HIRANANDANI AKRUTI JV,MUMBAI vs. DCIT CEN CIR 5(1), MUMBAI

आदेश / O R D E R

Per Joginder Singh (Judicial Member) The assessee is in appeal, challenging the impugned

order dated 31/08/2015 of the First Appellate Authority,

Mumbai.

ld. counsel for the assessee, Shri Viral Doshi, is with

respect to confirming the disallowance of expenses incurred amounting to `9,02,149/- on the ground that the

assessee did not had any business activity. The ld.

counsel for the assessee explained that the expenses

involved are broadly legal expenses and the assessee was

continuously doing business activities for which he took

us to various pages of the paper book. On the other hand,

the Ld. DR, M.C. Omi Ningshen, defended the impugned

order by contending that no business activity was done by

the assessee during this period, therefore, no question of

allowing expenses. The impugned order was defended.

2.1 We have considered the rival submissions and

perused the material available on record. The facts, in

3 ITA No.5678/Mum/2015 Hiranandani Akruti JV

brief, are that the assessee declared income of

`1,05,99,100/- in its return filed on 31/07/2012, which

was processed u/s 143(1) of the Act. Notice u/s 143(2)

was served upon the assessee. The assessment was

framed u/s 143(3) of the Act determining the total income

`1,16,79,830/- at after making certain

additions/disallowances by the Ld. Assessing Officer.

2.2. On appeal before the Ld. Commissioner of

Income Tax (Appeal), the expenses amounting to

`10,25,576/- were also affirmed on the plea that no

business activity was carried out by the assessee during

the relevant period. The assessee is in appeal before this

Tribunal.

2.3. If the observation made in the assessment

order, leading to addition made to the total income,

conclusion drawn in the impugned order, material

available on record, assertions made by the ld. respective

counsel, if kept in juxtaposition and analyzed, we find that

the claimed expenses amounting to `10,25,576/- are

broadly with respect to legal and professional fees relating

4 ITA No.5678/Mum/2015 Hiranandani Akruti JV

to legal proceedings/appeals and the same were incurred towards defending the legal rights with respect to the business activities carried out by the assessee. From

page-64 of the paper book, we find that the

assessee generated revenue from the business

operation to the tune of `1,96,99,410/- and other

income to the tune of `9,800/- as on 31/03/2011,

which was not possible without doing any business

activity. From page 74 of the paper book, there is

opening inventory and the assessee was having

stock and revenue was also generated during

earlier year relevant to year under appeal and was

offered for taxation. The disallowances made by the

Ld. Assessing Officer is cannot be said to be

inflated and are legal/professional expenses

incurred to safeguard the interest of the business

of the assessee, being legal and professional fees.

Even otherwise, section 37(1) of the Act speaks

5 ITA No.5678/Mum/2015 Hiranandani Akruti JV

about ‘any expenditure’ (not being expenditure in

the section 30 to 36) and not being in the nature of

capital expenditure or personal expenses of the

assessee but laid out or expanded wholly and

exclusively for the purpose of business of the

assessee. Its our bounded duty to analyze the

claim of deduction u/s 57 r.w.s 37(1) of the Act.

2.4. Now, question arises, whether the payment of

legal fee is an allowable deduction? The obvious reply is

“yes”. Section 57 of the Act speaks about income

chargeable under the head “Income from Other Sources”,

which shall be computed after making the deductions

mentioned therein. The section is reproduced hereunder

for ready reference:-

“57. The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely :— (i) in the case of dividends, other than dividends referred to in section 115-O, or interest on securities, any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realising such dividend or interest on behalf of the assessee ; (ia) in the case of income of the nature referred to in sub-clause (x) of clause (24) of section 2 which is chargeable to income-

6 ITA No.5678/Mum/2015 Hiranandani Akruti JV

tax under the head "Income from other sources", deductions, so far as may be, in accordance with the provisions of clause (va) of sub-section (1) of section 36 ; (ii) in the case of income of the nature referred to in clauses (ii) and (iii) of sub-section (2) of section 56, deductions, so far as may be, in accordance with the provisions of sub-clause (ii) of clause (a) and clause (c) of section 30, section 31 and sub- sections (1) and (2) of section 32 and subject to the provisions of section 38 ; (iia) in the case of income in the nature of family pension, a deduction of a sum equal to thirty-three and one-third per cent of such income or fifteen thousand rupees, whichever is less. Explanation.—For the purposes of this clause, "family pension" means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death ; (iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purposeof making or earning such income; (iv) in the case of income of the nature referred to in clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent of such income and no deduction shall be allowed under any other clause of this section”.

