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TMI Blog2018 (1) TMI 786X X X X Extracts X X X X X X X X Extracts X X X X ..... quantification of the W.D.V for computing the depreciation in respect of the franchise rights is rendered as redundant and is not being adjudicated by us. The Ground of appeal No. 2 to 4 are allowed in terms of our aforesaid observations. Expenditure under the head “Franchise fee” - Held that:- We find that in the present case before us, as the liability as regards the Franchise fee as per Clause 7.1 (a) was to arise and assume the character of an expenditure on the date of the first match of the league in the year in which the league deposit was paid, therefore, as observed by us hereinabove, now when no match of IPL Season-2 was played till 31.03.2009, thus no expenditure in respect of the Franchise fee accrued at all during the year under consideration. We thus in the backdrop of our aforesaid observations, finding ourselves to be in agreement with the view taken by the lower authorities that the amount of ₹ 7,50,90,000/- cannot be held as a revenue expenditure in the hands of the assessee during the year under consideration, therefore, uphold the order of the CIT(A) to the said extent and dismiss the Ground of appeal no. 5 raised by the assessee before us. Disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. Disallowance of security charges expenses - Held that:- We are unable to comprehend the observation of the CIT(A) who had concluded that now when the police was taking care of the security arrangements in the stadium, therefore, it was the responsibility of the State of government to have provided the necessary security arrangements to the aforesaid persons. We are unable to persuade ourselves to subscribe to the aforesaid observations of the CIT(A). We are of the considered view that now when it stands established that the visits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Act ), dated 30.12.2011. The assessee assailing the order of the CIT(A) had raised before us 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 12 November 2012 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 upholding the order of the learned Assessing Officer ( AO ), buy confirming the total income of the Appellant at Rs/ 22,79,69,796 as against loss of ₹ 11,19,55,440 claimed as per the return of income. Deduction of franchise consideration Capital of revenue expenditure 2. erred in upholding the order of the learned AO, by confirming that annual consideration of ₹ 30,03,60,000 paid/payable by the Appellant to The Board of Control for Cricket in India ( BCCI ), which is revenue in nature, as a capital expenditure. 3. Erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the expenditure in connection with Boarding and Lodging 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. 10. Without prejudice to the above, * erred in upholding the 100% disallowance of a sum of ₹ 39,19,880 in connection with food and beverages arrangements provided to its team members, directors, invited celebrities and VIPs on the day on which matches were held at the Appellant s home stadium. * erred in upholding the arbitrary adhoc disallowance of a sum of ₹ 31,76,705 (ie 33% of ₹ 96,26,375) in connection with boarding and lodging of directors, invited celebrities and VIPs in ITC Ltdm and ₹ 37,37,007 (ie 33% of ₹ 1,13,24,264) towards boarding and lodging and food and nutrition expenses of other hotels. Arbitrary adhoc disallowance in connection with airfare expense, travelling expense and vehicle hire charges 11. erred in upholding the order of the learned AO, by confirming that the arbitrary adhoc disallowance of the expenditure in connection with airfare expense, travelling expense and vehicle hire charges on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned CIT(A). The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal at or before the hearing of the appeal, to decide the appeal according to law. 2. Briefly stated, the facts of the case are that the assessee company which was incorporated on 27.02.2008 as a 100% subsidiary of Red Chillies Entertainment Pvt. Limited had e-filed its return of income for AY 2009-10 on 30.09.2009, declaring loss of ₹ 11,19,55,440/-. The case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 3. The assessee company had entered into an IPL Franchise Agreement with BCCI IPL on 4th April, 2008 for Franchise rights of IPL team with home ground at Eden Garden, Kolkata, which was named as Kolkata Knight Riders (for short KKR ). That during the course of the assessment proceeding the A.O observed that as per the agreement dated 04.04.2008 between the assessee company and Board of Control of Cricket in India (for short BCCI ), the assessee was to pay for the period 2008-17 (inclusive) an annual Franchise fee of ₹ 30,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact the advance paid (is League Deposit) would be refunded if IPL does not take place that year. Thus, the payment obligation is directly linked with the IPL matches played in that year. There is no further benefit that will arise in future years from the event that is held in the current year. In view of the above, the payment of the annual consideration for the year enables KRSPL to be eligible to participate in the tournament for the subject year and also for the next year. However, it does not guarantee that the future participation is not secured by the payment in the current year 1.4 Hosting of the event: Further, Clause 2.3 of the Agreement states as under: Any non-staging of the League by BCCI-IPL (in whole or part) shall not constitute a breach of this Agreement for the purposes of clauses 11 or otherwise. KRSPL does not have the right to compel BCCI-PL to organize the event in any year. If in a particular year the event is not organized by BCCI then KRSPL neither pays annual consideration nor does it earn any revenue in that year. Thus the annual payment to BCCI-IPL is intrinsically linked to the hosting of the event for that year. In fact, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income chargeable under the head Profits and gains of business or profession ; and * not being in the nature of capital expenditure; The sum of ₹ 30,03,60,000/- paid to BCCI-IPL is expenditure which does not fall within sections 30 to 36 of the Act and such expenditure does not constitute personal expenses of the assessee. Therefore expenditure should be allowed as a deduction under section 37(1) of the Act if it is not capital expenditure and if it is laid out or expended during the previous year, wholly and exclusively for the purposes of the business. Therefore, we have provided below our submissions in support of the revenue nature of the annual consideration paid to BCCI. 1.9 The Act has not defined the terms capital expenditure and 'revenue expenditure', accordingly based on the principles laid down in the following judicial precedents a distinction has be made between 'capital expenditure' and 'revenue expenditure': * Securing a right for carrying on the business would be on revenue account and not a capital asset * Enduring benefit: Capital expenditure produces benefits for several previous years, whereas reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent for securing raw material and therefore revenue expenditure. * Enduring benefit: As highlighted above in Para 5.3, KRSPL does not get any enduring benefit by making the annual payment to BCCI IPL to operate the IPL team in Kolkata. The settled legal position in relation to the test of 'enduring benefit' is, what is material is to consider the nature of the advantage in a commercial sense. The payment of annual fee only enables it to operate the team for the year for which the payment relates to. The annual payment does not guarantee any future benef it to KRSPL either in terms of participating in the future tournament or earning future revenue. The payment only assists KRSPL in participate in the event for the current year and earn revenues by virtue of its participation. If KRSPL wants to participate in the tournament in the future year then it would have to pay the payment in the next year. Only when KRSPL makes the payment in the subsequent year that it gets the participate in the tournament and earn income from it. Since the benefit of the payment is restricted to the current year, there is no future benefit that accrues to KRSPL by making the annual franchise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of its website and the question arose whether it was capital or revenue. Allowing it as revenue, the Delhi High Court drawing support from the Apex