KNIGHT RIDERS SPORTS P. LTD, MUMBAI V. ASST CIT CEN CIR 29, MUMBAI

ITA 1306/MUM/2013

• Counselvise Citation: 130619914 RSA 2013
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 24-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 14-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S PADMAJA
• Assessee Lawyers: J D MISTRY
• Keywords: Depreciation; Business expenditure; Revenue expenditure; Reassessment proceedings
• Section: 143(3); 37(1); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A , MUMBAI BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 1306/M/2013 ASSESSMENT YEAR: 2008 - 09 M/S. KNIGHT RIDERS SPORTS PVT. LTD., BACKSTAGE, PLOT NO.612, 15 TH ROAD, JUNCTION OF RAMKRISHNA MISSION ROAD, SANTACRUZ (WEST), MUMBAI 400 054 PAN: AADCK3118M VS. ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE - 29, ROOM NO.411, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI J.D. MISTRY, A.R. REVENUE BY : MS. S. PADMAJA, D.R. DATE OF HEARING : 24.11. 201 4 DATE OF PRONOUNCEMENT : 14.01 .2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS B EEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 12.11.2012 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [(HEREINAFTER REFERRED TO AS CIT(A)] RELEVANT TO ASSESSMENT YEAR 2008 - 09. 2. THE ASSESSEE HAS TAKEN 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 AGAI NST 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): ITA NO.1306/M/2013 M/S. KNIGHT RIDERS SPORTS PVT. LTD. 2 GENERAL 1. ERRED IN DETERMINING TO TAL LOSS OF THE APPELLANT AT RS.20,000 AS AGAINST RS. 49 , 76 , 223 CLAIMED AS PER THE RETURN OF INCOME. VALIDITY OF REASSESSMENT PROCEEDINGS 2. ERRED IN UPHOLDING THAT THE REASSESSMENT PROCEEDINGS UNDER SECTION 147 OF THE ACT ARE VALID AND PROPER IN LAW. COMMENCEMENT OF BUSINES S 3. ERRED IN DISALLOWING ALL THE EXPENSES ON THE PREMISE THAT NO BUSINESS HAS BEEN CARRIED OUT BY THE APPELLANT BEFORE 31 MARCH 2008, WITHOUT APPRECIATING THAT ALL THE EXPENSES WHICH QUALIFY FOR DEDUCTION UNDER SECTION 37(1) OF THE ACT ARE ALLOWED AS A DE DUCTION FROM THE DATE OF 'SET UP' OF THE BUSINESS. 4. ERRED IN HOLDING THAT BUSINESS OF THE APPELLANT HAS BEEN CARRIED ON ONLY ON OR AFTER 4 APRIL 2008 [IE THE DATE OF SIGNING THE FRANCHISE AGREEMENT ENTERED BETWEEN THE APPELLANT AND THE BOARD OF CONTROL F OR CRICKET IN INDIA], WITHOUT APPRECIATING THAT SIGNIFICANT BUSINESS ACTIVITIES WERE CARRIED OUT BY THE APPELLANT FROM THE DATE OF SET UP OF THE BUSINESS. 5. ERRED IN HOLDING THAT THE APPELLANT FAILED TO PROVIDE THE FOLLOWING DETAILS: DATE OF AUCTION OF PLAYERS DATE OF OPENING OF BANK ACCOUNT DATE OF PURCHASE OF SPORTS EQUIPMENTS INSPITE OF THE FACT THAT THE ABOVE DETAILS WERE PROVIDED VIDE SUBMISSIONS DATED 9 NOVEMBER 2012 TO THE LEARNED CIT(A). 6. ERRED IN UPHOLDING DISALLOWANCE OF DEPRECIATION ON THE A SSETS ON THE PREMISES THAT THE ASSETS WERE NOT AVAILABLE AND READY FOR BEING USED AS ON 31 MARCH 2008, IN SPITE OF THE FACT THAT ALL THE SUPPORTING INVOICES WERE FURNISHED BEFORE THE LEARNED CIT(A) DURING THE APPELLATE PROCEEDINGS. 