CIT Vs. SARAVANA SPINNING MILLS P. LTD

JUDGEMENT

(1.) THE above tax case appeal is directed against the order of the Income Tax Appellate Tribunal dated 24 -5 -2006, made in I. T. A. No. 2587/Mds/2004 for the assessment year 2001 -02.

(2.) THE revenue is the appellant. The issue raised in this appeal relates to the assessment year 2001 -02. The assessing officer, on completing the assessment, disallowed the claim of the assessee in respect of replacement expenditure of muratec auto coner and 18 ring frames as revenue expenditure and treated the same as capital expenditure. Aggrieved, the assessee went on appeal and the Commissioner (Appeals) held in favour of the assessee. The revenue took up the issue before the Appellate Tribunal and the Tribunal held the issue 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 Tribunal was right in allowing a deduction of the amount spent on replacement of machinery as revenue expenditure ? 2. Whether, on the facts and circumstances of the case, replacement of independent complete machinery can be treated as revenue expenditure ?

(3.) WITH regard to questions Nos. 1 and 2, the question whether the expenditure on replacement of machinery is capital or revenue is not determined 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.