Bhaskar Bhattacharya, J. - (1.) THIS appeal under Section 260A of the Income-tax (Act) is at the instance of an assessee and is directed against order dated April 15, 2004 passed by the Income-tax Appellate Tribunal, A Bench, Kolkata, in Income-tax Appeal bearing ITA No.1593(Kol.)/2003 for the Assessment Year 1996-97 and thereby dismissing the appeal preferred by the assessee.
(2.) BEING dissatisfied, the assessee has come up with the present appeal. The facts leading to the filing of this appeal may be summed up thus: a) The appellant is a public limited liability company within the meaning of the Companies Act, 1956 and the present appeal arises out of the assessment of the appellant for the Assessment Year 1996-97 for which the relevant previous year was the financial year ended on March 31, 1996. b) During the previous year ending on March 31, 1996, the appellants Managing Director travelled overseas to Argentina, Brazil, Cuba, Columbia, Russia, Germany, U.K and other countries in Europe to hold discussions with Foreign Collaborators with regard to manufacturing process etc. in terms of the Collaboration Agreement and to meet and hold discussions with the material suppliers on better material management. There were eight such overseas visits by its Managing Director. c) According to the appellant, in order to strengthen business relations and promote better business understanding, it was necessary for the Managing Director to be accompanied by his wife in accordance with the practice abroad. In keeping with modern items and social customs, the Managing Director was accompanied by his wife since for the promotion of business for which the foreign visits were undertaken, such social aspects could not be overlooked. It was also necessary according to the appellant for the spouse to accompany her husband in order to reciprocate the visits to India of the foreign business associates who were accompanied by their spouses. d) The Board of Directors of the appellant realizing the need for the spouse to accompany the Managing Director for the purpose of such business passed a resolution on May 5, 1986 authorizing the Managing Director, whenever necessary, to take his wife on his tour overseas for the business of the appellant and resolved that the travel expenses of the wife should be borne by the appellant. e) In the relevant Assessment Year on foreign travel of the wife of the appellants Managing Director, the company spent an amount of Rs.7,44,549/-. The said amount was claimed by the appellant as expenditure for the purpose of business. The Assessing Officer, however, disallowed such claim. f) The appellant finances its subsidiaries as part of the appellants business activity and its Memorandum of Association approves such activity. According to the appellant, from time to time, it advanced loan to its subsidiaries free of interest and all such loans were given out of its own funds and no borrowed funds were utilized. The opening balance of such interest-free loans to the subsidiaries for the previous year ended on March 31, 1996 amounted to Rs.1 crore. During the previous year ended on March 31, 1996, the appellant advanced a further sum aggregating to Rs.7.30 crore to its subsidiaries and during the previous year ended on March 31, 1996, the appellants cash profit after providing for taxation and dividend amounted to Rs.30.37 crore and the said interest-free loans of Rs.7.30 crore were given out of the said internal accruals of the appellant. The Assessing Officer, however, by order dated March 26, 1999 disallowed the interest expenditure of Rs.59,32,575/- on the assumption that the interest-free loans to the subsidiaries were made by the appellant out of the borrowed funds. g) BEING dissatisfied, the appellant preferred an appeal before the Commissioner of Income-tax (Appeals) and in course of hearing of the appeal, the Commissioner of Income-tax (Appeals) required the appellant to work out the interest for the period from the date of clearance of the cheques given to the subsidiaries up to the date when sufficient sale proceeds were deposited in the cash credit accounts to cover the amount of the interest-free loans. h) Although the appellant contended that the profit was far in excess of the interest-free loans given to the subsidiaries and that no part of the borrowed money was utilized for giving the loans out of the composite cash credit accounts in which all sale proceeds and income were deposited and out of which all expenditure were met, the appellant submitted the working as desired by the Commissioner of Income-tax (Appeals) which resulted in a figure of Rs.27,220/-. i) The Commissioner of Income-tax (Appeals), by order dated March 24, 2003 upheld the disallowance of the foreign travel expenditure of the spouse of the Managing Director and also restricted the addition on account of interest to Rs.27,220/-. j) BEING dissatisfied, the appellant preferred an appeal before the Income-tax Appellate Tribunal and the Tribunal by order dated April 15, 