Court decision in Alembic Chemical Works Co. Ltd vs. CIT 177 ITR 377, made the following worthy observations/findings: 7. Considered in the light of these principles enunciated by the supreme court, It is clear that just because a particular expenditure may result in an enduring benef it would not make such an expenditure of a capital nature. What is to be seen is what is the real intent and purpose of the expenditure and as to whether there is any accretion to the fixed capital of the assessee. In the case of expenditure on a website, there is no change in the capital asset of the assessee. Although the website may provide an enduring benef it to an assessee, the intent and purpose behind the purpose for a website is not to create an asset but only to provide a means for disseminating the information about the assessee.The same could very well have been achieved and, indeed, in the past, it was achieved by printing travel brochures and other published materials and pamphlets. The advance of technology and the wide-spread use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td vs. CIT 177 ITR 377 (SC) The circumstance that the agreement in so far as it placed limitations on the right of the assessee in dealing with the know-how and the conditions as to non-partibility, confidentiality and secrecy of the know-how incline towards the inference that the right pertained more to the use of know-how than to its exclusive acquisition and hence the expenditure would be revenue in nature. * Periodicity of payment: The acquisition of capital asset necessarily involves an upf ront payment. In the present case, KRSPL makes an annual payment and more importantly the benefit of the payment does not extend to subsequent years. * CIT Vs. L.A.E.C. (Pumps) Ltd 232 ITR 316 (SC) Where under an agreement with the foreign company, the assessee was granted exclusive licence to use patents and design for 10 years with option to extend or renew agreement and assessee was not to disclose documents to third parties, payment made by assessee to foreign company was to be treated as revenue expenditure. Conclusion In view of the facts of the case and the above judicial precedents, KRSPL wishes to submit that; a) The annual payment does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue expenditure in terms of the provisions of section 37(1) of the Act, and therefore the expenditure ought to be allowed as a deduction in computing KRSPL s income in the year in which it is incurred. 4. The A.O after giving a thoughtful consideration to the aforesaid contentions of the assessee was however not persuaded to subscribe to the same. The A.O after perusing the IPL Franchise Agreement and the various rights and obligations emerging there from, deliberated on the various aspects of the agreement, viz. (i). that BCCI had started the series by inviting bids to own and operate 8 teams for different locations and to be a part of and take part in the league; (ii). that the term of the league was indefinite as it was as long as the league continued; (iii). that the franchisees were entitled to sell their franchise to a third party or to effect a transfer of a controlling interest in the company which controlled the franchise after a minimum period of 3 years, subject to payment to IPL a percentage of a value of the business, viz. 10% for the first such sale or transfer and 5% thereafter; and (iv). that by virtue of the right to own and operate the respective franchise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation under Sec.32(1)(ii), or not. The A.O observed that the Hon ble Supreme Court had concluded that the right of membership which enabled the assessee to trade on the floor of the BSE and access the market, though was a personal permission, however, the same was a business or a commercial right which was similar to licence or franchise or akin to a licence , which thus brought it within the sweep of Sec. 32(1)(ii) of the Act. The A.O by relying on the aforesaid judgment of the Hon ble Apex Court, observed, that as in the case of the assessee also each franchisee got a right which enabled it to operate a team in the IPL for profit, therefore, the right to operate a franchise and to be a member of the league was a licence or franchise or akin to a licence or franchise , and thus an item of intangible asset contemplated in Sec. 32(1)(ii) of the Act. The A.O further in order to fortify his aforesaid conviction that the Franchise fee paid by the assessee was not a revenue expenditure, relied on the judgment of the Hon ble Supreme Court in the case of Jonas Woodhead Sons (India) Ltd. Vs. CIT (1997) 224 ITR 342 (SC). The A.O observed that in the case before the Hon ble Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Techno Shares Stock Ltd.(supra), he concluded that as the concept of diminishing value applied only to a tangible asset and not to an intangible asset, therefore, the assessee was entitled for claim of depreciation as regards the payment made towards Franchisee fee. That as regards the written down value (for short W.D.V ) on which the depreciation was to be allowed to the assessee, the A.O after deliberating on the terms of the invitation to tender (for short ITT ) which were called for at the time of bidding for various teams, observed, that the assessee was to pay 1/10th of the Franchise fee every year for the first 10 years and thereafter an amount equal to 20 percent of the rights income received w.r.t 11th year and each subsequent year, till the term of the league. The A.O observed that the assessee was to pay the Franchise fee in annual instalments of ₹ 30,03,60,000/- for the period 2008 to 2017 (inclusive), which sum was to be appropriated every year towards Franchise fee on the date when the first match of the league for that year was played. The A.O thus observed that the assessee had acquired the right to franchise in the year 2008 when it had paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nchise fee of ₹ 30,03,60,000/- was a capital expenditure on which the assessee was entitled for claim of depreciation. The CIT(A) did not find favour with the contention of the assessee that as the Franchise fee was paid for the right to participate in the tournament, without any guarantee that in the future year it will eligible to participate in the tournament, therefore, the same could not be characterised as a capital expenditure. The CIT(A) controverting the aforesaid contention of the assessee observed that since the franchisee was for a longer period, i.e. up to 2017, as evident from Clause 7.1(a),7.1(b),7.2,7.3, 8.1(a) and 8.1(b) of the agreement, therefore, the aforesaid claim of the assessee was factually incorrect. The CIT(A) further observed that from a perusal of the agreement it could safely be gathered that by virtue of making the payment of the Franchise fee as the assessee got a right to be a part of the league and own and operate the franchise, from exploitation of which revenues were generated in its hands, therefore, the claim of the assessee that the payment of the Franchise fee did not lead to any enduring benefit could not be accepted. The CIT(A) was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee on being called upon by the A.O to explain its aforesaid claim, submitted that in lieu of the agreement with BCCI which was entered on 04.04.2008, the entire franchise fee of ₹ 30,03,60,000/- for IPL Season-1 for the year 31 December, 2008 which was due for payment in the financial year 2008-09 was claimed as an expenditure in the books of account for the year ended 31st March, 2009. The assessee further submitted that as a period of 3 months (January, 2009 to March, 2009) pertaining to the IPL Season-2, viz. period 1st January, 2009 to 31st December, 2009 fell within the year under consideration, viz. A.Y 2009-10, therefore, the assessee who was following the mercantile system of accounting, had accordingly debited an amount of ₹ 7,50,90,000/ as an expense during the year under consideration (being 25% of ₹ 30,03,60,000/- for the 3 month period). The assessee in order to drive home its contention that the claim of the Franchise fee for the period January, 2009 to March, 2009 pertaining to IPL Season-2 was well in order, therein submitted before the A.O that as the said payment was made pursuant to a contractual obligation to discharge a liability, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement pay the remainder of the League Deposit in respect of 2008. The Lea.gue Deposit shall only be refundable in any year if the League does not take place at all in such gear In all in such circumstances shall be refunded without interest; and (ii) the sum of USD 5,256,300/- equivalent to INR 21,02,52,000/- (Rupees Twenty One Crores, Two Lakhs Fifty Two Thousand Only) which shall in each such year be paid on the date of the first match in the League in each such year. The A.O on the basis of his aforesaid observations concluded that as the liability of the assessee to pay the Franchise fee to BCCI crystallised only on the first day of the match of a series, therefore, since no match for IPL Season-2 was played on or before 31st March, 2009, thus no liability in respect of the payment of the Franchise fee for the IPL Season-2 had accrued to the assessee company during the year under consideration, viz. A.Y 2009-10. Thus, the A.O on the basis of his aforesaid conviction disallowed the claim of ₹ 7,50,90,000/- raised by the assessee before him. 9. The assessee assailing the aforesaid disallowance by the A.O, carried the matter in appeal before the CIT(A). The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. 