ITAT : Expenditure on establishing new restaurants by Olive Bar, deductible despite no commercial operations

Mumbai ITAT allows deduction for pre-operative expenses (salaries and wages, travelling expenses, repairs and maintenance, staff room expenses and other general administrative expenses) incurred by Olive Bar & Kitchen P. Ltd. (assessee, engaged in running restaurants) during AY 2013-14; During relevant AY, assessee has expanded its existing business by opening three more restaurants at different places, assessee has treated expenditure incurred in connection therewith under the head ‘capital work in progress’ in its books of account, but claimed it as revenue expenditure for income-tax purposes; Firstly, ITAT notes that though the commercial operations have not taken place in respect of the new restaurants, the commencement of the assessee’s business activities is not in doubt; Next, ITAT notes that the pre-operative expenses claimed were in the nature of revenue expenses, further clarifies that different treatment for expenditure in the books of account is irrelevant; Cites Bombay HC rulings in Reliance Supply Chain Solutions Ltd. and Evergrowth Telecom Ltd and Madras HC ruling in Shakti Sugars Ltd., to hold that expenditure on setting up of new unit by way of expansion of existing business is revenue expenditure:ITAT