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TMI Blog2018 (12) TMI 1820X X X X Extracts X X X X X X X X Extracts X X X X ..... ter any of the grounds of appeal, if need be." 2. The assessee in its cross appeal has raised the following grounds of appeal: Based on the facts and circumstances of the case, Knight Riders Sports Private Limited (hereinafter referred to as the 'Appellant') respectfully craves leave to prefer an appeal against the order passed by the learned Commissioner of Income-tax (Appeals) - 40 ['CIT(A)'], Mumbai dated 31 March 2014 under section 250 of the Income-tax Act, 1961 ('Act') on the following grounds: On the facts and in the circumstances of the case and in law, the learned CIT(A): General 1. erred in not accepting total returned loss of the Appellant. Sponsorship rights income 2. erred in upholding the order of the learned Assessing Officer ('AO'), by confirming the addition of Rs. 1,99,94,876 in respect of revenues from sponsorship rights, without appreciating the fact that: * the above did not accrue in A Y 20 I 0-11 (but in A Y 2011-12), as per the method of accounting regularly and consistently followed by the Appellant; and * ignoring that the learned AO has accepted the accounting principles for revenues from sponsorship rights i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equesting for actual details of invited guests and celebrities and inspite of furnishing the actual amount of expenditure incurred towards invited guests and celebrities before the learned CIT(A) during the Appellate proceedings. Arbitrary adhoc disallowance in respect of expenditure in connection with a) Lodging and Boarding b) Food and Nutrition II. erred in upholding the order of the learned AO, by confirming the adhoc disallowance of the expenditure in connection with Lodging and Boarding and Food and Nutrition on the premise that the said expenses are not in the nature of business expenditure allowable under section 37(1) of the Act. 12. without prejudice to the above, * erred in upholding the arbitrary adhoc disallowance to the extent of Rs. 1,02,90,355 (i.e 33% of Rs. 3,11,82,893) in connection with lodging and boarding and food and nutrition expenses of its invited guests and celebrities; * erred in not considering that the supporting invoices were not verified by the learned AO before making the arbitrary adhoc disallowance; and * erred in not considering the actual amount of expenditure incurred towards invited guests and celebrities furnished before the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le passing the assessment order besides other additions, disallowance made addition of Rs. 1,99,94,876/- on account of income from sponsorship right, addition on account of franchise fees of Rs. 16,89,52,500/-, disallowed feasibility study expenses of Rs. 19,32,720/-, stamp duty expenses of Rs. 2,75,010/-, Air Fair Expenses, Travelling Expenses and Vehicle Hire Charges of Rs. 82,12,985/-, treated the Website design expenses of Rs. 61,77,358/- as capital and allowed depriciation @ 60% only-, disallowed lodging, boarding and parting bill of Rs. 1,50,83,708/-. On appeal before the ld. CIT(A), the expenses of Website design was treated as revenue expenses and allowed entire expenses, however, other additions/disallowances were sustained. Therefore, being aggrieved both the parties have filed their respective appeals challenging the order of ld. CIT (A) raising the grounds of appeal as referred above. 5. We have heard the submissions of the learned authorized representative (AR) of the assessee and the learned departmental representative (DR) for the revenue and have gone through the orders of the authority below. ITA No. 4087/Mum/2014 by Revenue 6. At the outset of hearing, we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch 2010 and further balance of 10% of the revenue are attributed for promotion of the franchise contributor brands and prorate over the term of respective Sponsorship Right Agreement. The assessee has made detailed factual and legal submission before the Assessing Officer. The ld AR for the assessee submits that 50% of 90% of the revenue have been offered during the year and remaining 10% has been offered on prorate basis over the term of respective sponsorship right, which is Rs. 16,45,21,911/- till 31/03/2010 and the same is offered to tax, thus no addition ought to have made. The assessing officer have taxed the 50% of total amount of Rs. 36,90,33,574/- during the year. The ld. CIT(A) upheld the action of Assessing Officer holding that the assessee should have offered 50% of income voluntarily on his own. 10. On the other hand the ld. DR for the revenue supported the order of the authorities below. 