3. THE FACTS IN BRIE F ARE THAT THE ASSESSEE COMPANY HAS BEEN INCORPORATED UNDER THE COMPANIES ACT, 1956 ON 27.02.08 WITH THE OBJECTIVE INTER - ALIA FOR ESTABLISHING, SETTING UP, BUY & SALE, ACQUIRE, MANAGE RUN, OPERATE ON OUTRIGHT ITA NO.1306/M/2013 M/S. KNIGHT RIDERS SPORTS PVT. LTD. 3 BASIS OR IN JOINT VENTURE OR OTHERWISE SPORTS T EAMS AND SPORTS PLAYERS AND OTHER CORRELATED ACTIVITIES. THE ASSESSEE COMPANY AS PER ITS OBJECTIVES DECIDED TO ENGAGE IN THE BUSINESS OF OPERATING KOLKATA FRANCHISE I.E. KOLKATA KNIGHT RIDERS OF THE BOARD OF CONTROL FOR CRICKET IN INDIA INDIAN PREMIER L EAGUE (IPL). THE IPL TOURNAMENT WAS SCHEDULED TO COMMENCE FROM 18.04.2008. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR UNDER CONSIDERATION I.E. A.Y. 2008 - 09 ON 30.09.08 DECLARING LOSS OF RS.49,76,223/ - . THE ASSESSEE COMPANY IN TH E P&L ACCOUNT HAD DEBITED BUSINESS EXPENDITURE OF RS. 49,42,602/ - . DEPRECIATION ON ASSETS OF RS.1,044/ - WAS ALSO CLAIMED. THE ASSESSMENT WAS INITIALLY COMPLETED UNDER SECTION 143(1) OF THE ACT. HOWEVER, SUBSEQUENTLY THE AO NOTICED THAT THE COMPANY HAD BE EN INCORPORATED ON 27.02.08 ONLY. THE PERIOD FOR WHICH THE COMPANY WAS OPERATIONAL DURING THE FINANCIAL YEAR UNDER CONSIDERATION WAS ONE MONTH ONLY I.E. FROM THE DATE OF INCORPORATION I.E. 27.02.08 TO 31.03.08. THE COMPANY HAD NOT CARRIED OUT ANY BUSINES S ACTIVITY. THE EXPENDITURE CLAIMED BY THE COMPANY WAS PRIOR PERIOD EXPENSES WHICH WERE REQUIRED TO BE AMORTISED AND 1/5 TH OF THE SAME WERE REQUIRED TO BE ALLOWED EQUALLY IN FIVE YEARS FROM THE YEAR WHEN THE ACTUAL BUSINESS WAS STARTED. THE AO ALSO OBSER VED THAT THE CLAIM OF DEPRECIATION WAS ALSO NOT ALLOWABLE. THE AO FURTHER OBSERVED FROM THE BALANCE SHEET THAT THE ASSESSEE COMPANY HAD RECEIPTS OF RS.92.5 CRORES DEPOSIT OF RS.2 CRORES WERE REFLECTED IN THE LOANS AND ADVANCES. ALTHOUGH THE ASSESSEE HAD SHOWN FINANCIAL EXPENSES OF RS.10,83,222/ - , NO INTEREST INCOME FROM DEPOSIT HAD BEEN SHOWN. THE ASSESSEE HAD NOT FURNISHED NAME AND ADDRESS OR ANY EVIDENCE OF THE SOURCE OF UNSECURED LOAN. HE WAS THEREFORE OF THE VIEW THAT THE SAME NEEDS EXAMINATION. IN VIEW OF THE ABOVE, THE AO FORMED AN OPINION THAT THE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. HE THEREFORE REOPENED THE ASSESSMENT PROCEEDINGS. THE ASSESSEE AGITATED THE REOPENING OF THE ASSESSMENT. HOWEVER, THE AO REJECTED THE CONTENTION OF THE ASSESSEE ON THIS ITA NO.1306/M/2013 M/S. KNIGHT RIDERS SPORTS PVT. LTD. 4 ISSUE. IN THE REOPENED ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT SINCE NO BUSINESS HAD BEEN CARRIED OUT BY THE ASSESSEE DURING THE YEAR AND NO REVENUE WAS EARNED BY THE ASSESSEE THEREFORE THE CLAIM OF EXPENDITURE CANNOT BE ALLOWED. HE OBSERVED THAT THE BUSINESS OF THE ASSESSEE COULD NOT BE SAID TO HAVE BEEN COMMENCED BEFORE THE IPL MATCHES ACTUALLY STARTED. EVEN T HE AS SESSEE SIGNED THE IPL FRANCHISE AGREEMENT WITH THE BCCI ON 04.04.08 ONLY AND HENCE NO BUSINESS ACTIVITY HAD COMMENCED BEFORE THE SAID DATE. THE ASSESSEE COMPANY WAS INCORPORATED JUST ONE MONTH BEFORE THE END OF THE FINANCIAL YEAR AND THE EXPENDITURE IN QUESTION C OULD NOT BE SAID TO HAVE BEEN INCURRED BY THE ASSESSEE COMPANY. HE ALSO OBSERVED THAT NATURE OF SOME OF EXPEN DITURE WAS CAPITAL IN NATURE AND HENCE COULD NOT BE ALLOWED AS REVENUE EXPENDITURE. THE AO THEREFORE DISALLOWED THE CLAIM OF EXPENDITURE AS WELL CLAIM OF DEPRECIATION MADE BY THE ASSESSEE. 4 . IN APPEAL BEFORE THE LD. CIT (A) , THE REOPENING OF THE ASSESS MENT WAS AGITATED. APART FROM THAT , THE ASSESSEE COMPANY ALSO CONTESTED ON MERIT PLEADING THAT THE BUSINESS OF THE ASSESSEE COMPANY WAS ACTUALLY STARTED FROM THE DATE OF PARTICIPATION IN THE BID PROCESS FOR AUCTION OF THE IPL FRANCHISE. INITIALLY, THE BI D WAS MADE BY RED CHILLIES COMPANY, THE PROMOTER COMPANY OF THE ASSESSEE COMPANY. AFTER INCORPORATION OF THE ASSESSEE COMPANY, THE ASSESSEE COMPANY CARRIED ON THE BUSINESS ACTIVITY OF FORMING/PURCHASING THE CRICKET TEAM AND PARTICIPATION IN THE IPL MATCHE S. HOWEVER, THE LD. CIT(A) DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE AND DISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE HAS COME IN APPEAL BEFORE US. 5. THE LD. COUNSEL FOR THE ASSESSEE HAS REITERA TED HIS SUBMISSIONS REGARDING THE ISSUE OF REOPENING WHEREAS THE LD. D.R. HAS RELIED UPON THE FINDINGS OF THE LD. CIT(A). ITA NO.1306/M/2013 M/S. KNIGHT RIDERS SPORTS PVT. LTD. 5 6. AFTER HEARING THE LD. REPRESENTATIVES OF THE PARTIES, WE FIND THAT THE RETURN OF THE ASSESSEE WAS ORIGINALLY PROCESSED UNDER SEC TION 143(1) OF THE ACT AND NOT UNDER SECTION 143(3) OF THE ACT. THE LD. AO HAD NOTICED THAT THOUGH THE ASSESSEE COMPANY HAD CLAIMED EXPENDITURE BUT THE ASSESSEE COMPANY HAD NOT COMMENCED ITS BUSINESS DURING THE YEAR UNDER CONSIDERATION. HE WAS ALSO OF TH E VIEW THAT IN THE ABSENCE OF DETAILS OF SHARE HOLDING PATTERN OF THE COMPANY AS WELL AS RELATED PARTYS APPLICABILITY OF PROVISIONS OF SECTION 2(22)(E)/2(22)(IV) WAS ALSO REQUIRED TO BE EXAMINED. IT WAS NOT A CASE WHERE THE AO HAD ALREADY APPLIED HIS MIN D TO THE FACTS OF THE CASE. FROM THE DETAILS AVAILABLE ON RECORD, THE AO HAD REASON TO BELIE VE THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT IN THE CASE OF THE ASSESSEE. WE DO NOT FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL THAT NO NEW TANGIBL E MATERIAL WAS BEFORE THE AO TO FORM THE OPINION THAT THE INCOME HAS ESCAPED ASSESSMENT. IN VIEW OF THIS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHILE UPHOLDING THE REOPENING OF THE ASSESSMENT. 7 . SO FAR SO, THE DISALLOWANCE OF EXP ENDITURE IS CONCERNED, THE LD. COUNSEL HAS SUBMITTED THAT THE BUSINESS OF THE ASSESSEE COMPANY HAD COMMENCED FROM THE DATE OF PARTICIPATION IN THE BID WHICH WAS CONDUCTED ON 20.02.08. HE HAS ALSO RELIED UPON CERTAIN DOCUMENTS IN THIS RESPECT. HE HAS ALSO SUBMITTED THAT APART FROM PARTICIPATION IN THE BID, THE ASSESSEE COMPANY HA D ENGAGED TEAM PLAYERS AS WELL AS APPOINTED HEAD OPERATIONS OF SPORTS DIVISION , THE TEA M COACH AS WELL AS PHYSIOTHERAPIST DURING THE YEAR. THE ASSESSEE COMPANY HAD ALSO OPENED ITS BANK ACCOUNT DURING THE YEAR. PRIOR TO