Case Law Details
JCIT Vs Knight Riders Sports Pvt. Ltd. (ITAT Mumbai)
Deduction was allowable on IPL franchisee’s franchise fees, celebrity hospitality, website charges, and paid provisions were allowable as revenue expenditures: ITAT Mumbai
Conclusion: Periodic or annual fees paid to a sports governing body to sustain annual league participation rights qualify as operational revenue expenses, not capital investments. Hospitality, travel, and boarding expenses incurred on celebrities and VIPs were fully deductible if they were used strategically to amplify brand visibility, ticket distribution, and corporate sponsorships. Year-end employee bonus provisions could not be arbitrarily disallowed if the underlying tax was deducted at source and the actual payments hit employee accounts before the tax return filing due date.
Held: Assessee-an IPL franchise owner had paid an annual franchise fee to the BCCI to operate and field its cricket team, claiming it as a regular business expense. AO classified it as a capital expenditure due to its long-term benefits. The franchisee incurred heavy expenses on airfare, vehicle hiring, food, nutrition, and hotel lodging for invited actors, celebrities, and VIPs during matches. AO made ad hoc disallowances, claiming these personal-natured costs were not incurred strictly for business operations. The company paid for website design and maintenance to facilitate its day-to-day business operations. AO treated these development charges as a capital asset. Corporate club entry fees and ongoing subscriptions were paid for employees, which the AO disallowed on the grounds of insufficient supporting details. Operating under the mercantile accounting system, the company made provisions for employee salaries and bonuses. AO disallowed these liabilities due to a perceived lack of documentation. The issue arose for consideration was whether an IPL franchisee company was entitled to claim revenue deductions for its annual franchise fees, celebrity-related hospitality and travel costs, website expenses, club fees, and year-end salary and bonus provisions. It was held that the annual franchise fee did not create a permanent capital asset; it simply enabled the team to participate in the league for that specific year, making it a valid revenue deduction. Hosting prominent actors, celebrities, and VIPs at matches was a core marketing strategy that directly increases ticket sales and drives sponsorship revenue. Consequently, these costs were incurred wholly and exclusively for business purposes. Designing and operating a corporate website served as an operational business tool rather than a capital asset, confirming it as deductible revenue expenditure. Corporate club entrance fees and employee subscriptions represent normal business-driven costs intended for networking and employee welfare, justifying their full allowance. Since the company legally accounted for the salary liabilities in its books and cleared the bonus payouts before the statutory tax return filing deadline, the deductions comply fully with Section 43B.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeals have been filed by the Revenue challenging the different impugned orders dated 29.12.2020, 15.12.2023 and 20.09.2024 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the Ld. CIT (Appeal), Mumbai for the Assessment Years 2016-17, 2013-14, 201415, 2015-16, 2017-18 and 2018-19.
2. Since all the issues involved in these appeals are common and identical and belongs to the same assessee, therefore, they have been clubbed, heard together and consolidated order is being passed for the sake of convenience and brevity. Firstly, we shall take ITA no. 5952/Mum/2024, A.Y. 2018-19 as lead case and the facts narrated there in.
3. The Revenue has raised the following grounds of appeal:
“1) “On the facts and in the circumstances of the case, the Ld. CIT(A) erred in treating the annual consideration payment in the name of franchisee fee of Rs. 30,18,61,800/- by the assessee to BCCI as revenue expenditure even when the enduring benefit is involved in such type of payment made by the assessee company?”
2) “On the facts and in the circumstances of the case, the Ld. CIT(A) erred in restricting the disallowance to Rs. 25,08,527/- from Rs. 82,23,537/- as against Airfare, Travelling and Vehicle Charges only for the limited purpose of verification of the claim of expenses whereas such disallowances were made by the assessing officer within the provisions of section 37(1) of the IT Act, 1961 on account of non-genuine payment made on airfare and travelling expenses of celebrities?”
3) “On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of Rs. 35,74,397/- out of website expenses and directing the AO to treat the web-site expenses as revenue expenditure without appreciating the provisions of I.T. Act, 1961 wherein in the depreciation table item No. (III)(5), ‘computer including computer software’ is mentioned besides the Ld. CIT(A) also failed to appreciate the decision of the Hon’ble Rajasthan High Court in the case of CIT v/s, Aravali Constructions P. Ltd 259 ITR 30 and the decision of the Hon’ble ITAT, Mumbai in the case of Radhakrishna Foodland Ltd?”
