Q.1. Mr.Amit is a practicing Chartered Accountant in Mumbai.

For the year ended 31st Marc

receipts and payments were as follows:
Particulars
Receipts
Fees received from clients
Retainership fees
Retainership fees
Interest on fixed deposits with Public LTD companies
Rent received for sub-letting table space
Payments
Salaries to assistants
Rent and Electricity for office
Telephone charges
Printing & stationery
Car hire and Taxi fare
Life Insurance Premium
Income Tax
Gifts,presents,charity etc
Typewriter purchased
Fire Insurance premium of office
Depreciation of Motor car
Compute his income from Profession for the A.Y 2020-21, assuming that 20% of Telephone
Car Expenses is for personal use.
31st March, 2020 his

Amount

50,000
12,000
3,000
5,000
1,200

6,000
9,600
3,600 -20%
1,200
3,000 -20%
3,000 X
5,000 X
1,000 X
4,500 X
3,000
5,000 -20%
Telephone charges,
Ans-1 Mr. Amit (Chartered Accountant) (Direct Method)
PY : 2019-20 AY: 2020-21
Status : Individual Resd. Status: R & OR
Computation of Income from Profession (Direct Method)
Allowable Income from Profession -
Fees received from Clients 50,000
Retainership Fees 12,000

Less:
Allowable Expenses from Profession -
Salary to Assistants 6,000
Rent & Electricity for Office 9,600
Telephone Charges (3,600 X 80% Official) 2,880
Printing and Stationery 1,200
Car and Taxi Hire Charges (3,000 X 80%) 2,400
Fire Insurance Premium paid of Office 3,000
Depreciation of Car (5,000 X 80% Official) 4,000

Taxable Income from Profession

Note-1 Following incomes are not taxable as professional income -

 (It is income from Other Sources)
a) Interest on FD with Banks 3,000/-
b) Interest on Deposits with Company Rs. 5,000/-
c) Rent from subletting of office Space Rs. 1,200/-
Note-2 Following Expenses are not professional Expenses and disallowable-
a) Life Insurance Premium Paid (Personal LIC Policy) 3000/-
b) Income Tax, Gift Tax, Wealth Tax, Fines & Penalty etc are disallowable
c) Gifts, Presents and Charity of Rs. 1,000/- on Personal level and hence
are disallowable expenses (If Gifts and Presents are given to clinets
on official purpose then this expenses are eligible for deduction)
d) Typewriter Puchased Rs. 4,500/- is a capital assets/Fixed Assets and
not eligible for deduction.
0-21
atus: R & OR
t Method)

62,000

(29,080)

32,920

ome -
d disallowable-

are disallowable
evel and hence
en to clinets
eduction)
d Assets and
Q.2. From the following Profit & Loss Account of Mr.Sohan for the year ending 31st
computer income from business for the Asssement Year 2020-21
Profit & Loss Account

Particulars Amount Particulars

To office salaries (3) 15,000 By Gross Profits

To General Exp (2) 8,500 By Int on Bank Deposits

To Int on Capital of Sohan 3,000 By Int on company Deposits

By Refund of Income Tax for
To Bad debts reserve 5,000 A.Y.2016-17

To Depreciation (1) 15,000

To Advertisement (4) 9,000

To Fire Insurance Premium 1,200

To Donation 5,000

To Advance Income Tax 4,000

To GST paid 5,000

To Income tax for 2018-19 3,000

To Net Profit 69, 000

1,42,700

Following additional information is given:

1) Allowable depreciation as per Income Tax rules was Rs. 10,000

2) General expenses include furniture purchased worth Rs. 2,500

3) Office salaries include salaries paid to Mrs.Sohan, B.com writes the accounts of the business.

4) Advertisement includes Rs. 2,500 for the advertisement in souvenir of a political party.

Compute income from business

year ending 31st March, 2020.

