ITO, Ward-11(1), Kolkata, Kolkata V. M/S. All India Technologies Ltd., Kolkata

ITA 1911/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4547 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2016
• Appeal Filed By: Department
• Bench Allotted: SMC
• Next Hearing Date: 25-07-2016
• Assessment Year: 2002-2003
• Appeal Filed On: 13-10-2014
• Court: TRIBUNAL
• Department Lawyers: SUCHETA CHATTOPADHYAY
• Assessee Lawyers: S SINGH
• Keywords: Assessment record; Revenue expenditure; Capital expenditure
• Section: 148

Judgement Text

I.T.A. NO. 1911/KOL./2014 ASSESSMENT YEAR: 2002-2003 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A(SMC) BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER I.T.A. NO. 1911 /KOL/ 2014 ASSESSMENT YEAR: 2002-2003 INCOME TAX OFFICER,................................ ...............................APPELLANT WARD-11(1), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 -VS.- M/S. ALL INDIA TECHNOLOGIES LTD.,.................. .......................RESPONDENT 5, LOWER RAWDON STREET, KOLKATA-700 020 [PAN: AAACI 6613 A] APPEARANCES BY: SMT. SUCHETA CHATTOPADHYAY, JCIT, D.R., FOR THE DEPARTMENT SHRI S. SINGH, FCA, FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : JULY 25, 2016 DATE OF PRONOUNCING THE ORDER : SEPTEMBER16, 2016 O R D E R THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-XIX, KOLKATA D ATED 07.07.2014 FOR THE ASSESSMENT YEAR 2002-03 AND IN THE SOLITARY GRO UND RAISED THEREIN, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CI T(APPEALS) IN DELETING THE ADDITION OF RS.1,37,77,569/- MADE BY THE ASSESS ING OFFICER ON ACCOUNT OF WEBSITE DEVELOPMENT EXPENSES TREATING THE SAME A S CAPITAL IN NATURE. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF WEBSITE DEVELOPMENT. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 31.10.2002 D ECLARING A LOSS OF RS.1,75,97,080/-. THE SAID RETURN WAS INITIALLY PRO CESSED BY THE ASSESSING OFFICER UNDER SECTION 143(1) ON 03.02.2003. THEREAF TER HE NOTICED THE FOLLOWING ASPECTS FROM THE RELEVANT RECORD:- (I) THE ASSESSEE DEBITED RS.1,37,77,768.86 AS WEBS ITE DEVELOPMENT EXPENSES WRITTEN OFF. FURTHER SCRUTINY OF I.T.A. NO. 1911/KOL./2014 ASSESSMENT YEAR: 2002-2003 PAGE 2 OF 5 ASSESSMENT RECORDS REVEALED THAT THE ASSESSEES ACC UMULATED WEBSITE DEVELOPMENT EXPENDITURE AGGREGATING TO RS.2,75,55,537.72 (INCLUDING RS.3,63,254/- INCURRED UPTO 28 TH APRIL, 2000) WAS WRITTEN OFF IN TWO YEARS. THE EXPE NDITURE INCURRED DURING THE PERIOD FROM 29 TH APRIL, 2000 TO 31 ST MARCH, 2001 HAD BEEN CHARGED TO THE P& L ACCOUNT IN FULL. (II) THE AFORESAID AMOUNT OF RS.2,75,55,537/- SHOWN IN THE BALANCE SHEET OF THE ASSESSEE AS MISC. EXPENDITURE. (III) FROM THE