2004 upheld the order of the Commissioner of Income-tax (Appeals) both in respect of disallowance of foreign travel expenditure of Rs.7,44,549/- and the interest disallowance of Rs.27,220/-. k) BEING dissatisfied, the appellant has preferred this appeal before this Court. A Division Bench of this Court has formulated the following substantial questions of law for decision: i) Whether the Tribunal was justified in law in disallowing the foreign travel expenditure of the spouse of the appellants Managing Director who accompanied her husband on business visits and its purported findings disallowing the expenditure of Rs.7,44,549/- for the assessment year 1996-97 are arbitrary, unreasonable and perverse. ii) Whether in view of the admitted position that interest-free loans were given by the appellant to its subsidiaries out of its internal accruals and that no borrowed funds were used, the Tribunal was justified in law in upholding the disallowance of interest expenditure of Rs.27,220/- and its purported findings in that behalf are arbitrary, unreasonable and perverse. So far the first point formulated by the Division Bench is concerned, we find that this Bench in the case of the assessee for another Assessment Year, has answered the point in the affirmative and against the Revenue, (Vide our order dated March 17, 2011 in I. T. A. no.624 of 2004) and we propose to adopt the same view. So far the second question is concerned, Mr. Khaitan, the learned Counsel appearing on behalf of the appellant, strongly relied upon the following decisions in support of his contention that interest paid on the overdraft account maintained with the bank for the purpose of business where all receipts are deposited and all payments are made should be deducted even if it appears that the assessee used to give loan to its sister concerns without charging any interest provided it is proved that the assessee had sufficient profit exceeding the amount advanced on loan: 1) S. A. Builders Ltd Vs. C.I.T and another reported in (2007) 288 ITR 1 (SC); 7 2) British Paints (India) Ltd. Vs. C.I. T reported in (1991) 190 I.T.R. 196 (CAL); 3) Woolcombers of India Ltd. Vs. CIT (central), Calcutta reported in (1982) 134 I.T.R 219(CAL); 4) Alkali and Chemical Corporation of India Ltd. vs. C.I.T reported in (1986) 161 I.T. R 820 (CAL).
(3.) MR. Dutt, the learned Counsel appearing on behalf of the Revenue, has, on the other hand, supported the order passed by the Tribunal and at the same time taken a preliminary objection as to the maintainability of this appeal on the ground that the CIT (Appeals) passed the order on the basis of suggestion given by the assessee and as such, the said order was a consent order and no appeal lay against such order before the Tribunal. According to MR. Dutt, we should dismiss this appeal on that ground alone. Therefore, the first question that arises for consideration in this appeal is whether the order passed by the CIT (Appeals) reducing the addition to Rs. 27,200/- was based on consent. The letter dated February 21, 2003 written by the assessee to the CIT (Appeals) which is annexed at pages 108-109 of the Paper Book itself will indicate that the statement showing interest-free loan given to the subsidiaries during the Financial Year 1995-96 vis--vis deposits of sale collection in the cash credit account were furnished as desired by the said officer during appellate proceedings and such statement was made without prejudice to the submissions of the appellant. The said letter is quoted below: The Commissioner of Income-tax (Appeals), 21st February, 2003 Central-I, Poddar Court, KOLKATA Ref: Appeal No.15/CC-V1/CIT(A),C-1/1999-2000 Assessment Year 1996-97 Re. : Disallowance of interest of Rs.59,32,575/- on interest free Loans given to subsidiaries Ground No.E Honble Madam, Without prejudice to the submissions made during the appellate proceedings for Asst. Year 1995-96 held on 20th February, 2002 and as desired by you. We enclose herewith a statement showing the interest free loans given to subsidiaries during the Financial Year 1995-96 relevant to assessment year under appeal vis--vis deposit of sales collections in the mixed cash credit account. Further, as desired by you, in the extended columns, we have calculated the interest on the said loans from the date of clearance of cheques up to the date when sufficient deposit of sales collections were made in the cash credit accounts. Where, there was credit balance available in the cash credit current accounts, on the date when the cheque is cleared the interest is taken at nil since no interest is applicable thereon. Based on above, the interest, if at all disallowable, works out to Rs.27,220/-. We hope you will find the above in order. Thanking you, Yours faithfully, For J.K. INDUSTRIES LTD. V.K. SHARMA General Manager (Taxation) From the aforesaid letter, it is clear that the calculation of interest was shown, as desired by the appellate authority, and without prejudice to the submissions of the appellant in the appeal.;