JCIT, (OSD), CIR-2(1), KOLKATA, Kolkata V. M/s ITC Infotech India Ltd., Kolkata

ITA 1069/KOL/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0229 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 17-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Keywords: Speculation loss; Speculative transactions

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA C BENCH, KOLKATA [BEFORE SRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER & SRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER] I.T.A. NO.1069/KOL/2016 ASSESSMENT YEAR: 2009-10 JCIT(OSD), CIRCLE-2(1), KOLKATA.......APPELLANT M/S. ITC INFOTECH INDIA LTD..........................................RESPONDENT 37, J.L. NEHRU ROAD KOLKATA 700 071 [PAN : AAACI 7376 Q] APPEARANCES BY: NONE, APPEARED ON BEHALF OF THE ASSESSEE. SHRI G. MALLIKARJUNA, CIT, SR. DR, APPEARING ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : JULY 24 TH , 2018 DATE OF PRONOUNCING THE ORDER : SEPTEMBER 12 TH , 2018 O R D E R PER J. SUDHAKAR REDDY, AM :- THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 22 KOLKATA, (HEREINAFTER THE LD. CIT(A)), DT. 20/01/2016, PASSED U/S 250 OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT), RELATING TO ASSESSMENT YEAR 2009-10. 2. THERE IS A DELAY OF 2 DAYS IN FILING OF THE APPEAL BY THE REVENUE. AFTER PERUSING THE PETITION FILED FOR CONDONATION OF DELAY, I AM CONVINCED THAT THE REVENUE WAS PREVENTED BY SUFFICIENT CAUSE FROM FILING THE APPEAL IN TIME. HENCE THE DELAY IS CONDONED AND APPEAL ADMITTED. 3. ON THE DATE OF HEARING, THE ASSESSEE FILED AN APPLICATION FOR ADJOURNMENT, ON THE GROUND THAT THE DATE OF HEARING HAS BEEN ADVANCED WITHOUT INTIMATION. THE LD. D/R, OPPOSED THIS ADJOURNMENT BY SUBMITTING THAT MOST OF THE ISSUES INVOLVED IN THIS CASE ARE COVERED. 2 I.T.A. NO.1069/KOL/2016 ASSESSMENT YEAR: 2009-10 M/S. ITC INFOTECH INDIA LTD WE ARE OF THE CONSIDERED OPINION THAT THIS IS NOT A FIT CASE FOR GRANT OF ADJOURNMENT AND PROCEED TO DISPOSE OFF THIS EX-PARTE, QUA THE ASSESSEE, AFTER HEARING THE LD. D/R. 4. HEARD THE LD. D/R. 5. GROUND NO. 1, IS GENERAL IN NATURE. 6. GROUND NO. 2, IS ON THE ISSUE OF DISALLOWANCE OF SOFTWARE EXPENSES. THE LD. CIT(A) AT PARA 4.2., AT PAGE 28 OF HIS ORDER HELD AS FOLLOWS:- 4.2 I HAVE CAREFULLY CONSIDERED THE FACTS INVOLVED IN THE CASE AND THE DETAILED SUBMISSIONS FURNISHED BY THE APPELLANT. THE TREATMENT OF EXPENDITURE ON SOFTWARE AS CAPITAL /REVENUE IS ESSENTIALLY A QUESTION OF FACTS, WHICH VARIES FROM CASE TO CASE AND EVEN FROM YEAR TO YEAR AND