TMI Blog2020 (12) TMI 1058X X X X Extracts X X X X X X X X Extracts X X X X ..... viders, details of persons utilizing these services and their nexus with business etc, therefore, as per him the possibility of the expenditure partly having been incurred for non business purposes could not be ruled out, and the fact that the assessee too had submitted before us that sufficient opportunity was not allowed to it at the time when such adhoc disallowance of expenses was made, therefore, in all fairness restore the matter to the file of the A.O for making necessary verifications on the basis of documentary evidence as regards the entitlement of the assessee towards the claim of the aforesaid expenses. We herein direct that the A.O shall in the backdrop of our aforesaid observations make necessary verifications as regards the aforesaid claim of expense of the assessee booked under the said respective heads, viz. airfare expenses, travelling expenses and vehicle hiring charges. Needles to say, the A.O shall during the course of the set aside proceedings afford sufficient opportunity of being of heard to the assessee, who shall remain at a liberty to substantiate its claim by placing on record fresh documentary evidence. Appeal of the assessee for statistical purpose. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f business expenditure allowable under section 37(1) of the Act. 6. without prejudice to the above, erred in upholding the order of the learned AO, by confirming the arbitrary adhoc disallowance of a sum of ₹ 59,80,098 (i.e 25% of ₹ 2,39,20,390) being expenditure in connection with airfare and travelling expense, which was disallowed by the learned AO without requesting for actual details of invited guests and celebrities. Arbitrary ad hoc disallowance in respect of expenditure in connection with a) Lodging and Boarding and b) Food and Nutrition 7. 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. 8. without prejudice to the above, erred in upholding the arbitrary adhoc disallowance to the extent of ₹ 77,94,826 (ie 33% of ₹ 2,36,20,684), erroneously stated as ₹ 78,00,034 in the order passed by the learned CIT(A), in connection with lodging and boarding and food and nutrition expenses of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entitled to sale their Franchise to third party or to effect the transaction of control interest in the company which controls franchise after minimum period of three years subject to payment to IPL, percentage of value of business, being 10% of the first such sale or transfer and 5% subsequently. The AO dealt on the consideration for the Franchisee and the nature of payments, judicial decisions and finally concluded that the Franchisee payments are to be treated as a capital expenditure as it is in the nature of intangible assets being licensee or franchisee as referred in section 32(1)(ii) of the Act. The AO has capitalized the Franchisee Fee as an intangible asset and allowed depreciation and made disallowance of remaining amount of franchisee fees. On the second disallowance of Airfare and Travelling Expenses, the AO found that the assessee company had debited an amount of ₹ 2,39,20,390/- to the Profit Loss Account under Air-fare and Travelling expenses and called for the information. The assessee filed the information referred at page16 para-5.1 of the assessment order. Whereas the AO was not satisfied with the claims made by the assessee on Air-fare and Travellin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents and the claim raised by the assessee that, the franchisee fee is in the nature of revenue expenses and has to be allowed in the year in which it has been incurred and further submitted that,the Tribunal in assessee s own case has deleted the addition and allowed the claim of the assessee. On the second disputed issue with respect to disallowance of Air-fair and Travelling Expenses, the AO has made an adhoc disallowance without considering the fact that the expenses have been incurred wholly and exclusively and to be allowed under section 37(1) of the Act. Whereas, the A.O has disallowed the claim of 25% of such expenses without examining the facts and evidences filed. Further, the AR submitted that in the earlier years, the matter was restored to the file of A.O by the Hon ble Tribunal and the A.O has granted relief to the assessee by restricting the adhoc disallowance to the extent of ₹ 5,00,000/-. Similarly, in respect of disallowance of expenditure on Boarding and Lodging, the Ld Counsel submitted that the assessee has furnished the complete details and the A.O was not justified in making disallowance without proper examination and verification of the facts. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid by the assessee is in the nature of revenue expenditure. For the sake of completeness relevant extract of the finding of Tribunal on this issue are reproduced herein below:- 47. We have deliberated at length as regards the nature of the rights as got vested with the assessee on the payment of the Franchise fee of ₹ 30,03,60,000/- to BCCI. We have given a thoughtful consideration to the issue before us and are of the considered view that the payment of the Franchise fee by the assessee to BCCI-IPL only facilitated participation in the league and operating the team for the year for which the payment pertained, with no vested right to participate in the events for the subsequent year/years. We are of the considered view that as the aforesaid payment of Franchise fee which facilitated the participation in the league and operating the team was restricted only to the year to which the payment pertained, therefore, it can safely be concluded that by making such payment there was neither a creation of an asset or generation of a benefit of an enduring nature in the hands of the assessee. We find that a conjoint reading of Clause 7 of the agreement contemplating the payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al had held as under: The expenditure of ₹ 44,76,00,000/- incurred by it for making payment of the first instalment to the BCCI-IPL in terms of Clause 7 of the agreement was not for the purpose of acquisition of any asset but for an annual right to manage the franchise. The purpose of the expenditure to be incurred under the agreement by the assessee has been stated in Clause 6 of the agreement as consideration for the right to operate the Franchise and to be a member of the league. The total expenditure of ₹ 44,76,00,000/- payable in yearly instalments of ₹ 44,76,00,000/- for