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Income Tax Appellate Tribunal, “SMC”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM
आदेश / O R D E R PER R.C.SHARMA (A.M):
This is an appeal filed by the Revenue against the order of CIT(A)- 52, Mumbai dated 01/12/2016 for A.Y. 2011-12 in the matter of order passed u/s.143(3) of the IT Act. 2. Following grounds have been taken by the Revenue:- 7. " On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in not appreciating that the assessee followed the accounting system wherein all the significant items of income and expenditure are recognized to a particular IPL tournament and therefore CIT(A) erred in deleting the disallowance of expenses of Rs. 48,17,840/- without appreciating that there was no corresponding Revenue from IPL tournament during the year."
2. The appellant craves to add, to amend and/ or alter any grounds of appeal, if need to be.
M/s. Kanchi Cricket Pvt. Ltd., 3. The Appellant, therefore, prays that on the grounds stated above, the order of the CIT(A)-52, Mumbai may be set aside and that of the Assessing Officer restored.”
Rival contentions have been heard and record perused.
The brief facts of the case are that the assessee is a private limited company engaged in the business of promotion of sports and commercially exploiting it and is a franchise of Indian Premier League (IPL) of BCCI. The Company e-filed its Return of Income on 30/09/2011 declaring total income of Rs. NIL. Assessee has shown current year losses of Rs.63,00,436/-. This case was selected for scrutiny and a notice u/s. 143(2) was issued to the assessee. While completing the assessment the AO disallowed a sum of Rs 63,00,436/- being expenses debited to the P & L account that these expenses were in nature of prepaid expenses, considering the method of accounting adopted by the assessee and therefore, the same could not be claimed. The assessment was thus, completed at NIL income vide order dated 30.03.2014. 5. By the impugned order, CIT(A) deleted the disallowance so made by the AO after observing as under:- 6. I have considered the facts of the case, submissions and contentions of the assessee as also the order of the AO. The assessee company is engaged in promotion of sports and is a Franchisee of Indian Premier League (IPL) floated by the BCCI (Board of Control of Cricket in India). Assessee is following mercantile system of accounting and all the expenses directly relating to the IPL tournaments are debited in the financial year in which such tournaments are held and relevant revenues accrue to it. This is done with a view to match income with expenses on the basis of matching concept . From the balance sheet and schedules thereto, the assessee has incurred the following expenses as direct and indirect expenses during the year:
M/s. Kanchi Cricket Pvt. Ltd., SCHEDULE "J"- DIRECT EXPENSES Cricketing Expenses 14,714 Daily Allowance for Players & 605,117 Support Staff Franchisee Expense 267,216 Merchantising Expense 911,430 Salary 908,898 Staff Welfare exp 28,909 Total 2,736,264 SCHEDULE "K"- OTHER / INDIRECT EXPENSES PARTICULARS Year Ended 31st March, 2011 Rs. Payment to Auditors - -Statutory Audit Fees -Internal Audit Fees -Tax Audit Fees 30,000 10,000 -Income Tax Matters 4,120 Service Tax on above Bank Charges 19,932 Bank Interest 42,777 Conveyance 61,456 Courier & Cargo Charges 6,057 Electricity Expenses 811 Insurance 500,000 M/s. Kanchi Cricket Pvt. Ltd., Internet 13,509 IT Services 111,403 Office Rent 407,727 Printing & Stationery 84,389 Rates & Taxes 482,121 Sales promotion expenses 304,000 Sundry Expenses 350,040 Telephone, Fax and Courier 41,319 Web Site Development Expenses 439,100 Other Expenses 105,858 Total 3,014,637
From the perusal of the above expenses it appears that all indirect expenses are in nature of administrative expenses are were necessary to maintain the existence of the company except the amount of Rs 3,04,000/-, which is in the nature of sales promotion expenses and is directly relating to IPL tournaments and its promotions. Therefore, in my opinion, out of this total amount of Rs 30,14,637/- as indirect taxes only an amount of Rs 3,04,000/- can be disallowed , considering peculiar method of accounting employed by the assessee . However the same may be claimed by the assessee in the immediately succeeding year, when revenue from IPL tournaments have been realized. As regards the direct expenses of Rs 27,36,264/- debited during the current year, a sum of Rs 9,11,430/- relates to merchandising expenses and Rs 2,67,216/- are relating to Franchisee expenses, Both these expenses are directly relatable to IPL tournament and therefore, considering the method of accounting employed by the assessee could not be claimed during the current year. The assessee, is however, free to claim such expenses in the immediately succeeding year when revenue from IPL tournaments accrue to it.
In view of the above discussion out of the total amount of Rs 63,00,436/- disallowed by the AO, the sum of Rs 3,04,000/- (sales M/s. Kanchi Cricket Pvt. Ltd., promotion expenses) + 9,11,430/- (merchandising expenses) + 2,67,216/-(Franchisee expenses), totaling to Rs 14,82,646/- is upheld and remaining expenses of Rs 48,17;840/- is directed to be allowed.
I have considered rival contentions and gone through the orders of the authorities below.
7. From the record, I found that while allowing the expenditure, the CIT(A) has recorded a categorical finding to the effect that these expenses are in the nature of administrative expenses which are necessary to maintain the expenses of the company except amount of Rs.3,04,000/- which pertained to sales promotion expenses and is directly relating to the IPL tournaments and its promotion. Accordingly, he restricted the disallowance to Rs.3,04,000/-. As regards direct expenses of Rs.27,36,264/-, the CIT(A) found that a sum of Rs.9,11,430/- relates to merchandising expenses and Rs.2,67,216/- are relating to franchisee expenses, both these expenses are directly relatable to IPL tournament and therefore, considering the method of accounting employed by the assessee could not be claimed through the current year. Assessee was given opportunity to claim such expenses in the succeeding year when revenue from IPL tournaments accrues to it. After recording detailed finding at para 6 and 7, the CIT(A) concluded that out of total amount of Rs.63,00,436/- only a sum of Rs3,04,000/- on account of sales promotion expenses and Rs.9,11,430/- on merchandising expenses and Rs.2,67,216/- franchisee expenses totaling to Rs.14,82,646/- is required to be upheld and remaining expenses of Rs.48,17,840/- was directed to M/s. Kanchi Cricket Pvt. Ltd., be allowed. The finding so recorded by CIT(A) is as per material on record and do not require any interference on our part.