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2014 (11) TMI 135 - AT - Income TaxFee paid to lawyers disallowed – Expenses incurred for defending the criminal proceedings initiated by the DRI personal in nature or not – Held that:- The assessee incurred expenditure for hiring lawyers and other support services to get the bail for him, as the assessee was in judicial custody due to his arrest by DRI in the Custom Duty Evasion criminal case - CIT (A) uphold the disallowance by holding that the expenditure incurred on counsels for defending the criminal proceedings initiated by the Department of Revenue Intelligence (DRI) is an expenditure which is of personal in nature and cannot be said to be allowable under any provisions of the Act - the legal expenses were incurred by the assessee to defend and to secure bail for him, as the assessee was arrested by the DRI in the Custom Duty Evasion case. The ratio in the case of CIT Vs. H. Hirjee [1953 (4) TMI 1 - SUPREME Court] was rightly followed by the authorities - there was a criminal case against the assessee with an allegation of custom duty evasion and he incurred expenditure of legal fees for hiring lawyers to represent his criminal case before the Hon’ble High Court and Lower Courts to get the bail order - the assessee was arrested in Custom Duty Evasion criminal case by the DRI and the payment of legal expenses and fees to the lawyers was made to defend and to secure bail for the assessee in that case - the authorities below were right in holding that the payment of legal fees and expenses towards defending in a criminal prosecution not allowable as business expenditure because the same was not expended wholly and exclusively for the purpose of business – Decided against assessee. Payment which was considered as penalty disallowed – Allowability of expenses as per Explanation to section 37 - Held that:- The assessee made payment of ₹ 70 lacs as per direction of Hon’ble High Court of Delhi given in the bail order dated 01.02.2007 which enlarged the assessee on bail in a criminal case of Custom Duty Evasion - At the time of payment the custom duty assessment was pending and yet to be completed in future - Obviously, when it is found that the assessee has evasioned custom duty then the penalty is obvious and leviable as per the relevant provisions of the Act but until and unless assessment is not completed the amount of custom duty/additional custom duty, interest thereon and penalty cannot be ascertained and in this situation impugned payment made by the assessee cannot be held as penalty or penal in nature at any stretch of imagination. CIT(A) rightly hold that till the time the adjudication takes place ascertained of duty and penalty, if any, cannot be determined - as such situation takes place the amount deposited by the assessee shall first be appropriated towards the custom duty and balance shall go towards interest, if any, and the balance amount so paid, if any, shall be thereafter appropriated towards penalty, if levied, in the case of assessee - the additional custom duty paid by the assessee is an allowable expenditure u/s 43B of the Act – following the decision in DCIT Vs. Glaxo Smithkline Consumer Healthcare Ltd. [2007 (7) TMI 334 - ITAT CHANDIGARH] - section 43B allow deduction of impugned payment as additional custom duty irrespective of the previous year in which the liability to pay such sum was raised against the assessee – the order of the CIT(A) is upheld – Decided against revenue.
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