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2006 (1) TMI 72 - HC - Income TaxExpenditure prohibited by law - assessee had received deposits from its members and as against this, the assessee had distributed articles by way of gift/free present items and under this scheme, the assessee could retain a sum of Rs. 14,65,729 for a period of five years, use it the way she wants it, and return thereafter the depositors' money without any interest. In our view, this scheme has all the basic ingredients of a money circulation scheme, which is banned under section 3 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, and therefore, the expenditure incurred by the assessee is an expenditure prohibited by law and therefore, in view of the Explanation inserted by the Finance (No. 2) Act, 1998 to section 37(1), which has come into force with effect from April 1, 1962, the expenditure shall not be deemed to have been incurred for the purpose of business and therefore, no deduction or allowance can be made in respect of such expenditure in computing the income chargeable under the head "Profits and gains of business or profession". - One cannot travel outside the provisions of the Income-tax Act and deny the benefit of deduction under that section on the ground that the payment is unauthorised or has been prohibited by some statute.
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