TaxTMI 
TaxTMI 
1981 (2) TMI 52
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.... Whether, on the facts and in the circumstances of the case, the amount of Rs. 19,170 on account of expenses of the law department could be allowed as deduction in determining the company's profits?" The assessee is a private limited company belonging to a group of companies controlled by Mr. R. Dalmia. The assessment year with which we are concerned is 1958-59 and the corresponding previous year is the year ending 31st March, 1958. On 11th December, 1956, the Govt. of India (Ministry of Finance, Dept. of Economic Affairs), in exercise of the powers under s. 3 of the Commissions of Inquiry Act, 1952, appointed a Commission of Inquiry to report, inter alia, on the administration of the affairs of the companies specified in the Schedule....
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....earlier year had been rejected. Distinguishing the decision in CIT v. Dhanrajgiriji Raja [1970] 77 ITR 318 (AP), relied on by the assessee, the Tribunal held that such an inquiry could not be considered as a normal hazard of an honest businessman and the expenditure incurred could not be treated as normal business expenditure. The expenditure in the present case having been incurred in connection with an inquiry which was with respect to certain allegations involving acts against public policy on behalf of the members of the group. Mr. Bishamber Lal, learned counsel for the assessee, however, has contended that, in fact, the expenses incurred with regard to the Commission of Inquiry were expenses incidental to the business and necessitat....
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....l expenditure incurred during the accounting year for legal fees, hotel expenses, travelling expenses in this connection was Rs. 1,80,351. This amount was divided into four equal amounts and debited to M/s. Bharat Union Agencies Ltd., Allen Berry & Co., Asia Udyog (P.) Ltd. and the assessee. It was as a result of the abovementioned resolution and apportionment that the amount of Rs. 45,088 was allocated to the assessee. In CIT v. Birla Cotton, Spinning and Weaving Mills Ltd. [1971] 82 ITR 166, the Supreme Court has observed that it is well settled that the deductibility of an expenditure in prosecuting a civil proceeding does not depend on the final outcome of the proceedings, but on whether it is honestly incurred to promote the interes....
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.... been ordered. The assessee had, been required by the Secretary of the Commission to produce certain documents. The assessee could not sit tight but in its own interest had to respond and co-operate with the Commission of Inquiry. This was necessary to protect its reputation and its business. If the assessee did not take steps to protect its reputation, the value of its shares might have plummetted to an all-time low. The assessee was the best judge of how to preserve and protect its assets and interests and it did so with the help of lawyers, etc. It is not a case of payment of penalty for an infraction of the law but an inquiry not only against certain individuals or groups who were connected and had to be defended but also an inquiry int....
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....e the carriage of the case in the hands of the prosecuting agency of the Government is no ground for disallowing the expenditure. It is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. Every businessman knows his interest best." We will not advert to numerous other decisions of various High Courts but refer only to the decision in Parshva Properties Ltd. v. CIT [1976] 104 ITR 631 of the Calcutta High Court, where the expenditure incurred was for defending a director, agent and manager of the company who were being criminally prosecuted for violating certain regulations with regard to the working of a mine; In that case, Sabyasachi Mukharji J., wh....