Commissioner of Income Tax vs Coimbatore Alcohol and Chemicals Ltd.

P.D. Dinakaran, J.—The above tax case appeal is directed against the order of the Income Tax Appellate Tribunal in I.T.A. No. 875/Mds/1999 dated December 23, 2005.

The Revenue is the appellant. During the previous year relevant to the assessment year 1994-95, the assessee replaced machinery and incurred an expenditure. They claimed the said expenditure as a revenue expenditure and the same was disallowed by the Assessing Officer holding that the cost of replacement of machinery is capital expenditure. Aggrieved by the said order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), who allowed the appeal holding that the replacement of machinery is revenue in nature. On appeal at the instance of the Revenue, the Appellate Tribunal dismissed the same upholding the order of the Commissioner.

Aggrieved by the same, the Revenue has preferred this appeal raising the following substantial questions of the law:

(a) Whether the replacement of machinery parts will amount to revenue expenditure or not?

(b) Whether bringing into existence of a new asset or obtaining a new advantage would amount to revenue expenditure or not?

The question whether the expenditure on replacement of machinery is capital or revenue is not determined by the treatment given in the books of account or in the balance-sheet. The claim has to be determined only by the provisions of the Act and not by the accounting practice of the asses-see. In the instant case, the Appellate Tribunal, finding that the replacement of machinery is a revenue expenditure, held that the claim of the assessee cannot be disallowed.

This Court in The Commissioner of Income Tax Vs. Janakiram Mills Ltd., , held that all plant and machinery put together amount to a complete spinning mill which is capable of manufacturing yarn and hence, each replaced machine could not be considered as an independent one and no intermediate marketable product was produced.

In view of the ratio laid down by this Court in the decision cited supra, we hold that the expenditure on replacement of machinery is a revenue expenditure and therefore, the Tribunal was right in allowing the claim of the assessee.

Finding no substantial question of law arises for our consideration, the appeal isdismissed.