2020 (12) TMI 1058 - AT - Income Tax

Payment of Franchise fees to BCCI as per the Franchise Agreement - Nature of expenditure - allowable revenue expenditure - HELD THAT - Where the assessee has paid the 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. Adhoc disallowance of Air-fare and Travelling expenses - expenditure has to be incurred on the VIP s and Celebrities to attract the crowd of the matches on the sports - HELD THAT - 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 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. Adhoc disallowance of expenditure on Boarding and Lodging Food and Nutrition expenditure for Celebrities - A.O has disallowed 33% of the claim - HELD THAT - Relying on the decision for 2009-10 in assessee's own case, restored the issue to AO for fresh adjudication. Since the facts in the impugned assessment year are identical, we deem it appropriate to restore this issue back to the file of Assessing Officer with similar directions. In the result, grounds Nos. 7 and 8 of the appeal are allowed for statistical purpose

Issues Involved:
1. Acceptance of total returned income.
2. Deduction of franchise consideration – Capital or revenue expenditure.
3. Nature of annual consideration paid to BCCI.
4. Cost of intangible asset for computing depreciation.
5. Disallowance of airfare and traveling expenses.
6. Disallowance of lodging, boarding, and food and nutrition expenses.
7. Ad hoc additions to the returned income.
8. Levy of interest under sections 234B and 234D.
9. Initiation of penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Acceptance of Total Returned Income:
The assessee contested the non-acceptance of the total returned income. However, the judgment did not provide specific details or a ruling on this issue.

2. Deduction of Franchise Consideration – Capital or Revenue Expenditure:
The assessee paid ?30,03,60,000 as an annual franchise fee to BCCI, which was claimed as a revenue expenditure. The AO treated this as capital expenditure, arguing it provided an enduring benefit. The CIT(A) upheld this view, treating the fee as an intangible asset under section 32(1)(ii) of the Act. However, the Tribunal, following its own decisions in previous years (AY 2009-10 and AY 2010-11), ruled that the franchise fee is a revenue expenditure. The Tribunal directed the AO to delete the addition and allow the claim of the assessee.

3. Nature of Annual Consideration Paid to BCCI:
The AO considered the annual consideration paid to BCCI as a capital expenditure, treating it as an intangible asset. The Tribunal, referencing its earlier decisions, held that the payment facilitated participation in the league and did not create an enduring benefit. Thus, it should be treated as a revenue expenditure.

4. Cost of Intangible Asset for Computing Depreciation:
The assessee’s alternative claim regarding the cost of the intangible asset for depreciation computation was rendered redundant as the Tribunal ruled the franchise fee as a revenue expenditure.

5. Disallowance of Airfare and Traveling Expenses:
The AO made an ad hoc disallowance of ?59,80,098 (25% of ?2,39,20,390) for airfare and traveling expenses, arguing they were not wholly and exclusively for business purposes. The CIT(A) upheld this disallowance. The Tribunal restored the issue to the AO for fresh examination and verification, following its decision in the assessee’s own case for AY 2011-12.

6. Disallowance of Lodging, Boarding, and Food and Nutrition Expenses:
The AO disallowed 33% of the expenses claimed for lodging, boarding, and food and nutrition for celebrities, amounting to ?77,94,826. The Tribunal found the facts similar to earlier years and restored the issue to the AO for fresh examination, directing the AO to verify the expenses' nexus with the business.

7. Ad Hoc Additions to the Returned Income:
The assessee contested the ad hoc additions made to the returned income. The Tribunal restored the issues related to airfare, traveling, lodging, boarding, and food expenses to the AO for fresh verification, following its decisions from earlier years.

8. Levy of Interest Under Sections 234B and 234D:
The Tribunal found the levy of interest under sections 234B and 234D to be consequential and mandatory in nature, dismissing the assessee’s submissions on this ground.

9. Initiation of Penalty Proceedings Under Section 271(1)(c):
The Tribunal deemed the challenge to the initiation of penalty proceedings under section 271(1)(c) as premature and dismissed this ground of appeal.

Conclusion:
The appeal was partly allowed for statistical purposes, with several issues restored to the AO for fresh examination and verification. The Tribunal followed its previous decisions, treating the franchise fee as a revenue expenditure and directing the AO to re-examine the disallowances of other expenses. The levy of interest and initiation of penalty proceedings were upheld.

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