1986 (8) TMI 135 - AT - Income Tax

Summary

Issues:
- Disallowance of expenditure claimed as current repairs or revenue expenditure
- Justification of expenditure as current repairs or revenue expenditure

Analysis:
The judgment involves the disposal of Departmental Appeals for the assessment years 1976-77, 1977-78, 1980-81, and 1981-82 collectively due to common points. The assessee claimed expenditure totaling significant amounts for each year, arguing for allowance as current repairs or revenue expenditure. The Income Tax Officer (ITO) disallowed the claim, deeming the expenditure to be of capital nature due to enhancing the mill's modernization and productivity. The Commissioner of Income Tax (Appeals) accepted the assessee's claim, emphasizing that the expenditure was for replacing worn-out parts, not wholesale replacement of the entire machinery. The Revenue appealed against this decision.

The Departmental Representative contended that the expenditure was capital in nature, contrary to the CIT (A)'s view. The counsel for the assessee argued that the expenditure was for replacing worn-out parts after nearly 30 years of machinery use, justifying it as current repairs or revenue expenditure. The Tribunal examined the details of the expenditure, highlighting specific items purchased for each assessment year to replace worn-out parts of the machinery. The CIT (A) found that the replaced parts were essential for maintaining the machinery's efficiency and production, leading to an increase in output. The Tribunal referred to various judicial precedents, emphasizing that the replacement of worn-out parts qualifies as current repairs or revenue expenditure, not capital expenditure.

Relying on previous court decisions, the Tribunal concluded that the replacement of worn-out parts by new ones constitutes current repairs or revenue expenditure under relevant sections of the Income Tax Act. The Tribunal upheld the CIT (A)'s decision to allow the expenditure claimed by the assessee. Consequently, the appeals filed by the Revenue were dismissed, affirming the allowance of the expenditure as current repairs or revenue expenditure.