PGBP

CA SHREY RATHI PGBP 5.
RATAN TATA
CHAPTER 5
PROFIT AND GAINS FROM
BUSINESS & PROFESSION
“Take the stones people throw at you,

and use them to build a monument.”
PRACTICAL QUESTIONS
Q 1: Mr. Jagan furnishes the following information for the A/Y 2023-24:
Profit & Loss A/c for the year ending 31st March 2023
Particulars (₹) Particulars (₹)
To Salaries 60,000 By Gross Profit 6,80,000
” Bad debts 16,000 ” Commission 10,000
” Reserve for bad debts 24,000 ” Discount received 6,000
” Fire insurance premium 4,000 ” Sundry trade receipts 16,000
” Advertising 16,000 ” Rent from house property 48,000
” Interest on capital 8,000
” Interest on bank loan 8,000
” Depreciation 48,000
” Net Profit 5,76,000
Total 7,60,000 Total 7,60,000
(i) The amount of depreciation allowable is ₹ 40,000.
Compute the income of Jagan from business & his gross total income for the A/Y 2023-24.
Sol 1: Computation of income of Mr. Jagan from business & his GTI:
Particulars (₹) (₹)
Net Profit as per Profit & Loss A/c 5,76,000
Add: Expenses debited to P/L A/c but not allowed under Income Tax Act
o Reserve for bad debts 24,000
o Interest on capital 8,000
o Depreciation (₹ 48,000 – ₹ 40,000) 8,000 40,000
Less: Income credited to P/L A/c but not taxable u/h PGBP
o Rent from house property 48,000
Income u/h PGBP 5,68,000
CA SHREY RATHI PGBP 5.2
Computation of GTI
Income u/h PGBP (as computed above) ₹ 5,68,000
Income from House Property [WN 1] ₹ 33,600
Gross Total Income ₹ 6,01,600
WN 1: Computation of income u/h House Property:
Rent received from house property = GAV ₹ 48,000
Less: Municipal taxes paid Nil
Net Annual Value ₹ 48,000
Less: Deductions u/s 24
(a) Statutory Deduction @ 30% ₹ 14,400
(b) Interest on Borrowed Capital Nil
Income u/h House Property ₹ 33,600
Q 2: Mr. Vishal gives you the following information for the year ended 31.03.2023:
S. No. Particulars (₹)
1. Net Profit as per P&L A/c (without allowing the following items) 5,20,000
2. Capital expenditure on family planning 70,000
3. Lump-sum consideration for purchase of technical know-how 1,20,000
4. Entertainment expenditure 40,000
5. Expenditure on acquisition of patent right 80,000
6. Expenditure on advertisement paid in cash 25,000
7. Provision for custom duty (He paid ₹ 30,000 on 27.06.2022 and ₹ 12,000 on 03.11.2022).
Due date of filing of return is 31.07.2022. 60,000
8. Amount paid to Delhi University for an approved research program in the field of social
sciences not connected with his business. 60,000
Compute his business income for the A/Y 2023-24.
Sol 2: Computation of business income of Mr. Vishal for the A/Y 2023-24:
Particulars (₹)
Net Profit as per Profit & Loss A/c (before allowing the following expenditures) 5,20,000
Less: Admissible expenses
• Depreciation on purchase of technical know-how (₹ 1,20,000 x 25%) 30,000
• Entertainment expenditure 40,000
• Depreciation on acquisition of patent rights (₹ 80,000 x 25%) 20,000
• Provision for custom duty (allowed to the extent it is paid on or before the due date of filing of
return) 30,000
• Amount paid to Delhi University for research in social sciences (100%) 60,000
Business income of Mr. Vishal 3,40,000
Notes:
1. Capital expenditure on family planning is allowed to a company only and not to any other person.
2. Technical know-how & patents are in the nature of capital assets & therefore shall not be allowed to be deducted,
however depreciation shall be allowed.
3. Expenditure on advertisement shall not be allowed as the payment in made in cash in excess of ₹ 10,000 u/s 40A(3).
Q 3: Examine, with reasons, the allowability of the following expenses under the Income Tax Act, 1961 while computing
income from business or profession for the Assessment year 2023-24:
(i) Payment of ₹ 50,000 by using credit card for fire insurance.
(ii) Purchase of oil seeds of ₹ 50,000 in cash from a farmer on a banking day.
(iii) Tax on non–monetary perquisite provided to an employee ₹ 20,000.
(iv) Salary payment of ₹ 2,00,000 outside India by a company without deduction for tax.
(v) Payment made in cash ₹ 30,000 to a transporter in a day for carriage of goods. [ICAI Study Module]
Sol 3:
1. Allowance as deduction: Payment for fire insurance is allowable as deduction under section 36(1). Since payment
credit card is covered under Rule 6DD, which contains the exceptions to section 40A(3), disallowance under section
40A(3) is not attracted in the case .
2. Allowable as deduction: As per rule 6DD, in case the payment is, made for purchase of agricultural produce directly
to the cultivator, grower or producer of such agricultural produce, no disallowance under section 40A(3) is attracted
even though the cash payment for the expense exceeds ₹ 10,000. Therefore, in the given case, disallowance under
section 40A(3) is not attracted since, cash payment for purchase of oil seeds is made directly to the farmer .
3. Not allowable as deduction: Income tax of ₹ 20,000 paid by the employer in respect of non-monetary perquisites
provided to its employees is exempt in the hands of the employee under section 10(10CC). As per section 40(a)(v),
such income tax paid by the employer is not deductible while computing business income.
4. Not allowable as deduction: Disallowance under section 40(a)(iii) is attracted in respect of salary payment of ₹
2,00,000 outside India by a company without deduction of tax at source.
5. Allowable as deduction: The limit for attracting disallowance under section 40A(3) for payment otherwise than by
way of account payee cheque or account payee bank draft or ECS is ₹ 35,000 in case of payment made for plying,
hiring or leasing goods carriage. Therefore in the present case, disallowance under section 40A(3) is not attracted for
payment of ₹ 30,000 made in cash to a transporter for carriage of goods .
Q 4: Mr. Sivam, a retail trader in Cochin gives the following Trading and Profit & Loss A/c for the year ended 31.03.2023:
To Opening stock 90,000 By Sales 1,12,11,500
To Purchases 1,10,04,000 By Closing Stock 1,86,100
To Gross Profits c/d 3,03,600
Total 14,00,000 Total 14,00,000
To Salary 60,000 By Gross Profit b/d 3,06,000
To Rent and rates 36,000 By Income from UTI 2,400
To Interest on loan 15,000
To Depreciation 1,05,000
To Printing and stationery 23,200
To Postage and telegrams 1,640
To Loss on sale of shares (short-term
capital loss) 8,100
To Other general expenses 7,060
To Net Profit 50,000
Total 3,06,000 Total 3,06,000
Additional Information:
(a) It was found, some stocks were omitted to include in both the opening and closing stock, the values of which were ₹
9,000 and ₹ 18,000 respectively.
(b) Salary includes ₹ 10,000 paid to his brother, which is unreasonable to the extent of ₹ 2,000.
(c) The whole amount of printing and stationery was paid in cash.
(d) The depreciation provided in Profit & Loss A/c ₹ 1,05,000 was based on following information: The WDV of Plant &
Machinery is ₹ 4,20,000. A new plant under same block of depreciation of 15% was brought on 01.08.2022 for ₹
70,000. Two old plants were sold on 01.12.2022 for ₹ 50,000.
(e) Rent and rates includes goods & services tax liability of ₹ 4,300 paid on 17.04.2023.
(f) Other business receipts include ₹ 2,200 received as refund as custom duty relating to 2021-22.
(g) Other general expenses include ₹ 2,000 paid as donation to a public charitable trust.
Compute his business income. Also advise him, whether he should opt for presumptive income u/s 44AD assuming all his
receipts are received in account payee cheque. [ICAI Study Module]
Sol 4: Computation of business income of Mr. Tendulkar for the previous year ended 31.03.2023:
Net Profit as per Profit & Loss Account 50,000
• Loss on sale of shares (short-term) 8,100
• Unreasonable payment to brother 2,000
• Printing & stationary expenses (cash payment more than ₹ 10,000 is not admissible 23,200
u/s 40A(3))
• Depreciation [WN 1] (₹ 1,05,000 – ₹ 66,000) 39,000
• Donation to a public charitable trust is not a business expense 2,000 74,300
• Income from UTI 2,400
Add: Incomes not recorded but taxable u/h PGBP
• Omission of closing stock 18,000
Less: Expenses deductible u/h PGBP but not shown in the P/L A/c
• Omission of opening stock 9,000
Income u/h PGBP of Mr. Tendulkar 1,30,900
WN 1: Calculation of depreciation u/s 32:

