Case Law Details
Majestic Infracon Pvt. Ltd. Vs ACIT (ITAT Mumbai)
ITAT held that 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.
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 (CBI), New Delhi. The assessee has incurred these expenses by way of legal and professional fee, travelling expenses and staying and boarding expenses in connection defending the matters before the special court. This is also undisputed that the assessee has huge business interest in other entity in which huge investments to the extent of Rs.593/- crores were made by the assessee. Under these circumstances, we are certainly of the belief that if these directors/their relatives are not defended, the business interest of the assessee will be jeopardized and it may be put the assessee to huge financial and commercial losses. Though the business of the related concern is not similar to that of the assessee’s business of construction, however, undoubtedly the interest of the assessee is certainly there in the success of these criminal cases in defending its directors/their 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. In our opinion, 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. The case of the assessee is squarely covered by the decision of Apex Court decision in the case of Dhanrajgiriji Raju Narasingiriji (supra) in which it has been held that business expenditure incurred by the assessee in connection with criminal litigation for the purpose of his business was deductable under section 10(2)(xv) of 1922 Act as the section 10(2)(xv) did not make any distinction between civil and criminal litigation. The section 37(1) of the Act is corresponding to this section and therefore it is not open to the department to dictate what expenditure the assessee should incur and under what circumstances. Similarly, in the case of CIT vs. Ahmedabad Controlled Iron and Steel Reg. Stockholders Association Pvt. Ltd. (supra), the Honble Gujarat High Court has 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. Considering the facts of the assessee’s case and the ratio laid down in the various decisions as discussed above, we are inclined to hold that these expenses incurred on legal , professional, travelling and boarding are admissible and allowable the hands of the assessee.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeals have been preferred by the assessee against the orders even dated 25.03.2019 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment years 2013-14 & 2014-15.
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