INCOME TAX APPELLATE TRIBUNAL
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C.M.Garg, Member (J) -
(1.) THE above caption appeals have been preferred by the assessee and the Revenue against the order of CIT (Appeals) -XXVI, New Delhi, vide order dated 30.06.2010 in Appeal No. 291/09 -10 for the Assessment Year 2007 -08.
ITA No. 3674/Del/2010
(2.) THE assessee has raised 4 grounds in this appeal but ground no. 1 & 4 are general in nature, remaining two effective grounds read as under:
"2. That the Ld. CIT(A) has wrongly upheld the disallowance of Rs. 6,45,000/ - being fee paid to the lawyers on the ground that the same was incurred for defending the criminal proceedings initiated by the DRI which is personal in nature not allowable under the Income -tax Act, 1961.
That the fee paid to the lawyers was on account of assessee's arrest by the DRI on the allegation of evasion of custom duty on import of palm oil by his proprietary concern M/s. Novus International and is an allowable deduction as held by the Supreme Court in the case of CIT vs. Biral Cotton Spinning and Weaving Mills Ltd. : (1971) 82 ITR 166 (SC) and Dhanrajgiri Raja Narsinghgiri, (1973) 91 ITR 564 (SC)."
3. Apropos above grounds the ld. counsel for the assessee submitted that the ld. CIT(A) has wrongly upheld the disallowance of Rs. 6,45,000/ - being fee paid to the lawyers on the ground that the same was incurred for defending the criminal proceedings initiated by the Department of Revenue Intelligence (DRI).
3.1. The ld. counsel for the assessee also submitted that the authorities below wrongly held that the fee paid to the lawyers was of personal in nature and not allowable under the provisions of the Income Tax Act, 1961 (for short the Act'). The ld. counsel for the assessee placed his reliance on the decision of Hon'ble Supreme Court in the case of CIT vs. Birla Brothers Pvt. Ltd., : (1971) 82 ITR 166 (SC); and CIT vs. Dhanrajgiri Raja Narsinghgiri : (1973) 91 ITR 544 (SC) and contended that the fee paid to the lawyers was on account of assessee's arrest by the DRI on the allegation on evasion of Custom Duty on import of palm oil as the assessee was in DRI custody/judicial custody subsequent the arrest of the assessee by the DRI in the Custom Duty Evasion case. The ld. counsel for the assessee strenuously contended that the Revenue Authorities below denied the claim of the assessee without any legal and justified reason, therefore, impugned order may be set aside by directing the AO to allow the claim of the assessee pertaining to the payment of legal fees and other expenses.
(3.) THE ld. Departmental Representative (DR) placed reliance on the decision of Hon'ble Supreme Court in the case of CIT Vs. H. Hirjee : (1953) 23 ITR 427 (SC); and decision of Hon'ble Jurisdictional High Court of Delhi in the case of CIT Vs. Chaman Lal & Brothers : (1970) 77 ITR 383 (Del.) and submitted that the impugned claim expenses have been incurred by the assessee to defend himself in a criminal case in which the assessee was arrested for the change of evasion of Custom Duty which is certainly out of ambit of his business or profession activities and expenditure so incurred cannot be deducted as business expenditure in the computation of business income of the assessee. The ld. DR relying on the decision of Hon'ble Delhi High Court in the case of CIT vs. Chaman Lal (Supra) strongly contended that the expenditure incurred by a firm carrying on export and import business in defending one of its partners for having acquire foreign exchange and not fully utilizing it for import were held not allowable, even when the partner was ultimately acquitted.
4.1. The ld. DR pointed out that the assessee was arrested by the DRI in the Custom Duty Evasion case and the assessee was in judicial custody and the payment of legal fees and other expenses were incurred by the assessee for hiring lawyers to represent his criminal case in the Lower Courts, therefore, these legal expenses are not allowable under the provisions of the Act.;
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