Franchisee Fee Ruled as Revenue Expenditure; AO to Review Travel Expenses; Penalty Proceedings Dismissed as Premature.

The ITAT partly allowed the assessee's appeal, holding the Franchisee Fee as revenue expenditure. The AO was directed to re-examine disallowances concerning air fare, travel, boarding, lodging, and food expenses. Issues of double taxation were resolved, and penalty proceedings were dismissed as premature. The order's delay was attributed to COVID-19 lockdowns.

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Issues Involved:
1. Nature of Franchisee Fee: Capital vs. Revenue.
2. Adhoc disallowance of air fare and travel expenses.
3. Adhoc disallowance of boarding, lodging, and food expenses.
4. Double taxation of sponsorship rights income.
5. Levy of interest under section 234D.
6. Initiation of penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Nature of Franchisee Fee: Capital vs. Revenue:

The primary issue was whether the Franchisee Fee paid by the assessee to BCCI for operating Kolkata Knight Riders (KKR) in the IPL was capital or revenue in nature. The assessee claimed it as revenue expenditure, while the Assessing Officer (AO) treated it as a capital expenditure, allowing depreciation at 25%. The Tribunal had previously adjudicated similar issues for assessment years 2009-10 and 2010-11, holding the Franchisee Fee as revenue expenditure. The Tribunal reiterated that the Franchisee Fee facilitated participation in the league for the specific year without creating an enduring benefit or asset. Thus, the Tribunal held the Franchisee Fee as revenue expenditure for the current assessment year as well, allowing grounds No. 2 and 3 of the appeal.

2. Adhoc Disallowance of Air Fare and Travel Expenses:

The assessee claimed air fare and travel expenses of Rs. 1,03,85,544/-, which the AO disallowed by 25% on the grounds that these expenses included costs for VIPs and celebrities, not related to the business. The Tribunal noted that similar disallowances were made in previous years and restored the issue back to the AO for de-novo adjudication, emphasizing the need for proper verification of the expenses. Grounds No. 5 and 6 were allowed for statistical purposes.

3. Adhoc Disallowance of Boarding, Lodging, and Food Expenses:

The assessee claimed expenses for boarding and lodging amounting to Rs. 95,85,836/- and food and nutrition expenses of Rs. 18,61,320/-. The AO disallowed 33% of these expenses arbitrarily. The Tribunal observed that similar issues were restored to the AO in previous years for fresh adjudication. Following the same approach, the Tribunal restored this issue back to the AO for verification. Grounds No. 7 and 8 were allowed for statistical purposes.

4. Double Taxation of Sponsorship Rights Income:

The assessee had filed a rectification petition under section 154 of the Act regarding the double taxation of sponsorship rights income. The AO passed a rectification order granting the necessary relief. Consequently, ground No. 9 was rendered infructuous and dismissed.

5. Levy of Interest under Section 234D:

The Tribunal noted that the charging of interest under section 234D is mandatory and consequential. Hence, ground No. 11 was dismissed as it lacked merit.

6. Initiation of Penalty Proceedings under Section 271(1)(c):

The challenge to penalty proceedings under section 271(1)(c) at this stage was deemed premature by the Tribunal. Therefore, ground No. 12 was dismissed.

Conclusion:

The appeal of the assessee was partly allowed. The Tribunal directed the AO to re-examine the disallowances related to air fare, travel, boarding, lodging, and food expenses, while the Franchisee Fee was held as revenue expenditure. The issues of double taxation and penalty proceedings were dismissed as either resolved or premature. The order was pronounced beyond the usual 90-day period due to the COVID-19 lockdown, following the precedent set by the Tribunal in similar circumstances.

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