DCIT, Circle -6 Kolkata, Kolkata V. M/s Texmaco Ltd., Kolkata

ITA 641/KOL/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0493 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 20-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHRI; R N BAJORIA
• Keywords: Capital asset; Scheme of amalgamation; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOLKATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI B. P. JAIN, AM ] I.T.A NO. 607 & 641 /KOL/201 2 ASSESSMENT YEAR S : 2006 - 0 7 & 2007 - 08 DCIT, CIRCLE - , KOLKATA VS. M/S TEXMA C O. LIMITED. 9/1 , R.N. MUKHERJEE ROAD, KOL - 01 (PAN: AA BCT 0814B ) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 1 3 .0 5 .2015 DATE OF PRONOUNCEMENT: 09. 0 6 . 2015 FOR THE APPELLANT: SHRI KANHIYA LAL KANAK, JCIT , SR.DR FOR THE RESPONDENT: S HRI R.N. BAJORIA , SR - ADVOCATE & SHRI ASIM CHOUDHURY , A DVOCATE ORDER PER SHRI MAHAVIR SINGH, JM: TH E S E TWO APPEAL S BY REVENU E ARE ARISING OUT OF ORDER S OF CIT(A) - V I , KOLKATA IN APPEAL S NO. R - 27 / CIT(A) - V I / 2010 - 11/CIR - 6/ KOL DATED 0 2 . 0 1 .20 1 2 . ASSESSMENT S W ERE FRAMED BY D CIT, CIRCLE - 6 , KOLKATA U/S. 143(3) /115 WE(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR ASSESSMENT YEAR S 2006 - 07 & 2007 - 08 VIDE HIS ORDER S OF 1 6 .12.200 8 AND 31.12.2009 . 2. THE SOLE ISSUE IN TH ESE APPEAL S OF REVENU E IS AGAINST THE ORDER S OF CIT(A) IN DELETING THE DISALLOWANCE OF INTEREST CALCULATED ON ADVANCES GIVEN TO SISTER CONCERN NEORA HYDRO LIMITED (IN SHORT NHL) . FOR THIS REVENUE HAS RAISED IDENTICALLY WORDED GROUNDS AND LEAD YEAR BEING AY 2006 - 07 IN ITA NO.607/KOL/2012, WE WILL TAKE FACTS FROM THE SAME ADJUDICATE THE SAME. THE RELEVANT GROUND AS RAISED READS AS UNDER: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN LAW IN DELETING THE DISALLOWANCE OF INTEREST OF RS.86,87,054/ - BEING THE INTEREST CALCULATED AND TAXED ON ADVANCES GIVEN TO NEORA HYDRO LIMITED. 3. BRIEF FACTS RELATING TO THIS ISSUE ARE THAT NHL IS A CONCERN WHERE ASSESSEE HELD 50% SHARES FROM THE BEGINNING AND BY 31.3.2005, BALANCE 50% SHARES WERE ALSO TRANSFERRED TO THE ASSOCIATED CONCERNS OF ASSESSEE. N HL ULTIMATELY AMALGAMATED WITH ASSESSEE WITH EFFECT FROM 1.8.2007 AND IT ADVANCED MONEY TO N HL FROM TIME TO TIME FROM ITS CASH CREDIT ACCOUNT. THE SAID CASH CREDIT ACCOUNT WAS A COMPOSITE ACCOUNT. ALL 2 ITA NO. 607 &641 /K/201 2 M/S TEXMACO LTD. AY S 06 - 0 7 & 07 - 08 THE SALE PROCEEDS, WERE DEPOSITED IN THE SAID CASH CRED IT ACCOUNT WHICH INCLUDED PROFITS EARNED. THE DETAILS OF LOANS GIVEN TO N HL WHICH WERE SUBMITTED BEFORE THE AO AND CIT(A) , WERE ALSO SUBMITTED BEFORE TRIBUNAL IN ASSESSEE S PAPER BOOK AT PAGE S NO.36 TO PAGE NO. 37. D URING THE YEAR ENDED ON 31.3.2006, TOTAL ADVANCES OF RS.7.69 (NET) CRORES WERE GIVEN AND DUR ING THE YEAR ENDED ON 31.3.2007 RS.1.38 CRORES WERE FURTHER GIVEN . THE TOTAL CAPITAL & RESERVES OF THE ASSESSEE W A S AT RS.140 CRORES. THIS FACT IS ALSO MENTIONED BY THE ITAT IN ITS ORDER IN PARA - 3(PAGE NO.2 OF THE PAPER BOOK). THE TOTAL INCOME ASSESSED BY THE AO F OR ASSESSMENT YEARS 2006 - 07 AND 2007 - 08 ARE AS UNDER: ASSESSMENT YEAR TOTAL INCOME AS PER ASSESSMENT ORDER 2006 - 07 RS.26.86 CRORES 2007 - 08 RS.43.47 CRORES RS.70.33 CRORES IT IS ALSO FACT THAT IN THE HANDS OF N HL, SUCH ADVANCES WERE INVESTED FOR ACQUIRING CAPITAL ASSETS BUT A S FAR AS ASSESSEE IS CONCERNED, IT ADVANCED THE AMOUNT ON COMMERCIAL EXPEDIENCY. BUT THE AO REJECTED THE PLEA OF THE ASSESSEE BY OBSERVING AS FOLLOWS: - 1. NEORA WAS A JOINT VENTURE OF ASSESSEE. II. THE ADVANCES WERE GIVEN WITHOUT CHARGING INTEREST ON COMMERCIAL EXPEDIENCY. THE ASSESSEE RELIED ON A JUDGMENT OF THE SUPREME COURT IN THE CASE OF S.A. BUILDERS LIMITED [288 ITR 1 (SC)] III. THE ASSESSEE HAS CONTENDED THAT AMOUNT WAS ADVANCED TO NEORA FROM CASH CREDIT ACCOUNT WHERE ITS PROFITS ARE ALSO DEPOSITED. IV. I REJECT THE CONTENTION OF THE ASSESSEE ON THE FOLLOWING GROUNDS: - (A) NEORA IS AN INDEPENDENT COMPANY TILL 31.3.2006. THE ASSESSEE OWNED ONLY 50% SHARES. (B) THE ASSESSEE HAD PAID THE ADVANCES OUT OF BORROWINGS FROM CASH CREDIT ACCOUNT AND PAID INTEREST ON SUCH BORROWINGS. (C) EVEN IF THE PROJECT WAS 100% OWNED BY THE ASSESSEE (NOT 50%), ANY INTEREST PAID ON BORROWINGS UP TO THE DATE WHEN SAID PLANT & MACHI NERY IS DUE USE HAS TO BE CAPITALIZE AS PER PROVISO TO SECTION 36(1)(III) OF THE INCOME - TAX ACT. (D) THE ASSESSEE S CONTENTION THAT SUCH CAPITALIZATION HAS TO BE DONE IN THE ASSESSMENT OF NEORA IS NOT ACCEPTABLE AS THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THAT AMOUNT WAS BORROWED AND USED FROM ITS OWN BUSINESS. (E) ADMITTEDLY AMOUNT WAS BORROWED AND INTEREST WAS PAID. THE AMOUNT UTILIZED FOR GIVING INTEREST FREE TO ANOTHER LEGAL ENTITY I.E. NEORA. IT IS QUITE IMMATERIAL THAT ASSESSEE HAD DEPOSITED THE PROFITS IN THE CASH CREDIT ACCOUNT BUT DEPOSIT DEPOSITING THE PROFITS THERE WAS DEBIT BALANCE IN THE CASH CREDIT ACCOUNT. THE JUDGMENT OF THE SUPREME COURT REFERS TO THE COMMERCIAL EXPEDIENCY. THE COMMERCIAL EXPEDIENCY CANNOT OVER RIDE THE SPECIFIC PROVISIONS OF THE STA TUTE, WHETHER SUCH INTEREST PAID TILL A COMPANY GOES INTO PRODUCTION HAS TO BE CAPITALIZED. (F) THE BUSINESS OF NEORA HAS NOT AT ALL STARTED UP TO 31.3.2006. 3 ITA NO. 607 &641 /K/201 2 M/S TEXMACO LTD. AY S 06 - 0 7 & 07 - 08 4. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: - 10. I HAVE DULY CONSIDERED THE CASE LAWS CITE BY THE ASSESSEE. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BIRTANIA INDUSTRIES LTD. (2006) 280 ITR 525 AND IN THE CASE OF J.K. INDUSTRIES VS. CIT HAS HELD THAT THE ASSESSEE MAY GIVE INTEREST FREE ADVANCES DO ITS SISTER CONCERN WHEREVER THE EXPENDITURE WAS MADE FROM THE MIXED ACCOUNT AND THE ASSESSEE HAD SUFFICIENT FUNDS OF ITS OWN TO ADVANCE MONEY OUT OF THAT TO THE SISTER CONCERN. IN THE PRESENT CASE THE ASSESSEE HAD 50% SHARES IN T HE SISTER CONCERN WHICH AMALGAMATED WITH GROUP COMPANY LATER ON. THERE WAS A BUSINESS INTEREST OF SUPPLY F ELECTRICITY9 FROM THE SISTER CONCERN THEREBY GIVING RISE TO THE BUSINESS EXPEDIENCY. THEREFORE, IT CANNOT BE SAID THAT MONEY HAS BEEN ADVANCED WITHOU T COMMERCIAL EXPEDIENCY AND REASON. RESPECTFULLY, FOLLOWING THE JUDGMENTS OF THE HON'BLE CALCUTTA HIGH COURT THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST IS DELETED. THE ISSUE SET ASIDE BY HON'BLE KOLKATA ITAST IN THIS CASE IS DECIDED ACCORDING LY BY ASKING THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF INTEREST ON ACCOUNT OF INTEREST FREE LOANS GIVEN TO M/S NEORA HYDRO LTD. THE ADDITION OF RS.86,87,054/ - IS HEREBY DELETED. AGGRIEVED, REVENUE FILED SECOND APPEAL BEFORE TRIBUNAL. 5. LD. SR DR SH. K L KANAK ARGUED THAT CIT(A) WHILE DECIDING THE APPEAL TAKEN INTO COGNIZANCE THE FACT THAT THE ASSESSEE HAS TOTAL CAPITAL & RESERVE OF RS. 140 CRORES AND A CCORDING TO CIT(A) THE TOTAL INCOME ASSESSED FOR AY 2006 - 07 IS RS.26.86 CRORES AND IN AY 2007 - 08 IS RS.43.47 CRORES AND THE TOTAL COMES TO RS.70.33 CRORES. ACCORDING TO LD. DR THE ASSESSEE HAS ECONOMIZED ON THE TRUTH IN THIS ASPECT AND ASSESSEE HAS NOT PRODUCED ANNUAL REPORTS OF THE COMPANY FOR FYS 2005 - 06 AND 2006 - 07. HE DOWNLOADED THE REPORTS FROM THE WEBSITE WWW.REPORTJUNCTION.COM AND NOTED THAT THE BALANCE SHEET OF THE COMPANY DOES NOT IN ANY WAY INDICATE THAT IT IS SITTING ON A CASH BALANCE OF RS.140 C RORES FOR FINANCE TO ITS SISTER CONCERN. EVEN THE CASH FLOW STATEMENTS FOR THESE TWO YEARS INDICATE THAT THE ASSESSEE IS LEFT WITH NEGATIVE CASH FLOW. ACCORDING TO HIM, THE PRIMARY BURDEN OF ESTABLISHING THAT ON THE DATE WHEN EACH INTEREST FREE LOANS IS GI VEN BY THE ASSESSEE, THERE WAS SUFFICIENT NON - INTEREST BEARING / OWN FUNDS AVAILABLE WITH THE ASSESSEE TO ADVANCE THE MONEY TO ITS SISTER CONCERN. AND HE CITED THE CASE OF LAW OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. S.A. BUILDERS (2007) 288 ITR 1 (SC). 6. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE STATED THE REASONS FOR COMMERCIAL EXPEDIENCY THAT ASSESSEE IS THE PROMOTER OF NHL HOLDING 50% EQUITY CAPITA. AS MENTIONED BY THE AO IN THE ASSESSMENT ORDER THAT BALANCE 50% SHARES 4 ITA NO. 607 &641 /K/201 2 M/S TEXMACO LTD. AY S 06 - 0 7 & 07 - 08 WERE ALSO ACQUIR ED BY THE SISTER CONCERN AND INDIVIDUAL DIRECTORS OF ASSESSEE COMPANY . THE FOUR COMPANIES , AS MENTIONED IN THE ASSESSMENT ORDER AND THREE INDIVIDUALS ARE CLOSELY CONNECTED WITH ASSESSEE . THUS THE ENTIRE SHARE CAPITAL OF N HL WAS HELD BY ASSESSEE AND ITS CLO SE ASSOCIATES. T HERE WAS AN AGREEMENT DATED 12.3.1999 ( AT PAGE S NO. 101 TO 1 24 OF PAPER BOOK) BETWEEN NHL AND ASSESSEE FOR SHARING THE