Expenses in Books of Accounts

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A private limited company is debiting substantial annual legal expenses for personal matters to its books. While these are disallowed for income tax purposes under Section 37, the auditor has raised concerns regarding compliance with the Companies Act 2013. The company's shareholders are all family members and do not object to these payments.

NK1976

NK1976 (Querist)
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14 December 2022 One of my clients is debiting legal expenses in the books of account of a Private Limited Company. They are showing an expenditure of about 5 to 6 lakhs every year. Fees are paid after deducting TDS and GST is paid on legal fees. The company has no case in court. These are paid for personal expenditure. In the computation of income tax, all these expenses are disallowed under section 37.

Now my question is whether there is any issue as per companies
act and income tax?

Please advice your valuable suggestion in above matter.

Thanks
N K

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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15 December 2022 No issues under income tax as such expenses are disallowed.
Being private company no issues under companies Act.

NK1976

NK1976 (Querist)
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15 December 2022 But auditor says there may be problem as per companies act 2013.
Auditor has object to payment of fees from the bank account of companies for personal case expenses.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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15 December 2022 Being private company no problem if shareholder don't object it.

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NK1976

NK1976 (Querist)
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15 December 2022 All the shareholders are from the family and none are outsiders shareholders.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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15 December 2022 In such a case no problem.

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