Case Law Details
Kalaignar TV Pvt. Ltd. Vs ACIT (ITAT Chennai)
The assessee has claimed legal expenses and travelling & conveyance expenses before the Assessing Officer. The Assessing Officer mainly disallowed the expenditure claimed by the assessee on the ground that the legal proceedings was undertaken in respect of the charges framed against the Directors and shareholders 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 corers 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 Special CBI Court at New Delhi as business expenditure of the assessee company is incongruous and hence the same cannot be allowed to be debited as expenditure. On appeal, the ld. CIT(A) confirmed the order of the Assessing Officer by observing that the expenditures are relating to 2G Spectrum Scam in which the directors and shareholders of the assessee company were accused and the assessee could be proved as to how the aforesaid expenditures are incurred to enhance the assessee’s business activity and its profit making capability. We have gone through the orders of authorities below and arguments of both the sides and find that the Assessing Officer has disallowed the expenses claimed by the assessee on the ground that the expenditures incurred by the assessee was not for the business purposes and it was relating to 2G Spectrum case and the Directors and shareholders are involved and the expenditures incurred are not for the business of the assessee and it was only relating to legal and travelling expenses to peruse the Directors and shareholders’ case before the Special CBI Court, New Delhi. We find that at the time of assessment proceedings, the CBI judgment was not available before the Assessing Officer as the assessment order under section 143(3) of the Act was posted on 27.03.2015 and therefore, there was no occasion for the Assessing Officer to examine the judgment of the CBI Court and consider the issue of legal and travelling expenses incurred by the assessee company are eligible under section 37(1) of the Act or not. Whereas, the ld. CIT(A) passed the appellate order on 30.05.20 18 by the time the judgment 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 judgment. 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 judgment 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 judgment of the Hon’ble Special CBI Court. In view of the above, 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 judgment of Hon’ble Special CBI Court.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
These three appeals filed by the assessee are directed against separate orders of the ld. Commissioner of Income Tax (Appeals) 14, Chennai, all dated 30.05.20 18 relevant to the assessment years 20 12- 13, 2013-14 and 2014-15. Since the facts are identical and common issue has been raised, all the appeals were heard together and being disposed off by this common order for the sake of brevity. In the assessment year 2012-13, the assessee has raised following grounds:
“The grounds of appeal stated hereunder are independent of, and without prejudice to one another:
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