ENERGY PRODUCED. UNDER THE SAID AGREEMENT, BULK OF THE ENERGY PRODUCED WAS TO BE SUPPLIED TO ASSESSEE. THERE WAS AN AGREEMENT DATED 22.4.2002 ( AT PAGE S 125 TO 140 OF ASSESSEE PAPER BOOK) BETWEEN HANUMAN TEA CO. LTD. & ASSESSEE TO HAVE JOINT - VENTURE OF N HL . THUS OUT OF FIVE DIRECTORS, THREE DIRECTORS WERE CLOSELY ASSOCIATED WITH ASSESSEE . EVEN I N THE DIRECTORS REPORT OF N HL ( AT PAGE 68 OF ASSESSEE PAPER BOOK) THERE IS AN ACKNOWLEDGEMENT AS UNDER: - IT WOULD BEAR SPECIAL MENTION THAT THE PROMOTERS M/S TEXMACO LTD EXTENDED EXTRAORDINARY SUPPORT AND MADE SIGNIFICANT CONTRIBUTION TO THE COMPLETION AND COMMISSIONING OF THE PROJECT. ACCORDING TO ASSESSEE A LL THESE FACTORS CONCLUSIVELY PROVE THAT THE COMMERCIAL EXPEDIENCY AS FAR AS ASSESSEE IS CONCERNED EXISTED TO GIVE INTEREST - FREE ADVANCE TO NHL. THE A SSESSEE RELIE D ON THE JU D GMENT OF SUPREME COURT IN THE CASE OF SA B UIL DERS LIM I TED AND THE JUDGEMENT OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS. BRITANNIA INDUSTRIES LTD (280 ITR 525) 7 . WE HAVE HEAR RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES. WE FIND THAT NHL WAS A COMPANY JOINTLY PROMOTED BY THE ASSESSEE LONG WITH ONE BAGLA GROUP. THE ASSESSEE OWNED 50% SHARES OF N HL AND BALANCE 50% SHARES WERE HELD BY BAGLA GROUP. CERTAIN LOANS AND ADVANCES WERE GIVEN BY ASSESSEE AND ITS ASSOCIATED CONCERNS TO BAGLA GROUP. AS PER THE DECREE OF THE HON'BLE HIGH CO U R T, BALA N CE 50% SHARES OF N HL WERE ALSO TRANSFERRED BY BAGLA GROUP TO THE ASSOCIATED CONCERNS OF THE ASSESSEE BY 31.3.2005. THE A SSESSEE FILED A SCHEME OF AMALGAMATION AND AS PER THE DIRECTION OF THE HON'BLE CALCUTTA HIGH COURT, N HL ULTIMATELY AMALGAMATED WITH ASSESSEE WITH EFFECT FROM 1.8.2007. WE FURTHER FIND THAT T HE ASSESSEE HAD SUFFICIENT FUNDS OF ITS OWN TO ADVANCE THE LOAN TO SISTER CONCERN AS IS EVIDENT FROM THE FACTS OF THE CASE DISCUSSED ABOVE . THE ASSESSEE ALSO HAD LOANS AND ADVANCES TAKEN ON IN TEREST AT THE TIME WHEN THE MONEY WAS ADVANCE TO ITS SISTER CONCERN NHL. THE ASSESSEE HAS BEEN 5 ITA NO. 607 &641 /K/201 2 M/S TEXMACO LTD. AY S 06 - 0 7 & 07 - 08 ADVANCING LOANS FROM THE MIXED ACCOUNT IN WHICH SALE PROCEEDS AND PROFIT DRAWN FOR THE YEAR UNDER CONSIDERATION WERE CREDITED. IT IS ALSO A FACT THAT ASSESSEE HA D 50% SHARES IN N HL AND LATER ON IT AMALGAMATED WITH ASSESSEE . THE ASSESSEE HAS SUBMITTED DURI N G THE APPELLATE PROCEEDINGS THAT THERE WAS DEFICIENCY OF ELECTRICITY AND IT HAS ENTERED INTO AN AG R EEMENT ON 22.3.1999 TO USE THE ELECTRICITY TO BE PRODUCED BY N HL ELECTRIC PROJECT. TH EREFORE, THERE WAS COMMERCIAL INTEREST OF ASSESSEE IN NEORA HYDRO ELECTRIC LTD., FOR ADVANCE IN THE MONEY. THE A SSESSEE HAD 50% SHARES IN NHL WHILE BALANCE 50% WAS ALSO TRANSFERRED TO THE ASSOCIATED CONCERNS OF THE ASSESSEE BY 31.3.2005. WE FIND THAT THE ASSESSEE HAS RELIED ON THE CASE OF CIT VS. BRITANNIA