Legal fees for criminal cases is an allowable expenses: ITAT Mumbai


Legal fees for criminal cases is an allowable expenses: ITAT Mumbai 

Penalty for violation of any law is not an allowable expenses. The question aise whether the legal fees paid for defending the criminal case is an allowable expenses or not?


Here was an interesting case before Mumbai ITAT as under:


M/s. Majestic Infracon Pvt. Ltd (ITA Nos.3710 & 3711/M/2019)


Short Overview of the case;



  1. The Central Bureau of Investigation, Anti Corruption Branch, New Delhi had alleged that the promoters of the company who were also promoter of Swan Telecom Pvt. Ltd. (now known as Etisalat DB Telecom Pvt. Ltd.) are involved inter- alia in criminal conspiracy with others for getting the UAS license allotted to Swan Telecom Pvt. Ltd.


  1. In order to protect its investments and its promoters the assessee’s company decided to bear all expenses of promoters and their close relatives with respect to fees, travelling and accommodation etc. which were required to be incurred for defending these matters/cases before the special court.


  1. The AO contended that these expenses cannot be allowed as expenses, since they were not incurred wholly and exclusively for the purpose of business and as such can not be allowed under section 37 of the Income Tax Act.


Mumbai ITAT held as under:



  1. We are certainly of the belief that if these directors/their relatives are not defended, the business interest of the assessee will be jeopardized and it may be put the assessee to huge financial and commercial losses.


  1. In the case of Dhanrajgiriji Raju Narasingiriji ((1973) 91 ITR 544(SC)), it has been held that business expenditure incurred by the assessee in connection with criminal litigation for the purpose of business was deductible.


  1. AO is directed to delete the disallowance.