Bhaskar Bhattacharya, J.

This appeal is at the instance of the Revenue against an order dated 27th July, 2000 passed by the Income-tax Appellate Tribunal, ‘E’ Bench, Calcutta, in ITA No.1759/Cal/1999 for the assessment year 1996-97 thereby partly allowing the appeal. Being dissatisfied, the Revenue has come up with the present appeal. At the time of admission of this appeal, a Division Bench of this Court formulated the following substantial questions of law:

“A. Whether, on the facts and in the circumstances of the case, short term capital loss of Rs.8,59,77,748/- attributable to colourable transaction could be set-off against the long term capital gains of Rs.403,89,154/- and whether such a conclusion arrived at by the Ld. Tribunal is unreasonable and/or perverse?”

“B. Whether, on the facts and in the circumstances of the case, the Ld. Tribunal was justified in law deleting the disallowance of consultancy fees of Rs.8,03,985/- even though, the expenses was in connection with the future business prospects of the assessee?”

The facts giving rise to filing of this appeal may be summed up thus:

a) M/s. Shri Krishna Bottlers (Vijayawada) Pvt. Ltd. (“SKB”) held a license from Pepsico Inc. U.S.A., for use of the trademark Pepsicola, Lehar, Mirinda, etc. in conjunction with an Indian trademark in relation to beverage products to be bottled, sold distributed and marketed in the so-called Vijaywada territory consisting of several districts in the State of Andhra Pradesh under the licensing agreement dated 29th December, 1990.

b) The said licence agreement was initially for a period of ten years, renewable for an additional term of five years. The Assessing Officer pointed out that the Board of Directors of the Assessing Company at its meeting held on 1st November, 1995 considered the potentiality of the market for Pepsicola and other brands of the renowned Pepsico Inc., U.S.A. for their soft drinks in the aforesaid Vijayawada territory and decided to take over the Company, viz. M/s. SKB with all of its assets and liabilities including the rights under the contract for using the trademark of Pepsico Inc., U.S.A. The Assessing Officer further pointed out that this acquisition was decided to be made through the group Company, namely, M/s. Oberoi Plaza Pvt. Ltd. The Assessing Officer further held that at the time of the proposed acquisition of M/s. SKB, it had accumulated loss and as such, the assessing company could acquire the existing 47145 shares of the company at Rs.100/- each at the reduced price of Rs.48.79/- per share i.e. at the agreed consolidated price of Rs.23 lac. However, it was decided that in order to meet the requirements of working capital as well as the need for payment of outstanding creditors, the assessing-company would invest further fund to the extent of Rs.8.55 crore against which M/s. SKB was to issue 45000 new equity shares of Rs.100/- each at a premium of Rs.1,800/- per equity share. Thus, the total investment in acquiring 92145 shares of SKB made by the assessee stood as below:

I) Price of 47145 existing Shares ……. Rs. 23,00,000/- at the rate of 48.79 per share.

Cost of stamp duty Rs. 11,500/-

II) Cost of 45,00 new shares shares at the rate of Rs.100/- plus premium of Rs.1,800/-each Rs. 8,55,00,000/-

Total: Rs. 8,78,11,500/-

c) The payments in these regards were made through account payee cheque. The above arrangement ultimately did not suit the Assessee Company and the Assessee Company could not run the business of M/s. SKB for various reasons, for instance, during the relevant period the Pepsi having introduced in the market 300 ml. capacity bottles as against the earlier 250 ml bottles, further capital to the extent of Rs.5 to 6 crore was considered to be necessary to replace the existing bottles and crates, that the market debtors were of doubtful nature and hence, it was felt by the Assessee Company that further sale would have to be increased by introducing a large number of small debtors o