CIT Vs. FENNER (INDIA) LTD

JUDGEMENT

(1.) THE above tax case appeal is directed against the order of the Income Tax Appellate Tribunal dated 11 -8 -2006, made in I.T.A. No. 1083/Mds/2005 for the assessment year 2001 -02.

(2.) THE revenue is the appellant. The issue raised in this appeal relates to the assessment year 1996 -97. The assessing officer, on completing the assessment, disallowed the claim of the assessee in respect of replacement expenditure of auto coner and moulds as revenue expenditure and treated the same as capital expenditure. The assessing officer also included excise duty and sales tax collections to the total turnover while computing deduction under Section 80HHC. Aggrieved by the said order, the assessee went on appeal and the Commissioner (Appeals) held both the issues in favour of the assessee. The revenue took up the issues before the Appellate Tribunal and the Tribunal also decided the issues in favour of the assessee. Hence, this appeal by the revenue raising the following questions of law : 1. Whether, on the facts and circumstances of the case, the Tri bunal was right in allowing a deduction of the amounts spent on replacement of machinery as revenue expenditure ? 2. Whether, on the facts and circumstances of the case, replace ment of independent complete machinery can be treated as revenue expenditure ?

(3.) WHETHER , on the facts and circumstances of the case, the Tri bunal was right in holding that excise duty and sales tax collection does not form part of the turnover for the purpose of calculation of deduction under Section 80HHC ? 3. Mrs. Pushya Sitaraman, learned senior standing counsel for the appel lant, fairly concedes that the issues raised in the first three questions are covered against the revenue by the decision of this Court in CIT v. Janakiram Mills Ltd. : [2005]275ITR403(Mad) . With regard to the issue raised in question No. 4, learned senior standing counsel submits that the said issue is also squarely covered against the revenue by the decisions of this Court in CIT v. Wheels India Ltd. : [2005]275ITR319(Mad) and CIT v. Sundaram Fasteners Ltd. : [2005]272ITR652(Mad) which were followed by this Court in CIT v. India Pistons Ltd. : [2006]282ITR632(Mad) . 4. With regard to questions Nos. 1 and 2, the question whether the expenditure on replacement of machinery is capital or revenue is not deter mined by the treatment given in the books of account or in the balance -sheet. The claim has to be determined only by the provisions of the Act and not by the accounting practice of the assessee. In the instant case, the Appellate Tribunal, finding that replacement of machinery is revenue expenditure, held that the claim of the assessee cannot be disallowed.