2.5 Further, in the season - 2, out of the total f ranchisee fee of ₹ 30,03,60,000 (for the period January 2009 to 31 December 2009, the Appellant had to pay first installment of franchise fee of ₹ 9,01,08,000 by 2 January 2009 and the balance on the date of first match of the league. The Appellant follows the mercantile system of accounting. As per mercantile system of accounting, income and expenditure are recorded on accrual basis. Accordingly, where three months of season 2 fall in FY 2008-09 (January 2009 to March 2009), the franchisee fee pertaining to those three months was due in FY 2008-09. Accordingly, an amount of ₹ 7,50,90,000/- was debited as an expense for (being 25% of ₹ 30,03,60,000/- for the 3 month period). 2.6 In view of the above, the Appel lant has debi ted a sum of ₹ 37,54,50,000/- (i.e ₹ 30,03,60,000/- plus ₹ 7,50,90,000/-) in the profit and loss account and the same was claimed as deduction for tax purposes as well. We also have provided below the reasons backed by judicial precedents on the al lowabi l i ty of the f ranchise fees of ₹ 37,54,50,000 i.e ₹ 30,03,60, 000/- plus ₹ 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a loss was determined. This loss was claimed by the assessee as a deduction in a subsequent Assessment year (AY) 1950-51. The tax authorities held that the business of the factory was not carried out during the previous year in which the loss was claimed and disallowed it. The Supreme Court held that .the price for which the business was sold was settled in December 1949. Until the price was settled, loss did not accrue or arise to the company. The loss was suffered in the account year 1949-50 and could be allowed against the income of that year under section 24(1), the assumption that the loss was suffered in the previous year, i.e. 1948-49, was, in our-judgment, not warranted. * CIT v. Soorajmull Nagarmull (129 ITR 169) (Cal) In this case, it has been held that where the liabil ity to pay damages is under dispute, such liability would accrue only when the settlement of the dispute is made, even if the assessee is following the mercantile system of accounting. In view of the above, the liability to pay the franchise fees was determined in pursuance of the Agreement between BCCI-IPL and the Appellant in FY 2008-2009, and therefore such expense will be eligible as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in advance in that year itself but services rendered in next accounting year is taxable in next accounting year in which the services are rendered. Accordingly, revenue is recognized when all the acts have been completed. The addition of a bill issued by the assessee in FY 2003-04 but relating to services being rendered in FY 2004-05 should be taken as receipt in the accounting period 2004-05 and accordingly the addition on this account should be deleted. Similarly, expenses booked on accrual basis should be allowed as deduction in the period in which they have been incurred and pertain to, irrespective of the fact whether they have been paid out or not. * Further, in the case of CIT vs. Panacea Biotech Ltd (324 ITR 311) (Del), the Delhi High Court has held that in mercantile method of accounting, incurring of expenditure is not based on payment but on liability to pay. In view of the above, the Appellant prays before your Honour that the amount debited to profit and loss account by the Appellant amounting to ₹ 37,54,50,000/- (i.e ₹ 30,03,60,000/- plus ₹ 7,50,90,000/-) is an expense for the year ended 31 March 2009 and should be eligible as dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome and Expenditure statement of CAB revealed that the said amount was shown as refreshment for police force. The A.O concluded that as no written agreement was executed for the use of Eden Garden during the IPL matches, therefore, the genuineness of the payment of ₹ 75,00,000/-paid to Kolkata Police Family Welfare Centre was not proved. The A.O further observed that the claim of the assessee was also not justified for the reason, viz. (i) the amount was directly paid to Kolkata Police Welfare Fund which was not a Government Authority; (ii) that since the services of police was utilized during the IPL Matches, therefore, either the amount should have been paid to the State government or the assessee should have provided refreshment to police personnel on its own instead of giving the amount to a welfare fund; and (iii). that there was no cogent reason for the assessee to have paid the amount to Kolkata Police Family Welfare Centre, therefore, the same could not be treated as a bonafide expenditure. The A.O further concluded that the fact that the assessee had made TDS on the entire amount of ₹ 3,50,00,000/- would not make the payment of ₹ 75,00,000/- made to Kolka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned A.O has disallowed the expenditure based on the following reasons. * ₹ 75,00,000/- has been paid directly to the Kolkata Police Family Welfare Centre on the instructions of CAB and hence since the payment has not been made to the government authority for availing the services of the police, the same is not a genuine expense incurred for the purpose of business. * The Income and Expenditure accounts of CAB reflect this amount as refreshment for police force. your Honor would appreciate that incase of cricket match in a stadium there is always a need to utilize the services of police to ensure security of the players, attendants and spectators. Under the CAB arrangement with Appellant, it was the responsibility of CAB to arrange for security in the stadium for which a fee of ₹ 75,00,000/- was required to be paid by CAB to Kolkata Police. The Appellant utilized the services of police during the 7 matches scheduled in LPL 1 and the amount agreed by CAB with Police Department was then paid by the Appellant directly to Kolkata Police, at the direction of CAB. 3.5 In support of the above contention, the Appellant wish to bring your attention to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behalf of CAB for availing security services is a business expenditure of the Appellant and should be allowed as a deduction under section 37(1) of the Act. Accordingly, the Appellant prays before your Honour to hold that that security expenses incurred by Appellant are wholly and exclusively for the/ purpose of its business and should be allowable in terms of the provisions of section 37(1) of the Act. 13. The CIT(A) after deliberating on the contentions of the assessee, observed that the contentions advanced by the assessee before the A.O were found to be self contradictory, viz. (i) that on the one hand it was claimed by the assessee that the amount was paid to Kolkata Police Family Welfare Centre at the instruction of Cricket Association of Bengal, and; (ii) that on the other hand in the Income and Expenditure account of the Cricket Association of Bengal the amount was reflected as an expenditure for refreshment for police force. The CIT(A) observed that though the assessee had averred before him that the aforesaid amount was paid for facilitating providing of police services, but if that would had been so, then the said amount would had been paid to the State Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided by John Buchanan to the Appellant 's cricket Team. 4.2 During the course of the assessment proceedings, a copy of the service agreement ('Agreement') (enclosed as Annexure 8) with John Buchanan was filed vide submission dated 13 December 2011. The term of the service agreement is for 3 years i.e FY 2008-09, 2009-10 and 2010-2011. 