11. We have considered the rival submission of the parties and have gone through the orders of authorities below. We have noted that during the assessment proceeding, the Assessing Officer noted that the assessee has received a total amount of Rs. 36,90,33,574/- on account of Spons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival submission of the parties and have gone through the orders of authorities below. We have noted that similar ground of appeal was raised by the assessee for Assessment Year 2009-10 and the Tribunal on similar ground of appeal passed the following order: "45. We shall first take up the core issue involved in the present appeal as to whether the Franchise fee paid by the assessee to BCCI- IPL was rightly claimed by it as a revenue expenditure, or the same being in the nature of a capital expenditure was rightly disallowed by the lower authorities. We find that the assessee had entered into a franchise agreement with BCCI- IPL in April, 2008. That pursuant to the aforesaid agreement the assessee was vested with the right to operate the franchise and to be a member of the league and operate a team in the city of Kolkata and participate in the IPL tournament, which was owned and operated by BCCI-IPL. The assessee in terms of Clause 7 of the franchise agreement remained under an obligation to pay to BCCI-IPL the annual Franchise fee of the following amount: (a). in respect of the period 2008-17 (inclusive), as under:- (i) a sum of USD 22,52,700/- equivalent to INR 9,01,08,000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. We have given a thoughtful consideration to the nature of the rights, and find that the payment of the Franchise fee by the assessee for a year, therein vested with him a right to participate in the tournament for the said year without guarantee that in the future years it would be eligible to participate in the tournament. We find that the payment of the Franchise fee by the assessee as per the terms contemplated in the franchise agreement enabled it to participate in the tournament for the subject year and earn revenue from the same. We further find that the payment of the Franchise fee by the assessee was in the nature of recurring annual payment which was paid to facilitate participation in the league and operating the team only for the year for which the payment pertained, with neither vesting of any right of participation in the subsequent years, nor leading to creation/ownership of an asset or generation of a benefit of an enduring nature in the hands of the assessee. We further find that the year under consideration was the "first year‟, and as such was to be construed from the date of signing of the agreement till 31st December, 2008. We have deliberated at len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. We find that a conjoint reading of Clause 7 of the agreement contemplating the payment of the Franchise fee and Clause 1 defining the term "year", clearly reveals beyond any scope of doubt that the payment of the Franchise fee of Rs. 30,03,60,000/- by the assessee for IPL Season-1 was only for the period 10.04.2008 (i.e the date of the signing of the agreement) till 31.12.2008. That as stands gathered from the franchise agreement, the making of the aforesaid payment of Franchise fee by the assessee to BCCI-IPL for IPL Season-1 only enabled the assessee to participate in the league tournaments for IPL Season-1 and operate its team for the aforesaid period for which the payment was made. We are unable to persuade ourselves to subscribe to the view of the lower authorities that any benefit of enduring nature was generated in the hands of the assessee by making the payment of the Franchise fee of Rs. 30,03,60,000/-, which as observed by us was only for facilitating the assessee to participate in the league tournaments for IPL Season-1. We have deliberated on the nature of rights of the assessee franchisee on payment of the Franchise fee and find that while for the "Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither obtaining any enduring benefit by making payment of annual instalment these payments are giving rise to any assets. These payments are mere annual payments to BCCI-IPL to give a right to the assessee to participate in the matches with its team. Therefore, the annual franchise payment was a revenue expenditure." We further find that a similar view was also taken by the ITAT, Hyderabad "B", Hyderabad in the case of DCIT Vs. M/s Deccan Chargers Sporting Ventures Ltd. (ITA No. 1043/Hyd/2013, dated 28.10.2015, wherein too the Tribunal had concluded that the Franchise fee paid by the franchisee assessee to BCCI-IPL was in the nature of a revenue expenditure. We find that the judgments of the Hon'ble Supreme Court in the case of Techno Shares & Stocks Ltd. & Ors. vs. Commissioner Of Income Tax (2010) 327 ITR 323( SC) and Jonas Woodhead And Sons (India) Ltd. Vs. Commissioner of Income-Tax (1997) 224 ITR 342 (SC) relied upon by the A.O are distinguishable on facts. We find that in the case of Techno Shares & Stocks Ltd. & Ors (supra) the issue before the Hon‟ble Apex Court was as to whether the right of membership conferred upon the members under the BSE membership card is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the considered view that unlike the facts involved in the aforesaid case laws relied upon by the A.O, in the case before us, as no enduring benefit by making the payment of the Franchise fee got vested with the assessee, therefore, the said judicial pronouncements being distinguishable on facts would not assist the case of the revenue. We thus in the backdrop of our aforesaid observations and finding ourselves to be in agreement with the view taken by the coordinate benches of the Tribunal, therefore, are of the considered view that the payment of the Franchise fee for IPL Season-1 of Rs. 30,03,60,000/- by the assessee