Software expense classification, concession fee deductibility, and mark-to-market loss claims turned on factual verification and accrual-based treatment.

Software expenditure must be classified by examining its true character and supporting evidence; where the nature of the software and its useful life require verification, the matter may be restored for fresh adjudication. Concession fee payable under an airport concession agreement was treated as consideration for contractual rights and privileges, not as tax, duty, cess or fee within section 43B, so it was allowable on accrual basis subject to verification of the amount relating to the year. Mark-to-market loss claims, including foreign exchange fluctuation losses, were also sent back for verification where additional evidence had not yet been examined. The disputed claims were therefore remitted for factual verification rather than finally rejected.

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Issues: (i) whether software expenses were to be treated as revenue expenditure or capital expenditure and the matter required fresh adjudication; (ii) whether concession fee payable was disallowable under section 43B of the Income-tax Act, 1961; and (iii) whether the mark-to-market loss claim required verification and fresh adjudication.

Issue (i): whether software expenses were to be treated as revenue expenditure or capital expenditure and the matter required fresh adjudication

Analysis: The issue turned on the nature of the software expenditure and the additional evidence filed to show the useful life of the software. The reasoning followed the earlier decision in the assessee's own case, where similar expenditure was remitted to the Assessing Officer for verification. The Tribunal noted that the relevant distinction depends on whether the software is application software or capital in nature and whether it merely improves operational efficiency without creating a capital asset. As the factual basis needed further verification, the matter was restored to the Assessing Officer.

Conclusion: The issue was remitted to the Assessing Officer for fresh adjudication, and the Revenue's ground was allowed for statistical purposes.

Issue (ii): whether concession fee payable was disallowable under section 43B of the Income-tax Act, 1961

Analysis: The Tribunal followed the earlier view in the assessee's own case that the concession fee payable under the airport concession agreement was not in the nature of tax, duty, cess or fee contemplated by section 43B. It was treated as consideration for the grant of rights and privileges under the agreement and was held to be deductible on accrual basis. The authorities below had invoked section 43B only on the basis of the character of the liability, but the settled position in the assessee's own case supported allowance of the claim, subject to verification of the actual amount pertaining to the year.

Conclusion: The concession fee was held to be allowable as deduction on accrual basis and not hit by section 43B, with verification of the actual amount directed to the Assessing Officer.

Issue (iii): whether the mark-to-market loss claim required verification and fresh adjudication

Analysis: The Tribunal noted that foreign exchange fluctuation losses are generally allowable when they arise from existing obligations at the balance-sheet date, and that section 43AA codifies the treatment of such gains or losses. However, the claim had been disallowed below for want of supporting documents. Since additional evidence had now been filed and had not been verified by the Assessing Officer, the Tribunal found it appropriate to admit the evidence and restore the matter for verification and fresh decision in accordance with law.

Conclusion: The issue was remitted to the Assessing Officer for verification and fresh adjudication, and the assessee's ground was allowed for statistical purposes.

Final Conclusion: The Revenue's appeal and the assessee's cross objection were disposed of by remand or allowance for statistical purposes, with the concession fee claim accepted in principle and the other disputed claims sent back for factual verification.

Ratio Decidendi: Software expenditure and mark-to-market loss claims require factual verification of their true nature and supporting material, while concession fee paid for contractual rights and privileges is not automatically covered by section 43B merely because it is payable to the Government.

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