4.3 However, the Learned A.O disallowed the sum of ₹ 1,28,34,490/- incurred by the Appellant towards services provided by John Buchanan for coaching the KKR team on the premise that agreement was executed on 07.01.2009 and not pertaining to IPL 1 (i.e Season 1). 4.4 At the outset, the Appellant with to bring to your notice that though the stamp paper is dated 07.01.2009, the agreement was executed documenting the commercial understanding agreed between the Appellant and John for a period of 3 years starting from IPL 1 to JPL 3 (i.e for Season 1 to Season 3). It is also a known fact that John Buchanan was the coach of KKR team for Season 1 of the IPL and then removed post dismal performance of KKR Team. 4.5 Separately, the Appel lant wish to draw your at tent ion to the relevant extracts of the Agreement to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d devoid of any valid and cogent reason. Thus, the payment made to John Buchanan is a business expenditure of the Appellant and should be allowed as a deduction under section 37(l) of the Act Accordingly, the appellant prays before your honour to hold that that coaching expenses incurred by appellant are wholly and exclusively for the purpose of its business and should be allowable in terms of the provisions of Sec. 37(1) of the Act. 16. The CIT(A) after giving a thoughtful consideration to the contentions raised by the assessee before him in the backdrop of the facts available on the record, however, did not find favour with the same. The CIT(A) observed that as the agreement between the assessee and Buchanan Corporate Coaching Trust for Buchanan Discretionary Trust was dated 07.01.2009, therefore, the same was entered after the IPL Season-1 matches were held during the month of April/May, 2008. The CIT(A) further observed that a perusal of Clause 2 (defining duration ) of the agreement revealed that the same was to be effective from the date of signature until 30th June, 2011 . Thus, in the backdrop of the aforesaid observations the CIT(A) concluded that as the agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses and boarding and lodging expenses incurred at ITC sonar, observed that the rooms were also used by celebrities along with the directors of the assessee company, as under:- S. No. Name of the Person Amount (in Rs.) 1. Shah Rukh Khan 5,18,389/- 2. Jay Mehta 8,90,596/- 3. Mohomed Morani 4,86,692/- 4. Farhan Aktar 12,242/- 5. Malika Khan 16,906/- 6. Vivek Oberai 29,379/- 7. Seema Khan 12,622/- 8. Neelam Kothari 15,571/- 9. Pradeep Dhoot 31,483/- 10. Ritesh Deshmuch 9,135/- 11. Karan Johar 11,942/- The A.O on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced a restriction on claiming entertainment expenses as an expenditure was no more available on the statute with effect from 01.04.1998, therefore, despite the fact that the assessee satisfied all the conditions contemplated under Sec. 37(1), the A.O had erroneously disallowed the said expenses while framing the assessment for the year under consideration. The assessee further adverting to the adhoc disallowance of ₹ 31,76,705/- made by the A.O as regards the boarding and lodging expenses, for the reason that the same were incurred in respect of celebrities, VIP s, relatives of directors, submitted that it was customary for the organizer to invite celebrities to the event for increasing the ticket sales and gaining momentum on T.V viewership. It was rather averred by the assessee that history was a witness that the events had gained prominence and attracted sponsorships only when celebrities attended the events. Rather, it was the claim of the assessee that as inviting the celebrities for the event attracted more eyeballs/increased sales, the sponsors too would come forth with higher sponsorships for the events. The assessee submitted that under the IPL format while for all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d date the amount mentioned in the submissions by the assessee was ₹ 6,83,071/- which could not be reconciled. Similarly, another bill of ₹ 5,31,893/- for 25.05.2008 was also stated to be of ₹ 6,69,698/- in the submissions and could not be reconciled by the assessee. The CIT(A) further upholding the view of the A.O observed that as from a perusal of the bills placed on record by the assessee nothing could be gathered, except for the fact that the same were paid for a party, therefore, a clear nexus of the expenditure incurred and the purpose of the business did not emerge from the same. The CIT(A) concluded that the assessee had failed to justify that the entire expenditure was incurred for the purpose of business and was allowable as per the provisions of Sec. 37(1) of the Act. Thus, the CIT(A) on the basis of his aforesaid deliberations upheld the 100% disallowance of the expenses aggregating to ₹ 39,19,880/- claimed by the assessee. 20. The CIT(A) further taking cognizance of the room bills of ₹ 96,26,375/- out of which the A.O had disallowed 33%, viz. ₹ 31,76,705/-, observed that the same could safely be held to have been incurred by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts claim that no part of the air fare expense, travelling expense and vehicle hire charges were liable to be disallowed, therein submitted before the CIT(A), as under: - 6. 1 Fur ther, during the subject year, the Appel lant had incurred expenditure towards airfare expenses of ₹ 3,28,96,505/-, travelling expenses of ₹ 12,66,462/- and vehicle hire charges of ₹ 40,89,560/-, for the members of the team and support staff and other dignatories. 6.2 During the course of assessment proceedings, the Appellant had submitted vide submission dated 10 May 2011 copies of supporting evidences. 6.3 however, the Learned AO wi thout any val id and cogent reason made an adhoc disal lowance of ₹ 95,63,132/ - as follows: Sr. No. Particulars Amount (Rs. ) Percentage of disallowance (Rs.) Amount of Disallowance (Rs.) 1. Air are Expenses 3,28,96,505/- 25% 82,24,126/- 2. Travelling Expenses 12,66,462/- 25% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 95,63,132/- are wholly and exclusively for the purpose of its business and should be al lowable in terms of the provisions of sect ion 37(1) of the Act. 23. The CIT(A) after deliberating on the aforesaid contentions of the assessee was however not persuaded to subscribe to the same. The CIT(A) observed that as the assessee had failed to produce before him any evidence, viz. air tickets, details of vehicles, name of service provider, persons utilizing the services and their nexus with the business of the assessee etc., therefore, the possibility of the expenditure having been incurred for non-business purposes could not be ruled out. Thus, the CIT(A) on the basis of his aforesaid observations upheld the part disallowance of ₹ 95,63,132/- made by the A.O. 24. The A.O during the course of the assessment proceedings observed that the assessee had claimed security charges expenditure of ₹ 60,700/- paid to Scorpion s and ₹ 48,000/- paid to Ace Security for security charges incurred for VIPs and celebrities. The A.O after perusing the vouchers for the aforesaid expenses observed that the same were clearly marked as Celebrity Security at Eden Garden , Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on security charges of the invited guest, VIP's and celebrities during the captioned AY. 7.4 However, the Learned AO disallowed ₹ 1,08,700/- incurred by the Appellant during the matches towards security charges for the members of the KKR team and the VIP guests of the Appellant on the premise that these are personal expenses. 7.5 It is submitted before your Honour that the above expenditure of ₹ 1,08,700/- are genuine business expenditure incurred for the security charges of the Appellant 's own team, visiting teams, support staff, directors and invited guests (being celebrities and VIPs) and should be allowed as a deductible expenditure under section 37(l) of the Act as it satisfies all the following conditions: * The expenses are not of the nature defined in section 30 to 36 of the Act; * The expenses are not capital in nature; * The expenses are not the personal expenses of Appellant; and * The expenses have been incurred wholly and exclusively for the purposes of the business of Appellant. It is submitted that, since the expenses incurred by Appellant satisfy the abovementioned conditions, the security expenses shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the disallowance of the aforesaid expenditure of ₹ 8,85,600/-assailed the same in appeal before the CIT(A). The assessee submitted before the CIT(A) that it had during the year under consideration made payments amounting to ₹ 8,85,600/ to Mr. Manish Malhotra in connection with participation in the Lakme Fashion Week and Wills Lifestyle India Fashion Week, both of which events were held in March, 2009. The assessee explaining the genesis of the aforesaid payments submitted before the CIT(A) that Mr. Manish Malhotra had already paid the amount of ₹ 8,85,600/- for participating in both of the aforesaid events, which thereafter was reimbursed to him by the assessee in March, 2009. The assessee submitted before the CIT(A) that the underlying purpose of participating in the fashion shows was to advertise and promote the KKR team. Thus, it was the contention of the assessee that as both the fashion shows were organised in March, 2009, therefore, they were recognized as an expense for the year under consideration, viz. A.Y 2009-10. The assessee dislodging the observations of the A.O on the basis of which he had disallowed the aforesaid expenses, therein clarified that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed the claim of expenditure of ₹ 8,49,305/- raised by the assessee in its return of income. 