M/s. Universal Sportsbiz Private Limited, Bangalore V. Deputy Commissioner of Income Tax, Circle - 7(1)(1), Bangalore

ITA 1181/BANG/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2882 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 11-11-2020
• Assessment Year: 2015-2016
• Appeal Filed On: 24-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M NARASIMHA RAJU
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Opportunity of being heard; Additional evidence; Revenue expenditure; Capital expenditure; TDS
• Section: 37; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES C, BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.1181/BANG/2019 ASSESSMENT YEAR : 2015 16 M/S.UNIVERSAL SPORTSBIZ PVT. LTD . #500, 1 ST FLOOR, BINNAMANGALA 1 ST STAGE, CMH ROAD, INDIRANAGAR BANGALORE 560 038. PAN : AABCU4489K. V. THE DY.COMMISSIONER OF INCOME-TAX, CIRCLE 7(1)(1) BANGALORE. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PADAMCHAND KHINCHA, C.A RESPONDENT BY : SHRI M NARASIMHARAJU, ADDL. CIT (DR) DATE OF HEARING : 11-11-2020 DATE OF PRONOUNCEMENT : 19-11-2020 O R D E R PER SMT.BEENA PILLAI, JUDICIAL MEMBER : PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAIN ST ORDER DATED 15.03.2019 PASSED BY LD.CIT(A)-7, BANGALORE O N FOLLOWING GROUNDS OF APPEAL: 1. GENERAL GROUND 1.1 THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX-C IRCLE 7(1)(1) (`AO), BANGALORE HAS ERRED IN PASSING THE ORDER UN DER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (`THE ACT) IN T HE MANNER PASSED BY HIM AND THE COMMISSIONER OF INCOME TAX (APPEALS) -7 (`CIT(A)) HAS ERRED IN CONFIRMING THE SAID ORDER. THE SAID OR DER TO THE EXTENT PREJUDICIAL TO THE APPELLANT IS BAD IN LAW AND LIAB LE TO BE QUASHED. 2. GROUND RELATING TO ALLOWANCE OF CELEBRITY PAYOUTS U NDER SECTION 37 2.1 THE LEARNED CIT(A) HAS ERRED IN CONCURRING WITH THE LEARNED AO AND CONCLUDING THAT PAYMENTS OF RS.1,64,45,668/- MA DE TO VARIOUS SPORTSMEN / CELEBRITIES BEING A CAPITAL EXPENDITURE HAS TO BE ADDED BACK TO THE INCOME OF THE APPELLANT. 2.2 THE LEARNED CIT(A) AND AO HAVE ERRED IN IGNORIN G AND NOT APPRECIATING THAT THE IMPUGNED TRANSACTIONS DO NOT (A) BRING ANY BENEFIT OF ENDURING NATURE (B) BRING ANY ASSET INTO EXISTENCE ON MAKING PAYMENTS T O SPORTSMEN / ITA NO.1181/BANG/2019 2 CELEBRITIES. 2.3 THE LEARNED CIT(A) AND AO HAVE ERRED IN IGNORIN G AND NOT APPRECIATING THAT THE PAYMENTS TO SPORTSMEN / CELEB RITIES WERE MADE IN ORDER TO PROMOTE THE SALE OF PRODUCTS AND T O CARRY ON BUSINESS PROFITABLY AND ADVANTAGEOUSLY. 