The European Union has placed the names of eight companies based in the UAE on a list of entities suspected to have links to Iranian military programmes.
An accountancy firm and seven shipping companies were included on a list of companies ordered to have any assets they hold in Europe frozen.
The measures were agreed by the EU in December as part of sanctions against Iran.
Morison Menon Chartered Accountants is pursuing legal action against the EU after it was included on the list.
Court documents lodged with the Court of Justice of the European Communities accuse Morison Menon of being an "IRISL [Islamic Republic of Iran Shipping Lines] front company, owned or controlled by IRISL, or an IRISL affiliate."
Both the EU and United States say the IRISL has played a key role in Iran's efforts to advance its military programme.
Morison Menon denies it is a front for the IRISL and is fighting to clear its name. It advised IRISL on setting up an operation in Dubai Maritime City in 2004 and has since offered its services to help the firm launch branches in other emirates.
It last did business with the IRISL in July 2010, said Raju Menon, the chairman and group managing partner of the firm, which has offices in Dubai, Abu Dhabi, Jebel Ali, Sharjah and elsewhere in the GCC. "We don't believe the EU did its due diligence on this subject," said Mr Menon.
"We are not part of the IRISL. We are a UAE accountancy firm with four Indian partners and one Emirati partner."
Morison Menon had a consulting office in Iran in the past but the office had closed seven or eight years ago, he said.
Mr Menon fears the firm's inclusion on the list may damage Morison Menon's standing in the business community.
"We don't have direct operations in Europe but we have European clients who have set up businesses in the UAE and are talking to them about the situation and they will take a decision," he said.
Morison Menon's position highlights the challenges facing UAE firms doing business with the UAE's near neighbour without falling foul of tightening sanctions against Iran.
The EU, United States and the UN have all imposed stronger measures against Iran in the past 18 months.
The other firms included on the EU list are all shipping companies. One of them is accused by the EU of issuing "false transport documents for IRISL".
Other companies are accused of being a front for the IRISL or the registered owner of several vessels owned by IRISL or an affiliate, the document said.
The council of the EU, which lists the document on its website, declined to comment.