Written down value as on 01.04.2022 ₹ 4,20,000
(+) Acquisitions on 01.08.2022 ₹ 70,000
(-) Sale of assets ₹ 50,000
Depreciation @ 15% as per Income Tax laws ₹ 66,000
Presumptive income u/s 44AD: As Mr. Tendulkar receives all his receipts through account payee cheques, his income shall
be 6% of turnover.
Income u/s 44AD = ₹ 1,12,11,500 x 6% = ₹ 6,72,690.
Advise: As presumptive income is higher than the normal income, Mr. Tendulkar should not follow presumptive basis of
income.
Q 5: Examine with reasons, whether the following statement are true or false, with regards to the provision of the Income
Tax Act, 1961:
(a) Payment made in respect of a business expenditure incurred on 16 th February, 2022 for ₹ 25,000 through a bearer
cheque is hit by the provision of section 40A(3).
(b) It is a condition precedent to write off in the books of account, the amount due from debtor to claim deduction for
bad debt.
(c) Failure to deduct tax at source from the amounts payable to a resident as rent or royalty, will result in disallowance
while computing the business income where the resident payee has not paid the tax due on such income.
[ICAI Study Module]
Sol 5:
(a) True: In order to escape the disallowance specified in section 40A(3), payment in respect of the business expenditure
ought to have been made through an account payee cheque. Payment through a bearer cheque will attract
disallowance under section 40A(3).
(b) True: It is mandatory to write off the amount due from a debtor as not receivable in the books of account, in order the
claim the same as bad debt under section 36(1)(vii).
(c) True: Section 40(a)(ia) provides that failure to deduct tax at source from rent or royalty payable to a resident will
result in disallowance of 30% of such expenditure, where the resident payee has not paid the tax due on such income.
Q 6: Following is the details provided by Mr. Anish Kumar. Compute the income chargeable u/h PGBP from the following
details:
To Repairs on building 1,30,000 By Gross Profit 6,01,000
To Advertisement 51,000 By Income Tax Refund 4,500
To Amount paid to scientific By Interest from company deposits 6,400
research association approved 1,00,000 By Dividends 3,600
u/s 35(1)(ii)
To Interest 1,10,000
To Travelling Expenses 1,30,000
To Misc. Expenses 550
To Net Profit 93,950
Total 6,15,500 Total 6,15,500
Following additional information is furnished:
(1) Repairs on building includes ₹ 95,000 being cost of raising a compound wall for his own business premises.
(2) Interest payments include interest of ₹ 12,000 payable outside India to a resident Indian on which tax has not been
deducted and penalty of ₹ 24,000 for contravention of GST Act.
(3) Travelling expenses include ₹ 20,000 for a trip with cousins.
Sol 6: Computation of business income of Mr. Anish for the A/Y 2023-24:
Net Profit as per Profit & Loss A/c 93,950
➢ Repairs of building (raising a compound wall is of capital nature) 95,000
➢ Interest payable outside India on which TDS has not been deducted 12,000
➢ Penalty for contravention of GST Act 24,000
➢ Travelling expenses (trip with cousins is of personal nature) 20,000 1,51,000
Less: Incomes credited to Profit & Loss A/c but not taxable u/h PGBP
➢ Income tax refund (not taxable, as income tax paid is not allowed deduction) 4,500
➢ Interest from company deposits (taxable u/h other sources) 6,400
➢ Dividends 3,600 14,500
Income u/h PGBP for Mr. Anish 2,30,450
Note: Depreciation on raising a compound wall is not taken. Students can give alternative view charging depreciation.
Q 7: Mr. Prajju is a registered medical practitioner who keeps his books on cash basis and provides you the following
details:
Receipt and Payment A/c for the year ending 31st March 2023
To Balance b/d 2,700 By Costs of medicines 20,000
To Loan from bank 6,000 By Surgical equipment 6,000
To Sale of medicines 30,500 By Motor car 12,000
To Consultation fees 10,000 By Car expenses 1,800
To Visiting fees 8,000 By Salaries 1,200
To Interest on investment 9,000 By Rent of dispensary 1,200
To Dividend on shares 7,200 By General expenses 600
To Sale of building 15,000 By Personal expenses 3,600
To Sale of furniture 5,000 By Life insurance premium 2,000
By Interest on bank loan for investment 360
By Insurance of property 400
By Fixed deposit in bank 30,000
By Balance c/d 14,240
Total 93,400 Total 93,400
Compute his income from profession taking into account the following further information:
1. 1/3rd of the motor car expenses is in respect of his personal use.
2. The original cost of the building was ₹ 20,000 and written down value of furniture as on 1st April, 2022 was ₹ 4,000.
There was no other asset in his block.
3. The rate of depreciation on motor car and on surgical equipments is 15%. An old car was purchased in June 2022
while surgical equipments were purchased in January 2023.
4. Outstanding consultancy fees and outstanding salaries are ₹ 30,000 and ₹ 1,900 respectively. Further, medicines
valuing ₹ 9,000 were sold on credit which are not recorded above.
Sol 7: Computation of income from profession of Mr. Prajju for the year ending 31.03.2023:
Income from profession:
➢ Sale of medicines 30,500
➢ Consultation fees 10,000
➢ Visiting fees 8,000
Total Receipts taxable u/h PGBP (A) 48,500
Expenses of profession:
➢ Cost of medicines 20,000
➢ Depreciation on surgical equipments (₹ 6,000 x 15% x 50%) 450
➢ Depreciation on motor car (₹ 12,000 x 15% x 2/3) 1,200
➢ Car expenses (₹ 1,800 x 2/3) 1,200
➢ Salaries 1,200
➢ Rent of dispensary 1,200
➢ General expenses 600
Total Expenses deductible u/s PGBP (B) 25,850
Income from Profession for Mr. Prajju (A-B) 22,650
Notes:
1. As 1/3rd of the car is used for personal purpose, all expenses relating to the car shall restricted to 2/3 rd portion (i.e.
business purpose).
2. Sale of building and furniture shall not be dealt with as the entire block has ceased to exist, the gains or loss as the
case may be will be treated as per the provisions of capital gains chapter.
3. Outstanding consultancy fees, outstanding salaries & credit sale of medicines shall be ignored as Mr. Prajju is
following cash basis of accounting.
Q 8: Mr. Batla is the owner of a small business unit. He gives you the following details and requests you to compute his
business income for the assessment year 2023-24:
(i) Computed net profit after charging the following items ₹ 27,500
(ii) Provision for reserves debited to P/L A/c
 Provision for doubtful debts ₹ 15,000
 Depreciation reserve ₹ 20,000
(iii) House hold expenses ₹ 46,000
(iv) Other charitable donations ₹ 30,000
(v) Cheques issued for purchases ₹ 60,000
(vi) Advertisement gifts to 50 customers at a cost of ₹ 100 each.
(vii) Audit fee charged ₹ 20,000, including expenses on income-tax assessment ₹ 15,000.
(viii) Trademarks purchased for ₹ 70,000 during the previous year.
(ix) Income credited to P/L A/c were bank interest on FD ₹ 5,000.
(x) Opening stock is valued at cost plus 10% basis, whereas closing stock was valued at cost minus 10% basis. Opening
stock valued was ₹ 66,000; closing stock valued was ₹ 72,000.
Sol 8: Computation of business income of Mr. Batla for the A/Y 2023-24:
Computed Net Profit (after charging certain expenditures) 27,500
Add: Expenses deducted but not allowed under the Income Tax Act
▪ Provision for doubtful debts 15,000
▪ Depreciation reserve 20,000
▪ Household expenses 46,000
▪ Other charitable donations 30,000
▪ Trademarks acquired during the year (₹ 70,000 – 25%) 52,500
▪ Valuation of stock [(₹ 66,000 x 10/110) + (₹ 72,000 x 10/90)] 14,000 1,77,500
▪ Interest on Bank FD 5,000
Income u/h PGBP for Mr. Batla 2,00,000
Q 9: Mr. Ranjeet, a manufacturer in Bhopal gives you the following Trading and Profit & Loss A/c for the year ending
31.03.2023.
Trading and Profit & Loss A/c
To Opening stock 71,000 By Sales 32,00,000
To Purchases 16,99,000 By Closing stock 2,00,000
To Wages 2,70,000
To Gross profit 13,60,000
Total 34,00,000 Total 34,00,000
To Office expenses 3,26,000 By Gross Profit 13,60,000
To State GST penalty paid 5,000 By Dividend from domestic companies 15,000
To State GST paid 1,10,000 By Agricultural income 1,80,000
To General expenses 54,000
To Interest on loan to bank 60,000
To Depreciation 2,00,000
To Net Profit 8,00,000
Total 15,55,000 Total 15,55,000
Additional information provided by Mr. Ranjeet is as under:
(i) Office expenses include ₹ 46,000 paid as commission to the sister of the assessee. The commission amount at the
market rate is ₹ 36,000.
(ii) The assessee paid ₹ 33,000 in cash to a transport carrier on 19.11.2022. This amount is included in general expenses.
(iii) A sum of ₹ 4,000 p.m. was paid as salary to a staff throughout the year and this has not been recorded in the books
of account.
(iv) Interest on loan actually paid upto 31.03.2023 was ₹ 20,000 and the balance was paid on 3rd December, 2023.
(v) Housing loan principal repaid during the year was ₹ 50,000 and it relates to a residential property occupied by him.
Interest on housing loan was ₹ 23,000. Housing loan was taken from Axis Bank. These amounts were not dealt with
in the Profit and Loss A/c given above.
(vi) Depreciation allowable under the Act is to be computed on the basis of following information:
Plant & Machinery (Rate of depreciation – 15%)
Opening WDV (as on 01.04.2022) ₹ 12,00,000
Acquisitions during the year (used for more than 180 days) ₹ 2,00,000
Acquisitions during the year (used for less than 180 days) ₹ 2,00,000
Compute the business income of Mr. Ranjeet for the A/Y 2023-24.
Sol 9: Computation of income from business of Mr. Ranjeet for the A/Y 2023-24:
o State GST penalty paid (illegal) 5,000
o Unreasonable commission to sister u/s 40A(2) 10,000
o Interest on loan (allowed deduction on payment basis u/s 43B) (Expenses shall be
allowed to the extent it is paid on or before the due date) (₹ 60,000 – ₹ 20,000) 40,000 55,000
o Dividend from Domestic Company 15,000
o Agriculture Income 1,80,000 1,95,000
o Salary to staff not recorded (₹ 4,000 x 12) 48,000
o Depreciation [WN 1] (₹ 2,85,000 – ₹ 2,00,000) 85,000 1,33,000
Income u/h PGBP for Mr. Ranjeet 5,27,000
WN 1: Calculation of Depreciation:
Normal Depreciation
Opening WDV as on 01.04.2022 ₹ 12,00,000 x 15% = ₹ 1,80,000
Acquisitions during the year (used for more than 180 days) ₹ 2,00,000 x 15% = ₹ 30,000
Acquisitions during the year (used for less than 180 days) ₹ 2,00,000 x 15% x 50% = ₹ 15,000
₹ 2,25,000
Additional Depreciation, as Mr. Ranjeet is a manufacturer:
Acquisitions during the year (used for more than 180 days) ₹ 2,00,000 x 20% = ₹ 40,000
Acquisitions during the year (used for less than 180 days) ₹ 2,00,000 x 20% x 50% = ₹ 20,000
₹ 60,000
Total Depreciation as per Income Tax = ₹ 2,25,000 + ₹ 60,000 = ₹ 2,85,000
Notes:
1. Payment to transport operator in cash is admissible upto ₹ 35,000 u/s 40A(3). Therefore, payment of ₹ 33,000 shall
be admissible.
2. Housing loan will not have any impact on business income as it does not relate to the business of the assessee. It shall
be dealt in House property chapter.
Q 10: Mr. Kunal, a proprietor, engaged in the business of generation of power, furnishes the following particular
pertaining to P.Y. 2022-23. Compute the depreciation allowable under section 32 for A.Y 2023-24, while computing his
income under the head “profits and gains of business or profession.” The proprietor has opted for the depreciation
allowance on the basis of written down value.
S. No. Particulars (₹)
1. Opening written down value of plant and machinery (15% block) as on 01.04.2022. (Purchase 5,78,000
value ₹ 8,00,000)
2. Purchase of second hand machinery (15% block) on 29.12.2022 for business purpose. 2,00,000
3. Machinery Y (15% block) purchased and installed on 12.07.2022 for purpose of power 8,00,000
generation.
4. Acquired and installed for use a new air pollution control equipment on 31.07.2022. 2,50,000
5. New air conditioner purchased and installed in office premises on 08.09.2022. 3,00,000
6. New machinery Z (15% block) acquired and installed on 23.11.2022 for the purpose of 3,25,000
generation of power.
7. Sale value of an old machinery X, sold during the year (purchase value ₹ 4,80,000, WDV as 3,10,000
01.04.2022 ₹ 3,46,800)
[ICAI Study Module]
Sol 10: Computation of depreciation allowance u/s 32 for the A/Y 2023-24:
Particulars (₹) P & M (15%) (₹) P & M (40%)
(₹)
Opening WDV as on 01.04.2022 5,78,000 -
Add: Plant & Machinery acquired during the year
o Second hand machinery 2,00,000
o Machinery y 8,00,000
o Air conditioner for office 3,00,000
o Machinery Z 3,25,000 16,25,000
o Air pollution control equipments - 2,50,000
22,03,000 2,50,000
Less: Assets sold during the year 3,10,000 -
Written down value before charging depreciation 18,93,000 2,50,000
Normal Depreciation
Depreciation on plant & machinery put to use for less than 180
days @ 7.5% (i.e. 50% of 15%)
o Second-hand machinery (₹ 2,00,000 x 7.5%) 15,000
o Machinery Z (₹ 3,25,000 x 7.5%) 24,375 39,375
15% on the balance WDV being put to use for more than 180 days
(₹ 13,68,000 x 15%) 2,05,200
40% on air pollution control equipment (₹ 2,50,000 x 40%) 1,00,000
Additional Depreciation
Machinery Y (₹ 8,00,000 x 20%) 1,60,000
Machinery Z (₹ 3,25,000 x 10%, being 50% of 20%) 32,500 1,92,500
Air pollution control equipment (₹ 2,50,000 x 20%) 50,000
Total Depreciation 4,37,075 1,50,000
Notes:
(1) Power generation equipments qualify for claiming additional depreciation in respect of new plant and machinery.
(2) Additional depreciation is not allowed in respect of second-hand machinery & air conditioner installed in office
premises.
(3) The balance 50% additional depreciation in respect of Machinery Z of ₹ 32,500 (10% of ₹ 3,25,000) can be claimed
as deduction in subsequent financial year 2023-24.
Q 11: Mr. Sameer (age: 44 years), a resident individual, furnishes the following information for the A/Y 2023-24:
To Salary & wages 72,000 By Gross profit 8,71,000
” Conveyance expenses 15,600 ” Commission received 1,87,000
” Other general expenses 21,200 ” Sundry receipts 22,000
” Bad debts written off 3,400 ” Short-term profit on sale of investments 60,000
” Reserve for losses 5,000
” Advertisement expenses ₹ 3,000
(+) Outstanding ₹ 1,800 4,800
” Finance charges 32,500
” Interest on Sameer’s Capital 3,300
” Depreciation 27,000
” Provision for goods and services tax and
custom duty 11,000
” Lump-sum consideration for acquiring
patent on 14th Jan, 2023 56,000
Net Profit 8,88,200
Total 11,40,000 Total 11,40,000
Other Information:
1. Depreciation according to income tax provision is ₹ 31,000.
2. Salary to staff includes payment of ₹ 18,000 to a relative out of which ₹ 7,000 is unreasonable.
3. Other general expenses include:
(a) expenditure of ₹ 3,200 incurred by Sameer on training of his employees,
(b) commission of ₹ 5,000 for securing a business order and
(c) compensation of ₹ 6,000 paid to an employee while terminating his service in the business interest.
4. Out of outstanding goods & services tax and custom duty, ₹ 2,500 is paid on 15th June 2023 and ₹ 6,500 is paid on 18th
August 2023. The balance is not yet paid. Due date of filing return of income is 31st July 2023.
Determine income u/h PGBP of Mr. Sameer for the A/Y 2023-24 assuming that insurance premium paid by him on his life
insurance policy is ₹ 8,000.
Sol 11: Computation of business income of Mr. Sameer for the A/Y 2023-24:
(a) Salary to a relative (unreasonable payment u/s 40A(2)) 7,000
(b) Reserve for losses 5,000
(c) Interest on Sameer’s capital (interest on own capital is not allowed) 3,300
(d) Provision for goods & services tax & custom duty (allowed only to the extent it is
paid on or before the due date of filing of return u/s 139(1) [₹ 11,000 – ₹ 2,500] 8,500
(e) Lump-sum consideration for purchase of patents 56,000 79,800
▪ Short-term profit on sale of investments 60,000
▪ Depreciation as per Income Tax [₹ 31,000 – ₹ 27,000] 4,000
▪ Depreciation on Patent acquired on 18th January 2022 (₹ 56,000 x 25% x 50%) 7,000 11,000
Income u/h PGBP for Mr. Sameer 8,97,000
Notes:
1. Expenditure of ₹ 3,200 incurred on training of his employees; commission of ₹ 5,000 for securing a business order &
compensation of ₹ 6,000 paid to an employee for terminating his service in the business interest are all business
expenditures and therefore shall be admissible.
2. Premium paid for life insurance policy is a personal expenditure and therefore shall not be admissible. However,
deduction u/s 80C is allowed of such premium from the Gross Total Income of the assessee.
Q 12: Mr. Arijeet, a resident, furnishes you the following information and asks you to compute his business income for the
A/Y 2023-24.
Profit and Loss A/c for the year ending 31st March, 2023
To Office expenses 11,000 By Gross Profit 3,78,000
To Telephone security deposited 8,000 By Sundry receipts 8,000
To Salary to staff 42,000
To Depreciation 28,000
To Travelling expenses 43,000
To Loss of cash by theft 5,000
To Special reserve 7,500
To Diwali expenses 7,100
To Interest and legal expenses 44,000
To Sundry expenses 8,500
Total 3,86,000 Total 3,86,000
Additional information:
1. Salary to staff includes payment of ₹ 12,000 out of India on which tax has not been deducted at source.
2. Depreciated value of machinery on 1st April, 2022 is ₹ 1,10,000 (Depreciation rate – 15%)
(a) A machinery whose w.d.v on 1st April, 2022 is ₹ 17,440 is sold during the P/Y for ₹ 11,000.
(b) A machinery (cost price – ₹ 20,000) whose w.d.v on 1st April, 2022 is ₹ 2,350 is sold for ₹ 15,000 during the
previous year.
(c) During the year, Arijeet acquired a plant for ₹ 1,22,670 which is eligible for depreciation @ 15%. The plant is
installed and put to use on 17th July, 2022.
3. Travelling expenses include ₹ 10,000 being hotel expenditure in respect of a personal visit to Chennai for 6 days.
4. Legal expenses include the following payments:
(a) Payment of ₹ 5,000 to an employee for filing an appeal.
(b) Payment of ₹ 12,000 to Anandita, non-employee, for preparation of final accounts.
(c) Payment of ₹ 20,000 to Mohit, a CA for obtaining tax advice.
5. Sundry expenses include expenditure of ₹ 1,000 on maintenance of guest house in Delhi for the purpose of carrying
on the business and ₹ 4,000 being employer’s contribution towards ESI(PF) out of which ₹ 600 is paid after the due
date of submission of return of income.
6. Expenditure on Diwali includes a gift of ₹ 2,000 for his wife.
7. Interest includes a payment of ₹ 3,000 out of India on which tax has not been deducted.
Sol 12: Computation of business income of Mr. Arijeet for the A/Y 2023-24:
Net Profit as per Profit & Loss Account 1,81,900
❖ Salary to staff outside India on which TDS has not been deducted shall not be 12,000
admissible u/s 40(a)
❖ Travelling expenses to Chennai (personal visit) 10,000
❖ Special Reserve 7,500
❖ Diwali gift to wife (personal nature) 2,000
❖ Interest paid outside India on which TDS has not been deducted shall not be
admissible u/s 40(a) 3,000
❖ Sundry expenses (employer’s contribution towards ESI(PF) after the due date shall
not be allowed as per the provisions of Section 43B, it shall be allowed in the year of
payment) 600 35,100
❖ Depreciation [WN 1] (₹ 31,000 – ₹ 28,000) 3,000
Income u/h PGBP for Mr. Arijeet 2,14,000
WN 1: Calculation of depreciation u/s 32:
(+) Acquisition on 17th July 2022 ₹ 1,22,670
(-) Sale of assets during the year (11,000 + 15,000) ₹ 26,000
Depreciation @ 15% as per Income Tax laws ₹ 31,000
Notes:
1. Telephone security deposited has been assumed irrecoverable, therefore shall be allowed deduction.
2. Payments to an employee for filing an appeal; payment for preparation of final accounts & payment to a CA for tax
advise are business expenditures & shall be allowed deduction u/s 37(1).
Q 13: Mr. Nishant is a businessman in Mangalore. Compute his business income on the basis of the following data for the
year ending 31st March 2023.
Profit & Loss Account for the year ending 31st March 2023
To Opening stock 1,35,000 By Sales 78,80,000
” Purchases 65,77,700 ” Closing stock 2,25,000
” Salaries & wages 2,64,000
” General expenses 77,600
” Household expenses 55,000
” Income tax for 2021-22 21,800
” Advertisement expenses 41,500
” Interest on own capital 18,000
” Reserve for bad debts 7,400
” Depreciation on furniture 12,200
” Dividend tax 1,100
” Unapproved Gratuity Fund 6,000
Total 81,05,000 Total 81,05,000
Other Information:
1. Closing stock and opening stock has been consistently valued at 10% below cost.
2. Depreciation on furniture as per tax laws is ₹ 9,800.
3. Amount of sales includes ₹ 47,850, being value of goods withdrawn for the use of Nishant’s family members. These
goods were purchased at cost of ₹ 31,250. Market value of such goods is ₹ 49,750.
4. Household expenses include a contribution of ₹ 3,000 towards PPF.
5. Salaries & wages include an expenditure of ₹ 22,000 which is paid in cash.
Sol 13: Computation of income u/h PGBP for Mr. Nishant for the A/Y 2023-24:
o Salaries & wages (payment in excess of ₹ 10,000 in cash shall be inadmissible as per 22,000
section 40A(3))
o Household expenses & PPF (personal nature) 55,000
o Income tax of 2021-22 (inadmissible u/s 40(a), being personal expense) 21,800
o Interest on own capital (not allowed) 18,000
o Reserve for bad debts (no reserve is allowed, only bad debts written off as 7,400
irrecoverable shall be admissible)
o Depreciation is allowed as per Income Tax laws (₹ 12,200 – ₹ 9,800) 2,400
o Dividend tax 1,100
o Unapproved gratuity fund (only payment to approved gratuity fund within the time
limits is admissible) 6,000 1,33,700
o Undervaluation of opening stock (₹ 1,35,000 x 10/90) 15,000
Add: Incomes not recorded but taxable u/h PGBP
o Undervaluation of closing stock (₹ 2,25,000 x 10/90) 25,000
o Goods withdrawn for personal included in sales (₹ 47,850 – ₹ 31,250) 16,600
Income u/h PGBP for Mr. Nishant 10,14,800
Note: Market value of goods withdrawn for personal use is irrelevant for computation of income u/h PGBP.
Q 14: Examine with reasons, for the following statements, whether the following statements are true or false having
regards to the provision of the Income Tax Act, 1961;
1. For a dealer in share and securities transaction tax paid in a recognized stock exchange is permissible business
expenditure.
2. The mediclaim premium paid to GIC by Mr. Lomesh for his employees, by a draft, on 27.12.2022 is a deductible
expenditure under section 36.
3. Under section 35DDA, amortization of expenditure incurred under eligible Voluntary Retirement Scheme at the time
of retirement alone, can be done.
4. An existing assessee engaged in trading activities, can claim additional deprecation under section 32(1)(iia) in respect
of new plant acquired and installed in the trading concern, where the increase in value of such plant as compared to
the approved base year is more than 10%. [ICAI Study Module]
Sol 14:
1. True: Section 36(1)(xv) allows a deduction of the amount of securities transaction tax paid by the assessee in respect
of taxable securities transaction entered into in the course of business during the previous year as deduction from the
business income of a dealer in shares and securities.
2. True: Section 36(1)(ib) provides deduction in respect of premium paid by an employer to keep in force an insurance
on the health of his employees under a scheme framed in this behalf by GIC or any other insurer. The medical
insurance premium can be paid by any mode other than cash to be eligible for deduction under section 36(1)(ib).
3. False: Expenditure incurred in making payment to the employee in connection with his voluntary retirement either in
the year of retirement or in any subsequent year, will be entitled to deduction in 5 equal annual instalments
beginning from the year in which each payment is made to the employee.
4. False: Additional deprecation can be claimed only in respect of eligible plant and machinery acquired and instalment
by an assessee engaged in the business of manufacture or production of any article or thing or in the business of
generation or transmission or distribution of power. In this case, the assessee is engaged in trading activities and the
new plant has been acquired and installed in a trading concern. Hence, the assessee will not be entitled to claim
additional deprecation under section 32(1)(iia).
Q 15: Mr. Manohar who maintains books of accounts on cash basis is a law consultant. He provides the following
information for the A/Y 2023-24.
Receipt and Payment A/c for the year ending 31st March 2022
To Balance b/d 18,600 By Purchase of a printer 14,000
To Fees from clients for: By Car expenses 28,800
• 2021-22 1,23,700 By Sundry expenses 56,600
• 2022-23 9,68,400 By Salary to staff for:
• 2023-24 1,48,300 • 2021-22 23,600
To Presents from clients 36,600 • 2022-23 1,32,000
To Interest free loan from a client for • 2023-24 32,000
purchase of a car 1,75,000 By Expenses relating to house property:
To Winning from lottery 28,000 • Municipal tax 4,000
To Interest from UTI 7,400 • Repairs & insurance 5,000
To Rent from house property 72,000 By Car purchased on 23rd Nov 2022 8,12,000
To Share of income from a firm 45,000 By Office repairs 27,700
By Interest on loan 14,400
By Telephone expenses 8,600
By Electricity expenses 12,200
By Legal expenses 31,800
By Income tax payment 5,500
By Life insurance premium 42,000
By Balance c/d 3,72,800
Total 16,23,000 Total 16,23,000