4) “On the facts and in the circumstances of the case, the Ld. CIT(A) erred in restricting the disallowance to Rs. 9,87,329/- from Rs. 1,31,58,801/- as against food and nutrition and boarding and lodging expenses only for the limited purpose the verification of bills whereas such disallowances were made by the assessing officer within the provisions of section 37(1) of the IT Act, 1961 on account of non-genuine payment made on fooding and lodging expenses of celebrities?”
5) “On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of club entrance and subscription expenses of Rs.8,23,335/-without properly appreciating the facts of the case that the assessee could not submit the details in this regard.
6)”On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance towards employee staff expenses and bonus payable of Rs.1,63,91,850/- without properly appreciating the facts of the case that the assessee could not submit the details in this regard.”
3. At the very outset, it was pointed out by the Ld. AR that the grounds raised by the Revenue are squarely covered by a series of decisions of the coordinate benches of the ITAT in the assessee’s own case, as well as in various other judgments, which are discussed herein below:
4.1 The Ground No. 1 (All AYs) raised by the Revenue is squarely covered by the series of decisions of Coordinate Bench of ITAT in assessee’s own case, as well as in various other judgments, and the same are as follows:
a) The ITAT in A.Y. 2009-10 to 2012-13 has held that the annual consideration in the form of franchisee fees payable to BCCI is in the nature of revenue expenditure.
i. Α.Υ. 2009-10: ITA No.1307/Mum/2013
ii. Α.Υ. 2010-11: ITA No.4310/Mum/2014
iii. Y. 2011-12: ITA No.4389/Mum/2015
iv. Α.Υ. 2012-13: ITA No.6675/Mum/2016
b) Recently, Mumbai ITAT in case of Indiawin Sports Pvt. Ltd. has decided this identical issue holding that annual consideration in the form of franchisee fees is in the nature of revenue expenditure:
i. Α.Υ. 2016-17, 2017-18, 2018-19: ΓΙΑ No. 4497/Mum/2019, 266/Mum/2021, 3884/Mum/2023
ii. Α.Υ. 2020-21: ITA No. 4576/Mum/2023
4.2 The Coordinate Bench of ITAT has held in ITAT No. 1307/Mum/2013 as under :
45. We shall first take up the core issue involved in the present appeal as to whether the Franchise fee paid by the assessee to BCCI-IPL was rightly claimed by it as a revenue expenditure, or the same being in the nature of a capital expenditure was rightly disallowed by the lower authorities. We find that the assessee had entered into a franchise agreement with BCCI IPL in April, 2008. That pursuant to the aforesaid agreement the assessee was vested with the right to operate the franchise and to be a member of the league and operate a team in the city of Kolkata and participate in the IPL tournament, which was owned and operated by BCCI-IPL. The assessee in terms of Clause 7 of the franchise agreement remained under an 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, ie within 60 days of 31 March, 30th June, 30th September and 31st December in 2018 and each subsequent year of the term.
We further find that the term “Year” as defined in Clause 1 was to be construed as each 12 month period (or part thereof) from 1 January to 31st December during the term, except for the year under consideration, which being the first year of the league was to bereckoned from the date of signing of the agreement till 31 December, 2008. We further find that the “Franchisee rights” which again is defined in Clause 1 of the franchise agreement, provides that the same shall mean all rights in respect of the team, including those rights set out in Clause 4.3, viz. (i) the shirts sponsorship rights in respect of the team; (ii) official suppliership rights in respect of the team; (iii) corporate entertainment/premium seating rights at the stadium during home league matches; (iv) right to conduct franchisee licensing; (v) right to retain all of the gate receipts in respect of the franchisee home league matches; (vi) the right to sell merchandise at the stadium on the day of its home league matches; and (vii). such other rights in relation to the team which may be identified in the commercial guidelines provided by BCCI-IPL. However, the assessee was not vested with any right in respect of the Central Rights and all rights in respect of the licensing of replica uniforms for any team in the league.
46. We have perused the various clauses of the franchise agreement, as per which the franchise rights had been vested with the assessee. We have given a thoughtful consideration to the nature of the rights, and find that the payment of the Franchise fee by the assessee for a year, therein vested with him a right to participate in the tournament for the said year without guarantee that in the future years it would be eligible to participate in the tournament. We find that the payment of the Franchise fee by the assessee as per the terms contemplated in the franchise agreement enabled it to participate in the tournament for the subject year and earn revenue from the same. We further find that the payment of the Franchise fee by the assessee was in the nature of recurring annual payment which was paid to facilitate participation in the league and operating the team only for the year for which the payment pertained, with neither vesting of any right of participation in the subsequent years, nor leading to creation/ownership of an asset or generation of a benefit of an enduring nature in the hands of the assessee. 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 31 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 BCCI-IPL (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 by the franchisee of the terms contemplating the payment obligation to BCCI, the same was to be construed as a material breach of the agreement. We further while deliberating on the terms of the franchise agreement had observed that as per Clause 16 of the agreement, the rights granted to the franchisee were personal to the franchisee and had no right to assign the agreement or to sub-contract or otherwise delegate the franchisees obligations under it without the BCCI-IPL written consent.
