2012 (5) TMI 677 - AT - Income Tax

Summary

Issues Involved: Appeal against the order of CIT(A) for assessment years 2003-04 and 2004-05 regarding disallowance of interest on borrowed funds and write off of advances given to subsidiaries.

Assessment Year 2003-04:
The assessee, engaged in manufacturing and marketing, declared Nil income, but AO assessed total loss. CIT(A) partly allowed the appeal, including disallowance of interest on borrowed funds and write off of advances to subsidiaries in favor of the assessee. Department appealed, arguing interest not wholly for business purpose and advances not in regular course of business. Assessee contended loans to subsidiaries were for business support due to commercial expediency. Tribunal held loans were utilized for business needs, not personal, and upheld CIT(A)'s decision based on the Supreme Court judgment.

Assessment Year 2004-05:
AO assessed long term capital gain and raised demand, which CIT(A) partly allowed, including disallowance of write off of advances to subsidiaries. Department appealed, claiming advances not for business purpose. Assessee argued advances were for subsidiary support due to commercial reasons. Tribunal found subsidiaries under liquidation, loans not recoverable, and upheld CIT(A)'s decision based on commercial expediency and business loss grounds.

Conclusion:
Tribunal dismissed both appeals of the Revenue for assessment years 2003-04 and 2004-05, upholding CIT(A)'s decision regarding disallowance of interest on borrowed funds and write off of advances to subsidiaries, as loans were utilized for business needs and were justifiable deductions.