DCIT, CIRCLE -1, DINDIGUL vs. SHRI RENUGA TEXTILES LTD. , CHENNAI

: Mrs.S.Vijaya Prabha, JCIT Department by : Assessee by None सुनवाई क4 तार"ख/Date of Hearing : 30.01.2018 : 30.01.2018 घोषणा क4 तार"ख /Date of Pronouncement आदेश / O R D E R

PER GEORGE MATHAN, JUDICIAL MEMBER:

3.0 In the Revenue’s appeal, the Revenue has raised the following grounds:

1. The order of the CIT(A) is opposed to law, on the facts and in the circumstances of the case.

2.1 The CIT(A) has erred in directing the assessing officer to delete the addition of Rs.1,29,42,054/- made towards Re-placement of ring frames on the ground it represents revenue expenditure.

2.2 The CIT(A) ought to have seen that Re-placement of ring frames by itself constituted an independent machine with independent function, and thus the replacement has resulted in giving enduring advantage to the assessee and therefore, the expenditure incurred in this regard cannot come within the expression “current repairs”.

2.3 The CIT(A) ought to have seen that ring frames which are complete spinning machines consisting of several spindles are a separate machinery by itself and not part of a machinery. The replacement of worn out machinery with new machinery results in an enduring benefit to the assessee. The new machines installed are technologically more advanced than the old replaced machinery and more efficient in terms of quantity and quality of output and hence ought to have sustained the addition made by the Assessing officer.

2.4 The CIT(A) ought to have followed the decision of the Supreme Court in the case of CIT vs Saravana Spinning Mis Ltd (223 ITR 201) which is squarely applicable to the facts of the case and hence ought to have sustained the action of the assessing officer.

3.1 The CIT(A) ought to have seen that since there is no profit on sale of DEPB, it has to be excluded for computing the profit of the business as it is in the category of “other receipts of similar nature”. Hence 90% of the DEPB has to be excluded for arriving the profit of the business and moreover since the DEPB rate is higher than the rate of Duty Drawback, the assessee is not entitled for deduction u/s.8OHHC.

4.0 Ground Nos.1 & 4 are general in nature.

5.1 In regard to Ground Nos.2.1 to 2.4, it is submitted by the Ld.DR that the issue against the action of the Ld.CIT(A) in deleting the addition made by the AO treating the replacement of the ring frames as capital expenditure. It was submitted that the issue is now covered by the :- 3 -: decision of the Hon’ble Supreme Court in the case of Saravana Spinning Mills Ltd., reported in 293 ITR 201. 5.2 We have considered the rival submissions.

5.3 A perusal of the decision of the Hon’ble Supreme Court in the case of Saravana Spinning Mills Ltd., (supra) referred to supra shows that the Hon’ble Supreme Court has held as follows:

(iii) That each machine including the ring frame was an independent and separate machine capable of independent and specific function and, therefore, the expenditure incurred for replacement thereof would not come within the meaning of “current repairs”. The replacement of the ring frame constituted substitution of an old asset by a new asset, and, therefore, the expenditure incurred by the assessee did not fall within the meaning of “current repairs” in Section 31(i).

5.4 Respectfully following the decision of the Hon’ble Supreme Court in the case of Saravana Spinning Mills Ltd., the findings of the Ld.CIT(A) on this issue stands reversed and that of the AO restored.

6.1 In regard to Ground Nos.3 & 3.1, it was submitted by the Ld.DR that the issue was against the action of the Ld.CIT(A) in holding that the (iii) provision of 80HHC was not applicable on the ground that the assessee did not earn any profit on the sale of the DEPB and consequently, the assessee was not entitled for the benefit of deduction u/s.80HHC on the export income representing the DEPB credit. It was a submission that the DEPB licence had not been sold and consequently, just because, there is a credit of the DEPB value, it would not entitle the assessee to the benefit of :- 4 -: deduction u/s.80HHC in respect of the said value as there was no export income from sale. It was a submission that the order of the Ld.CIT(A) was liable to be reversed.

6.2 We have considered the rival submissions.

6.3 As it is noticed that there was no profit on the sale of DEPB, the same would have to be excluded for computing the profits of the business in view of the Explanation (baa) to Sec.80HHC. This being so, the findings of the Ld.CIT(A) on this issue stands reversed and that of the AO restored.

Order pronounced in the Open Court on January 30, 2018, at Chennai. (अ"ाहम पी. जॉज") (जॉज" माथन) (ABRAHAM P.GEORGE) (GEORGE MATHAN) "या%यक सद"य/JUDICIAL MEMBER लेखा सद"य/ACCOUNTANT MEMBER