9911796707
TMI Blog1988 (1) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... ess in India, no question of allowing this expense at the cost of the company arises. The ITO is directed to reduce the disallowance to the extent of Rs. 21,475." 53. The assessee appealed against the aforesaid order to the CIT(A) who pointed out that the president of the company had got involved in a case of alleged smuggling of jewellery inMauritiusand that the company had to defend the president for the sake of its good name and, therefore, they deserve to be allowed. The above submission of the assessee was accepted by the learned CIT(A) by observing, Inter alia, as below: "I have gone through the contention of the appellant and the view as held by the authorities below. I have also looked into the charges against the president and also seen the judgment by the judicial authorities of Mauritious. In my opinion the claim of expenditure relating to saving of the reputation of the president was justified under the circumstances which have been shown by the appellant company and as noted form the judgments of the judicial authorities of theMauritius. Normally an illegal expenditure or illegal act and expenditure incurred on the illegal act does not come under the jurisdiction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 91 ITR 544 (SC). 3. Lakshmiji Sugar Mills Co. (P) Ltd vs. CIT (1975) 98 ITR 568 (Del). 4. CIT vs. Delhi Safe Deposit Co. Ltd. (1982) 26 CTR (SC) 411: (1982) 133 ITR 756 (SC). 56. The Bench requested the assessee's learned counsel to file copies of the Plaint or charge sheet framed against Shri Sita Ram Singhania in respect of the aforesaid case. The replies given to the said charge, if any, by Shri Sita Ram Singhania or the company and the judgment of the Court acquitting Shri Sita Ram Singhania. Despite considerable time given to the assessee company, the said documents have not been delivered to us. We are therefore, unable to ascertain the correctness or otherwise of the averments made on behalf, of the assessee company that Shri Sita Ram Singhania had gone of Mauritious of a business trip pertaining to the work of the assessee company. Even if it were so, the prosecution that was launched against Shri Sita Ram Singhania by the Government of Maruitious was not in respect of the work of the assessee company. The crime in question was entirely attributable to an act of Shri Sita Ram Singhania in his personal capacity and the company's business had nothing to do with it. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e employees of the assessee company were charged of drawing to bribe in the course of carrying on their duties and advancing the business interest of the assessee company. The company defended the employees against the said charge and it was in these circumstances that it was held by their Lordships of the Hon'ble Delhi High Court that amount spent by the company was in order to protect the good name of the business and that the prosecution had emanated "from an act which took place in the ordinary course of business". In the present case, it is not possible for us to hold that the alleged act of smuggling had taken place in the ordinary course of carrying on of the company's business by Shri Sita Ram Singhania. That was his own individual act having nothing to do with the reputation of the assessee company or its business. It cannot therefore, be said that the money spent in defending him was to save the prestige of the company and to save the employee from a charge which was levelled at him in the course of his carrying on the business activity of the assessee company. 60. The facts of CIT vs. Delhi Safe Deposit Co. Ltd (1982) 26 CTR (SC) 411: (1982) 133 ITR 756 SSC are altoget ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or for bringing into existence any tangible asset. Insurance premium, according to him, represented workmen's compensation insurance premium. Salary and wages were paid to the staff posted atKota, travelling expenses included a sum of Rs. 1,03,730 paid to foreign technicians as pocket allowance while inDelhi, regarding operation of the plant and there was no evidence to show that the expenditure was attributable to the erection of the machinery. The telephone charges, according to the ITO. Related to the purchase of cables and stores. The aforesaid expenditure was, according to the ITO, shown as revenue expenditure by the assessee itself. It was of course, incurred before the business of acrylic plant was set up. In view of the aforesaid facts, he felt that no depreciation or investment allowance was admissible with regard to the aforesaid expenses. 99. The above reasoning of the assessing ITO was negatived by the CIT(A) by observing, Inter alia, as follows: "No doubt the expenditure is of revenue nature, but since it is incurred prior to the date of setting up of the plant, it has to be capitalised according to the accounting principles as approved by the Supreme Court decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rylic plant. As per the information given by the ITO in his order there seems to be prima facie no relationship with the erection of the plant in quisition and the incurring of the said expenditure. From the portion which we have extracted from the order of the ITO above, the aforesaid thrust of his argument becomes clear. The learned CIT(A) instead of examining as to whether or not the finding of the ITO as given above was correct proceeded under the impression that the ratio of the aforesaid case was that you had merely to look at the expenditure incurred before the setting up of the business and that entirety of such expenditure was then to be capitalised for the purpose of allowing depreciation and investment allowance. We have already shown above that that is not the ratio of the aforesaid judgement and, therefore, the leaned CIT(A) clearly erred in applying it to the facts of the present case. The order, therefore, deserves to be interfered with on this point and we, accordingly, set aside his order on this subject and send the matter back to him with the direction that he should now examine the evidence given by the ITO on facts and should then determine as to whether the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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