2.5. If the provision of the Act, which is

corresponding to the section 12(2) of 1922 Act, used in

this context, the expression “incurred solely for the

purposes of making or earning such income”, the use of

expression “laid out or expanded wholly and exclusively”

in section 57(iii) of the 1961 Act is to secure uniformity

with the language of section 37(1) of the 1961 Act. At the

same time, the expression, “for the purposes of business

or profession” has a wider implication then the expression

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“for the purposes of making or earning income” used in

section 57(iii) of the Act. The purpose contemplated by

section 57(iii) is more specific in character. So far as,

reasonableness of the expenditure envisaged by section

57(iii) depends upon the facts of particular case. The

Hon'ble Court in CIT vs New Savan Sugar and Good

Refining Co. Ltd. (1990) 185 ITR 564, 571 (Cal.) held that

it is for the Tribunal to decide whether the expenditure is

wholly incurred for the purpose of keeping the assessee

company in operation and earning income in as much as

the concept “wholly” pertains to quantum of the money

expended. The Hon'ble Court further observed even if a

particular expenditure is un-remunerative, such

expenditure is nonetheless a proper deduction, if such

expenditure is made wholly and exclusively for the

purposes of earning such income.

2.6. If the issue is analyzed in the light of section

37(1) of the Act, broadly speaking, where litigation

expenses are incurred for purposes of creating, curing or

completing the assessee’s title to the capital, then the

8 ITA No.5678/Mum/2015 Hiranandani Akruti JV

such expenses are in the nature of capital expenditure.

On the other hand, if the litigation expenses are incurred

to protect the business of the assessee, it must be

considered as revenue expenditure. This proposition is

supported by Hon'ble Apex Court in Dalmia Jain & Co.

Ltd. vs CIT (1971) 81 ITR 754 (SC) and Meenakshi Mills

Ltd. vs CIT (1967) 63 ITR 207 (SC). To be more precise,

the type of litigation, object or purpose of the litigation has

to be ascertained from the facts of each case. If the object

or purpose is to defend or maintain existing title to the

capital asset of the business of the assessee, the

expenditure would be of revenue in nature. The ratio laid

down in following cases supports our view:-

a) CIT v. Bengal Assam Investors Ltd., (1969) 72 ITR 319, 325 (Cal); b) CIT v. Life Insurance Corporation of India, (1966) 62 ITR 827 (Cal); c) Premier Construction Co. Ltd. v. CIT, (1966) 62 ITR 176 (Bom); d) Liberty Cinema v. CIT, (1964) 52 ITR 153, 167 (Cal); Transport Co. Pr. Ltd. v. CIT, (1962) 46 ITR e) 1009, 1016 (Mad); Transport Co. Ltd. v. CIT, (1957) 31 ITR 259, 266-7 (Mad); f) G. Veerappa Pillai v. CIT, (1955) 28 ITR 636 (Mad);

9 ITA No.5678/Mum/2015 Hiranandani Akruti JV

g) CIT v. Raman & Raman Ltd.,(1951) 19 ITR 558, 569-70 (Mad). Also see, Lachminarayan Modi v. CIT, (1955) 28 ITR 322 (Orissa); h) J. B. Advani & Co. Ltd. v. CIT, (1950) 18 ITR 557 (Bom); i) Mahabir Prasad & Sons v. CIT, (1945) 13 ITR 340 (Lah); j) Central India Spinning, Weaving & Manufacturing Co. Ltd. v. CIT, (1943) 11 ITR 266 (Nag); k) CIT v. Maharajadhiraja Sir Kameshwar Singh (1942) 10 ITR 214 (PC) l) Southern V. Borax consolidated Ltd. (1942) 10 ITR (Sup) 1 (KB) m) Associated Portland Cement Manufacturers Ltd. v. Kerr, (1946) 27 Tax Cas 103, 118 (CA) n) Ebrahim Aboobaker v CIT (1971) 81 ITR 664 (Bom.) 2.7. In the cases of defending the criminal litigation,

