The Commissioner of Income Tax vs Sitalakshmi Mills Limited

K. Raviraja Pandian, J.—The revenue on appeal against the order of the Income Tax Appellate Tribunal MADRAS ''D'' Bench, Chennai

dated 19.02.2007 passed in ITA. No. 994/Mds/2000 by formulating the following questions of law:

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in allowing a deduction of the amounts

spent on replacement of machinery as revenue expenditure?

Whether in the facts and circumstances of the case, replacement of independent complete machinery can be treated as revenue expenditure?

Whether in the facts and circumstances, the Tribunal was right in deciding the issue without going into the concept of Block of asset?

It is submitted across the bar by the Counsel appearing for the revenue that the above questions of law are covered by the decision of the

Supreme Court in the case of Commissioner of Income Tax Vs. Ramaraju Surgical Cotton Mills, , wherein the Judgment of this Court in India

Cine Agencies Vs. Deputy Commissioner of Income Tax, was considered by the Supreme Court with reference to the contention of the assessee

that replacement of assets without increasing the production capacity would amount to revenue expenditure. The Supreme Court remanded the

matter by observing that there are a number of tests which are required to be considered while deciding whether the expenditure was revenue or

capital in nature. In the absence of the requisite details regarding the production capacity remaining constant even after replacement, the matter

could not be decided on merits and require to be remitted back to the Commissioner (Appeals) for consideration of that particular issue with

reference to the production capacity. In this case also, there is no material available as to the increase or otherwise of the production capacity in

replacement of the machineries. Without the factual details, the question of law cannot be decided. Hence this case also require to be remitted

back to the Commissioner of Appeals as done by the Supreme Court in the aforesaid decision.

Hence, the order of the Tribunal is set aside and the matter is remitted back to the Commissioner of Appeals to redo the exercise as directed by

the Supreme Court in the case of Commissioner of Income Tax Vs. Ramaraju Surgical Cotton Mills, . With the above observation, the appeal is

disposed of. No costs.