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TMI Blog2022 (5) TMI 324X X X X Extracts X X X X X X X X Extracts X X X X ..... relatives. Therefore, we are not in agreement with the conclusion drawn by the Ld. CIT(A)/AO that these expenses are not wholly and exclusively incurred for the purpose of business of the assessee and are of capital in nature as the business of Etisalat DB Telecom Pvt. Ltd. has not commenced or personal nature of the directors and their relatives. The expenses incurred even for defending the directors and their relatives in criminal litigations are admissible expenses provided that are incurred in order to protect the business interest of the assessee. As in the case of CIT vs. Ahmedabad Controlled Iron and Steel Reg. Stockholders Association Pvt. Ltd. [ 1973 (9) TMI 45 - GUJARAT HIGH COURT ] held that the money spent in defending the managing director of the assessee company in a criminal prosecution under Essential Commodities Act is an expenditure wholly and exclusively for the purpose of business of the assessee and as such allowable. Appeal of assessee allowed. - ITA Nos.3710 & 3711/M/2019 - - - Dated:- 25-1-2022 - SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER Assessee by: Ms. Ritu Kamal Kishore, A.R. Revenue by: Shri Ajaykum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nown as Etisalat DB Telecom Pvt. Ltd.) are involved interalia in criminal conspiracy with others for getting the UAS license allotted to Swan Telecom Pvt. Ltd. The matter is before special judge, CBI court, New Delhi and promoters have to defend the same on day to day basis. The AO further noted that the assessee company was the majority shareholder of Swan Telecom Pvt. Ltd. (its erstwhile subsidiary) and therefore, to protect its investments and its promoters the assessee s company decided to bear all expenses of promoters and their close relatives with respect to fees, travelling and accommodation etc. which were required to be incurred for defending these matters/cases before the special court. The AO noted that these expenses could not be allowed for various reasons such as: a. The expenses were not incurred wholly and exclusively for the purpose of business and as such can not be allowed under section 37 of the Act and the expenses incurred to defend the promoters and their close relatives in criminal cases filed against them by CBI in 2G spectrum case is totally unrelated to the business of the assessee as the assessee is engaged in the business of construction and thus th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction of project especially when the investment of Rs.593 crores was being held by the assessee as current investments and classified as a capital asset. It is also observed from the records that assessee had itself mentioned its business as that of a civil contractor in various records and following note 1 of the annual accounts is indicative of the same: 1 Company Background The company is engaged in business of and to undertake contracts / subcontracts for constructing, reconstructing, extending, altering or demolishing buildings or tenements and to promote develop, manage, monitor and carry out infrastructure projects facilities. The Company, being a hundred percent subsidiary company of Pony Infrastructure Contractors Limited, has become a Deemed Public Company w.e.f. 29th June 2010. 7.3 It has also been mentioned in note 2.6 to the accounts that investments held by the company are of long term in nature. In this connection, notes numbering 24.2 to 27 of annual accounts (page book 48) reflect the true nature of the situation and reasons for incurring the legal and professional expenses of Rs.20.11 crores: 24.2 The Etisalat Group had filed Suit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court Order dated February 02, 2012 which only cancels the UAS Licences held by the Company, vide its Affidavit to Reply dated April 11, 2012 read with its Additional Affidavit in Reply. Further Affidavit, Affidavit in Sur Rejoinder, Affidavit in Sur Sur Sur Rejoinder and Further Additional Affidavit dated April 20, 2012, April 24, 2012, June12, 2012 and August 22, 2012 respectively, has stated it is willing to take over the management of the Company and buy out the shareholding of the Etisalat Group in the Company, as is evidenced by their filings before the Hon'ble Bombay High Court in said Company Petition. Further, Majestic Infracon Private Limited has alongwith its Affidavit in Sur Sur Sur Rejoinder dated August 22, 2012 also submitted a business viability plan for the three valid licenses viz. ILD, NLD and ISP, owned by EDB on which it is possible to run a profitable business. Considering all facts as stated hereinabove, the management is of opinion that Its investments EDB be carried at cost and there is no impairment. 27. Expenses for defending 2G spectrum case against the promoters: Central Bureau of Investigation Anti Corruption Branch, New Dethi (CBI) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects and these expenses appear to have been debited to the accounts of the assessee and claimed as revenue deduction because ' ED8 was facing winding up proceedings in the court . It is also observed from the records that assessee had borrowed Rs.619.94 crores till 31 March 2013 from banks and holding company and related parties on which interest of Rs.53,20,51,342/- was paid and out of which Rs.53,20,79,833/- was offered for disallowance and add back under section 36(1)(iii) of the IT Act 1961 by the assesses in the computation of total Income filed with the return of income with the remarks interest till the asset is put to use . Thus this disallowance of interest of Rs.63.20 crores offered as add, back in the computation of total income by the assesses Itself, clearly shows that the borrowings of Rs.619.94 crores which were directly relatable to the Investment of Rs. 593 crores in EDB shares and when the expenditure of Interest of Re.53.20 crores relatable to the investments of Rs.531.43 crores in shares of EDB was offered for taxation by the assessee itself, there was no reason to claim deduction for legal and professional expenses of Rs. 19.85 crores which was directly r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for getting UAS telecom license allotted to Swan Telecom Pvt. Ltd. (now known as Etisalat DB Telecom Pvt. Ltd.) and therefore these expenses are not wholly and exclusively for the purpose of business since Etisalat DB Telecom Pvt. Ltd. has not commenced its business operation at all and therefore these expenses are capital in nature and were rightly disallowed. The ld. DR also submitted that these expenses are more of personal nature as these are incurred to protect the criminal cases against the directors and their relatives. The Ld. D.R. therefore prayed that the appeal of the assessee may kindly be dismissed. 8. We have heard the rival submissions and perused the material on record. The undisputed facts are that the directors of the assessee company and the other concern involved namely Etisalat DB Telecom Pvt. Ltd. are common. We note that assessee has made huge investments of Rs.593/- Crores in Etisalat DB Telecom Pvt. Ltd. We find that CBI has filed criminal cases against the directors and their relatives in connection with allotment of UAS telecom license to Swan Telecom Pvt. Ltd. (now known as Etisalat DB Telecom Pvt. Ltd.) and the cases were before the special court (C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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