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2014 (12) TMI 1059 - AT - Income TaxEducational expenses on granddaughter of the Managing Director Held that - The AO has given amble opportunity to the assessee to lead evidence to justify the claim of the assessee, but the assessee has failed to avail the same - revenue has claimed that there was no resolution to this effect by the Board of Directors of the assessee-company - there is no penalty clause whatsoever in the MOU entered into between the assessee-company and the trainee, Payal Parikh that in case of failure on the part of the trainee to comply with the terms and conditions of the MOU how the trainee shall compensate the assessee-company for the heavy expenditure incurred on her higher education - the MOU entered into by the trainee with the assessee-company is merely a self-serving document - there is no evidence brought on record on behalf of the assessee to show that her selection for higher education was on merits and not due to the fact that she was closely related to the Managing Director of the assessee-company - there is no scheme laid down by the assessee-company to send employees abroad for training and employment thereafter with the assessee-company - the expenditure claimed by the assessee on higher education of the grand-daughter of the Managing Director of the assessee was not wholly and exclusively for the purpose of business of the assessee, the order of the CIT(A) is upheld Decided against assessee. Depreciation on intangible assets disallowed Intangible asset treated as goodwill Held that - The issue of allowance of depreciation on intangible asset in the form of goodwill is covered in favour of the assessee as held in Commissioner of Income-tax v. Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT after going through the Memorandum of Transfer of Business, a copy of which has been filed in the compilation before us, which is dated 1.4.2001 wherein it is specifically provided that all the trade names, trade-marks, permits and licenses, goodwill and knowhow attached to the business carried on in India or elsewhere were transferred to the assignees i.e. the assessee-company - the goodwill is an intangible asset entitled to depreciation - The quantification of goodwill at ₹ 75 lakhs seems to be reasonable - The assessee has filed a copy of working of the valuation of the goodwill as given by M/s. Anmol Sekhri & Associates, Mumbai, valuer, and a copy of which has been filed in the compilation before the Tribunal the valuation report justifies the reasonableness of the valuation of the goodwill as claimed by the assessee - the claim of the assessee for depreciation on goodwill was justified Decided in favour of assessee. Deletion of disallowance on commission Held that - The payments were made to out-station parties per cheque - The commission was paid at the rate of 1% on the sale effected by these parties - The TDS as applicable was made at the time of making the payment of commission to the payees - Complete details of the payment of commission were maintained in the account books of the assessee - The assessee has also filed affidavits of the payees of the commission payment, copy of which has been filed in the compilation - CIT(A) has recorded that the assessee has made a request to the AO to call for the concerned parties by issuing summons, but he has not considered this request - the CIT(A) has recorded that all important evidences in the form of PAN, addresses, contra account and confirmation including affidavits from all such commission agents were submitted by the assessee - there were no mistake in the order of the CIT(A) in holding that all these evidences were sufficient to discharge the onus of the assessee for claiming such expenditure Decided against revenue. Deletion of penalty u/s 271(1)(c) Held that - On the issue of validity of penalty imposed for disallowance of expenses incurred for higher education of grand-daughter of the MD of the assessee-company, the assessee has made full disclosure all the material facts in its account statement, and also in the audited report of its accounts for the relevant period - There could always be an honest difference of opinion between the assessee and the Revenue regarding allowability or otherwise of a particular expenditure incurred by the assessee - the assessee has incurred expenditure on higher education of the trainee and all these facts were disclosed in the account statements of the assessee - no penalty u/s 271(1)(c) of the Act was imposable on the assessee on account of disallowance of expenditure for higher education of grand-daughter of the MD, and accordingly order of the CIT(A) on this issue is confirmed - penalty on disallowance of depreciation on goodwill, the disallowance itself has been deleted while deciding the quantum appeal of the assessee for the relevant AY 2004-05, thus, there remains no basis for imposition of penalty on the assessee - since the assessee has disclosed all the facts at the time of filing of the return itself, and claim of the assessee for depreciation on goodwill was bona fide, the penalty u/s 271(1)(c) could not be levied on the assessee the order of the CIT(A) is upheld Decided against revenue.
Issues Involved:
1. Disallowance of educational expenses. 2. Disallowance of depreciation on intangible assets (goodwill). 3. Deletion of disallowance of commission expenses. 4. Deletion of penalty under section 271(1)(c) of the Income Tax Act. Detailed Analysis: 1. Disallowance of Educational Expenses: The assessee's appeal challenged the disallowance of educational expenses amounting to Rs. 6,56,765/- for the trainee, who was the granddaughter of the Managing Director. The assessee argued that the expenses were business-related and cited a Memorandum of Understanding (MOU) where the trainee committed to work for the company post-qualification. The Revenue opposed, highlighting the lack of a Board resolution, the isolated nature of the expense, and absence of a penalty clause in the MOU. The Tribunal upheld the disallowance, noting the lack of evidence that the selection was merit-based and that the expenditure was not wholly and exclusively for business purposes. 2. Disallowance of Depreciation on Intangible Assets (Goodwill): The assessee appealed against the disallowance of depreciation on intangible assets, arguing that goodwill includes trade names, trademarks, and know-how. The assessee cited various judicial precedents, including a decision by the Hon'ble Apex Court in Commissioner of Income-tax v. Smifs Securities Ltd., which recognized goodwill as an intangible asset eligible for depreciation. The Tribunal accepted the assessee's claim, finding the valuation of goodwill reasonable and supported by a valuation report. Consequently, the Tribunal allowed the depreciation on goodwill for various assessment years. 3. Deletion of Disallowance of Commission Expenses: The Revenue's appeal contested the deletion of disallowance of Rs. 9,05,000/- made on account of commission payments. The Revenue argued that the assessee failed to produce the payees and pointed out discrepancies in PAN details. The assessee countered by presenting affidavits from the payees, evidence of TDS deductions, and ledger accounts. The Tribunal found the assessee's evidence sufficient, noting that the payments were made by cheque, TDS was deducted, and the CIT(A) had verified the affidavits and other documents. The Tribunal upheld the CIT(A)'s decision to delete the disallowance. 4. Deletion of Penalty under Section 271(1)(c): The Revenue appealed against the deletion of penalty imposed under section 271(1)(c) for two reasons: disallowance of education expenses and depreciation on goodwill. The Tribunal found that the assessee had made full disclosure of the education expenses and that there could be an honest difference of opinion on their allowability. Regarding depreciation on goodwill, the Tribunal noted that the disallowance had been deleted in the quantum appeal, leaving no basis for the penalty. The Tribunal confirmed the CIT(A)'s decision to delete the penalty, noting that the assessee's claim was bona fide and all facts were disclosed at the time of filing the return. Conclusion: The Tribunal partly allowed the assessee's appeals for various assessment years, confirming the disallowance of educational expenses but allowing depreciation on goodwill. The Tribunal dismissed the Revenue's appeal regarding commission expenses and upheld the deletion of penalty under section 271(1)(c). The decisions were pronounced in open court.
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