PROFITS AND GAINS OF BUSINESS OR PROFESSION

Illustration 1 - Depreciation
A newly qualified Chartered Accountant Mr. Dhaval, commenced practice and has acquired
the following assets in his office during F.Y. 2022-23 at the cost shown against each item.
Calculate the amount of depreciation that can be claimed from his professional income for
A.Y. 2023-24:

Sl. Date of Date when Amount

No Description acquisition put to use (Rs.)
1. Computer & computer software 40% 27 Sept, 2022 1 Oct, 2022 35,000
2. Computer UPS 40% 2 Oct, 2022 8 Oct, 2022 8,500
3. Computer printer 40% 1 Oct, 2022 1 Oct, 2022 12,500
Books (of which books being annual publications are
1 Apr, 2022 1 Apr, 2022 13,000
4. of 12,000)
5. Office furniture (Acquired from a practicing C.A.) 1 Apr, 2022 1 Apr, 2022 3,00,000
6. Laptop 26 Sept, 2022 8 Oct, 2022 43,000

Illustration 2 - Depreciation + STCG

Mr. X has following assets with him as on 01.04.2022

Details of Assets Written Down Value

1 Motor Car 1,60,000
2 Laptop 23,000
3 Furniture Fixture 11,000

Due to a fire in the office premises, laptop and furniture-fixture were destroyed and he has
received a claim of Rs. 19,000 for laptop and Rs. 12,000 for furniture.
He has computed income from business Rs. 3,00,000 before taking into consideration
depreciation or capital gains with regard to the above assets. Compute his Tax Liability for
Assessment Year 2023-24.

Illustration 3 – Additional Depreciation

Lights and Power Ltd. engaged in the business of distribution of power, furnishes the
following particulars pertaining to P.Y. 2022-23. Compute the depreciation allowable under
section 32 for A.Y.2023-24, while computing its income under the head “Profits and gains of
business or profession” the company has opted for the depreciation allowance on the basis of
written down value.Also calculate depreciation allowable if the Assessee has opted for the
optional tax Regime U/S 115 BAC.

Particulars Rs.
1. Opening Written down value of Plant and Machinery (15% block) as on 01.04.2022 5,78,000
(Purchase value Rs. 8,00,000)
2. Purchase of second hand machinery (15% block) on 29.12.2022 for business purpose 2,00,000
Machinery Y (15% block) purchased and installed on 12.07.2022 for the purpose of
3. 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
distribution of power
Sale value of an old machinery X, sold during the year (Purchase value Rs. 4,80,000,
7. WDV as on 01.04.2022 Rs. 3,46,800) 3,10,000
Illustration 4
From the following data, calculate the depreciation admissible to an individual carrying on
trading business:
Particulars Amount (Rs.)
Plant and Machinery (Block Rate 15%)
Opening WDV of Plant A and Plant B on 01-04-2022 25,00,000
Additions – Plant C on 30-06-2022 15,00,000
(5,00,000 is paid in cash and balance 10,00,000 is paid through account payee cheque)
Plant D on 31-12-2022 12,00,000
(4,80,000 is paid in cash and balance 7,20,000 through RTGS transfer)
Sales – Plant A on 01-12-2022 6,00,000

Illustration 5 – Scientific Research Expenditure

A Ltd. furnishes the following particulars for the P.Y.2022-23. Compute the deduction
allowable under section 35 for A.Y.2023-24, while computing its income under the head
“Profits and gains of business or profession”.

Particulars Rs.
1. Amount paid to Indian Institute of Science, Bangalore, for scientific research 1,00,000
2. Amount paid to IIT, Delhi for an approved scientific research programme 2,50,000
3. Amount paid to X Ltd., a company registered in India which has as its main object 4,00,000
scientific research and development, as is approved by the prescribed authority
4. Expenditure incurred on in-house research and development, for a specified
business as approved by the prescribed authority
(a) Revenue expenditure on scientific research 3,00,000
(b) Capital expenditure (including cost of acquisition of land Rs.5,00,000) on scientific 7,50,000
research

Illustration 6
st
The profit and loss account of Mr. Dharmender for the previous year ending 31 March, 2023
is as follows:
Particulars Amount Particulars Amount
Cost of Goods Sold 105,45,000 Sales 109,70,000
Remuneration to Proprietor 3,00,000 Dividend from Indian Company 30,000
Remuneration to Employees 1,70,000 Long term capital gain 1,90,000
Interest to proprietor 40,000
Other Expenses 1,00,000
GST outstanding 10,000
Net Profit 25,000
111,90,000 111,90,000
Following additional information is provided:
(1) Other expenses include the following:
(i) Entertainment expenses incurred for business purpose Rs.20,000.
(ii) V.I.P bags, Costing Rs.1,500 each, given to ten dealers who exceeded the sales
target under the sales promotion scheme.
(iii)Employer’s contribution to recognized provident fund amounting to Rs. 10,000
was paid on 20.04.2022.
(iv)Rs. 30,000 paid in cash to a supplier who refused to accept payment by a cheque.
(2) Outstanding GST was paid on 14.11.2023
(3) Other income of Mr. Dharmender is under the head house property of Rs. 90,000.
(4) Last date of filing income tax return is 31/07/2023.
You are required to compute tax liability for the assessment year 2023-24.

