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TMI Blog2012 (4) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... to the file of the Assessing Officer, who shall pass a speaking order with regard to chargeability of interest. - IT APPEAL NOs. 136 & 831/PN./2009 - - - Dated:- 28-2-2012 - I.C. SUDHIR, G.S. PANNU, JJ. Kishor Phadke for the Appellant. Hareshwar Sharma for the Respondent. ORDER G.S. Pannu, Accountant Member Since a common issue is involved in the captioned appeals filed by the assessee, we find it convenient to dispose of the appeals by a combined order. 2. We shall first take up ITA No 136/PN/09 for the assessment year 2005-06. This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals), Kolhapur dated 28.11.20078 which, in turn, has arisen from order dated 27.12.2007 passed by the Assessing Officer, under section 143(3) of the Income-tax Act, 1961 (in short "the Act), pertaining to the assessment year 2005-06. 3. The substantive dispute in both the appeals is common relating to the expenditure incurred by the assessee on replacement of machineries, which has been treated by the Assessing Officer as a capital expenditure. In both the years, the facts and circumstances are identical and, therefore, we may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01 by contending that the Hon'ble Supreme Court did not go into the question as to whether replacement expenditure is a revenue expenditure or capital expenditure, but has only held that same cannot be termed as "current repairs" to be allowed deduction under section 31(i) of the Act. As per the Hon'ble Supreme Court sections 31 and 37(i) of the Act operate in different spheres and the tests applicable to section 31 cannot be read into section 37(1) and, therefore, assessee explained that the judgment of the Hon'ble Supreme Court in the case of Saravana Spg. Mills (P.) Ltd. ( supra ) would not affect the claim of the assessee for allowability of the expenditure under section 37(1) of the Act. 5. The aforesaid submissions putforth were not found acceptable by the Assessing Officer. As per the Assessing Officer the benefit resulting to the assessee on account of incurring the impugned expenditure on replacement of old and worn out machineries is an enduring benefit in the capital field and, therefore, the amount of Rs. 1,15,52,698/- claimed as revenue expenditure on account of replacement of 5050 spindles was to be treated as a capital expenditure. In coming to the above conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was sought to be reiterated that the judgment of the Hon'ble Supreme Court in the case of Saravana Spinning Mills (P.) Ltd. ( supra ) is applicable for deciding a claim under section 31(i) of the Act on account of 'current repairs' and not a claim of the expenditure being revenue expenditure within the meaning of section 37(1), as is the case of the assessee. The learned Counsel also referred to the judgment of the Hon'ble Supreme Court in the case of CIT v. Ramaraju Surgical Cotton Mills [2007] 294 ITR 328/[2008] 166 Taxman 356 for the proposition that the Supreme Court has itself explained the ratio laid down in the case of Saravana Spinning Mills (P.) Ltd. ( supra ) as being applicable only for a claim made under section 31(1) of the Act and not a claim under section 37(1) of the Act. It was, therefore, contended that the issue be decided in the light of the proposition that no new asset having been brought into existence, therefore, the expenditure be allowed as a revenue expenditure. 9. On the other hand, the learned Departmental Representative, appearing for the Revenue, has relied upon the orders of the authorities below as well as the ratio of the Hon'ble Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion as to whether individual machinery in a textile mill is an independent item or merely a part of a complete spinning mill, which only together are capable of manufacture, as there is no intermediate marketable product produced. On this aspect, it referred to the earlier judgment of the Hon'ble Supreme Court in the case of Saravana Spg. Mills (P) Ltd. ( supra ) and held that each machine in a textile mill should be treated independently as such and not as a mere part of an entire composite machinery of the spinning mill. According to the Hon'ble Apex Court, it can at best be considered part of an integrated manufacture process employed in a textile mill. Thereafter, with regard to the nature of the expenditure, it held as under: "17. We are of the pinion that the expenditure of the assessee in this case is capital in nature and there is sufficient judicial precedent to support this view. In the case of Travancore Cochin Chemicals Ltd. v. CIT 1977 CTR (SC) 148 : [1997] ( sic -1977) 2 SCC 20 this Court held that expenditure is of a capital nature when it amounts to an enduring advantage for the business and repair is different from bringing a new asset for the business. Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue and the assessee fails on this Ground. 13. As a result of the aforesaid decision, Ground No. 1, 2 3 for assessment year 2005-06 which read as under, are dismissed: "1. The ld CIT(A), Kolhapur erred in law and on facts in disallowance of Rs. 1,12,44,726/- being replacement of Ringframes and treating the same as capital expenditure. 2. The ld CIT(A), Kolhapur erred in law and on facts in disallowance of Rs. 2,56,785/- being expenditure incurred on 'overhead travelling cleaner' of and treating the same as capital expenditure. 3. The ld CIT(A) Kolhapur erred in law and on facts in disallowance of Rs. 51,187/- being expenditure incurred on "Ringframes Installation charges' and treating the same as capital expenditure." 14. Apart from the aforesaid, the assessee has raised an Additional Ground of appeal which reads as under: "3. The ld AO erred in law and on facts in levying the levy of interest u/s 234B and interest u/s 234C without appreciating that the appellant's returned income was based on correct legal precedents prevailing at that time." 15. As per the assessee, the disallowance of expenditure claimed under section 37(1) of the Act has resu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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