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2019 (11) TMI 465

..... ore, was not allowable as expenditure under Section 37 . It held that these legal expenses were incurred so as to protect the Directors / Shareholders of the company in respect of the complaints filed against them in their individual capacity and not in respect of their conduct in the course of carrying on the business of the appellant company. In fact, the complaint filed before the Chief Metropolitan Magistrate Court has been made against the Directors / Shareholders in individual capacities. The entire dispute between the various group of shareholders was only to acquire the management and control of the appellant company and, therefore, these expenses are not expenses incurred for and on behalf of the company but expenses incurred for t .....

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..... al questions of law in all the four appeals :- (i) Whether on the facts and in the circumstances of the case and in law, the Tribunal erred in disallowing the claim of legal expenses? (ii) Whether on the facts and in the circumstances of the case and in law, the order of the Tribunal disallowing legal expenses is justified when the Tribunal has proceeded on erroneous factual basis that it was not shown that the Directors / shareholders were subjected to legal proceedings in connection with the activities carried out by them during the normal course of carrying on business of the Appellate Company? (iii) Whether on the facts and in the circumstances of the case and in law, the order of the Tribunal is perverse in as much as it is based on ex .....

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..... hareholders against the other group of shareholders / directors. The Assessing Officer found on facts that above expenses were incurred not by the company for the purpose of carrying out its business but for the purpose of defending its Directors / Shareholders in respect of complaints filed against them by another group of Shareholders. Thus, holding in its order dated 31st December, 2017 passed under Section 143(3) of the Act that the legal expenses of ₹ 11.72 lakhs cannot be allowed under Section 37 of the Act and added the same to determine the taxable income. 4. Being aggrieved with the order dated 31st December, 2017, the respondent filed an appeal to the Commissioner of Income Tax (Appeals)[CIT(A)] amongst other issues, one was .....

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..... gs only in view of their conduct in carrying out the appellant s business. Further, it holds that there is nothing on record to indicate that the Directors / Shareholders on whom legal expenses were incurred by the appellant were subjected to legal proceedings in connection with their activity of carrying out the business of the appellant company. Thus, upholds the view of the lower authority that these expenses were not be allowed as an expenditure under section 37 of the Act for carrying out the business of the appellant company. 6. Being aggrieved by the impugned order dated 28th September, 2016 which is a common order for all the four subject assessment years, the appellant has filed three appeals. 7. Mr. Joshi, learned Counsel appearin .....

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..... rred for the Directors / Shareholders for their individual benefit so as to retain control and management of the appellant company. The Tribunal has observed the fact that legal proceedings were also commenced against its Auditors / Company Secretary were only on off-shoot of the inter se dispute between different shareholders of the appellant company. In fact, this Court while admitting a criminal Writ Petition bearing No. 2052 of 2004 on 27th April, 2005, did inter alia observe that the complaints have been filed so as to settle personal scores between the parties. It thus noticed that the appellant company was no way involved in the legal proceedings taken against the Directors / Shareholders in their individual capacities. Moreover, it .....

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