2017 (2) TMI 335 - AT - Income Tax

Allowance of expenditure of direct and indirect nature - assessee is a cricketer receiving match fees/retainerships from various cricket bodies as declared under the head income from business and profession - Held that - Assessee clarifies that the assessing authority itself had verified correctness of the impugned expenses. The same however does not emanate from the assessment order. We further find that neither the Assessing Officer nor the CIT(A) has sought to establish a direct nexus between assessees professional income from playing cricket along with his expenditure in question claimed u/s.37. It is evident to us that the learned CIT(A) has merely drawn his conclusions qua genuineness aspect instead of establishing the above stated nexus between each head of expenditure vis- -vis assessee s taxable income declared. We deem it appropriate in these facts and circumstances that the issue in question requires Assessing Officer s re-adjudication in accordance with law after affording adequate opportunity of hearing to the assessee so as to prove the above direct nexus. - Decided in favour of revenue for statistical purposes.

Summary

Issues:
Revenue's appeal against deletion of expenses in assessment years 2009-10 & 2012-13.

Analysis:
1. The Revenue contended that the CIT(A) erred in deleting a portion of the expenses claimed by the assessee in both assessment years. The expenses in question were related to direct and indirect expenses incurred by the assessee in relation to his income from playing cricket sport, sponsorship, and marketing. The Assessing Officer disallowed a significant portion of these expenses, stating that they were not attributable to any business or profession of the assessee.

2. The CIT(A) partially reversed the Assessing Officer's decision, acknowledging that the appellant, a cricketer, had to incur expenses to earn the declared income. The CIT(A) found that the expenses claimed by the assessee were genuine and necessary for the profession of playing cricket. However, the CIT(A) also noted that certain elements of the indirect expenses might have personal elements, and therefore, disallowed a portion of these expenses while allowing the rest.

3. The ITAT, in its judgment, observed that there was a lack of direct nexus established between the professional income earned by the assessee from playing cricket and the expenses claimed under section 37 of the Income Tax Act. The ITAT emphasized that expenses should be wholly and exclusively incurred for the purpose of the business. The ITAT found that the CIT(A) had not adequately addressed this aspect and concluded that the issue required re-adjudication by the Assessing Officer to establish the direct nexus between the expenses and the taxable income of the assessee.

4. Consequently, the ITAT allowed the Revenue's appeals for statistical purposes in both assessment years, directing the Assessing Officer to re-examine the issue after providing the assessee with an opportunity to prove the direct nexus between the expenses claimed and the income earned from playing cricket. The judgment highlighted the importance of establishing a clear connection between expenses and income to determine the allowability of business expenditures under the Income Tax Act.