OLIVE CAFE SOUTH PRIVATE LIMITED , MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX-13(1)(1), MUMBAI

ITA 5097/MUM/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9033 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 31-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABI RAMA KARTIKEYAN
• Keywords: Capital asset; Depreciation; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 14A; 37(1)

Judgement Text

1 OLIVE BAR KITCHEN PVT LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO. 5098/MUM/2017 (ASSESSMENT YEAR 2013-14) OLIVE BAR & KITCHEN PVT LTD PALI HILL TOURIST HOTEL, 14, UNION PARK KHAR WEST, MUMBAI-400 052 PAN :AAACO5346O VS DY.CIT-13(1)(1), MUMBAI APPELLANT RESPONDEDNT ITA NO5165/MUM/2017 (ASSESSMENT YEAR 2013-14) DY.CIT-13(1)(1), MUMBAI VS OLIVE BAR & KITCHEN PVT LTD PALI HILL TOURIST HOTEL, 14, UNION PARK KHAR WEST, MUMBAI-400 052 PAN :AAACO5346O APPELLANT RESPONDEDNT ITA NO5164/MUM/2017 (ASSESSMENT YEAR 2013-14) DY.CIT-13(1), MUMBAI VS M/S OLIVE CAFE SOUTH PVT LTD PALI HILL TOURIST HOTEL, 14, UNION PARK KHAR WEST, MUMBAI-400 052 PAN :AAACO1454E APPELLANT RESPONDEDNT 2 OLIVE BAR KITCHEN PVT LTD ITA NO5097/MUM/2017 (ASSESSMENT YEAR 2013-14) M/S OLIVE CAFE SOUTH PVT LTD PALI HILL TOURIST HOTEL, 14, UNION PARK KHAR WEST, MUMBAI-400 052 PAN :AAACO1454E VS DY.CIT-13(1)(1), MUMBAI APPELLANT RESPONDEDNT ASSESSEE BY SHRI JITENDRA JAIN REVENUE BY SHRI ABI RAMA KARTIKEYAN DATE OF HEARING 15-11-2018 DATE OF PRONOUNCEMENT 05-12-2018 O R D E R PER G MANJUNATHA, AM : THIS BUNCH OF FOUR APPEALS, TWO BY THE REVENUE AND TWO BY THE ASSESSEE ARE FILED AGAINST SEPARATE, BUT IDENTICAL ORDERS OF THE CIT(A)-21, MUMBAI DATED 02-05-2017 AND THEY PERTAIN TO AY 2013-14. SINCE F ACTS INVOLVED IN THESE APPEALS ARE IDENTICAL AND ISSUES ARE ALSO COMMON, F OR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. THE REVENUE, HAS RAISED MORE OR LESS COMMON GROU NDS OF APPEAL IN BOTH THE APPEALS. FOR THE SAKE OF BREVITY, GROUNDS OF A PPEAL TAKEN IN ITA NO.5164/MUM/2017 ARE REPRODUCED HEREUNDER:- 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE AO IN RESPECT OF PRE OPERATIVE EXPENSES IN THE CASE OF ASSESSEE'S RE STAURANTS 'LIKE THAT ONLY' (BANGALORE) AND 'MONKEY BAR' (DELHI) AND CONF IRMED THE SAME 3 OLIVE BAR KITCHEN PVT LTD IN THE CASE OF 'MONKEY BAR 11 (BANGALORE) WITHOUT APPRECIATING THE FACT THAT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE PRE-OPERATIVE EXPENSES AMOUNTING TO RS, 1,70,90,906/- WERE SHOWN UNDER THE HEAD OF LEASE HOLD PROPERTY/CAPITAL WIP AND REFLECTED UN DER FIXED ASSETS SCHEDULE. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE ID. CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE AO IN RESPECT OF PRE OPERATIVE EXPENSES IN THE CASE OF ASSESSEE'S RE STAURANTS 'LIKE THAT ONLY' (BANGALORE) AND 'MONKEY BAR' (DELHI) AND CONF IRMED THE SAME IN THE CASE OF 'MONKEY BAR' (BANGALORE) BY METING O UT DIFFERENT TREATMENT TO THE SAME EXPENDITURE I.E TREATING IT A S REVENUE EXPENDITURE FOR ONE AND AS CAPITAL EXPENDITURE FOR ANOTHER. SUC H EXPENSES ARE ALLOWABLE ONLY U/S 35D91)(II) OF THE IT ACT, 1961 T O THE EXTENT MENTIONED THEREIN AND SEC 37(1) OF THE IT ACT ALSO DOES NOT ALLOW ANY CAPITAL EXPENDITURE. 3. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE DIFFERENT WHICH ARE NOT INTER-CONNECTED, THEREFORE, THE GROUNDS OF APPEAL T AKEN BY THE ASSESSES ARE EXTRACTED SEPARATELY:- ITA NO.5098/MUM/2017 1. (A) THE COMMISSIONER OF INCOME TAX(APPEALS) - 2 1, MUMBAI [HEREINAFTER 'CIT(A)'] ERRED IN CONFIRMING DISALLOWA NCE OF RS.269,162/- U/S 14A OF THE ACT R.W.R 8D OF THE INCOME-TAX RULES , 1962 ('THE RULES') AS ATTRIBUTABLE TO INVESTMENT ACTIVITY GIVING RISE TO THE EXEMPT INCOME. THE APPELLANT SUBMITS THAT IT HAS MADE THE STRATEGIC INVESTMENT IN SHARES OF ITS SUBSIDIARIES FOR ACQUIRING CONTROLLING INTER EST AND NOT FOR EARNING AN EXEMPT INCOME. HENCE, NO DISALLOWANCE U/S 14A R.W.R 8D IS CALLED FOR. (B) THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF RS.269,162/- (0.5% OF AVERAGE OF INVESTMENTS) U/S 14A OF THE ACT MADE BY THE AO, WITHOUT CONSIDERING THE SUO MOTO IN THE COMPUTATION OF INCO ME; HENCE RESULTING INTO TO DOUBLE ADDITION U/S 14AOF THE ACT R.W.R 8D OF THE RULES. (C) THE CIT(A) ERRED IN CONFIRMING THE ACTION OF AO IN INVOKING RULE 8D OF THE RULES FOR COMPUTING DISALLOWANCE U/S 14A OF THE IT ACT WITHOUT RECORDING DIS-SATISFACTION WITH RESPECT TO ACCOUNTS OF THE APPELLANT. 2. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF AO IN INCREASING THE BOOK PROFIT BY RS.269,162/- BEING EXPENSES RELATABL E TO EARNING OF EXEMPT INCOME WHILE CALCULATING BOOK PROFIT U/S 115 JB OF THE ACT. 4 OLIVE BAR KITCHEN PVT LTD 3. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE O F SHARE ISSUE EXPENSES OF RS.497,181/- MADE BY THE AO, ON THE GRO UND THAT THE EXPENSES RELATED TO INCREASE IN AUTHORIZED SHARE CA PITAL OF THE COMPANY AND FOR THE INCREASE IN THE CAPITAL BASE OF THE COMPANY AND HENCE ARE CAPITAL EXPENDITURE NOT DEDUCTIBLE U/S 37(1) OF THE ACT. ITA NO. 5097/MUM/2017 1. THE COMMISSIONER OF INCOME TAX (APPEALS) - 21, M UMBAI ERRED IN CONFIRMING THE DISALLOWANCE OF PRE-OPERATIVE EXPENS ES OF RS. 17, 12,2727- ON THE GROUND THAT THE EXPENSES ARE INCURR ED PRIOR TO COMMENCEMENT OF BUSINESS OF ITS FIRST RESTAURANT 'M ONKEY BAR'(BANGLORE) ON 18.05.2012 AND; HENCE ARE CAPITAL EXPENDITURE. THE APPELLANT SUBMITS THAT THE PRE-OPERATIVE EXPENSE S WERE INCURRED AFTER SETTING UP OF ITS BUSINESS AND IN THE COURSE OF AND FOR THE PURPOSE OF CARRYING ON ITS BUSINESS ACTIVITY AND HENCE, THE EX PENSES INCURRED ON EXPANSION OF ITS EXISTING BUSINESS ARE ALLOWABLE AS REVENUE EXPENDITURE UNDER THE INCOME TAX ACT. THE APPELLANT FURTHER SUBM ITS THAT THE EXPENSES HAVE NOT BROUGHT INTO EXISTENCE ANY CAPITA L ASSET OR ENDURING BENEFIT AND SATISFY ALL THE ESSENTIAL CONDITIONS OF REVENUE EXPENSE UNDER THE ACT; HENCE ON THE FACTS AND CIRCUMSTANCES OF TH E CASE, DISALLOWANCE OF PRE-OPERATIVE EXPENSES MADE BY THE AO SHALL BE D ELETED. 4. THE BRIEF FACTS OF THE CASE EXTRACTED FROM ITA N O.5098/MUM/2017 ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RUN NING RESTAURANTS AND RELATED ACTIVITIES, FILED ITS RETURN OF INCOME FOR AY 2013- 14 ON 26-09-2013 DECLARING TOTAL INCOME OF RS.36,80,710. THE CASE WAS SELECTE D FOR SCRUTINY AND NOTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED. IN RES PONSE TO NOTICES, THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED THE DETAILS, AS CALLED FOR. THE ASSESSMENT HAS BEE N COMPLETED U/S 143(3) OF THE I.T. ACT, 1961 ON 19-03-2016 DETERMINING TOTAL INCO ME AT RS.82,00,864 BY MAKING ADDITION TOWARDS DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO 5 OLIVE BAR KITCHEN PVT LTD EXEMPT INCOME U/S 14A R.W.R. 8D OF I.T.RULES, 1962 FOR RS.2,69,162, DISALLOWANCE OF PRE-OPERATIVE EXPENSES CAPITALISED IN BOOKS OF ACCOUNT, BUT CLAIMED AS REVENUE EXPENDITURE IN COMPUTATION OF TO TAL INCOME U/S 37(1) OF THE ACT FOR RS.67,15,968. SIMILARLY, THE AO HAS DISALL OWED ROC CHARGES PAID FOR INCREASE IN AUTHORISED SHARE CAPITAL OF THE COMPANY FOR RS.4,97,181. 5. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), ASSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS ALONGWITH CERTAIN JUDICIAL PRECEDENTS I N RESPECT OF ADDITION MADE BY THE AO TOWARDS DISALLOWANCE OF PRE-OPERATIVE EXP ENSES TO ARGUE THAT EXPENDITURE INCURRED UNDER THE HEAD, PRE-OPERATIVE EXPENSES ARE PURELY REVENUE IN NATURE LIKE SALARIES AND WAGES, TRAVELLI NG EXPENSES, RESTAURANT RENT, REPAIRS AND MAINTENANCE AND LIKE OTHER GENERAL ADMI NISTRATIVE EXPENSES WHICH ARE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION W ITH BUSINESS. THE ASSESSEE FURTHER ARGUED THAT IT HAD ALREADY COMMENCED ITS BU SINESS BUT THE COMMERCIAL OPERATIONS WERE NOT STARTED. THE EXPENDITURE INCUR RED UNDER CAPITAL EXPENDITURE HAS BEEN CAPITALISED IN BOOKS OF ACCOUN T; HOWEVER, EXPENSES, WHICH ARE IN THE NATURE OF REVENUE EXPENDITURE HAS BEEN TREATED AS DEDUCTIBLE U/S 37(1), EVEN THOUGH IN BOOKS OF ACCOUNT THE SAM E HAS BEEN TREATED AS CAPITAL WORK-IN-PROGRESS. THE ASSESSEE ALSO FILED WRITTEN SUBMISSIONS ON THE ISSUE OF DISALLOWANCE OF EXPENDITURE IN RELATION TO EXEMPT INCOME TO ARGUE THAT 6 OLIVE BAR KITCHEN PVT LTD IT HAS SUO MOTO DISALLOWED EXPENSES INCURRED IN REL ATION TO EXEMPT INCOME WHICH IS MORE THAN THE AMOUNT OF DISALLOWANCE QUANT IFIED BY THE AO BY APPLYING RULE 8D(2)(III), THEREFORE, FURTHER DISALL OWANCE AMOUNTS TO DOUBLE TAXATION WHICH IS INCORRECT. INSOFAR AS DISALLOWAN CE OF ROC CHARGES PAID FOR INCREASE IN AUTHORISED CAPITAL, THE ASSESSEE SUBMIT TED THAT IT HAS PAID ROC FEES FOR INCREASE IN AUTHORISED CAPITAL FOR ISSUE OF BON US SHARES, THEREFORE, THE QUESTION OF DISALLOWANCE OF ROC CHARGES BY FOLLOWIN G THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BROOKE BOND INDIA LTD VS CIT 225 ITR 798 (SC) DOES NOT ARISE AS THE HONBLE APEX COURT IN ITS SU BSEQUENT DECISION IN CASE OF CIT VS GENERAL INSURANCE CORPORATION HAS EXAMINED T HE ISSUE AND HELD THAT WHERE EXPENDITURE INCURRED IN CONNECTION WITH THE I SSUE OF BONUS SHARES CONSTITUTE REVENUE EXPENDITURE. 6. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMIS SIONS OF THE ASSESSEE AND ALSO BY FOLLOWING CERTAIN JUDICIAL PRECEDENTS, HELD THAT ALTHOUGH PRE-OPERATIVE EXPENSES HAVE BEEN CAPITALISED IN BOOKS UNDER THE H EAD WORK IN PROGRESS, BUT FACTS REMAIN THAT THE SAID EXPENDITURE CLAIMED IN S TATEMENT OF TOTAL INCOME AS REVENUE EXPENDITURE U/S 37(1), ARE PURELY REVENUE E XPENDITURE, WHICH ARE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH EXISTING BUSINESS. THE LD.CIT(A) FURTHER OBSERVED THAT THE ASSESSEE HAS AN EXISTING BUSINESS. NEITHER IS THE FACT THAT EXPENDITURE IN QUESTION IS INCURRE D IN RESPECT OF ADDITIONAL 7 OLIVE BAR KITCHEN PVT LTD RESTAURANT SET UP AND WHICH IS IN THE NATURE OF EXP ANSION OF THE EXISTING RESTAURANT BUSINESS. THE MANAGEMENT, THE CONTROL A ND THE FUNDS UTILISED ARE COMMON. THEREFORE, THE SAME CANNOT BE TREATED AS P RE-OPERATIVE EXPENSES, WHICH COMES UNDER THE PROVISIONS OF SECTION 35D SO AS TO AMORTISE OVER A PERIOD OF YEARS. INSOFAR AS DISALLOWANCE OF EXPEND ITURE INCURRED IN RELATION TO EXEMPT INCOME, THE LD.CIT(A) HELD THAT THE AO HAS R IGHTLY DISALLOWED EXPENSES BY APPLYING RULE 8D(2)(III) @0.5% OF THE AVERAGE VA LUE OF INVESTMENT AS THE ASSESSEE MADE SUO MOTO DISALLOWANCE IN RESPECT OF D IRECT EXPENSES U/R 8D(2)(I), BUT FAILED TO DISALLOW OTHER ADMINISTRATI VE EXPENSES U/R 8D(2)(III). INSOFAR AS DISALLOWANCE OF ROC FEES PAID FOR INCREA SE IN AUTHORISED CAPITAL, THE LD.CIT(A) OBSERVED THAT THE ASSESSEE HAS PAID FEES FOR INCREASE IN AUTHORISED CAPITAL AND THE SAME HAS BEEN DEDUCTED FROM SECURIT IES PREMIUM ACCOUNT INSTEAD OF ROUTING THROUGH PROFIT & LOSS ACCOUNT. THUS, THE TOTAL AMOUNT OF RESERVES USED UP ARE INCLUDED IN ISSUE OF BONUS SHA RES, THEREFORE, THERE IS NO MERIT IN THE CONTENTION OF THE ASSESSEE THAT WHEN B ONUS SHARES ARE ISSUED, EXPENDITURE INCURRED FOR INCREASE IN AUTHORISED CAP ITAL IS REVENUE IN NATURE. AGGRIEVED BY THE ORDER OF LD.CIT(A), THE ASSESSEE A S WELL AS THE REVENUE ARE IN APPEAL BEFORE US. 7. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM THE ASSESSEE AS WELL AS THE REVENUE APPEAL IS DISALLOWANCE OF PREOP ERATIVE EXPENSES TREATED AS 8 OLIVE BAR KITCHEN PVT LTD CAPITAL IN BOOKS OF ACCOUNT, BUT CLAIMED AS REVENUE IN STATEMENT OF TOTAL INCOME U/S 37(1) OF THE ACT. THE LD.AR FOR THE ASS ESSEE SUBMITTED THAT THE ASSESSEE HAS INCURRED VARIOUS REVENUE EXPENSES LIKE SALARIES AND WAGES TO STAFF, TRAVELLING EXPENSES, REPAIRS AND MAINTENANCE, RESTA URANT RENT AND OTHER LIKE EXPENSES IN CONNECTION WITH EXPANSION OF ITS EXISTI NG BUSINESS BY RUNNING RESTAURANTS IN THREE DIFFERENT PLACES AND TREATED T HE SAME AS CAPITAL EXPENDITURE IN ITS BOOKS OF ACCOUNT UNDER THE HEAD WORK IN PROGRESS. THE LD.AR FURTHER SUBMITTED THAT SINCE ALL EXPENSES INC URRED ARE IN THE NATURE OF REVENUE, THE ASSESSEE HAS CLAIMED DEDUCTION IN STAT EMENT OF TOTAL INCOME U/S 37(1) OF THE ACT. THE LD.AR FURTHER SUBMITTED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ARE WHOLLY AND EXCLUSIVELY IN CONNECTI ON WITH THE EXISTING BUSINESS FOR EXPANSION PURPOSE. THESE EXPENSES HAVE NOT BRO UGHT INTO EXISTENCE ANY CAPITAL ASSET OR ENDURING BENEFITS. NONE OF THE EX PENSES INVOLVE CONSTRUCTION OF STRUCTURE OR RENOVATION, EXTENSION OR IMPROVEMEN T OF THE ASSET. THE EXPENSES INCURRED DURING THE YEAR ARE PURELY REVENU E IN NATURE AND ARE NOT PERMITTED TO BE DEFERRED UNDER THE RELEVANT PROVISI ONS OF THE ACT. THE LD.AR FURTHER REFERRING TO DETAILS OF EXPENDITURE, SUBMIT TED THAT WHEREVER EXPENDITURE INCURRED ARE IN THE NATURE OF CAPITAL E XPENDITURE WAS ALREADY TREATED UNDER THE HEAD WORK IN PROGRESS; BUT EXPE NSES IN THE NATURE OF REVENUE ARE CLAIMED AS DEDUCTION U/S 37(1) OF THE A CT, BECAUSE THE SAID 9 OLIVE BAR KITCHEN PVT LTD EXPENDITURE CANNOT BE CLAIMED IN SUBSEQUENT YEARS. IN THIS CONNECTION, HE RELIED UPON VARIOUS JUDICIAL PRECEDENTS, INCLUDING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE SU PPLY CHAIN SOLUTIONS LTD IN INCOME-TAX APPEAL NO.892 OF 2014. 8. ON THE OTHER HAND, THE LD.DR SUBMITTED THAT THE LD.CIT(A) WAS ERRED IN DELETING ADDITION MADE BY THE AO TOWARDS PRE-OPERAT IVE EXPENSES WITHOUT APPRECIATING THE FACT THAT IN THE BOOKS OF ACCOUNT, THE ASSESSEE HAS SHOWN SAID EXPENDITURE UNDER THE HEAD WORK IN PROGRESS BUT I N STATEMENT OF TOTAL INCOME, THE SAME HAS BEEN TREATED AS REVENUE IN NAT URE TO BE DEDUCTIBLE U/S 37(1). THE LD.DR FURTHER SUBMITTED THAT THE LD.CIT (A) DID NOT APPRECIATE THE FACT THAT PRE-OPERATIVE EXPENSES ARE ALLOWABLE ONLY U/S 35D(1)(II) OF INCOME-TAX ACT, 1961 TO THE EXTENT MENTIONED THEREIN AND SECTI ON 37(1) OF THE I.T. ACT DOES NOT ALLOW ANY CAPITAL EXPENDITURE TO BE DEDUCTED. THE LD.DR FURTHER SUBMITTED THAT A PARTICULAR EXPENDITURE CANNOT HAVE TWO NATUR ES, I.E. ONE OF CAPITAL EXPENDITURE FOR PREPARATION OF BOOKS OF ACCOUNT AND REVENUE EXPENDITURE FOR THE PURPOSE OF COMPUTATION OF INCOME. THE ASSESSEE HAS RIGHTLY TREATED PRE- OPERATIVE EXPENSES AS CAPITAL IN ITS BOOKS OF ACCOU NT, BUT WHEN IT COMES TO COMPUTATION OF INCOME, CLAIMED THE SAME AS REVENUE EXPENDITURE WITHOUT ANY BASIS. 10 OLIVE BAR KITCHEN PVT LTD 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. THE FACT WITH REGARD TO THE COMMENCEMENT OF BUSINESS BY THE ASSESSEE IS NOT DISPUTED BY THE LOWER AUTHORITIES. THE ASSESSEE IS INTO THE BUSINESS OF RUNNING RESTAURANTS AND HAD COMMENCED ITS BUSINESS ACTIVITIES. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS EXPANDED ITS EXISTING BUSINESS BY OPEN ING THREE MORE RESTAURANTS AT DIFFERENT PLACES. THE ASSESSEE HAS TREATED EXPE NDITURE INCURRED IN CONNECTION WITH THE ESTABLISHMENT OF RESTAURANTS UN DER THE HEAD CAPITAL WORK IN PROGRESS IN ITS BOOKS OF ACCOUNT. BUT, WHEN IT COMES TO COMPUTATION OF TOTAL INCOME, THE EXPENSES IN THE NATURE OF REVENUE ARE T REATED AS REVENUE EXPENDITURE AND CLAIMED AS SUCH. THE AO DISALLOWED PRE-OPERATIVE EXPENSES ON THE GROUND THAT A PARTICULAR EXPENSE CANNOT HAVE TWO TREATMENTS, I.E. ONE IN THE BOOKS OF ACCOUNT AND THE OTHER IN COMPUTATION O F TOTAL INCOME. ACCORDING TO THE AO, PRE-OPERATIVE EXPENSES CAN BE DEDUCTED A S PER THE PROVISIONS OF SECTION 35D(1)(II) TO THE EXTENT AS INDICATED THERE IN. IT IS THE CONTENTION OF THE ASSESSEE THAT IT IS IN THE BUSINESS OF RUNNING REST AURANTS AND IT HAS COMMENCED ITS BUSINESS DURING THE YEAR UNDER CONSIDERATION. THOUGH, THE COMMERCIAL OPERATIONS HAS NOT BEEN TAKEN PLACE IN RESPECT OF T HREE NEW RESTAURANTS, THE COMMENCEMENT OF ITS BUSINESS ACTIVITIES IS NOT IN D OUBT. THE ASSESSEE FURTHER CONTENDED THAT ALL EXPENDITURE INCURRED IN CONNECTI ON WITH SETTING UP OF NEW 11 OLIVE BAR KITCHEN PVT LTD UNITS WHICH ARE IN THE NATURE OF CAPITAL EXPENDITUR E HAS BEEN DEBITED TO CAPITAL WORK IN PROGRESS. EVEN REVENUE EXPENDITURE INCURRE D IN CONNECTION WITH A PARTICULAR UNIT HAS BEEN TREATED AS CAPITAL WORK IN PROGRESS IN ITS BOOKS OF ACCOUNT. BUT, WHEN IT COMES TO COMPUTATION OF TOTA L INCOME REVENUE 0065PENDITURE HAS BEEN CLIMED AS DEDUCTION U/S 37(1 ) OF THE ACT, BECAUSE THE ASSESSEE HAS COMMENCED BUSINESS ACTIVITIES. 10. HAVING HEARD BOTH THE SIDES, WE FIND THAT THER E IS NO DISPUTE WITH REGARD TO THE NATURE OF EXPENDITURE CLAIMED BY THE ASSESSE E AS REVENUE EXPENSES IN ITS STATEMENT OF TOTAL INCOME. THE ASSESSEE HAS INCURR ED VARIOUS REVENUE EXPENDITURES LIKE SALARIES AND WAGES, PF AND ESI CO NTRIBUTION, TRAVELLING EXPENSES, REPAIRS AND MAINTENANCE, STAFF ROOM EXPEN SES AND LIKE OTHER GENERAL ADMINISTRATIVE EXPENSES. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAD NOT COMMENCED COMMERCIAL OPERATIONS OF THE PARTICULAR N EW UNITS ESTABLISHED DURING THE YEAR UNDER CONSIDERATION. THEREFORE, ON CE PARTICULAR EXPENDITURE IS REVENUE IN NATURE, FOR THE PURPOSE OF DETERMINATION OF INCOME, WHAT IS RELEVANT IS WHETHER A PARTICULAR EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH BUSINESS AND SUCH EX PENDITURE HAS BEEN INCURRED FOR THE BUSINESS IN THE RELEVANT PERIOD OR NOT. IT IS NOT RELEVANT AS TO HOW THE ASSESSEE SHOWS A PARTICULAR INCOME OR EXPENDITURE I N THE BOOKS OF ACCOUNT. SEPARATE COMPUTATION OF INCOME AND EXPENDITURE WOUL D BE JUSTIFIED ONLY WHEN 12 OLIVE BAR KITCHEN PVT LTD SEVERAL DISTINCT BUSINESS ARE CARRIED ON AND NOT WH EN THE SEPARATE BUSINESS ACTIVITIES WERE CARRIED OUT BY SAME PERSON AND ONE SET OF ACCOUNT IS MAINTAINED FOR ALL SET OF ACTIVITIES. IN THIS CASE , IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS MAINTAINED ONE SET OF BOOKS OF ACCOUNT FOR ITS BUSINESS ACTIVITY EVEN THOUGH IT HAS SEPARATE UNITS IN DIFFERENT PLAC ES. FURTHER, IT IS ALSO NOT IN DOUBT THAT PRE-OPERATIVE EXPENSES CLAIMED IN STATEM ENT OF TOTAL INCOME ARE IN THE NATURE OF REVENUE EXPENSES. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT WHEN THE ASSESSEE HAS COMMENCED ITS BUSINESS ACTIVI TY IN THE RELEVANT PREVIOUS YEAR AND ALSO INCURS CERTAIN EXPENSES WHICH ARE REV ENUE IN NATURE, THERE IS NO REASON FOR THE AO TO TREAT SAID EXPENDITURE AS CAPI TAL EXPENDITURE MERELY FOR THE REASON THAT THE ASSESSEE HAS GIVEN DIFFERENT TR EATMENT FOR SUCH EXPENDITURE IN ITS BOOKS OF ACCOUNT AND STATEMENT O F TOTAL INCOME. 11. COMING TO THE CASE LAWS RELIED UPON BY THE ASSE SSEE. THE ASSESSEE HAS RELIED UPON PLETHORA OF JUDGEMENTS, INCLUDING THE D ECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE SUPPLY CH AIN SOLUTIONS LTD (SUPRA). THE HONBLE JURISDICTIONAL HIGH COURT, UNDER SIMILA R CIRCUMSTANCES HELD THAT WHEN ASSESSEE HAS INCURRED EXPENDITURE FOR EXPANSIO N OF ITS EXISTING BUSINESS, EXPENDITURE INCURRED IN THE NATURE OF REVENUE EXPEN DITURE COULD NOT BE DISALLOWED. THE RELEVANT OBSERVATIONS OF THE HONB LE COURT ARE AS UNDER:- 6] WE HAVE CONSIDERED THE SUBMISSIONS CANVASSED BY THE LEARNED COUNSEL FOR THE RESPECTIVE PARTIES. 13 OLIVE BAR KITCHEN PVT LTD 7] IT IS NOT RELEVANT AS TO HOW THE ASSESS EE SHOWS A PARTICULAR INCOME OR EXPENDITURE IN THE BOOKS OF AC COUNT. IN THE PRESENT CASE, THE COMMISSIONER (APPEALS) AND THE TR IBUNAL HAS SPECIFICALLY ON APPRECIATION OF FACTUAL MATRIX ARRI VED AT A CONCLUSION THAT THE EXPENDITURE ARE DIRECTLY IDENTIFIABLE WITH THE OPERATIONS AND MAINTENANCE OF THE EXISTING STOCKS I.E. WITH REGARD TO THE PAYMENT OF SALARY, TRAVELLING AND CONVEYANCE ALLOWANCE, TELEPH ONE EXPENSES, PROFESSIONAL FEES PAID, AUDIT FEE AND OTHER MISCELL ANEOUS EXPENSES. 8] IN VIEW OF THE SPECIFIC FINDING OF FACT ARRIVED AT BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL, THE TRIBUN AL HAVE HELD HE EXPENDITURE TO BE REVENUE EXPENDITURE. IN CASE O F KOTHARI AUTO PARTS MANUFACTURERS PVT. LTD. (SUPRA), THIS COURT HAD SPECIFICALLY OBSERVED THAT SEPARATE COMPUTATION OF INCOME AND EX PENDITURE WOULD BE JUSTIFIED ONLY WHEN SEVERAL DISTINCT BUSIN ESS ARE CARRIED ON, AND NOT WHEN THE SEPARATE BUSINESS ACTIVITIES W ERE CARRIED OUT BY SOME PERSON AND WHEN ONE SET OF ACCOUNT IS MAINT AINED FOR ALL SET OF ACTIVITIES. 9] IN THE PRESENT CASE ALSO, ONE SET OF ACCOUNT IS MAI NTAINED FOR THE BUSINESS ACTIVITY BY THE ASSESSEE. THE ASSE SSEE HAD INCURRED EXPENDITURE ON ACCOUNT OF EXPANSION OF BUSINESS AND THE ASSESSEE HAD COMMENCED THE BUSINESS AS PER THE FINDINGS OF T HE COMMISSIONER (APPEALS) AND THE TRIBUNAL. THE SAID F INDINGS ARE FINDINGS OF THE FACT. 12. THE ASSESSEE HAS ALSO RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS EVERGROWTH TELECOM LTD (2013) 29 TAXMANN.COM 273 (BOM). THE HONBLE JURISDICTIONAL HIGH COURT, WHIL E CONSIDERING THE ISSUE OF EXPENDITURE INCURRED AFTER SETTING UP OF BUSINESS AND BEFORE COMMENCEMENT OF BUSINESS HELD THAT THE SAID EXPENDITURE IS ALLOW ABLE AS A DEDUCTION U/S 37(1) OF THE INCOME-TAX ACT, 1961. THE RELEVANT OBSERVAT IONS OF THE COURT ARE AS UNDER:- ANY EXPENDITURE INCURRED AFTER SETTING UP OF A BUS INESS AND BEFORE THE COMMENCEMENT OF BUSINESS IS ALLOWABLE AS A DEDUCTIO N UNDER SECTION 37(1). 14 OLIVE BAR KITCHEN PVT LTD THE ISSUE WHETHER THE EXPENDITURE HAS BEEN INCURRED FOR PURPOSES OF BUSINESS IS AN ISSUE OF FACT AND TWO AUTHORITIES UN DER THE ACT HAVE RENDERED A FINDING OF FACT THAT EXPENSES INCURRED O N ACCOUNT OF PSTN CHARGES AND DEALER'S COMMISSION ARE INCURRED FOR PU RPOSES OF BUSINESS AND ALLOWABLE UNDER SECTION 37(1). IN VIEW OF THE ABOVE, NO SUBSTANTIAL QUESTION OF LA W ARISES WITH REGARD TO ISSUE IN QUESTION. [PARA 5] 13. THE ASSESSEE HAS ALSO RELIED UPON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS SHAKTI SUGARS LTD 339 I TR 400 (MAD). THE HONBLE HIGH COURT, WHILE CONSIDERING THE ISSUE OF DEDUCTIB ILITY OF PRE-OPERATIVE