ten years was clearly for the purpose of securing franchise right from BCCI. Thus payments made by the assessee were for the annual benefits only not extending beyond one year. Its right to operate and manage the team is subject to prior payment of annual franchise fee; if the assessee fails to make the payment, then it would not be allowed to participate in IPL. Thus, the assessee has made the annual payments to earn the annual income. The nature of transaction/payment clearly demonstrates that the assessee is neither obtaining any enduring benefit by making payment of annual instalment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich gives a non-defaulting continuing member a right to access the Exchange and to participate therein and in that sense it is a licence or akin to licence in terms of s. 32(1)(ii) of the 1961 Act. That, such a right vests in the Exchange only on default/demise in terms of the rules and byelaws of BSE, as they stood at the relevant time. Our judgment should not be understood to mean that every business or commercial right would constitute a licence or a franchise in terms of s. 32(1)(ii) of the 1961 Act. Similarly, in the case of Jonas Woodhead And Sons (India) Ltd. (supra) the Hon‟ble Apex Court in the backdrop of the facts involved in the case before it, observed, that as the foreign company pursuant to an agreement with the assessee had provided technical know how and services for setting up of the plant and manufacturing of products, with no embargo on the assessee to continue with the manufacturing of the products even after the expiry of the agreement, therefore, an enduring benefit got vested with the assessee, and thus the payment made by the assessee for the same was a capital expenditure. We are of the considered view that unlike the facts involved in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Franchisee Fee to BCCI and the claim was examined and the Revenue could not controvert with any new evidences. We respectfully fallow judicial precedence and consider the Franchisee Fee paid to the BCCI as revenue expenditure and direct the Assessing officer to delete the addition and allow the claim of the assessee. Further the assessee has also raised alternative claim. We find that, when the Franchisee Fee paid is treated as revenue expenditure and directed the A.O to allow the claim, Hence the alternative claim becomes infructuous and is dismissed. 8. The second disputed issue the LdAR argued on the adhoc disallowance of Air-fare and Travelling expenses of ₹ 59,80,098/-and the contentions are that such expenditure has to be incurred on the VIP s and Celebrities to attract the crowd of the matches on the sports events. We find this issue was considered by the Tribunal in assessee s own case in ITA No. 4389/Mum/2015 for A.Y. 2011-12 at page 8 9 of the order as under: We find that in AY 2009-10 adhoc disallowance of 25% in respect of air fare and travelling expenditure was made by Assessing Officer on similar grounds. The Tribunal restored the issue back to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 that expenses under the said respective heads must had been incurred by the assessee in respect of actors, celebrities, and VIPs, cannot be sustained. However, keeping in view the fact that as observed by the CIT(A) that the assessee had failed to place before him any evidence e.g air tickets, details of vehicles, name of service providers, details of persons utilizing these services and their nexus with business etc, therefore, as per him the possibility of the expenditure partly having been incurred for non business purposes could not be ruled out, and the fact that the assessee too had submitted before us that sufficient opportunity was not allowed to it at the time when such adhoc disallowance of expenses was made, therefore, in all fairness restore the matter to the file of the A.O for making necessary verifications on the basis of documentary evidence as regards the entitlement of the assessee towards the claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 39,93,047/- from the aforesaid expenditure i.e. 33% of the total expenditure. We find that in assessment year 2009-10, the expenditure on aforesaid account was disallowed for similar reasons. The Tribunal restored the issue back to the file of Assessing Officer for de-novo consideration. The relevant extract of the findings of the Tribunal on this issue are reproduced herein under:- 55. ........................We are of the considered view that the aforesaid expenditure incurred by the assessee by hosting dinners on the days on which the matches were played at the home ground, which amongst others were attended by the aforesaid actors, celebrities etc, and arranging for their stay at the hotels of repute, can safely be held as an expenditure incurred by the assessee wholly and exclusively for the purpose of its business. We thus being of the considered view that as the expenditure incurred by the assessee on food and nutrition and boarding and lodging for the members of the team (including visiting teams), support staff, directors and the invited guests, which amongst others included actors, celebrities, VIPs, being in the nature of expenditure incurred by the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of the considered view that in the backdrop of the observations of the CIT(A) that either the assessee had failed to relate the aforesaid bills pertaining to hosting of dinners, tea parties etc., with the purpose for which the same had been incurred, or the same suffered from certain discrepancies as regards the amounts mentioned therein in comparison to those stated by the assessee during the course of the proceedings and had not been reconciled, therefore, in all fairness restore the matter to the file of the A.O for verifying as to whether the aforesaid bills, viz. (i). bill of ₹ 5,31,573/-, dated 30.04.2008; (ii) bill of ₹ 5,31,893/-, dated 08.05,2008; (iii). bill of ₹ 5,31,893/-, dated 13.05.2008; (iv). bill of ₹ 5,31,894/-, dated 20,05.2008; (v). bill of ₹ 4,51,900/-;and (vi) and bill of ₹ 5,31,893/-, dated 25.05.2008 pertained to expenses incurred by the assessee in the course of its business, or not. We may however clarify that the A.O shall while re-adjudicating the aforesaid issue keep in view our aforesaid observations. We thus in the backdrop of our aforesaid observations restore the matter to the file of the A.O for carrying out n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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