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Issues Involved: The judgment involves issues related to the treatment of replacement expenditure of machinery, inclusion of excise duty and sales tax in turnover for deduction under section 80HHC, and the concept of block of assets.
Treatment of Replacement Expenditure of Machinery: The appeal concerned the disallowance of the claim of the assessee for replacement expenditure of machinery as capital expenditure instead of revenue expenditure for the assessment year 1996-97. The Appellate Tribunal and Commissioner of Income-tax (Appeals) had both ruled in favor of the assessee. The High Court held that the treatment of expenditure on replacement of machinery as capital or revenue should be determined by the provisions of the Act, not by the accounting practice of the assessee. The court referred to a previous decision where it was established that replacement of machinery constitutes revenue expenditure, and each replaced machine could not be considered as independent. Therefore, the High Court upheld the Tribunal's decision in allowing the claim of the assessee. Inclusion of Excise Duty and Sales Tax in Turnover for Deduction under Section 80HHC: The issue raised was whether excise duty and sales tax collections should be included in the turnover while calculating the deduction under section 80HHC. The High Court referred to previous decisions where it was held that excise duty and sales tax components, being indirect taxes, should not be included in the turnover for the purpose of calculating the deduction under section 80HHC. The court emphasized that these statutory dues do not represent any element of profit of the business. Therefore, the High Court ruled that sales tax collections should not be included in the total turnover for computing the deduction under section 80HHC. Concept of Block of Assets: Regarding the concept of "Block of assets," the High Court explained the principle and object of introducing this concept in detail. It was clarified that in the case at hand, where the assessee had replaced machinery without discontinuing production activities and without acquiring any new asset of enduring advantage, the question of block of assets did not arise. The court highlighted that no claim for depreciation was made by either party, and the Department did not object to the claim of allowance based on the block of assets concept. Therefore, the High Court concluded that the question of block of assets did not arise for consideration in the appeal. Conclusion: The High Court dismissed the appeal by the Revenue, stating that no substantial question of law arose for consideration based on the established principles and precedents cited in the judgment. The court upheld the decisions of the Tribunal and previous rulings related to the treatment of replacement expenditure, inclusion of excise duty and sales tax in turnover, and the concept of block of assets.
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