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TMI Blog2019 (10) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... eby confirmed. Expenses of business promotion, sales commission, communication, travel conveyance, repair maintenance, legal professional fee, contribution to PF, the assessee could not submit any voucher before the assessing authorities. It is the primary duty of the assessee to produce the basic evidences in relation to the expenses claimed, so as to allow the expenses u/s 37 of the Income Tax Act. Since, no details could be produced as to the expenses claimed, no allowance can be given by the revenue. Hon ble Bombay High Court in the case of ALD Automotives Pvt. Ltd. [ 2018 (3) TMI 534 - BOMBAY HIGH COURT] wherein it was held that where assessee failed to produce necessary evidence to prove that business was set up and it was ready to commence, expenditure incurred by assessee prior to setting up of business could not be allowed. Disallowance out of the salary, we find that the assessee could provide the PAN number of only three employees correctly out of the 28 employees on the list. The assessee could not furnish the details of salary payment even through the bank statement or by any documentary evidence regarding the rendering of the services by the employees to support the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw in sustaining the disallowances/additions of ₹ 52,654,094 made by the learned Additional Commissioner of Income Tax, Range - 17, New Delhi ("Ld. AO"), in the assessment order passed under section 143(3) of the Income Tax Act, 1961 (the Act'). 2. That the Ld. CIT(A) has erred in sustaining the disallowance of ₹ 1,63,76,759 being expenditure incurred after set up of business without giving proper justifications for the same. The Ld. CIT(A) erred in failing to pass a speaking order without giving proper reasoning for upholding the disallowance and summarily rejecting the contentions of the Appellant. 3. That the Ld. CIT(A) has erred both on facts and in law in wrongly placing reliance on the decision of the Hon'ble Delhi Tribunal in the case of Akzo Nobel Refinishes India (P) Ltd. (2008) 25 SOT 226 while sustaining the disallowance on account of pre-commencement expenditure. 4. That the Ld. CIT(A) has erred on facts and in law in sustaining the disallowance of an ad-hoc amount of ₹ 41,00,000 out of salaries paid to employees. The Ld. CITA) has erred in ignoring the relevant evidence filed by the Appellant in support of the genuineness of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring the assessment proceedings, the assessee was given opportunity of hearing on various dates as listed below: "6.11.2002, 7.12.2002, 10.12.2002, 6.1.2003, 20.1.2003, 31.1.2003, 10.2.2003, 24.2.2003, 6.3.2003, 31.3.2003, 24.6.2003, 10.7.2003, 24.11.2003, 18.12.2003, 2.1.2004, 28.1.2004, 10.2.2004, 19.2.2004 & 24.2.2004" 4. The Assessing Officer noted a number of discrepancies from the statutory audit report filed along with return and referred the case for audit u/s 142(2A) of the Income Tax Act and subsequently disallowed all the expenses in the assessment proceedings. The ld. CIT (A) has confirmed the disallowance of salaries, recruitment & relocation, rent, travelling & conveyance, legal & professional charges and common services expenses on the grounds that the expenses are not allowable as they have been incurred before commencement of the business. 5. During the hearing, before us, the ld. AR argued that company was incorporated on July 6, 2000. The company has set up infrastructure for software development services on 08.01.2001 and employees for these activities have been appointed on 09.01.2001. Hence, it can be said that the business has already set up and all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OT 226 (Del.). 8. Heard the arguments of both the parties and perused the material available on record. 9. We find that it is a fact that the assessee due to slow down in information technology sector globally the company decided to postpone the commencement of its software development activities. Thus, leading to a conclusion that though business was set up the business activities have not been commenced. Hence, it can be conveniently held that the expenditure not incurred wholly for the purpose of the business can be disallowed. We also find that the relevant bills & vouchers for the expenses have not been produced before the Assessing Officer in order to prove that the genuineness and allowability of the expenses. Thus, the expenditure incurred before commencement of business have been rightly segregated by the ld. CIT (A) under the head salaries, recruitment & relocation, common services, travelling & conveyance, legal & professional charges as pre-commencement expenditure which are hereby confirmed. Further, regarding the expenses of business promotion, sales commission, communication, travel & conveyance, repair & maintenance, legal & professional fee, contribution to PF, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 12. Following grounds have been raised in this appeal: "1. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax Appeals - XIX, New Delhi ['learned CIT(A)] has erred in confirming the penalty levied by the Deputy Commissioner of Income Tax ('learned AO') vide order passed under section 271(1)(c) of the Income Tax Act, 1961 ('Act'). 2. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that sufficient opportunity of being heard was provided by the learned AO before levy of penalty without considering the submission of the Appellant and without making any enquiry in this regard. 3. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in failing to pass a speaking order without giving proper reasoning for upholding the levy of penalty and summarily rejecting the contentions of the Appellant." 13. The relevant part of the submission of the assessee before the ld. CIT (A) and the reasoning of the ld. CIT (A) in confirming the penalty u/s 271(1)(c) of the Act is as under: "7. The appellant has argued that this is a case of their claims not being found ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect, in law, is mala fide the Explanation 1 to section 271(1) would come into play and work to the disadvantage of the assessee. The Court cannot overlook the fact that only a small percentage of the income-tax returns are picked up for scrutiny. If the assessee makes a claim which is not only incorrect in law, but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty under section 271(1)(c). If one takes the view that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition of penalty, even if he was not acting bona fide while making a Claim of this nature, that would give a licence to the unscrupulous assessees to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they Would be assessed on the basis or self-assessment under section 143(1) and even if their case is selected for Scrutiny, they can get away merely by paying the tax, which, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. We find that the assessee has fully disclosed the facts in their return. However, owing to closer of the business and nonavailability of the documents, the same could not be produced before the revenue authorities which led to the disallowance. We hold that the per se disallowance of expenses do not automatically lead to levy of penalty, in the absence of sufficient evidences brought on record by the revenue to prove that the assessee has concealed its income or furnished inaccurate particulars of its income. The ld. CIT (A) reliance on the case of CIT Vs Zoom Communications (P) Ltd. (2010) 327 ITR 510 (Del.) is not applicable to the facts of the case as no malafide intention to evade tax has been actuated by the assessee in the present case. Similarly, the case of CIT Vs Harparshad & Co. Ltd. (2010) 328 ITR 53 (Del.) relied by the revenue authorities is not applicable to the facts of these case as no instance of bogus claim has been brought out by the revenue in the case of the assessee. The assessee owing to closure of the business could not furnish the details which certainly have not been proved by the revenue as bogus in nature. Further, no case has been made by the revenu ..... 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