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TMI Blog2019 (4) TMI 767X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid 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. Finally, the claim u/s 37 was rejected. As a logical consequence, depreciation against the same was allowable @15% which resulted into net addition of ₹ 159.40 Lacs in the hands of the assessee. 3.3 The disallowance u/s 36(1)(iii) stem from the fact that the assessee advanced interest free loan of ₹ 305.70 Lacs to an entity namely M/s Joie De Vivre whereas it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37/- 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, Salaries and Wages, Travelling Expenses, Rent, Repairs and maintenance, Staff Room Expenses, Food & Provision, Water Charges, Bank Charges, PF Employer Contribution, ESIC Employer Contribution etc which were incurred for the purpose of expansion of the existing business. It is therefore submitted that the expenses of ₹ 1,87,54,037/- were incurred in the course of carrying on and for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 I have considered the facts of the case and the assessee's submission. During the year the Appellant has debited interest expense of ₹ 28,09,890/- to its P&L A/c and same is claimed as deductible revenue expense. The Appellant has also granted loan aggregating to ₹ 3,05,70,478/- in earlier years (including loan of ₹ 88,78,203/- granted during the year) to its ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 appellant is not allowable. I therefore hold that interest expense of ₹ 28,09,890/- disallowed by the AO u/s 36(1)(iii) is justified on the facts and circumstances of the case of the Appellant and the action of AO the is upheld. Accordingly Ground No.5 in appeal is dismissed. The stand of first appellate authority has given rise to cross-appeal before us. 5.1 The Ld. Authorized Representati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 [288 ITR 1] ..... X X X X Extracts X X X X X X X X Extracts X X X X
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