2013 (5) TMI 1036 - AT - Income Tax

Summary

Issues involved:
The judgment involves issues related to the replacement of machinery for assessment years 2005-06 and 2008-09, as well as the disallowance made under section 14A of the Income Tax Act.

Issue 1: Replacement of Machinery - Assessment Year 2005-06:
The appeals filed by the assessee against the orders of the ld. CIT(A)-I, Coimbatore, for the assessment years 2005-06 and 2008-09 pertain to the replacement of machinery. The Hon'ble Apex Court remitted the issue of replacement of machinery back to the file of the CIT(A) for consideration afresh.

The ld. CIT(A) relied on previous court decisions and held that replacement of machinery cannot be considered as revenue expenditure. However, a partial amount was allowed for assessment year 2008-09 for the replacement of a multi drum filter used in the humidification plant.

The assessee argued that there was no increase in production capacity due to the replacement of machinery and emphasized the non-enduring nature of the benefits derived. The CIT/DR supported the orders of the ld. CIT(A).

The Tribunal found that the replaced items were capitalized in the books of account and were not eligible for revenue expenditure. The Tribunal upheld the decision of the ld. CIT(A) that the expenditure claimed by the assessee for replacement of machinery could not be allowed as revenue outgo.

Issue 2: Disallowance u/s 14A - Assessment Year 2008-09:
The assessee received dividend income during the relevant year, including dividends from a subsidiary company. The Assessing Officer disallowed a portion of the dividend income under section 14A of the Act.

The ld. CIT(A) directed the Assessing Officer to re-work the disallowance excluding a specific amount from the total dividend received. The assessee contended that the Assessing Officer did not record satisfaction regarding the expenditure incurred for earning exempt income, which is a prerequisite for applying section 14A.

The Tribunal observed that there was no mention in the assessment order about the claim of the assessee regarding expenditure related to exempt income. While the ld. CIT(A) identified a portion of the dividend income that was not claimed as exempt income, the Tribunal decided to remit the issue back to the Assessing Officer for a fresh consideration in accordance with the law.

In conclusion, the appeal for assessment year 2005-06 was dismissed, while the appeal for assessment year 2008-09 was partly allowed for statistical purposes.