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 ??
See, under Section 37(1), any expense incurred for a purpose which is an offence or prohibited by law is disallowed. Thus the expense should not be for an offence or prohibited act. Litigation charges, legal expenses are allowable since they are used to defend the company or its directors. Let me give you an example:
Expense is incurred by a company in smuggling goods illegally, like transportation charges - this is disallowed since it is directly used for committing an offence. Whereas, if the company incurs certain Legal expenses or litigation charges for defending the very same case, it has to be allowed.
CAclubindia