DIRECTORS REPORT TO THE MEMBERS FOR THE YEAR ENDED 31.03.02 IT WAS REVEALED THAT THE AFORESAID A MOUNT IS THE CAPITALIZED COST OF INTANGIBLE SOFTWARE ASSET PURCH ASED BY THE COMPANY IN PREVIOUS YEARS. THESE WERE WRITTEN OFF C OMPLETELY. THE COST RELATES PRIMARILY IN PAYMENTS MADE AGAINST INVOICES RAISED BY VEDIKA SOFTWARE PVT. LTD. FOR SERVICES RE NDERED BY THEM OF AND REIMBURSEMENT OF RELATED COSTS TOWARDS DEVELOPING THE PORTALS FOR ALLINDIA.COM. KEEPING IN VIEW THE ABOVE, THE ASSESSING OFFICER WA S OF THE VIEW THAT THE AMOUNT OF RS.1,37,77,768/- DEBITED BY THE ASSESSEE TO THE PROFIT & LOSS ACCOUNT, WHICH CONSTITUTED CAPITAL EXPENDITURE, WAS REQUIRED TO BE ADDED BACK TO ITS TOTAL INCOME AND THERE WAS THUS ESCAPEM ENT OF INCOME OF THE ASSESSEE TO THAT EXTENT FROM THE ASSESSMENT. HE, TH EREFORE, REOPENED THE ASSESSMENT BY ISSUING NOTICE UNDER SECTION 148 AFTE R RECORDING THE REASONS AND IN THE ASSESSMENT COMPLETED UNDER SECTI ON 143(3)/147 VIDE AN ORDER DATED 03.08.2009, THE WEBSITE DEVELOPMENT EXPENSES OF RS.1,37,77,769/- WERE DISALLOWED BY HIM. 3. AGAINST THE ORDER PASSED BY THE ASSESSING OFFICE R UNDER SECTION 143(3)/147, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(APPEALS) DISPUTING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF WEBSITE DEVELOPMENT EXPENSES AND AFTER C ONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MAT ERIAL AVAILABLE ON RECORD, THE LD. CIT(APPEALS) DELETED THE SAID DISAL LOWANCE MADE BY THE ASSESSING OFFICER FOR THE FOLLOWING REASONS GIVEN I N PARAGRAPH NO. 4.2 TO 4.5 OF HIS IMPUGNED ORDER:- I.T.A. NO. 1911/KOL./2014 ASSESSMENT YEAR: 2002-2003 PAGE 3 OF 5 4.2. ON CONSIDERATION OF THE RIVAL CONTENTIONS ON THE ISSUE, MY FINDINGS AND DECISION THEREON ARE AS FOLLOWS. ON A CRITICAL ANALYSIS OF THE ISSUE AT HAND, IN MY OPINION, EXPENDITURE IN CURRED TOWARDS COMPUTER SOFTWARE SHOULD BE TREATED AS THAT OF BEIN G ONLY TRANSIENT IN NATURE. IN TODAY'S WORLD OF TECHNOLOGICAL REVOLU TION, IT IS A KNOWN FACT THAT TECHNOLOGICAL UPGRADATION, ESPECIAL LY IN THE FIELD OF COMPUTER ENVIRONMENT, SOFTWARE UPGRADATION IS A CONTINUOUS AFFAIR WHICH ENTAILS CONTINUOUS EXPENDITURE IN THIS REGARD. THERE IS HARDLY ANY SCOPE FOR CREATING AN ASSET WITH THIS KI ND OF EXPENDITURE. THE AO HAS NOT APPRECIATED THIS FACT A ND BASED HIS OBSERVATION ON CRITERIA WHICH DO NOT HOLD MUCH WATE R. THE CONTENTION OF THE APPELLANT IS THAT IT HAS FOLLOWED THE GUIDELINES OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (IC AI), WHICH IS THE ACCOUNTING BODY CONSTITUTED BY THE PARLIAMENT OF IN DIA AND ALSO THE ISSUE IS COVERED BY THE JUDGMENT OF THE APEX CO URT AS WELL AS BY VARIOUS HIGH COURTS. REFERENCE IN THIS REGARD WAS M ADE TO THE FOLLOWING