NIRAJ HOLDINGS P. LTD, MUMBAI V. ITO WD 3(2)(3), MUMBAI

ITA 642/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1478 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 30-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: K GOHEL
• Keywords: Business income; Business expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, B, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 642/MUM/2009 (ASSESSMENT YEAR: 2004-05) NIRAJ HOLDINGS PVT. LTD., BAJAJ BHAVAN, 2 ND FLOOR, 226, NARIMAN POINT, MUMBAI-400021. PAN: AAACN5095P .APPELLANT V/S INCOME TAX OFFICER WARD 3(2)( 3), MUMBAI. .. RESPONDENT APPELLANT BY : SHRI K GOHEL RESPONDENT BY : SHRI S S RANA O R D E R PER VIJAY PAL RAO,JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 21.11.2008 OF CIT(A)-III, MUMBAI FOR T HE ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE HAS RAISED VARIOUS GROUNDS OF APPE AL IN THIS APPEAL. HOWEVER, THE ONLY ISSUE ARISES FOR OUR CONSIDERATION AND ADJUDICATION WHETHER IN THE FACT S AND CIRCUMSTANCES OF THE CASE, THE CIT(A) IS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF LEGAL AND PROFESSIONA L CHARGES AMOUNTING TO RS.2,38,150/- ITA NO. 642/MUM/2009 (ASSESSMENT YEAR: 2004-05) 2 3. DURING THE ASSESSMENT, THE AO DISALLOWED LEGAL AND PROFESSIONAL FEES OF RS.2,38,150/- PAID TO M/S MA LVI RANCHHODDAS AND CO. IN CONNECTION WITH THE PETITIO N FILED BY S/S SHISHIR BAJAJ, SMT.MINAKSHI BAJAJ, KUSHAGRA BAJAJ AND APOORVE BAJAJ BEFORE THE COMPANY LAW BOARD UNDER TH E PROVISIONS OF SECTIONS 397, 398 AND 402 OF THE COM PANIES ACT, 1956 IN WHICH THE ASSESSEE WAS ONE OF THE RESP ONDENT. THE AO DISALLOWED THE CLAIM OF HE ASSESSEE BY TREAT ING THE SAME AS CAPITAL EXPENDITURE BECAUSE AS PER THE AO, THIS EXPENDITURE HAS NO DIRECT NEXUS WITH THE BUSINESS INCOME OF THE ASSESSEE. 4. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION MA DE BY THE AO ON THE GROUND THAT THE SAID PETITION WOULD NOT HAVE AFFECTED ANY CHANGE WHATSOEVER IN THE INCOME OF THE ASSESSEE. 5. BEFORE, US THE LEARNED AR OF THE ASSESSEE HAS SU BMITTED THAT THE ASSESSEE HAS PAID A LEGAL FEES FOR DEFENDI NG THE CASE FILED AGAINST THE ASSESSEE BEFORE THE COMPANY LAW BOARD. IN THE SAID PETITION, THE ASSESSEE IS ONE OF THE RE SPONDENTS AND IMPLEADED AS RESPONDENT NO.11. HE HAS POINTED OUT THAT AS PER THE PARAGRAPH 11 OF THE SAID PETITION, THE D ISSOLUTION WAS SOUGHT AGAINST THE VARIOUS RESPONDENTS INCLUDIN G THE ASSESSEE. THEREFORE, THE PETITION WAS DIRECTED TO EFFECT THE VERY EXISTENCE OF THE ASSESSEE AND THE EXPENDITURE INCURRED FOR MAKING ARRANGEMENT OF DEFENDING THE CASE BEFORE