The Pune Income Tax Appellate tribunal in the Case of Abhishek Ashok Lohade vs ITO 2022 has rul...
The Chennai Income Tax appellate tribunal in the case of Kalaignar TV (P.) Ltd. v. Assistant Commissioner of Income-tax 2022 has remanded the matter back to the assessing officer for fresh adjudication. In the said matter, the assessee (Kalaignar TV (P.) Ltd.) has filed an appeal for claiming the legal expenses as business expenditure under Section 37 of the IT Act. It is further alleged by the assessee that the legal expenses allowed as business expenditure under Section 37 of IT act as the director and shareholders of the company have undertaken the transaction as a part of the conduct of the business. The assessing officer rejected this contention of the assessee and was further upheld by CIT (A). Henceforth, being aggrieved by the dismissal, the assessee filed an appeal before the Chennai tribunal, which is discussed in detail below.
The facts of the case are:
1. The Assessee (Kalaignar TV (P.) Ltd.) has claimed legal expenses allowed as business expenditure under Section 37 of IT act for a certain amount incurred in respect of the ongoing case in CBI.
2. The assessing officer has rejected the assessee’s claim and states that the expenditure was not incurred “wholly or exclusively” for the business purpose. The officer further alleges that legal charges are framed against the director and shareholders of the company for their misconduct & not that of the company, as the company is a mere recipient and it does not involve itself in the process of receiving the funds. Henceforth, the legal expenses allowed as business expenditure under Section 37 of the act are not maintainable.
3. Being aggrieved by the order of the assessing officer, the assessee filed an appeal at CIT (A). The CIT (A) also dismissed the assessee’s appeal and upheld the assessing officer’s contentions while stating that the legal expenses were incurred in respect of a case pending in CBI in which the directors of the assessee company were accused. Moreover, the appeal is also dismissed as the assessee could not prove how the legal expenses incurred were for profit-making capability and enhancing its business activity.
4. Being aggrieved by the order of dismissal by CIT (A), the assessee filed an appeal at the Chennai appellate tribunal.
Whether the legal expenses are allowed to be debited under the head “other Expenses” as business expenditure under section 37(1) of the Income Tax Act, 1961?
It was submitted by the appellant that:
It was submitted by respondent that:
The tribunal observes that at the time of assessment proceedings, the order of CBI had not been passed; hence the assessing officer could not take such an order into account. Henceforth, there was no chance available to the officer to examine the decision of the CBI court and consider whether the legal expanse allowed as business expenditure under Section 37 of IT act is maintainable or not. Moreover, the CIT (A) has also passed the order after the order of CBI and the CIT (A), without considering the same, passed the order of dismissal of the appeal.
Therefore, it is noted by the tribunal that both authorities have failed to consider the decision of the CBI and, therefore, observed that whether disallowing legal expenses allowed as business expenditure under Section 37 of the act is a matter of fact which needs to be decided rationally.
The tribunal in the case has set aside the order of the CIT (A) and remitted the matter back to the adjudicating officer for the fresh adjudication of the matter after examining the decision of the CBI case.
The tribunal in the case has upheld the grounds of appeal of the assessee raised in the appeal. The tribunal, on the point of law, whether legal expenses are allowed as business expenditure under section 37 of IT act, has stated that for claiming deduction of legal expenses as business expenditure, the assessee needs to prove that the expenditure incurred is wholly and exclusively for the purpose of business.Kalaignar-vs-Assistant