Import expenses on machinery which is vital to manufacturing is Capital Expenditure

Brief of the Case

Delhi High Court held In the case of CIT vs. Modi Rubber Ltd. that in present case, it is clear that the two Banbury mixers have been described by the Assessee itself as equipment used for mixing natural rubber, synthetic rubber, carbon black, chemicals and other raw materials and that it is the most important part for tyre manufacturing plant. It has described the Banbury F 370 equipment as a “major equipment and is used for mixing the rubber and chemical on regular basis and needs to be kept in perfect condition to ensure uninterrupted production and quality parameters. The invoices produced by the Assessee do not support its plea that the expenditure was incurred only on replacement the body of the mixers.

Facts of the Case

The assessee filed its return of income on 31st October 2001 declaring a loss of Rs. 40,11,55,746. The assessment was completed by the AO under Section 143 (3) on 26th March 2004 at an income of Rs. 28,49,40,760 after adjusting all brought forward losses and depreciation. In response to the rectification application filed by the Assessee, the income assessed was revised at Rs. 27,77,93,470.

Contention of the Assessee

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