2009 (7) TMI 17 - SC - Income Tax

Replacement of machinery – Capital Expenditure Versus Revenue Expenditure - AO held that the expenditure are capital in Nature and depreciation can be claimed - CIT(A), ITAT and High Court held that the expenditure revenue in nature and allowed the deduction – Held that, it is clear on record that the assessee has sought to treat the said expenditure differently for the purposes of computing its profit and for the purpose of payment of income tax. The said expenditure has been treated as an addition to the existing assets in the former and as revenue expenditure in the latter. Though accounting practices may not be the best guide in determining the nature of expenditure, in this case they are indicative of what the assessee itself thought of the expenditure it made on replacement of machinery and that the claim for deduction under the Act was made merely to diminish the tax burden, and not under the belief that it was actually revenue expenditure – Order of AO restored by holding that the expenditure is capital in nature.