenditure can be dealt with together. The 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 Commissioner and the Appellate Tribunal, finding that replacement of machinery is a revenue expenditure, held that the claim of the assessee ....

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....es tax and excise duty are not to be included in the total turnover while computing the deduction under section 80HHC. Hence, question No. 3 is answered against the Revenue. As far as the fourth question is concerned, the assessee received a sum of Rs. 17.79 lakhs as compensation from the Oriental Insurance Corporation in connection with the machinery damaged in a fire and claimed that it should be treated as a capital receipt. The Assessing Officer turned down the claim of the assessee and treated the same as a revenue receipt. On appeal, the Commissioner of Income Tax (Appeals), deleted the addition by following the Supreme Court decision in CIT v. Sirpur Paper Mills Ltd. [1978] 112 ITR 776, wherein the Supreme Court held that th....