TMI Blog2019 (4) TMI 767X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned AY was only to the tune of ₹ 88.78 Lacs. Another factor is to be noted that the loan has been granted by the assessee to its subsidiary company and AO has rejected the stand of the assessee on the ground that the business of the subsidiary could not be considered in law as the business of the assessee without controverting the fact that the aforesaid subsidiary was also engaged in the business of running the restaurants and without appreciating the fact that the assessee would derive business benefits out of the same. In such a scenario, the ratio of decision of Hon’ble Apex Court rendered in S.A. Builders Vs. CIT [2006 (12) TMI 82 - SUPREME COURT] would also become applicable to the facts of the case. Therefore, viewed from any angle, the impugned disallowance, in our opinion, could not be sustained - Decided in favour of assessee. - I.T.A. No.1177/Mum/2018, I.T.A. No.1178/Mum/2018, I.T.A. No.660/Mum/2018 - - - Dated:- 9-4-2019 - Hon ble Shri Mahavir Singh, JM And Hon ble Shri Manoj Kumar Aggarwal, AM For the Assessee : Mahesh Rajora - Ld.AR For the Revenue : Abhi Rama Karthikeyan- Ld. DR ORDER PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e incurred expenses of ₹ 526.11 Lacs which was debited under the head Leasehold Property / Capital Work in Progress and reflected under Fixed Asset in the Balance Sheet. Out of the same, the assessee claimed an expenditure of ₹ 187.54 Lacs in the computation of income since these were deductible revenue expenditure u/s 37(1). Further, since the aforesaid 4 units were set up for expansion of existing restaurant business, the pre-operative expenditure was incurred for expansion of existing business and therefore, out of total expenditure, expenses of revenue in nature has been claimed u/s 37 of the Act. Reliance was placed on the decision of Hon ble Karnataka High Court rendered in CIT Vs. Hindustan Machine Tools Ltd. to buttress the submissions. However, not convinced, Ld. AO noted that the restaurants at Pune Hyderabad commenced operations only during the month of November, 2012 July, 2013 respectively and the expenses were incurred prior to commencement of business. Further, since no income from the new units was credited to the profit loss account during the impugned AY and therefore, the expenditure was not allowable following matching principle. Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal Income as they are deductible revenue expenses allowable u/s 37(1) of the Act. During assessment proceeding the AO asked the appellant to show cause as to why the expenses of ₹ 1,87,54,037/- should not be disallowed and added back to the total income holding the same as capital expenditure. In response The Appellant submitted that the pre -operative expenditure of ₹ 1,87,54,037/- are revenue expenditure deductible u/s 37(1) of the Act. These expenses has not brought into existence any capital asset or enduring benefits. The Appellant submitted that since it was already in the business of running restaurants, opening of new restaurants constitutes expansion and extension of existing business with common fund, common' control arid common management., The Appellant had not obtained any enduring benefit and no capital assets came into existence. None of these expenses involved construction of any capita! asset. It was submitted that these expenses aggregating to ₹ 1,87,54,037/- [i.e.Rs. 50,51,151 + ₹ 6,13,403+ ₹ 48,19,629+ ₹ 82,69,854] relating to Delhi and Hyderabad restaurants are purely in the nature of revenue expense i.e. Advertisement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant's contention. The ground of appeal no 4 is therefore allowed. 10.3 I find that the fact in the case of the Appellant during the year under consideration is similar to that in the preceding year i.e.A.Y.2013-14. The Appellant is already started its restaurants business in the year 2000. Thereafter, the Appellant has started various other restaurants at different locations. The Appellant has already commenced its business activities in earlier years. During the year under consideration, the Appellant has incurred pre-operative expenditure on its new restaurants namely Olive Bistro, Olive Okhala, Olive Irani Cafe, Gurgaon and Olive Bistro, Guragaon. These expenses are purely in the nature of revenue expense which are incurred for the expansion of the existing business. Hence, respectfully following decision of my predecessor in preceding year i.e.A.Y.2013-14 I hereby direct the AO to treat the expenses of ₹ 1,87,54,037/- incurred by the Appellant as deductible revenue expense Accordingly, Ground No. 4 of appeal is allowed in favour of the Appellant. However, the disallowance u/s 36(1)(iii) was confirmed by observing as under: - 14. Decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant as each year is independent and this cannot be a basis for allowance of interest expenditure, but the disallowance is based on facts and circumstances of the case for that year.. Thus, on this ground also the disallowance of interest expense made by the AO u/s 36(1)(iii) of the Act cannot be held be not justified. In this context, I fully agree with the distinction made by the Assessing Officer with respect to the ratio laid down by the Hon'ble High Court of Bombay in the case of Reliance Utilities and Power Ltd. (Supra) and the facts of the assessee s case. Further, it is also to be mentioned that the business of the assessee cannot the business of the subsidiary company in law. It is also to be mentioned that all the borrowed and advanced funds are for the purpose of business and when the assessee had sufficient cash balance at his disposal, it should not have borrowed funds from outside which have to be taken at a cost i.e. interest-bearing funds, rather the assessee should have abstained itself in lending funds to its subsidiary/associate concern without charging interest. Moreover, as pointed out by the Assessing Officer, the interest claimed by the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. It has been argued that in case of mixed usage of funds, a presumption was to be drawn in assessee s favor that interest free loans were granted out of free funds available with the assessee in terms of decision of Hon ble Bombay High Court rendered in CIT Vs. Reliance Utilities Power Ltd. [313 ITR 340]. However, both the lower authorities distinguished the same on the ground that the decision was rendered in the context of investments made by the assessee and not in the context of grant of interest free advances. However, the said reasoning, in our opinion, would hold no water since the ratio of the cited decision would apply in all cases where the funds were diverted for non-business purposes i.e. either to make investments or to advance interest free loans. Therefore, the lower authorities were not justified in disallowing the same particularly in view of the fact that fresh loans granted by the assessee to the said entity during impugned AY was only to the tune of ₹ 88.78 Lacs. Another factor is to be noted that the loan has been granted by the assessee to its subsidiary company and Ld. AO has rejected the stand of the assessee on the ground that the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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