Other information:
(a) Car is partly used for business purpose (60%) and partly for private purpose (40%).
(b) Payment of income tax includes interest for late filing of return to the extent of ₹ 850.
(c) Salary to staff includes payment in cash of ₹ 8,000 & ₹ 10,000 to two different employees on the same day.
(d) Municipal taxes include payment of ₹ 2,200 for the P/Y 2021-22.
Determine income u/h PGBP of Mr. Manohar for the A/Y 2023-24.
Sol 15: Computation of professional income of Mr. Manohar for the year ending 31.03.2023 who maintains his accounts
on cash basis:
Income from profession:
(1) Fees from clients
➢ 2021-22 1,23,700
➢ 2022-23 9,68,400
➢ 2023-24 1,48,300
(2) Presents from clients 36,600
Total Receipts taxable u/h PGBP (A) 12,77,000
Expenses of profession:
1. Depreciation on printer (₹ 14,000 x 40%) 5,600
2. Car expenses (₹ 28,800 x 60%) 17,280
3. Sundry expenses 56,600
4. Salaries
➢ 2021-22 23,600
➢ 2022-23 1,32,000
➢ 2023-24 32,000
5. Depreciation on car (₹ 8,12,000 x 15% x 50% x 60%) 36,540
6. Office repairs 27,700
7. Interest on loan 14,400
8. Telephone expenses 8,600
9. Electricity expenses 12,200
10. Legal Expenses 31,800
Total Expenses deductible u/s PGBP (B) 3,98,320
Income from Profession for Mr. Manohar (A-B) 8,78,680
Notes:
1. Depreciation on printer has been fully allowed assuming it has been acquired and put to use for more than 180 days.
2. Interest on loan has been assumed to be paid for loan taken for the purpose of profession.
3. Car has been partly used for business (60%) and partly for personal purpose (40%). Therefore, all expenses relating to
car (i.e. car expenses & depreciation on car) shall be allowed only to the extent of 60%.
4. Salary to staff in cash of ₹ 8,000 & ₹ 10,000 to two different employees on the same day is permissible as section
40A(3) deals with cash payment upto ₹ 10,000 for an expenditure made to a person in a day. As the payment does
not exceed ₹ 10,000, nothing shall be disallowed.
5. Income tax payment and life insurance premium paid are personal expenses and therefore shall not be allowed. Even
interest paid for late filing of return is inadmissible u/s 40(a).
6. Expenses relating to house property such as municipal taxes and repairs of house property shall be dealt within the
house property chapter.
Q 16: Examine with reasons, the allowability of the following expenses incurred by Mr. Manav, a wholesale dealer of
commodities, under the Income Tax Act, 1961 while computing profit and gains from business or profession for the A/Y
2023-24.
(1) Construction of school building in compliance with CSR activities amounting to ₹ 5,60,000
(2) Purchase of building for setting up a warehousing facility for storage of food grains amounting to ₹ 4,50,000.
(3) Interest on loan paid to Mr. X (a resident) ₹ 50,000 on which tax has not been deducted. the sales for the P/Y 2020-21
was ₹ 202 lakhs.
(4) Commodities Transaction Tax paid ₹ 20,000 on sale of bullion. [ICAI Study Module]
Sol 16: Allowability of the expenses incurred by Mr. Manav, wholesale dealer in commodities, while computing profits and
gains from business or profession.
(1) Construction of school building in compliance with CSR activities: Under section 37(1) only expenditure not being in
the nature of capital expenditure or personal expense and covered under section 30 to 36, and incurred wholly and
exclusively for the business is allowed as a deduction while computing business income.
However, any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in
section 135 of the Companies Act, 2013 shall not be deemed to have incurred for the purpose of business and hence, shall
not be allowed as deduction under section 37.
Accordingly, the amount of ₹ 5,60,000 incurred by Mr. Manav, towards construction of school building in compliance with
CSR activities shall not be allowed as deduction under section 37.
(2) Purchase of building for setting up a ware housing facility for storage of food grains: Mr. Manav would be eligible for
investment–linked tax deduction under section 35AD @ 100% in respect of amount of ₹ 4,50,000 invested in
purchase of building for setting up a warehousing facility for storage of food grains which commences operation on or
after 1st April, 2009 (P.Y. 2022-23 in this case). Therefore, the deduction under section 35AD while computing business
income would be ₹ 4,50.000.
(3) Interest on loan paid to Mr. X (a resident) ₹ 50,000 on which tax has not been deducted: As per section 194A Mr.
Manav, being an individual is required to deduct tax at source on the amount of interest on loan paid to Mr. X since
his turnover during the P/Y 2020-21 exceeds the monetary limit of ₹ 100 lacs.
Therefore, ₹ 15000 being 30% of ₹ 50000 would be disallowed under section 40(a)(ia) while computing the business
income of Mr. Manav for non-deduction of tax at source under section 194A on interest of ₹ 50,000 paid by it to Mr. X.
The balance ₹ 35,000 would be allowed as deduction under section 36(1)(iii), assuming that the amount was borrowed for
the purposes of business.
(4) Commodities transaction tax of ₹ 20,000 paid on sale of bullion: Commodities transaction tax paid in respect of
taxable commodities transaction entered into in the course of business during the previous year is allowable as
deduction, provided the income arising from such taxable commodities transaction in included in the income
computed under the head “Profits and Gains of Business or Profession.” Taking that income from this commodities
transaction is included while computing the business income of Mr. Manav, the commodity transaction tax of ₹
20,000 paid is allowable as deduction under section 36(1)(xvi).
Q 17: Ms. Akanksha furnishes the following information for the A/Y 2023-24:
To Office expenses 22,000 By Gross profit 4,58,000
” Sundry expenses 36,000 ” Sundry receipts 31,000
” Extension of Building 14,000 ” Bad debts recovered (not allowed as
” Depreciation on Plant & Machinery 18,500 deduction earlier) 12,000
” Salary to staff 48,000 ” Custom duty recovered from the
” Bonus 8,000 Government (earlier allowed as 18,500
” Contribution towards: deduction)
• RPF 15,500 ” Gift received from mother 22,500
• Unapproved Gratuity Fund 3,200
” Goods & Services Tax 31,300
” Provision for Goods & Services Tax 18,200
” Payment to approved research
association for carrying scientific 24,000
research
” Net Profit 3,03,300
Total 5,42,000 Total 5,42,000
Other Information:
1. Payment to scientific research association for carrying on scientific research is not related to the business of
Akanksha. Besides she purchases a plant of ₹ 40,000 for the purpose of carrying on scientific research related to her
business. Neither the cost of plant nor depreciation thereon is debited to P/L A/c.
2. Out of bonus of ₹ 8,000, ₹ 3,000 is paid during the year 2022-23, ₹ 2,500 is paid by 31st July 2023 (being the due date
of furnishing return of income) and the balance of ₹ 2,500 is however paid on 12th December 2023.
3. Depreciation on plant & machinery and extension of building as per the income tax provisions is ₹ 15,000.
4. GST of ₹ 31,300 includes (a) interest for late payment of tax: ₹ 1,800 and (b) penalty for evading tax: ₹ 4,300.
5. Provision for GST represents an outstanding GST liability which is however paid on 29th June 2023.
6. Salary to staff includes a payment of pension of ₹ 4,000 to the widow of a former employee.
Ascertain the income u/h PGBP of Ms. Akanksha for the A/Y 2023-24 assuming that she deposits ₹ 40,000 in PPF A/c
during the P/Y 2022-23.
Sol 17: Computation of income u/h PGBP for Ms. Akanksha for the A/Y 2023-24:
• Extension of Building 14,000
• Depreciation on Plant & Machinery and Building as per Income Tax Laws ( ₹ 18,500 – 3,500
₹ 15,000)
• Bonus (Payment after the due date shall not be allowed as per the provisions of 2,500
Section 43B, it shall be allowed in the year of payment)
• Contribution towards Unapproved Gratuity Fund (only approved funds are allowed) 3,200
• GST (Penalty of illegal nature is inadmissible u/s 40(a)) 4,300
Less: Income credited to P/L A/c but not taxable u/h PGBP 27,500
• Bad debts recovered (as it was not allowed deduction in the earlier previous years, it
shall not become taxable in the year of receipt) 12,000
• Gift received from mother (gift from relative is not taxable) 22,500 34,500
• Payment to Scientific Research Association not related to the business of Akanksha
(100% expenditure allowed) – Since 100% deduction is claimed, no further treatment ---
is required.
• Purchase of plant for in-house research (100% deduction is allowed as per section
40,000 40,000
35)
Income u/h PGBP for Ms. Akanksha 2,56,300
Notes: Payment to the widow of a former employee is an admissible expense u/s 37.
MULTIPLE CHOICE QUESTIONS

