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TMI Blog2014 (1) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee preferred an appeal before the CIT(A). The CIT(A) allowed the appeal of the assessee vide order dated 20.03.2009 and held the expenditure incurred towards the replacement of machinery as revenue expenditure. The Department carried the matter to the Tribunal. The Tribunal vide order dated 20.7.2010 in ITA No.886/Mds/2009 restored the issue to Assessing Officer with a direction to decide the impugned issue in accordance with the observation of the Hon'ble Apex Court. 3. The Assessing Officer in second round of litigation vide assessment order dated 21.12.2011 held that the expenditure incurred on the replacement of machinery in spinning mills is capital in nature. In support of his findings the Assessing Officer relied on the following judgements of the Hon'ble Supreme Court of India:- i) CIT Vs. Saravana Spinning Mills Pvt.Ltd., 293 ITR 201 ii) Travancore Cochin Chemicals Ltd. Vs. CIT., 1977 CTR (SC) 148 iii) Lakshmi Sugar Mills (P) Ltd. Vs. CIT., AIR (1972) SC 159 iv) Ramaraju Surgical Cotton Mills Ltd. 294 ITR 328 v) CIT Vs. M/s. Mangayarkarasi Mills P.Ltd., 315 ITR 114(SC) vi) CIT Vs. M/s. Hindustan Textiles SLP (Civil) No.2037 of 2009 decided on 3.11.2009. The Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not given their specific finding with regard to enduring benefit by virtue of replacement of machinery parts. Therefore, by no stretch of imagination, it can be said that the amount incurred on replacement of machinery can be termed as capital in nature. In order to support his contentions, the counsel relied on the judgement of the Hon'ble Madras High Court in the case of CIT Vs. Super Spinning Mills Ltd., in Tax Case Appeal No.1073 of 2010 decided on 10.01.2011. The counsel further relied on the judgement of the Hon'ble Supreme Court of India in the case of CIT Vs. Hindustan Textiles reported as 230 CTR 105(SC). 5. The second ground on which the assessee has assailed the order of the CIT(A) is with regard to levy of interest under section 220(2) of the Act. The learned counsel for the assessee submitted that interest under section 220(2) cannot be charged from the date of original assessment order as the same was set aside and the Tribunal had directed the Assessing Officer to decide the issue afresh. The assessee is liable to pay interest under section 220(2) only if the assessee fails to pay the amount demanded within thirty days of service of demand notice issued in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, no specific order need to be passed. In support of his submissions, he relied on the judgement of the Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Vijay Yarn & Textiles P. Ltd., reported as 303 ITR 219(P & H). 9. To controvert the submissions of the DR, the counsel for the assessee submitted that order of levying interest under section 220(2) is an appealable order. To support his submission, the counsel for the assessee relied on the judgement of the Hon'ble Supreme Court in the case of Vikrant Tyres Ltd. Vs. First ITO reported as 247 ITR 821(SC). 10. We have heard the submissions made by both the parties. We have also perused the orders of the authorities below and the judgements/orders cited by the respective parties to support their contentions. The issue regarding whether the expenditure incurred on replacement of textile machinery is revenue or capital in nature has cropped up several times. The issue has been decided on the facts and circumstances of each case by following the principles laid down by the Hon'ble Supreme Court of India in various judgements. The cases adjudicated from time to time have evolve various tests to demarcate line bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is entitled to claim depreciation on the same in accordance with the provisions of the Act. Our view is further fortified by the judgement of the Hon'ble jurisdictional High Court in the case of Madura Coats (supra) wherein it has been held as under:- "13. With regard to the third substantial question of law, it is submitted by the learned counsel for the appellant that when each of the machinery in question such as Ring Frames, Draw Frames and Speed Frame is purchased for the first time, then it is a capital asset, on which depreciation should be granted. Whereas, it is submitted that the sale of a worn out machinery and replacement thereof by new machinery can only be treated as reduction and addition to the block of assets, which is a part of replacement. It is also submitted that while under the law, as it stood prior to 1988-89, the fact of treating the entire mill as an integrated unit may have had the effect of treating the replacement of machinery as replacement of parts of a larger whole and thus treated as revenue expenditure and once the concept of block of assets has been brought in by the Parliament from the assessment year 1988- 89,whether the mill is an integrated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madras High Court in the case of Suresh Gokuldas (supra) is not applicable in the facts and circumstances of the present case. In the present case, the Assessing Officer has specifically mentioned in the assessment order passed under section 143(3) read with section 254 of the Act about the levy of interest under section 220(2). There is no bar for assailing any issue which is part of the assessment order. Therefore, the contention of the DR that interest levied u/s.220(2) is not appellable in the present case is not tenable. 15. Moreover, in Circular No.334 dated 3.4.1982 the Department has clarified that "where an assessment order is cancelled u/s.146 or cancelled/set aside by an appellate/ revisional authority and the cancellation/setting aside becomes final, no interest under section 220(2) can be charged pursuant to the original demand notice. The necessary corollary of this position will be that even when the assessment is reframed, interest can be charged only after the expiry of 35 days from the date of service of demand notice pursuant to such fresh assessment order." 16. The Assessing Officer has levied interest under the provisions of section 220(2) from the date of pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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