DCIT CIRCLE 1, DINDIGUL vs. SHRI RENUGA TEXTILES LTD., THENI

Since the assessee-company is said to be on liquidation, the notice of hearing was served on the Official Liquidator. The Official Liquidator, in response to the notice issued by this Tribunal, by his letter dated 26.11.2018, informed the Registry of this Tribunal that the assessment years under consideration before this Tribunal are prior to the date of winding up of the assessee-company. Moreover, the earlier management has not handed over the books of account of the company till date. Therefore, the Official Liquidator requested the Tribunal to complete the assessment proceedings on the basis of the material available on record and on merit. Accordingly, we heard the Ld. Departmental Representative and proceeded to dispose the appeals on merit.

Shri Jasdeep Singh, the Ld. D.R. submitted that the assessee- company replaced 444 ring frames and installed 1008 ring frames / spindles. Due to increase in the number of spindles from 444 to 1008, according to the Ld. D.R., the production capacity of the assessee- company has increased considerably, therefore, the cost of replacement of spindles / ring frames has to be necessarily treated as capital in nature. Referring to the orders of the CIT(Appeals), the Ld. D.R. submitted that the CIT(Appeals) observed that there was no increase in the installed capacity, therefore, the cost of ring frames / spindles is revenue in nature. According to the Ld. D.R., the CIT(Appeals) failed to appreciate that the assessee, in fact, replaced 444 spindles and installed 1008 spindles, therefore, the company expanded its capital asset and consequently the production capacity also increased. According to the Ld. D.R., this fact was not noticed by the CIT(Appeals).

We heard the Ld. D.R. and perused the relevant material available on record. The CIT(Appeals) found that there was no increase in the installed capacity of the assessee, therefore, the replacement of spindles / ring frames has to be considered as revenue expenditure. The fact that 444 spindles were replaced by 1008 spindles was not taken into consideration by the CIT(Appeals). Therefore, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the Assessing Officer. Accordingly, the orders of both the authorities below are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter and bring on record whether there was any increase in the installed capacity and production capacity of the mill after replacement of ring frames / spindles and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee.

In the result, both the appeals of the Revenue are allowed for statistical purposes.