THE JUDICIAL PRECEDENTS RELIED UPON BY THE APPELLANT EXPOUND THE FACT THAT THE EXPENDITURE TOWARDS PURCHASE OF SOFTWARE CAN BE CAPITAL OR REVENUE DEPENDING ON THE FACTS OF THE CIRCUMSTANCES. THE FACTS OF THE INSTANT CASE SHOWS THAT THE APPELLANT HAS INCURRED AN EXPENSE OF RS. 2,65,52,970/- TOWARDS PURCHASE OF SYSTEM SOFTWARE WHICH IT HAS CONSIDERED AS ENDURING IN NATURE AND ITSELF HAS CAPITALISED THE SAID EXPENSE. THE APPELLANT HAS FURTHER INCURRED AN EXPENSE OF RS. 5,76,17,396/- TOWARDS SOFTWARE RELATED EXPENDITURE WHICH IT HAS CLAIMED AS REVENUE IN NATURE. OUT OF THE SAME, THE AO HAS ALLOWED AN EXPENDITURE OF RS. 5,10,47,426/- AS REVENUE BUT HAS DISALLOWED AN EXPENSE OF RS 65,69,970/- AS CAPITAL IN NATURE. THE EXPENSE OF RS 65,69,970/- DISALLOWED BY THE AO IS IN THE NATURE OF SOFTWARE RELATED TO CONSUMABLES, MAINTENANCE, YEARLY RENEWAL CHARGES AND ANNUAL MAINTENANCE CONTRACT. I, THEREFORE CONCUR WITH THE FINDINGS OF MY PREDECESSOR CIT(A)-I, KOLKATA FOR THE A.V. 2007-08 AND A.V. 2008-09 THAT THE APPELLANT HAS UTILIZED THE SOFTWARE IN THE PROCESS OF EARNING REVENUE AND THAT THESE SOFTWARE HAVE A LIMITED USEFUL LIFE AND DO NOT GIVE BIRTH TO ASSETS OF ENDURING NATURE. FURTHER, THE COMPUTER SOFTWARE BECOMES OBSOLETE WITH TECHNOLOGICAL INNOVATION AND ADVANCEMENT WITHIN A SHORT SPAN OF TIME THEREBY STRENGTHENING THE FACT THAT NO BENEFIT OF ENDURING NATURE ACCRUES TO THE APPELLANT. IDENTICAL ISSUE WAS SIMILARLY DECIDED BY THE JURISDICTIONAL ITAT FOR THE AY. 2005-06 AND A.Y. 2006-07. IN VIEW OF THE ABOVE 3 I.T.A. NO.1069/KOL/2016 ASSESSMENT YEAR: 2009-10 M/S. ITC INFOTECH INDIA LTD DISCUSSION AND FOLLOWING THE JURISDICTIONAL ITAT, I AM INCLINED TO ACCEPT THE CONTENTION OF THE APPELLANT THAT EXPENDITURE ON SUCH SOFTWARE IS REVENUE IN NATURE. ACCORDINGLY, THE DISALLOWANCE ON ACCOUNT OF EXPENDITURE INCURRED ON APPLICATION SOFTWARE OF RS 65,69,970/- IS HEREBY DELETED AND THE GROUND IS ALLOWED. 7. AS THE LD. CIT(A) HAS FOLLOWED THE ORDER OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CASE, FOR THE ASSESSMENT YEAR 2005-06 AND 2006-07, WE SEE NO INFIRMITY IN THE SAME. HENCE WE UPHOLD THE SAME AND DISMISS THIS GROUND OF THE REVENUE. 