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2020 (5) TMI 395 - AT - Income TaxNature of expenditure - Expenditure being contribution to Cricket Academy u/s 37 - Revenue or capital expenditure - AO took the view that under the agreement assessee had marketing rights with regard to the Academy players, related rights i.e. with regard to admission of players and also the right to sign contracts of the players from the Academy thus would be capital in nature - HELD THAT - In respect of an identical payment made by the assessee under the very same agreement for establishing cricket Academy for assessment year 2010-11, the issue was considered by this Tribunal in 2018 (10) TMI 1163 - ITAT BANGALORE the Tribunal held that expenditure in question was revenue expenditure and should be allowed as a deduction. - Decided in favour of assessee.
Issues:
Whether revenue authorities were justified in disallowing expenditure being contribution to Cricket Academy under section 37 of the Income Tax Act, 1961. Analysis: The appeal involved a single issue regarding the disallowance of expenditure amounting to ?1,55,00,000 made by the Assessee to a Cricket Academy under section 37 of the Income Tax Act, 1961. The Assessee, a company acting as a franchise of the Board of Control for Cricket in India (BCCI)-Indian Premier League (IPL), entered into an agreement with Karnataka State Cricket Association (KSCA) to establish and operate a cricket academy. The contribution was to be made over a period of 5 years as per the agreement. The Assessing Officer (AO) disallowed the deduction, considering the expenditure to be capital in nature due to the exclusive rights and benefits the Assessee had under the agreement with KSCA. The AO observed that the expenditure aimed at building brand value and creating a pool of local talents, providing enduring benefits, and thus, was capital in nature. The AO added the disallowed amount to the total income of the Assessee. The Assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the AO's decision. Subsequently, the Assessee approached the Appellate Tribunal ITAT Bangalore. During the hearing, the Assessee cited a previous decision of the Tribunal in a similar case for the assessment year 2010-11 where the Tribunal allowed a similar contribution as a deduction. The Tribunal noted that the terms of the agreement were directly related to the business interest of the Assessee, allowing the contribution to be held as in business interest and thus, allowable as a deduction. The Tribunal directed the AO to allow the claim of the Assessee for the deduction of ?1.55 Crores, following the decision in the earlier assessment year. The Tribunal found the facts and the agreement in the present case to be identical to the previous case, and hence, allowed the expenditure as a deduction, overturning the decisions of the AO and CIT(A). In conclusion, the Appellate Tribunal ITAT Bangalore allowed the Assessee's appeal, directing the AO to allow the deduction of the contribution made to the Cricket Academy, totaling ?1.55 Crores, based on the precedent set by a previous decision of the Tribunal in a similar case.
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