2.4 ON FACTS AND CIRCUMSTANCES OF THE CASE, THERE I S DIRECT NEXUS BETWEEN THE PAYMENTS MADE TO SPORTSMEN / CELEBRITIE S OF RS.1,64,45,668/- AND CARRYING OUT OF BUSINESS. PAYM ENTS WERE MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSI NESS AND SHOULD BE ALLOWED UNDER SECTION 37 OF THE INCOME TAX ACT, 1961. 3. PRAYER 3.1 IN VIEW OF THE ABOVE AND OTHER GROUNDS TO BE AD DUCED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT THE ORDER PASSED BY THE LEARNED CIT(A) BE QUASHED OR IN THE ALTERNATIVE, TH E DEDUCTION UNDER SECTION 37 PRAYED FOR THEREUNDER BE ALLOWED. THE AP PELLANT PRAYS ACCORDINGLY. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF WHOLESALE TRADING TO BUSINESS ESTABLISHMENTS. DURIN G THE YEAR UNDER CONSIDERATION ASSESSEE FILED ITS RETURN OF IN COME ON 30/11/2015 DECLARING TOTAL INCOME OF NIL AND CURREN T YEAR LOSS OF RS.3,70,93,738/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143 (2) ALONG WITH 142 (1) OF THE ACT WAS ISSUED. IN RESPONSE TO STATUTORY NOTICES, REPRE SENTATIVE OF ASSESSEE APPEARED BEFORE LD.AO ON VARIOUS DATES AND FURNISHED RELEVANT DETAILS, PARTICULARS AND CLARIFI CATIONS AS CALLED FOR. 3. LD.AO DURING ASSESSMENT PROCEEDINGS NOTED THAT ASSESSEE DEBITED SUM OF RS.1,64,45,668/- AS PAYMEN T MADE TO CELEBRITIES FOR ENDORSING PRODUCTS OF ASSESSEE . LD.AO CALLED FOR BREAKUP OF EXPENDITURE. ASSESSEE SUBMITT ED FOLLOWING DETAILS IN VIEW OF QUERY RAISED: S.NO. PARTICULAR AMOUNT (IN RS.) 1 COCA COLA 1,43,312 2 CORNERSTONE SPORTS & ENTERTAINMENT 39,963 3 CSE CONSULTING LLP 6,67,497 4 KKR 5062 5 MUTHIAH MURALITHARAN 16,452 6 RCB 8435 ITA NO.1181/BANG/2019 3 7 SACHIN R TENDULKAR 26,98,852 8. SHRADDHA KAPOOR 26,54,500 9 VIJAY AMRITRAJ 30,00,000 10 VIRAT KOHLI 4,77,821 11 VIRAT KOHLI (WROGN) 66,74,973 12 YUVRAJ SINGH 58,335 TOTAL 1,64,45,668/- 4. ASSESSEE WAS CALLED TO JUSTIFY PAYMENTS MADE T O SPORTS PERSONS AND CELEBRITIES VIDE ORDER SHEET ENTRY DATE D 21/12/2017 AND TO EXPLAIN SERVICES RENDERED BY SPO RTS PERSON TO ASSESSEE. LD.AO CALLED UPON ASSESSEE TO E STABLISH WHY THE SAID EXPENDITURE SHOULD NOT BE CONSIDERED A S EXPENDED TOWARDS BRAND BUILDING, THEREBY CONSTITUTI NG CAPITAL EXPENDITURE IN THE HANDS OF ASSESSEE. 5. ASSESSEE FILED SUBMISSIONS BEFORE LD.AO. LD.AO W AS OF THE OPINION THAT SPORTS PERSONS CELEBRITIES WERE P ROMOTING PRODUCTS OF ASSESSEE AND THEREFORE PAYMENTS MADE TO THEM WERE TOWARDS BRAND BUILDING AND TOWARDS DEVELOPMENT OF AN INTANGIBLE ASSETS. LD.AO NOTED THAT ASSESSEE HAS 3 BRANDS NAMELY, COLLECTABILLIA, WROGN AND IMARA. LD.AO THUS TREATED SAID EXPENDITURE AS CAPITAL IN NATURE AND DISALLOWE D THE SAME IN THE HANDS OF ASSESSEE. 