EXPENSES HELD THAT EXPENDITURE ON SETTING UP OF NEW UNIT BY WAY OF EXPANSION OF EXISTING BUSINESS IS REVENUE EXPENDITURE. THE R ELEVANT OBSERVATIONS OF THE COURT ARE AS UNDER:- 'HELD, DISMISSING THE APPEAL, THAT THE COMMISSIONER (APPEALS) AS WELL AS THE TRIBUNAL WERE FULLY JUSTIFIED IN ACCEPTING T HE CASE OF THE ASSESSEE IN RESPECT OF THE EXPENSES CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE. THE EXPENSES IN RESPECT OF THE B UNIT W ERE INCURRED TOWARDS SALARIES, WAGES, BONUS, CONTRIBUTION TO PROVIDENT F UND, WORKMEN WELFARE EXPENSES, POWER, FUEL AND WATER, MANUFACTURING EXPE NSES, RENT FOR OFFICE BUILDINGS, INSURANCE PREMIUM, REPAIRS AND MAINTENAN CE FOR MACHINERY AND BUILDING, MOTOR VEHICLE, OFFICE EQUIPMENT, ETC., INTEREST ON BILLS CLEARED, FREIGHT AND TRANSPORT, CANE DEVELOPMENT EX PENSES, TRAVELLING EXPENSES, OTHER ADMINISTRATIVE EXPENSES AND FINANCI AL AND BANK CHARGES. IN RESPECT OF THE D UNIT, THE EXPENSES INCURRED BY WAY OF PRE-OPERATIVE EXPENSES FOR THE YEAR 1991-92 WERE TOWARDS CANE DEV ELOPMENT EXPENSES, TRAVELLING EXPENSES, ADMINISTRATIVE AND OTHER EXPEN SES, LEGAL AND PROFESSIONAL CHARGES, ELECTRICITY CHARGES, RATES AN D TAXES, INSURANCE PREMIUM, REPAIRS AND MAINTENANCE CHARGES FOR BUILDI NG AND MACHINERY AND MOTOR VEHICLE AND OTHER OFFICE EQUIPMENT MAINTENANC E, FINANCIAL AND BANK CHARGES, FREIGHT AND TRANSPORT, SALARIES, WAGES, BO NUS, ETC., WORKMEN WELFARE EXPENSES, INTEREST CHARGES AND DEPRECIATION . THE VARIOUS KINDS OF EXPENDITURE WERE INCURRED IN THE RELEVANT YEARS FOR THE PURPOSE OF MANUFACTURE OF SUGAR IN THE RESPECTIVE FACTORIES WI TH A VIEW TO EARN PROFITS AND, THEREFORE, THEY WERE NOTHING BUT REVENUE EXPEN DITURE. 15 OLIVE BAR KITCHEN PVT LTD 14. IN THIS VIEW OF THE MATTER AND RESPECTFULLY FOL LOWING THE CASE LAWS DISCUSSED HEREINABOVE, WE ARE OF THE CONSIDERED VIE W THAT THE AO WAS ERRED IN DISALLOWING DEDUCTION CLAIMED TOWARDS PRE-OPERATIVE EXPENSES IN STATEMENT OF TOTAL INCOME U/S 37(1) OF THE INCOME-TAX ACT, 1961 EVEN THOUGH THE SAID EXPENDITURE HAS BEEN TREATED AS CAPITAL EXPENDITURE IN BOOKS OF ACCOUNT. THE LD. CIT(A), AFTER CONSIDERING RELEVANT FACTS HAS RI GHTLY DELETED ADDITION MADE BY THE AO. THEREFORE, WE ARE OF THE CONSIDERED VIEW T HAT THERE IS NO ERROR IN THE FINDINGS OF THE LD.CIT(A) AND HENCE, WE ARE INCLINE D TO UPHOLD THE FINDINGS OF THE LD.CIT(A) AND DISMISS APPEAL FILED BY THE REVEN UE. 15. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEES APPEAL IN ITA NO.5098/MUM/2017 IS DISALLOWANCE OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME U/S 14A R.W.R. 8(D)(2) OF IT RULES, 1 962. THE AO HAS DISALLOWED EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME B Y INVOKING RULE 8D(2)(III) @0.5% OF AVERAGE VALUE OF INVESTMENTS. ACCORDING T O THE AO, THOUGH THE ASSESSEE HAS DISALLOWED DIRECT EXPENSES U/R 8D(2)(I ), BUT EXPENSES COMING UNDER THE PROVISIONS OF RULE 8D(2)(III) HAS NOT BEE N CONSIDERED; THEREFORE, HE OPINED THAT DISALLOWANCE IS NECESSARY U/R 8D(2)(III ) @0.5% OF AVERAGE VALUE OF INVESTMENTS. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS ALREADY SUO MOTO DISALLOWED EXPENSES INCURRED IN RELATION TO EXEMPT INCOME LIKE 50% SALARY OF 16 OLIVE BAR KITCHEN PVT LTD DIPAK KADAM, CONVEYANCE AND OTHER EXPENSES. HOWEVE R, FURTHER DISALLOWANCE BY INVOKING RULE 8D(2)(III) AMOUNTS TO DOUBLE DISAL LOWANCE WHICH IS INCORRECT. 