2018 (10) TMI 133 - HC - Income Tax

Expenditure on replacement of old machinery - replacement of ring frames in spinning mill - allowable revenue expenditure or capital expenditure - Held that - The issue as to how such expenditure has to be treated is no longer res integra and has been decided by the Hon ble Supreme Court in Commissioner of Income-tax vs. Sri Mangayarkarasi Mills (P.) Ltd. 2009 (7) TMI 17 - SUPREME COURT . In the light of the said decision, the matter requires to be remanded to CIT (A) to consider as to whether the expenditure incurred by the assessee for replacement of ring frames results in enduring benefit

Summary

Issues:
Whether expenditure on replacement of old machinery is allowable as revenue expenditure?

Analysis:
The High Court of Madras heard an appeal by the Revenue against the order of the Income Tax Appellate Tribunal Chennai regarding the treatment of expenditure on the replacement of old machinery for the assessment year 1995-1996. The substantial question of law admitted for consideration was whether such expenditure should be treated as revenue expenditure. The Assessing Officer initially considered the expenditure as capital in nature due to enduring benefits, but the CIT(A) and the Tribunal disagreed. The High Court referred to the decision in Commissioner of Income-tax vs. Sri Mangayarkarasi Mills, where it was established that the nature of the expenditure must be assessed based on enduring benefits. Consequently, the High Court remanded the matter to the CIT(A) for fresh consideration, emphasizing the need to determine if the replacement of ring frames resulted in enduring benefits as per the Supreme Court decision. The appeal by the Revenue was allowed, the impugned order was set aside, and no costs were awarded. The substantial question of law raised in the appeal was left open for further consideration.