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TMI Blog2024 (10) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... restore the disputed issues to the file of the AO to decide afresh on merits and the assessee should be provided adequate opportunity of hearing and to file the information and evidences on the disputed issue and shall cooperate in submitting the information. And we allow the grounds of appeal of the assessee for statistical purposes. - SHRI BR BASKARAN, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER For the Assessee: Shri.Dharan Gandhi.AR For the Revenue: Shri.Manoj Kumar Sinha.DR ORDER PER PAVAN KUMAR GADALE - JM: The appeal is filed by the assessee against the order of the CIT(A)-47 Mumbai passed u/sec 250 of the Act. The assessee has raised the following grounds of appeal: 1. Ld. CIT(A) erred in upholding the action of the Ld. AO in disallowing a sum of Rs 85.00.000/- being amount paid for an out of court settlement in respect of a criminal complaint 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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. Further the AO found that the assessee has debited loss on fixed assets of Rs. 40,789/- and is not allowable. Finally the AO has assessed the total income of Rs. 83,19,019/- and passed the order u/sec 143(3) of the Act 29.12.2017. 3. Aggrieved by the order, the assessee has filed an appeal before the CIT(A). Whereas the CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the AO and has dismissed the assessee appeal observing at Para 5 to 6 of the order as under: 5 The appellant in his submission has stated that the Hon'ble Bombay High Court has observed that the dispute amongst the parties involved is prima facie of civil nature and not of criminal nature. Thus, the entire amount paid towards reimbursement, compensation, interest, and incidental legal fees of advocates are during the course of business activities and are inextricably linked to the needs of the business. Accordingly, the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion1 to section 37(1) of the ITA it can be seen that, the explanation does not make any distinction between civil or criminal offences as stated by the appellant in his submission, but it only states that expenditure incurred by an appellant for any purpose which is an offence or which is prohibited by law shall not be allowed to be incurred for the purpose of his business. 5.7 It is seen 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 A.Y. 2015-16 (u/s 143(3)) is dismissed. 4. Aggrieved by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Vs Shreyas S. Morakhia, [2012] 19 taxmann.com 64 (Bombay 4. Tata Consultancy services Ltd Vs DCIT others Writ petition No.1964 of 2022(Bombay) 5. DCIT Vs Anil Dhirajlal Ambani (2018)93 taxmann.com492(Mumbai-Trib). 6. CIT Vs Desiccant Rotors International (p) Ltd (2012)347 ITR 32(Delhi). 8. The Ld. AR emphasized on the explanation 1 to Sec. 37(1) of the Act and the CBDT circular No. 772 dated 23.12.1998. Where as, the assessee due to trading in the client account, has incurred trading loss and the Client has filed the FIR and was registered with the Borivalli police station under various sections for the offence. Subsequently on the basis of consent terms referred in the criminal application filed before Honble High Court of Bombay and also the asssessee seeking quashing of the FIR filed against the assessee company and others has incurred expenditure by way of out of court settlement and legal fees. The Ld. DR emphasized on the facts that the assessee has not filed the copy of FIR and report of the criminal case and the criminal act done by a the assseee company broker cannot be accepted under the provisions of the Act and is not a compoundable. The Ld. DR relied on the following ..... X X X X Extracts X X X X X X X X Extracts X X X X
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