TaxTMI 
TaxTMI 
2018 (12) TMI 1820
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....ppellant craves to leave to add, to amend and / or to alter 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 *....
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....adhoc disallowance of a sum of Rs. 82,12,985 (i.e 25% of Rs. 3,28,51,941) 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 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 no....
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.... 13.10.2010 declaring loss of Rs. 86,67,016/-. Subsequently, the assessee-company has filed revised return of income on 29.12.2010 by incorporating the details of brought forward losses of AY 2008-09 and A.Y. 2009-10.The assessment was completed under section 143(3) on 28.03.2013. The Assessing Officer while 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....
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....es by team member. The 90% of the revenue from Sponsorship Right, it is payable to the matches plays by the team for the Season. The assessee has proactively allocated Sponsorship Right to revenue on IPL Season 2010 on pro-rata basis i.e. in ration of 50-50 on account of equal number of matches played prior to 31st March 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 supporte....
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.... for Assessment Year 2009-10. 14. On the other hand, the ld. DR for the Revenue after going through the decision of Tribunal conceded that these grounds of appeal are covered by the decision of Tribunal in assessee's own case for Assessment Year 2009- 10 in ITA No. 1307/Mum/2013 dated 29.12.2017. 15. We have considered the 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 ....
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....e identified in the commercial guidelines provided by BCCI-IPL. However, the assessee was not vested with any right in respect of the Central Rights and all rights in respect of the licensing of replica uniforms for any team in the league. 46. We have perused the various clauses of the franchise agreement, as per which the franchise rights had been vested with the assessee. 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 a....
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..... 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 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 ....
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....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 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 ....
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....uant 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 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....
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....penditure. In support of his submissions the ld AR for the assessee relied on the decision of Delhi High Court in CIT Vs Priya Village Roadshow Ltd. (2011) 332 ITR 594. 18. On the other hand, the ld. DR for the Revenue supported the order of lower authorities. The ld. DR submits that the case of the assessee is clearly covered by section 35D. 19. We have considered the rival submission of the parties and have gone 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 feasibilit....
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....ered the rival submission of the parties and have gone through the orders of authorities below. We have noted that the assessee has raised similar ground of appeal in appeal for A.Y. 2009-10 and the Tribunal restored the issues to the file of Assessing Officer with the following direction: 56. We shall now take up the disallowance of a sum of Rs. 95,63,132/- (i.e 25% of Rs. 3,82,52,527/-) being expenditure incurred in connection with 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 assesse....
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....observations of the A.O who had carried out an adhoc disallowance of 25% of the expenses, for the reason that the assessee must had incurred the expenses on such persons, viz. actors, celebrities, VIPs, which could not be held as an expenditure incurred wholly and exclusively for the purpose of its business. We are of the considered view that if the A.O had that strong a conviction that the aforesaid expenses incurred on the aforesaid persons 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 ....
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....wed for statistical purposes in terms of our aforesaid observations 27. 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 directions to verify the documentary evidences and grant appropriate relief to the assessee in accordance with law. Needless to direct that before passing the order the assessing officer shall grant opportunity 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 app....
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....addition of Rs. 37,37,007/-. We thus find that on the basis of his aforesaid observations the A.O had carried out an aggregate disallowance of Rs. 1,08,33,592/- out of the food and nutrition and boarding and lodging expenses claimed by the assessee. 55. We have deliberated on the observations of the lower authorities, and find that the primary reason which had weighed in the mind of the A.O while making the disallowance of expenses booked by the assessee 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. 1,13,24,2....
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....ness houses. We would not hesitate to observe that keeping in view the commercialization of the game of cricket, it would not be wrong to conclude that even if the assessee would have arranged paid visits of the actors, celebrities, VIPs for the matches, being well conversant with the fact that the same would substantially give a boost to his revenue collections from staging of matches, even the said payments would safely fall within the sweep of an expenditure 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, ....
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.... 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 the very interest of its business, therefore, in the absence of any irrefutable documentary evidence which could 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 t....
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.... by the assessee in the course of its business, or not. We may however clarify that the A.O shall while readjudicating 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 necessary verifications in respect of the limited issue for which the matter had been restored to his file. Needless to say, the A.O shall while re-adjudicating the aforesaid 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 d....