1. Expenses debited to P/L A/c but not allowed under the Income Tax Act shall be ………….. while computing income u/h
PGBP.
(a) Subtracted (c) Added
(b) No Treatment (d) None of the above
2. For an assessee engaged in business and profession, any sum received under an agreement for not carrying any
activity in relation to any business is taxable under head.....
(a) PGBP (c) Other Sources
(b) Capital Gains (d) Salary
3. Which of the following income is chargeable to tax under head Profits and gains from business and profession?
(a) Cash Compensatory Support and Duty Drawback
(b) Sum received under a key man insurance policy
(c) Speculative income
(d) All of the above
4. Where assessee has sublet a part of the premises, the allowance under section 30 would be confined to _______.
(a) Rent recovered from the sub – tenant.
(b) Rent paid by assessee.
(c) Difference between rent paid by assessee and the rent recovered from the sub – tenant.
(d) None of the above
5. Interest from bank FD should be credited to P/L A/c while computing PGBP income
(a) True (c) False
(b) Partly True (d) None of the above
6. The illegality of a business, profession or vocation exempts its profits from tax.
(a) True (b) False
7. Mr. Anurag uses the premises partly for his craft business and partly for his residential purpose. So, _____ part of
expenses attributable to that part of premises used for purpose of ______ will be allowed as deduction under Section
30.
(a) Full; business (c) Proportionate; business
(b) Full; residential (d) Proportionate; residential
8. Section 43B & 35DDA are to be followed on ……………… bases of accounting.

