Tarun Chatterjee, J. - (1.) Leave granted.
(2.) This appeal has been filed by the appellant to challenge the judgment and order of the High Court of Madras dated 18th of December, 2006 whereby the High Court had dismissed the appeal filed by the revenue holding that the expenditure on replacement of machinery was revenue in nature and thus, allowable as deduction under the Income-tax Act, 1961 (hereinafter referred to as the Act).
(3.) The relevant facts as arising from the case made out by the parties, leading to the filing of this appeal, and which will help us in understanding the controversy involved, can be summarized as under :- The Respondent in this appeal is engaged in the manufacture and sale of cotton yarn. During the assessment year 1995-1996 the assessee claimed an amount of Rs. 61, 28,150/-, being expenditure incurred on replacement of machinery, as revenue expenditure. The assessee believed that such expenditure was merely expenditure on replacement of spare parts in the spinning mill system and, therefore, amounted to revenue expenditure.;