Tribunal upholds CIT(A) ruling on subsidiary's written-off advance as business loss.

The Tribunal upheld the Ld. CIT(A)'s order, dismissing the Revenue's appeal regarding the deletion of the addition of Rs. 72,88,510/- on account of advance to subsidiary written off. The Tribunal agreed that the loss should be allowed as a business loss, considering the commercial expediency of the advance and legal precedents supporting such treatment. The decision was based on the subsidiary's inability to recover from losses, leading to its winding up, aligning with past rulings recognizing similar losses as business losses.

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Issues:
- Deletion of addition of Rs. 72,88,510/- on account of advance to subsidiary written off disallowed by AO as capital in nature under section 37(1) of the Act.

Analysis:
The Revenue appealed against the Commissioner of Income Tax (Appeals) order concerning the deletion of the addition of Rs. 72,88,510/- on account of advance to subsidiary written off. The AO disallowed the amount as capital in nature under section 37(1) of the Act. The assessee explained that the loss comprised of capital loss on winding up of subsidiary and advances to subsidiary written off, as the subsidiary could not repay the advances due to incurring huge losses. The AO added the amount to the income of the assessee. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee based on a previous order in the assessee's own case for A.Y. 2012-13.

During the appeal, the Ld. D.R. argued for restoring the issue to the file of the AO, citing a similar case in AY 2012-13. Conversely, the Ld. A.R. highlighted that the subsidiary was wound up after being unable to recover from losses, justifying the write-off. The Tribunal noted that the advance was given for commercial expediency, agreeing with the Ld. CIT(A) that the loss should be allowed as a business loss. The Tribunal referenced the decision in CIT vs. Amalgamation (P) Ltd. where the Supreme Court allowed a similar loss as a business loss. Additionally, the Tribunal cited Vassanji Sons & Co. (P) Ltd. vs. CIT, where the Bombay High Court treated a loss from a subsidiary going into liquidation as a business loss.

In conclusion, the Tribunal upheld the Ld. CIT(A)'s order, dismissing the Revenue's appeal based on the commercial considerations and legal precedents supporting the treatment of the loss as a business loss.

Order pronounced on 05.02.2019.

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