2017 (7) TMI 950 - AT - Income Tax

Assessee's Appeals Dismissed on Amortization & Training Expenses, Allowed on Telecommunication Charges

Geo Connect Ltd. Versus DCIT, Circle 12 (1), New Delhi And Vice-Versa

Geo Connect Ltd. Versus DCIT, Circle 12 (1), New Delhi And Vice-Versa - Tmi Issues Involved:1. Disallowance of amortization of expenses under Section 35D of the Income Tax Act, 1961.2. Disallowance of telecommunication and IPLC charges under Section 40(a)(i) due to non-deduction of TDS.3. Disallowance of training and development expenses under Section 37(1).4. Confirmation of penalty under Section 271(1)(c).Issue-wise Detailed Analysis:1. Disallowance of Amortization of Expenses under Section 35D:The assessee claimed amortization of expenses under Section 35D, which was disallowed by the Assessing Officer (AO) on the grounds that these expenditures were capital in nature and not allowable as per the judgments of the Hon’ble Supreme Court in Punjab State Industrial Development Corporation Ltd. vs. CIT and Brooke Bond India Ltd. vs. CIT. The CIT(A) upheld the AO’s decision. The assessee argued that the amortization was allowed in the previous assessment year and the rule of consistency should apply. However, the Tribunal concluded that the assessee did not produce any cogent materials to show the expansion of the undertaking, and each assessment year is an independent unit. The Tribunal dismissed the assessee's appeal for A.Y. 2004-05 and 2005-06.2. Disallowance of Telecommunication and IPLC Charges under Section 40(a)(i):The AO disallowed telecommunication expenses and IPLC charges paid to non-resident parties without TDS, treating the payments as royalty under Section 9(1)(vi) and Article 12 of the DTAA between USA and India. The CIT(A) upheld the AO’s decision. The Tribunal, however, found that the facts and circumstances were identical to the previous assessment year 2003-04, where the issue was decided in favor of the assessee by the ITAT Delhi Bench. The Tribunal allowed the assessee’s appeal, holding that the payments were not in the nature of royalty or fees for technical services under the domestic law or DTAA.3. Disallowance of Training and Development Expenses under Section 37(1):The AO disallowed the expenses incurred on the foreign education of Karun Ansal, son of the main promoter, treating them as personal expenses under Section 40A(2)(b). The CIT(A) upheld the disallowance, noting that the educational course (BBA/MBA) was not directly linked to the business of running a call center. The Tribunal agreed with the CIT(A), finding no business expediency or necessity for the expenditure and noting that the business of the call center was sold before Karun Ansal rejoined the company. The Tribunal dismissed the assessee’s appeal for A.Y. 2004-05, 2005-06, 2006-07, and 2007-08 on this issue.4. Confirmation of Penalty under Section 271(1)(c):The AO imposed a penalty under Section 271(1)(c) for furnishing inaccurate particulars of income based on the disallowances of telecommunication expenses and training and development expenses. The Tribunal deleted the penalty related to the telecommunication expenses as the addition was deleted. Regarding the penalty on training and development expenses, the Tribunal found that the assessee had disclosed all particulars and the claim was not found sustainable in law. Citing the Hon’ble Supreme Court’s decision in CIT vs. Reliance Petro-products, the Tribunal held that no penalty can be imposed for making an incorrect claim in law. The Tribunal allowed the penalty appeal of the assessee for A.Y. 2004-05.Conclusion:- The Tribunal dismissed the assessee’s appeals regarding the disallowance of amortization of expenses and training and development expenses.- The Tribunal allowed the assessee’s appeal regarding the disallowance of telecommunication and IPLC charges.- The Tribunal allowed the penalty appeal, deleting the penalty imposed under Section 271(1)(c).