TaxTMI 
TaxTMI 
2022 (5) TMI 324
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....ncome Tax (Appeals) erred in fact and in law by not appreciating the various court rulings relied upon the appellant. 3. The order of the Learned Commissioner of Income Tax(Appeals) is bad in law which deserves to be set aside" 3. The only issue raised by the assessee in this appeal is against the order of Ld. CIT(A) confirming the disallowance made by the AO relating to legal and professional expenses and other expenses aggregating to Rs.19,85,60,980/- by treating the same as capital and personal expenditure not pertaining to the business of the assessee. 4. The facts in brief are that the assessee has filed the return of income on 30.09.2013 declaring a loss of Rs.19,14,22,462/-. The case of the assessee was selected under scrutiny and statutory notices were duly issued and served upon the assessee. The assessee is engaged in the business of civil construction. During the course of assessment proceedings the AO observed that assessee has claimed expenses in the P&L account under the head "Legal and professional fee" of Rs.16,38,92,640/- and under various other heads amounting to Rs.3,49,68,340/-. The AO also observed from the notes to accounts no. 24 to 27 that ass....
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....e income of the assessee. The aggrieved assessee preferred an appeal before the ld CIT(A) challenging the assessment order. 5. In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee by observing and holding as under: "7. Decision :- I have considered the facts of the case and submissions made by the appellant. Crux of assessee's submission is that it had made an investment of Rs. 593 crores in Etisalat Db Telecom Private Limited ( EDB ) and EDB was allotted 2G spectrum telecom licenses and this investment was jeopardized by the cancellation of the licenses and also due to various criminal and general allegations made against EDB and its directors who were also the directors of the assessee company. EDB was also facing winding up proceedings in the Court. Assessee wanted to protect its investment of Rs. 593 crores in EDB and the promoters who were also the directors of the company and therefore had incurred legal and professional fees to protect its investments. 7.2 First of all assessee has not furnished details and documents relating to legal and professional expenses of Rs.20,11,60,163/- and has also not submitted proof whe....
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....ire outstanding dues of Rs.254,16,52,551 as on 19th May, 2012 against the, fixed deposit of EDB, Etisalat Db Telecom Pvt. Ltd. has filed a suit in the High Court of Bombay being Suit No.631 of 2013 against Punjab National Bank (PNB) and others in July / August 2013, Majestic Infracon Private Limited, Mr. Shahid Batwa, Mr. Vinod Goenka, DB Reaity Limited and BD & P Hotels, (India) Private Limited are arrayed as Defendant No.2, Defendant No.3, Defendant No.4, Defendant No.5 and Defendant No.6, respectfully. EDB has also taken notice of motion in the Suit for interim relief. 26.Investmenits: The Supreme Court of India vide its order dated February 02, 2012 with regards to 2G spectrum, has cancelled all the 122 UAS Licenses issued by the Telecom Minister in 2008 by stating that the said licenses had been allotted as 'an unconstitutional and arbitrary manner.' This includes teh 15 UAS licenses Issued to Etisalat OB Telecom Private Limited ("EDB4, Emirates Mauritius Limited filed Company Petition No.114 of 2012 before the Bombay High Court on March 12, 2012 as well as Company Application NO.134 of 2012 therein on March 14, 2012, seeking winding up of the EDB on the grou....
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.... the expenses of the promoters and their close relatives with respect to legal fees, travelling, accommodation, etc. which are required to be inquired for defending the matter before the special court." 7.4 It is thus crystal clear that incurrence of the legal and professional fees had to everything to do with safeguarding of the Investment of Rs.593 crores made in the EDS and criminal and general allegations made against the directors of the assessee company who were also the promoters of EDB. Now it is not the business of the assessee to safeguard the directors and promoters of the company against criminal cases filed against them as 'promoters and directors of EDB in which the assessee held investment of Rs.593 crores and it was the responsibility, if any of the EDB and the directors and promoters of EDB and not that of the assessee even though the directors of the assessee company happened to be the directors/promoters of the company. In nutshell, it was the personal responsibility of the directors/promoters of EDB and/or that of the EDB and definitely that of the assessee. Prima facie it would appear that the nature of cases pending against ED8 and its directors and p....
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....essee were also directors of the said company. The Ld. A.R. submitted that though the expenses were not directly related to the business of the assessee, however, the investments/business interest of the assessee will be only protected if these directors and their relatives are protected from the litigations pending in the CBI, Special Court and therefore submitted that these expenses are wholly and exclusively for the purpose of protecting the interest of the assessee and its business interest and therefore the conclusion by both the authorities below that these are not connected with the business of the assessee or capital in nature or personal in nature are wrong and devoid of merit. In defense of her arguments the Ld. A.R. relied on the following decisions: i) ITO vs. Dhanrajgiriji Raju Narasingiriji (1973) 91 ITR 544(SC) ii) CIT vs. Ahmedabad Controlled Iron and Steel Reg. Stockholders Association Pvt. Ltd. (1975) 99 ITR 567(Guj) iii) Gujarat Agro Oil Enterprise Ltd. vs. CIT (2002) 125 taxman 912. The Ld. A.R. therefore, prayed that in view of the ratio laid down in the various decisions as stated above,the order of Ld. CIT(A) may kindly be revers....
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....t of the assessee's business of construction, however, undoubtedly the interest of the assessee is certainly there in the success of these criminal cases in defending its directors/their relatives. Therefore, we are not in agreement with the conclusion drawn by the Ld. CIT(A)/AO that these expenses are not wholly and exclusively incurred for the purpose of business of the assessee and are of capital in nature as the business of Etisalat DB Telecom Pvt. Ltd. has not commenced or personal nature of the directors and their relatives. In our opinion, the expenses incurred even for defending the directors and their relatives in criminal litigations are admissible expenses provided that are incurred in order to protect the business interest of the assessee. The case of the assessee is squarely covered by the decision of Apex Court decision in the case of Dhanrajgiriji Raju Narasingiriji (supra) in which it has been held that business expenditure incurred by the assessee in connection with criminal litigation for the purpose of his business was deductable under section 10(2)(xv) of 1922 Act as the section 10(2)(xv) did not make any distinction between civil and criminal litigation. The se....