“legal expenses”
The decision most relied on for legal expenses is CIT v. Calcutta Agency Ltd. (19 ITR 191), cited in 164 judgments on BharatTax.
Leading authorities on legal expenses
The assessee bears the burden of proving necessary facts to claim deductions. If the assessee fails to establish these facts, the deduction is not admissible.
Disallowance under Section 14A for expenses relating to exempt income is required while computing book profit under Section 115JB. An Assessing Officer's order is erroneous for revision under Section 263 if the view taken was not plausible, legally unsustainable, and incorrect, requiring a recorded finding.
Expenditure incurred for exploring the feasibility of expanding or extending an existing business by setting up a new unit in the same line of business is revenue expenditure, not capital expenditure. Such expenditure, including obtaining project reports or legal opinions on desirability or feasibility, does not constitute the setting up of a new business.
Accounting entries do not override the legal effect of a transaction, and the legality of any transaction must be established independently. The mere nomenclature of an entry in the books of accounts is not determinative of the true nature of the transaction.
Expenditure incurred by a company for the purpose of its business, including expenses to fulfill statutory legal obligations or those related to an erstwhile business post-transfer, is allowable as revenue expenditure under Section 37 of the Income-tax Act.
Expenditure that is incurred for the protection of a running business without generating a new asset is deductible as a business expense. Such expenditure does not result in an enduring benefit of a capital nature.
Expenses incurred on amalgamation, legal and professional fees, and contributions to a State Housing Board for worker tenements are considered revenue expenditure, not capital expenditure. This is because these expenditures do not result in an enduring benefit and are part of the company's operational costs.
Expenses incurred by a company cannot be considered personal, as a company is an artificial legal entity incapable of incurring personal expenses. Therefore, disallowances on this basis are not sustainable.
