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TMI Blog2020 (2) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... est amount to a repair made to the process of manufacture of yarn. Each machine in a textile mill should be treated independently and not as a mere part of an entire composite machinery of the spinning mill. Replacement of an old machine with a new one would constitute the bringing into existence of a new asset in place of the old one and not repair of the old and existing machine. It therefore cannot amount to current repairs. Expenditure incurred by the assessee was capital in nature as it amounted to enduring advantage for the business in the form of efficient production over a period of time. Though accounting practices may not be the best guide in determining the nature of expenditure, they are indicative in nature. We sustain the addition confirmed by the ld. CIT(A) for the assessment year 2001-02. - Decided against assessee - I.T.A. No. 201/Chny/2017, 92, 93 & 94/Chny/2017 (Assessment Year: 2001-02, 2002-03, 2005-06 & 2005-06) - - - Dated:- 26-12-2019 - Shri Ramit Kochar, Accountant Member And Shri Duvvuru RL Reddy, Judicial Member Department by: Shri Srinivasa Rao Vana, Addl. CIT Assessee by: Shri J. Prabhakar, C.A. ORDER PER DUVVUR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer passed the impugned order by treating the expenditure on replacement of auto coners and draw frames as capital expenditure as in the original order. On being aggrieved, the assessee preferred appeal before the ld. CIT(A). By following the decision in the case of CIT v. Sri Mangayarkarasi Mills Ltd. 315 ITR 114 (SC), the ld. CIT(A) confirmed the disallowance of ₹ 2,83,32,382/-. 3. On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the authorities below have failed to consider and give proper effect to the directions of the ITAT in its order in I.T.A. No. 3293/Mds/2004 dated 28.02.2009, wherein, the Tribunal has remitted the matter back to the file of the Assessing Officer to follow the judgement of Hon ble Supreme Court in the case of CIT v. Ramaraju Surgical Cotton Mills Ltd. 234 ITR 328. It was further submission that the case law relied on by the ld. CIT(A) in the case of CIT v. Sri Mangayarkarasi Mills Ltd. in 315 ITR 114 is unrelated to the facts in assessee s case. It was further submission that having accepted that there is no increase in production capacity and no cost reduction as has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court, which was relied on by the assessee(s). Accordingly, since in the first round, the Tribunal remitted the matter to the file of the Assessing Officer to decide the issue in line with the decision of the Hon ble Supreme Court, by following the latest decision in the case of CIT v. Sri Mangayarkarasi Mills Ltd., wherein, it was held that the replacement of machinery should be treated as capital expenditure and it cannot be claimed as revenue expenditure, after reducing the addition confirmed by the ld. CIT(A), balance addition to the extent of ₹ 2,83,32,382/- was brought to tax. We find that it is relevant to reproduce the relevant findings of the Hon ble Supreme Court in the case of CIT v. Sri Mangayarkarasi Mills Ltd. (supra): The entire textile mill machinery for spinning yarn cannot be regarded as a single asset, replacement of parts of which can be considered to be for the mere purpose of preserving or maintaining the asset. All parts put together constitute the production process and each separate machine part is an independent entity. Replacement of such an old machine part with a new one would constitute the bringing into existence of a new asset i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll should be treated independently as such and not as a mere part of an entire composite machinery of the spinning mill. As stated above, it can at best be considered part of an integrated manufacture process employed in a textile mill. 7.1 The first argument raised by the assessee before the Tribunal that the authorities below have failed to consider and give proper effect to the directions of the ITAT to follow the judgement of Hon ble Supreme Court in the case of CIT v. Ramaraju Surgical Cotton Mills Ltd. stands ruled out since in that decision it was directed to decide the issues uninfluenced by the decision of the Madras High Court, which was relied on by the assessee(s). 7.2 With regard to the second point for consideration that the entire machinery in the textile mill has to be considered as a single machine and replacement of any intermediary machine has to be treated as replacement of spares and allowed it as current repairs also stands ruled out since the Hon ble Supreme Court in the case of CIT v. Sri Mangayarkarasi Mills Ltd. (supra) has held that the entire textile mill machinery for spinning yarn cannot be regarded as a single asset. 7.3 With regard to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ependent machinery since the same plays independent role. Therefore, replacement of machinery in the textile mill cannot be construed as mere replacement of part of the machinery. According to the ld. DR, what was replaced by the assessee is independent machinery in the textile mill. Therefore, the assessee has brought into existence of new capital asset with enduring benefit. Therefore, there is a commercial advantage for the assessee which is definitely in the capital field. Therefore, the Assessing Officer has rightly disallowed the claim of the assessee. It was further submission of the ld. DR that in the case of Sri Mangayarkarasi Mills P. Ltd. (supra) the Hon ble Apex court found that the machine in a segment of textile mill has an independent role to play and output of each division is different from one another. Dealing with ring frame in the textile mill, the Apex court found that the ring frame in a textile mill is independent machinery. Therefore, the CIT (Appeals) found that the Assessing Officer has rightly disallowed the claim of the assessee. However, by overlooking the above submissions of the ld. DR made in support of the decisions of the Hon ble Supreme Court, upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l issue in similar facts and circumstances, our above decision shall apply for the assessment years 2002-03 and 2005-06 against the claim of disallowance of cost of replacement of textile mill equipment viz., Carding Machine for the assessment year 2002-03 and four textile mill equipment of (a) Elite compact set, (b) Elite twist compact set, (c) Carding Machine Comber. Accordingly, the addition confirmed by the ld. CIT(A) on this issue in the assessment years 2002-03 and 2005-06 also stands sustained. In I.T.A. No.94/Chny/2017 (AY 2005-06), the assessee also raised another issue of disallowance made under section 14A of the Act. However, in the grounds of appeal, the ld. Counsel has made an endorsement that grounds Nos. 10 11 not pressed . Thus, the said ground is dismissed as not pressed. 11. Coming to the appeal filed by the Revenue for the assessment year 2005-06 [I.T.A. No. 201/Chny/2017] is concerned, at the time of hearing the ld. Counsel for the assessee has submitted that the tax effect in this appeal filed by the Revenue are less than the monetary limit of ₹ 50,00,000/- fixed by the CBDT to file an appeal by the Revenue before the Tribunal as per the CBDT Ci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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