47. We have deliberated at length as regards the nature of the rights as got vested with the assessee on the payment of the Franchise fee of Rs.30,03,60,000/- to BCCI. We have given a thoughtful consideration to the issue before us and are of the considered view that the payment of the Franchise fee by the assessee to BCCI-IPL only facilitated participation in the league and operating the team for the year for which the payment pertained, with no vested right to participate in the events for the subsequent year/years. We are of the considered view that as the aforesaid payment of Franchise fee which facilitated the participation in the league and operating the team was restricted only to the year to which the payment pertained, therefore, it can safely be concluded that by making such payment there was neither a creation of an asset or generation of a benefit of an enduring nature in the hands of the assessee. We find that a conjoint reading of Clause 7 of the agreement contemplating the payment of the Franchise fee and Clause 1 defining the term “year”, clearly reveals beyond any scope of doubt that the payment of the Franchise fee of Rs.30,03,60,000/- by the assessee for IPL Season-1 was only for the period 10.04.2008 (i.e the date of the signing of the agreement) till 31.12.2008. That as stands gathered from the franchise agreement, the making of the aforesaid payment of Franchise fee by the assessee to BCCI-IPL for IPL Season-1 only enabled the assessee to participate in the league tournaments for IPL Season-1 and operate its team for the aforesaid period for which the payment was made. We are unable to persuade ourselves to subscribe to the view of the lower authorities that any benefit of enduring nature was generated in the hands of the assessee by making the payment of the Franchise fee of Rs.30,03,60,000/-, which as observed by us was only for facilitating 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 subcontract 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 Franchise fee paid to BCCI-IPL is a revenue expenditure or a capital expenditure had already been looked into and adjudicated upon by a coordinate bench of Tribunal, viz. ITAT “I” Bench, Mumbai in the case of India Win Sports Pvt. Ltd. Vs. ACIT (ITA No. 5290 & 5291/Mum/2014, dated 22.07.2016, wherein the Tribunal had held as under:
“The expenditure of Rs. 44,76,00,000/- incurred by it for making payment of the first instalment to the BCCI-IPL in terms of Clause ? of the agreement uxzs not for the purpose of acquisition of any asset but for an annual right to manage the franchise. The purpose of the expenditure to be incurred under the agreement by the assessee has been stated in Clause 6 of the agreement as consideration for the right to operate the Franchise and to be a member of the league. The total expenditure of Rs.44,76,00,000/- payable in yearly instalments of Rs. 44,76,00,000/-for ten years was clearly for the purpose of securing franchise right from BCCI. Thus payments made by the assessee were for the annual benefits only not extending beyond one year. Its right to operate and manage the team is subject to prior payment of annual franchise fee, if the assessee fails to make the payment, then it would not be allowed to participate in IPL. Thus, the assessee has made the annual payments to earm the annual income. The nature of transaction/payment clearly demonstrates that the assessee is neither obtaining any enduring benefit by making payment of annual instalment these payments are giving rise to any assets. These payments are mere annual payments to BCCI-IPL to give a right to the assessee to participate in the matches with its team. Therefore, the anntial franchise payment was a revenue expenditure.”
We further find that a similar view was also taken by the ITAT, Hyderabad “B”, Hyderabad in the case of DCIT Vs. M/s Deccan Chargers Sporting Ventures Ltd. (ITA No. 1043/Hyd/2013, dated 28.10.2015, wherein too the Tribunal had concluded that the Franchise fee paid by the franchisee assessee to BCCI-IPL was in the nature of a revenue expenditure. We find that the judgments of the Hon’ble Supreme Court in the case of Techno Shares & Stocks Ltd. & Ors. vs. Commissioner Of Income Tax (2010) 327 ITR 323(SC) and Jonas Woodhead And Sons (India) Ltd. Vs. Commissioner of Income-Tax (1997) 224 ITR 342 (SC) relied upon by the A.O are distinguishable 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 concluding, we wish to clarify that our present judgment is strictly confined to the right of membership conferred upon the member under the BSE Membership Card during the relevant assessment years. We hold that the said right of membership 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 it is a licence or akin to licence in terms of s. 32(1)(ii) of the 1961 Act. That, such a right vests in the Exchange only on default/demise in terms of the rules and bye-laws of BSE, as they stood at the relevant time. Our judgment should not be understood to mean that every business or commercial right would constitute a “licence” or a “franchise” in terms of s. 32(1)(ii) of the 1961 Act
Similarly, in the case of Jonas Woodhead And Sons (India) Ltd.
