P.D Dinakaran, J.:— The above tax case appeal is directed against the order of the Income-tax Appellate Tribunal dated May 24, 2006, made in I.T.A No. 2587.Mds/2004 for the assessment year 2001-02.
2. The Revenue is the appellant. The issue raised in this appeal relates to the assessment year 2001-02. The Assessing Officer, on completing the assessment, disallowed the claim of the assessee in respect of replacement expenditure of muratec auto coner and 18 ring frames as revenue expenditure and treated the same as capital expenditure.
3. Aggrieved, the assessee went on appeal and the Commissioner of Income-tax (Appeals) held in favour of the assessee. The Revenue took up the issue before the Appellate Tribunal and the Tribunal held the issue in favour of the assessee. Hence, this appeal by the Revenue raising the following questions of law:
“1. Whether, on the facts and circumstances of the case, the Tribunal was right in allowing a deduction of the amount spent on replacement of machinery as revenue expenditure?
2. Whether, on the facts and circumstances of the case, replacement of independent complete machinery can be treated as revenue expenditure?
3. Whether, on the facts and circumstances of the case, the Tribunal was right in deciding the issue without going into the concept of block of assets ?”
4. Mrs. Pushya Sitaraman, learned senior standing counsel for the appellant, fairly concedes that the issues raised in this appeal are covered against the Revenue in view of the decision of this court in CIT v. Janakiram Mills Ltd., [2005] 275 ITR 403.
5. With regard to questions Nos. 1 and 2, 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 assessee. In the instant case, the Appellate Tribunal, finding that replacement of machinery is revenue expenditure, held that the claim of the assessee cannot be disallowed.
6. This court, in CIT v. Janakiram Mills Ltd., [2005] 275 ITR 403, held that all plant and machinery put together amounts 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.
7. 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 revenue expenditure and therefore, the Tribunal was right in allowing the claim of the assessee.
8. With regard to question No. 3, this court, in the decision cited supra, explained the principle or object of introducing the concept of “block of assets” in detail. It is apposite to refer to the following (page 427):
“Regarding the argument relating to ‘block of assets’, it is the claim of learned counsel for the assessees that the said principle or object of introduction of the above concept is totally not applicable relating to the nature of expenditure incurred by the respondent. These provisions were introduced from April 2, 1987; as defined under section 2(11) of the Income-tax Act, 1961, and they are in operation on different field. It is stated that they were intended to replace the provisions on depreciation of capital assets. The block of assets concept was introduced with a view to streamline the excess depreciation allowed and to allow terminal depreciation. When the block of assets concept was introduced, the provisions relating to terminal depreciation and the profit result from the sale of assets, which were originally considered under sections 32(1)(iii) and 41(2), were suitably amended to fall in line with the proposed simplification of the concept of block of assets. The circular describing the concept of block of assets is explained by the Central Board of Direct Taxes by Circular No. 469 dated September 23, 1996, reported in [1986] 162 ITR (St.) 21, 24. In the instant case, no acquisition of any new asset, much less capital of any enduring advantage resulted to the assessee-respondent. The assessees replaced the worn out part of machineries without discontinuing their production activities. No claim for depreciation was ever made before any authorities either by the assessees or by the Revenue to consider the question as block of assets nor was there any necessity to do so. The Department did not raise any objection before the Tribunal regarding the claim of allowance on the premise of the block of assets concept. It is, therefore, stated that such question does not arise out of the order of the Appellate Tribunal for considering the same by this court under section 260A.”
9. In the instant case also, the assessee had only replaced muratec auto coner and ring frames without discontinuing their production activities and there was no acquisition of any new asset, much less capital of any enduring advantage. A perusal of the orders of the authorities below shows that no claim for depreciation was ever made before any authorities either by the assessee or by the Revenue to consider the question of block of assets nor was there any necessity to do so. Moreover, the Department did not raise any objection before the Tribunal regarding the claim of allowance on the premise of the block of assets concept. Therefore, applying the law laid down by the decision cited supra, such question does not arise out of the order of the Appellate Tribunal for considering the same by this court under section 260A of the Act.
10. The above view was also taken by this court in CIT v. Loyal Textile Mills Ltd., [2006] 284 ITR 658.
11. In view of the ratio laid down by this court in the decisions cited supra, no substantial question of law arises for our consideration in this appeal and therefore, the same is dismissed. No costs.