Suspension of Airline Operations for a Particular period due to losses does not amount to Cessation of Business: ITAT deletes Addition made towards disallowance of expenditure [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi bench during deleting the addition made towards the disallowance of the expenditure held that suspension of airline operations for a particular period due to losses does not amount to cessation of business.

The assessee, MDLR Airlines Pvt. Ltd. is carrying out business of transportation of goods and passengers by Air. After filing the return of the Income assessee’s assessment was completed under Section under Section 143(3), of the Income Tax Act assessing the total income at Rs.4,98,56,581/-.

Therefore while framing the assessment order AO disallowed the claim of expenses by taking a view that no activity was carried out by the assessee as the operations of the assessee had been suspended in October, 2009 and there is no intention of the assessee to revive the operations.

Aggrieved by the order, the assessee filed an appeal  before the CIT(A) who  allowed the appeal. Thereafter the  revenue filed a second appeal before the tribunal.

Gautam Jain, Counsel for assesee submitted that  assessee was incurring losses which led to suspension of its airline operations. However, all the assets of the company were ready to put to use during the year.  There are no operations during the year does not mean that there is no business.

Further, the counsel for assessee argued that Assessee had incurred these expenses which are mandatory in nature for making various statutory and legal compliances and to continue the company in existence even if the business of the assessee is not in operation during the year.

It was also argued that the assessee  carries its activities and holds technical meetings, workshops, seminars and  other educational programs to encourage the profession of mobility  engineering and said activity clearly falls under the definition of ‘education’  as per provisions of Sec.2(15) of the Income Tax Act.

Suneeta Verma, Counsel for Revenue supported the order of assessing officers.

The tribunal observed that the airline operations of the assessee are in suspended mode since the year 2009. However, there is no closure of the assessee by way of its liquidation since it is a corporate set up under the Companies Act.

Thus, not carrying on any business activities during a particular period cannot be equated with closure of business since it will lead to a narrow view of the scope of cessation of business.

It was also recorded to show that the assessee has completely abandoned or closed the business forever by disposing of its assets and going into liquidation so the assessee had been meeting various statutory and regulatory expenses.

After reviewing the facts and records, the two-member bench of Girish Agrawal, (Accountant member) and Chandra Mohan Garg, (Judicial Member) exemption under Section 11 of the Income Tax Act  should not be granted when activities of trust are in nature of trade, commerce or business.

To Read the full text of the Order CLICK HERE

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