(supra) the Hon’ble Apex Court in the backdrop of the facts involved in the case before it, observed, that as the foreign company pursuant to an agreement with the assessee had provided technical know how and services for setting up of the plant and manufacturing of products, with no embargo on the assessee to continue with the manufacturing of the products even after the expiry of the agreement, therefore, an enduring benefit got vested with the assessee, and thus the payment made by the assessee for the same was a capital expenditure. We are of the considered view that unlike the facts involved in the aforesaid case laws relied upon by the A.O, in the case before us, as no enduring benefit by making the payment of the Franchise fee got vested with the assessee, therefore, the said judicial pronouncements being distinguishable on facts would not assist the case of the revenue. We thus in the backdrop of our aforesaid observations and finding ourselves to be in agreement with the view taken by the coordinate benches of the Tribunal, therefore, are of the considered view that the payment of the Franchise fee for IPL Season-1 of Rs.30,03,60,000/- by the assessee can safely be held to be in the nature of a revenue expenditure, which was rightly claimed by the assessee as such while computing its income for the year under consideration. We thus set aside the order of the CIT(A) and direct the A.O to delete the addition of Rs.30,03,60,000/-. We may herein observe that as we have held that the Franchise fee of Rs.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.
4.3 Since the Ld. CIT(A) had already decided this issue following the decisions of the Coordinate Benches of the ITAT in the assessee’s own case for AYs 2009–10, 2010–11, 2011–12, and 2012–13, and even otherwise, the Ld. DR could not place anything on record to controvert or rebut the lawful findings recorded by the Ld. CIT(A), therefore, we dismiss the ground raised by the Revenue and uphold the order of the Ld. CIT(A).
5.1 The Ground No. 2 (All AYs) raised by the Revenue is squarely covered by the series of decisions of Coordinate Bench of ITAT in assessee’s own case and the same are as follows:
The ITAT in A.Y 2009-10 to 2012-13 has held that the airfare, travel and vehicle expenses are in the nature of business expenditure and remanded the matter back to the AO for verification.
i. Α.Υ. 2009-10 ΙΤΑ No.1307/Mum/2013
ii. ΑΥ 2010-11 ΙΤΑ No4310/Mum/2014
iii. Α.Υ. 2011-12 ΙΤΑ No 4389/Mum/2015
iv. AY 2012-13 ITA No6675/Mum/2016
b) The CIT(A)’s has followed the order of the Tribunal in A.Y. 2009-10 to 2012-13 and has directed the AG to verify the expenditure Therefore, the same does not require any interference. In the remand proceedings, the AO has already verified the expenses and passed an order for A.Y. 2013-14 to 2016-17.
5.2 The Coordinate Bench of ITAT has held in ITAT No. 1307/Mum/2013 as under :
We shall a sum take up the disallowance of now Rs.95,63,132/- (i.e. 25% of Rs.3,82,52,527/-) being expenditure incurred in connection with airfare expenses, travelling expense ad vehicle hire charges. We find that the A.O holding a conviction that as the assessee had incurred expenses on food and stay of VIPs and celebrities, therefore, the airfare expenses of Rs.3,28,96,505/-, travelling expenses of Rs.12,66,462/- and vehicle hire charges of Rs.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). Rs.82,25,126/ out of airfare expenses; (ii). Rs.3,16,616/- out of travelling expenses and (ii). Rs. 10,22,390/ out of vehicle hire charges, as a result whereof a total disallowance of Rs.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 of the aforementioned expenses was carried out by the A.O not for the reason that the assessee had failed to substantiate the genuineness and veracity of the expenses, but rather, for the reason that as per him now when the assessee had incurred expenses towards food, boarding and lodging for the actors, celebrities, VIP’s etc., therefore, it would also have incurred airfare expenses, travelling expenses and vehicle charges in respect of the said persons. We find that the CIT(A) observing that the assessee had not placed before him any evidence, e.g air tickets, details of vehicle, name of service providers, persons utilizing these services and their nexus with business etc, therefore, concluded that the possibility of the expenditure being partly for non business purposes could not be ruled out. Thus the CIT(A) on the aforesaid reasoning had upheld the disallowance of the aforesaid expenditure made by the A.O. We have given a thoughtful consideration to the issue before us and are of the considered view that as observed by us hereinabove, the expenses incurred by the assessee on the actors, celebrities and VIPs in order to facilitate marking their presence at the matches, which substantially contributed towards generation of higher revenue in the hands of the assessee