can safely be held to be in the nature of a revenue expenditure, which was rightly claimed by the assessee as such while computing its income for the year under consideration. We thus set aside the order of the CIT(A) and direct the A.O to delete the addition of Rs. 30,03,60,000/-. We may herein observe that as we have held that the Franchise fee of Rs. 30,03,60,000/- paid by the assessee to BCCI is a revenue expenditure, therefore, the contentions of the assessee as regards quantification of the W.D.V for computing the depreciation in respect of the franchise ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the orders of authorities below. The Assessing Officer treated the entire expenditure as preliminary expenses and capitalized the same. The Assessing Officer allowed 1/5th of the expenditure in accordance with section 35D, which resulted an addition of Rs. 19,32,720/-. The ld. CIT(A) confirmed the action of Assessing Officer holding that being not unreasonable. We have noted that there is no dispute about the expenses incurred by the assessee. There is no dispute that lower authorities have not disputed the cost of the expenses. We have noted that the lower authorities have failed to specify as to how the case of assessee is covered under section 35D, when no new stadium was made was assessee. The assessee has incurred the preliminary expenses for feasibility expenses. It is an undisputed fact that ultimately the assessee abundant the idea of construction of new Stadium. As neither the scheme nor the idea of assessee was materialized or no new unit/ stadium was made, therefore, the assessee is entitled for deduction of entire expenditure incurred on such feasibility report as revenue expenditure Similar view was express by Hon'ble Delhi High Court in CIT Vs Priya Village R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th airfare expenses, travelling expense ad vehicle hire charges. We find that the A.O holding a conviction that as the assessee had incurred expenses on food and stay of VIPs and celebrities, therefore, the airfare expenses of Rs. 3,28,96,505/-, travelling expenses of Rs. 12,66,462/- and vehicle hire charges of Rs. 40,89,560/- must also be including expenses incurred on VIPs and celebrities. The A.O on the basis of his aforesaid conviction thus carried out an adhoc disallowance of the expenses, viz. (i). Rs. 82,25,126/- out of airfare expenses; (ii). Rs. 3,16,616/- out of travelling expenses ; and (ii). Rs. 10,22,390/- out of vehicle hire charges, as a result whereof a total disallowance of Rs. 95,63,132/-was made by him. We find that the assessee had claimed that during the course of the assessment proceedings documentary evidence supporting the aforesaid expenses incurred by it were furnished with the A.O. However, the CIT(A) while upholding the adhoc disallowance made by the A.O observed that the assessee had failed to produce before him any evidence, viz. air tickets, details of vehicles, name of service providers, persons utilizing the services and their nexus with the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns were in no way in context of the business of the assessee, or were in the nature of its personal expense, then he remained under a statutory obligation to have specifically demonstrated the same by referring to the expenses booked by the assessee in its books of accounts. However, we find that the CIT(A) had taken a shift for sustaining the said disallowance and had observed that as the assessee had not produced before him any evidence, viz. air tickets, details of vehicles, name of service providers, persons utilizing these services and their nexus with the business etc., therefore, the possibility of the expenditure partly having been for non business purposes could not be ruled out. We further find that the assessee also had averred before us that it was not given an opportunity of being heard by the A.O while making an adhoc disallowance of the aforesaid expenses. We have given a thoughtful consideration to the issue before us, and as observed by us hereinabove, are of the considered view that the observations of the A.O that an adhoc disallowance of airfare expenses, travelling expenses and vehicle hiring expenses was called for in the hands of the assessee for the reason t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of hearing to the assessee. The contention of the ld. AR for the assessee that the assessee has placed sufficient evidences on record and appropriate relief be allowed to the assessee. We are not inclined to accept such prayer of assessee, let all the evidence be examined by the assessing officer in accordance with law. In the result these grounds of appeal are allowed for statistical purpose. 28. Ground No. 11 & 12 relates to disallowance of (a) Lodging and Boarding and (b) Food and Nutrition. The ld AR for the assessee submits that these grounds of appeals are also covered in favour of the assessee and against the revenue by the decision of the Tribunal in assessee's own case for assessment year 2009-10, wherein the similar grounds of appeal was restored to the file of the assessing officer for verification of evidences, however, for the year under consideration the assessee has file sufficient evidences as per page No. 262 to 270 of the Paper Book. The ld AR for the assessee submits that the assessee be allowed full relief as the assessee has furnished complete evidences. 