we find that Section 37(1) does not make any distinction

between expenditure incurred in civil litigation and that

incurred in criminal litigation. All that the court has to see

is whether the legal expenses were incurred by the

assessee in his character as a trader, in other words,

whether the transaction in respect of which proceedings

are taken arose out of and was incidential to assessee's

business. Further, it is to be seen whether the

expenditure was bonafidely incurred wholly and

exclusively for the purpose of the business [see, CIT v.

Birla Cotton Spng. & Wvg. Mills Ltd., (1971) 82 ITR 166

10 ITA No.5678/Mum/2015 Hiranandani Akruti JV

(SC); CIT v. Dhanrajgirji Raja Narsingirji, (1973) 91 ITR

544, 549 (SC)].

2.8. So far as, issue of quantum of the expenditure

to be incurred is concerned, we are of the view, it is for the

assessee to decide how best to protect his own interest. It

is not open to the department to prescribe what

expenditure an assessee should incur and in what

circumstances he should incur that expenditure. The ratio

laid down in CIT v. Dhanrajgirji Raja Narsingirji, (1973)

91 ITR 544 (SC) supports our view. In that case His

Lordship observed:

“It is true that in some of the cases this court has held that an expenditure incurred by an accused assessee to defend himself against a criminal charge did not fall within the scope of section 1O(2)(xv)*. Those decisions were rendered on the facts of those cases. That is not the position in this case."

Criminal litigation may be prosecuted to put

pressure on the accused to make good the loss caused to

the assessee, and expendi-ture incurred therefore, if

having nexus with the profits or business, are allowable

deduction Saharanpur Electric Supply Co. Ltd. v. CIT,

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(1971) 82 ITR 405 (All). Assessee defending himself-

Expenses incurred by a person exercising a trade or

profession in defending himself in a criminal prosecution,

which arises out of his business or professional activities,

cannot be deducted as business expenditure in the

computation of his business income CIT v. H. Hirjee,

(1953) 23 ITR 427, 431 (SC); CIT v. Gasper & Co., (1940)

8ITR 100 (Rang)]. In Hirjee's case [23 ITR 427], the

assessee incurred expenditure in defending prosecution

under the Hoarding and Profiteering Ordinance, 1943 (No.

35 of 1943), for selling goods at black market prices. Such

expenditure was held not allowable. Similarly, expenditure

incurred by a firm carrying on export and import business

in defending one of its partners for having acquired foreign

exchange and not fully utilising it for import were held not

allowable although the partner was utlimately acquitted

[CIT v. Chaman Lal & Bra .(1970) 77 ITR 383 (Delhi)]. This

case was, however, distinguished in CIT v. Ahmedabad

Controlled Iron & Steel Assn. Pr. Ltd., (1975) 99 ITR 567

(Guj), where expenses incurred by company in defending

its managing director were held allowable. In order to so

12 ITA No.5678/Mum/2015 Hiranandani Akruti JV

claim such expenditure the assessee has not only to prove

that the expenditure was incidental to the business but

also to show that the expenditure was laid out or

expended wholly and exclusively for the purpose of the

business [Indermani Jatia v. CIT, (1951) 19 ITR 342 (All)

on appeal, see, (1959) 35 ITR 298 (SC)].

2.9. Assessee defending an employee, etc.-When an

employee is prosecuted in respect of transaction in the

course of his employment, expenditure incurred in or

about his defence is incurred for the protection of the good

name of the business and is an allowable business

expenditure [ J.B. Advani & Co. Ltd. v. CIT & EPT, (1950)

18 ITR 557 (Bom) considered in CIT v. H. Hirjee, (1953) 23

ITR 427 (SC), where the correctness of its ultimate

decision was not doubted; J.N. Singb & Co. Pr. Ltd. v. CIT.

