T.c.(A) v. The Deputy Commissioner Of Income Tax,Circle-I,Tirupur

Dated : 30.08.2010 Coram : THE HONOURABLE MR.JUSTICE F.M.IBRAHIM KALIFULLAandTHE HONOURABLE MR.JUSTICE M.M.SUNDRESH T.C.(A) No.794 of 2010Adi Sankara Spinning Mills Pvt.Ltd.No.207/86, Mangalam RoadTirupur 641 004 : Appellant v. The Deputy Commissioner of Income Tax,Circle-I,Tirupur : Respondent Prayer :- Tax Case Appeal filed against the order of the Income Tax Appellate Tribunal, ChennaiBench 'B' dated 18.12.2009 in I.T.A.No.1124/Mds/2009. For appellant : Mr.R.Sivaraman For respondent : Mr.J.Naresh KumarStanding Counsel for IT J U D G M E N T (Judgment of the Court was delivered by M.M.SUNDRESH, J.) The assessee has come up on appeal, challenging the order of the Tribunal dated 18.12.2009 passedin ITA No.1124/Mds/2009 for the assessment year 2006-07 by raising the following substantialquestions of law: a) Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal is right inlaw in disallowing the claim of expenditure on replacement of machinery as revenueexpenditure,more so in the context of the latest full bench decision of the Hon'ble Supreme Court inthe case of CIT vs. Bjojraj Textiles Mills Ltd and also another Bench decision of the Supreme Courtin the case of CIT vs. Hindustan Textiles which was rendered after the decision of Supreme Court inthe case of CIT vs. Sri Mangayarkarasi Mills Pvt.Ltd (315 ITR 114)? b) Whether on the facts and circumstances of the case, the test of enduring benefit is the onlycriteria in determining whether expenditure is capital or revenue in nature? c) Whether on the facts and circumstances of the case, the Appellate Tribunal is right in law in presuming that the facts of the instant case is on par with the facts of the decision of the SupremeCourt in the case of CIT vs. Sri Mangayarkarasi Mills Pvt.Ltd. (315 ITR 114) without properlyexamining the facts of the present case as found by CIT (A) and thus following the decision of theHon'ble Supreme Court? d) Whether on the facts and circumstances of the case, the treatment in the books of accountsshould be the parameter in determining the allowability of an item of expenditure under theprovisions of the Income Tax Act, 1961? 2. The facts in brief:- The assessee is a company engaged in the business of manufacturing and trading of yarn. For theassessment year 2006-2007 the assessee made an investment of Rs.392,66,878/- towards thepurchase of machineries. The assessee claimed the said amount as revenue expenditure in the profitand loss account. The assessing officer has disallowed the claim of the assessee by treating it as acapital expenditure. Being aggrieved by the same, the assessee filed an appeal before theCommissioner of Income Tax (Appeals) and the CIT (Appeals) has held that the expenditure incurredby the assessee will have to be taken only as revenue expenditure and thereby allowed the appeal.As against the said order of the CIT (Appeals), the revenue preferred further appeal before theTribunal and the Tribunal has reversed the said decision of the CIT (Appeals) by relying upon theHon'ble Apex Court's decision in CIT vs. Sri Mangayarkarasi Mills Pvt.Ltd.(315 ITR 114).Challenging the said order of the Tribunal, the assessee has come up before this court raising thesubstantial questions of law mentioned above. 3. Heard Mr.Sivaraman, the learned counsel for the assessee and Mr.J.Naresh Kumar, the learnedStanding counsel for the revenue. 4. The issue raised in the present appeal particularly with reference to the substantial question oflaws (a) and (b) are concerned is covered by the Full Bench Judgment of the Hon'ble Apex Court inthe case of CIT vs. Bhojraj Textile Mills Limited, which is followed in one other decision of theHon'ble Apex Court in the case of CIT vs. Hindustan Textiles. The aforesaid judgments of the Hon'bleApex court were also followed by this court in TCA No.261 of 2010 dated 22.06.2010, wherein it isdecided as follows: 3. Heard Mr.Sivaraman, the learned counsel for the assessee and Mr.J.Naresh Kumar, the learnedStanding counsel for the revenue. 4. The issue raised in the present appeal particularly with reference to the substantial question oflaws (a) and (b) are concerned is covered by the Full Bench Judgment of the Hon'ble Apex Court inthe case of CIT vs. Bhojraj Textile Mills Limited, which is followed in one other decision of theHon'ble Apex Court in the case of CIT vs. Hindustan Textiles. The aforesaid judgments of the Hon'bleApex court were also followed by this court in TCA No.261 of 2010 dated 22.06.2010, wherein it isdecided as follows: 2. Heard the learned standing counsel appearing for the revenue as well as the learned counselappearing for the respondent assessee. Counsel brought to our notice certain orders passed by theHon'ble Supreme Court on this very question rendered in SLP Nos.413 and 414 of 2009 and in CivilAppeal No.7297 of 2009 as well as two Division Bench judgments rendered on 14.12.2009 in TC(Appeal) Nos.1290 and 1291 of 2009 and on 22.10.2010 in T.C.(Appeal) Nos.1216 to 1221 of 2008.In a similar situation where finding as regards the enduring nature of the assets or the increase inthe production capacity by virtue of the replacement of machinery was noted, the Division Benchfollowing the directions of the Hon'ble Supreme Court remitted the matter back to theCommissioner of Income Tax (Appeals) by directing as under:- "3. Following the aforesaid order, these tax case appeals are disposed of and the orders of both theassessing officer and the Commissioner of Income Tax to the Commissioner of Income Tax (Appeals)to reconsider the issue in the light of the directions given by the Supreme Court in the case ofCommissioner of Income Tax, Coimbatore vs. M/s.Hindustan Textiles made in Civil Appeal No.7297of 2009 (arising out of S.L.P.(C) No.2037 of 2009) dated 3.11.2009 and decide the issue inaccordance with law after giving opportunity to the assessee for producing additional material inrespect of the machinery acquired during the relevant period. In view of the above, we are not answering the questions of law raised in these appeals. No costs." 5. Considering the judgment rendered by this court dated 22.06.2010, we are of the opinion that thequestions of law raised in ground (c ) and (d ) do not require any consideration. However, the otherquestions of law raised in ground (a) and (b) will have to be considered by the CIT (Appeals). 6. Accordingly, the orders passed by the Tribunal as well as the Commissioner of Income Tax(Appeals) are hereby set aside and the matter is remitted back to the Commissioner of Income Tax(Appeals) to re-consider the issue as to whether the expenditure made by assessee will amount tocapital expenditure or revenue expenditure based upon the materials available on record. Whileconsidering the said issue, the Commissioner of Income Tax (Appeals) will have to take intoconsideration the judgments rendered by the Hon'ble Apex Court referred to above earlier. 7. The questions of law raised in this appeal are not answered because of the remittal of the matterback to the Commissioner of Income Tax (Appeals) for fresh consideration. 8. With the above direction, the appeal is disposed of. No costs. vj2 To The Income Tax Appellate Tribunal,Chennai Bench 'B',Madras