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TMI Blog2020 (2) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961 ["Act" in short]. Though, different machinery in different assessment years are involved, the expenditure claimed by the assessee was under section 37 of the Act, we take the appeal for the assessment year 2001- 02 as lead case to deal the issue. 2. Brief facts leading to the case are that the assessee replaced the following machinery at a cost of Rs. 5,33,93,930/-: Auto coners 2 Nos. Rs. 2,75,97,727/- Draw frames 2 Nos. Rs. 65,82,139/- 770 KVA DG Set Rs. 2,10,14,065/- Total Rs. 5,33,93,930/- The assessee, though capitalized the above expenditures in its books of account, but claimed as revenue expenditure. Further, the assessee has claimed that the entire machinery in the textile mill has to be considered as a single machine and replacement of any intermediary machine has to be treated as replacement of spares and allowed as current repairs. However, the Assessing Officer observed that the above machineries are separate machines by themselves and the expenditure incurred in the purchase of the machinery is capital in nature. It was also observed that the assessee derived advantage of enduring nature by incurring this expenditure. Accordingly, by allowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nai Benches of the Tribunal in the case of Prabhu Spinning Mills Pvt. Ltd. (supra), which has no application to the facts of the assessee's case and pleaded for confirming the addition. 5. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. It is a second round of litigation. By and large, the claim of the assessee is that the entire machinery in the textile mill has to be considered as a single macine and replacement of any intermediary machine has to be treated as replacement of spares and allowed as current repairs. In first round, the Tribunal vide its order dated 28.02.2009 remitted the matter back to the file of the Assessing Officer with the following directions: 9. We have heard the rival submissions. The assessee had claimed deduction under section 37 of the Act. Both the parties agreed that the issue can be examined on the touchstone of the principle laid down by the Hon'ble Apex Court in the case of CIT v. Ramaraju Surgical Cotton Mills, 234 ITR 328. We, therefore, in the interest of justice, set aside the impugned order and restore the matter to the file of the Assessing Officer with a direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chine. Thus, each machine in a textile mill should be treated independently as such and not as a mere part of an entire composite machinery of the spinning mill. By following the above decision of the Hon'ble Supreme Court, the ld. CIT(A) confirmed the disallowance of Rs. 2,83,32,382/-. Further, while dealing with the issue of whether each machine in a textile mill is an independent item or merely a part of a complete spinning mill, the Hon'ble Supreme Court has observed as under: "The first issue that needs to be resolved is whether each machine in a textile mill is an independent item or merely a part of a complete spinning mill, which only together are capable of manufacture, and there is no intermediate marketable product produced. In our view, this issue has been satisfactorily answered by the recent decision of this court in CIT v. Saravana Spinning Mills P. Ltd. [2007] 293 ITR 201 (SC). In that case this court has held unambiguously that 'each machine in a segment of a textile mill has an independent role to play in the mill and the output of each division is different from the other.' Dealing with a ring frame in a textile mill, this court has held that it is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no doubt that it is capital expenditure. It was further held that a capital asset of the business is either acquired or extended or substantially replaced and that outlay whatever be its source whether it is drawn from the capital or the income of the concern is certainly in the nature of capital expenditure. 8.1 Moreover, by following the above decision of the Hon'ble Supreme Court in the case of CIT v. Sri Mangayarkarasi Mills P. Ltd. (supra), in the case of CIT v. Sarvaraya Textiles Ltd. 332 ITR 553 (AP), the Hon'ble Andhra Pradesh High Court has decided the issue in favour of the Revenue by holding that replacement of an old machine with a new one would constitute the bringing into existence of a new asset in the place of the old one, and not repair of the old and existing machine Further, it was also held that a new asset in a textile mill gives the purchaser an enduring benefit of better and more efficient production over a period of time and thus, a new asset, or a new/different advantage, would not amount to "current repairs". 8.2 The ld. Counsel for the assessee has relied on the decision in the case of K.P.R. Spinning Mills (P) Ltd. v. ITO in I.T.A. No. 1873/Mds/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls P. Ltd. (supra) wherein salient findings are summarised as under: * Placing reliance on the decision of Supreme Court in the case of Saravana Spinning Mills P. Ltd. [(2007) 293 ITR 201], it held that each machine in a textile mill has an independent role to play in the mill and each machine is part of the integrated process of manufacture of yarn and is integrally connected to the other machines in the mill. However, this interconnection does not take away the independent identity and distinct function of each machine. Replacement of the machine can at best amount to a repair made to the process of manufacture of yarn. * Each machine in a textile mill should be treated independently and not as a mere part of an entire composite machinery of the spinning mill. * Replacement of an old machine with a new one would constitute the bringing into existence of a new asset in place of the old one and not repair of the old and existing machine. It therefore cannot amount to current repairs. * Expenditure incurred by the assessee was capital in nature as it amounted to enduring advantage for the business in the form of efficient production over a period of time. * Though acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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