Hiring a lawyer to get bail in Customs case - Deductible Expenditure in Income Tax?
AN assessee was arrested by DRI in a Customs Duty Evasion case. He had to go up to the High Court to get a bail. The High Court directed him to pay a deposit of Rs. 70 lakhs (of the alleged evasion).
He claimed Rs. 6,45,000 as expenditure for hiring lawyers and other support services to get the bail for him, as the assessee was in judicial custody due to his arrest by DRI in the Custom Duty Evasion criminal case.
He also claimed the Rs. 70 lakhs paid as deposit as expenditure.
The Income Tax Assessing officer disallowed both. The CIT(A) allowed the deposit of Rs. 70 lakhs but did not allow the lawyer expenditure. Both the assessee and the Department appealed to the Tribunal.
The ITAT observed, there was a criminal case against the assessee with an allegation of custom duty evasion and he incurred impugned expenditure of legal fees for hiring lawyers to represent his criminal case before the Hon'ble High Court and Lower Courts to get the bail order. As the assessee was arrested and sent in judicial custody by the DRI in the Custom Duty Evasion case which cannot be said to be incurred bona fidely wholly and exclusively for the purpose of business of the assessee .
The Tribunal held that the payment of legal fees and expenses towards defending in a criminal prosecution is not allowable as business expenditure because the same was not expended wholly and exclusively for the purpose of business.
Regarding the 70 lakh deposit, the ITAT noted that the payment was not for penalty, at least till the case was adjudicated and held that this payment of Customs Duty is an allowable expenditure irrespective of the previous year in which the liability to pay such sum was raised against the assessee.