9911796707
TMI Blog2019 (4) TMI 767X X X X Extracts X X X X X X X X Extracts X X X X ..... ee being resident corporate assessee stated to be engaged in the business of restaurant & related activities was assessed u/s 143(3) for impugned AY on 24/10/2016 by Ld. Assistant Commissioner of Income Tax-13(1)(1), Mumbai wherein the income of the assessee was determined at Rs. 237.97 Lacs after certain additions / disallowances as against returned income of Rs. 45.33 Lacs e-filed by the assessee on 20/11/2014. The Book Profits u/s 115JB were determined at Rs. 131.99 Lacs as against Rs. 129.30 Lacs reflected by the assessee. 3.2 During assessment proceedings, it transpired that the assessee claimed a deduction of Rs. 187.54 Lacs in its computation of income on account of pre-operative expenditure pertaining to following units: - No. Unit Amount (Rs.) 1. Olive Bistro, Hyderabad 50,51,151/- 2. Olive Okhla 6,13,403/- 3. Olive Irani Café, Gurgaon 48,19,629/- 4. Olive Bistro, Gurgaon 82,69,854/- Total 1,87,54,037/- It was explained that the assessee was incorporated in the year 2000 and commenced commercial activity in the same year by opening first restaurant at Pali Hill Tourist Hotel Pvt. Ltd., Union Park, Khar (W), Mumbai followed by ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanations / submissions, the interest expenditure of Rs. 28.09 Lacs as claimed by the assessee u/s 36(1)(iii) was disallowed. 4. Aggrieved, the assessee contested both the issues with partial success before Ld. first appellate authority vide impugned order dated 30/11/2017. The first appellate authority, after considering factual matrix as well as assessee's detailed submissions, deleted addition on account of pre-operative expenditure by observing as under: - 10. Decision I have considered the facts of the case and the assessee's submission. The Appellant is engaged in the business of running restaurants. For the year under consideration, the Appellant has incurred expenses of Rs. 5,26,11,620/-(5,18,19,867 + 7,91,753) which was debited under the head 'Leasehold Property / Capital Work in Progress' respectively and reflected under 'Fixed Asset Schedule' in the Financial Statement. Out of Rs. 5,26,11,620/-, the assessee has claimed expenses aggregate 5 of Rs. 1,87,54,037/-; being of Rs. 50,51,151/- (Olive Bistro, Hyderabad), Rs. 6,13,4037- (Olive Okhala), Rs. 4.8.19.629/- (Olive Irani Cafe, Gurgaon) and Rs. 82,69,854/- (Olive Bistro, Gurgaon); in its Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature. The operating part of the order of my predecessor is reproduced as under: "6.6. / have considered the facts and the submissions carefully. The appellant company is in restaurant business which was started in October 2000 at Khar, Mumbai. During the year FY 2012-13, expenditure of Rs. 3,11,16,461 was debited under the head leasehold property / capital work in progress under the Fixed Assets schedule. It is only in the computation of income for the tax return that an expense of Rs. 79,01,139 as expenditure u/s 37(1) was claimed out of the expense of Rs. 3,11,16,461 capitalized as part of WIP in books. The operation commenced as per assessee's submission in respect of "Olive Bistro" Pune in November 2012, and in respect of "Olive Bistro" at Hyderabad in July 2013. That the appellant has an existing restaurant business is not in doubt. Neither is the fact that expenditure in question is incurred in respect of additional restaurants set up and which is in the nature of expansion of the existing restaurant business. The management, the control and funds utilized are common. In these facts, the judicial decisions cited do support the appellant's contention. The groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund of the Appellant is aggregating to Rs. 36,87,32,849/- as against the total interest free loans and' advances of Rs. 3,05,70,478/- granted to Joie De Vivre Private Limited, and, in view of the decision of Hon'ble Jurisdictional High Court in the case of CIT Vs. Reliance Utilities & Power Ltd (313 ITR 340) the interest should be allowed; it cannot be said that the interest free loans and advances were given to associate entity Joie De Vivre Private Limited out of available own fund of the Appellant; hence the claim of the appellant that no interest expense can be disallowed u/s 36(1)(iii) of the Act, is not tenable. I further observe that the argument of substantial amount of loans and advances were given to associate concern Joie De Vivre Private Limited in earlier years and in the scrutiny assessment proceedings completed u/s 143(3) of the Act, the AO accepted the interest free loans and advances given to associate concern Joie De Vivre Private Limited for business purpose and no disallowance of interest expense was made u/s 36(1)(iii) of the Act does not support the contention of the appellant as each year is independent and this cannot be a basis for allowance of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the binding judicial precedent, we dismiss the revenue's appeal. It is, however, made clear that since the expenditure has been capitalized in the books of accounts and claimed only in the computation of income, no deduction thereof including depreciation, in any manner, would be allowable to assessee against the same in any assessment year. The consequential depreciation of 15% as allowed by Ld. AO shall stand reversed. The Ld. AO is directed to allow deduction of the impugned expenditure subject to verification of the fact that depreciation against the stated expenditure has not been allowed to the assessee in the computation of income either in impugned AY or in subsequent years. With these directions, the revenue's appeal ITA No. 1177/Mum/2018 stands dismissed. 6. So far as the disallowance u/s 36(1)(iii) is concerned, upon perusal of financial statements, it transpires that the assessee's opening own funds in the shape of share capital and free reserves aggregating to Rs. 36.87 Crores far exceeds the interest free loans of Rs. 3.05 Crores advanced by the assessee. It has been argued that in case of mixed usage of funds, a presumption was to be drawn in assessee's favor th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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