COMMISSIONER OF INCOME TAX Vs. RAJU COTTON MILLS

JUDGEMENT

(1.) THE above tax case appeals are directed against the common order of the Income-tax Appellate Tribunal in IT A Nos. 1383, 1384 and 1385/mds/2002 dated 6. 6. 2005.

(2.) THE Revenue is the appellant. THE assessee is a partnership firm. THEy have filed their return for the assessment years 1996-97 to 1998-99. THEir claim with regard to the cost of replacement of Simplex machine & Doubling Frame costing Rs. 18,63,666 for the A. Y. 1996-97, Draw Frame, Simplex Machine and Doubling Frame costing Rs. 25,03,443/-for the A. Y. 1997-98 and Blow Room and Ring Frame costing rs. 37,47,933/- for the A. Y. 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 I. T. A. T. Madras in the case of Ambik a Cotton Mills Ltd. And consequently, the depreciation granted was withdrawn. THE Appellate Tribunal dismissed the appeal filed by the revenue holding that the replacement of part in a machiner y has to be treated as revenue in nature.

(3.) WITH regard to question (c), this Court, in decision cited supra, explained the principle or object of introducing the concept of 'block of Assets'in detail. It is apposite to refer the following: "regarding the argument relating to "block of assets", it is the claim of learned counsel for the assessee s that the said principle or object of introduction of the above concept is totally not applicable relating to the nature of expenditure incurred by the respondent. These provisions were introduced from April 2, 1987, as defined under section 2 (11) of the Income-tax Act, 1961 and they are in operation on different field. It is stated that they were intended to replace the provisions on depreciation of capital assets. The block of assets concept was introduced with a view to streamline the excess depreciation allowed and to allow terminal depreciation. When the block of assets concept was introduced, the provisions relating to terminal depreciation and the profit result from the sale of assets, which were originally considered under sections 32 (1) (iii) and 41 (2), were suitably amended to fall in line with the proposed simplification of the concept of block of assets. The circular describing the concept of block of assets is explained by the Central Board of Direct Taxes by Circular No. 469 dated September 23, 1996 reported in [1986] 162 ITR (St.) 21, 24. In the instant case, no acquisition of any new asset, much less capital of any enduring advantage resulted to the assessee-respondent. The assessees replaced the worn out part of machineries without discontinuing their production activities. No claim for depreciation was ever made before any authorities either by the assessee s or by the Revenue to consider the question as block of assets nor was there any necessity to do so. The Department did not raise any objection before the tribunal regarding the claim of allowance on the premise of the block of assets concept. It is, therefore, stated that such question does not arise out of the order of the Appellate Tribunal for considering the same by this court under section 260a. "