by way of pushing ticketing sales and higher sponsorship receipts, can safely be held to have been incurred wholly and exclusively for the purpose of the business of the assessee. We thus are of the view that expenses incurred towards airfare expenses, travelling expense and vehicle hire charges by the assessee in respect of the such persons cannot be divorced from the business of the assessee, and has to be held as an expenditure incurred by the assessee in the course of his business of cricketing. We are unable to persuade ourselves to subscribe to the observations of the A.O who had carried out an adhoc disallowance of 25% of the expenses, for the reason that the assessee must had incurred the expenses on such persons, viz. actors, celebrities, VIPs, which could not be held as an expenditure incurred wholly and exclusively for the purpose of its business. We are of the considered view that if the A.O had that strong a conviction that the aforesaid expenses incurred on the aforesaid persons were in no way in context of the business of the assessee, or were in the nature of its personal expense, then he statutory obligation to have specifically remained under 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 the documentary evidence and submissions of the assessee in support of its claim of the aforesaid expenses, then he though would be at a liberty to disallow the same, but however, the said disallowance shall not exceed that made by him towards the respective expenses while passing the original assessment order. The Ground of appeal No. 11 to 13 are allowed for statistical purposes in terms of our aforesaid observations.
5.3 Since the Ld. CIT(A) had already decided this issue following the decisions of the Coordinate Benches of the ITAT in the assessee’s own case for AYs 2009–10, 2010–11, 2011–12, and 2012–13, and even otherwise, the Ld. DR could not place anything on record to controvert or rebut the lawful findings recorded by the Ld. CIT(A), therefore, we dismiss the ground raised by the Revenue and uphold the order of the Ld. CIT(A).
6.1 The Ground No. 3 (All AYs) raised by the is squarely covered by the series of decisions of Coordinate Bench of ITAT in assessee’s own case, as well as in various other judgments, and the same are as follows:
The ITAT in AY 2009-10 has held that the expenses incurred for creation of website in revenue expenditure 2009-10 ITA No 1307/Mum/2013 (Para 66-67, 1g 94- 95)
b) The High Court and ITAT in following cases has held that the expenses incurred for creation of website it in the nature of revenue expenditure
i. Nimbus Communications Ltd. [2017] 65 com 401 (Bom)
ii. Indian com (P) Lad. [2009] 176 Taxman 164 (Del)
iii. Aagam Infrabuild Pvt. Lad (ITA No 1762/Ahd/2016)
c) Alternatively, the AO has treated the expenditure incurred on website as an expenditure incurred on acquisition of software which has been held by Bombay and Delhi High Court as revenue in nature
i. Raychem RPG Ltd. [2012] 346 ITR 138 (Bom.) (Pata 2)
ii. Asahi India [2012] 22 com 22 (Del.)
6.2 The Coordinate Bench of ITAT has held in ITAT No. 1307/Mum/2013 as under :
66. We now advert to the disallowance of sum of Rs.8,49,305/ -claimed by the assessee in connection with website design charges during the year under consideration. We find that the assessee who had incurred website design charges of Rs.16,98,609/-, had in its return of income claimed 50% of the total expenditure i.e Rs.8,49,305/-. However, the assessee had averred before the lower authorities that as the concept of deferred revenue expenditure was not recognized under the income tax provisions, therefore, the aforesaid website design expenses incurred not for the purpose of improvisation of a fixed asset, but to facilitate its business operation were thus allowable in toto during the year under consideration, viz. AY 2009-10, therefore, requested that the deduction of the balance 50% of the deferred website expense may also be allowed during the year. However, the A.O even disallowed the claim of Rs.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 assessee’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 revenue expenditure in the assessee’s own case, therefore, in all fairness restore the matter to the file of the A.Ο to make necessary verifications as regards the factual position and adjudicate the entitlement of the assessee as regards the web designing charges, keeping in view the aforesaid judicial pronouncements. The Ground of appeal No. 16 and 17 is allowed for statistical purposes.
6.3 Since the Ld. CIT(A) had already decided this issue following the decisions of the Coordinate Benches of the ITAT in the assessee’s own case for AYs 2009–10, and even otherwise, the Ld. DR could not place anything on record to controvert or rebut the lawful findings recorded by the Ld. CIT(A), therefore, we dismiss the ground raised by the Revenue and uphold the order of the Ld. CIT(A).
7.1 The Ground No. 4 (All AYs) raised by the Revenue is squarely covered by the series of decisions of Coordinate Bench of ITAT in assessee’s own case and the same are as follows:
The ITAT in A.Y 2009-10 to 2012-13 has held that the airfare, travel and vehicle expenses are in the nature of business expenditure and remanded the matter back to the AO for verification.
i. Α.Υ. 2009-10 ΙΤΑ No.1307/Mum/2013
ii. ΑΥ 2010-11 ΙΤΑ No4310/Mum/2014
iii. Α.Υ. 2011-12 ΙΤΑ No 4389/Mum/2015
iv. AY 2012-13 ITA No6675/Mum/2016
b) The CIT(A)’s has followed the order of the Tribunal in A.Y. 2009-10 to 2012-13 and has directed the AG to verify the expenditure Therefore, the same does not require any interference. In the remand proceedings, the AO has already verified the expenses and passed an order for A.Y. 2013-14 to 2016-17.
7.2 The Coordinate Bench of ITAT has held in ITAT No. 1307/Mum/2013 as under :
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: Rs.58,53,575/-; and (ii) out of boarding and lodging expenses of Rs.1,90,16,944/-. We find that as per the A.O the information gathered during the course of survey proceedings conducted under Sec. 133A on 21.04.2010 at the office premise of the assessee at Eden Garden, Calcutta, revealed that the assessee had incurred an expenditure of Rs.1,35,46,255/- (room billing: Rs. 96,25,375/- and partying bill: Rs.39,19,880/-) at ITC, sonar, Kolkata. We find that the A.O had carried out disallowance of the partying expenditure of Rs.39,19,880/ by observing that the parties hosted by the assessee at ITC sonar, Kolkata included various relatives of directors, VIPs and celebrities, which thus could not be held as a business expenditure. The A.O further holding a conviction that the room booking charges of Rs.96,26,375/ incurred by the assessee for rooms taken on hire at ITC, sonar, Kolkata were also to some extent incurred by the assessee for the stay of relatives of directors, VIPs and celebrities, therefore, on the said count had on an estimate basis disallowed 33% of such expenses and made an addition of Rs.31,76,705/-. That as regards the balance expenditure of Rs. 1,13,24,264/- (i.e. excluding expenditure incurred at ITC, sonar, Kolkata), the A.O had on a similar analogy carried out an estimated disallowance of 33% of the said expenses and made a further addition of Rs.37,37,007/-. We thus find that on the basis of his aforesaid observations the A.O had carried out an aggregate disallowance of Rs. 1,08,33,592/- out of the food and nutrition and boarding and lodging expenses claimed by the assesse.
55. We have deliberated on the observations of the lower authorities, and find that the primary reason which had weighed in the mind of the A.O while making the disallowance of expenses booked by the assessee under the head food and nutrition expenses and boarding and lodging expenses, was that the information gathered during the course of the survey proceedings conducted under Sec. 133A on 21.04.2010 at the office premises of the assessee at Eden Garden, Calcutta, revealed that the parties hosted by the assessee included various relatives of directors, VIPs and celebrities as invitees. We find that the A.O had disallowed the entire partying expenditure of Rs.39,19,880/-incurred by the assessee at ITC, sonar, Kolkata, as well as disallowed 33% of the room expenses of Rs.96,26,375/- incurred by the assessee on booking of rooms at ITC, sonar, Kolkata, and a further disallowance of 33% of the balance expenditure of Rs.1,13,24,264/-. We find substantial force in the contention of the id. 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 franchisees of the IPL teams leave no stone unturned, and to lure the public for buying tickets, invite actors, celebrities, VIPs etc. during the matches. We find substantial force in the contention of the ld. A.R that this is the way the assessee operates its team and carries out its business. We cannot remain oblivious of the factual reality as regards the strategical planning in the business of cricketing, and are of the considered view that now when the actors, celebrities, VIPs etc., pursuant to invitations by the franchisee, mark their presence in the matches, the same leads to substantial push to ticketing sales and higher sponsorship receipts. We are of the considered view that the visits of the actors, celebrities, VIP’s etc. at the matches staged is strategically planned by the franchisees, which carries with it the obligation and responsibility of providing boarding, lodging, food etc. to the level of their standard. We are further of the view that the marking of presence by the actors, celebrities, VIPs etc. at the matches is strategically planned and is guided by the business prudence of the franchisee, knowing well that the same would both boost the sales of tickets as more of viewers would be attracted for such matches, as well as give a substantial push to the sponsorship receipts from the business houses. We would not hesitate to observe that keeping in view the commercialization of the game of cricket, it would not be wrong to conclude that even if the assessee would have arranged paid visits of the actors, celebrities, VIPs for the matches, being well conversant with the fact that the same would substantially give a boost to his revenue collections from staging of matches, even the said payments would safely fall within the sweep of an expenditure incurred wholly and exclusively for the purpose of