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Issues:
Whether legal expenses incurred for challenging additional levy imposed by Excise Act through writ petition are allowable as business expenditure under section 37 of the Income-tax Act, 1961. Analysis: The case involved a reference under section 256(2) of the Income-tax Act, 1961, for the assessment year 1983-84, regarding the deletion of Rs. 34,044 as legal expenses in connection with writ matters against new imposts of Central excise. The Assessing Officer disallowed the amount, stating that the legal expenses were not incidental to the assessee's business. The Commissioner of Income-tax (Appeals) upheld this decision, but the Tribunal deleted the disallowance without providing reasons, leading to a challenge before the High Court. During the proceedings, it was argued that the Tribunal's decision lacked reasoning, making it unsustainable. The Tribunal's decision to delete the addition without explanation was deemed improper by the High Court, emphasizing the importance of providing reasons for decisions. The High Court highlighted the necessity for the aggrieved party to understand the basis of the decision for further legal recourse. The High Court referred to a previous case involving legal expenses incurred for challenging the Sugar Control Order, where the expenditure was allowed as a proper business expenditure under section 37 of the Act. The court emphasized that expenses incurred for preserving and protecting the business from adverse impacts, such as coercive processes or increased costs, are deductible as business expenses. The court applied this principle to the current case, stating that challenging the additional levy of excise duty was necessitated by commercial expediency and justified as incidental to the business. Ultimately, the High Court answered the question in favor of the assessee, allowing the legal expenses as business expenditure under section 37 of the Income-tax Act, 1961. The court concluded that the expenditure was incidental to the business and justified by commercial expediency, aligning with the principles established in previous judgments.
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