P.D. Dinakaran, J.@mdashThe above tax case appeal is directed against the order of the Income Tax Appellate Tribunal dated 19.5.2006 made
in ITA No. 1446/Mds/2005 for the assessment year 1994-95.
2. The Revenue is the appellant. The issue raised in this appeal relates to the assessment year 1994-95. The Assessing Officer, on completing the
assessment, disallowed the claim of the assessee in respect of replacement cost of machineries and treated the same as capital expenditure.
Aggrieved, the assessee went on appeal and the Commissioner of Income Tax (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 the replacement of machinery parts will amount to revenue expenditure or not? and
2. Whether bringing into existence of a new asset or obtaining a new advantage would amount to revenue expenditure or not?
4. Mr. N.Muralikumaran, learned Senior Standing Counsel for the appellant fairly concedes that the issues raised in this appeal are covered against
the Revenue in view of the decision of this Court in The Commissioner of Income Tax Vs. Janakiram Mills Ltd., .
5. 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.
6. This Court, in Commissioner of Income Tax v. Janakiram Mills Ltd. referred supra, held that all plant and machinery put together amounts to a
complete spinning mill which is capable of manufacturing yarn and hence, each replaced machine could not be considered as an independent one
and no intermediate marketable product was produced.
7. The above view was also taken by this Court in The Commissioner of Income Tax Vs. Loyal Textile Mills Ltd., .
In view of the ratio laid down by this Court in the decisions cited supra, no substantial question of law arises for our consideration in this appeal
and therefore, the same is dismissed. No costs.