COMMISSIONER OF INCOME TAX MADURAI Vs. AYYAPPAN TEXTILES

JUDGEMENT

(1.) THIS appeal is filed by the Revenue under Section 260A of the Income Tax Act against the order of the Income-tax Appellate Tribunal dated 08.01.2003 made in I.T.A.No.3165/Mds/93. On 27.01.2004, this Court admitted the appeal and formulated the following substantial questions of law: "1. Whether in the facts and circumstances of the case, the Tribunal was right in allowing a deduction of the amounts spent on replacement of machinery? 2. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee has adopted the proper valuation of closing stock of the cotton?"

(2.) THE brief facts arising out of the above tax case are as under: THE assessee is a textile mill incorporated under the Companies Act. It is engaged in the manufacture of yarn. THE relevant assessment year is 1990-91 and the corresponding accounting year ended on 31.03.1990. THE assessee filed Return of income on 31.12.1990 admitting a total income of Rs.69,75,576/-. THE said Return was processed under Section 143(1)(a) of the Act and determined the income at Rs.86,64,870/-. Subsequently, the assessment was completed determining a total income of Rs.1,22,76,990/-While computing the assessment, the Assessing Officer disallowed the replacement of old machinery by new machinery, as capital expenditure and also was of the view that the assessee had undervalued the closing stock of cotton and hence made an addition of Rs.15,22,236/-. Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). THE Commissioner of Income Tax (Appeals) deleted the addition and allowed the appeal. Aggrieved, the Revenue filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as the "Tribunal"). THE Tribunal dismissed the appeal confirming the order the Commissioner of Income Tax (Appeals).