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TMI Blog2022 (7) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... der on 30.05.2018 by the time the judgement dated 21.12.2017 of the Hon ble Special CBI Court was available. However, the ld. CIT(A), without considering the same, confirmed the order of the Assessing Officer by noting that the expenses are relating to 2G Spectrum Scam. In our opinion, both the authorities below have disallowed the expenditure claimed by the assessee on the ground that it was relating to 2G Spectrum case. Both the authorities below have not examined the outcome of the Special CBI Court judgement. Further, we are of the opinion that whether the expenses incurred by the assessee relating to business and eligible for claiming deduction or not, one must look into the judgement of the Special CBI Court, where, the Directors and shareholders of the assessee company are accused and both the authorities below have failed to consider the judgement of the Hon ble Special CBI Court. We set aside the order of the ld. CIT(A) and remit the matter back to the Assessing Officer to decide the issue afresh in accordance with law after examining the judgement of Hon ble Special CBI Court. Appeal allowed for statistical purposes. - I.T.A. Nos. 2442, 2443 & 2444/Chny/2018 - - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and travel expenses were incurred for personal needs of a Director and shareholder of Appellant Co. The CIT(A) failed to appreciate the fact that said legal and travel expenses incurred by the Appellant Co. have a direct and intimate connection with its business. 5. The CIT(A) failed to appreciate the need of the Appellant to defend its public image which was affected due to allegations leveled by the CBI and the Enforcement Directorate against the Appellant Co., its Director and shareholder. 6. The case laws relied by the AO and CIT(A) in its orders are distinguishable on facts and therefore not applicable to the facts of the Appellant Co. The Appellant craves leave to adduce additional grounds of appeal at any time before, or at the time of, hearing of the appeal. 2. The effective ground raised in the appeal of the assessee is relating to legal and travel expenses incurred by the assessee are eligible for deduction under section 37 of the Income Tax Act, 1961 [ Act in short]. In the assessment order, the Assessing Officer has observed and held as under: The principle issue under consideration is as to whether the legal expenses of Rs.6,76,14,470/- and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the reputation of the company is lost, then the company will lose its entire business. Hence incurring of legal expenses is compulsory to carry on the business activity of the company. Hence we request you to kindly allow the legal expenses as the company's expenses while finalizing the assessment. The nature of expenditure, the need and purpose of expenditure, the ongoing legal proceedings at New Delhi involving the Director and Shareholder, the final accounts of the assessee company, the contents of the relevant notes and the explanation given on 12/03/2015 were carefully considered. The claims of the assessee company is devoid of merits as the expenditure reimbursed to the Director and shareholder is in the nature of personal expenses and had not been incurred wholly exclusively for the purpose of business. The reason for this contention, is expressed in the subsequent part of this order. Charges have been framed against the Director and the share holders of the assessee company before the Special CBI Judge Shri O.P. Saini and while admitting the case, the Judge had observed that prima facie the amount received as loan of Rs.200 crores by the assessee compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. On the question as to whether a particular legal expenditure is wholly and exclusively incurred for the purpose of business or not, and the outcome of the decision, the pronouncement of the Honourable Supreme Court in the case of Commissioner of Income tax Vs. Hirjee reported in 1953 SCR 714 has categorically distinguished the eligible claim dealing with such legal expenses and directed that: in every criminal prosecution where the matter is defended to protect the good name of a business or a professional man, the fear of possible fine or imprisonment must always be there, it must ordinarily be difficult for any court to say, that the expenses incurred for the defence, even if they are not to be regarded as the personal expenses of the person accused, constituted expenditure laid out or expended wholly and exclusively for the purposes of the business. Learned counsel for the respondent frankly admitted that he was not able to find a single case in the books where the expenses incurred by a person, exercising a trade or profession in defending a criminal prosecution, which arises out of his business or professional activities, were-allowed to be deducted in the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer and the ld. CIT(A) disallowed the expenses incurred by the assessee on the ground that the assessee has appeared before the Hon ble CBI Court and also paid the legal expenses in connection with 2G Spectrum case and therefore, it is not wholly and exclusively for the purpose of business is not correct. The ld. Counsel has further submitted that the Hon ble CBI Court by order dated 21.12.2017 acquitted all the accused and therefore, it is to be concluded that the expenses incurred by the assessee for the purposes of business only and it has to be allowed and eligible under section 37 of the Act. The ld. Counsel has also pointed out from the Judgement of the Hon ble CBI Court dated 21.12.2017 and submitted that clean chit was given to all the directors. Further it was pointed out that by the time, the ld. CIT(A) passed the order dated 30.05.2018, the order passed by the Hon ble CBI Court was already available, but, without considering the same, the ld. CIT(A) confirmed the order of the Assessing Officer on the ground that it is relating to 2G Spectrum Scam case. It was further submitted that the expenses incurred for defending the promoters, shareholders and directors in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Rohtas Industries Ltd. v. CIT [19681 67 ITR 361 (Pat) 8. CIT v. Birla Cotton Spinning and Weaving Mills Ltd. [1971] 82 ITR 166(SC) 9 . CIT v. Dhanrajgirji Raja Narasingirji [1973] 91 ITR 544 (SC) 10. CIT v. Ahmedabad Controlled Iron Steel Reg. Stock-Holders Association Pvt. Ltd. [1975] 99 ITR 567 (Gui) 11. Parshva Properties Ltd. v. CIT [1976] 104 ITR 631 (Cal) 12. Atlas Cycle Industries Ltd. v. CIT [1990] 181 ITR 18 (P H) 13. Gujarat Agro Oil Enterprises Ltd. v. CIT [2002] 256 ITR 230 (Guj) 14. Hiranandani Akruti JV v. DCIT [2017] 88 taxmann.com 209 (Mumbai-Trib) 15 . CIT v. Chandulal Keshavlal Co. [19601 38 ITR 601 (SC) 16. Sree Meenakshi Mills Ltd. v. CIT [19671 63 ITR 207 (SC) 17. The Weavers Mills Ltd. v. Balkis Ammal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholders of the assessee company for their alleged misconduct and not that of the company for the reason that Kalaignar TV Pvt. Ltd. is a mere recipient of the alleged illegal gratification and as a company it did not involve itself in the process to receive the funds. This process was actually undertaken by the Directors and the shareholder only. It is not a case where the involvement of Kalaignar TV Pvt. Ltd. is being put to test. It is not a case where a complaint has been lodged against Kalaignar TV Pvt. Ltd. for any acts of misdemeanor found in the day to day business of running and telecasting work undertaken by the company. On the contrary, the case before the Special CBI Court is due to alleged involvement of the Director and Share holders of the company in their individual capacity which is put to test the alleged illegal gratification of ₹.200 crores was received by the company on account of the misdemeanors alleged to have been undertaken by the Director shareholders of the company. Thus treating the reimbursement of legal expenses and travelling costs of the Director and shareholders of the company to pursue their case against the judicial proceedings at the Sp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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