6. AGGRIEVED BY ADDITION MADE BY LD.AO, ASSESSEE PR EFERRED APPEAL BEFORE LD.CIT (A). 7. BEFORE LD.CIT (A) ASSESSEE EXPLAINED THAT, IT DE SIGNS VARIOUS MERCHANDISE, PRODUCTS AND SERVICES, AND GET S PRODUCED THROUGH VENDORS AND THEN DISTRIBUTES IT TH ROUGH VARIOUS CHANNELS. IT WAS SUBMITTED THAT IT HAS TI ED UP WITH DIFFERENT SPORTS PERSONS/CELEBRITIES FOR THIS PURPO SE. IT HAS BEEN SUBMITTED BY ASSESSEE THAT A PERCENTAGE OF SAL E OF MERCHANDISE GOES TO THE CELEBRITY/SPORTS PERSON. IT WAS SUBMITTED THAT, PERCENTAGE OF SHARE PAID IS BASED O N GROSS REVENUES GENERATED FROM THE SALE OF MERCHANDISE, AN D ITA NO.1181/BANG/2019 4 THEREFORE, IT IS REVENUE IN NATURE. IT WAS SUBMITT ED THAT CORRESPONDING REVENUES ARE CREDITED TO THE PROFIT A ND LOSS ACCOUNT BY ASSESSEE. IT WAS ALSO SUBMITTED THAT ,TH ERE WAS NO BRAND BUILDING CARRIED OUT BY ASSESSEE AND THE CONS IDERATION IS IN THE NATURE OF A PERCENTAGE OF REVENUE SHARED WITH CELEBRITY/SPORTS PERSONS. ASSESSEE FILED FOLLOWING AGREEMENTS WITH CELEBRITIES BEFORE LD.CIT(A): 1 SHRI SACHIN TENDULKAR MEMORABILIA RIGHTS AGREEMEN T DATED 02.05.2012 2 SHRI VIRAT KOHLI AND CORNER STONE SPORTS & ENTERTAINMENT PVT. LTD. MEMORABILIA RIGHTS AGREEMENT DATED 01.03.2013 3 SHRI VIRAT KOHLI AND CORNER STONE SPORTS & ENTERTAINMENT PVT. LTD. LICENSING AND MERCHANDISING RIGHTS AGREEMENT DATED 1.3.2013 4 MS SHRADDHA KAPOOR AND CAA KWAN TALENT MANAGEMENT AGENCY PVT. LTD. ENDORSEMENT AGREEMENT, DATED 4.9.2013 5 SHRI VIJAY AMRITH RAJ AGREEMENT DATED 23.5.2013 5 SHRI VIRAT KOHLI AND CORNER STONE SPORTS & ENTERTAINMENT PVT. LTD. AGREEMENT DATED 13.3.2014 8. BASED UPON ABOVE AGREEMENTS, LD. CIT (A) OBSERV ED AS UNDER: 4.3 THESE AGREEMENTS HAVE BEEN PERUSED. IT IS FOUN D THAT THESE CELEBRITIES HAVE GRANTED EXCLUSIVE RIGHTS AND LICENSING RIGHTS TO THE ASSESSEE COMPANY WHERE THE COMPANY WI LL HAVE THE RIGHT TO APPLY, USE. REPRODUCE, PUBLISH AND/OR OTHE RWISE EXPLOIT THE CELEBRITY'S NAME, LIKENESS, IMAGE, GET-UPS. VOI CE, SLOGAN AND SIGNATURE GRAPHICAL REPRESENTATION, JERSEY NUMBER, ELECTRONIC ANIMATED OR COMPUTER GENERATED REPRESENTATION AND A NY OTHER REPRESENTATION (IN ANY MEDIUM), RIGHT OF ASSOCIATIO N, BIO GRAPHICAL INFORMATION AND OTHER INDICIA FOR THE PURPOSES OF D ESIGN, MANUFACTURE, SOURCING, MARKETING, SALE AND/OR DISTR IBUTION OF THE PRODUCTS. THE AGREEMENT ALSO PROVIDES THAT THE COMP ANY MAY, ON ITS OWN OR IN COLLABRATION WITH OR ENGAGING THIRD P ARTIES, OR BY SUB LICENSING THE LICENSING RIGHTS (A) CREATE A LINE OF PRODUCTS (HI MARKET THE PRODUCTS THROUGH ALL MEDIUMS (C)CREATE A BRAND AND/ORLOGOS FOR THE PRODUCTS (BRA NDS) 4.4 THE AGREEMENT PROVIDES THAT THE CELEBRITIES WIL L MAKE THEMSELVES AVAILABLE FOR CERTAIN PERIOD OF TIME THR OUGHOUT THE TERM OF THE AGREEMENT FOR CREATING THE CONTENT WHIC H WILL BE USED BY THE ASSESSEE COMPANY FOR THE PURPOSES OF ADVERTI SING, MARKETING. BRAND PROMOTION AND FOR SALE OF THE PROD UCT. THE AGREEMENT ALSO PROVIDES THAT THE COMPANY WILL OWN A LL INTELLECTUAL PROPERTY RIGHTS (IPR) IN THE BRANDS DU RING THE TERMS OF ITA NO.1181/BANG/2019 5 THE AGREEMENT AND ALSO THEREAFTER. THE COMPANY HAS SIGNED MULTIPLE AGREEMENTS WITH SOME CELEBRITIES LI KE SHRI VIRAT KOHLI WITH SPECIFIC AGREEMENT FOR THE BRAND LIKE WR OGN WHICH IS POSITIONED AS A HIGH-STREET FASHION MENSWEAR BRAND AND SEPARATE AGREEMENT FOR OTHER BRANDS AND FOR LICENSI NG AND MERCHANDISING RIGHTS AND FOR MEMORABILIA. MS SHRADD HA KAPOOR. THE BOLLYWOOD ACTRESS PROMOTES BRANDS FOR WOMENS CL OTHLINE SUCH AS IMARA. THE AGREEMENT WITH THE FAMOUS TENNIS STAR OF YESTER YEARS AND HOLLYWOOD PRODUCER SHRI VIJAY AMRI TRAJ HAS BEEN ENTERED TO PROMOTE THE BUSINESS AND BRANDS AND WEBSITES OF THE COMPANY. THE AGREEMENT PROVIDES THAT: '6.3 VIJAY HEREBY ASSIGNS TO THE COMPANY. WITH FULL TITLE GUARANTEE, BY WAY OF A PRESENT ASSIGNMENT OF EXISTI NG AND FUTURE (ENTIRE) COPY RIGHT, PERFORMER RIGHT, RELATED RIGHT S AND ALL OTHER INTELLECTUAL PROPERTY RIGHTS OF ANY KIND WHATSOEVER THROUGHOUT THE WORLD USED AND/OR CREATED DURING THE PERFORMANCE OF HIS OBLIGATIONS UNDER THIS AGREEMENT'. 4.5 IN VIEW OF ABOVE, THE CONCLUSION OF THE AO THAT THE PAYMENT OF RS 164,45.668/- TO EMINENT SPORTS PERSON S AND CELEBRITIES AND OTHER CONCERNS FOR PROMOTING THE PR ODUCTS OF THE COMPANY AND FOR BRAND BUILDING AND DEVELOPMENT OF I NTANGIBLE ASSET IS CORRECT. CONSEQUENTLY, THE PAYMENT OF THIS AMOUNT IS IN THE NATURE OF CAPITAL EXPENDITURE WHICH CANNOT BE A LLOWED. THE ARGUMENT OF THE APPELLANT THAT ANY PAYMENT WHICH IS .IN THE NATURE OF SHARE OF REVENUE IS A REVENUE EXPENDITURE , IS NOT CORRECT. WHAT IS IMPORTANT IS THE PURPOSE FOR WHICH THE PAYMENT IS MADE. IT IS EVIDENT IN THE CASE OF THE ASSESSEE COMPANY THAT THE PAYMENT TO THE CELEBRITIES IS NOTHING BUT FOR P ROMOTION OF THE BRAND AND BRAND BUILDING. BESIDES, IT IS FOUND THAT THERE IS PROVISION IN THE AGREEMENT FOR PAYMENT OF MINIMUM G UARANTEE AMOUNT (MG) WHICH IS NOT IN ADDITION TO THE PAYMENT AS A PERCENTAGE OF THE REVENUE GENERATED. THEREFORE, TH E CONTENTION OF THE APPELLANT IS NOT CORRECT AND HENCE NOT ACCEPTAB LE. IT IS ALSO FOUND THAT THE APPELLANT COMPANY HAS INCURRED SUBST ANTIAL EXPENDITURES FOR MARKETING AND SELLING ACTIVITIES W HICH ARE DEBITED UNDER THE HEAD BUSINESS PROMOTION AND ADVE RTISEMENTS AND SELLING AND DISTRIBUTION EXPENSES. HENCE, TH E ARGUMENT OF THE APPELLANT THAT THE PAYMENT TO CELEBRITIES IS EX PENDITURE FOR MARKETING IS NOT CORRECT. 