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2019 (6) TMI 827 - AT - Income TaxAddition on account of advance to subsidiary written off - Allowable business loss - claim disallowed by the AO on the ground that the same is capital in nature and is not allowable u/s 37(1) - HELD THAT:- Assessee has a subsidiary in the name of PINC Mauritius to whom the assessee provided unsecured interest free advances for incurring necessary expenses such as incorporation expenses, statutory payments and annual maintenance expenses. The business of the subsidiary company becomes unviable due to incurring of huge losses over the years and therefore company was wound up resulting into loss advanced by the assessee as interest free unsecured advances to the said subsidiary. In our opinion the said advance was given by the assessee out of commercial consideration and expediency and therefore we are in agreement with the conclusion drawn by the Ld. CIT(A) that the said loss has to be allowed as business loss. As decided in CIT vs. Amalgamation (P) Ltd. [1997 (4) TMI 8 - SUPREME COURT] loss incurred by the assessee on account of honouring the guarantee given to the bank on behalf of subsidiary is a business loss and therefore allowable. Also see VASSANJI SONS & CO. P. LTD. VERSUS COMMISSIONER OF INCOME-TAX, BOMBAY CITY I [1977 (11) TMI 7 - BOMBAY HIGH COURT] wherein held that debt which became irrecoverable which was advanced by the assessee to the subsidiary company has to be treated as directly stringing from its business activity and therefore loss of debt amount was deductable as business loss. - Decided in favour of assessee.
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