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2017 (10) TMI 685 - AT - Income TaxAddition of expenditure on subscription deposit scheme - addition as sales with regard to the magazine were not included on credit in the profit and loss account - Held that:- It is not denied that such deposits are refundable. These are refundable as and when demanded by the subscribers and from that date the supply of magazine is discontinued. Merely because the relevant income on receipt according to the ld Assessing Officer is not credited to the profit and loss account such disallowance is made. According to us the assessee is getting a benefit of interest free deposit for the purposes of the business of the assessee in lieu of the cost of the above magazine. It is not the case of the Revenue that money is utilized for other than business purposes and expenditure incurred and claimed against business income. The ld CIT(A) has held that assessee is saving interest cost by collecting this deposit and therefore such saving of interest has definitely gone in increasing the profit of the assessee. In view of this no infirmity in the order of the ld CIT(A) in deleting the disallowance on account of expenditure made under subscription deposit scheme. - Decided in favour of assessee. Addition u/s 40A(2) - AO disallowed payment pertaining to 33 parties out of 34 parties @2% of such expenditure holding it in excess of the prevailing market rate - CIT(A) deleted the above disallowance - Held that:- Assessing Officer is not authorized to disallow 2% of the total expenditure but to disallow only the expenditure which is unreasonable and excessive after considering the circumstances provided u/s 40A(2) of the Act. Thus we set aside the whole issue back to the file of the ld Assessing Officer to examine the payment made to the related parties after considering the nature and rate of services provided by them to the assessee and then compare their fair market value, legitimate need of the assessee and benefit derived by the assessee and then if there is any amount found to be unreasonable or excessive then only disallow to that extent. The assessee is further directed to submit before the Assessing Officer above details. The AO is further directed to examine the matter in a fair and reasonable manner bearing in mind that the provision is intended to check, evasion of tax through excessive and unreasonable payment to related parties. In the result ground No. 2 of the appeal of the revenue is allowed with above direction.
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