JUDGMENTS: 1. EMPIRE JUTE CO. LTD. VS.CIT [1980J 1241TR 1 (SC) 2. ALEMBIC CHEMICAL WORKS CO. LTD. VS. CIT [1989J 177 ITR 377 (SC) 3. CIT VS. INDIAN VISIT.COM (P) LTD. [2009J 176 TAXMAN 164 (DELHI) 4.3. IT MAY BE MENTIONED THAT THE DELHI HIGH COURT IN THE CASE OF INDIA VISIT.COM HAD REFERRED TO THE PRONOUNCEMENT O F THE APEX COURT IN THE ABOVE TWO REFERRED CASES AT SI. NO. 1 & 2 WHEREIN IT WAS RULED WITH REFERENCE TO SI NO.1 THAT THE ADVANT AGE CONSISTS MERELY IN FACILITATING THE ASSESSEE'S TRADING OPERA TIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE'S BUSINE SS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHIL E LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE O N REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR A N INDEFINITE FUTURE. THE APEX COURT FURTHER OBSERVED THAT IN SUC H CASES THE TEST OF ENDURING BENEFIT IS, THEREFORE, NOT A CERTAIN OR CONCLUSIVE TEST AND IT CANNOT BE APPLIED BLINDLY AND MECHANICALLY W ITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF A GIVE N CASE. 4.4. IN THE CASE OF ALEMBIC CHEMICAL WORKS CO. LTD. THE APEX COURT FINALLY DECIDED THAT THE EXPENDITURE ON THE WEBSITE WAS OF A REVENUE NATURE AND NOT OF A CAPITAL NATURE. THE HIG HLIGHT OF THE JUDGMENT IS THAT JUST BECAUSE A PARTICULAR EXPENDIT URE MAY RESULT IN AN ENDURING BENEFIT WOULD NOT MAKE SUCH AN EXPEN DITURE OF A CAPITAL NATURE. WHAT IS TO BE SEEN IS WHAT IS THE R EAL INTENT AND PURPOSE OF THE EXPENDITURE AND AS TO WHETHER THERE IS ANY ACCRETION TO THE FIXED CAPITAL OF THE ASSESSEE. IN THE CASE O F WEBSITE EXPENDITURE, THERE IS NO CHANGE IN THE FIXED CAPITA L OF THE ASSESSEE. ALTHOUGH THE WEBSITE MAY PROVIDE AN ENDURING BENEFI T TO AN ASSESSEE, THE INTENT AND PURPOSE BEHIND THE PURPOSE FOR A WEBSITE IS NOT TO CREATE AN ASSET BUT ONLY TO PROVIDE A MEANS FOR DISSEMINATING THE INFORMATION ABOUT THE ASSESSEE. 4.5. THE MATTER IS ALSO DEALT WITH IN THE CASE OF D EPUTY COMMISSIONER OF INCOME TAX VS M/S EDELWEISS CAPITAL LTD I.T.A NO: 3971/MUM/2009. THE OPINION LAID DOWN WAS THAT EVEN IF THE WEBSITES HAD MATERIALIZED, THE EXPENDITURE COULD NO T HAVE BEEN VIEWED AS CAPITAL EXPENDITURE BECAUSE THE WEBSITE I S PUT UP FOR THE I.T.A. NO. 1911/KOL./2014 ASSESSMENT YEAR: 2002-2003 PAGE 4 OF 5 PURPOSES OF DAY-TO-DAY RUNNING OF THE BUSINESS AND EVEN IF ONE WAS TO VIEW THAT SOME ENDURING BENEFIT IS OBTAINED BY T HE ASESSEE, THE BENEFIT CANNOT BE SAID TO ACCRUE TO THE ASSESSEE IN THE CAPITAL FIELD. A WEB SITE IS SOMETHING WHERE FULL INFORMATION ABOU T THE ASSESSEE'S BUSINESS IS GIVEN AND IT HELPS THE ASSESSEE'S CUSTO MERS IN DEALING WITH IT. A WEBSITE CONSTANTLY NEEDS UPDATING, OTHER WISE IT MAY BECOME OBSOLETE. IT HELPS IN THE SMOOTH AND EFFICIE