The Income Tax Appellate Tribunal (ITAT), Delhi Bench held that the expenditure incurred by Deloitte Haskins & Sells towards defending suit against the partner is deductible business expenditure.
The assessee, 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.
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 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. 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. 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.
