2010 (7) TMI 996 - AT - Income Tax

Summary

Issues involved: Appeal and cross objection against the order of the ld. CIT(A)-I, Coimbatore regarding the allowability of expenses incurred by the assessee for replacement of machinery for the Assessment Year 2005-06.

Grievance of the Revenue: The Revenue contended that the expenses incurred by the assessee for replacement of machinery should be disallowed as they were considered of capital nature by the Assessing Officer. The ld. CIT(A) allowed the expenses based on the decision of the Hon'ble Apex Court in the case of CIT Vs. Saravana Spinning Mills P. Ltd. and CIT Vs. Ramaraju Surgical Cotton Mills Ltd.

Assessee's Position: The assessee, engaged in manufacturing of yarn, claimed expenses for replacement of machinery which were disallowed by the Assessing Officer. The assessee was successful in its appeal before the ld. CIT(A).

Arguments before the Tribunal: The ld. D.R. argued that the law on the point had been settled by the Hon'ble Apex Court in CIT Vs. Sri Mangayarkarasi Mills Ltd., emphasizing the need to consider any increase in the installed capacity of production. On the other hand, the ld. A.R. referred to a subsequent decision by the Hon'ble Apex Court in CIT Vs. Hindustan Textiles, which remitted a similar issue back to the Jurisdictional High Court for fresh consideration based on specific tests laid down in previous cases.

Tribunal's Decision: After considering the submissions and relevant legal precedents, the Tribunal noted the decision of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Indra Cotton Mills Ltd., which emphasized the need to review the claim of the assessee in light of various decisions of the Hon'ble Apex Court. Consequently, the Tribunal set aside the orders of the authorities below and remitted the matter back to the Assessing Officer for fresh consideration based on the legal principles established by the Hon'ble Apex Court.

Outcome: The appeal of the Revenue was allowed for statistical purposes, while the cross objection of the assessee was dismissed.