29. On the other hand the ld. DR for the revenue supported the order of thr authorities below. 30. We ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the head food and nutrition expenses and boarding and lodging expenses, was that the information gathered during the course of the survey proceedings conducted under Sec. 133A on 21.04.2010 at the office premises of the assessee at Eden Garden, Calcutta, revealed that the parties hosted by the assessee included various relatives of directors, VIPs and celebrities as invitees. We find that the A.O had disallowed the entire partying expenditure of Rs. 39,19,880/-incurred by the assessee at ITC, sonar, Kolkata, as well as disallowed 33% of the room expenses of Rs. 96,26,375/- incurred by the assessee on booking of rooms at ITC, sonar, Kolkata, and a further disallowance of 33% of the balance expenditure of Rs. 1,13,24,264/-. We find substantial force in the contention of the ld. A.R that the aforesaid expenses were incurred by the assessee in the course of operating its teams, wherein the visiting teams alongwith people from show business, actors, celebrities, VIPs etc, were invited for the matches for the purpose of increasing the viewing of the matches, which thus consequently led to increase in sale of tickets and generation of higher amount of sponsorship fees. We have del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred wholly and exclusively for the purpose of the business. Be that as it may, in the backdrop of our aforesaid observations, we are unable to persuade ourselves to subscribe to the view of the A.O that the expenses incurred by the assessee towards food and nutrition expenses and boarding and lodging expenses provided to the actors, celebrities and VIPs are liable to be disallowed by characterising them as expenses which could not be held to have been incurred by the assessee wholly and exclusively for its business. We are of the considered view that as the visits of the actors, celebrities and VIPs at the venues where the matches are staged is strategically planned by the assessee in the very interest of its business, therefore, expenses incurred by the assessee by way of providing them food and nutrition or arranging for their stay in hotels can safely be held to be an expenditure incurred in the course of its business. We are further of the view that hosting of parties by the assessee at ITC, sonar Kolkata or at other venues on the days when the matches were played at the home grounds of the assessee, which were attended by the assessee's own team, visiting teams, suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld had established beyond any doubt that the same had been incurred by the assessee either to meet out a personal obligation or was for a purpose which could not be held to be wholly and exclusively for the purpose of the business, therefore, are unable to persuade ourselves to subscribe to the disallowance of the expenses by the A.O for the reason that the parties hosted by the assessee were attended by such actors, celebrities and VIPs, as well as expenditure was incurred towards booking of rooms for their stay in hotels of repute. We are further in agreement with the contention of the ld. A.R who had rightly stated that this is the way the assessee carries out his business, and are of the considered view that as long as the claim of the assessee in respect of the aforesaid expenses satisfied the conditions contemplated under Sec. 37 (1), the entitlement of the assessee cannot be interfered with. However, while perusing the order of the CIT(A) we find that latter had referred to certain bills wherein a clear nexus between the expenditure incurred and the purpose of hosting the parties could not be established, viz. (i) bill of Rs. 3,44,410/- for 300 snacks, 300 soft beverages and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d issue afford sufficient opportunity of being heard to the assessee, who shall remain at a liberty to furnish material and documents to substantiate his claim. The Grounds of appeal No. 9 & 10 are allowed for statistical purpose in terms of our aforesaid purposes. 31. Considering the decision of the Tribunal for assessment year 2009-10, these grounds of appeal is also restored to the file of assessing officer with the similar direction. The assessing officer is also directed to follow the direction as contained in para 27.In the result these grounds of appeal are allowed for statistical purpose. 32. Grounds No. 13 to 15 are general or consequential, which needs no adjudication. Therefore, these grounds of appeal are dismissed. 33. Ground No.16 (Additional ground) relates with the claim of the deduction of franchise fee /consideration. The ld. AR for the assessee submits that the assessee has raised additional grounds of appeal, which is without prejudice to the original grounds of appeal raised by the assessee. The ld. AR for the assessee submits that all the facts for adjudication of additional ground of appeal are emanating from the record and no new facts are necessary to br ..... X X X X Extracts X X X X X X X X Extracts X X X X
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