NT RUNNING OF THE DAY-TO-DAY BUSINESS. GOING BY THE ENTIRE MATRIX OF FACTS AND THE RULINGS OF BOTH THE APEX COURT AND THE HIGH COURT AS DEPICTED ABOVE, I CAN O NLY HOLD THAT WEBSITE DEVELOPMENT EXPENDITURE IS TO BE TREATED AS REVENUE EXPENDITURE RATHER THAN CAPITAL. THE ADDITION MADE BY THE AO ON ACCOUNT OF THIS EXPENDITURE IS THEREFORE DIRECTED T O BE DELETED. AGGRIEVED BY THE ORDER OF THE LD. CIT(APPEALS), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT THE ISSUE INVOLVED IN THIS APPEAL OF THE REVENUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE, INTER ALIA, BY THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS CO. LIMITED REPORTED IN 177 ITR 377, WHEREIN IT WAS HELD THAT THE EXPENDITURE INCURRED B Y THE ASSESSEE ON WEBSITE DEVELOPMENT WAS OF A REVENUE NATURE AND NOT OF A CAPITAL NATURE. IT WAS HELD THAT ALTHOUGH THE WEBSITE MIGHT PROVIDE AN ENDURING BENEFIT TO AN ASSESSEE, THE INTENDED PURPOSE BEHIND THE WEB SITE WAS NOT TO CREATE AN ASSET BUT ONLY TO PROVIDE A MEANS FOR DIS SEMINATING THE INFORMATION ABOUT THE ASSESSEE. TO THE SIMILAR EFFE CT IS THE DECISION OF MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS.- M/S. EDELWEISS CAPITAL LIMITED (ITA NO. 3971/MUM./2009), WHEREIN I T WAS HELD THAT THE EXPENDITURE INCURRED ON WEBSITE COULD NOT BE VIEWED AS CAPITAL EXPENDITURE BECAUSE THE WEBSITE WAS PUT UP FOR THE PURPOSES OF DAY-TO- DAY RUNNING OF THE BUSINESS. IT WAS ALSO HELD THAT EVEN IF SOME ENDURING BENEFIT WAS OBTAINED BY THE ASSESSEE BY WAY OF DEVE LOPMENT OF WEBSITE, SUCH BENEFIT COULD NOT BE SAID TO HAVE ACCRUED TO T HE ASSESSEE IN THE CAPITAL FIELD. AT THE TIME OF HEARING BEFORE ME, TH E LD. D.R. HAS NOT BROUGHT TO MY NOTICE ANY DECISION, WHEREIN A DIFFERENT VIEW IN FAVOUR OF THE I.T.A. NO. 1911/KOL./2014 ASSESSMENT YEAR: 2002-2003 PAGE 5 OF 5 REVENUE HAS BEEN TAKEN ON THIS ISSUE. I, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF WEBSITE DEVE LOPMENT EXPENSES INCURRED BY THE ASSESSEE BY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS CO. LIMITED (SUPRA) AND THAT OF THE TRIBUNAL IN THE CASE OF EDELWEISS C APITAL LIMITED (SUPRA) AND UPHOLDING THE SAME ON THIS ISSUE, I DISMISS THE GROUND RAISED BY THE REVENUE. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON SEPTEMBER 16, 2016. SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER KOLKATA, THE 16 TH DAY OF SEPTEMBER, 2016 COPIES TO : (1) INCOME TAX OFFICER, WARD-11(1), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (2) M/S. ALL INDIA TECHNOLOGIES LTD., 5, LOWER RAWDON STREET, KOLKATA-700 020 (3) COMMISSIONER OF INCOME TAX (APPEALS)-XIX, KOL KATA; (4) COMMISSIONER OF INCOME TAX- , (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.