The Income Tax Appellate Tribunal (ITAT), Delhi Bench in its recent ruling in the case of M/s Deloitte Haskins & Sells has held that the expenditure incurred by a CA firm towards defending suit against the partner which is related to the business is a deductible business expenditure.
Facts of the Case:
- The appellant, Deloitte Haskins & Sells is a Chartered Accountant Firm and derives income from profession.
- The return of income for the year was filed declaring an income of Rs.9,37,46,160. The case was selected for scrutiny.
- The Assessing Officer noticed that the assessee firm had paid Rs.17,41,389 to M/s Dua & Associates as legal fees.
- The assessee was required to explain the nature and purpose of the same. The assessee submitted that this amount had been paid on behalf of the Mr. Deepak Roy (partner) to defend proceedings under section 482 of the Criminal Procedure Code before the Allahabad High Court.
Disallowance by Assessing Officer:
The Assessing Officer was of the view that the fees paid were with reference to defending a criminal case which could not be said to be related to the business of the assessee. Accordingly, the entire amount of professional fees paid was also disallowed by the Assessing Officer.
The CIT (A) also upheld the order of the AO. Aggrieved with order of CIT (A) the appellant filed the instant appeal before ITAT.
Contention of the Appellant:
The assessee contended that it is the partner of the firm who signs the audit report and, therefore, the partner is not signing in his personal capacity but the incapacity of the partner of the firm and, therefore, the company has to defend Acts that have been done in furtherance of the duties as the partner of the firm.
Ruling of ITAT:
The coram headed by Vice President, G.S.Pannu held that the criminal complaint was filed against Mr. Deepak Roy in a matter which was related to the business of the company and it cannot be said that defending the said case was not a part of the business activity for the company in as much as the reputation and goodwill of the assessee company was at stake.
In such circumstances, so the impugned expenditure incurred by the assessee company towards defending the suit in the name of the partner is deductible business expenditure. Accordingly the ITAT set aside the order of CIT(a) on the issue and directed the deletion of this amount.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
