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2016 (3) TMI 75 - ITAT MUMBAI

2016 (3) TMI 75 - ITAT MUMBAI - [2016] 46 ITR (Trib) 109 - Disallowance of legal costs on account of fees paid to M/s. AZB & Partners - capital gain computation - Held that:- The undisputed facts brought before us are that legal fees has been paid to M/s AZB & Partners (advocates and solicitors) for protecting the investment of the assessee with Zandu. Further, an admitted fact is that as a result of the aforesaid legal exercise, the assessee earned larger amount of capital gains as initial open .....

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enhancement to the value of the shares. Under these circumstances, we do not find any hesitation in holding that these expenses should be added to the cost of shares as cost of improvement. The AO is directed to recompute the amount of capital gain earned by the assessee. - Decided partly in favour of assessee - ITA No. 5226/Mum/2012 - Dated:- 20-1-2016 - Sanjay Garg, JM And Ashwani Taneja, AM For the Appellant : Shri Rashesh V Parekh (AR) For the Respondent : Shri Sanjeev Kashyap (DR) ORDER Per .....

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g Officer u/s 14A read with rule 8 though the company has not spent the said amount to earn exempt income. 2. Commissioner of Income Tax (A) has erred in concurring with the Assessing , Officer in treating the legal expenses of ₹ 1,85,10,887/- as of capital nature/ and not allowing as business expenses u/s.37(1) of the Income Tax Act 1961. ' 3. Without prejudice to Grounds of Appeal No.1 and No.2 the legal expenses as incurred by assessee company should have allowed as expenses to earn .....

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for a sum of ₹ 1,85,10,887/- being the amount of legal costs on account of fees paid to M/s. AZB & Partners. 3.1. The brief facts noted from the records brought before us are that during the year under consideration the assessee company was engaged in the manufacture and processing of Ayurvedic medicines. The assessee company had a substantial stake in M/s Zandu Pharmaceutical Works Ltd. (in short Zandu). During the year under consideration, one Emami Group acquired substantial holdin .....

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of ₹ 7,315/- per shares. In this manner, actual take over price was increased to ₹ 16,500/- per share, thereby leading to a significant increase in capital gains income of the assessee company for ₹ 17.05 Crores, approximately. For fighting this legal battle, the assessee company availed the benefit of professional services of M/s AZB & Partners and paid fee for the leagal services availed by it. The fee so paid was claimed as legal expenses. But AO disallowed these expens .....

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n behalf of the assessee that AO's allegation is totally irrational, as no person would incur such huge expenses to merely safeguard their dividend income. The legal fees were paid to safeguard the investment made by the assessee. It was further submitted that the assessee wanted to protect its business with Zandu. Thus, the impugned expenses have been incurred to maintain the business and to protect the investment. It should be allowed as revenue expenditure. Alternatively, it can be allowe .....

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the appellant to the fact that AO has erred in assuming expenditure incurred by the appellant in relation to their interest in Zandu Pharmaceuticals Works Ltd. (ZPWL)- is liability of ZPWL-borne by the appellant-is correct because the expenditure of ₹ 1,85,10,887/- has been shown by the appellant to have been incurred by him-since, M/s. ABZ & Partners have in letter dated 31.03.2009 required the appellant to make payment of this bill- which clearly show that this expenditure relates to .....

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