the business. Be that as it may, in the backdrop of our aforesaid observations, we are unable to persuade ourselves to subscribe to the view of the A.O that the expenses incurred by the assessee towards food and nutrition expenses and boarding and lodging expenses provided to the actors, celebrities and VIPs are liable to be disallowed by characterising them as expenses which could not be held to have been incurred by the assessee wholly and exclusively for its business. We are of the considered view that as the visits of the actors, celebrities and VIPs 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 expenses of the assessee; and (iv) the expenses are incurred wholly and exclusively for the purposes of the business of the assessee. We find that in the present case before us the aforesaid requisite conditions had duly been satisfied by the assessee, and as observed by us hereinabove, the expenditure incurred by the assessee on food and nutrition and boarding and lodging incurred in respect of the invitees actors, celebrities and VIPs, being a part of the strategical planning of the assessee to boost its generation of revenues is thus allowable under Sec. 37(1) of the Act. We may herein observe that neither before the lower authorities nor before us it has been established by the revenue that either the expenses claimed by the assessee in respect of the aforesaid persons is found to be bogus, or the said expenditure so incurred on them were not in context of the business of the assessee. We are of the considered view that the aforesaid expenditure incurred by the assessee by hosting dinners on the days on which the matches were played at the home ground, which amongst others were attended by the aforesaid actors, celebrities etc, and arranging for their stay at the hotels of repute, can safely be held as an expenditure incurred by the assessee wholly and exclusively for the purpose of its business. We thus being of the considered view that as the expenditure incurred by the assessee on food and nutrition and boarding and lodging for the members of the team (including visiting teams), support staff, directors and the invited guests, which amongst others included actors, celebrities, VIPs, being in the nature of expenditure incurred by the assessee in the very interest of its business, therefore, in the absence of any irrefutable documentary evidence which could had established beyond any doubt that the same had been incurred by the assessee either to meet out a personal obligation or was for a purpose which could not be held to be wholly and exclusively for the purpose of the business, therefore, are unable to persuade ourselves to subscribe to the disallowance of the expenses by the A.O for the reason that the parties hosted by the assessee were attended by such actors, celebrities and VIPs, as well as expenditure was incurred towards booking of rooms for their stay in hotels of repute. We are further in agreement with the contention of the Id. A.R who had rightly 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 Rs.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 Rs.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 Rs.5,31,893/- for 08.05.2008; bill of Rs.5,31,893/- for 13.05.2008; and bill of Rs.5,31,894/- for 20.05.2008, which included dinner, equipment rental, tobacco, etc, but they too did not indicate the purpose and the persons attending the said occasion; (iv). bill of Rs.4,51,900/- which was for 400 snacks, soft drinks, transportation, equipment rental, which did bear a discrepancy, as against the said date the amount mentioned in the submissions by the assessee was Rs.6,83,071/-which could not be reconciled; and (v) bill of Rs.5,31,893/- for 25.05.2008 which was stated to be of Rs.6,69,698/ in the submissions which too could not be reconciled by the assessee. We are of the considered view that in the backdrop of the observations of the CIT(A) that either the assessee had failed to relate the aforesaid bills pertaining to hosting of dinners, tea parties etc., with the purpose for which the same had been incurred, or the same suffered from certain discrepancies as regards the amounts mentioned therein in comparison to those stated by the assessee during the course of the proceedings and had not been reconciled, therefore, in all fairness restore the matter to the file of the A.O for verifying as to whether the aforesaid bills, viz. (i), bill of Rs.5,31,573/-, dated 30.04.2008; (ii) bill of Rs.5,31,893/-, dated 08.05,2008; (iii). bill of Rs.5,31,893/-, dated 13.05.2008; (iv). bill of Rs.5,31,894/-, dated 20,05.2008; (v). bill of Rs.4,51,900/-;and (vi) and bill of Rs.5,31,893/-, dated 25.05.2008 pertained to expenses incurred by the assessee in the course of its business, or not. We may however clarify that the A.O shall while re-adjudicating the aforesaid issue keep in view our aforesaid observations. We thus in the backdrop of our aforesaid observations restore the matter to the file of the A.O for carrying out necessary verifications in respect of the limited issue for which the matter had been restored to his file. Needless to say, the A.O shall while re-adjudicating the aforesaid issue afford sufficient opportunity of being heard to the assessee, who shall remain at a liberty to furnish material and documents to substantiate his claim. The Grounds of appeal No. 9 & 10 are allowed for statistical purpose in terms of our aforesaid purposes.