16. HAVING HEARD BOTH THE SIDES, WE FIND THAT ALTHO UGH THE AO HAS ACCEPTED THE FACT THAT THE ASSESSEE HAS MADE SUO MOTO DISALL OWANCE OF RS.2,75,214, WITHOUT VERIFYING WHETHER DISALLOWANCE MADE BY THE ASSESSEE ARE DIRECT EXPENSES OR OTHER EXPENSES WHICH FALLS UNDER THE PR OVISIONS OF RULE 8D(2)(III), MADE FURTHER DISALLOWANCE OF RS.2,69,162 BY APPLYIN G 0.5% OF AVERAGE VALUE OF INVESTMENTS. THE ASSESSEE HAS FILED DETAILS OF EXP ENSES DISALLOWED AS PER WHICH, THE EXPENSES DISALLOWED BY THE ASSESSEE ARE COMING UNDER THE PURVIEW OF RULE 8D(2)(III). THEREFORE, WE ARE OF THE CONSI DERED VIEW THAT FURTHER DISALLOWANCE OF EXPENSES BY APPLYING RULE 8D(2)(III ) @0.5% AMOUNTS TO DOUBLE DISALLOWANCE WHICH IS NOT PERMISSIBLE UNDER THE LAW . THEREFORE, WE DIRECT THE AO TO DELETE ADDITION MADE U/S 14A R.W.R. 8D(2)(III ) OF I.T. RULES, 1962. 17. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF ROC CHARGES PAID FOR INCREASE IN AUTHORISED CAPITAL. T HE AO HAS DISALLOWED A SUM OF RS.4,97,181 ON THE GROUND THAT FEES PAID FOR INCREA SE IN AUTHORISED CAPITAL IS CAPITAL IN NATURE WHICH CANNOT BE ALLOWED AS DEDUCT ION U/S 37(1) OF THE ACT. THE AO HAS TAKEN SUPPORT FROM THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF BROOKE BOND INDIA LTD VS CIT 225 ITR 798 (S C) WHERE IT WAS CLEARLY HELD 17 OLIVE BAR KITCHEN PVT LTD THAT MOUNT PAID FOR INCREASE IN AUTHORISED SHARE CA PITAL IS IN THE NATURE OF CAPITAL EXPENDITURE WHICH CANNOT BE ALLOWED AS DEDU CTION U/S 37(1) OF THE ACT. IT IS THE CONTENTION OF THE ASSESSEE THAT ALTHOUGH THE HONBLE SUPREME COURT HAS CONSIDERED IT AS CAPITAL IN BROOKE BOND INDIA L TD VS CIT (SUPRA), BUT THE APEX COURT IN ITS SUBSEQUENT JUDGEMENT IN THE CASE OF CIT VS GENERAL INSURANCE CORPORATION (2006) 286 ITR 232 (SC) CONSIDERED THE ISSUE AND HELD THAT WHEN ROC FEES IS PAID FOR INCREASE IN AUTHORISED CAPITAL FOR ISSUANCE OF BONUS SHARES, THE SAID EXPENDITURE CONSTITUTE REVENUE EXPENDITURE . 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE AO HAS DISALLOWED FEES PAID FOR INCREA SE IN AUTHORISED CAPITAL BY FOLLOWING THE RATIO LAID DOWN BY HONBLE SUPREME CO URT IN THE CASE OF BROOKE BOND INDIA LTD VS CIT (SUPRA) WHERE IT WAS CATEGORI CALLY HELD THAT ROC FEES PAID FOR INCREASE IN CAPITAL IS CAPITAL EXPENDITURE IN N ATURE. BUT, THE HONBLE SUPREME COURT, IN ITS SUBSEQUENT JUDGEMENT IN THE C ASE OF CIT VS GENERAL INSURANCE CORPORATION LTD (SUPRA) HAS CONSIDERED SI MILAR ISSUE AND AFTER CONSIDERING THE RATIO OF ITS EARLIER DECISION IN BR OOKE BOND INDIA LTD VS CIT (SUPRA) HAD GIVEN A CATEGORICAL FINDING THAT IF EXP ENDITURE IS INCURRED IN CONNECTION WITH THE ISSUANCE OF BONUS SHARES, THEN THE SAID EXPENDITURE CONSTITUTE REVENUE EXPENDITURE . THE ASSESSEE HAS FILED NECESSARY DETAILS TO PROVE THAT IT HAS PAID ROC FEES FOR INCREASE IN AUT HORISED CAPITAL FOR ISSUANCE OF 18 OLIVE BAR KITCHEN PVT LTD BONUS SHARES. BUT, WE ARE NOT AWARE WHETHER THE SA ID PARTICULARS ARE PART OF ASSESSMENT PROCEEDINGS BEFORE THE AO OR NOT. THERE FORE, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE NEEDS TO BE RE-EXAMI NED BY THE AO IN THE LIGHT OF THE DECISION OF HONBLE SUPREME COURT IN THE CAS E OF CIT VS GENERAL INSURANCE CORPORATION LTD (SUPRA). HENCE, WE SET A SIDE THE ISSUE TO THE FILE OF THE AO AND DIRECT HIM TO CONSIDER THE ISSUE ON THE BASIS OF WORKING FURNISHED BY THE ASSESSEE. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.5098/MUM/2017 IS PARTLY ALLOWED; BOTH THE APPEALS FILED BY THE RE VENUE IN ITA NOS 5164 & 5165/MUM/2017 ARE DISMISSED AND APPEAL FILED BY THE ASSESSEE IN ITA NO.5097/MUM/2017 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05-12-2018 . SD/- SD/- (C.N. PRASAD) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 05 TH DECEMBER, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI