The income-tax department will take a close look at the unaccounted expenditure incurred by the franchisees of the Indian Premier League over the last three years, creating the possibility of a large tax liability for them later.
The initial findings in the ongoing investigation into the Indian Premier League point at large unexplained expenditure and investments routed through complex corporate structures, located overseas in many cases.
The franchisees could be asked to justify the unexplained expenditure under the Section 69 C of the Income Tax Act, a tax department official told ET. If no satisfactory justification is offered, the expenditure is disallowed and a tax liability slapped on the amount.
However, this scrutiny into the finances of the IPL teams will take about two years to complete.
The scrutiny could also create extra trouble for teams that have foreign investment in them. The tax authorities could invoke the Section 69B of the IT Act which puts the onus on the assessee to explain all unexplained investments, loans, advances or equity not recorded in the books.
The application of Jaipur IPL Cricket Pvt Ltd, owners of Rajasthan Royals, to induct foreign equity in the company has already hit a roadblock with the tax authorities over complex sources of investments.
Franchisees could face heat from the Enforcement Directorate for possible violations of the Foreign Exchange Management Act or FEMA.
The current investigation is likely to be completed in 4-6 months after which the reports would be sent to assessing officer handling respective franchisees for final assessment, the official said. Tax sleuths, who visited the BCCI office last week on Wednesday, have been able to collect the information and documents they were looking for, the official added.
The department used special technology that allows direct data transfer from any electronic storage device including computers, mobile phones and pen drives to access the data.
It collected data on the bidding process, shareholders agreements, expenditures incurred on tournaments and income generated by not just the Board of Control for Cricket in India but also the franchisees.
Various agencies, including income tax, enforcement directorate and directorate general of service tax, are closely coordinating in the investigation. The finance ministry is also keeping a watch on the investigative process and the findings would be presented in Parliament when the inquiry is completed, a senior ministry official said.