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TMI Blog2002 (11) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... preserving or maintaining an already existing asset and which does not bring anew asset into existence or does not give to the assessee a new or different advantage, as held by the Supreme Court in the case of Ballimal Naval Kishore v. CIT (224-ITR-414). 3. The learned CIT(A) failed to appreciate that the replacements made do not fall under current repairs and are additions to capital assets a capital expenditure is not allowable under section 37 of the Act. 4. The CIT(A) is not correct in deleting the additions made regarding expenditure claimed on current repairs of Rs. 2,07,16,489." 2. During the year under consideration the assessee had purchased two Auto-Coners costing Rs. 2.07 Crores to replace the existing two worn out cone winders. This expenditure was claimed as deduction being "current repairs" vide a note appended with the return, which is reproduced below: "During the previous year, the company has replaced the existing 2 Nos. worn-out Cone-winders with 2 Nos. Auto-Coners. By incurring this expenditure no new machine has been brought into existence except that the old and unserviceable a machines were removed and the machinery as a whole was restored to its original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chinery in nature of repairs it is an allowable expenditure under section 31 of the Act. The Assessing Officer is directed to treat the expenditure of Rs. 2,07,16,498 as current repairs and allow the deduction under section 31 of the I.T. Act: 3. During the course of hearing the learned DR submitted that the CIT(A) erred in holding the expenditure incurred on replacements as current repairs and allowable under section 31 of I.T. Act. It was further submitted that the replacements made by the assessee do not fall under current repairs and therefore, the order of the Assessing Officer treating the expenditure, as capital expenditure should be upheld. In support of his argument he relied on the judgment of the Supreme Court in the case of Ballimal Naval Kishore v. CIT [1997] 224 ITR 414/90 Taxman 402. The gist, of the case laws relied upon by the Assessing Officer and the learned DR are given as under: (i) Chowgule & Co. (P.) Ltd.'s case. In this case the assessee had affected major repairs to one of its vessels, which resulted in an expenditure of Rs. 99,52,440 and claimed as "current repairs". The Revenue disallowed the claim on the ground that the expenditure together with UDV o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and worn out machinery and there was no increase in the capacity of the spinning mill. It was further submitted by the learned AR that the Auto-Coners have no independent existence as held by the Assessing Officer but are only a part of the machinery used in the spinning mill. It was also submitted that when the assessee went for replacement it was natural that it should go for improved and modern equipment for better performance and such action should not be interpreted against the assessee. It was further argued that since the Auto-Coners were installed only as replacement, the expenditure so incurred has to be allowed under the head "current repairs". In support of such argument the learned AR specifically relied on several judicial pronouncements. The gist of which are given as under: (i) CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC): Expenditure incurred on introduction of "Casablanca conversion system" involving replacement of certain machinery was held to be expenditure on current repairs allowable under section 10(2)(v) of Income-tax Act, 1922 in the case of the assessee carrying on business of manufacture and sale of cotton yarn. (ii) CIT v. Co-operative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r revenue expenditure - Replacement of machinery - If the machine that is replaced gives the end product and only one process is involved, the expenditure incurred would definitely be a capital expenditure - However, this conclusion would not apply to cotton mill which has various machineries for carrying out various processes and where some of the machineries are replaced by improved versions - Carding machine performs the initial process where cotton is cleaned before it is converted into yarn - Yarn is not the end product of a manufacturer of textiles - Therefore, replacement of carding machine by a new and improved carding machine would constitute revenue expenditure - Similarly, old cone winding machines were replaced by new and improved coners for producing better output - Such conversion into improved method is only to facilitate better business - Coners are not capable of functioning independently - Assessee uses it by connecting it to the earlier process - Therefore, the expenditure on replacement is revenue expenditure. (x) Durairaj Mills Ltd. v. Dy. CIT [2001] 72 TTJ (Mad.) 799 (I.T.A.T., Madras): Business expenditure - Capital or revenue expenditure Replacement of text ..... X X X X Extracts X X X X X X X X Extracts X X X X
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