31. Aggrieved, the assessee assailed the disallowance of the website design charges expenses by the A.O, before the CIT(A). It was submitted by the assessee that as the website design charges of ₹ 16,98,609/- were incurred in connection with designing of the website whose benefit was available over a period of two years, therefore, the assessee had erroneously recognized only 50% of the said expenses, viz. ₹ 8,49,305/- during the year under consideration. It was submitted by the assessee that as the concept of deferred revenue expenditure was not recognized under the income tax provisions, therefore, the aforesaid website design expenses which were incurred by the assessee not for the purpose of improvisation of a fixed asset, but were incurred to facilitate its business operation, was thus allowable in toto during the year under consideration, viz. A.Y 2009-10. The assessee in the backdrop of his aforesaid contentions requested the CIT(A) to grant the additional deduction of the balance 50% of the deferred website expenses also during the year under consideration. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ightly disallowed by the A.O by treating it as capital in nature. 33. The learned authorized representative (for short A.R ) for the assessee Shri J.D. Mistry, Senior Counsel, at the very outset took us through the facts of the case and submitted that the assessee company had entered into an IPL franchise agreement with BCCI-IPL on 04.04.2008 for franchise rights of IPL team with home ground at Eden Garden, Kolkata, which was named as Kolkata Knight Riders (for short KKR ). The ld. A.R submitted that though the assessee had claimed the Franchise fee paid for participating in the tournament for the subject year as a revenue expenditure, however, the A.O by characterising the same as a capital expenditure, had restricted the claim of the assessee only to the extent of the depreciation relatable to the same. The ld. A.R in order to drive home his aforesaid contention submitted that the Franchise fee paid by the assessee was in the nature of a recurring annual payment which was paid for participating in the league and operating the team for the year for which the payment was made. The ld. A.R submitted that as the payment of Franchise fee neither vested any right of participation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards League deposit on or before 2nd January in each such year, which thereafter was to be appropriated towards the annual Franchise consideration on the date of the First match of the League in the year in which the League Deposit was paid. That still further an amount of USD 52,56,300/- equivalent to INR 21,02,52,000/- was to be paid by the assessee in each such year on the date of First match in the League in each such year. The ld. A.R in order to support his claim that the payment of the Franchise fee did not lead to vesting of any enduring benefit with the assessee, and as such could not be held to be in the nature of a capital expenditure, drew our attention to Clause 10 of the Franchise agreement (Page 65 of APB ), which provided that the franchisee had no right to assign or delegate the performance of any right or obligation under the agreement. The ld. A.R further in order to buttress his contention that no absolute right of an enduring nature got vested with the assessee on the payment of the Franchise fee, further took us through Clause 11 of the franchise agreement, which provided that in case of a breach by the franchisee of its payment obligation under the agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . M/s Deccan Chargers Sporting Ventures Ltd. (ITA No. 1043/Hyd/2013, dated 28.10.2015. The ld. A.R in support of the proposition under consideration also relied on the order of ITAT C Bench, Chennai in the case of ACIT Vs. M/s The India Cement ltd. (ITA No. 1342/Mds/2010, dated 01.01.2016). 34. The ld. A.R further adverted to his claim of an amount of ₹ 7,50,90,000/- pertaining to IPL Season-2 as an expenditure for the year under consideration. The ld. A.R submitted that the amount of ₹ 7,50,90,000/- was claimed by the assessee as an expenditure for the year, as the period of first three months (January, 2009 to March, 2009) fell within the year under consideration, viz. A.Y 2009-10, however, the same was disallowed by the A.O for the reason that the said claim of the assessee militated against the matching principle of accounting and did not pertain to the year under consideration. The ld. A.R. once again drew our attention to the definition of the term Year , which provided that the same was to be taken as the 12 month period (or part thereof) from 1 January to 31 December during the term, with the exception for the first year, where the same was to be taken fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... security at the stadium, therefore, at the direction of CAB the assessee had made a payment of ₹ 75,00,000/- directly to Kolkata police department for security services to be provided at the stadium. It was thus submitted by the ld. AR that as the aforesaid expenditure was incurred in the normal course of the business of the assessee, therefore, the same was allowable as an expenditure in the hands of the assessee. 36. The ld. A.R further taking us through the disallowance of the fee of ₹ 1,28,34,490/- paid/payable to Mr. John Buchanan, therein took us through the Services Agreement- Director: Cricket Operation (Page 113 of APB ). The ld. A.R took us through the relevant pages of the agreement, in order to impress upon us that Mr. John Buchanan had provided coaching services to the assessee team in 2008 for the IPL Season-1. The ld. A.R submitted that the service agreement between the assessee and Mr. John Buchanan was for three seasons, i.e. 2008-09, 2009-10 and 2010-11, in terms of which the assessee as per the directions of Mr. John Buchanan was to make payments for the said services to Buchanan corporate Coaching trust. The ld. A.R in order to remove any scop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emains as a matter of fact that the visiting teams along with people from the show business, actors, celebrities, VIPs etc., were invited for the matches with the purpose of pushing the sale of tickets and generation of higher amount of sponsorship fees. The ld. A.R submitted that the A.O had erred in disallowing the aforesaid expenses for the reason that the same were not related to the business of the assessee. The ld. A.R took us through the observations of the CIT(A) recorded at Page 54 - Para 8.2 of his order. The ld. A.R submitted that as Sec. 37(2) which earlier provided a restriction on claim of entertainment expenditure while computing the income was struck down from the statute w.e.f 01.04.1998, therefore, the incurring of the aforesaid expense which satisfied all the requisite conditions contemplated under Sec. 37(1) was though allowable in the hands of the assessee, was however wrongly disallowed by the A.O. The ld. A.R in support of his aforesaid contention relied on the order of the Hon ble High Court of Delhi in the case of CIT Vs. Hira lal Sons (2000) 242 ITR 407 (Del) and the order of the coordinate bench of the Tribunal, viz. ITAT Mumbai in the case of ACIT Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in F.Y: 2008-09. It was the contention of the ld. AR that for allowability of an expenditure in a particular year it was not necessary that the same must be one required for the purposes of carrying on the business or earning of profits of that year. The ld. A.R in support of his aforesaid contention relied on the judgment of the Hon ble High Court of Bombay in the case of Mysore Spinning and Manufacturing Co. Ltd. Vs. CIT (1966) 61 ITR 572 (Bom) (Para 38 of the order). 