2018 (10) TMI 1695 - AT - Income Tax

Replacement of old machineries with new one - nature of expenditure - revenue or capital expenditure - HELD THAT - Appeal allowed in favour of assessee as relying on assessee own case 2018 (9) TMI 1858 - ITAT SURAT as in the instant case, there is replacement of damaged part in view of Chartered Engineering certificate in respect of Turbine Rotor Assembly, Gear shaft with Gear Part , Nozzles Ring , 415 V, 3000A 3 PHH PMCC for CHP are the part of main machine not capable of functioning independently - items of machinery to replace component and relying on various case laws examined the explanation of the assessee and on the basis of explanation furnished by the assessee, deleted the additions disallowance - Decided in favour of assessee

Summary

Issues:
1. Treatment of capital expenditure as revenue expenditure for Assessment Year 2004-05.
2. Treatment of capital expenditure as revenue expenditure for Assessment Year 2005-06.

Issue 1: Treatment of capital expenditure as revenue expenditure for Assessment Year 2004-05:

The appeal by the Revenue was against the CIT(A)'s order for Assessment Year 2004-05 regarding the treatment of machinery expenses as revenue expenditure. The CIT(A) allowed the expenses as revenue, stating they were replacements for existing assets, not creating new assets. The Revenue argued that the replacement of old machinery with new constitutes capital expenditure. The Tribunal found the issue covered by previous orders, dismissing the Revenue's appeal. The Tribunal differentiated this case from the cited Supreme Court case, as it involved replacing damaged parts, not entire machinery.

Issue 2: Treatment of capital expenditure as revenue expenditure for Assessment Year 2005-06:

Similarly, for Assessment Year 2005-06, the Revenue appealed against the CIT(A)'s decision to treat machinery expenses as revenue expenditure. The CIT(A) considered the expenses as replacements for existing assets, not generating new assets. The Tribunal found this issue covered by previous orders, dismissing the Revenue's appeal. The Tribunal distinguished this case from the Supreme Court ruling, as it involved replacing damaged parts, not entire machinery.

In both cases, the Tribunal upheld the CIT(A)'s decision to treat the expenditure as revenue, emphasizing the distinction between replacing damaged parts and acquiring entirely new machinery. The judgments were based on the specific facts of each case and the interpretation of relevant legal precedents.