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The case before Madras High Court in [1976] 104 ITR 458 (Mad) pertained to a company which paid to its auditors a sum incurred by them in defending certain disciplinary proceedings against them initiated at the instance of one of its shareholders in the matter of presentation of its accounts.

In denying such claim the Court held that the expenditure incurred for defending those proceedings were purely personal to the auditors as it was only in their interest to defend those proceedings.

There would be instances where auditors have to defend them as well as to pay up for fines and legal costs without any recompense in which case a question would arise whether they can claim such fines,  costs etc. in their tax books.

The House of Lords judgement in SHEPPARD case ( 1999] 239 ITR 887 (HL) may be of interest in such instance where it is pronounced that the  expenses incurred in defending disciplinary proceedings may well be considered as those incurred wholly and exclusively for the purposes of trade. This case pertained to costs incurred by a broker in defending his case before the disciplinary committee of the Stock Exchange and appearing before the appeals committee.

In the same manner any costs incurred by Chartered Accountants/ auditor or any professional may be deductible as being incurred for the purpose of profession no matter whether they are also incurred to defend personal reputation.


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