8. GROUND NO. 3 IS, IN OUR VIEW, MIS-CONCEIVED. WE DO NOT FIND ANY FINDING IN THE ORDER OF THE LD. CIT(A) PERTAINING TO THIS ISSUE. HENCE IT IS DISMISSED AS SUCH. 9. GROUND NO. 4, IS ON THE ISSUE OF FOREIGN EXCHANGE TRANSACTIONS. THE LD. CIT(A) AS AT PARA 8.3. HELD AS FOLLOWS:- 8.3 I HAVE CAREFULLY CONSIDERED THE FACTS ON RECORD AND THE DETAILED SUBMISSIONS AS WELL AS THE ADDITIONAL DOCUMENTS FILED BY THE APPELLANT IN SUPPORT OF ITS CONTENTIONS. THE RBI MANDATES THAT THERE CAN NOT BE SPECULATIVE TRANSACTIONS IN FOREIGN CURRENCY DERIVATIVES RENDERING THE CONTENTION OF THE REVENUE A LEGAL IMPOSSIBILITY. THE APPELLANT HAS PAID THE BANK CHARGES ON SETTLEMENT OF FOREIGN CURRENCY DERIVATIVE CONTRACTS WHICH MAKES IT ALLOWABLE AS DECIDED BY HON'BLE CALCUTTA HIGH COURT IN CASE OF CIT VS. SOORJMALL NAGURMALL (SUPRA). FURTHER, IT HAS ALSO BEEN EXPLAINED WITH REFERENCE TO DOCUMENTS PRODUCED BEFORE ME THAT THE LOSSES CLAIMED ARE REALIZED LOSSES AND NOT MARK-TO-MARKET LOSSES IN RESPECT OF DERIVATIVE CONTRACTS AND AS PER CBDT INSTRUCTION NO. 03/2012 DATED 23-03-2010, THE ENTIRE LOSS OF RS. 18,97,11,003/- BECOMES ALLOWABLE.( THE LOSS CANNOT ALSO BE CLASSIFIED AS SPECULATIVE LOSSES SINCE THE VALUE OF FOREIGN CURRENCY DERIVATIVE CONTRACTS UNDERTAKEN BY THE ASSESSEE OUTSTANDING AT ANY POINT OF TIME DURING THE YEAR DID NOT EXCEED THE VALUE OF THE UNDERLYING EXPOSURES. IT IS THEREFORE HELD THAT THE LOSS CLAIMED ON ACCOUNT OF FOREIGN EXCHANGE LOSS IS IN THE NATURE OF BUSINESS LOSS. FURTHER, THE AO HIMSELF, IN IDENTICAL FACTS AND CIRCUMSTANCES, HAS TREATED THE GAIN FROM FOREIGN EXCHANGE IN THE SUBSEQUENT A.V. 2010-11 AS BUSINESS GAIN SINCE THEY ARE INCIDENTAL TO THE REGULAR COURSE OF BUSINESS. IN VIEW 4 I.T.A. NO.1069/KOL/2016 ASSESSMENT YEAR: 2009-10 M/S. ITC INFOTECH INDIA LTD OF THE ABOVE DISCUSSION AND IN THE LIGHT OF THE APEX COURT'S DECISION IN THE CASE OF WOODWARD GOVERNOR (SUPRA), THE FOREIGN EXCHANGE LOSS OF RS.18,97,11,003/- IS HELD AS ALLOWABLE IN THE HANDS OF THE APPELLANT, AND ACCORDINGLY THE SAID DISALLOWANCE IS DELETED AND THE GROUND IS ALLOWED. 9.1. WE FIND NO INFIRMITY IN THIS FINDING OF THE LD. CIT(A), AS THE PROPOSITIONS OF LAW LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SOORJMALL NAGURMALL (SUPRA) HAS BEEN APPLIED. HENCE WE UPHOLD THIS DECISION OF THE LD. CIT(A) AND DISMISS THIS APPEAL OF THE REVENUE. 10. GROUND NO. 5, IS GENERAL IN NATURE. 11. IN THE RESULT, THIS APPEAL OF THE REVENUE IS DISMISSED. KOLKATA, THE 12 TH DAY OF SEPTEMBER, 2018. SD/- SD/- [S.S. VISWANETHRA RAVI] [ J. SUDHAKAR REDDY ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :12.09.2017 {SC SPS} COPY OF THE ORDER FORWARDED TO: 1. M/S. ITC INFOTECH INDIA LTD 37, J.L. NEHRU ROAD KOLKATA 700 071 2. JCIT(OSD), CIRCLE-2(1), KOLKATA 3. CIT(A)- 4. CIT- , 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY HEAD OF OFFICE/ D.D.O. ITAT, KOLKATA BENCHES