NIMESH N.KAMPANI,MUMBAI vs. DCIT 4(3), MUMBAI

आदेश / O R D E R Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 04/03/2015 of the Ld. First Appellate Authority, Mumbai, challenging confirmation of penalty amounting to Rs.17,19,875/-, imposed u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter the Act) by holding that legal and professional expenses were not directly or remotely related to earning income, earned by the assessee, as, intentionally a false claim was made.

“This is an appeal filed by the assessee against the order by the ld. CIT(A)-8, Mumbai dated 26.02.2013 for the assessment year (A.Y.) 2009-10. In this appeal, the assessee is aggrieved for disallowance of legal expenditure of Rs.40,72,750/- and travelling, hotel expenditure of Rs.14,93,188/-.

2. Rival contentions having been heard and record perused. Facts in brief are that the assessee debited an amount of Rs.55,65,938/- under the head "legal fees and related expenses". In respect of this expenditure, the assessee explained to the Assessing Officer that the assessee was Director on Board of many companies including on the Board of M/s. Nagarjuna Finance Ltd. This company M/s. Nagarjuna Finance Ltd. received fixed deposit from the public. This company was charged with default in repayment of fixed deposits and interest thereon. The assessee had been mentioned as one of the accused among several others for non payment of these fixed deposits by M/s. Nagarjuna Finance Ltd.. The Andra Pradesh Government had filed suit against directors of M/s. Nagarjuna Finance Ltd. including against the assessee. To defend himself, the assessee had appointed various advocates to represent his case before various courts viz., District Court, High Court, Supreme Court. The appellant paid fees to the advocates and other expenses incurred. The details of such expenses were furnished by the assessee to the Assessing Officer. The assessee argued before the Assessing Officer that the expenditure was incurred to protect his business interest and, therefore, the same should be fully allowable u/s.37(1) of the Act. As per A.O. the expenditure were personal in nature, he therefore disallowed the same. By the impugned order, the ld. CIT(A) confirmed the action of the A.O. against which the assessee is in further appeal before us.

3. We have considered the rival contentions and found from the record that the assessee is merchant broker. During the year net profit of Rs.15.50 crores was offered to tax. Against of the income so offered the assessee has claimed legal fees and related expenditure of Rs.55,65,938/-, which was disallowed by the A.O. on the plea of personal expenses. From the record we found that that the expenditure is incurred by the assessee in his character as a professional and is not an expenditure which is personal in nature. The assessee has in his professional capacity been a director of various limited companies has earned professional fees for the services rendered to these companies. He was a director of Nagarjuna Finance Limited (NFL) from 14-12-1982 to 28-04-1999. The assessee has earned professional income during all the years, he was, a director of NFL. The details of professional income earned during the said years are given in annexure „A‟ which is placed on record. The assessee serves as an Independent Director on the Board of several leading Indian Companies such as Apollo Tyres Limited, Britannia Industries Limited, Deepak Nitrite Limited and KSB Pumps Limited and also a member of variousGoverning Boards of Centre for Policy Research, Indian Institute of Capital Markets, CII, SEBI etc. He regularly gets sitting fees and commission from many of these Companies. The assessee was also an independent Director on the board of Nagarjuna Finance Limited. Nagarjuna Finance Limited had collected Fixed Deposits from the public. Nagarjuna Finance Limited was charged with default in repayment of fixed deposits and interest thereon. Mr. Nimesh Kampani has been mentioned as one of the accused among several others, for non- payment of these fixed deposits by Nagarjuna Finance Limited. The Andhra Pradesh Government had since filed suit against directors of Nagarjuna Finance Limited including Mr. Kampani. To defend himself, Mr. Kampani has appointed various advocates to represent his case before various courts viz, District Court, High Court of Andhra Pradesh, Supreme Court of India. As the expenditure is incurred to protect his business interest the same is required to be allowed u/s. 37(1) of the Act. Accordingly we direct the A.O. to allow legal expenses of Rs.40,72,750/-.

2.2. The facts, in brief, are that the assessee declared total income of Rs.1,55,54,145/- in his return 22/12/2011. The assessment was completed u/s 143(3) of the Act assessing the income at Rs.2,21,30,580/-. The assessee was served with a penalty notice u/s 274 r.w.s 271(1)(c) of the Act on 22/12/2011 to show cause as to why penalty should not be levied. The assessee preferred appeal before the Ld. Commissioner of Income Tax (Appeal) challenging the additions made in the assessment order. However, while doing so, the Ld. Commissioner of Income Tax (Appeal) confirmed the addition with respect to legal fees and related expenses amounting to Rs.55,65,939/-. The assessee filed the reply vide letter dated 27/02/2014. The legal expenses were disallowed by the Assessing Officer as the assessee made the payment in personal capacity and not the company where he was a director. The ld. Assessing Officer opined that the legal expenses are not directly or remotely related to earning income by the assessee and consequent addition was made. The ld. Assessing Officer also imposed penalty to the tune of Rs.17,19,875/-.

2.3. On appeal before the Ld. Commissioner of Income Tax (Appeal), with respect to penalty, the view taken in the penalty order was affirmed. The assessee is in appeal before this Tribunal. 2.4. If the observation made in the assessment order, leading to addition made to the total income, penalty order and the conclusion drawn in the impugned order/the Tribunal order on quantum addition, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that in the present appeal, the penalty was levied by the Assessing Officer vide order dated 20/03/2014, u/s 271(1)(c) of the Act with respect to claimed legal expenses/related expenses amounting to Rs.55,65,939/- and the Tribunal while adjudicating the quantum appeal, the legal expenses to the tune of Rs.40,72,750/- were held to be allowable expenses and the remaining amount of Rs.14,93,188/- with respect to professional expenses, the matter was remanded back to the file of the Assessing Officer to examine the same. In view of this factual matrix, the proportionate penalty imposed with respect to legal expenses of Rs.40,72,750/- is directed to be deleted. Our view find support from the decision in K.C. Builders vs ACIT (2004) 265 ITR 562 (SC) and the ratio laid down in CIT vs S.P. Viz, 176 ITR 76 (Patna). Even otherwise, when the quantum addition is deleted, there remains no basis at all for levying the penalty for concealment or furnishing inaccurate particulars. The penalty cannot stand on its legs when addition on the basis of which the penalty was imposed remains no more in existence.