(1966) 60 ITR 732 (Punj)]. Legal expenses incurred by

assessee-company, a sugar mill, in defending a criminal

prosecution launched against its director-manager and

some employees on charge of conspiracy between the

assessee and the railway employees to give and accept

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bribes in regard to transport of sugarcane from various

stations to mill were held to be allowable deductions

[Lakshmiji Sugar Mills Co. Ltd. v. CIT, (1967) ITR (Sh N)

21 (Delhi)]. Similarly, expenditure incurred in defending a

criminal case against the directors and principal officers of

the assessee-company on the allegation that the vegetable

oil produced by the company did not contain 5% til oil as

required by the Government rule was held to be an

expenditure incurred with a view to proving the quality

and standard of the manufactured goods produced by the

assessee and, therefore, deductible [Rohtas Industries Ltd.

v. CIT, (1968) 67 ITR 361 (Pat)].

2.10. In Ananda Marga Pracharaka Sang ha v. CIT

[(1996) 218 ITR 254, 258, 2 (Cal)] , the legal expenses

incurred by the assessee for defending Marga Guru, the

president of the association and other members of the

association against criminal charges have been held

allowable as a permissible expenditure while computing

the income of the assessee. However, on the question of

allowability of legal expenses incurred by the assessee for

14 ITA No.5678/Mum/2015 Hiranandani Akruti JV

defending criminal charges arising out of the person civil

rights and unconnected with the aims and objects of the

assessee-organisation such, has been remanded to the

Tribunal (p. 273) to determine that whether such

expenses were related to the society's activity and then to

decide such question about their allowability.

2.11. There are some other cases, where the

expenditure incurred in criminal litigation was held

allowable, are:-

(1) Hingir Rampur Coal Co. Ltd. v. CIT, (1971) 81 ITR 633 (Bom) [rioting by assessee's workmen resulting in injury and death of manager-sums spent by assessee in assisting State prosecution of accused].

(2) CIT v. Dhanrajgirji Raja Narasingirji, (1973) 91 ITR 544 (SC) [expense incurred by the assessee for prosecution of the transferee of the managing agency, which was instrumental in settlement between the assessee and the transferee].

(3) Iron Traders P. Ltd. v. CIT, (1974 97 ITR 606 (Delhi) Criminal complaint against former managing

15 ITA No.5678/Mum/2015 Hiranandani Akruti JV

director for failure to account for amount belonging to the company-expenses for prosectuoin.

4) Lakshmiji Sugar Mills Co. Pr. Ltd. v. CIT, (1975) 98 ITR 568 (Delhi) [criminal case against director and employees for bribery-amount spent by company for defence of accused).

5) Parshva Properties Ltd. v. CIT, (1976) 104 ITR 631 (Cal) [expenses incurred in defending employees of the assessee-company in a criminal prosecution for violating Mines Regulations].

6) CIT v. National Rayon Corporation Ltd., (1985) 155 ITR 413 (Bom) [expenditure incurred in defending a senior employee of the assessee was held deductible].

7) CIT v. Indian Copper Corporation Ltd., (1986) 162 ITR 905 (Pat) [expenditure incurred in defending watchmen and other employees who guarded the premises of company].

8) Atlas Cycle Industries Ltd. v. CIT, (1990) 181 ITR 18 (Punj) [expenditure incurred in connection with criminal litigation pertaining to criminal conspiracy commission of offence under the Essential Commodities Act, 1955, was held deductible].

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2.12. However, the amount spent in defending

directors who were prosecuted under the Mines Act was

held not deductible because there was no evidence to

show that the amount was spent for preserving the

reputation of the assessee [CIT v. Indian Copper

Corporation Ltd., (1986) 162 ITR 905 (Pat)]. Similarly,

expenses incurred by a Newspaper company in defending

the editor and printer in proceedings for contempt of court

were held, on facts, not to be expenditure incurred for the

purpose of earning profits or gains and consequently not

allowable [Amrita Bazar Patrika, In re, (1937) 5 ITR 648

(Cal)]. Also see, Swadeshi Cotton Mills Co. Ltd. v. CIT,

(1975) 100ITR (All), for facts and decision.

down therein, where the expenditure was incurred but

was not held to be not allowable deduction.

