2012 (11) TMI 1092 - AT - Income Tax

Reassessment u/s 147 - Expenditure incurred on replacement of machinery - revenue expenditure or capital expenditure - Held that - The concept of block of assets has been brought in by the Parliament from the assessment year 1988-89, whether the mill is an integrated whole or not, whether the replacement of machines resulted in increased capacity or not, will have no bearing and when any item belonging to the block is removed, its value is reduced and if any new item comes in its place, its value is added to the block. - To be treated as capital expenditure - decided in favor of revenue. Levy of interest u/s 234B and/or 220(2) - The case of the assessee is that the Assessing Officer has levied interest u/s 220(2) without considering the circular dated 3-4-1982 - Held that - in the assessment order itself at page No.10 the Assessing Officer has charged the interest under section 234B - As per the decision of the Hon ble Supreme Court in the case of CIT v. Anujm M.H. Ghaswala And Others 2001 (10) TMI 4 - SUPREME Court , charging of interest under section 234B of the Act is mandatory. - Decided against the assessee.

Summary

Issues Involved:
1. Disallowance of expenditure on replacement of machinery as capital expenditure.
2. Levy of interest under section 220(2) of the Income Tax Act.
3. Levy of interest under section 234B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Expenditure on Replacement of Machinery:
The assessee company, engaged in the manufacture and sale of cotton yarn and fabric and generation of electricity, filed returns for the assessment years 1993-94, 1994-95, and 1998-99. The Assessing Officer determined taxable income and disallowed expenditure on the replacement of machinery, treating it as capital expenditure. The CIT(Appeals) upheld this disallowance. The Tribunal initially allowed the assessee's appeal, treating the expenditure as revenue expenditure. However, the High Court remitted the matter back to the CIT(Appeals) for reconsideration in light of Supreme Court decisions. The CIT(Appeals) subsequently reaffirmed the disallowance, citing that the replacement of machinery constituted capital expenditure, providing enduring benefits and increased production capacity. The Tribunal, following the decisions of the Supreme Court and jurisdictional High Court, confirmed the CIT(Appeals)'s order, dismissing the assessee's appeal.

2. Levy of Interest under Section 220(2):
The assessee contested the levy of interest under section 220(2), arguing that the Assessing Officer erred by not creating a charge in the assessment order and by not adhering to Circular No. 334, which mandates that interest under section 220(2) should be levied only from the date of notice of demand issued as a consequence of the fresh assessment order. The Tribunal admitted this additional ground based on the Supreme Court's decision in National Thermal Power Co. Ltd. v. CIT. The Tribunal found that the Assessing Officer did not clearly explain the basis for levying interest under section 220(2) and directed the Assessing Officer to reconsider the levy of interest de novo, in accordance with the circular and law.

3. Levy of Interest under Section 234B:
The assessee also contested the levy of interest under section 234B, claiming that interest cannot be levied unless charged in the assessment order. The Tribunal noted that the Assessing Officer had charged interest under section 234B in the assessment order itself. Citing the Supreme Court's decision in CIT v. Anujm M.H. Ghaswala And Others, which held that charging interest under section 234B is mandatory, the Tribunal dismissed this additional ground raised by the assessee.

Conclusion:
The Tribunal dismissed the assessee's appeal regarding the disallowance of expenditure on the replacement of machinery and the levy of interest under section 234B, while allowing the appeal regarding the levy of interest under section 220(2) for statistical purposes. The order was pronounced on November 27, 2012, at Chennai.