2011 (5) TMI 1033 - AT - Income Tax

Summary

Issues involved: Validity of order passed by CIT u/s 263 of the Income-tax Act regarding the replacement of bi-metallic stripper as revenue or capital expenditure.

Summary:

Issue 1: Validity of order u/s 263 of the Income-tax Act
The appeal was filed against the order u/s 263 by the CIT, Hyderabad, pertaining to the assessment year 2006-07. The assessee claimed expenditure for replacing a bi-metallic stripper used in manufacturing Urea. The assessing officer sought details of the expenditure, which were provided. The CIT set aside the assessment directing to treat the replacement as capital expenditure. The assessee argued that the replaced part was integral to the manufacturing process and the assessing officer's decision was valid. The Departmental Representative contended that the replaced part provided enduring benefit and was capital in nature. The ITAT considered the submissions and found that the replaced part was integral to the manufacturing process and did not increase the plant's capacity. The assessing officer's decision was based on a possible view and not unsustainable in law. Therefore, the ITAT held that the CIT's order u/s 263 was not sustainable and cancelled it, allowing the appeal of the assessee.

Conclusion:
The ITAT Hyderabad allowed the appeal of the assessee, holding that the order passed by the CIT u/s 263 of the Income-tax Act regarding the replacement of the bi-metallic stripper as capital expenditure was not sustainable in law.