2020 (11) TMI 1075 - AT - Income Tax

Global Trade Development expenses (GTD expenses) - Disallowance of the said expenses were not incurred in accordance with the aims and objectives of the appellant society failing to appreciate the contemporaneous evidences filed on record substantiating the business nexus of said expenditure - HELD THAT - The assessee has aimed through GTD issues such as immigration policies visa regimes software quality standards. WTO and free trade in services data security and next generation best practices and the importance of collaboration and trade cooperation especially during these times of economic recession. The assessee is working closely with the Indian Government to represent the true potential of Indian IT Industry for increasing the Indian market share in Information and Communication Technology (ICT) and helping to ensure that the Governments of other nations do not create impediments to free trade or barrier-free business exchanges. GTD expenditure incurred for the above purpose primarily consisted of Consulting fees paid to various international firms in respect of their strategic and tactical planning for positioning IT industry of India vis-a-vis the foreign country s economic outlook Expenditure on global protectionism sentiments and campaign Expenditure in public relations/ public awareness and Travelling expenses. We also find that the similar expenses has been allowed in 2019 (5) TMI 1158 - ITAT DELHI wherein it was held that the disallowance of GTD expenses are not sustainable on the grounds that the purpose of such expenditure and the benefits derivable there from is aimed at benefitting L.C.T Business Process Management (BPM) industry as a whole which not denotes the member fraternity of the assessee but also the industry at large in India. The monetary and in principal support to GTD activity by Government of India clearly establish the utility of such expenses for the India I.T. Industry as a whole. Thus keeping in view the activities of the assessee and its relevance to the expenses incurred the continuous stand of the revenue to allow such expenses in all the previous and subsequent years we hereby hold that the disallowance confirmed by the ld. CIT (A) is liable to be quashed. Appeal of the assessee is allowed.

Summary

Issues Involved:
Disallowance of Global Trade Development (GTD) expenses by Assessing Officer (AO) and partial disallowance by Commissioner of Income Tax (Appeals) (CIT(A)).

Analysis:
1. The appellant, a society registered under the Societies Registration Act, 1860, engaged in promoting the information technology and software industry, incurred GTD expenses during the relevant assessment year. The AO disallowed the expenses, stating they were not in line with the society's objectives. The CIT(A) partially upheld the disallowance, reducing it to Rs. 2,08,08,291, considering the grant received from the Government of India for GTD activities. The appellant appealed against this partial disallowance.

2. The appellant argued that similar GTD expenses were allowed in previous assessment years and were crucial to fulfilling the society's objectives. The appellant questioned the CIT(A)'s reasoning for the partial disallowance. On the other hand, the Revenue contended that each assessment must be independent, and the expenses were not for business purposes.

3. The Tribunal examined the objectives of the appellant's GTD activities, aimed at promoting the Indian IT industry globally and addressing various issues like software quality standards, trade cooperation, and market positioning. The expenses included consulting fees, global protectionism campaigns, public relations, and travel costs.

4. The Tribunal noted that a Co-ordinate Bench of ITAT had previously allowed similar GTD expenses for the benefit of the IT industry as a whole. Additionally, the revenue and Tribunal had accepted such expenses in various assessment years, indicating their allowability.

5. Considering the nature of the appellant's activities, the support received from the Government of India, and the consistent allowance of similar expenses in previous and subsequent years, the Tribunal concluded that the disallowance by the CIT(A) was unwarranted. Therefore, the Tribunal allowed the appellant's appeal, quashing the disallowance of GTD expenses.

6. As a result, the Tribunal dismissed the Stay Applications of the appellant, as the main appeal had been disposed of. The order was pronounced in the open court on 26/11/2020.