(a) Cash (c) Method regularly followed by the assessee
(b) Mercantile (d) None of the above
9. Mr. Rohan, a proprietor engaged in manufacturing business, has acquired and installed the computer amounting to ₹
3,00,000 in the office premises on 02.01.2023. The additional depreciation as per the Income Tax Act, 1961 for the
A.Y. 2022-23 is:
(a) ₹ 30,000 (c) ₹ 60,000
(b) ₹ 45,000 (d) Nil
10. Mr. X acquires an asset in the year 2016-17 for the use for scientific research for ₹ 2,75,000. He claimed deduction
under section 35(1)(iv) in the previous year 2016-17. The asset was brought into use for the business of Mr. X in the
P.Y. 2022-23, after the research was completed. The actual cost of the asset to be included in the block of assets is –
(ICAI MCQ Booklet)
(a) Nil
(b) Market value of the asset on the date of transfer to business
(c) ₹ 2,75,000 less notional depreciation under section 32 upto the date of transfer
(d) Actual cost of the asset i.e. ₹ 2,75,000
11. Depreciation rate for oil wells is –

(a) 40% (c) 10%
(b) 15% (d) 30%
12. Mr. Abhishek, a proprietor engaged in manufacturing business, purchased new plant and machinery for ₹ 8,00,000 on
18.4.2022 and put to use on 18.12.2022. Also, Rate of depreciation is 15%. The amount of depreciation as per the
Income Tax Act, 1961 for the A.Y. 2023-24 is:
(a) ₹ 1,20,000 (c) ₹ 80,000
(b) ₹ 60,000 (d) ₹ 1,40,000
13. Mr. Gopal purchased a car on 18.04.2019 for ₹ 9,00,000 for personal use. It is now brought into professional use on
14.06.2022, when its market value was ₹ 4,50,000. Assume rate of depreciation is 15%. The amount of depreciation
for A.Y. 2023-24 is:
(a) ₹ 1,35,000 (c) ₹ 1,14,750
(b) ₹ 67,500 (d) ₹ 57,375
14. When all the assets of the block are sold and sale value is less than the wdv, then such deficit shall be termed as:
(a) Short-term capital gain (c) Short-term capital loss
(b) Long-term capital gain (d) Long-term capital loss
15. Mr. Rishabh carries on his handicraft business in the building which is taken on lease by him on 04.04.2022. Mr.
Rishabh incurred ₹ 2,00,000 by way of capital expenditure for renovation and improvement of the building. Whether
depreciation be charged on ₹ 2,00,000?
(a) Yes (b) No
16. When an asset on which depreciation is allowed is transferred and block does not cease to exist, how should it be
treated?
(a) Cost of asset shall be reduced from the block of asset
(b) Sale proceeds of asset shall be reduced from block of asset
(c) Profit shall be computed as per section 50 and chargeable under head capital gain.
17. Unabsorbed depreciation can be carried forward

(a) 8 years (c) 4 years
(b) Indefinitely (d) Nil
18. An assessee purchased imported second hand machinery and contends that additional depreciation shall be allowed
on same. Is the contention of assessee correct?
(a) Invalid (c) Valid
(b) Partly valid (d) None of the above
19. An assessee who has a block of ₹ 250 lakhs of plant and machinery as on 1st April 2022. He sold the entire block for ₹
170 lakhs on 24th June 2022 and an asset of ₹ 20 lakhs was acquired on 6th November 2022. On what amount should
depreciation be charged and what shall be the amount of capital gain?
(a) Nil, Nil (c) ₹ 100 lakhs, Nil
(b) Nil, (₹ 100 lakhs) (d) Nil, ₹ 100 lakhs
20. Additional depreciation shall not be allowed in which of the following case
(a) Assessee engaged in business of manufacture or production of any article or thing
(b) Assessee engaged in business of generation or generation or distribution of power
(c) Where assessee has purchased a plant and machinery which is already used
21. An assessee engaged in business of generation and distribution of power claims depreciation on SLM basis and sales
asset. The sales price of asset exceeds WDV of the asset, what shall be the tax treatment under head PGBP:
(a) Actual cost – WDV is taxable under head PGBP
(b) S.P. - WDV is taxable under head PGBP
(c) Least of a) and b)
22. Where assessee is engaged in business of generation/ generation & distribution of power. He can claim
depreciation......
(a) As per straight Line method (SLM) on each asset
(b) As per written down value (WDN) method on block of assets
(c) Assessee has option to claim depreciation either as per (a) or (b)
23. A Goods carriage for the purpose of presumptive income u/s 44AE shall be considered to be a heavy goods vehicle
where gross vehicle weight exceeds:
(a) 10,000 kgs (c) 15,000 kgs
(b) 12,000 kgs (d) 14,000 kgs
24. Deduction under section 35(1)(ii) is:

(a) Sum paid to a research association having an object the undertaking of scientific research
(b) Sum paid to a national laboratory / university / institution approved by Central Government
(c) Sum paid to a company to be utilised in scientific research
25. If there is a change of ownership, depreciation shall be apportioned on the basis of ……………..
(a) No. of days (c) No. of weeks
(b) No. of months (d) None
26. Where an assessee pays any sum to a university, college, or other approved institution to be used for research in
social science or statistical research. The research is not related to his business. The deduction allowed would be of
……..
(a) 150% u/s 35(1)(ii) (c) 100% u/s 35(1)(ii)
(b) 100% u/s 35(1)(iii) (d) 200% u/s 35(1)(iii)
27. Which of the following incomes is not taxable under the head PGBP?
(a) Amount received on keyman insurance policy
(b) Interest received on bonds invested out of business profits
(c) Compensation received on breach of a business contract
(d) Salary received by a partner from the firm
28. An assessee carrying on business is receiving & paying all his transactions through banking channels shall get his books
of account audited where the turnover exceeds:
(c) ₹ 1,00,00,000 (c) ₹ 5,00,00,000
(d) ₹ 2,00,00,000 (d) ₹ 50,00,000
29. Which of the following expenditure does not fall u/s 43B to be allowed on payment basis only?
(a) Bonus or Commission
(b) Interest on loan for purchase of business asset
(c) Employer’s contribution to any provident fund
30. A real estate developer sold a flat for ₹ 70 lakhs. The SDV on the DOA & DOR was ₹ 80 lakhs & ₹ 85 lakhs respectively.
What shall be sale value in the hands of the developer u/s 43CA where he received ₹ 6 lakhs as advance in cash on the
DOA?
(a) ₹ 70,00,000 (c) ₹ 85,00,000
(b) ₹ 80,00,000 (d) ₹ 77,00,000
31. Which of the following is not a specified business u/s 35AD?

(a) Beekeeping and production of honey & beeswax
(b) Production of medicines for cure of cancer
(c) Production of fertiliser
(d) Cold chain facility
32. An assessee paid VRS as per the scheme of voluntary retirement amounting to ₹ 6,00,000 on 21st March 2023. How
much deduction of same shall be allowed to assessee for the previous year ending 31st March 2023?
(a) ₹ 6,00,000 (c) ₹ 1,00,000
(b) ₹ 1,50,000 (d) ₹ 1,20,000
33. What amount of deduction shall be allowed at the time of death of animal held otherwise than as stock-in-trade?
(a) Actual cost of animals – amount realised on sale
(b) Actual cost of animals – market value of animals on the date of sale
(c) Actual cost of animals
34. In case of company assessee, the total preliminary expenses incurred are allowed as deduction to extent of 5% of:
(a) the cost of the project
(b) the aggregate capital employed
(c) the cost of project or the capital employed whichever is higher
(d) the cost of project or the capital employed whichever is lower
35. Capital expenditure incurred on family planning amongst employees of a partnership firm is allowed as deduction
(a) in full (c) in 5 equal instalments
(b) in 10 equal instalments (d) Not allowed
36. Any expense on advertisement in any souvenir, brochure, tract pamphlet or the like published by a political party......
under head PGBP.
(a) Shall be allowed as deduction (c) Shall not be allowed as deduction
(b) May be allowed as deduction (d) None of the above
37. Where any sum is paid or payable outside India to foreign resident on which tax has not been deducted. The amount
so paid...................
(a) Is allowed as deduction under the Income Tax Act in the year of payment
(b) Is never allowed as deduction under the Income Tax Act in the year of payment
(c) Is not allowed as deduction but shall be allowed in the year in which TDS is deducted
38. If penalty is in nature of compensation then it ……... under section 37(1)