ITA NO. 642/MUM/2009 (ASSESSMENT YEAR: 2004-05) 3 THE COMPANY LAW BOARD IS VERY MUCH ALLOWABLE AS RE VENUE EXPENDITURE OF THE ASSESSEE. THE LEARNED AR HAS FURTHER POINTED OUT THAT AS PER THE PRAYER CLAUSE (XI) OF T HE PETITION AN INJUNCTION WAS ALSO SOUGHT AGAINST THE ASSESSEE FOR MAKING ANY FURTHER INVESTMENTS OF THE FUNDS AND RESOURCES OF THE SAID COMPANIES IN ANY OTHER BAJAJ GROUP COMPANIES. THE REFORE, THE PETITION WAS DIRECTLY AFFECTING THE INTEREST OF ASSESSEE AND MANAGEMENT OF THE ASSESSEE. HE HAS RELIED UPON THE FOLLOWING DECISIONS: I) CIT V/S DHANRAJGIRI RAJAJ NARASINGIRJI- (1973) 91 ITR 544 (SC) II) CIT V/S BENNETT COLEMAN AND CO.LTD (1979) 116 ITR 297 (BOM) III) CIT V/S INDO-BURMAN PETROLEUM CO.LTD (1983) 142 ITR 141 (CAL) IV) CIT V/S MUIR MILLS CO.LTD. (1984) 148 ITR 418 (ALL) V) GUJARAT AGRO OIL ENTERPRISES LTD V/S CIT (2002) 256 ITR 230 (GUJ.HC) 6. ON THE OTHER HAND, LD. LEARNED DR HAS SUBMITTED THAT IT WAS LITIGATION BETWEEN THE FAMILY MEMBERS OF BAJAJ FAMILY AND THE ASSESSEE WAS NOT DIRECTLY INVOLVED IN THE L ITIGATION, THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT FOR THE EARNING THE INCOME AND BUSINESS OF THE ASSESSEE . THUS, THE SAID EXPENDITURE MAY NOT BE ALLOWED AS REVENU E EXPENDITURE. HE HAS RELIED UPON THE ORDERS OF TH E LOWER AUTHORITIES. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND REL EVANT RECORD. IT IS UNDISPUTED FACT THAT ONE PETITION WA S FILED BEFORE ITA NO. 642/MUM/2009 (ASSESSMENT YEAR: 2004-05) 4 THE COMPANY LAW BOARD IN WHICH THE ASSESSEE WAS ONE OF THE RESPONDENT AS RESPONDENT NO.11. THE ASSESSEE HAS P AID RS.2,38,150/- AS LEGAL AND PROFESSIONAL FEES TO M/ S MALVI RANCHHODDAS AND CO. ADVOCATES AND SOLICITORS TO RE PRESENT THE ASSESSEE BEFORE THE COMPANY LAW BOARD. THE ASS ESSEE ALSO ENGAGED THE SERVICES OF SOME LEGAL AND TAX EXP ERTS FOR PROPER ADVISE IN THE MATTER. IT IS CLEAR FROM THE PETITION THAT THE RELIEF SOUGHT IN THE PETITION WAS DIRECTLY AFFE CTING THE INTEREST AND MANAGEMENT OF THE ASSESSEE COMPANY. A S PER THE PRAYER CLAUSE (XI) OF THE PETITION, THE RESTRA IN ORDER WAS SOUGHT AGAINST THE ASSESSEE-RESPONDENT THERE IN FROM MAKING ANY FURTHER INVESTMENT OF FUNDS. THEREF ORE, WHEN THE OUT COME OF THE PETITION WAS LIKELY TO AFFECT T HE INTEREST OF THE ASSESSEE THEN THE EXPENDITURE ON LEGAL FEES WAS VERY MUCH CONNECTED WITH THE BUSINESS OF THE AS SESSEE AND THE SAME IS ALLOWABLE AS AN EXPENDITURE INCURRED FOR THE BUSINESS PURPOSES. IT IS UNDISPUTED FACT THAT THE ASSESSEE IS ONE OF THE COMPANY BELONGING TO THE BAJAJ GROUP OF COMPANIES AND THE DISPUTE BETWEEN THE MEMBERS OF THE BAJAJ GROUP WAS DIRECTLY AFFECTING T HE ASSESSEE-COMPANY. THEREFORE, FOR PROTECTING THE INTEREST AND REPUTATION OF THE ASSESSEE COMPANY, THE EXPENDITURE BEING FEES PAID FOR LEGAL AND PR OFESSIONAL ITA NO. 642/MUM/2009 (ASSESSMENT YEAR: 2004-05) 5 CHARGES CANNOT BE HELD AS NOT FOR BUSINESS PURPOSE S OF THE ASSESSEE COMPANY. 