INDUSTRIES 280 ITR 52125. THE HON'BLE CALCUTTA HIGH COURT HAS HELD IN THIS CASE AS FOLLOWS: - IN THIS CASE, THE QUESTION THAT IS TO BE ANSWERED IS: WHETHER, ON THE FACT S AND CIRCUMSTANCES OF THE CASE, THE INCOME - TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN LAW IN HOLDING THAT THE INTEREST - FREE ADVANCES WERE GIVEN FOR THE PURPOSE OF BUSINESS IGNORING THE FACT THAT THE CONDITION AS LAID DOWN UNDER THE PROVISION OF SECTION 36(1) (III) OF THE INCOME - TAX ACT WERE NOT FULFILLED? CONCLUSION: FROM THE ABOVE DISCUSSION, WE FIND IN RELATION TO EACH ASSESSMENT YEARS INVOLVED IN THIS APPEAL THAT THE RECIPIENT OF INTEREST - FREE LOAN WAS NO A FIRM OF RELATIVES; THE ADVANCE WAS MADE FOR THE PURPOSE OF BUSINESS WITHIN THE MEANING OF SECTION 36(1)(III); THAT THERE WAS REGULAR COURSE OF BUSINESS BETWEEN THE ASSESSEE AND THE FIRM; AND THAT THE ADVANCES WERE MADE TO MCAP IN THE REGULAR COURSE OF BUSINESS; SUCH ADVANCES WERE MADE IN THE COURSE OF BUSINESS FOR COMMERCIAL EXPEDIENCE AND FOR THE PURPOSE OF BUSINESS; THE FINDINGS ARRIVED AT BY THE LEARNED TRIBUNAL WERE NOT PERVERSE; THE ENTIRE EXPENDITURE WAS MADE FROM THE MIXED ACCOUNT THEREFORE, THERE WOULD BE A PRESUMPTION THAT THE AMOUNT WAS MADE OUT OF THE OWN FUND OF THE ASSESSEE AND NOT FROM, THE BORROWED CAPITAL; THAT THERE WERE SUFFICIENT FUNDS AND THAT THE ADVANCES WERE MADE FROM THE MIXED ACCOUNT. THEREFORE, THE COMMISSIONER (APPEALS) AND THE LEARNED TRIBUNAL BOTH WERE RIGHT IN PRESUMING THA T THE ADVANCE WAS MADE OUT FROM THE ASSESSEE S OWN FUND ELIGIBLE FOR THE BENEFIT OF SECTION 36(1)(III). ORDER: AS SUCH WE FIND NO MERIT IN THIS APPEAL. WE ANSWER THE QUESTION IN THE AFFIRMATIVE IN RESPECT OF THE RESPECTIVE ASSESSMENT YEARS INVOLVED IN TH IS APPEAL. IN THE RESULT, THE APPEAL FAILS AND IS ACCORDINGLY HEREBY DISMISSED. 8 . WE FURTHER FIND THAT ASSESSEE ALSO RELIED ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE O F J.K. INDUSTRIES LTD. VS. CIT (1999) 238 ITR 820 (CAL) , WHEREIN IT IS OBSERVED AS UNDER: - 6 ITA NO. 607 &641 /K/201 2 M/S TEXMACO LTD. AY S 06 - 0 7 & 07 - 08 F) THE APPELLANT FINANCES ITS SUBSIDIARIES AS PART OF THE AP P ELLANT S BUSINESS ACTIVITY AND ITS MEMORANDUM OF ASS OCIATION APPROVES SUCH ACTIVITY . ACCORDING TO THE APPELLANT, FROM TIME TO TIME, I T ADVANCED LOAN TO ITS SU BSIDIARIES 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 PREVI O US YEAR ENDED ON MARCH 31, 1996 AMOUNT TO RS.1 C RORE. DURI NG THE PREVI O US YE A R 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 APPELLANT S CASH PROFIT AFTER PROVIDING FOR TAX ADD I TION 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) REQUIRED THE APPELLA NT 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. . IN T HE CASE BEFORE US, WE FIND THAT THE OPENING BALANCE OF SUCH INTEREST FREE LOANS TO THE SUBSIDIARIES FOR THE PREVIOUS YEAR ENDING ON MARCH 31, 1996 AMOUNTED TO RS.1 CRORE. DURING THE PREVIOUS YEAR END 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 APPELLANT S CASH PROFIT AFTER PROVIDING FOR TAXATION AND DIVIDEND AMOUNTED TO RS.30.37 CRORE AND THE SAID INTEREST - FREE LOANS OF RS.87.30 CRORE WERE GIVEN OUT OF THE SAID INTERNAL ACCRUALS OF THE APPELLANT. THUS, IT SHOULD BE PRESUMED THAT THE SUBSIDIARIES WERE PAID OUT OF THE PROFIT OF THE ASSESSEE WHICH IS FAR IN EXCESS OF T HE AMOUNT OF SUBSIDIARIES AND THERE WAS NO JUSTIFICATION OF ADDING A SUM OF R S.27,200/ - AS APPROVED BY THE TRIBUNAL. WE, THEREFORE, SET ASIDE THE ORDER OF THE TRIBUNAL AND DIRECT THE ASSESSING OFFICER NOT TO DEDUCT ANY AMOUNT FROM EXPENDITU9RE ON THE GROUND THAT INTEREST - FREE LOAN WAS GIVEN TO IS SISTER CONCERNS FROM THE BORROWED FUND WHEN THE PROFIT WAS FAR IN EXCESS AND ENTIRE DEPOSITS WERE MADE IN THE SAID ACCOUNT AND AT THE SAME TIME DISALLOWANCE OF FOREIGN TRAVEL EXPENDITURE OF THE SPOUSE OF THE APPELLANT S MANAGING DIRECTOR WHO ACCOMPANIED HER HUSBAND ON BUSINESS VISITS AMOUN TING TO RS.7,44,549/ - IS ALSO SET ASIDE. THE APPEAL IS, THUS, ALLOWED BY ANSWERING BOTH THE POINTS FORMULATED IN THIS APPEAL IN THE NEGATIVE AND AGAINST THE REVENUE. 9. EVEN HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWERS L TD. (2009) 313 ITR 340 (BOM.) , WHEREIN IT IS HELD THAT THE PRESUMPTION HAS TO BE THAT THE INTEREST FREE ADVANCES ARE GIVEN OUT OF THE INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE. IN SUPPORT OF THIS APPROACH, WE RELY UPON HON'BLE BOMBAY HIGH COURT S OBS ERVATIONS AS FOLLOWS: IF THERE BE INTEREST FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST FREE FUNDS AVAILABLE. 7 ITA NO. 607 &641 /K/201 2 M/S TEXMACO LTD. AY S 06 - 0 7 & 07 - 08 10. IN VIEW OF THE ABOVE FACTS OF THE PRESENT CASE THAT THE ASSESSEE HAS TOTAL CAPITAL AND RESERVES AVAILABLE AT RS.140 CR. ALONG WITH TOTAL INCOME ASSESSED BY THE AO FOR AY 2006 - 07 AND 2007 - 08 AT RS.26.86 CR. AND RS.43.47 CR. RESPECTIVELY, THE ASSESSEE HA S AVAILABILITY OF FUNDS INTEREST FREE MORE THAN THE INTEREST FREE ADVANCES. ACCORDINGLY, WE CONFIRM THE ORDER OF CIT(A) DELETING THE DISALLOWANCE. SIMILAR ARE THE FACTS IN AY 2007 - 08 IN ITA NO. 641/K/2012 AND HENCE, TAKING A CONSISTENT VIEW, WE DELETE TH E DISALLOWANCE IN THIS YEAR ALSO. BOTH THE APPEALS OF REVENUE ARE DISMISSED. 11 . IN THE RESULT, BOTH THE APPEAL S OF REVENUE ARE DISMISSED. 12 . ORDER IS PRONOUNCED IN THE OPEN COURT ON _ 0 9 / 0 6 / 2 0 1 5 . S D / - S D / - (B. P. JAIN) (MAHAVIR SINGH) ACCOUNTANT MEMBER J UDICIAL MEMBER DATED : 0 9 T H JUNE , 201 5 *DKP/ P.S COPY OF THE ORDER FORWARDED TO: 1 . A PPELLANT DCIT, CIRCLE - 6 , P - 7, CHOWRINGHEE SQ., KOLKATA - 69 . 2 RESPONDENT M/S TEXMACO LTD., 9/1 , R.N. MUKHERJEE ROAD, KOLKATA - 01 3 . THE CIT (A), KOLKATA 4. 5. CIT KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .