IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 22.12.2009 Coram : THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN and THE HONOURABLE MR.JUSTICE M.M.SUNDRESH Tax Case (Appeal)Nos.1416 to 1420 of 2009 and M.P.Nos.1 of 2009 M/s.Super Spining Mills Limited Elgi Towers, Green Fields 737-D, Puliakulalm Road Coimbatore  641 045. Appellant in all Appeals v. The Assistant Commissioner of Income Tax Company Circle I(2) Coimbatore. Respondent in all Appeals Tax Case Appeals in T.C.A.Nos.1416 to 1420 of 2009 are filed under section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Madras 'A' Bench, Chennai, dated 18.9.2009 in I.T.A.Nos.1126, 1127, 1128, 1129 and 1135/Mds/2008 for the assessment years 1996-97, 1999-2000, 2002-2003, 2003-2004 and 2004-2005 respectively. For appellant : Mr.K.Ravi For Respondent: Mr.J.Naresh Kumar, Sr.S.C.for Income-tax Dept JUDGMENT (Judgment of the Court was delivered by K.RAVIRAJA PANDIAN, J.) The Tax Case Appeals in T.C.A.Nos.1416 to 1420 of 2009 are filed against the order of the Income Tax Appellate Tribunal, Madras 'A' Bench, Chennai, dated 18.9.2009 in I.T.A.Nos.1126, 1127, 1128, 1129 and 1135/Mds/2008 in respect of the assessment years 1996-97, 1999-2000, 2002-2003, 2003-2004 and 2004-2005 respectively by formulating the following questions of law, "1. Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal is right in law, in disallowing the claim of expenditure on replacement of machinery as revenue expenditure, more-so in the context of the decision of the Honourable Supreme Court in the case of M/s.Hindustan Textiles which was rendered after the decision in the case of Mangayarkarasi Mills (P) Limited? 2. Whether, in the facts and circumstances of the case, the test of enduring benefit is the only criteria in determining whether expenditure is capital or revenue in nature? 3. Whether, in the facts and circumstances of the case, the treatment in the books of accounts should be the parameter in determining the allowability of an item of expenditure under the provisions of the Income Tax Act, 1961? 4. Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal is right in presuming that the facts of the instant case is on par with the facts of the decision of the Honourable Supreme Court in the case of M/s.Mangayarkarasi Mills (P) Limited, without proper examination of facts and thus following the decision of the Honourable Supreme Court?" 2. As the issues involved in all the appeals are common, the facts in T.C.A.No.1426 of 2009 are alone stated below by taking it as a typical case for the sake of convenience: The Company is a Public Limited Company,which is engaged in the business of manufacture and sale of cotton and blended yarn. The assessee filed its return of income on 27.11.1996 with a total income of Rs.6,06,370/- after claiming deduction of Rs.6,19,43,673/- on account of "Replacement of plant & machinery claimed as revenue expenditure". The scrutiny assessment was initiated by issuing notice under Section 143(2) on 17.3.2007. The assessment was made vide order under Section 143(3) dated 26.3.1999, wherein machinery replacements to the extent of Rs.6,19,43,673/- was disallowed. In appeal, the Commissioner of Income-tax (Appeals) vide order dated 21.7.2000 allowed the replacement of spindles, High efficiency motors and LT Panel Boards, together amounting to Rs.25,62,018/- as revenue expenditure. The claims pertaining to replacement of ring frame and power house, impeller etc., were remanded to the assessing officer by the Commissioner of Income Tax (Appeals). The claim in respect of these items amounted to Rs.14,04,367/-. These were allowed by the assessing officer vide the revision order dated 29.12.2000. The balance claim of Rs.5,79,77,288/- pertaining to the machinery replacement was disallowed by the Commissioner of Income Tax (Appeals). On further appeal, the Income Tax Appellate Tribunal, Chennai vide its order dated26.7.2002 in I.T.A.No.1412(Mds)/2000, remanded the issue to the assessing officer with certain directions. In the remand assessment proceedings before the assessing officer, the respondent made detailed submissions vide its letters dated 11.2.2004, 9.3.2004 and 10.3.2004. The remand assessment was made on 11.3.2004 under Section143(3) read with Section 254 by disallowing the replacement of expenditure of Rs.5,79,77,288/- as revenue expenditure. Aggrieved by the order of the assessing officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), who vide order in I.T.A.No.83/04-05 allowed the expenditure on replacement as revenue expenditure. On the issue on disallowance of replacement of machinery, the learned Commissioner of Income Tax (Appeals) had allowed the issue