41. The ld. A.R lastly in context of the disallowance by the A.O of the website designing expenses of ₹ 8,49,305/-which had been sustained by the CIT(A), therein submitted that as the said expense was not incurred in connection with improvisation of a fixed asset, but with an object to facilitate the business operation, therefore, the same was to be allowed as a revenue expenditure. The ld. A.R in support of his aforesaid contention relied on the order of the ITAT, Mumbai in the case of DCIT Vs. Edelweiss Captial Ltd. (Mum) (ITA No. 3971/Mum/ 2009) and Radial Marketing Pvt. Ltd. Vs. ITO (ITA No. 3868/Mum/2008), and the order of the ITAT Delhi in the case of CIT Vs. India Visit.Com. Pvt. Ltd. (2008) 219 CT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92/-, the ld. D.R relied on the orders of the lower authorities. That as regards the adhoc disallowance of 25% of air fare expenses, travelling expenses and vehicle hire charges of ₹ 95,63,132/- the ld. D.R again took support of the orders of the lower authorities. That as regards the disallowance of the security charges of ₹ 1,08,700/- the ld. D.R relied on the order of the CIT(A). That in respect of the disallowance of expenses of ₹ 8,85,600/- incurred by the assessee on participation in fashion shows, the ld. D.R submitted that as observed by the lower authorities, as the said expenses were not incurred for the business of the assessee, therefore, the same had rightly been disallowed. Thus, on the basis of the aforesaid submissions, it was averred by the ld. D.R that as the appeal of the assessee was devoid of any merit, therefore, the same may be dismissed. 44. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the present case is sought for adjudicating multiple issues emerging from the order of the CIT(A), viz. (i) that as to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation to pay to BCCI-IPL the annual Franchise fee of the following amount: (a). in respect of the period 2008-17 (inclusive), as under:- (i) a sum of USD 22,52,700/- equivalent to INR 9,01,08,000/- towards League deposit on or before 2nd January in each such year, which thereafter was to be appropriated towards the annual Franchise consideration on the date of the First match of the League in the year in which the League Deposit was paid. The League deposit was refundable in any year if the league did not take place at all in such year, under which circumstance the amount was to be refunded without interest; AND (ii) a sum of USD 52,56,300/- equivalent to INR 21,02,52,000/- was to be paid by the assessee every year on the date of the First match of the League in each such year. (b). that from and including the year 2018 onwards, the franchisee remained under an obligation to pay an amount equal to 20% of the franchisee income received in respect of such year, which sum was to be paid in four instalments, i.e within 60 days of 31st March, 30th June, 30th September and 31st December in 2018 and each subsequent year of the term. We further find that the term Ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. We further find that the year under consideration was the first year , and as such was to be construed from the date of signing of the agreement till 31st December, 2008. We have deliberated at length on the rights and obligations contemplated in the franchise agreement. We find that in case of non-staging of the league by BCCIIPL (in whole or part) the same was not to constitute a breach of the agreement, and the assessee was divested of his right to take any legal action against the other party, viz. BCCI or enforce the playing of the matches. We further find that as can fairly be gathered from perusing the details of the Central licensing/Franchisee licensing as defined in the franchisee agreement per the terms of the agreement, all the broadcasting rights as regards the telecast of the matches remained with the BCCI, while for the assessee was only vested with the rights as that of a franchisee. We further find that the assessee as gathered from Clause 10 of the franchise agreement was not vested with any right to assign or delegate the performance of any right or obligation under the agreement. That still further as per Clause 22 of the agreement, in case of breach b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... litating the assessee to participate in the league tournaments for IPL Season-1. We have deliberated on the nature of rights of the assessee franchisee on payment of the Franchise fee and find that while for the Central Rights were retained by BCCI, the Franchisee rights remained with the assessee. We further find that though by making the payment of the Franchise fee the assessee got a right to participate in the league and operate its home team for the year for which the payment was made, but however, the non-staging of the league by BCCI-IPL (in whole or part) would not constitute a breach of the agreement, and the assessee was neither vested with any right to enforce the playing of such matches by BCCI nor had any right to take any legal action for the said failure on the part of the BCCI to stage the matches. We have further observed that the aforesaid franchise rights as per Clause 16 of the franchise agreement were personal to the franchisee and it had no right to either assign the agreement or to sub-contract or otherwise delegate the franchisees obligations under it without the BCCI-IPLs written consent. We further find that the issue before us as to whether the Franch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble on facts. We find that in the case of Techno Shares Stocks Ltd. Ors (supra) the issue before the Hon ble Apex Court was as to whether the right of membership conferred upon the members under the BSE membership card is a business or commercial right which gives a non-defaulting continuing member a right to access the exchange and to participate therein, and in that sense a license or akin to licence in terms of Sec. 32(1)(ii) of the Act. We find that as the aforesaid right of membership conferred upon the members under the BSE membership card an enduring benefit, which would vest with the stock exchange only on the default/demise in terms of Rules and bye-laws of BSE, therefore, it was in the backdrop of the aforesaid material facts that the Hon ble Apex Court had concluded that the same was an intangible right which was entitled for claim of depreciation. We may herein observe that the Hon ble Apex Court in the aforesaid case had as a word of caution observed that the said judgment may not be understood to mean that every business or commercial right would constitute a licence or a franchise in terms of Sec. 32(1)(ii) of the Act, by holding as under: 24. Before c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 30,03,60,000/- paid by the assessee to BCCI is a revenue expenditure, therefore, the contentions of the assessee as regards quantification of the W.D.V for computing the depreciation in respect of the franchise rights is rendered as redundant and is not being adjudicated by us. The Ground of appeal No. 2 to 4 are allowed in terms of our aforesaid observations. 48. We shall now take up the validity of the disallowance of an amount of ₹ 7,50,90,000/- claimed by the assessee as an expenditure under the head Franchise fee for the year under consideration, viz. A.Y 2009-10. We find that as a period of the first three months (January, 2009 to March, 2009) pertaining to IPL Seaosn-2 fell within the sweep of the year under consideration, viz. A.Y 2009-10, therefore, the assessee who was following mercantile system of accounting, being of the view that the proportionate fee for a period of 3 months of IPL Season-2 was relatable to the year under consideration, had thus booked the same as an expenditure in A.Y 2009-10. We find that the assessee had assailed the disallowance of the aforesaid amount before the CIT(A) on the ground that as per Clause 7.1(a) of the franchis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure by the assessee during the year under consideration. Before parting, we may herein clarify that to the extent the league deposit of ₹ 9,01,08,000/- which the assessee had paid as a deposit as per Clause 7.1(a)(i) of the franchise agreement, the same till the date of its appropriation as against the annual franchise consideration on the date of the first match of the league in the year in which the league deposit was paid, could only be characterized as an