AI Drafter 
TaxTMI 
TaxTMI 
2022 (7) TMI 1083
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....irming the disallowance of legal expenses of Rs.6,76,14,470/- and travelling and conveyance expenses of Rs. 25,60,449/- is contrary to provisions of the Income-Tax Act,1961 and contrary to law, illegal and without any basis. 2. The order of CIT(A) is erroneous and bad in law as it simply affirmed the reasons of the AO without appreciating and taking into account various legal and factual submissions placed before it. 3. The order of the AO/CIT(A) confirming the disallowance of legal and travel expenses is erroneous, as the said expense clearly fall within the purview of Sec.37(1) of the Income-Tax Act 1961. The said expenses are eligible for deduction since the same were incurred by the Appellant Co. to defend its business reputation by proving the genuineness of the transactions before the Hon'ble CBI Special Court. The Supreme Court in the case Birla Cotton Spinning and Weaving Mills and Birla Brothers Pvt. Ltd (82 ITR 166) and the Delhi High Court judgment in the case of Lakshmiji Sugar Mills Co. (P.) Ltd v. CIT, Delhi (98 ITR 568) has held that the expression "for the purpose of business" encompasses a wider meaning to include not only the running of the b....
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....amounting to Rs.6,76,14,470/- defending its Directorcum- shareholder and in an ongoing case at the special Court (Central Bureau of Investigation), New Delhi. The Board of Directors have approved re-imbursement of legal, travelling and other expenses to be incurred by the Directors and others for and on behalf of the company. 25.2 Travelling & Conveyance includes Rs.25,60,449/- towards travelling by one of the Directors for attending court proceedings at Delhi." During the course of scrutiny proceedings, the assessee was required to further clarify the allowability of the same by providing a detailing about the purpose for which the said expenditures were incurred. In the reply filed by Shri G. Rajendran, Vice President (Finance), Kalaignar TV Pvt. Ltd., on 12/03/2015, it was expressed as follows: "As regards the legal expenses incurred by the company, we wish to submit the following. As already been stated in out earlier letter, charge sheet has been filed by the CBI against the Director and shareholder in 2G Spectrum case. The case is for receipt of Rs.200 crores by the company. The case has been filed against the individuals as they are holding posts i....
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....any for their alleged misconduct and not that of the company. Kalaignar TV Pvt Ltd is a mere recipient of the alleged illegal gratification and as a company it did not involve itself in the process to receive the funds. This process was actually undertaken by the Directors and the shareholder only. It is not a case where the involvement of Kalaignar TV Pvt Ltd is being put to test. It is not a case where a complaint has been lodged against Kalaignar TV Pvt Ltd for any acts of misdemeanor found in the day to day business of running and telecasting work undertaken by the company. On the contrary, the case before the Special CBI Court is due to alleged involvement of the Director and Share holders of the company in their individual capacity which is put to test the alleged illegal gratification of Rs.200 crores was received by the company on account of the misdemeanors alleged to have been undertaken by the Director & shareholders of the company. Thus treating the reimbursement of legal expenses and travelling costs of the Director and shareholders of the company to pursue their case against the judicial proceedings at the Special CBI Court at New Delhi as business expenditure of the ....
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....d therefore, it amounted to personal expenditure, and not a business expenditure. Before the CIT(A) the appellant's AR has reiterated the submission which was already considered by the AO in the assessment order. The AR has submitted that both the expenditures were business expenditure and the genuineness of the payment has not been questioned. The AR has contended that when the company's reputation is in question, the company has to defend through lawyers. 4.3.2 I have considered both the points of view. It is undisputed that the aforesaid expenditure were related to 2G Spectrum Scam in which the directors of the appellant company were accused. The appellant could not prove how the aforesaid expenditure was incurred to enhance the appellant's business activity and its profit making capability. I have perused the decision relied on by the AO in the assessment order - CIT v. Hirjee and Praveen Saxena, cited supra and found them directly applicable to the appellant's case. I concur with the AO in rejecting the appellant's reliance on the decision in the case of CIT v. Birla Brothers Pvt. Ltd. cited supra. Respectfully following the decisions relied on by the AO, I am of the ....
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....rposes of the business of the company. It was further submission that if the proceedings instituted by the CBI are not defended, it would have resulted in commercial loss, loss of reputation and goodwill, loss of assts and closure of business. Therefore, it was imperative for the assessee company to defend its directors who acted in their figuciary capacity for preserving and maintaining the good name of the assessee company. In view of the above, it was submitted that the defence of the shareholders and directors before the Hon'ble CBI Special Court is the defence of the company for the acts undertaken by the directors in the normal course of the business and acting as agent of the company and by relying various case law as detailed below, the ld. counsel prayed for allowing the deduction claim by the assessee: S.No. Judicial Precedents 1. JB. Advani & Co. Ltd. v. Commissioner of Income tax and Excess Profits Tax [1950] 18 ITR 557 (Bom) 2. CIT v. H. Hirjee [1951] 19 ITR 612 (Cal) 3. CIT v. H. Hiriee [1953] 23 ITR 427 (SC) 4. JN. Singh & Co. Pvt Ltd. v. CIT [1966] 60 ITR 732 (Pun) 5. Hingir Rampur Coal Co. Ltd. v. CIT [1971] 81 ITR 633 (Bom) 6....
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.... was absolutely no requirement of the individuals to face the Special CBI Court and only in the capacity as directors and shareholders of the assessee company, the individuals were put to test and thus, the legal proceedings related to a transaction, which arises out of an incidental to the assessee's business. 7. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including paper book filed by the assessee and written submissions filed by both the parties. The assessee has claimed legal expenses and travelling & conveyance expenses before the Assessing Officer. The Assessing Officer mainly disallowed the expenditure claimed by the assessee on the ground that the legal proceedings was undertaken in respect of the charges framed against the Directors and shareholders of the assessee company for their alleged misconduct and not that of the company for the reason that Kalaignar TV Pvt. Ltd. is a mere recipient of the alleged illegal gratification and as a company it did not involve itself in the process to receive the funds. This process was actually undertaken by the Directors and the shareholder only. It is not ....