9. LD.CIT(A) CONFIRMED ADDITION MADE BY LD.AO AS C APITAL EXPENDITURE. 10. AGGRIEVED BY ORDER OF LD.CIT(A), ASSESSEE IS I N APPEAL BEFORE US NOW. 11. LD.AR SUBMITTED THAT, ONLY ISSUE RAISED BY ASS ESSEE IS IN RESPECT OF CONCLUDING PAYMENTS MADE TO VARIOUS SPORTSMEN/CELEBRITIES AS CAPITAL EXPENDITURE. HE SU BMITTED ITA NO.1181/BANG/2019 6 THAT, THESE ARE BASICALLY CELEBRITY SHARE PAYOUT EXPENDITURE. LD.AR DREW OUR ATTENTION TO PAGE 481 O F PAPER BOOK, WHEREIN TOTAL REVENUE GENERATED FROM SALE OF PRODUCTS AND THE SHARE OF SALE PROCEEDS WITH THE CELEBRITIES/SPORTSPERSON HAVE BEEN TABULATED AS UND ER: NAME OF THE CELEBRITY PRODUCT/ SERVICE TOTAL REVENUE GENERATED CELEBRITY EXPENSES SERVICE TAX TOTAL PARTNER CREDITED TDS NET PAYOUT VIRAT KOHLI (WROGN) APPARELS 6,60,87,111 66,74,973 8,25,027 75,00,000 7 ,50,000 67,50,000 CSE CONSULTING LLP APPARELS 6,67,497 82,503 7,50,000 75,000 6,75,000 SHRADDHA KAPOOR APPARELS 3,98,09,264 26,54,500 1,54,500 28,09,000 2 ,80,900 25,28,100 VIRAT KOHLI MEMORABILLIA 23,81,074 4,77,821 59,059 5,36,880 53,688 4,83,192 CORNER STONE MEMORABILLIA 39,963 4,939 44,902 4,490 40,412 KKR MEMORABILLIA 7,109 5,062 626 5,688 569 5,119 MUTHIAH MURALITHARAN MEMORABILLIA 31,673 16,452 466 16,918 1,692 15,226 RCB MEMORABILLIA 11,848 8,435 1,043 9,478 948 8,530 YUVRAJ SINGH MEMORABILLIA 1,62,811 58,335 7,210 65, 545 6,555 58,991 SACHIN R TENDULKAR MEMORABILLIA 47,53,670 26,98,852 3,33,578 30,32,430 3,03,243 27,29,187 COCOCOLA MEMORABILLIA 2,46,571 1,43,312 - 1,43,312 - 1,43,312 12. HE ALSO SUBMITTED THAT TDS HAVE BEEN DEDUCTED O N SUCH PAYMENTS REFERRING TO PAGE 377 OF PAPER BOOK. 13. LD.AR BEFORE US MADE AN APPLICATION FOR ADMISS ION OF ADDITIONAL EVIDENCE UNDER RULE 29 OF THE INCOME TAX RULES, 1963, WHEREIN AGREEMENTS WHICH WERE NOT FILED BEFOR E LD.CIT(A) HAVE BEEN PLACED. HE SUBMITTED THAT, ALL THESE AGREEMENTS ARE BASED ON PERCENTAGE OF THE SALE BEIN G SHARED WITH THE CELEBRITY/SPORTSPERSON WHICH DOES NOT AMOU NT TO ANY BRAND BUILDING. 14. ON THE CONTRARY LD.SR.DR SUBMITTED THAT, ALL TH ESE AGREEMENTS WERE NOT FILED BEFORE AUTHORITIES BELOW AND THEREFORE NEEDS TO BE REMANDED FOR RECONSIDERATION IN THE LIGHT OF THE AGREEMENTS. 15. