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November 20, 2023

Expense disallowed because it was unsustainable to halt operations in the absence of a business shutdown

Expense disallowed because it was unsustainable to halt operations in the absence of a business shutdown

Fact and issue of the case

This appeal filed by the revenue is against the order of Ld. CIT(A)- XXVI, New Delhi dated 14.09.2018 against the assessment order passed by ACIT, Central Circle-14, New Delhi u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2012-13 dated 3 1.03.20 15.

Grounds of appeal taken by the revenue are in respect of two issues –

(i) involving addition of Rs.4,30,78,000/- on account of share application money u/s. 68 of the Act and the

(ii) relating to addition of Rs.3,99, 18,595/- on account of disallowance of expenditure owing to suspension of business operations by the assessee since year 2009, both of which were deleted by the Ld. CIT(A).

Brief facts of the case are that assessee was incorporated on 07.09.2005 to carry out business of transportation of goods and passengers by Air. Assessee filed its return of income on 31.03.2014, reporting a loss of Rs.13,28,53,176/- on account of unabsorbed Ld. AO completed the assessment u/s. 143(3), of the Act assessing the total income at Rs.4,98,56,581/-. On the first issue relating to addition made towards share application money, Ld. AO noted that assessee had received an amount of Rs.4,30,78,000/- from Shree Gopal Kumar Goyal during the year, for which assessee filed only a confirmation letter. Since bank statement was not furnished, Ld. AO added the same in the hands of the assessee. On the second issue, Ld. 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. In this respect, assessee had submitted that it had claimed the expenses on the principle of ‘going concern’ and are, therefore, allowable. However, Ld. AO disallowed the same.

Before us, Ld. Counsel for the assessee has placed a paper book containing 413 pages and also a supplementary paper book containing 33 pages which are on record.

Ld. CIT, DR supported the order of Ld. AO on the first issue. She asserted that since assessee had not furnished bank statement of the investor, ld. AO has rightfully added the amount in the hands of the assessee. On the second issue relating to disallowance of expenses, she supported the view taken by the Ld. AO as assessee has submitted that its business operations were suspended since the year 2009. According to her, since there is no business activity, there cannot be any claim of expenses by the assessee.

Observation of the court

From the submissions made before us, we note that it is an undisputed fact that 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. We find force in the submissions made by the Ld. Counsel that assessee being a company set up has to incur expenses irrespective of active business. We find that the sole basis of disallowance of expenses by the Ld. AO is in the backdrop that assessee did not carry out any business activity during the year. To our mind, 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. Further, we note that there is nothing on record to show that assessee has completely abandoned or closed the business forever by disposing of its assets and going into liquidation. On the contrary, from the perusal of its audited financial statement, it is revealed that assessee had been meeting various statutory and regulatory expenses. We also take note of the fact that such expenses have been allowed both in the preceding and succeeding assessment years, details of which is already tabulated above. From the perusal of the finding of Ld. CIT(A), we note that relief has been granted by following the principle of consistency. The findings given by the Ld. CIT(A) in this respect is extracted as under:

“It has been consistently decided by the Hon’ble Apex Court and, the Hon’ble High Courts in many cases that claims once allowed in any assessment year must be allowed in succeeding assessment years by following rules of consistency unless and until there is change in the position of law or change in facts of the case. There is neither change in facts of the case and, nor any change in the position of law. Reliance in support of the principles of consistency refer to the judgment of Hon’ble Apex Court in the case of CIT v. Excel Industries Ltd. 358 ITR 295. Just because the income was low does not warrant disallowance of expenditure. Having regard to the above the disallowance of Rs.3,99,1 8,595/- is deleted. Grounds 4 to 4.1 are therefore allowed.”

A specific query was posed to the Ld. Counsel whether rule of consistency should be followed as such to which he submitted that “department should be consistent to themselves”.

Considering the submissions made by the Ld. Counsel and facts and circumstances of the case, we do not find any reason to interfere with the well reasoned findings given by the Ld. CIT(A). Accordingly, ground nos. 2 and 3 taken by the revenue in this respect are dismissed.

In the result, appeal of the revenue is dismissed.

Order pronounced in the open court on 19.10.2023.

Read the full order from here


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