Kind of expenditure a legal professional can legitimately and justly claim is entirely different from basic expenditure a commercial entity can claim – SC dismisses SLP of the assessee
ABCAUS Case Law Citation:
ABCAUS 2713 (2019) (01) SC
Important Case Laws Cited/relied upon:
Shanti Bhushan v. Commissioner of Income Tax 336 ITR 26.
The assessee initially was a business entrepreneur, i.e. managing director of a limited company which had obtained substantial advances from a consortium of banks and Financial Institutions, for which he stood personal guarantee in his capacity as managing director.
Upon that company’s inability to repay its duties, recovery proceedings were initiated, which led to determined liability led to the assessee in his capacity as the guarantor and entrepreneur, discharging its debt.
The assessee, in order to settle the dues of the company and discharge his personal guarantee, entered into One Time Settlement (OTS) with the bankers and paid up the agreed amount.
The discharge of that liability was claimed by the assessee to be business expenditure in relation to subsequent income generated through legal profession.
The assessee claimed litigation expenditure under Section 37 of the Act which was disallowed by the tax authorities and ITAT holding that the expenditure could not be said to be wholly and exclusively laid out for the purposes of business under Section 37 of the Income Tax Act, 1961 (the Act).
The assessee appeled in the High Court and argued that if the litigation expenses claimed under Section 37 of the Act were not paid it would have been impossible for him to carry on his profession as an advocate and that in these circumstances, the amount was wholly and exclusively laid out for profession.
The High Court opined that the expenses claimed were clearly inadmissible. The High Court stated that the kind of expenditure which a legal professional can legitimately and justly claim is entirely different from the basic expenditure which a commercial entity can claim.
The High Court accordingly dismissed the appeal of the assessee. Aggrieved by the order of the High Court, the assessee filed a Special Leave to Appeal before the Hon’ble Supreme Court which was dismissed by the Division Bench of the Hon’ble Supreme Court.
