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2017 (7) TMI 950 - AT - Income TaxFee paid to ROC for increasing the share capital is to be treated as capital expenditure Disallowance u/s. 40(a)(i) - payment on account of International Private Leased Circuit (IPLC) charges and connectivity charges to non-resident parties without tax deduction at source - Held that - Since in the call connectivity and transmission from end of the Indian Territory at Mumbai to the termination of call in USA, no technical knowledge has been made available to the assessee, respectfully following the decision of the Tribunal in the case of Bharti Airtel Ltd Vs. ITO ( 2016 (3) TMI 680 - ITAT DELHI), we hold that payment for the services of call transmission through dedicated bandwidth provided by the non-resident parties to the assessee , cannot be termed as Fee for Technical services under the treaty also, in the hands of the recipients Expenditure towards traveling and educational tuition fee incurred outside India on the education of promoter - Held that - There is nothing on record to establish as to how the educational course (BBA/MBA) done by Karun Ansal abroad was beneficial to the business of call centre then run by the assessee-company. We, therefore, find no justification to discard the finding reached by the ld. CIT(A) that Sh. Karun Ansal did not attend any specialized course and the simple degree of BBA cannot be said to be directly linked to the business of running a call centre in which the appellant was engaged and therefore, the decision of the Board of Directors of the appellant company to sponsor Karun Ansal for foreign education was for other than business consideration. It is also evident from the record, that there was no agreement between the assessee company and Karun Ansal nor is there any such request from Karun Ansal for further MBA course. Suo moto extension of sponsorship of Karun Ansal by the assessee company without any agreement between the assessee company and Karun Ansal for such extension for MBA course speaks a lot against the assessee. No business expediency or necessity was established by assessee to bear such a huge expenditure on foreign education of son of assessee s promoter, who was not even a regular employee of the assessee company at the time of joining the course abroad - Decided against assessee. FBT computation - Held that - Direct the AO to recalculate the Fringe Benefit Tax after excluding the Training and Development Expenses for the reason that these expenses have not been treated as business expenditure deductible u/s. 37(1) of the Act. No justification to sustain the penalty imposed by the authorities below u/s. 271(1)(c) of the Act.
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).
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