(a) Is allowable as deduction (c) Is not allowable as deduction
(b) May be allowed as deduction (d) depends upon the assessing officer to allow it or not
39. An assessee makes a cash payment of ₹ 32,000 to a transport operator wants to claim deduction of such expenditure.
Is his claim valid?
(a) Valid (c) Invalid
(b) Valid upto ₹ 10,000. Rest shall be disallowed (d) None of the above
40. Calculation what amount is disallowed u/s 40(b) where book profit of the firm is ₹ 5,00,000 Remuneration paid to
working partner is ₹ 4,70,000.
(a) ₹ 4,70,000 (c) ₹ 1,80,000
(b) ₹ 80,000 (d) Nil
41. In case the book profit is negative, the maximum amount of remuneration distributable to partners shall be:
(a) ₹ 1,50,000 (c) ₹ 3,00,000
(b) ₹ 2,70,000 (d) Nil
42. With reference to Section 43B, any payment made after the due date of 1 st year in which the expense was incurred,
then it shall be ………………..
(a) allowed in the year of payment (c) allowed in the year to which the expense relates
(b) never allowed (d) None of the above
43. A person carrying on business shall get his accounts mandatorily audited if his turnover exceeds…
(a) ₹ 50,00,000 (c) ₹ 1,00,00,000
(b) ₹ 2,00,00,000 (d) ₹ 25,00,000
44. A person carrying on specified profession has to maintain prescribed books of accounts if his receipts exceeds
………………. in all the 3 preceding years.
(a) ₹ 50,000 (c) ₹ 1,20,000
(b) ₹ 1,50,000 (d) ₹ 2,00,000
45. An assessee carrying on business on presumptive income basis shall be liable to tax @ ………… of turnover.
(a) 8% of total turnover (c) 6% of total turnover
(b) 8% of bank turnover & 6% of cash turnover (d) 6% of bank turnover & 8% of cash turnover
46. Raju succeeded to the business of his father Ramu consequent to demise of Ramu 1/11/2022. Raju recovered ₹
30,000 due from a customer which was written off by late Ramu as bad debt and allowed as deduction. The amount
recovered is:
(a) Exempt from tax
(b) Fully taxable as business income
(c) ₹ 15,000 being 50% taxable as business income
(d) To be set off against current year bad debts
47. PQR Ltd. is located in a backward area in the State of Andhra Pradesh and acquired some machinery for ₹ 20 lakhs on
10/8/2022. It was put to use from 15/11/2022. How much would be the total depreciation in respect of the said
machinery?
(a) ₹ 3,00,000 (c) ₹ 4,00,000
(b) ₹ 7,00,000 (d) ₹ 3,50,000
48. Dr. L is practicing MBBS and has gross receipt of ₹ 18,40,000. His presumptive income under section 44ADA would be:
(a) ₹ 1,47,200 (c) ₹ 92,000
(b) ₹ 9,20,000 (d) ₹ 4,60,000
49. Mr. Y has 5 goods carriage vehicles on 1/4/2022. He acquires 3 more vehicles from 11/9/2022. What is the
presumptive income under section 44AE if all are light goods carriage vehicles?
(a) ₹ 8,10,000 (c) ₹ 2,02,500
(b) ₹ 3,64,500 (d) ₹ 6,07,500
50. GC Ltd. engaged in manufacture of biomedicines in August, 2022 converted an equipment which was used for
scientific research purposes previously, for regular business use. The original cost of the plant is ₹ 15 lakhs which was
acquired in April, 2021. The company had claimed deduction at 100%. The plant used for scientific research would be
included in the block of assets now at a value for:
(a) Nil (c) ₹ 15,00,000
(b) ₹ 30,00,000 (d) ₹ 22,75,000
51. KBC Ltd. paid fees for technical services of ₹ 6 lakhs but omitted to deduct tax at source and such omission continued
till the due date for filing the return of income specified in section 139(1). The amount of expenditure liable for
disallowance would be -
(a) ₹ 1,80,000 (c) ₹ 6,00,000
(b) ₹ 1,20,000 (d) Nil
52. Dr. Rishabh has surgical equipment whose WDV as on 1/4/2022 was ₹ 4,10,000. He acquired some more equipment
in December 2022 for ₹ 3,50,000. He sold equipment in March 2023 for ₹ 2,00,000 whose original cost was ₹
1,70,000. The written down value of the block for the purpose of computing depreciation is:
(a) ₹ 5,90,000 (c) ₹ 5,60,000
(b) ₹ 7,30,000 (d) ₹ 4,30,000
53. Where an assessee doing a business incurs any expenditure in respect of which payments made to a person in a day
exceeds ₹ 10,000 should be paid through account payee cheque or demand draft to claim deduction for such
expenditure. This restriction does not apply to
(a) Payments made to RBI
(b) Payments made to cultivators
(c) Payment of terminal benefits to employees not exceeding ₹ 50,000
54. KL Industries Ltd. acquired a factory building for self-use in November, 2022. The value of land underneath the
building was ₹ 5 lakhs and value of building was ₹ 10 lakhs. The amount of eligible depreciation is:
(a) ₹ 1,50,000 (c) ₹ 25,000
(b) ₹ 1,00,000 (d) ₹ 50,000
55. Where an asset used for scientific research for more than three years is sold without having been used for other
purposes, then the sale proceeds to the extent of the cost of the asset already allowed as deduction under section 35
in the past shall be treated as—
(a) Business income (c) Long-term capital gain
(b) Short-term capital gain (d) Exempted income
56. PL Ltd. made provision of ₹ 12 lakhs for bonus payable for the year ended 31st March, 2023. It paid ₹ 7 lakhs on 3rd
July 2023, ₹ 3 lakhs on 30th September 2023, and ₹ 3 lakhs on 15th December, 2023. Due date for filing of return is 31st
October 2023. The amount eligible for deduction under section 43B would be:
(a) ₹ 10 lakhs (c) ₹ 12 lakhs
(b) ₹ 7 lakhs (d) ₹ 13 lakhs
57. Provisions of section 44AD for computation of presumptive income are not applicable to -
(a) Limited Liability Partnership (c) Resident Partnership Firm
(b) Resident Hindu Undivided Family (d) Resident Individual
58. Under the Income Tax Act, 1961, interest on capital received by a partner from a partnership firm is chargeable under
the head—
(a) Profits and gains of business of profession (c) Income from other sources
(b) Capital gains (d) None of the above
59. In the case of companies, capital expenditure incurred for the purpose of promoting family planning amongst the
employees would be deductible to the extent—
(a) Equal to 1/4th in each year for 4 years (c) Equal to 1/6th in each year for 6 years
(b) Equal to 1/5th in each year for 5 years (d) Equal to 1/10th in each year for 10 years
60. The expenditure incurred on payment under voluntary retirement scheme shall be allowed as deduction in
(a) The previous year in which it is paid
(b) Equal instalments in 5 previous years starting from the previous year in which it is paid
(c) Not allowed at all
(d) Allowed to the extent of Rs. 5,00,000
61. If an eligible assesses is engaged in any profession referred to in section 44ADA and he had opted for presumptive
income scheme under section 44ADA, the assesses shall:
(a) Be entitled to deduction under section 30 to 37
(b) Not be entitled to deduction under section 30 to 37
(c) Not be entitled to deduction under section 30 to 37 except on account of interest on capital and loan from a
partner and remuneration to working partner as per section 40(b)
62. Where an assesses is carrying on a specified business referred to in section 35AD, he shall be allowed deduction
(a) Only for revenue expenditure
(b) Both the revenue and capital expenditure
(c) Both for revenue and capital expenditure other than goodwill, land and financial instruments
(d) Both for revenue and capital expenditure other than land, building and goodwill
63. In case an assesses is engaged in the business of plying, hiring or leasing goods carriage, presumption income scheme
under section 44AE is applicable if the assesses is the owner of maximum of
(a) 8 goods carriages (c) 10 goods carriages
(b) 12 goods carriages (d) 15 goods carriages
64. Which of following expenditure for which payment is made to a resident are disallowed to the extent of 30% unless
the TDS has been done:
(a) Interest, Royalty, Fee for technical services (c) Commission or brokerage or rent
(b) Payment to contractors (d) All expenses on which is tax in deductible at source
65. In case an eligible assesses is engaged in any business (other than plying, hiring or leasing of goods transport)
presumptive income scheme is applicable if the gross receipts / sales paid or payable to him in the previous year does
not exceed:
(b) ₹ 50 lakhs (d) ₹ 200 lakhs
66. An assessee made a payment of ₹ 25,000 as a secret commission, prohibited by law, for some offensive purpose. Such
expenditure shall be considered as:
(a) Revenue expenditure (c) Capital expenditure
(b) Deferred revenue expenditure (d) Non-deductible expenditure
67. The business income of a company assesses before claiming ₹ 760,000 being 1/5th capital expenditure on family
planning is ₹ 740,000. The balance ₹ 20,000 shall be treated as:
(a) Business loss (c) Unabsorbed expenditure on family planning
(b) Terminal depreciation (d) None of the above
68. Interest on capital from partner of a firm is allowed as deduction to the firm to the extent of:
(a) Rate mentioned in the partnership deed
(b) 12% p.a. even if it is not mentioned in partnership deed
(c) 12% p.a. or at the rate mentioned in partnership deed whichever is less
(d) Any rate at the choice of partner
69. Deduction under section 40(b)shall be allowed on account of salary/remuneration paid to:
(a) Any partner (c) Major partner only
(b) Working partner only (d) None of the above
70. In case the assesses follows mercantile system of accounting, bonus or commission payable to employee shall be
allowed as deduction on:
(a) Due basis
(b) Payment basis
(c) Due or payment basis, at the option of the assesses
(d) Due basis but subject to condition of section 43B.
71. Interest on money borrowed for the purpose of acquiring a capital asset pertaining to the period after the asset is put
to use is to be:
(a) Capitalized
(b) Treated as revenue expenditure
(c) Either capitalized or treated as revenue expenditure at the option of the assessee
(d) Capitalized to the extent of 50% and balance 50% is to be treated as revenue expenditure
72. Mr. W acquired an asset for ₹ 5,90,000 which included ₹ 90,000 as GST for which the assesses has claimed ITC. The
actual cost of acquisition to be included in the block of asset shall be:
(a) ₹ 5,00,000 (c) ₹ 5,90,000
(b) ₹ 6,50,000 (d) None of the above
73. Where the entire block of the asset is sold for a price more than the opening W.D.V. plus cost of assets, if any,
acquired during the year, the excess, amount shall be subject to:
(a) Balancing charge
(b) Short-term capital gain
(c) Long-term on short-term capital gain depending upon the period for which block is held.
74. Mr. V is doing agency business and has received a sum of ₹ 5,00,000 from his principal for termination of agency.
Compensation amount so received shall be:
(a) Exempt as it if capital receipt (c) Fully taxable under the head business and profession
(b) Taxable under the head other sources (d) None of the above
75. Mr. R owns two commercial vehicles. One vehicle is heavy good vehicles which can carry weight of 16 tonnes. This
was owned for 9 months and three days. The other vehicle is light goods vehicle which is owned for 11 months & 22
days. What is the income from business of Mr. R if he opts for presumptive scheme under section 44AE?
(a) ₹ 2,50,000 (c) ₹ 4,20,000
(b) ₹ 4,05,000 (d) ₹ 3,90,000
76. YT Ltd. purchased goods on credit from D Ltd. on 7th May 2022 for ₹ 86,000 for which payment of ₹ 5,000 is made in
cash on 12th May 2022; ₹ 40,000 by bearer cheque on 30th May 2022 & Rs. 41,000 by account payee cheque on 13th
June 2022. The amount of disallowance u/s 40A(3) is:
(a) ₹ 15,000 (c) ₹ 45,000
(b) ₹ 40,000 (d) ₹ 86,000
77. Cash payment of ₹ 17,000 & ₹ 6,000 was made by OPL Ltd. against Bill No. 1 & Bill No. 23 respectively to a contractor
engaged in plying of passenger carriage on 29th June 2022. How much amount is disallowed under section 40A(3)?
(a) ₹ 17,000 (c) ₹ 23,000
(b) ₹ 10,000 (d) Nil
78. Interest on capital & interest on loan received by a partner from a firm is:
(a) Exempt for the partner under section 10(2A)
(b) Taxable for the partner as income from business and profession to the extent it is allowed as deduction to the
firm under section 40(b)
(c) Taxable for the partner as income from business and profession
(d) Taxable for the partner as income from business and profession on account of interest on capital to the extent it
is allowed and income from other sources on account of interest on loan
79. Any sum received by an employer from keyman insurance policy taken on the life of the employee shall be for the
employer as:
(a) Income from Salaries (c) Income from Other Sources
(b) Income from Business & Profession (d) Income from Capital Gains
80. Tax audit is compulsory in case a person is carrying on profession referred under section 44AB whose gross receipts
exceeds:
(b) ₹ 150 lakhs (d) ₹ 200 lakhs
81. An Individual who has been carrying on non-specified profession is:

(a) not required to maintain any books of account
(b) required to maintain book of account of the current previous year if the gross receipts of such profession exceed
₹ 1,50,000.
(c) required to maintain books of account of the current previous year if the gross receipts of such profession of any
of three preceding previous year exceeded ₹ 10 lakhs.
(d) required to maintain book of account of the current previous year if in any of the preceding 3 previous years his
total income exceeded ₹ 2,50,000 or gross receipts exceeded ₹ 25 lakhs.
82. In the case of company assessee, the total preliminary expenses incurred are allowed as deduction to extent of 5% of:
(a) the cost of the project
(b) the aggregate capital employed
(c) the cost of project or the capital employed whichever is higher
(d) none of the above
83. Which of the following expenditure on scientific research is not allowed as deduction?
(a) Revenue expenses incurred during the previous year
(b) Revenue expenses on payment of salary to employees engaged in scientific research and purchase of material
used in scientific research incurred during three years immediately preceding the commencement of business
(c) Capital expenditure incurred on scientific research during the year related to the business
(d) Expenditure incurred on acquisition of land during the year for scientific research
84. Deduction of 100% for in-house research shall be allowed for the purchase of:
(a) Any assets (c) Any assets other than land
(b) Any assets other than land and buildings (d) Only Plant and machinery
85. Donation to approved university or college for social or statistical research shall be allowed as deduction to the extent
of
(a) 125% of the donation so made (c) 100% of the donation so made
(b) 175% of the donation so made (d) 200% of the donation so made
86. Brought forward unabsorbed capital expenditure on scientific research can be carried forward:
(a) indefinite period of time (c) 8 years
(b) 5 years (d) 10 years
87. W.D.V. of block having 5 machines for which depreciation rate is 15% as on 1/4/2022 is ₹ 5,00,000. 1 new machine
amounting to ₹ 1,00,000 was acquired on 1/1/2023 and put to use on 1/2/2023. During the PY 2022-23, 2 old
machinery are sold for ₹ 5,40,000. The depreciation to be allowed for this block shall be:
(a) ₹ 9,000 (c) ₹ 4,500
(b) ₹ 5,000 (d) ₹ 5,400
88. Unabsorbed depreciation brought forward from an earlier year of a particular business can be set off from:
(a) the same business (c) any head of income
(b) any business income (d) any head of income except income from salary
89. Electricity companies are allowed depreciation on the basis of:

(a) Block of asset
(b) Each asset separately
(c) Each asset separately unless the assessee opts for block of asset system in the first previous year of its
commencement.
(d) Either on block of asset or each asset separately provided the option is exercised in the first previous year.
90. Mr. K, a retailer acquired furniture on 10th May 2022 for ₹ 10,000 in cash and on 15th May 2022, for ₹ 15,000 and ₹
20,000 by a bearer cheque and account payee cheque, respectively. Depreciation allowable for PY 2022-23 would be
(ICAI MCQ Booklet)
(a) ₹ 2,000 (c) ₹ 3,000
(b) ₹ 3,500 (d) ₹ 4,500
91. ABC Ltd. incurred capital expenditure of ₹ 1,50,000 on 1/4/2022 for acquisition of patents and copyrights. Such
expenditure is
(a) Eligible for deduction in 10 years from AY 2023-2024
(b) Eligible for deduction in 5 years from AY 2023-2024
(c) Subject to depreciation @ 25% under section 32
(d) Subject to depreciation @ 15% under section 32
92. Which of the following income is not chargeable as income of business or profession?
(a) Profits and gains of business carried by an assessee during the previous year
(b) Income derived by a trade, professional or similar association from specific services performed for its members
(c) Winnings from horse races
(d) Salary received by a partner of a firm from the firm in which he is a partner
93. In case of electricity companies charging depreciation on SLM basis on a single asset if such assets is sold for a price
more than its value but less than its historical cost then the assessee shall be chargeable for:
(a) balancing charge
(b) short-term capital gain
(c) short-term or long-term capital gain depending upon the period after which the block is transferred
(d) balancing charge or capital gains at the choice of the assessee
94. If a new machinery eligible for 15% rate of depreciation is purchased on 15/4/2021 and put to use for the purpose of
the business on 2/1/2023, depreciation would be allowable at the rate of:
(a) 7.5% (c) 15%
(b) 10% (d) 20%
95. Employer’s contribution to provident fund/superannuation fund/gratuity fund is allowed as deduction in computing
income under the head “Profits and gains of business or profession”, provided it has been paid-
(a) Before the end of the previous year
(b) On or before the due date by which the employer is required to credit an employee’s contribution to the
employee’s account in the relevant fund.
(c) On or before the due date for filing the return of income under section 139(1).
(d) Before the end of the relevant assessment year
96. An assessee uses plant and machinery for the purpose of carrying on his business. Under section 31, he shall be
eligible for deduction on account of-
(a) Both capital and revenue expenditure on repairs
(b) Current repairs
(c) Current repairs plus 1/5th of capital expenditure on repairs.
97. The W.D.V. of a block (Plant and Machinery, rate of depreciation 15%) as an 1.4.2022 is ₹ 3,20,000. A second-hand
machinery costing ₹ 50,000 was acquired on 1.9.2022 but put to use on 1.11.2022. During January 2023, part of this
block was sold for ₹ 2,00,000. The depreciation for P.Y. 2022-23 would be- (ICAI MCQ Booklet)
(a) ₹ 21,750 (c) ₹ 25,500
(b) ₹ 21,125 (d) ₹ 12,750
98. Sakshita Ltd., has spent a sum of ₹ 30 lakhs towards meeting its corporate social Responsibility (CSR) obligation. The
amount of deduction available while computing the business income is:
(a) ₹ 30 lakh (c) ₹ 37.5 lakh
(b) Nil (d) ₹ 45 lakh
99. Zing Zang is an individual, manufacturing a product. He has turnover of ₹ 98,50,000 which is inclusive of amount of ₹
25 lakhs received through electronic clearing system. The accounts are not property maintained and you have advised
him to pay tax u/s 44AD of the Act. On how much income he will pay tax for P.Y. 2022-23:
(a) ₹ 7,88,000 (c) ₹ 7,38,000
(b) Manufacturers not allowed u/s 44AD (d) ₹ 5,91,000
100. Which is the charging section of income under the head profits and gains of business or profession?
(a) Section 15 (c) Section 28
(b) Section 24 (d) Section 17
101. An assessee paid insurance premium against risk of damage or destruction of stocks or stores used for the purposes
of his business or profession. Such expenditure shall be considered as;
(a) Revenue expenditure (c) Capital expenditure
(b) Deferred revenue expenditure (d) Illegal expenditure
102. Where an asset is purchased in last year & put to use in the current year, then depreciation shall be:
(a) fully allowed irrespective of its installation
(b) fully allowed only if used for more than 180 days, otherwise 50% of depreciation shall be allowed
(c) 50% of normal depreciation irrespective of its installation
103. DLF builders sold a flat for ₹ 5 crores to Mr. Chauhan. The stamp duty value of the property was ₹ 5.20 crores on the
date of agreement, however the stamp duty value on the date of registry was ₹ 5.40 crores. Mr. Chauhan paid ₹ 25
lakhs as advance on the date of booking by account payee cheque. Determine the full value of consideration as per
the relevant provisions of the act.
(a) ₹ 5.40 crores (c) ₹ 5.25 crores
(b) ₹ 5.20 crores (d) ₹ 5 crores
104. Mr. Kumar paid ₹ 40,000 as commission to his brother for securing a business order. He generally pays ₹ 25,000 to
other agents for securing such order. Discuss the validity of the payment.
(a) Whole ₹ 40,000 shall be allowed as expenditure
(b) Amount excessively paid (i.e. ₹ 15,000) shall be disallowed, rest ₹ 25,000 shall be allowed
(c) Whole ₹ 40,000 shall be disallowed
(d) Expenditure shall be allowed to the extent permitted by the assessing officer.
105. Mr. Sharma acquired a building on 15.12.2020 for ₹ 12,00,000 and was using this building for residential purposes. He
later on decided to use this building for professional purposes on 14.10.2022. Compute his depreciation assuming the
rate of depreciation to be 10%.
(a) ₹ 1,20,000 (c) ₹ 51,300
(b) ₹ 1,02,600 (d) ₹ 60,000
106. Mr. Gupta made payment to a non-resident in the form of salary on which TDS was not deducted in the F/Y 2022-23.
However, TDS was deducted on such amount in the F/Y 2023-24. Discuss in which year Mr. Gupta can claim such
expenditure in his Profit & Loss Account?
(a) F/Y 2022-23
(b) F/Y 2023-24
(c) He cannot claim deduction of this expenditure even if he has deducted TDS later on
(d) The assessing officer will decide the year in which the expenditure can be claimed
107. Where the stock of a businessman is converted into his capital asset, then
(a) the FMV shall be considered to be the sale value
(b) the historical cost shall be considered to be the sale value
(c) the cost shall be reduced from the value of the purchases
108. Rate of depreciation for pollution control equipments is:

(a) 15% (c) 10%
(b) 30% (d) 40%
109. Which of the following statement in incorrect?

(a) Interest paid under the Income Tax Act, 1961 shall not be admissible as an expense
(b) Penalty paid under any GST law is an admissible expense
(c) Expenditure on legal proceedings under Custom law shall not be allowed
(d) Provisions/Reverses under Income Tax can be created
110. Which of the following assets are eligible for additional depreciation?
(a) Road transport vehicle (c) Second hand machinery installed in factory
(b) Water cooler installed in office premises (d) Computers installed in factory
111. Expenditure incurred by pharmaceutical companies in the form of gifts/freebies to medical practitioner shall be
(a) allowed as deduction (c) shall not be allowed deduction
(b) partially allowed as determined by the AO (d) 50% allowed & 50% disallowed
112. Mr. Kunal sells printers to Ms. Prachi on credit. Outstanding balance as on 1st April 2022 is ₹ 2,00,000. Sales made
during the year were ₹ 4,50,000. Payment made by Ms. Prachi during the year 2022-23 is ₹ 1,50,000. On 31st March
2022, Kunal writes off ₹ 70,000 as bad debts. However, in November 2022, Mr. Kunal received ₹ 4,60,000 as full &
final payment. Discuss the necessary treatment for the F/Y 2022-23.
(a) ₹ 30,000 shall be treated as bad debts recovered and therefore liable to tax
(b) No treatment shall be done
(c) ₹ 70,000 shall be shown as bad debts but no treatment of recovery
(d) whole ₹ 4,60,000 shall be treated as income and therefore liable to tax
113. Ms. Kiran Pal purchased goods on credit from his brother for ₹ 85,000 where as the market value of such goods was ₹
62,000. The payment was made by bearer cheque on 25th January 2023. Discuss the treatment of such expenditure.
(a) Full ₹ 85,000 shall be allowed as deduction
(b) ₹ 23,000 shall be disallowed u/s 40A(2) but ₹ 62,000 shall be allowed as deduction
(c) ₹ 23,000 shall be disallowed u/s 40A(2) & ₹ 62,000 shall be disallowed u/s 40A(3)
(d) ₹ 62,000 shall be disallowed u/s 40A(3) but ₹ 23,000 shall be allowed as deduction
114. An asset of ₹ 2,00,000 was used by DFC Ltd. in scientific research. After 3 years, the asset ceased to be used in the
scientific research business and was sold for ₹ 2,40,000. Discuss the treatment of the sale of the scientific research
asset.
(a) ₹ 2,00,000 shall be taxable u/h PGBP & ₹ 40,000 u/h Capital Gains
(b) Whole ₹ 2,40,000 shall be taxable u/h PGBP
(c) Whole ₹ 2,40,000 shall be taxable u/h Capital Gains
(d) ₹ 1,20,000 shall be taxable u/h PGBP & ₹ 1,20,000 u/h Capital Gains
115. Where land or building or both are held as stock-in-trade, then the treatment of such land or building or both shall be
done under
(a) Section 43CA (c) Section 43BA
(b) Section 43AC (d) Section 44BC
116. Advertisement expenditure incurred was ₹ 1,20,000 out of which ₹ 30,000 was paid by cash, ₹ 40,000 through ECS &
the balance by Account Payee DD. The amount of expenditure deductible shall be:
(a) ₹ 40,000 (c) ₹ 1,20,000
(b) ₹ 50,000 (d) ₹ 70,000
117. Donation to Indian Institute of Technology for scientific research is eligible for ……….. deduction.
(a) 50% (c) 100%
(b) 150% (d) 200%
118. DF Ltd. has set up a manufacturing undertaking in the backward areas of Bihar in 2021-22. He has purchased
machinery worth 20 crores on 14th September 2021 but put to use on 20th January 2022. Compute the additional
depreciation for DF Ltd. for the P/Y 2022-23.
(a) ₹ 4 crores (c) Nil
(b) ₹ 1.7 crores (d) ₹ 2 crores
119. A power generating company is claiming depreciation on written down value basis. The block has only 1 asset whose
w.d.v value as on 1st April 2022 is ₹ 2,50,000. The company sold the asset for ₹ 2,20,000. Discuss the treatment
assuming rate of depreciation to be 15%.
(a) Terminal depreciation – ₹ 30,000 (c) Depreciation on ₹ 30,000 @ 15% = ₹ 4,500
(b) Short term capital loss - ₹ 30,000. (d) None of the above
120. PQ Ltd. commenced a specified business u/s 35AD on 25.06.2020 and purchased an asset worth ₹ 20,00,000 and put
to use on the same day. However, this asset was transferred from specified business to normal business on 29th
September 2022. Compute the amount taxable (if any) for PQ Ltd assuming the depreciation rate to be 15%.
(a) ₹ 20,00,000 (c) ₹ 17,00,000
(b) ₹ 14,45,000 (d) Not taxable at all
121. M/s ABC, an eligible assessee, following mercantile system of accounting, carrying on eligible business under section
44AD provides the following details: (ICAI MCQ Booklet)
 Total turnover for the financial year 2022-23 is ₹ 130 lakh
 Out of the above:
- ₹ 25 lakh received by A/c payee cheque during the financial year 2022-23;
- ₹ 50 lakh received by cash during the financial year 2022-23;
- ₹ 25 lakh received by A/c payee bank draft before the due date of filing of return;
- ₹ 30 lakh not received till due date of filing of return.
What shall be the amount of deemed profits of M/s ABC under section 44AD for A.Y. 2023-24?
(a) ₹ 10.4 lakh (c) ₹ 5.5 lakh
(b) ₹ 7.0 lakh (d) ₹ 9.4 lakh
122. Mr. Shahid, a wholesale supplier of dyes, provides you with the details of the following cash payments he made
throughout the year –
• 12-06-2022: loan repayment of ₹ 27,000 taken for business purpose from his friend Kunal. The repayment also
includes interest of ₹ 5,000.
• 19-08-2022: Portable dye machinery purchased for ₹ 15,000. The payment was made in cash in three weekly
instalments.
• 26-01-2023: Payment of ₹ 10,000 made to electrician due to unforeseen electric circuit at shop
• 28-02-2023: Purchases made from unregistered dealer for ₹ 13,500
What will be disallowance under 40A(3), if any, if Mr. Shahid opts to declare his income as per the provisions of
section 44AD? (ICAI MCQ Booklet)
(a) ₹ 18,500 (c) ₹ 13,500
(b) ₹ 28,500 (d) Nil
123. An electricity company charging depreciation on straight line method on each asset separately, sells one of its
machinery in April, 2022 at ₹ 1,20,000. The WDV of the machinery at the beginning of the year i.e., on 1 st April, 2022
is ₹ 1,35,000. No new machinery was purchased during the year. The shortfall of ₹ 15,000 is treated as – (ICAI MCQ
Booklet)
(a) Terminal depreciation (c) Normal depreciation.
(b) Short-term capital loss (d) Any of the above, at the option of the assessee
124. K is a working partner in a firm on behalf of his HUF and the HUF has contributed ₹ 3,00,000 as its capital
contribution. Apart from this, K has given a loan of ₹ 50,000 to the firm in his individual capacity. The firm pays
interest as per market rate of 15% per annum on capital as well as loan. Compute the amount of interest that shall be
allowed to the firm while calculating its business income assuming that the interest is authorized by the partnership
deed. (ICAI MCQ Booklet)
(a) ₹ 42,000 (c) ₹ 52,500
(b) ₹ 51,000 (d) ₹ 43,500
125. Mr. C, aged 35 years, is a working partner in M/s BCD, a partnership firm, with equal profit-sharing ratio. During the
P.Y. 2022-23, the firm has paid remuneration to Mr. B, Mr. C and Mr. D, being the working partners of the firm, of ₹
2,00,000 each. The firm has paid interest on capital of ₹ 1,20,000 in to all the three partners and the same is within
the prescribed limit of 12%. The firm had a loss of ₹ 1,12,000 after debiting remuneration and interest on capital.
Note – Remuneration and interest on capital is authorized by the partnership deed.
You, being the CA of Mr. C, are in the process of computing his total income. What would be his taxable remuneration
from the firm? (ICAI MCQ Booklet)
(a) ₹ 2,00,000 (c) ₹ 1,27,600
(b) ₹ 1,51,600 (d) ₹ 1,50,000
MCQ’s Answers
1. (c) 2. (a) 3. (d) 4. (c) 5. (c) 6. (b) 7. (c) 8. (a) 9. (d) 10. (a)
11. (a) 12. (d) 13. (a) 14. (c) 15. (a) 16. (b) 17. (b) 18. (a) 19. (c) 20. (c)
21. (c) 22. (c) 23. (b) 24. (a) 25. (a) 26. (b) 27. (b) 28. (c) 29. (d) 30. (c)
31. (b) 32. (d) 33. (a) 34. (c) 35. (d) 36. (c) 37. (c) 38. (a) 39. (a) 40. (b)
41. (a) 42. (a) 43. (c) 44. (b) 45. (d) 46. (b) 47. (d) 48. (b) 49. (d) 50. (a)
51. (a) 52. (c) 53. (d) 54. (d) 55. (a) 56. (a) 57. (a) 58. (a) 59. (b) 60. (b)
61. (c) 62. (c) 63. (c) 64. (d) 65. (d) 66. (d) 67. (c) 68. (c) 69. (b) 70. (d)
71. (b) 72. (a) 73. (b) 74. (c) 75. (a) 76. (b) 77. (d) 78. (d) 79. (b) 80. (a)
81. (d) 82. (c) 83. (d) 84. (c) 85. (c) 86. (a) 87. (c) 88. (d) 89. (d) 90. (c)
91. (c) 92. (c) 93. (a) 94. (c) 95. (c) 96. (b) 97. (a) 98. (b) 99. (c) 100. (c)
101. (a) 102. (a) 103. (d) 104. (b) 105. (b) 106. (c) 107. (a) 108. (d) 109. (b) 110. (d)
111. (c) 112. (a) 113. (c) 114. (a) 115. (a) 116. (d) 117. (c) 118. (d) 119. (b) 120. (b)
121. (d) 122. (d) 123. (a) 124. (d) 125. (c)
ICAI Case Based MCQs

1. “Lux Enterprises” a proprietorship firm of Mr. Lucifer Mornigstar, a resident individual, in Maharashtra engaged in
business of printing and publishing. The following details pertain to assets of the business:
Particulars Date of purchase Date of put to use Amount
Office building superstructure 30-09-2022 30-12-2022 1,85,00,000
constructed on leased land
BMW M4 convertible car 23-08-2019 25-08-2019 94,80,000
Machineries used in printing and 25-09-2022 15-10-2022 9,12,500
publishing process
Notes:
(1) Car is also used for personal purposes; disallowance for personal use may be taken at 20%.
(2) Written down value of Plant & Machinery (depreciable @ 15%) as on 01-04-2022 is ₹ 1,45,00,000.
Based on the facts of the case scenario given above, choose the most appropriate answer to the following questions,
assuming all the aforementioned assets are purchased through account payee cheque:
1.1 What would be the amount of depreciation allowable on plant and machinery (Depreciable @ 15%) for the
previous year 2022-23?
(a) ₹ 24,25,938 (c) ₹ 24,94,376
(b) ₹ 23,34,688 (d) ₹ 24,03,126
1.2 What would be the WDV of plant and machinery (Depreciable @ 15%) as on 01-04-2023?
(a) ₹ 1,29,86,562 (c) ₹ 1,30,77,812
(b) ₹ 1,29,18,124 (d) ₹ 1,30,09,375
1.3 What would the WDV of Office building superstructure constructed on leased land as on 01-04-2023?
(a) ₹ 1,85,00,000 (c) ₹ 1,75,75,000
(b) ₹ 1,66,50,000 (d) ₹ 1,57,25,000
1.4 What would be the amount of depreciation allowable on BMW M4 convertible car for the previous year 2022-23?
(a) ₹ 22,75,200 (c) ₹ 9,98,758
(b) ₹ 9,75,492 (d) ₹ 7,80,394
MCQ’s Answers
1.1 (b) 1.2 (c) 1.3 (c) 1.4 (c)
2. ABC & Co. is a partnership firm engaged in the business of sale of footwear. The partnership firm consist of three
partners – A, B & C. A & B are working partners and C is a sleeping partner. The firm is liable to tax audit under section
44AB of the Act. It has a book profit of ₹ 11,50,000.
Following payments were made to partners as authorised by the partnership deed:
▪ Remuneration to A & B - ₹ 32,000 p.m. to each partner
▪ Remuneration to C - ₹ 10,000 p.m.
▪ Interest on capital @ 19.5% to A & B - ₹ 18,500 p.a. to each partner
▪ Interest on capital @ 17% to C - ₹ 10,540 p.a.
The firm has following brought forward losses of past years:
A.Y. Business loss Unabsorbed depreciation Long-term capital loss
2020-21 26,000 17,600 5,300
2021-22 78,000 29,860 -
2022-23 1,05,670 54,180 13,470
Based on the facts of the case scenario given above, choose the most appropriate answer to the following questions:
2.1 What amount of interest is allowable as deduction in the hands of firm while computing profits and gains from
business or profession?
(a) ₹ 29,040 (c) ₹ 47,540
(b) ₹ 22,769 (d) ₹ 30,209
2.2 What amount of remuneration not allowable as deduction in the hands of firm while computing profits and gains
from business or profession?
(a) ₹ 1,20,000 (c) ₹ 1,08,000
(b) Nil (d) ₹ 78,000
2.3 What is the due date of filing of return of income for Mr. A and Mr. C for the A.Y. 2022-23?
(a) 31st July 2023 for Mr. C and 30th September 2023 for Mr. A
(b) 31st July 2023 for Mr. C and 31st October 2023 for Mr. A
(c) 31st October 2023 for both Mr. A & Mr. C
(d) 31st October 2023 for Mr. C and 31st July 2023 for Mr. A
2.4 What would be the income under the head “Profit and gains from business or profession” in the hands of ABC & Co.
for the A.Y. 2023-24?
(a) ₹ 70,690 (c) ₹ 51,920
(b) ₹ 1,72,330 (d) ₹ 1,53,560
MCQ’s Answers
2.1 (d) 2.2 (a) 2.3 (c) 2.4 (b)

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CA SHREY RATHI PGBP 5.

“Take the stones people throw at you,

WN 1: Calculation of depreciation u/s 32:

Total 16,23,000 Total 16,23,000

MULTIPLE CHOICE QUESTIONS

8. Section 43B & 35DDA are to be followed on ……………… bases of accounting.

11. Depreciation rate for oil wells is –

17. Unabsorbed depreciation can be carried forward

24. Deduction under section 35(1)(ii) is:

31. Which of the following is not a specified business u/s 35AD?

38. If penalty is in nature of compensation then it ……... under section 37(1)

81. An Individual who has been carrying on non-specified profession is:

89. Electricity companies are allowed depreciation on the basis of:

108. Rate of depreciation for pollution control equipments is:

109. Which of the following statement in incorrect?

ICAI Case Based MCQs

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