TaxTMI 
TaxTMI 
2026 (4) TMI 776
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....pital expenditure. Section 10(2)(v) permits deduction where the expenditure is a revenue expenditure and not if it is a capital expenditure. However, depreciation at the rate of 12.5% was allowed on such addition. 2. On appeal by the assessee, the Commissioner of Income Tax (Appeal) partly allowed only in respect of items of spare parts which were satisfactorily explained as replacements to the existing machinery and which were not as substitute to the existing machinery. 3. Identically, for the Assessment Year 1997-98 also, the assessee claim of revenue expenditure Rs. 13,10,00,563/- for replacement of Plant & Machinery was disallowed by the Assessing Officer and treated it as capital expenditure, with depreciation. The appeal by the assessee before the CIT (A) was dismissed following the earlier order passed for the Assessment Year 1996-97.Before the appellate authority several judgments were cited on either side. Finally, the Appellate authority dismissed the appeal of the assessee confirming the Assessing Officer's order in respect of replacement of new machineries as capital expenditure. In both the appeals, in respect of allowablity of capital loss, bonus paid to the em....
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.... now stands covered by the decision of the jurisdictional High Court rendered in the case of CIT v. Janakiram Mills Ltd (275 ITR 403). In this case the Hon'ble High Court has held that expenditure on replacement of worn out machinery can be considered as expenditure under current repairs. As the expenditure was laid out wholly and exclusively for the purpose of business, the same is allowable under the Law. Respectfully following the precedent, we decide this appeal in favour of the assessee and against the Revenue. 8. The substantial questions of law framed in both the appeals are same and it reads as below:- 1) Whether the replacement of machinery parts will amount to revenue expenditure or not? 2) Whether bringing into existence of a new asset or obtaining a new advantage would amount to revenue expenditure or not? 9. Before adverting to the substantial question of law, it is necessary to recollect the reasoning given by the Assessing Officer to add the cost of replacement of machinery parts under revenue expenditure and to allow only depreciation. "It is stated that various machineries are used in the manufacture of yarn from cotton and they are....
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....d machinery is by way of replacement of existing ones. When plant and machinery are purchased, the Section that applies directly is sec.32 of the Income-tax Act. Sec.32 (1)(ii) provides for depreciation allowance in respect of block of assets. Block of assets means assets falling within a class of assets being buildings, machinery or plant or furniture. Clause (b) of the first proviso is also worth noting for understanding the scheme of deduction under the Income-tax Act in respect of cost of plant and machinery. It refers to Sec.42. Under Sec. 42, there is a separate provision for deduction of cost of plant and machinery in certain circumstances. Thus, it is clear from a perusal of sec. 32(1)(ii) and the first proviso thereto that cost of plant or machinery can be allowed as a deduction only when the case falls under sec. 42. In all other cases, depreciation allowance alone could be given It can thus be seen that replacement and modernisation is inbuilt in the concept of depreciation. That is the reason why there is no separate deduction available for replacement and modernisation. If the claim of the appellant is to be accepted, it will be necessary to scrap sec.32 itsel....
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....t all machineries shown in the assessment orders are replacement of new machineries, there are some replacement of only spare parts. Examining the materials item wise, the appellate authority found some of the items being only spare parts to the machineries and replaced due to wear and tear. Hence, directed the Assessing Officer to verify if the replacement were only of defective spares, in which case the claim should be allowed and depreciation to be withdrawn. 12. Reason assigned by the Appellate Authority to justify his order in the I.T.A 64-C/2000-01: "At the time of appeal, various grounds were taken which are more or less repetition of the grounds taken in the earlier assessment years. The details of the manufacturing process has been given and the essence of the submission is that the process involved is integrated and hence replacement of machineries should not be considered as replacement of individual machines but parts of integrated machinery. Reliance was placed on 139 ITR 105, 49 ITR 188, 21 ITR 191, 11 DTC 637, 177 ITR 377, 237 ITR 902. All these arguments and the case laws have already been dealt with by me in the appellant's own case by my order in I....
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....Hon'ble Supreme Court and the appeal is pending. There is no concealment as observed by the ITAT. After 20 years, when the appeal is taken up for final hearing, it is brought to our notice that, the Judgment of the Madras High Court rendered in Janakiraman Mills Ltd case reversed in Commissioner of Income Tax vs. Saravana Spinning Mills (P) Ltd reported in [2007] 293 ITR 201 and same also referred in the subsequent judgment of the Hon'ble Supreme Court in Commissioner of Income Tax vs. Ramaraju Surgical Cotton Mills reported in [2008]166 Taxman 356 (SC). 15. Several judgments were cited on either side to buttress their submission. One judgment which, in our opinion, is more appropriate and relevant to the present case appears to be the decision of this Court in Super Spinning Mills Ltd vs. Assistant Commissioner of Income Tax, Company Circle-1(2), Coimbatore reported in (2013) 37 Taxmann.com 290 (Madras), since it is not only in respect of the same issue but also in respect of same assessee. 16. The assessee, a spinning mill, in its spear of modernising its plant been for several years keep replacing its machineries. While doing so, the costs of machineries in question were c....