(1) by a shareholder-assessee in suits filed against directors respecting matters of internal management of the company [Transport Co. P. Ltd. v. CIT, (1962) 46 ITR 1009 (Mad)];

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(2) in an appeal with regard to the correctness of a ruling given by the president in the general meeting, with reference to the relative rights of the shareholders and the board of directors under the Companies Act, which had nothing to do with the company's business [Premier Construction Co. Ltd. v. CIT, (1966) 62 ITR 176 (Born), where the expenses of the original suit were held allowable as the plaintiff had claimed for reliefs which, if granted, would have affected the carrying on of the business of the company];

(3) in defending an application to the court by the shareholders under section 153C of the Indian Companies Act, 1913, questioning the appointment of some of the directors of the company [CIT v. Shiwalik Talkies Ltd., (1967) 63 ITR 83 (Punj)];

(4) in a suit for amending the articles of association of the company and thereby acquiring the voting rights in respect of each and every share [CIT v. Bengal Assam Investors Ltd., (1969) 72 ITR 319 (Cal)];

(5) in proceedings for compelling a company to register its shares in the name of the assessee, which were purchased earlier in an auction sale [CIT v.

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Bengal Assam Investors Ltd., (1969) 72 ITR 319 (Cal)];

(6) in connection with the dispute between the partners of the old managing agency Firm and for obtaining sanction of the Central Government for appointment of thereconstituted firm as its managing agents [Rampooria Cotton Mills Ltd. v. CIT, (1974) Tax LR 395 (Cal)];

(7) in paying to Chartered Accountants giving advice regarding the scheme of amalgamation [New Commercial Co. Ltd. v. Addl. CIT, IT Ref. o. 40 of 1972 decided by the Gujarat High Court on 30-11- 1973];

(8) in defending disciplinary proceedings against the auditor [CIT v. Deccan Sugar & Abkhari Co. Ltd., (1976) 104 ITR 458 (Mad)];

(9) by the assessee-lessor-company in conducting winding up proceedings started against the lessee- company [Associated Bombay Cinema P. Ltd. v. CIT, (1978) III ITR 942 (Bom)];

(10) in resisting transfer of shares without assigning or disclosing reasons [Harinagar Sugar Mills Ltd. v. CIT, (1979) 117 ITR 945 Born)];

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(11) in attempting to prevent investigation into the affairs of the company [Harinagar Sugar Mills Ltd. v. CIT, (1979) 117 ITR 945 (Born)];

(12) by the assessee-amalgamated-company in reimbursing the amount of legal expenses incurred by the shareholders who attempted stayal of declaration of dividends [Raza Buland Sugar Co. Ltd. v. CIT, (1980) 122 ITR 817 (All)];

(l3) for the purposes of the amalgamation of two companies [Raza Buland Sugar Co. Ltd. v. CIT, (1980) 122 ITR 817 (All); Raza Buland Sugar Co. Ltd. v. CIT, (1980) 123 ITR 24 (All)];

(14) in defending a suit instituted by certain shareholders seeking an injunction restraining the company from proceeding to distribute dividends in specie [Buland Sugar Co. Ltd. v. CIT, (1981) l30 ITR 434 (Del)];

(15) by the company in defending a suit instituted by a director against another director [Albert David Ltd. v. CIT, (1981) l31 ITR 192 (Cal)];

(16) in legal proceedings in connection with a scheme of amalgamation which did not materialise [Bengal & Assam Investors Ltd. v. CIT, (1983) 142ITR 156 (Cal)];

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(17) by the assessee, a major shareholder, in connection with application under section 186 of the Companies Act for calling meeting of its subsidiary company for removal of existing directors and appointment of new directors, etc. [United Breweries Ltd. v. CIT, (1986) 162 ITR 527 (Karn)];

(18) by the assessee towards fees for conducting an appeal before the Company Law Board in connection with the refusal of registration of certain shares in a company [Jaya Hind Industries (P.) Ltd. v. CIT, (1986) 161 ITR 842 (Bom)];

(19) in connection with seeking legal advice in the matter of certain irregularities and fictitious transactions as revealed in the auditors' reports [CIT v. Mcleod & Co. Ltd., (1987) 164 ITR 681 (Cal)].

