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TMI Blog2017 (4) TMI 1188X X X X Extracts X X X X X X X X Extracts X X X X ..... agement fees - Held that:- We find that the assessee group had entered into an agreement with India Win,that it was a cosponsor of Mumbai Indian IPL team, that it had incurred similar expenditure in the subsequent two years, that out of the total expenditure the assessee had claimed a very small proportion under the head sponsorship expenses. Such an expenditure is for advertising the brand name of the Group.Being a recurring expendiuture, it had to be allowed as revenue expenditure. We find that in the case of Delhi Cloth and General Mills Co.Ltd.(1978 (4) TMI 75 - DELHI High Court) held that expenditure incurred for organizing sports events are allowable items of revenue expenditure as such events publicise the names of the sponsor.The AO was not justified in capitalising the expenses.The entire expenditure was rightly allowed by the FAA as revenue expenditure. After going through the details of expenditure incurred by assessee under the head managerial expenses, we are of the opinion that it had not got any enduring benefit from the expenditure incurred nor did the expenditure create any capital asset. Thus this ground of appeal against the AO. Disallowance of traveling expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO made additions/ disallowances under the heads Sales Support Services (Rs.2.03 crores),Sponsorship Fees(Rs. 16. 21lakhs),Management Fee(Rs.6.08 lakhs),travelling expenses ₹ 1.14 crores)Allocation of Management Expenses(Rs. 19.45 lakhs),Excess Amount Received (Rs.34.40 lakhs) and amount paid to Hariani Co.(Rs.7.77 lakhs). All the grounds of appeal, raised by the AO, pertain to additions/disallowances mentioned above. 2. First ground of appeal is about deleting the disallowance on account of Sale Support Service and Allocation of Management Fees.During the assessment proceedings,the AO observed that the assessee was following percent is completion method of accounting,that it had completed only 26.32% of the project, that expenditure only to that extent was required to be allowed, that the remaining expenses were to be disallowed and were to be capitalised as part of the work in progress as per Accounting Standard (AS-7),that same were to be claimed in the subsequent years, that the management fees was a capital expenditure, that same was true intangible asset, that the assessee was entitled to claim depreciation At the rate of 25%. Accordingly, out of the managem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in deleting the addition made by the AO,that he had rightly included the balance expenditure a part of work in progress.The Authorised Representative(AR)relied upon the order of the FAA and stated that expenditure incurred by the assessee was of revenue nature.He relied upon the cases of Ashish Builders Private Ltd.(ITA/310/Mum/2012 and ITA/1566/Mum/2011 AY.s 2008-09 and 2007-08 and other appeals, dated 23/09/2016), Sunny Vista Realtors Private Ltd. (ITA/ 4580/Mum/2013- AY.2009-10,dated 11/01/2017)and Hiranandani Palace Gardens Private Ltd. (ITA/4579/ Mum/ 2013 AY. 2009-10,date 30/12/2015). 2.3. We have heard the rival submissions and perused the material before us. We find that the AO had held that assessee could claim 26.3% of the expenditure incurred by it under the heads Sales Support Services and Management Fee, that it had completed roughly 26% of the project, that the balance expenditure was to be capitalised under the head work in progress, that he had made a reference to AS -7 for making the disallowance. It is true that AS-7 stipulates proportionate allowance of expenditure. But, certain expenditures are not covered by the provisions of the said accounting standa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contract site; ( e) costs of hiring plant and equipment; (f) costs of design and technical assistance that is directly related to the contract; (g) the estimated costs of rectification and guarantee work, including expected warranty costs; and (h) claims from third parties. These costs may be reduced by any incidental income that is not included in contract revenue, for example income from the sale of surplus materials and the disposal of plant and equipment at the end of the contract. 17.Costs that may be attributable to contract activity in general and can 10 be allocated to specific contracts include: (a) insurance; (b) costs of design and technical assistance that is not directly related to a specific contract; and (c) construction overheads. Such costs are allocated using methods that are systematic and rational and are applied consistently to all costs having similar characteristics. The allocation is based on the normal level of construction activity. Construction overheads include costs such as the preparation and processing of construction personnel payroll. Costs that may be attributable to contract activity in general and can be allocated to specific contracts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l against the AO. 3. Second ground of appeal pertains to deleting the disallowance on account of sponsorship fees and management fees.In the earlier part of our order,we have mentioned the facts about the various disallowances made by the AO including the capitalisation of sponsorship.Treating it as an intangible asset,he allowed depreciation on it @25%. 3.1. The FAA after considering the elaborate submissions of the assessee,held that it had entered into an agreement with the sports company namely India-Win in the month of March, 2010,that the assessee-group became cosponsor of Mumbai Indian IPL cricket team as an associate partner, that as per the agreement the ground logo of the assessee group was displayed permanently in the cricket stadium is also on the playing gear of the players,that in the terms of the agreement and amount of ₹ 4.50 crores was paid towards sponsorship fees during the year under consideration, that the sponsorship fees for different years had been apportioned and allocated to 3 entities of the assessee group which were using the brand logo in the ratio of their respective turnovers during the year, that out of the expenditure of ₹ 2.50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we decide second ground of appeal against the AO. 4. Next ground deals with deletion made on account of travelling expenses.During the assessment proceedings the AO found that the assessee had debited ₹ 1.14crores on account of travelling expenses.He directed it to show cause as to why expenses should be allowed.Vide its leters dt.29.10.2012 18/2/2013 the assessee made its submissions.After considering the same,he held that the assessee had failed to substantiate its claim, that the expenses were not incurred for carrying out its day to day business activities,that expenses were purely of personal nature,that it had failed to co-relate and prove that expenses were spent wholly and exclusively for business activities.Finally he made disallowance1,14,09,190/- and held that expenses were of personal nature and were not incidental to the business of the assessee. 4.1. During the appellate proceedings before the FAA,the assessee made elaborate submissions. After considering the available material,he held that perusal of the travelling expenditure proved that major part of expenditure had been incurred in respect of the directors namely,-Dheeraj Wadhwan and H.Bindra,tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 34.40 lakhs paid to the assessee had to be adjusted against amount payable to the sister concern.It referred to the letter of the KIPL,dated 6/ 02/2013, in that regard. After considering the submission of the assessee and the assessment order,the FAA held that excess amount of ₹ 84.14 lakhs was meant to be adjusted against short amount paid in respect of sister concern, that KIPL had, in its letter, confirmed the transaction,that there was no discrepancy in the position taken by the assessee or the supplier of the goods, that the amount refunded by KIPL to the assessee and its sister concern was equal to the amount paid as advanced by the group, that no excess payment was received by the assessee. Finally, he deleted the addition made by the AO. 5.2. Before us,the DR stated that matter could be decided on merits.The AR supported the order of the FAA. We find that the assessee had advanced ₹ 3.65 crores to the KIPL for supply of steel, that one of the sister concern also had advanced money to the supplier,that KIPL returned the money to the group by issuing two cheques of ₹ 2 crores each, that the assessee had paid ₹ 65.60 lakhs to its sister co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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