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TMI Blog2001 (5) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee undertook to carry on cold repairs of the furnace. Before the Assessing Officer the assessce explained that the furnace in which the figured and wired glass are manufactured works at 1450'. This furnace worked upto 18-3-1991 and after that it was left for cooling down. As per the details submitted before the Assessing Officer, the assessee purchased raw materials for the construction of furnace like refractories, cement, steel etc. upto 31-3-1991 and the construction work was started from 31 st March, 1991 and completed on 19-4-1991 i.e. in the accounting year relevant to the succeeding assessment year 1992-93. The assessee submitted a report of Shri V.H. Daniel, a technical expert under whose supervision the construction work was carried on which reads as under:-- "As per the planning programme and schedule, closing down (stopping of production) of the furnace was done on 18-3-1991 i.e. 17th night at 11.00 p.m. and glass draining started at 12.00 midnight. About 40 per cent of glass was drained out during night shift. On 18th till 22nd of March, furnace cooling and dismantling was done. From 22nd March till 30th March, 1991 the following work has been carried out. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the succeeding assessment year 1992-93. 2. The expenses in question incurred for construction of a new furnace are capital in nature and, therefore, the same are disallowable. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). The CIT(Appeals) held that the expenses in question have been incurred merely for the purpose of replacement of refractories and these are of revenue nature. In support of his conclusion the CIT (Appeals) placed reliance on various decisions including inter alia following decisions:- 1 . CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC). 2. Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC). 3. CIT v. Kalyanji Mavji & Co. [1980] 122 ITR 49 (SC). 4. Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 3772 (SC). 5. Addl CIT v. Desai Bros. [1977] 108 ITR 14 (Guj.). 6. CIT v. Seraikella Glass Works (P.) Ltd. [1986] 157 ITR 584 (Pat.). Out of the assessee's claim of Rs.4,21,35,886 the CIT(Appeals) disallowed expenses to the extent of Rs.69,612 and deleted the balance disallowance of Rs.4,20,66,275. The revenue is aggrieved and hence the appeal. 6. Shri R.V. Nabar the learned Sr. D.R. assailing the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave vitiated the conclusion regarding the nature of the expenses in question. The learned D.R. submitted that the first appellate authority misdirected itself on facts in proceedings on the basis that the expenses have been incurred merely for replacement of the refractories by the assessce whereas the correct facts according to the learned D.R., are that the assessee has dismantled the old furnace and constructed an entirely new furnace with certain technical improvements as is evidently manifested from the report of the Technical Expert namely Mr. Daniel who supervised the entire operation. With regard to the decision of Gujarat High Court in the case of Desai Bros. relied upon by the learned CIT(Appeals), the learned D.R. argued that the decision is entirely distinguishable on facts inasmuch as in the said case there was merely a replacement of Petrol Engine by a Diesel Engine employed by the assessee whereas in the instant case before us, the assessee has demolished the old furnace and constructed a new furnace incorporating improvements so as to ensure better quality and efficiency. Regarding the decision in the case of Seraikella Glass Works (P.) Ltd. relied upon by the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir orders. After giving our thoughtful consideration to the entire issue, we have come to the conclusion that the expenses in question incurred by the assessee on dismantling the old furnace and construction of a new furnace are clearly capital in nature. These expenses obviously resulted in the acquisition of a new asset by the assessee. What the assessee has replaced during the year is not merely a subsidiary part of machinery like a chimney in a factory or petrol engine in van or truck. In the glass factory, the main plant and machinery consist of furnace and other ancillary of the furnace. The furnace is made by using refractories, steel, mortar and cement etc. The assessee has imported substantial amount of refractories for an amount of Rs.4,03,00,000. Further expenses on steel, cement, mortar etc. have also been incurred for construction of the new furnace. The technical report of Shri V.H. Daniel who supervised the entire dismantling and construction process clearly indicates that the old furnace has been dismantled and new furnace has been constructed incorporating certain technical improvements which ensured better quality and efficiency of production. The expenses thus e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out from year to year and the expenses incurred by the assessee on such repairs were in the vicinity of 3.4 per cent. Treating the repairs as revenue expenditure, their Lordships observed at p. 587 of the report-- "The case before us, however, stands entirely on a different footing. The assessee had repaired the furnace. The furnace itself had not been replaced while it had been repaired." Thus the facts in the instant case before us are entirely distinguishable inasmuch as the assessee before us, has dismantled the old furnace and constructed a new furnace in its place. The Patna High Court decision, therefore, rather supports the case of the revenue and not the assessee. 11. The learned counsel for the assessee has next relied upon the Full Bench decision of the Andhra Pradesh High Court in the case of Nathmal Bankatlal Parikh & Co. wherein it has been held that replacement of old diesel engine of motor Van by a new diesel engine constitute revenue expenditure. The Court held that expenditure incurred by the assessee with a view to preserve and maintain an already existing asset would be revenue in nature whereas if the object of the expenditure is to obtain a new and fre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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