(20) in defending the appeal filed by B Co. in the Supreme Court challenging the order of the Company Law Board ordering the transfer of shares of B Co. to the assessee [CIT v. Jaya Hind Industries (P.) Ltd., (1993) 201 ITR 934,938 (Bom)].

(21) in connection with amalgamation of company M with the assessee-company which resulted in a radical alteration in the framework of the business of the as-sessee-company [Godfrey Phillips India Ltd. v.

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CIT, (1994) 206 ITR 23,35 (Bom)]. Also see, Lalitmani Pvt. Ltd. v. CIT, (1997) Tax LR 543,544 (Born).

(22) for obtaining advice of solicitors in regard to dilution of shareholding in pursuance of the provisions of the Foreign Exchange Regulation Act, 1973, as the expenditure resulted in augmentation of the capital base of the assessee-company [CIT v. Hayward Waldia Refinery Ltd., (1994) 209 ITR 159, 161 (Cal)].

(23) in paying fees to the lawyers in connection with increase in authorised capital of the assessee- company [Cynamid India Ltd v. CIT, (1994) Tax LR 895, 897-98 (Bom)].

(24) in connection with amalgamation of one of the subsidiary companies of the assessee-company with the latter has been held of capital in nature because the purpose and object of incurring the expenditure was to alter the framework or the structure under which the assessee was carrying on its business and affected the profit-making apparatus [Jayashree Tea & Industries Ltd. v. CIT, (1995) 80 Taxman 169,175- 76 (Cal)].

(25) on account of legal and professional charges in connection with the merger of the company was held

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not deductible as revenue expenditure because there were no findings that the two companies were carrying on complementary business and the amalgamation was necessary for the smooth and efficient conduct of business [Triveni Engineering Works Ltd. v. CIT, (1998) 232 ITR 639, 645 (Del)].

(26) in connection with issuance of share certificates and bonds as a part of the amalgamation scheme [CIT v. Official Liquidator, Ahmedabad Manufacturing & Calico Printing Co. Ltd., (2000) 244 ITR 156, 160, 162-63 (Guj)].

3.1. To sum of the issue we find that Hon'ble Justice

P.D. Desai, in Smt. Virmati Ramkrishna vs CIT (1981) 131

ITR 659, 672-73(Guj.), has analyzed the statutory

language and laid down various principles, in various

decided cases and made following propositions.

(i) in order to decide whether an expenditure is a permissible deduction under section 57(iii), the nature of the expenditure must be examined; (ii) the expenditure must not be in the nature of capital expenditure or personal expenses of the assessee; (iii) the expenditure must have been laid out or expended wholly and exclusively for the purpose of making or earning "Income from other sources";

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(iv) the purpose of making or earning such income must be the sole purpose for which the expenditure must have been incurred, that is to say, the expenditure should not have been incurred for such purpose as also for another purpose or for a mixed purpose; v) the distinction between purpose and motive must always be borne in mind in this connection, for, what is relevant is the manifest and immediate purpose and not the motive or personal considerations weighing in the mind of the assessee in incurring the expenditure; (vi) if the assessee has no option except to incur the expenditure in order to make the earning of the income possible, such as when he has to incur legal expense for preserving and maintaining the source of income, then, undoubtedly, such expenditure would be an allowable deduction; however, where the assessee has an option and the option which he exercises has no connection with the making or earning of the income and the option depends upon personal considerations or motives of the assessee, the expenditure incurred in consequence of the exercise of such option cannot be treated as an allowable deduction; (vii) it is not necessary, however, that the expenditure incurred must have been obligatory; it is enough to show that the money was expended not of necessity and with a view to an immediate benefit to the assessee but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate the making or earning of the income;