advance/deposit, i.e an amount deposited by the assessee on account of a contractual obligation. We find that the reliance placed by the ld. A.R on the judgment of the Hon ble Supreme Court in the case of Taparia Tools Limited Vs. Joint Commissioner of Income-tax (2015) 372 ITR 605 (SC) is distinguishable on facts. The facts in the case before the Hon ble Apex Court were that the assessee had issued debentures with two options as regards payment of interest, viz. (i). the debenture holders could either receive interest periodically, that is every half yearly @ 18% per annum over a period of five years; or (ii). the debenture holders could opt for one time upfront payment of ₹ 55 per debenture. That as per the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration, was well in order. The Hon ble Apex Court observed as under: 15) What is to be borne in mind is that the moment second option was exercised by the debenture holder to receive the payment upfront, liability of the assessee to make the payment in that very year, on exercising of this option, has arisen and this liability was to pay the interest @ ₹ 55 per debenture. In Bharat Earth Movers v. Commissioner of Income Tax (2000) 6 SCC 645, this Court had categorically held that if a business liability has arisen in the accounting year, the deduction should be allowed even if such a liability may have to be quantified and discharged at a future date. We have given a thoughtful consideration to the judgment of the Hon ble Supreme Court and find that the observations of the court that as the payment of interest was made by the assessee in lieu of an expenditure that had accrued and crystallised during the year itself, therefore, the same was allowable in its hands, rather fortifies the view taken by us in the present case. We find that in the present case before us, as the liability as regards the Franchise fee as per Clause 7.1 (a) was to arise and assume the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Welfare Centre at the instructions of CAB, however, a perusal of the income and expenditure statement of CAB revealed that the amount was shown as refreshment for police force; (ii) that as no written agreement was executed for the use of Eden Garden during the IPL matches, therefore, the genuineness of the payment of ₹ 75,00,000/-paid to Kolkata Police Family Welfare Centre was not proved; (iii) the claim of the assessee was also not justified for the reason that the amount was directly paid to Kolkata Police Welfare Fund which was not a Government Authority, and since the services of police were utilized during the IPL Matches, therefore, either the amount should have been paid to the State government or the assessee should have provided refreshment to police personnel on its own, instead of giving the amount to a welfare fund; and (iv) that there was no cogent reason for the assessee to have paid the amount to Kolkata Police Family Welfare Centre, therefore, the same could not be treated as a bonafide expenditure. 51. We have deliberated at length on the aforesaid observations of the lower authorities, but however, are unable to persuade ourselves to subscribe to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the assessee. We are of the considered view that the observations of the lower authorities as regards the genuineness of the payment and the fact as to why the said amount was paid by the assessee to Kolkata Police Welfare fund which was not a government authority, and not to the State government, or as to why the assessee instead of giving the amount to a welfare fund had not provided refreshment to police personnel on its own, are all irrelevant to the entitlement of the assessee for the claim of the aforesaid amount as an expenditure in the course of its business. We have deliberated on the facts and are of the considered view that the payment of ₹ 75 lac was made by the assessee to Kolkata Police Welfare fund, not by its choice, but as per the directions of CAB who was responsible to arrange for security in the stadium at the time of staging of the matches by the assessee. We thus not being persuaded to be in agreement with the observations of the lower authorities as regards the allowability of the claim of the amount of ₹ 75,00,000/- (forming part of total expenditure of ₹ 3,50,00,000/-) paid by the assessee as per the directions of CAB to Kolkata Po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere it could be gathered that Mr. John Buchanan had provided coaching services to the assessee team, viz. Kolkata Knight Riders in IPL Season-1 (Page 127 129 of APB ). We have perused the service agreement which reveals that the same was executed by Mr. John Buchanan, both in his individual capacity and in his capacity as director of Buchanan success cricket coaching Pty ltd. (ACN) as trustee of the Buchanan discretionary trust, having its address at 26, Love Street, Holland Park, Queensland, Australia. Thus, in the backdrop of the aforesaid facts, the adverse inference drawn by the lower authorities as regards the genuineness and veracity of the allowability of the claim of the assessee for the reason that the amount was paid to a discretionary trust, is thus put to rest. We further find that though it remains as a matter of fact that the agreement was signed on 07.01.2009, i.e much subsequent to the period the IPL Season-1 matches were played, however, a bare perusal of the agreement reveals that the same specifically provided that it was executed for 3 seasons, viz. 2008-09, 2009-10 and 2010-11 and shall become effective from the date of signing till 30th June, 2011. We furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... team in IPL Season-1. We further find that the revenue had neither placed on record any irrefutable documentary evidence which could persuade us to conclude that no coaching services were provided by Mr. John Buchanan to the assesse s cricket team for IPL Season-1, nor the material placed on record by the ld. A.R before us to fortify his aforesaid claim had been rebutted or disproved by the ld. D.R. We thus being of the view that the claim of the assessee as regards the expenditure of ₹ 1,28,34,490/- in respect of the coaching fees paid to Mr. John Buchanan for IPL Season-1 is found to be in order, therefore, set aside the order of the CIT(A) to the extent the latter had sustained the addition/disallowance of ₹ 1,28,34,490/- made by the A.O. The Ground of appeal of no. 7 and 8 raised by the assessee are allowed. 54. We now advert to the disallowance by the A.O of the expenses which were claimed by the assessee in its profit and loss account for the year under consideration, which thereafter had been sustained by the CIT(A), viz. (i) out of food and nutrition expenses: ₹ 58,53,575/-; and (ii) out of boarding and lodging expenses of ₹ 1,90,16,944/-. We fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see on booking of rooms at ITC, sonar, Kolkata, and a further disallowance of 33% of the balance expenditure of ₹ 1,13,24,264/-. We find substantial force in the contention of the ld. A.R that the aforesaid expenses were incurred by the assessee in the course of operating its teams, wherein the visiting teams alongwith people from show business, actors, celebrities, VIPs etc, were invited for the matches for the purpose of increasing the viewing of the matches, which thus consequently led to increase in sale of tickets and generation of higher amount of sponsorship fees. We have deliberated on the contentions raised by the authorized representatives for both the parties and the material available on record. We are of the considered view that it remains as a matter of fact that the game of cricket, unlike in the past, as on date had been highly commercialized. We find that the main source of income of an IPL franchisee from hosting of the cricket matches is from ticketing and receipt of sponsorships by staging the cricket matches. We are of the considered view that it remains no hidden a fact that in order to boost the ticket sales and to receive higher sponsorships the franch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ps at the venues where the matches are staged is strategically planned by the assessee in the very interest of its business, therefore, expenses incurred by the assessee by way of providing them food and nutrition or arranging for their stay in hotels can safely be held to be an expenditure incurred in the course of its business. We are further of the view that hosting of parties by the assessee at ITC, sonar Kolkata or at other venues on the days when the matches were played at the home grounds of the assessee, which