CIT (International Taxation)-1 Vs Genpact Services LLC (Delhi High Court)
Delhi High Court has dismissed an appeal filed by the Income Tax Department (International Taxation) against Genpact Services LLC, upholding the cancellation of a penalty imposed on the company for Assessment Year 2010-11. The penalty, levied under Section 271(1)(c) of the Income Tax Act, 1961, related to a dispute over the classification of significant business acquisition expenses as either revenue or capital expenditure.
The case stems from Genpact Services LLC’s acquisition of a debt collection business and a portion of an analytics business from a third party and Genpact India, respectively, for a total consideration exceeding ₹62 crore. Out of this amount, the company claimed over ₹22 crore as allowable revenue expenditure, arguing it pertained to intangible assets without enduring value.
During the scrutiny assessment for AY 2010-11, the Assessing Officer (AO) disagreed with the company’s treatment of these expenses. The AO concluded that the expenditure was capital in nature due to the enduring benefit derived from the acquired assets, including customer contracts and assembled workforce. Consequently, the AO allowed only 25% of the claimed amount as depreciation and added the remaining 75%, amounting to ₹16,62,00,207/-, back to the company’s income.