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 16. IN ORDER TO UNDERSTAND THE NATURE OF PAYMENT MA DE BY ASSESSEE TO VARIOUS CELEBRITIES/SPORTSPERSON, HE DR EW OUR ATTENTION TO PAGE 376 OF PAPER BOOK. AT PAGE 376 WE NOTE THAT ITA NO.1181/BANG/2019 7 ASSESSEE OWNS FEW BRANDS LIKE WROGN, COLLECTABILLA, IMARA. ASSESSEE IS ENGAGED IN THE BUSINESS OF SELLING OF M ERCHANDISE AND READY-MADE APPAREL, MAINLY THROUGH MYNTRA, SHO PPERS STOP, EXCLUSIVE BUSINESS OUTLET(EBO) AND OTHER CHAN NEL. ASSESSEE ALSO SELLS MEMORABILIA WHICH ARE PERSONALL Y SIGNED BY CELEBRITIES, MERCHANDISE WHICH IS DIGITALLY SIGN ED BY CELEBRITIES UNDER THE BRAND COLLECTABILLA, AND READ Y-MADE GARMENTS UNDER WROGN AND IMARA WHICH ARE CELEBRITY ENDORSED. THE CELEBRITIES ARE MANAGED THROUGH VARIO US AGENCIES. 17. IT HAS BEEN SUBMITTED THAT, ASSESSEE PAYS TO CE LEBRITY AND AGENCY, PARTNER FEE FOR ENDORSEMENT OF BRAND AN D SIGNING THE MEMORABILIA. SUCH FREE PAYABLE CAN EITHER BE FI XED FEE, OR A FEE BASED ON REVENUES GENERATED FROM THE RESPECTI VE BRAND OR A COMBINATION OF MINIMUM GUARANTEE FEE PLUS A RE VENUE SHARE. IT WAS SUBMITTED THAT DURING THE YEAR ASSESS EE PAID FOLLOWING AMOUNT: PARTICULAR AMOUNT COLLECTABILIA 32,51,926 WROGN 66,74,973 IMARA 26,54,500 AGENCY 38,64,269 TOTAL 1,64,45,668 18. WE ALSO NOTE FROM PAGE 377 THAT ASSESSEE HAS DE DUCTED TDS IN RESPECT OF CERTAIN PAYMENTS MADE TO CERTAIN PARTIES DETAILS OF WHICH ARE AS UNDER: PARTICULAR BRAND/AGENCY AMOUNT BASIS OF FEE PAID TD S COCA COLA AGENCY 1,43,312 PURCHASES NA CORNERSTONE SPORT & ENTERTAINMENT PVT. LTD. AGENCY 39,963 CONSULTANCY 4,490 CSE CONSULTING LLP AGENCY 6,67,497 CONSULTANCY 75,000 KKR AGENCY 5,062 CONSULTANCY 569 MUTHIAH MURALITHARAN COLLECTABILIA 16,452 PROFESSION 1,692 RCB AGENCY 8,435 CONSULTANCY 948 SACHIN R TENDULKAR COLLECTABILIA 26,98,852 PROFESSI ON 3,06,068 ITA NO.1181/BANG/2019 8 SHRADDHA KAPOOR IMARA 26,54,500 PROFESSION 1,543,500 VIJAY AMRITRAJ AGENCY 30,00,000 PROFESSION NA VIRAT KOHLI COLLECTABILIA 4,77,821 PROFESSION 53,68 8 VIRAT KOHLI (WROGN) WROGN 66,74,973 PROFESSION 7,50,000 YUVRAJ SINGH COLLECTABILIA 58,335 PROFESSION 6,555 19. ASSESSEE ALSO DREW OUR ATTENTION TO AN AGREEMEN T PLACED AT PAGE 397. ON PERUSAL OF THE SAID AGREEMENT WE NO TE THAT ASSESSEE ENTERED INTO TRIPARTE AGREEMENT WITH THE SPORTSPERSON MENTIONED THEREIN AND CORNERSTONES SPO RT AND ENTERTAINMENT PVT.LTD., FOR SALE OF MEMORABILIA EIT HER BY ITSELF TO END CUSTOMER OR TO THIRD-PARTY VENDORS WHO SHAL L HAVE THE RIGHT TO SELL THE MEMORABILIA TO END CUSTOMER THROU GH AUCTION AND/OR BY WAY OF DIRECT SALE