Amount

1,30,000

4,100

7,600

1,000

1,42,700

ts of the business.

itical party.
Ans-2 Mr. Sohan (Indirect Method)
PY : 2019-20 AY: 2020-21
Status : Individual Resd. Status: R & OR
Computation of Income from Business & Profession
Net Profit as per Profit & Loss A/c
Add: Disallowable Expenses
General Expenses (Furniture Purchased) 2,500
Interest on Sohan Capital (Proprietor) 3,000
Bad Debt Reserves 5,000
Depreciation as per Profit & Loss A/c 15,000
Advertisement in Political Party Souvnir 2,500
Donations 5,000
Advance Income Tax 4,000
Income Tax for the year 2018-19 3,000

Less: Disallowable Income

Depreciation as per Income Tax Rules 10,000
Interest on Bank Deposits 4,100
Interest on Company Deposits 7,600
Refund of Income Tax 1,000
Net Taxable Income from Business

Note-1 Rs. 15,000/- Paid to Mrs. Sohan for writing books of accounts are reas
expenses and will not be disallowed.
Note-2 Furniture purchased Rs. 2,500/- is a capital expenses and disallowed.
Note-3 Any amount paid to Proprietor will be disallowed. It includes Interest o
Drawing, Salary, Remuneration, Discount, Fees, Wages etc.
Note-4 Actual Bad Debt is eligible for Deduction whereas Reserve for Bad De
Debt, Provision for Bad Debt etc. are disallowable.
Note-5 Donations,Charities or any Religious Payments are disallowable
Note-6 Any Income Tax payment such as Self Assessment Tax, Advance Inco
Fines, Penalty, Past Income Tax, Income Tax Refund etc. are disallowable.
)
2020-21
d. Status: R & OR
Profession
69,000

40,000
109,000

(22,700)
 86,300

oks of accounts are reasonable

penses and disallowed.

wed. It includes Interest on Capital, Interest on
es etc.
reas Reserve for Bad Debt, Reserve for Doubtful

s are disallowable
ment Tax, Advance Income Tax, Income Tax
etc. are disallowable.
Ans-2 Mr. Sohan (Direct Method)
PY : 2019-20 AY: 2020-21
Status : Individual Resd. Status: R & OR
Computation of Income from Business (Direct Method)
Allowable Income from Business -
Gross Profit as per Profit & Loss Account
Less:
Allowable Expenses from Business -
Office Salary Mrs. Sohan (Allowable/Reasonable) 15,000
General Exp. (8500 - Furniture 2500) 6,000
Depreciation as per Income Tax Rules 10,000
Advertisement (9000 - Political Party 2500) 6,500
Fire Insurance Premium 1,200
GST Paid 5,000

Taxable Income from Business

2020-21
d. Status: R & OR
rect Method)

130,000

(43,700)

86,300
Q.3. Mr.X owns a soap factory at Pune. Following is the Profit & Loss Account prepare
Profit & Loss Account For the year 31.03.2020
Particulars Amount
To GST(incurred during year) 2,000
To Advertising 5,000
To Bonus 8,000
To Commission 2,000
To Depreciation 6,000
To Donation to National Defence Fund 1,000
To Embezzlement by an employee 2,000
To General Exp 5,000
To Salary to staff 10,000
To Office exp 5,000
To Discount to retailers 3,000
To Sundry Exp 5,000
To Net Profit 26,000
80,000
Compute his business income for AY 2020-21.Further particulars:

1. GST paid during the year was Rs. 400.Total bonus paid during the year was Rs. 8,000
2. Office exp include Rs. 1,050 paid as bribe.
3. General exp include Rs. 1,000 being the Municipal taxes respect of house property.
he Profit & Loss Account prepared by him.

Particulars Amount
By Gross Profit 75,000
By House Property Income 5,000

80,000
particulars:

paid during the year was Rs. 8,000 debited in the books.

taxes respect of house property.

Ans-3 Mr. X (Indirect Method)
PY : 2019-20 AY: 2020-21
Status : Individual Resd. Status: R & OR
Computation of Income from Business & Profession
Net Profit as per Profit & Loss A/c
Add: Disallowable Expenses
GST (Outstanding disallowable 2000 - 400) 1,600
Donation to National Defence Fund 1,000
General Exp. (M. Tax of House Property) 1,000
Office Exp. (Bribe given) 1,050

Less: Disallowable Income

Income from House Property 5,000

Net Taxable Income from Business

Note-1 In the absence of information in the question it is assumed that depreciation as pe

P&L Account and as per Income Tax Rules remains same Rs. 6,000/-
Note-2 Embezzlement of Cash Rs. 2,000/- is eligible for deduction
2020-21
. Status: R & OR
Profession
26,000

4,650
30,650

(5,000)

25,650

med that depreciation as per

. 6,000/-
Q.4. Following is the Profit and Loss account of Miss.Pinky for the year ending 31st ma
PROFIT & LOSS ACCOUNT for the year ending 31-3-2020