in favour of the appellant herein, thus holding that expenses on replacement of machinery constitutes revenue expenditure. The Commissioner of Income Tax (Appeals) had held the expenses as revenue in nature. Aggrieved by the order of the Commissioner of Income-tax (Appeals), the Department filed appeal before the Income-tax Appellate Tribunal. The Tribunal vide its common order for the 5 appeals pertaining to 5 assessment years dated 18.9.2009 had modified its order which was drafted, in the light of the decision of the Supreme Court in the case of MANGAYARKARASI MILLS (P) LTD., and allowed the appeal of the respondent by following the decision of the Supreme Court in the case of MANGAYARKARASI MILLS (P) LTD. reported in 315 ITR 114, holding that the expenses incurred on replacement of machinery is not allowable under Section 37 of the Income Tax Act, 1961 and that the facts of the instant case under consideration were squarely covered by this decision of the Supreme Court. On the issue on allowance of bad debts, the Tribunal had not adjudicated. Aggrieved by the same, the present appeals are filed. 3. We have heard the argument of the learned counsel and perused the materials available on record. 4. The issues have been considered by the Supreme Court as many in four Judgments. The first one is in the case of Commissioner of Income Tax vs. Saravana Spinning Mills Pvt Ltd reported in [2007] 293 ITR 201 in respect of current repairs. Thereafter in the case of Ramaraju Surgical Cotton Mills reported in [2007] 294 ITR 328 and with reference to Section 31 in the case of Commissioner of Income Tax vs. Sri Mangayarkarasi Mills P. Ltd reported in 315 ITR 114. Lastly, it was stated across the bar that the Supreme Court in the case of COMMISSIONER OF INCOME-TAX, COIMBATORE VS. M/S.HINDUSTAN TEXTILES (S.L.P.(Civil) No.2037 of 2009 dated 3.11.2009 has considered all the three earlier judgments of Supreme Court and remanded the matter to reconsider the issue as per the direction given as to the enhancement of production capacity and record a finding to that effect, having regard to the addition made or replacement made to the machineries already available. 5. Having regard to the law now prevailing as declared by the Supreme Court in the above said cases, even in these cases, as there is no specific finding about the enduring nature of the assets or the increase in the production capacity, we are of the view that without answering the questions of law, the matters have to be remitted back to the Commissioner of Income-tax (Appeals) for redoing the exercise as per the dictum laid down by the Supreme Court in the aforesaid cases. 6. Further, In respect of these assessment years, the assessee claims that the expenditure on replacement of machinery is revenue expenditure in nature under Section 37 of the Income-tax Act. In respect of the said machinery, certain particulars have already been available with the Department. Learned counsel for the assessee submits that the assessee may be given an opportunity to produce additional material in respect of the machienries, which are the subject matter of the above assessment years. When the matter is remitted to the first appellate authority, there is no harm in allowing the assessee to give additional materials about the additional machinery, for which they are claiming benefit under Section 37 of the Income-tax Act. Even in the case of Ramaraju Surgical Cotton Mills reported in [2007] 294 ITR 328 such a direction is given to the authorities to re-consider the issue on the basis of the materials produced before the authorities by both the parties. 7. Accordingly, the appeals are disposed of and the order of both the Assessing Officer and the Commissioner of Income Tax Appeals are set aside and the matter is remitted back to the Commissioner of Income Tax (Appeals) to reconsider the issue in the light of the directions given by the Supreme Court in the above said cases by directing the Commissioner of Income Tax (Appeals) to decide the issue in accordance with law after giving an opportunity to the assessee for producing additional material in respect of the machinery acquired during the relevant period. As we are remitting back to the authorities, the questions of law are not answered by us. Consequently, the connected miscellaneous petitions are closed. (K.R.P.,J.) (M.M.S.,J.) 22.12.2009 Index : Yes/ Internet : Yes/ usk To 1. The Asst.Commissioner of Income Tax Company Circle I(2), Coimbatore 2. The Commissioner of Income-tax (Appeals)-I Coimbatore 3. The Income Tax Appellate Tribunal, Chennai 'A' Bench, Chennai. K.RAVIRAJA PANDIAN, J. And M.M.SUNDRESH, J. usk T.C.(A)Nos.1420 to 1420 of 2009 22.12.2009