2017 (2) TMI 1447

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....n is disallowance of Rs.2,30,93,720/- on account of replacement of machineries and parts of the machineries. According to the Ld. counsel, the assessee has a spinning mill. In the course of its business activity, the assessee has replaced blow room machinery, draw frame, speed frame and compressor. According to the Ld. counsel, these are all parts of the machinery installed in the spinning mill and it cannot do any independent function in the spinning mill. The production capacity of the spinning mill after replacement remains the same. The spindular capacity does not increase. Referring to the order of the assessment, the Ld. counsel submitted that the Assessing Officer found that the machines replaced are latest model machines available i....

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....tely it should be allowed as revenue expenditure under Section 37 of the Act, since the expenditure was admittedly incurred in the process of earning of the profit. Therefore the CIT (Appeals) is not justified in confirming the disallowance made by the Assessing Officer. 3. On the contrary, Shri Shiva Srinivas, the Ld. Departmental Representative submitted that the replacement of machinery creates a new asset of enduring in nature. Therefore, the expenditure incurred by the assessee has to be capitalized and at the best the assessee may claim depreciation as per the provisions of law. Referring to the judgment of the Apex court in CIT v. Saravana Spinning Mills (2007) 293 ITR 201, the Ld. D.R., submitted that the machinery / machine in t....

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...., the CIT (Appeals) found that the Assessing Officer has rightly disallowed the claim of the assessee. 4. We have considered the rival submissions on either side and perused the material available on record. The assessee admittedly incurred an expenditure of Rs.2,30,93,720/- in replacement of blow room machinery, carding machinery, draw frame, speed frame and compressor. The Apex court while considering the case of the spinning mill in Saravana Spinning Mills (supra) found that the machineries in a segment of textile mill has an independent role to play. Therefore, it has to be construed as independent machinery. The question arises for consideration is when there was a replacement of certain machinery in the textile mill, can we say tha....