8. IN THE CASE OF CIT V/S BENNETT COLEMAN AND CO. LTD (SUPRA), THE HON. JURISDICTIONAL HIGH COURT HELD THAT THE EXPENDITURE INCURRED IN CONNECTION WITH DEFENDING T HE PETITION WAS FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE IS AN ALLOWABLE EXPENDITURE. THE HON.JURISDICTIONAL HIGH COURT HAS RELIED UPON THE DECISION OF THE HON. SUPREME COURT IN THE CASE OF SHREE MEENAKSHI MILLS LTD V/S CIT (1967)63 ITR 207(SC). THE HON. JURISDICTIONAL HIGH COURT WHILE DECIDING THE CASE OF CIT V/S BENNET COLEMAN AND CO. LTD HAS REPRODUCED THE RELEVANT PORTION OF THE DECISION IN SHREE MEENAKSHI IN PARAGRAPH 4 OF ITS DECISION WHICH READ S AS UNDER : HOWEVER WRONG-HEADED, ILL-ADVISED, UNDULY OPTIMISTIC OR OVER-CONFIDENT IN HIS CONVICTION THE ASSESSEE MIGHT APPEAR IN THE LIGHT OF THE ULTIMATE DECISION, EXPENDITURE IN STARTING AND PROSECUTING A CIVIL PROCEEDING CANNOT BE DENIED AS A PERMISSIBLE DEDUCTION IN COMPUTING THE TAXABLE INCOME MERELY BECAUSE THE PROCEEDING HAD FAILED, IF OTHERWISE THE EXPENDITURE WAS LAID OUT FOR THE PURPOSE OF THE BUSINESS WHOLLY AND EXCLUSIVELY, THAT IS, REASONABL Y AND HONESTLY INCURRED TO PROMOTE THE INTEREST OF TH E BUSINESS. PERSISTENCE OF THE ASSESSEE IN LAUNCHING THE PROCEEDING AND CARRYING IT FROM COURT TO COURT AND INCURRING EXPENDITURE FOR THAT PURPOSE IS NOT A GROUND FOR DISALLOWING THE CLAIM SIMILAR VIEW HAS ALSO BEEN TAKEN IN THE DECISIONS R ELIED UPON BY THE LEARNED AR OF THE ASSESSEE AS REFERRED ABOVE . ITA NO. 642/MUM/2009 (ASSESSMENT YEAR: 2004-05) 6 9. IN VIEW OF THE ABOVE DISCUSSIONS, WE ARE OF THE OPINION THAT THE EXPENDITURE INCURRED FOR LEGAL AND PROFES SIONAL FEES TO PROTECT THE INTEREST OF THE ASSESSEE COMPANY IS AN ALLOWABLE BUSINESS EXPENDITURE. ACCORDINGLY, WE SE T ASIDE THE ORDERS OF THE LOWER AUTHORITIES QUA THIS ISSUE. 10. THE APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT 18.06.2010 SD SD (P.M.JAGTAP) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMB ER MUMBAI, DATED 18TH JUNE 2010 SRL:4610 COPY TO: 1. NIRAJ HOLDINGS PVT. LTD., BAJAJ BHAVAN, 2 ND FLOOR, 226, NARIMAN POINT, MUMBAI-400021. 2.INCOME TAX OFFICER WARD 3(2)( 3), MUMBAI. 3. CIT CITY3, MUMBAI. 4 CIT(A)-III, MUMBAI. 6. DR B BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI