M.M. Sundresh, J.@mdashThe assessee has come up on appeal, challenging the order of the Tribunal dated 18.12.2009 passed in ITA No. 1124/Mds/2009 for the assessment year 2006-07 by raising the following substantial questions of law:
a) Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal is right in law in disallowing the claim of expenditure on replacement of machinery as revenue expenditure, more so in the context of the latest full bench decision of the Hon''ble Supreme Court in the case of CIT v. Bjojraj Textiles Mills Ltd. and also another Bench decision of the Supreme Court in the case of CIT v. Hindustan Textiles which was rendered after the decision of Supreme Court in the case of
b) Whether on the facts and circumstances of the case, the test of enduring benefit is the only criteria in determining whether expenditure is capital or revenue in nature?
c) Whether on the facts and circumstances of the case, the Appellate Tribunal is right in law in presuming that the facts of the instant case is on par with the facts of the decision of the Supreme Court in the case of
d) Whether on the facts and circumstances of the case, the treatment in the books of accounts should be the parameter in determining the allowability of an item of expenditure under the provisions of the Income Tax Act, 1961?
2. The facts in brief:
The assessee is a company engaged in the business of manufacturing and trading of yarn. For the assessment year 2006-2007 the assessee made an investment of Rs. 392,66,878/- towards the purchase of machineries. The assessee claimed the said amount as revenue expenditure in the profit and loss account. The assessing officer has disallowed the claim of the assessee by treating it as a capital expenditure. Being aggrieved by the same, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) and the CIT (Appeals) has held that the expenditure incurred by the assessee will have to be taken only as revenue expenditure and thereby allowed the appeal. As against the said order of the CIT (Appeals), the revenue preferred further appeal before the Tribunal and the Tribunal has reversed the said decision of the CIT (Appeals) by relying upon the Hon''ble Apex Court''s decision in
3. Heard Mr. Sivaraman, the learned Counsel for the assessee and Mr. J.Naresh Kumar, the learned Standing Counsel for the revenue.
4. The issue raised in the present appeal particularly with reference to the substantial question of laws (a) and (b) are concerned is covered by the Full Bench Judgment of the Hon''ble Apex Court in the case of CIT v. Bhojraj Textile Mills Limited, which is followed in one other decision of the Hon''ble Apex Court in the case of CIT v. Hindustan Textiles. The aforesaid judgments of the Hon''ble Apex court were also followed by this Court in TCA No. 261 of 2010 dated 22.06.2010, wherein it is decided as follows:
2. Heard the learned standing Counsel appearing for the revenue as well as the learned Counsel appearing for the respondent assessee. Counsel brought to our notice certain orders passed by the Hon''ble Supreme Court on this very question rendered in SLP Nos. 413 and 414 of 2009 and in Civil Appeal No. 7297 of 2009 as well as two Division Bench judgments rendered on 14.12.2009 in TC (Appeal) Nos. 1290 and 1291 of 2009 and on 22.10.2010 in T.C.(Appeal) Nos. 1216 to 1221 of 2008. In a similar situation where finding as regards the enduring nature of the assets or the increase in the production capacity by virtue of the replacement of machinery was noted, the Division Bench following the directions of the Hon''ble Supreme Court remitted the matter back to the Commissioner of Income Tax (Appeals) by directing as under:
3. Following the aforesaid order, these tax case appeals are disposed of and the orders of both the assessing officer and the Commissioner of Income Tax to the Commissioner of Income Tax (Appeals) to reconsider the issue in the light of the directions given by the Supreme Court in the case of Commissioner of Income Tax, Coimbatore v. Hindustan Textiles made in Civil Appeal No. 7297 of 2009 (Arising out of S.L.P.(C) No. 2037 of 2009) dated 3.11.2009 and decide the issue in accordance with law after giving opportunity to the assessee for producing additional material in respect of the machinery acquired during the relevant period. In view of the above, we are not answering the questions of law raised in these appeals. No costs.
5. Considering the judgment rendered by this Court dated 22.06.2010, we are of the opinion that the questions of law raised in ground (c) and (d) do not require any consideration. However, the other questions of law raised in ground (a) and (b) will have to be considered by the CIT (Appeals).
6. Accordingly, the orders passed by the Tribunal as well as the Commissioner of Income Tax (Appeals) are hereby set aside and the matter is remitted back to the Commissioner of Income Tax (Appeals) to re-consider the issue as to whether the expenditure made by assessee will amount to capital expenditure or revenue expenditure based upon the materials available on record. While considering the said issue, the Commissioner of Income Tax (Appeals) will have to take into consideration the judgments rendered by the Hon''ble Apex Court referred to above earlier.
7. The questions of law raised in this appeal are not answered because of the remittal of the matter back to the Commissioner of Income Tax (Appeals) for fresh consideration.
8. With the above direction, the appeal is disposed of. No costs.
