TaxTMI 
TaxTMI 
2024 (10) TMI 691
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....omplaint under Explanation 1 to section 37(1) of the Act. 2. The Ld. CIT(A) erred in upholding the action of the Ld. AO in disallowing a sum of Rs 38.30.000/- being legal fees paid for defending a criminal complaint under Explanation 1 to section 37(1) of the Act. 3 The Ld. CIT(A) has erred in passing the order dated 06.10.2022 in gross violation of principles of natural justice. 4 The Ld. CIT(A) has erred in stating that the "it is seen from the submission of the Appellant, that the appellant has traded in the account of his client without his consent which is an offence as per law of the land" 5 The Ld. AO has erred in initiating penalty proceedings u/s 271(1)(C) of the Act 6 The Appellant craves leave to add, to amend, alter/de....
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....t as there has been a criminal complaint filed against the assessee by its client. Hence Rs. 85 lakhs was claimed as out of court settlement and Rs. 38,30,000/- was claimed as lawyer fees. The AO found that the entire expenditure is intended by misdeed amounting to infringement of law, resulting in out of court settlement and it is clearly a character of payment covered by explanation 1 to Sec. 37(1) of the Act and disallowed Rs. 85Lakhs. Similarly the AO has also disallowed the payment of Rs. 38,30,000/- paid towards legal fees in respect of criminal complaint for out of court settlement and has a direct nexus to settlement of criminal appeal and therefore hit by the provisions of explanation 1 to Sec. 37(1) of the Act and was disallowed. ....
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....m were been agreed to with the appellant company and his client. However, it is seen from the submission of the appellant that the appellant has traded in the account of his client without his consent which is an offence as per law of land. 5.2 Further, it is seen from the submission of the appellant that the appellant has furnish copies of the petition made by the appellant before the Bombay High Court, for quashing of the FIR filed by the client of the appellant company at the Borivali Police station u/s. 482 of the criminal procedure code, 1974. 5.3 As per the said petition a consent term has been agreed by both the parties, wherein, it is seen in clause 17 to 20 of the consent term that it has been agreed by the appellant that they ....
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....from the submission of the appellant that the client of the appellant has registered an FIR at Borivali Police station u/s. 420, 465,467,468 and 34 of the IPC, and the said sections of the IPC are applicable for offences which are made with criminal act and a criminal intention for which the consent term has been agreed by the appellant and his client for which the expenditure has been incurred of Rs 1,23,30,000/-. 5.8 Considering the above facts I am of the view that the Assessing Officer has righty disallowed the amount paid for Out of Court Settlement amounting to Rs. 85,00,000/- and the amount of Rs 38,30,000/- paid for legal fees for court case. The appeal of the appellant is dismissed. 6. In effect the appeal of the appellant for ....
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....er and as per the terms and conditions with client, the asssseee has made trading in the client account but due to loss in the transactions conducted by on behalf of the client, the client has filed a criminal complaint against the assessee company. The Ld. AR submitted that based on the consent terms in the criminal application filed before the Hon'ble High Court, the assessee has paid the amount in out of court settlement and has relied on the decision of the Hon'ble High Court of Bombay. The Ld. AR mentioned that the nature of transaction is civil in nature and the assessee has rightly claimed the expenditure. The Ld. AR contented that the claim has to be allowed as it was incurred wholly and exclusively for the purpose of business. The ....
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.... 155 ITR 676, (AP) 2. Nahar Spinning Mills Ltd, Vs. CIT, [2014], 49 taxmann.com 565 (P&H) 3. CIT Vs jayaram Metal Industries (2006)286 ITR 403. 3. PCIT Vs. Sushil Gupta, [2019], 102 taxmann.com 409 (Bombay) 4. Haji Aziz and Abdul Shakoor Bros, Vs. CIT, [1961] 41 ITR350 (SC) The Ld. AR emphasizing that the out of court settlement amount paid is in the nature of civil expenditure. We on perusal of the Statutory Audit report under the companies Act, in particular notes to the financial statement at note 25 find as read under : "25. During the year the company, in terms of te consent term filed with the Hon. Bombay High court, has paid the settlement amount of Rs. 85 lakhs to its one of the client in respect of trading loss incurred ....