TO END CUSTOMER OR BY OTHER MEANS OF SALE, INCLUDING BUT NOT LIMITED TO RETAIL STORES AND E- COMMERCE WEBSITES. IT ALSO AGREED IN THE SAID AGREE MENT THAT THE MEMORABILIA BELONGING TO THE SAID SPORTSPERSON WOULD BE SOLD AT A PRICE FROM WHICH 70% OF THE PROFIT SHALL BE PAYABLE TO THE SPORTSPERSON AND 5% OF BALANCE SHALL BE PAID TO CORNERSTONE MEMORABILIA AMOUNT. IT IS ALSO AGREED T HAT ASSESSEE SHALL ONLY RETAIN 25% OF THE PROFITS. 20. LD.AR THUS SUBMITTED THAT ASSESSEE HAS ENTERED INTO SUCH MEMORABILIA RIGHTS AGREEMENT WITH OTHER SPORTS PERSONS. ASSESSEE HAS ALSO ENTERED INTO LICENSING AND MERCHA NDISING RIGHTS AGREEMENT WITH SPORTSPERSONS AND ENDORSEMENT AGREEMENT WITH CELEBRITY AND AGENCIES, MORE PARTICU LARLY MENTIONED IN THE TABLE REFERRED TO HEREIN ABOVE WHI CH FORMS PART OF ORDER OF LD.CIT(A). 21. WE ALSO NOTE THAT ASSESSEE ENTERED INTO AGREEME NT WITH SH. VIJAY AMRITRAJ IN RESPECT OF SERVICES RENDERED BY HIM. THE AGREEMENT REFERRED TO BY LD.CIT(A) DATED 25/05/2013 IS PLACED AT PAGE 442 OF PAPER BOOK. WE NOTE THAT THIS AGREEMENT HAS BEEN ENTERED INTO WITH SHRI VIJAY AMRI TRAJ, ITA NO.1181/BANG/2019 9 FORMER TENNIS PLAYER, FOR USING CERTAIN ATTRIBUTES IN THE FORM OF NICKNAME, INITIAL, OUGHT TO GRAPH, PHOTOGRAPHS, PORTRAIT, CARICATURES ETC. MORE PARTICULARLY REFERRED TO AT P AGE 443, AGAINST WHICH, CONSIDERATION WOULD BE A MINIMUM GUA RANTEE FEE OF RS. 30 LAKHS PER AGREEMENT YEARS AND 5% OF ANNUAL PROFITS EARNED BY ASSESSEE FROM THE AGREEMENT DURIN G THE YEAR. WE ALSO NOTE THAT AT PAGE 450 ASSESSEE HAS AG REED TO PAY SHRI VIJAY AMRITRAJ, FORMER TENNIS PLAYER ISSUAN CE OF OPTIONS WHICH SHALL VEST AND MAY BE EXERCISED IN 4 EQUAL ANNUAL INSTALLMENTS, AS PER THE TERMS OF THE ESOP, WHEREBY EACH OPTION MAY BE EXERCISED TO BE CONVERTED INTO A N EQUITY SHARE IN THE SHARE CAPITAL OF THE COMPANY AT AN EXC ISE PRICE FOR EACH SUCH EQUITY SHARE. 22. WE NOTE THAT IN RESPECT OF MEMORABILIA RIGHTS A GREEMENT ENTERED INTO WITH THE SPORTSPERSONS, REFERRED TO B Y LD. CIT (A) IN PARA 4.2 OF IMPUGNED ORDER, THE PAYMENT IS FOR S ALE OF VARIOUS ITEMS USED BY THE SPORTSPERSON DURING PRACT ICE SESSIONS, TOURNAMENTS ETC., IN LIEU OF WHICH ASSESS EE WOULD BE PAYING A PERCENTAGE OF SALE PROCEEDS. IN OUR OPINIO N SUCH PAYMENT WOULD NOT COME WITHIN THE AMBIT OF CAPITAL EXPENDITURE. WE ALSO NOTE THAT SUCH PAYMENT CANNOT BE CONSIDERED TOWARDS BRAND BUILDING AS THESE ARE THE USED BRANDED PRODUCTS BY THESE SPORTSPERSONS WHICH ARE SOLD BY ASSESSEE IN THE OPEN MARKET. 