TAKING OVER THE BUSINESS ACTIVITY BY THE ASSESSEE COMPANY , THE EXPENDITURE WAS INCURRED BY RED CHILLIES COMPANY I.E. THE PROMOTER COMPANY OF THE ASSESSEE COMPANY. HENCE, CERTAIN INVOICES WERE IN THE NAME OF RED CHI LLIES COMPANY. HE HAS SUBMITTED THAT UNDER SUCH CIRCUMSTANCES, IT CANNOT BE SAID THAT THE ASSESSEE COMPANY HAD NOT ITA NO.1306/M/2013 M/S. KNIGHT RIDERS SPORTS PVT. LTD. 6 COMMENCED ITS BUSINESS. HE HAS ALSO SUBMITTED THAT THE ASSESSEE COMPANY IS ENTITLED TO THE CLAIM OF DEPRECIATION ON THE SPORTS EQUIPMENTS E TC. HE HAS RELIED UPON VARIOUS DOCUMENTS IN SUPPORT OF HIS ABOVE SUBMISSIONS. ON THE OTHER HAND, THE LD. D.R. HAS RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. HE HAS FURTHER CONTENDED THAT THE DOCUMENTS PRODUCED BY THE ASSESSEE BEFORE THIS TRIBU NAL WERE NOT BEFORE THE LOWER AUTHORITIES. HENCE, AT THIS STAGE , THESE DOCUMENTS THROUGH WHICH THE ASSESSEE HAS WANTED TO PROVE THAT THE BUSINESS HA D COMMENCED IN THE YEAR UNDER CONSIDERATION , CANNOT BE LOOKED INTO. 8 . AFTER PERUSAL OF THE RECORD AND HEA RING THE LD. REPRESENTATIVES OF THE PARTIES, WE ARE OF THE VIEW THAT THE OBSERVATION OF THE LOWER AUTHORITIES THAT THE BUSINESS OF THE ASSESSEE COMPANY HAD NOT COMMENCED BEFORE THE ASSIGNING OF THE FRANCHISE AGREEMENT WITH THE BCCI IS NOT CORRECT. THOUGH THE SIGNING OF THE AGREEMENT WITH THE BCCI WAS PART OF THE BUSINESS ACTIVITY. HOWEVER, BEFORE THE PARTICIPATION IN THE BID, ENGAGEMENT OF PLAYERS, COACH, HEAD OPERATIONS OF SPORTS DIVISION, SPORTS STAFF, PHYSIOTHERAPIST ETC. WERE THE ACTIVITIES CARRIED OU T BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. HOWEVER, WE FIND THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 27.02.08 ONLY WHERE AS THE AUCTION FOR FRANCHISE WAS CONDUCTED ON 20.02.08 I.E. PRIOR TO THE DATE OF INCORPORATION OF THE ASSESSEE COMPANY. T HE ASSESSEE COMPANY HAS CLAIMED THAT THE EXPENSES WERE INCURRED BY THE PROMOTER COMPANY ON BEHALF OF THE ASSESSEE COMPANY AND HENCE THE INVOICES WERE RAISED IN THE NAME OF PROMOTER COMPANY BEFORE ACTUALLY TAKING OVER OF BUSINESS BY THE ASSESSEE COMPANY. T HE VARIOUS DOCUMENTS RELIED UPON BY THE ASSESSEE BEFORE US WERE NOT PRODUCED BEFORE THE AO. THE DETAILS OF EXPENDITURE AND EVIDENCES RELATING TO CARRYING OUT OF VARIOUS ACTIVIT IES HAVE NOT BEEN EXAMINED BY THE AO. UNDER SUCH CIRCUMSTANCES, WE RESTORE THI S ISSUE TO THE FILE OF THE AO TO EXAMINE IT ITA NO.1306/M/2013 M/S. KNIGHT RIDERS SPORTS PVT. LTD. 7 AFRESH IN THE LIGHT OF OBSERVATIONS MADE ABOVE. THE AO WILL GIVE PROPER OPPORTUNITY TO THE ASSESSEE TO PRESENT THE NECESSARY EVIDENCES AND THEN TO VERIFY AND EXAMINE THE SAME AND DECIDE THE CLAIM OF THE ASSESSEE REGARDING THE CLAIM OF EXPENDITURE AS WELL AS DEPRECIATION AFRESH IN ACCORDANCE WITH LAW. 9 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14.01. 201 5 . SD/ - SD/ - ( R.C. SHARMA ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 14.01. 201 5 . * KISHORE , SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBA I THE CIT ( A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.