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Illegal expense query 37(1)

(Guest)

ALL OF US KNOW THAT EXPENSES IN NATURE OF INFRACTION OF LAW , OFFENCE OR ILLEGAL ARE NOT ALLOWED UNDER EXPLANATION TO SECTION 37(1).

MY QUESTION IS THAT IF A COMPANY INCURRS SOME LITIGATION CHARGES TO DEFEND ITS DIRECTOR AGAINST CRIMINAL CHAGRES AND ULTIMATELY THE CASE IS DECIDED AGAINST THE DIRECTOR !!

WILL IT BE DEDUCTIBLE ??

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11 Replies

Sunshine (Helping All) (10575 Points)
Replied 28 August 2011

i think its an expense related to business so must be allowed.....just coz the suit is lost , doesnt make the expense illegal...

Waiting fr others to comment..

1 Like

Ankit (Final Student) (101 Points)
Replied 28 August 2011

I think yes it should be allowed. Because the expense was to fight the legal suit. So it is independent of the decision of the court.

1 Like

A.Barli (Article) (216 Points)
Replied 28 August 2011

Case against the director- director's personal expense..

1 Like

CA YOGESH GARG GMG PLYWOODS (BUSINESS OF PLYWOOD and PARTNER IN GUPTA & MALHOTRA CHARTERED ACCOUNTANTS) (248 Points)
Replied 28 August 2011

yes it will be allowed surely

1 Like

VARUN (SENIOR ANALYST) (38 Points)
Replied 28 August 2011

If the criminal charges against the Director arises while he was acting for the business, then litigation charges will be allowable. If the criminal charges against him are not related to the business, then litigation charges will not be allowable.

1 Like

(Guest)

The information provided does not give clear picture whether the case is related to the business activity carried out by the ompany or not.

If related then yes. Otherwise NO.

1 Like

CA ADITYA SHARMA (CA IN PRACTICE ) (16719 Points)
Replied 28 August 2011

IT SHOULD BE ALLOWED IF CASE WAS DUE TO COMPANY'S BUSINESS

1 Like

mukul mehra (B.com MBA-HR ADLL CS-Final LLb TCP) (591 Points)
Replied 28 August 2011

the only thing matters in your question as well said by my above fellow professional friends is that of the nature of expense if it is of personal nature then it will be disallowed and if it is related to the business activity than it will be allowed as expenses

1 Like

mridul savio Pinto (articled trainee ) (1477 Points)
Replied 28 August 2011

Originally posted by : Sunshine...

i think its an expense related to business so must be allowed.....just coz the suit is lost , doesnt make the expense illegal...

Waiting fr others to comment..

agree

1 Like

Shah Tarun (Student) (800 Points)
Replied 28 August 2011

To claim deduction There should be nexus between expense and business however sec 37(1) specifically disallows expenses in nature of penalty . .So expense incurred regarding legal fees and etc will be allowed but any penalty paid will not be allowed. .