COMMISSIONER OF INCOME TAX Vs. MIHIR TEXTILES LTD

JUDGEMENT

(1.) THE Income Tax Appellate Tribunal, Ahmedabad Bench-B has referred the following two questions for the opinion of this Court under sec. 256 (1) of the Income Tax Act, 1961 (the Act), at the instance of the applicant- Revenue. Whether, the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT (Appeals) directing the AO to allow deduction of Rs. 6,28,968/- in respect of commitment charges paid for issuing debentures ? whether, the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT (Appeals) directing the AO to allow deduction in respect of repairs and replacement expenditure which according to the AO amounted to creation of new assets ?

(2.) THE Assessment Year is 1987-88, the relevant accounting period being Financial Year ended on 31. 3. 1987. The assessee, a Public Limited Company claimed (i) deduction of Rs. 6,28,968/- in respect of commitment charges; (2) Rs. 1,86,319/- plus Rs. 1,08,092/- plus Rs. 2,16,775/- plus Rs. 2,17,132/- totaling to Rs. 7,28,318/- as expenditure on repairs of existing plant and machinery. The Assessing Officer disallowed the first claim, as according to the Assessing Officer the commitment charges had been incurred for obtaining additional working capital and were thus in the nature of initial capital expenditure. In relation to the expenditure on repairs, the Assessing Officer was of the opinion that the expenditure was not of routine nature, the expenditure involved amounted to creation of new assets, and was of an enduring nature. He, therefore, disallowed the said expenditure.

(3.) THE assessee carried the matter in appeal before the Commissioner (Appeals), who came to the conclusion that the commitment charges are incurred in respect of debentures issued by the company to acquire more working capital and were thus wholly and exclusively incurred for the purposes of business. In relation to the amount spent towards repairs and replacement, it was held by the Commissioner (Appeals) that the expenditure was incurred for the purposes of running the existing auto loom shed in a more efficient manner.