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2012 (5) TMI 677

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..... peals are common, they were heard together and are decided by this common order. 2. The assessee company is engaged in the business of manufacturing and marketing of electrical and mechanical engineering goods and electrical contracting and construction engineering. The assessee filed its return of income relevant to the assessment year 2003-04 declaring its income to be Nil. The case of the assessee was selected for scrutiny and notice under section 143(2) was issued to the assessee on 11.10.2004. During the course of assessment, the Assessing Officer made certain additions/disallowances in the total income of the assessee and assessed total loss of ` 6,81,69,969/-. 3. For the assessment year 2004-05, the return of income was process .....

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..... s erred in deleting the disallowance of interest on borrowed funds which are diverted to the sister concerns of the assessee company. He submitted that assessee has been paying huge interest on borrowed funds and has advanced the said funds as interest free loan to its sister concerns. Interest expenditure incurred by the assessee is not wholly and exclusively for the purpose of assessee s business. He contended that the CIT(A) has erred on relying upon the judgement of Hon ble Supreme Court of India in the case of S.A. Builders reported as 288 ITR 1. He submitted that the case of the department is squarely covered by the judgement of Hon ble Punjab Haryana High Court in the case of Abhishek Industries reported as 286 ITR 1. With regard t .....

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..... fixed assets base and are dependent on holding company for their financial requirements. He submitted that the CIT(A) has rightly allowed the appeals of the assessee and the order of CIT(A) is a well-reasoned and detailed order. He further contended that the case of the assessee is squarely covered by the judgement of the Hon ble Supreme Court of India in the case of S.A.Builders Vs. CIT reported as 288 ITR 1. As regards assessment year 2004-05, where the department has inter alia taken the ground of deleting the disallowance of write off of advances given by assessee company to its subsidiaries, Mr. Subramaniam submitted that the amount was advanced to three subsidiary companies i.e. i) Beacon Tileman Ltd. ii) Beacon Carbons Electricals .....

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..... nces for the reason that they have incurred huge financial losses and have gone sick. The Assessing Officer has not disputed the fact that subsidiary companies are under liquidation proceedings and therefore loans are not recoverable. It is understandable that assessee was constrained to write off the advances as the same were not recoverable on account of losses suffered by the subsidiaries and in some of the cases on account of liquidation proceedings. The assessee is entitled to claim the same as deduction. The Hon ble Supreme Court of India in the case of S.A.Builders (supra) has held that where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subs .....

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