Illustration 7
 Mr. Santosh Kumar a Chartered Accountant submits his receipt and payment account for previous year
2021-22.

Receipts Rs. Payments Rs.

Balance b/d 1,00,000 Stipend to articled clerks 12,000
Audit Fees 2,40,000 Office Expenses 24,000
Payment received for appearing 25,000 Purchased softwares for professional 22,500
before Income Tax Appellate purposes on 01.07.2021 and put to use on
Tribunal the same date
Miscellaneous receipts 20,000 Salaries and Wages 20,500
Rent received for house property 24,000 Printing and Stationery 4,000
Present from clients 10,000 Subscription to ICAI 1,500
Office Rent 18,000
Travelling Expenses 5,000
Interest on loan for payment of income
tax 12,000
Donation to poor persons 5,000
Drawings for personal use 1,02,000
Balance c/f 1,92,500
4,19,000 4,19,000

Compute his tax liability for the Assessment Year 2023-24.

Illustration 8
Roopen is a Chartered Accountant in practice. He is a resident and ordinarily resident in India.
His Profit and Loss Account for the year ended March 31, 2023 reads as follows:

Expenses Rs. Income Rs.

Salaries to paid staff 4,25,000 Fees Earned :
Stipends to Articled Clerks 10,500 Audit 5,10,400
Incentives to Articled clerks 5,000 Taxation services 5,40,000
Rent 24,000 Consultancy Services 4,62,000 15,12,400
Printing & stationery 5,600 Income from Unit Trust of India 5,600
Contribution to Recognised Provident 30,000 Dividend on Shares of Indian 10,623
Fund Companies (Gross)
Expenses on Meeting, Seminar and 45,000 Honorarium received from various
Conference institutions for evaluation of answer
papers 6,230
Interest on loan 56,000 Profit on Sale of Shares 15,620
Rent received from let-out
Books and Periodicals 16,500 residential flat 72,000
Postage, Telephone and Fax 1,72,500
Repairs, Maintenance and petrol for Car 17,500
Depreciation:
Car 7,500
Computer 15,000
Typewriter 4,500
Furniture 2,500 29,500
Travelling expenses 55,000
Municipal tax paid in respect of House 1,000
Property
Net Profit 7,29,373
16,22,47
3 16,22,473
Other Information:
(a) Fees from consultancy services include Rs.1,40,000 received in US dollar from one
company in Singapore for rendering professional service there (assume that the entire
convertible foreign exchange was received within permitted period).
(b) Travelling expenses include Rs.20,000 incurred in connection with his visit to Singapore
for rendering service as indicated in (a) above.
(c) Included in meeting, seminar and conference expenses, a sum of Rs.18,000 incurred for
entertaining various clients in hotels and clubs.
(d) Incentives to articled clerks represent amount paid to two articled clerks for passing IPCC
examination at first attempt.
th
(e) 1/4 of use of car is attributable to personal purposes.
(f) 50% of loan was used for the purpose of construction of the house property and 50% of
loan was used for purchasing office computer.
(g) Roopen follows accrual basis of accounting. Printing & Stationery include Rs. 2,000
being the cost of some stationery items purchased in accounting year 2020-21 which was
not provided for in that year due to oversight.
(h) The written down values of various assets as on 1.4.2022 are as follows:
Particulars Rs.
Car (acquired on 1.4.2020) 81,920
Computer (acquired on 15.12.2022 at cost of Rs.2,25,000) Nil
Typewriter (acquired on 1.4.2019) 15,000
Furniture (acquired on 1.9.2020) 25,000
(i) Salaries include Rs.25,000 paid to a computer specialist in cash for assisting Roopen in
one professional assignment.
(j) Roopen paid life insurance premium of Rs.500. The amount was debited to his Drawing
Account.
(k) Shares sold were held for 8 months before sale.
You are required to compute the total income of Roopen for assessment year 2023-24.

Illustration 9
Versa Ltd. presents the following information to you pertaining to the year ending March
st
31 , 2023:
1. A Machinery costing Rs. 50,000 is purchased for which a single payment is made in
cash.
2. Having regard to the vast purchase of a particular chemical by the company, the
supplier of the chemical presents a car worth Rs. 2,50,000, which is used for business
purposes by the company.
3. Expenditure towards acquisition of technical know-how paid to a foreign company in a
lump sum Rs. 6 lakhs.
4. The company has paid income–tax of Rs. 60,000 being the tax in respect to non–
monetary perquisites of an employee.
5. The company wanted to start a new plant for manufacturing of a new product. Y Ltd.,
paid to the company Rs. 10 lakhs in order not to start the same and not to compete
with it.
6. The company has paid Rs. 20 lakhs to four employees at the time of their voluntary
retirement, in accordance with the approved scheme of voluntary retirement.
7. The company has borrowed Rs. 15 lakhs for acquiring a machinery. Interest paid is
Rs. 90,000. The machinery is not put to use during the year.
8. Payment of Rs. 40,000 is made to a Don for ensuring that the employees will not
indulge in strike.
9. The company has incurred expenditure of Rs. 34,000 in respect of exempt income.
This forms part of administrative expenses.
You are requested to briefly state with reasons as to how the above are to be dealt with in
computing the total income of the company for the assessment year 2023-24. The total
income need not be computed.