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(viii) if, therefore, it is found on application of the principles of ordinary commercial trading that there is some connection, direct or indirect, but not remote, between the expenditure incurred and the income earned, the expenditure must be treated as an allowable deduction; (ix) it would not, however, suffice to establish merely that the expenditure was incurred in order indirectly to facilitate the carrying on of the activity which is the source of the income; the nexus must necessarily be between the expenditure incurred and the income earned; (x) it is not necessary to show that the expenditure was a profitable one or that in fact income was earned; (xi) the test is not whether the assessee benefited thereby or whether it was a prudent expenditure which resulted in ultimate gain to the assessee but whether it was incurred legitimately and bona fide for making or earning the income; (xii) the question whether the expenditure was laid out or expended for making or earning the income must be decided on the facts of each case, the final conclusion being one of law'. In the aforesaid propositions (vi) it has been clearly

held/observed that incurring of legal expenses for

preserving and maintaining of source of income would be

allowable deduction.

25 ITA No.5678/Mum/2015 Hiranandani Akruti JV

3.2. Likewise, Hon'ble Apex Court in Sree

Meenakshi Mills Ltd. v. CIT, (1967) 63 ITR 207 (SC), where

expenses were incurred in filing a suit for obtaining an

order restraining seizure of goods delivered in

contravention of the control order were held allowable

deduction. It follows from this decision that:

(i) litigation expenses to secure an order from the court for enabling an assessee to carry on its business without interference is an allowable deduction;

(ii) expenditure incurred to resist, in a civil proceeding, the enforcement of a measure, legislative or executive, which imposes restrictions on the carriage of a business or to obtain a declaration that the measure was invalid, would, if other conditions are satisfied, be admissible as deduction; and

(iii) the deductibility of expenditure incurred in prosecuting a civil proceeding depends upon the nature and purpose of the civil proceeding in relation to assessee's business and cannot be affected by the final outcome of that business.

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3.3. In the case of CIT vs Gannon Dunkarlay and

Co. Pvt. Ltd. (2000) 243 ITR 646 (Mad.), CIT vs

Administrator General Of Madras (1998) 234 ITR 351

(Mad.), CIT vs Patiala Flour Mills Co. Ltd. (1989) 180 ITR

75 (P & H), Hindustan Milk Food Manufacturing Ltd. 179

ITR 302 (P & H), Palani Sir Murgun Textiles Ltd. vs ACIT

(2002) 254 ITR 333 (Mad.) decided the issue in favour of

the assessee. In the case of Gannon Dunkarlay and Co.

Pvt. Ltd., the Hon'ble Madras High Court, where the

expenditure was incurred by the official liquidator to

maintain the infrastructure of the company held that the

expenditure was deductible u/s 57(iii), as it would not

have been possible to earn the interest income without

incurring such expenditure. In the light of the foregoing

discussion, ratio laid down by various Hon'ble High

Courts/Hon'ble Apex Court and the facts available on

record, we are of the considered opinion that in defending

the litigation, the fee/legal expenses paid by the assessee

is an allowable deduction, more specifically when the

expenses were incurred to safeguard the business of the

assessee. The payment of legal expenses even has not

27 ITA No.5678/Mum/2015 Hiranandani Akruti JV

been disputed by the Revenue and were merely disallowed

that during the period, no business activity was carried

out by the assessee. However, as mentioned earlier, we

find that the assessee did business activity, therefore, in

the absence of any contrary material, we allow this ground

as the legal expenses/fees were incurred by the assessee

wholly and exclusively to safeguard its business interest.

However, as admitted by assessee that professional fee of ` 55,150/- stand disallowed u/s 40(a)(ia) as tax deducted

at source was not deposited to the credit of Central

Government before the due date of filing of return of

income u/s 139(1) of the Act. This ground of the assessee

is partly allowed.

Finally, the appeal of the assessee is partly allowed.

This order was pronounced in the open court in the

presence of the ld. representative from both sides at the

conclusion of the hearing on 28/09/2017

Sd/- Sd/- (Ramit Kochar) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य /JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 03/10/2017 f{x~{tÜ? P.S/.�न.स.

28 ITA No.5678/Mum/2015 Hiranandani Akruti JV

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai