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Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of Expenditure on replacement of machinery is revenue expenditure [Assessment Years 1994-95 to 1997-98] Where the claim of the assessee with respect to the expenditure incurred on replacement of machinery as revenue expenditure was disallowed by the Assessing Officer: Held that the issue 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 the replacement of machinery was revenue expenditure, held that the claim of the assessee could not be disallowed. In view of the decision in CIT v . Janakiram Mills Ltd. [2005] 275 ITR 403 (Mad.), The expenditure on replacement of machinery is revenue expenditure and, therefore, the Tribunal was right in allowing the claim of the assessee. CASE REVIEW CIT v. Janakiram Mills Ltd.[2005] 275 ITR 403 (Mad.) followed & relied upon. J. Naresh Kumar for the Appellant. JUDGMENT P.D. Dinakaran, J.-The above tax case appeals are directed against the order of the Income-tax Appellate Tribunal dated June 14, 2005, made in I. T. A. Nos. 858, 898 and 899/Mds/2002, for the assessment years 1996-97, 1994-95 and 1997-98, respectively, raising the following substantial questions of law : "1.Whether, on the facts and circumstances of the case, the Tribunal was right in allowing a deduction of the amounts 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 of replacement of machinery without going into the concept of block of assets ?" The Revenue is the appellant in all the appeals. The claim of the asses-sees with respect to the expenditure incurred on replacement of machinery as revenue expenditure was disallowed by the Assessing…

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