7.3 Since the Ld. CIT(A) had already decided this issue following the decisions of the Coordinate Benches of the ITAT in the assessee’s own case for AYs 2009–10, 2010–11, 2011–12, and 2012–13, and even otherwise, the Ld. DR could not place anything on record to controvert or rebut the lawful findings recorded by the Ld. CIT(A), therefore, we dismiss the ground raised by the Revenue and uphold the order of the Ld. CIT(A).
8.1 The Ground No. 5 (AY 2017-18 and AY 2018-19) raised by the Revenue is squarely covered by the series of decisions in various judgments, the same are as follows:
The expenditure incurred on club membership is for the purpose of business as the same assists the assessee in holding meeting and discussions with various parties like sponsors, vendors, coaches, etc. which helps the assessee in smooth functioning of the business. In this regard reliance is placed on the following decisions wherein it has been held that the expenditure incurred in club membership is allowable as a deduction under section 37(1) of the Act.
i. United Glass Mfg. Co. Ind (2012) 28 com 423 (80)
ii. Swiss Re Services India (P) Lad (2023) 156 com 56 (Bom)
iii. Bayer Vapi( P) Ltd. (2019) (106 com 393) (Guj)
8.2 In United Glass Mfg. Co. Ind (2012) 28 Taxmann.com 423 (80) has, it has been held as under :
3.3 As far as Question No. 1 is concerned, the issue is answered in favour of the assessee in the order passed today in civil appeal arising out S.L.P. (C) No. 20791 of 2009. As far as Question No. 2 is concerned, we find that a series of judgements have been passed by High Courts holding that club membership fees for employees incurred by the assessee is business expense under Section 37 of the Income Tax Act, 1961. We also find that none of the decisions have been challenged in this Court. Even otherwise, we are of the view that it is a pure business expense
8.3 Since the Ld. CIT(A) had already decided this issue following the decisions of the Hon’ble Apex Court, the Hon’ble Bombay High Court, and the Hon’ble Gujarat High Court, and even otherwise, the Ld. DR could not place anything on record to controvert or rebut the lawful findings recorded by the Ld. CIT(A), therefore, we dismiss the ground raised by the Revenue and uphold the order of the Ld. CIT(A).
9.1 Ground No. 6 (AY 2018-19) raised by the Revenue relates to challenging the order of Ld. CIT(A) in deleting the disallowance towards employee staff expenses and bonus payable to employees.
9.2 In this regard, we have heard counsel for both the parties and found that the provision of Rs. 35,86,713 is in connection with the salary payable to employees for the month of March and is accounted for in the books of account, as the assessee follows the mercantile system of accounting. The provision of Rs. 1,28,05,137 is also in connection with the bonus payable to employees for the year under consideration, which was paid by the assessee before the due date for filing the return of income as per section 43B of the Act.
9.3 The Ld. CIT(A) has categorically held that the assessee had deducted tax at source on the aforesaid amounts, and proof of the same was also submitted by the assessee vide letters dated 26.12.2020 and 18.02.2021. The Ld. CIT(A) further held that the tax auditor had already verified this aspect and was satisfied that the amount was paid before filing the return of income. Therefore, the Ld. CIT(A) rightly concluded that the disallowance made by the AO was not sustainable. Even otherwise, no new facts or circumstances have been placed on record by the Ld. DR to rebut or controvert the lawful findings recorded by the Ld. CIT(A). Accordingly, we dismiss this ground raised by the Revenue and uphold the order of the Ld. CIT(A).
10. In the result, the appeal filed by the Revenue is dismissed.
ITA No. 239/Mum/2021 (Assessment Year: 2016-17), ITA No. 240/Mum/2021 (Assessment Year: 2013-14), ITA No. 241/Mum/2021 (Assessment Year: 2014-15), ITA No. 242/Mum/2021 (Assessment Year: 2015-16) and ITA No. 954/Mum/2024(Assessment Year: 2017-18)
11. As the facts and circumstances in these appeal are identical to ITA No. 5952/Mum/2024 (Assessment Year: 2018-19) for the A.Y 2013-14 (except variance in days of delay) therefore, the decision rendered in above paragraphs would apply mutatis mutandis for these appeal also.
Order pronounced in the open court on 05.05.2026
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