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Issues involved: Appeal against CIT's order directing addition of amount to income u/s 37 of the Act for replacement of machinery.
Summary: The appeal was filed challenging the CIT's order to add a specific amount to the income of the assessee u/s 37 of the Act. The original assessment accepted the returned income, but the CIT found that the amount representing the cost of machinery replaced was reported as 'expenditure of capital nature' and directed the Assessing Officer to add it to the income of the assessee. The assessee argued that the replacement was not capital in nature as it was necessary for proper functioning and not for capacity enhancement. The Assessing Officer had initially accepted the expenditure as revenue expenditure after proper examination. The Tribunal noted that the expenditure was incurred on replacing various machinery components essential for efficient production. The CIT invoked section 263, considering the replacement as providing an enduring benefit rather than a short-term advantage, thus classifying it as capital expenditure. The Tribunal found no specific error in the CIT's order and upheld the treatment of the expenditure as capital. However, it allowed depreciation on the capital expenditure, modifying the CIT's order accordingly. In conclusion, the appeal was partly allowed, recognizing the expenditure as capital but granting depreciation benefits to the assessee.
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