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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 Tec hnologies 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 th e hearing : Ju ly 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 dated 07.07.2014 for the assessment year 2002-03 and in the solitary ground raised therein, the Revenue has challenged the action of the ld. CIT(Appeals) in deleting the addition of Rs.1,37,77,569/- made by the Assessing Officer on account of Website Development Expenses treating the same as capital in nature.

2.

The assessee in the present case is a Company, which 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 declaring a loss of Rs.1,75,97,080/-. The said return was initially processed by the Assessing Officer under section 143(1) on 03.02.2003. Thereafter he noticed the following aspects from the relevant record:“(i) The assessee debited Rs.1,37,77,768.86 Development Expenses written off. Further

as Website scrutiny of

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assessment records revealed that the assessee’s accumulated Website Development Expenditure aggregating to Rs.2,75,55,537.72 (including Rs.3,63,254/- incurred upto 28 t h April, 2000) was written off in two years. The expenditure incurred during the period from 29 t h April, 2000 to 31 s t 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 Director’s report to the Members for the year ended 31.03.02 it was revealed that the aforesaid amount is the capitalized cost of intangible software asset purchased by the company in previous years. These were written off completely. The cost relates primarily in payments made against invoices raised by Vedika Software Pvt. Ltd. for services rendered by them of and reimbursement of related costs towards developing the portals for allindia.com”. Keeping in view the above, the Assessing Officer was 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 escapement of income of the assessee to that extent from the assessment. He, therefore, reopened the assessment by issuing notice under section 148 after recording the reasons and in the assessment completed under section 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 Officer 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 considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the said disallowance made by the Assessing Officer for the following reasons given in paragraph no. 4.2 to 4.5 of his impugned order:-

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“4.2. On consideratio n of the rival contentions on the issue, my findings and decision thereo n are as follows. On a critical analysis of the issue at hand, in my opinion, expenditure incurred towards comput er software sh ould be treated as that of being only t ransient in nat ure. In today' s world of technolo gical revolution, it is a known fact th at tech nological upgradatio n, especially in the field of computer environment , software upgradat ion is a continuous affair which entails continuous expendit ure in this regard. There is hardly any scope for creating an asset with this kind of expenditure. The AO has not appreciated this fact and based his observatio n on crit eria which do not hold much water. The contention of the appellant is th at it has fo llowed the guidelines of the Institut e of Ch art ered Accountants of India (ICAI), which is the Accounting Body constituted by the Parliament of India and also the issue is co vered by the judgment of the Apex Court as well as by various High Courts. Reference in this regard was made to the following judgments: 1. Empire Jut e Co. Ltd. vS.C IT [1980J 1241TR 1 (SC) 2. Alembic Chemical Wo rks Co . Lt d. vs. CIT [1 989J 177 ITR 377 (SC) 3. CIT vs. Indian Visit.co m (P) Ltd. [2009J 176 Taxman 164 (Delhi) 4.3. It may be mentio ned that the Delhi High Court in the case of India Visit .com h ad referred to the pronouncement of the Apex Court in the abo ve t wo referred cases at SI. No. 1 & 2 wherein it was ruled with reference to SI No.1 th at the advant age consists merely in facilit ating the assessee's trading operations o r enabling the management and conduct of the assessee's busine ss to be carried on mo re efficiently or more profitably while leaving t he fixed capit al unto uched, th e expendit ure would be on revenue account , even though the advant age may endure fo r an indefinite future. The Apex Court further observed that in such cases the t est of enduring benefit is, therefo re, not a certain or conclusive test and it cannot be applied blindly and mech anically without regard to the particul ar facts and circumstances of a given case. 4.4. In the case of Alembic Chemical Wo rks Co. Ltd. the Apex Co urt finally decided th at the expenditure on the website was o f a revenue nat ure and not of a capit al nat ure. The highlight of the judgment is th at just because a particul ar expenditure may result in an enduring benefit would not make such an expenditure o f a capit al nature. What is to be seen is what is the real intent and purpose of the expenditure and as to wheth er there is any accretion to the fixed capital of the assessee. In the case of website expenditure, there is no change in the fixed capital of the assessee. Although the websit e may provide an enduring benefit to an assessee, the intent and purpose behind the purpo se for a website is not to create an asset but onl y to pro vide a means for disseminating th e information about the assessee. 4.5. The matter is also dealt with in the case of Deputy Commissioner of Inco me Tax Vs M/s Edelweiss C apit al Ltd I.T.A No: 3971/Mum/2009. The opinio n laid down was that even if t he websites h ad materialized, the expendit ure could not have been viewed as capit al expendit ure because the website is put up fo r the

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purposes of day-to-day running of the business and even if one was to view that so me enduring benefit is obt ained by the asessee, the benefit cannot be said to accrue to the assessee in th e capit al field. A web site is someth ing where full information abo ut the assessee's business is given and it helps the assessee's customers in dealing with it. A website constantl y needs updating, otherwise it may become obsolete. It h elps in th e smooth and efficient running of the day-to-day business. Going by the entire matrix of facts and the rulings of both th e Apex Court and the High C ourt as depicted abo ve, I can only hold t hat website development expenditure is to be treat ed as revenue expenditure rather t han capit al. The addition made by the AO on account of this expenditure is th erefore directed to 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 observed 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 Hon’ble Supreme Court in the case of Alembic Chemical Works Co. Limited reported in 177 ITR 377, wherein it was held that the expenditure incurred by 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 Website was not to create an asset but only to provide a means for disseminating the information about the assessee. To the similar effect 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 it 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-today running of the business. It was also held that even if some enduring benefit was obtained by the assessee by way of development of Website, such benefit could not be said to have accrued to the assessee in the capital field. At the time of hearing before me, the ld. D.R. has not brought to my notice any decision, wherein a different view in favour of the

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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 Development Expenses incurred by the assessee by following the decision of the Hon’ble Supreme Court in the case of Alembic Chemical Works Co. Limited (supra) and that of the Tribunal in the case of Edelweiss Capital 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 dismissed. Order pronounced in the open Court on September 16, 2016. Sd/(P.M. Jagtap) Accountant Member Kolkata, the 16 t h 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 Tec hnologies Ltd., 5, Lower Rawdon Street, Kolkata-700 020

(3)

Commissioner of Income Tax (Appeals)-XIX, Kolkata;

(4) (5) (6)

Commissio ner of Income Tax, The Depart ment al Represent ative Guard File

By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.