2013 (12) TMI 1048 - AT - Income Tax

Staff training expenses Capital or revenue - Held that - It is the business requirement of the assessee company to train the staff recruited for voice in UK and US accents which is necessary for operating call centre and BPO services, which is the business of the assessee company Following Shriram Piston & Rings Ltd 2013 (5) TMI 729 - ITAT DELHI The expenditure is in the revenue field, which enhances the capacity of the employees, leading to improvement of the productivity and profits - The training expenses incurred for training of staff members for employing them in the business of the appellant is revenue in nature - Decided against Revenue.

Summary

Issues:
1. Disallowance of staff training expenses as capital expenditure.

Analysis:
The appeal was filed by the revenue against the order of CIT (A) pertaining to the assessment year 2008-09, challenging the deletion of the disallowance of staff training expenses amounting to Rs.26,98,814 made by the AO on the grounds of treating it as capital expenditure. The AO disallowed the amount as it was incurred on training staff members, which was considered of enduring nature due to being provided by a related party. However, the CIT (A) deleted the disallowance based on similar grounds as in the preceding assessment year.

In the First Appellate Authority, it was argued that the training expenses were necessary for the business operations of the call center/BPO division, and hence, should not be treated as capital expenditure. The CIT (A) referred to a similar case from the previous year where the disallowance was deleted, emphasizing that the training was essential for the employees to perform their business functions effectively.

The Tribunal upheld the decision of the CIT (A) based on the reasoning that the training expenses were incurred wholly and exclusively for the business purposes of the assessee company. It was noted that training staff for voice accents in UK and US was a business requirement for operating call center and BPO services. The Tribunal relied on previous judgments to support the decision that such expenses were revenue in nature and not capital expenditure.

In conclusion, the Tribunal dismissed the appeal of the revenue, affirming the decision of the CIT (A) to delete the disallowance of staff training expenses. The order was pronounced on 8.3.2013, upholding the reasoning that the training expenses were essential for the business operations and therefore, should be considered as revenue expenditure.