23. IN RESPECT OF THE OTHER AGREEMENTS BEING ENDORS MENT AGREEMENT, AGENCY AGREEMENT ETC., WITH CELEBRITIES/ SHRI VIJAY AMRITRAJ, WE NOTE THAT MORE DETAILS NEEDS TO BE VE RIFIED IN ORDER TO APPRECIATE THE ARGUMENTS ADVANCED BY LD.AR . MOST OF THE AGREEMENTS/EVIDENCES WERE NOT PLACED BEFORE THE ITA NO.1181/BANG/2019 10 AUTHORITIES BELOW WHICH HAS BEEN FILED BEFORE US I N THE FORM OF ADDITIONAL EVIDENCES. 24. LD.AR PLACED RELIANCE ON VARIOUS DECISIONS, WHE REIN DISTINCTION HAS BEEN DRAWN BETWEEN REVENUE AND CAPI TAL EXPENDITURE. LD.AR ALSO EMPHASISED ON ACCOUNTING ST ANDARDS A-S 26 ON INTANGIBLE ASSETS, THAT NEEDS TO BE CONSI DERED. AN EXPENDITURE INCURRED BEING CAPITAL OR REVENUE IN NA TURE NEEDS TO BE ANALYSED ON THE FACTS OF EACH CASE. AT THE OU TSET WE NOTE THAT AUTHORITIES BELOW WITHOUT SEEKING FURTHER CLARIFICATION/VERIFICATION ON VARIOUS ASPECTS ARRIV ED AT THE CONCLUSION THAT EXPENDITURE INCURRED BY ASSESSEE IS CAPITAL IN NATURE. IN OUR OPINION THE ISSUE NEEDS TO BE REVISI TED DENOVO BY LD. AO IN THE LIGHT OF VARIOUS AGREEMENTS THAT W AS NEVER CALLED BY LD. AO FOR VERIFICATION AND THOSE WHICH H AVE BEEN FILED BEFORE THIS TRIBUNAL AS ADDITIONAL EVIDENCES. ASSESSEE IS DIRECTED TO FILE ALL RELEVANT DETAILS/INFORMATION/E VIDENCES IN SUPPORT OF ITS CONTENTION. LD. AO IS DIRECTED TO PA SS A DETAILED ORDER ON MERITS AFTER CARRYING OUT INVESTIGATIONS/V ERIFICATIONS OF EVIDENCES FILED BY ASSESSEE ON THE ISSUES. NEEDL ESS TO SAY THAT PROPER OPPORTUNITY OF BEING HEARD MUST BE GRAN TED TO ASSESSEE IN ACCORDANCE WITH LAW. ACCORDINGLY GROUNDS RAISED BY ASSESSEE STANDS ALLOW ED FOR STATISTICAL PURPOSES. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOW ED STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 19 TH DAY OF NOVEMBER, 2020 . SD/- SD/- (CHANDRA POOJARI) ( BEENA PILLAI ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE ; DATED : 19 TH NOVEMBER, 2020. ITA NO.1181/BANG/2019 11 VMS COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(A)-7, BENGALURU. 4. THE PR.CIT-7, BENGALURU. 5. THE DR, ITAT, BENGALURU. 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE ITA NO.1181/BANG/2019 12 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -11-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -11-2020 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -11-2020 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -11-2020 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -11-2020 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -11-2020 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -11-2020 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS