TMI Blog2019 (10) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... air 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 claim. Hence, based on the judgment of Hon ble Apex Court in the case of Swadeshi Cotton Mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Commissioner of Income Tax (Appeals)- V, New Delhi [ Ld. CIT(A)'] has erred both on facts of the case and in law 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 ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. CT(A) is contrary to the facts, law and the principles of natural justice. 3. The assessee was incorporated on July 6, 2000 as a 100% subsidiary of Vignette International Inc., USA. The assessee filed return of income declaring loss of ₹ 4.30 crores. During 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cement of the activity was postponed and ultimately closed down. So, the Assessing Officer disallowed the relevant expenditure claimed by the assessee brining out the difference between setting up of business and commencement of business. It was argued that the Assessing Officer has disallowed the expenditure holding that the business has not commenced. In this regard, the ld. DR placed reliance on the judgment in the case of Akzo Nobel Car Refinishes India (P) Ltd. Vs DCIT (2008) 25 SOT 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of rent, the ld. AR s contentions that the expenses was incurred during the year as the liability for payment of which in terms of lease deed has accrued and arisen during the year under consideration. Since, we have already allowed the rent paid for the current year, no future allowance for the rent can be allowed during the year even it is deemed to have accrued by the virtue of leased deed entered during the year. 11. All the grounds are taken by the assessee are hereby treated as disposed off. The appeal of the assessee is partly allowed. ITA No. 980/Del/2013 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 le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation 1 to section 271(1)(c) are applicable because the assessee has offered an explanation before the A.O.,which he is not able to substantiate and has also failed to prove that such explanation is bona fide, and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. 9. The imposition of penalty is supported by the following judicial decisions: CIT v. Zoom Communications (P) Ltd. (2010)) 327 ITR 510 (DEL.) It is true that mere submitting a claim which is incorrect, in law, would not amount to giving inaccurate particulars of the income of the assessee, but it cannot be disputed that the claim made by the assessee needs to be bona fide. If the claim besides being incorrect, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us sales or purchases have been treated as that of concealment or inaccuracy in particulars of income by the judicial pronouncements. Where during assessment proceeding, Assessing Officer disallowed assessee's claim of payment of commission to its director on the ground that it was a bogus claim inasmuch as said director had not provided any services to the assessee and during penalty proceedings initiated on the basis of that addition, assessee had failed to offer any explanation in respect of that addition, it was held that Assessing Officer was justified in levying penalty under section 271(1)(c). (iii) CIT v. Escorts Finance Ltd. (2010) 328 ITR 44 (DEL.) Even if there is no concealment of income or furnishing of inaccurate particulars, but on the basis thereof the claim which is made is ex facie bogus, it may still attract penalty provision. 14. 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 hol ..... 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