ACIT, NEW DELHI vs. M/S. SAHARA ADVENTURE SPORTS LTD., MUMBAI

The brief facts of the case shows that Assessee Respondent is a company engaged in the business of adventure tourism and other sports related activities. It filed return of income on 30/11/2013 declaring total loss of Rs. 96.64 crores. The assessment under section 143 (3) of The Income Tax Act [The Act] was passed on 29/3/2016 wherein the expenses on account of incentive expenses were disallowed of ₹ 5882789 and further allowance on account of hospitality services of ₹ 1.66 crores was restricted up to 75 % and balance 25% thereof amounting to Rs. 4169331/– was treated as excessive and disallowed. Assessee preferred appeal before the learned Commissioner Appeals, who deleted both disallowance and therefore learned AO is in appeal before us. 03. The first issue is related to the disallowance of Rs. 5882789/– under the head incentive paid to the players. The fact shows that the Assessee Respondent is engaged in the business of adventure tourism and other sports -related activities. It Paid DA sum under the head incentive to foreign hockey players and support staff of IPL. Assessee Respondent submitted before the AO that the incentive is in fact in the nature of DA for meeting of expenses of the players on day-to-day basis as agreed between the appellant and the players pursuant to the agreement entered with the players. The Assessee Respondent also supported the above payment with the copy of the agreement and copy of the vouchers setting out the names of the persons to whom incentive was paid. The detail of tax deduction at source in respect of the above payment was also produced before the learned assessing officer. However, he rejected the contention and disallows it as no proper supporting documents or justification has been filed. The learned CIT – A deleted it vide para four of his order. Therefore, LD AO challenges it as per ground number one of this appeal. 04. The learned senior departmental representative, Shri Amit Jain , referred to the assessment order and stated that survey under section 133A was conducted on 23/5/2012 at the premises of the assessee and during the examination of documents found in survey the above issue emerged that assessee has paid incentive expenses. He further read out paragraph number three of the order of the learned assessing officer. He stated that assessee respondent has only filed names of certain players/staff/coaches and amount against their name as incentive paid and even the name of recipient has not been mentioned. He further stated that assessee only submitted details of agreement etc as sample basis. He therefore submitted that in absence of complete details submitted, the above expenditure cannot be allowed and the learned Commissioner Appeals has erred in allowing the claim on the same set of facts, which were produced before the assessing officer.

The learned authorized representative submitted a paper book and stated that the details of incentive expenditure along with the list of IPL staff with vouchers are attached in the paper book at page number 3 – 18. The agreement signed by the assessee with the various players is also submitted at page number 19 – 64 of the paper book. He further referred to the tax deduction at source certificate issued to the players placed at page number 65 – 66 on the sample basis in case of one player. In view of this, it is submitted that the learned assessing officer has made the disallowance without giving any cogent reason despite the complete details furnished before him. He therefore submitted that the learned commissioner appeals have appreciated the facts and the various documents placed before the assessing officer in proper perspective and allowed the claim.

We have carefully considered the rival contention and given our careful thought to the orders of the lower authorities along with the documents submitted before us in the form of paper book by the assessee. Apparently, the learned CIT – A has considered that the above payment is made as a contractual expenditure in nature of the D A allowances paid and incurred in the course of carrying on business for the purpose of the business and therefore allowable as expenditure. He further perused the copy of the contract with the hockey players with respect to the above obligation and referred to the various schedules mentioned therein which justify that the above payment has been made for the purpose of the business. He also noted that the tax has been also deducted thereon. He also perused copies of the journal vouchers submitted before the learned AO based on which the various payments have been made. He also looked into the contract with respect to IPL for different employees and support staff engaged in organization and conduct of the above events with respect to the various expenditure. He held that there is no reason or justification for the disallowance made by the learned assessing officer. He further noted that assessee has produced before the AO books of accounts, bills, and vouchers during proceedings. The above findings of the learned commissioner appeals were not disputed by the revenue. We also do not find any infirmity in the order of the learned commissioner appeals in deleting the disallowance. Learned assessing officer has not given any reasons for disallowance. It was also not pointed out before us by the revenue that what further documents were required to be produced by assessee before assessing officer to justify its claim for the allowance of this expenditure. In view of this, we dismiss ground number 2 of the appeal of revenue.

Coming to the second issue where addition of ₹ 4169331/– is made by the assessing officer because of hospitality services. AO noted during the course of assessment proceedings that assessee has made payment of ₹ 1.66 crores to one company for rendering hospitality services for IPL. Assessee on being asked, submitted the details stating that above company is engaged in the business of providing tents, generator set, set-top boxes or view of the game on television which are fixed in the stadium for which services they have been paid. Assessee also supported the above payment by the copies of the bills. It also stated that TDS made on the above payment. It was contended that the above payment has been made wholly and exclusively for the purpose of the business, and therefore it is an allowable as such. The learned AO in para number 4.3 of his order noted that such huge expenses because of hospitality cannot be allowed as business expenses and therefore he disallowed 25% of ₹ 1.66 crores amounting to ₹ 4169331 as excessive and added to the income of the Assessee.

The assessee respondent challenged the same before the learned CIT – A who deleted the disallowance holding that this disallowance of 25% on ad hoc basis is merely on surmises and conjectures without any basis. He has also held that the learned assessing officer has not given any reason that how such expenditure cannot be considered as genuine and not excessive considering the net loss of ₹ 96.65 crores. He further held that assessee has submitted the complete details of such expenditure. The learned assessing officer aggrieved with the order has preferred an appeal before us. 09. The learned senior departmental representative reiterated the argument stated by the learned assessing officer and submitted that such a huge expenditure was not to have been incurred wholly and exclusively for the purpose of the business. Merely because the assessee has shown losses, it cannot be said that any expenditure incurred by the assessee is for the purposes of the business. He therefore supported the order of the learned assessing officer. 10. The learned authorized representative referred to page number 67 – 124 of the paper book wherein franchisee agreement dated 16/11/2012 was placed. He further referred to page number 12 5 – 134 with respect to the details of hospitality services expenditure incurred by assessee along with the vouchers and invoices of the recipient. He further referred to the tax deduction at source certificate issued by the assessee to the above company and the schedule of hospitality services. In the end, he submitted that the details of the expenses were exhaustively provided during the course of assessment proceedings. He further stated that above company to whom payment has been made is not a related party and therefore there cannot be any allegation of excess payment. He further stated that even otherwise the disallowance is made on ad hoc basis despite complete production of the details. 11. Having considered the arguments of the rival parties and also on consideration of the decisions of the lower authorities and evidences produced before us, We are unable to agree with the views of the ld AO for making disallowance but agree with the ld CIT A. Assessee has made payment to an outside agency which is not related party for hospitality services. Such hospitality services payments are also supported by an agreement and details of the payments along with the tax deduction at source certificate copies. It is not the case of the learned assessing officer that the above expenditure is not incurred wholly and exclusively or the purposes of the business. The learned AO has