were attended by the assessee s own team, visiting teams, support staff, directors and invitee guests, which included amongst others actors, celebrities, VIPs who had marked their presence at the matches, can safely be held to be expenditure incurred by the assessee in the very interest of its business. We are of the considered view that the allowability of an expenditure under Sec.37(1) of the Act is required to satisfy the requisite condition contemplated therein, viz. (i) the expenses are not of the nature of the expenses defined in Sec.32 to 36 of the Act; (ii) the expenses are not in the nature of a capital expenditure; (iii) the expenses are not the personal exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghtly stated that this is the way the assessee carries out his business, and are of the considered view that as long as the claim of the assessee in respect of the aforesaid expenses satisfied the conditions contemplated under Sec. 37 (1), the entitlement of the assessee cannot be interfered with. However, while perusing the order of the CIT(A) we find that latter had referred to certain bills wherein a clear nexus between the expenditure incurred and the purpose of hosting the parties could not be established, viz. (i) bill of ₹ 3,44,410/- for 300 snacks, 300 soft beverages and transport charges, wherein nothing could be gathered from perusing the same about the purpose and persons attending the party; (ii) bill of ₹ 5,31,573/-, dated 30.04.2008 which though was raised in favour of IPL ODC for dinner of 400 persons, however, as to how the same was payable by the assessee had remained unexplained; (iii). That certain other bills, viz. bill of ₹ 5,31,893/- for 08.05.2008; bill of ₹ 5,31,893/- for 13.05.2008; and bill of ₹ 5,31,894/- for 20.05.2008, which included dinner, equipment rental, tobacco, etc, but they too did not indicate the purpose and the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred expenses on food and stay of VIPs and celebrities, therefore, the airfare expenses of ₹ 3,28,96,505/-, travelling expenses of ₹ 12,66,462/- and vehicle hire charges of ₹ 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). ₹ 82,25,126/- out of airfare expenses; (ii). ₹ 3,16,616/- out of travelling expenses ; and (ii). ₹ 10,22,390/- out of vehicle hire charges, as a result whereof a total disallowance of ₹ 95,63,132/- was made by him. We find that the assessee had claimed that during the course of the assessment proceedings documentary evidence supporting the aforesaid expenses incurred by it were furnished with the A.O. However, the CIT(A) while upholding the adhoc disallowance made by the A.O observed that the assessee had failed to produce before him any evidence, viz. air tickets, details of vehicles, name of service providers, persons utilizing the services and their nexus with the business of the assessee. We find that a perusal of the assessment order reveals that an adhoc disallowance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, 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 us that it was not given an opportunity of being heard by the A.O while making an adhoc disallowance of the aforesaid expenses. We have given a thoughtful consideration to the issue before us, and as observed by us hereinabove, are of the considered view that the observations of the A.O that an adhoc disallowance of airfare expenses, travelling expenses and vehicle hiring expenses was called for in the hands of the assessee for the reason that expenses under the said respective heads must had been incurred by the assessee in respect of actors, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee for providing security to Mr. Shah Rukh Khan and VIPs, celebrities etc during the matches at Eden Garden, therein being of the view that as the said expenses were in the nature of personal expenditure and could not be held to have been incurred for the purpose of the business of the assessee, therefore, disallowed the claim of ₹ 1,08,700/- raised by the assessee. We find that the CIT(A) concurred with the A.O and upheld the aforesaid disallowance. We have given a thoughtful consideration to the issue before us and are of the considered view that as averred by the ld. A.R before us, Mr. Shah Rukh Khan was not only a celebrity but also the director of the holding company, viz. Red Chillies Entertainment Pvt. Ltd. We are of the considered view that now when there remains no doubt in our mind that the visits of the actors, celebrities and VIPs was a part of the strategic planning by the assessee for generating higher revenues, therefore, we advert to the issue keeping in view the fact that the presence of the aforesaid celebrities at the matches staged by the assessee was in the very interest of the business of the assessee. We are of the considered view that when ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,600/- for participating in both of the aforesaid events, which thereafter was reimbursed to him in March, 2009. We find that the assessee had submitted before the CIT(A) that the underlying purpose for participation in the fashion show was to advertise and promote the KKR team, and as both the fashion shows were organised in March, 2009, therefore, they were recognized as an expense for the year under consideration, viz. AY 2009-10. We find that the assessee had also submitted before the lower authorities that as all the requisite conditions contemplated in Sec.37(1) were satisfied by him, therefore, its claim of expense incurred in the course of its business was well in order. We find that the assessee in contradiction of its claim that was raised before the A.O that the expenditure of ₹ 8,85,600/- was incurred for designing and exhibition of player outfits, had however averred before the CIT(A) that the expenditure was incurred towards advertisement of the KKR team. We find that the CIT(A) being of the view that neither the nature of the expenditure was clearly brought out by the assessee, nor the fact as to how the expenditure incurred in March, 2009 for advertisement/ p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in F.Y: 2008-09. We may at this stage observe that the playing of the matches by the league had been spread over different calendar years falling between 2008-17 (inclusive), therefore, the period of first three months of IPL Season-2 (January, 2009 to March, 2009) fell within the sweep of the year under consideration, viz. F.Y 2009-10. We are of the considered view that the claim of expenses by an assessee in a particular year cannot be put in a strait jacket, and the allowability of the same be made absolutely dependent subject to the condition that the same must have been incurred for the purpose of carrying on the business or earning of profits of that year. We are in agreement with the aforesaid contention of the ld. A.R and find that the same is covered by the judgment of the Hon ble High Court of Bombay in the case of Mysore Spinning and Manufacturing Co. Ltd. Vs. CIT (1966) 61 ITR 572 (Bom), which thereafter had been affirmed by the Hon ble Supreme Court in the case of CIT Vs. Mysore Spinning and Manufacturing Co. Ltd. (1970) 78 ITR 4 (SC) and the appeal of the revenue was dismissed. The Hon ble High Court had in the abovementioned case observed as under: With respect, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0% of the deferred website expense may also be allowed during the year. However, the A.O even disallowed the claim of ₹ 8,49,305/- raised by the assessee in its return of income by observing that the same was in the nature of a capital expenditure. 67. We find that the claim of the assessee that the expenditure incurred towards website design charges is not in the nature of a capital expenditure stands settled by the judgment of the Hon ble High Court of Delhi in the case of CIT Vs. Indian Visit Com. Pvt. Ltd. (2009) 176 Taxman 164 (Del) as well as the order of a coordinate bench of the ITAT, Mumbai in the case of Radial Marketing Pvt. Ltd. Vs. ITO [ITA No. 3868/Mum/2008] wherein the website design charges had been held in the aforesaid judicial pronouncements as a revenue expenditure. We further find that as averred by the ld. A.R, the CIT(A) in the assesse s own case for the subsequent years, viz. AY 2010-11 to AY 2012-13 had held the web designing charges as a revenue expenditure. We are of the considered that as claimed by the ld. A.R before us that the website design charges had been held by the CIT(A) in the subsequent years, viz. AY 2010-11 to AY 2012-13 as a revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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