Particulars Amount
Salaries & Wages 1,50,000
Provision for doubtful debts 12,000

Printing & Stationery 18,000

Advertisement & Publicity 80,000

Entertainment Expenses 25,000

Misc.Exp 48,000
Staff Welfare Exp 51,000
Bad Debts 4,000
Int on Capital 49,500
Income Tax 33,500
Drawings 22,000
4,93,000
Other Information
Advertisement & publicity expenses includes Rs. 45,000 for introducing a new
benefit of which will accrue for three years & Rs. 5,000 for advertisement in s
political party
account of Miss.Pinky for the year ending 31st march,2020.
he year ending 31-3-2020

Particulars Amount
Gross Profit b/d 370,000
Agriculture Income 25,000
Share of Profit from a partnership
firm assessed as a firm 42,000
Commission received 30,000
Dividend from Indian
companies(received on 1-1-2020) 12,000
Net Loss 14,000

493,000

ses includes Rs. 45,000 for introducing a new product,the

ree years & Rs. 5,000 for advertisement in souvenir of a
Ans-4 Pinky (Indirect Method)
PY : 2019-20 AY: 2020-21
Status : Individual Resd. Status: R & OR
Computation of Income from Business & Profession
Net Loss as per Profit & Loss A/c
Add: Disallowable Expenses
Provisions for Bad Debts / RDD 12,000
Advertisement Exp (Political Party Souvnir) 5,000
Interest on Capital (Pinky Capital) 49,500
Income Tax 33,500
Drawings by Proprietor (Pinky) 22,000

Less: Disallowable Income

Agricultural Income (Exempted from Tax) 25,000
Profit share from Partnership Firm (Exempted) 42,000
Dividend from Indian Company (Exempted) 12,000

Net Taxable Income from Business

Note-1 Rs. 45,000/- advertisement on New Product launching are

allowable expenses and eligible for deduction.
Note-2 Actual Bad debt is eligible for deduction
0-21
atus: R & OR
ofession
(14,000)

122,000
108,000

(79,000)

29,000

are
Q.2. Mr.Maheshwari is the proprietor of Oceana Laundry.He furnishes you the following Receipts

Receipts Amount Payments Amount

To cash in hand 1,500 By Washing charges 90,000

To Laundry receipts 140,000 By Salary 25,000

To Ironing receipts 30,000 By Electricity charges 6,000

To Refund from LIC on life
policy 5,400 By Rent 12,000

By Compensatory for loss of

To Winning from lottery 10,000 clothes 1,200

By Income-Tax 10,000
By purchase of lottery 4,000
tickets
By Tailoring charges 3,600

By Sundry Expenses 1,200

By Closing balance 33,900

186,900 186,900
Compute taxable Business income of Mr.Maheshwari for AY 2019-20.
following Receipts and payment Account for the year ended 31st March, 2019
Ans-2 Mr. Maheshwari
PY : 2019-20 AY: 2020-21
Status : Individual Resd. Status: R & OR

Computation of Income from Profession (Direct Method)

Allowable Incomes
Laundry receipts 140,000
Ironing receipts 30,000 170,000

Allowable Expenses
Washing Charges 90000
Salary 25000
Electricity Charges 6000
Rent 12000
Compensatory loss for
cloths 1200
Tailoring Charges 3600
Sundry Exp 1200 -139,000
Taxable business income 31000

Note:
1)Refund of LIC & Winning from lottery are not business incomes, as it’s a personal income taxable
2)Income tax is not allowed as deduction u/s 40a
3)Purchase of lottery tickets is not a business expense, hence disallowed u/s 37
a personal income taxable under income from other sources
Q.3. Anuradha, a playback singer, entrusts her accounts to you for computation of income from b

Particulars Amount
Concert receipts 24,000
Receipts from film producers 78,000
Royalty from HMV and Music India 10,000
Amount from LIC on maturity of policy 26,000
Cost of train and air tickets for part taken on concert tour to Delhi 14,000
Payments to accompanying artist in above party 8,000
Other receipts on above tour 65,000
Car expenses on travelling to local concerts 18,000
Rent paid(Half premises used for rehearsals etc) 9,000
Collections from students being trained in Music in spare time 12,000
Expenses on Maintenance of Musical Equip 5,000
Manager Salary (PA used 50% time for her Personal work) 10,000
Gift and Presents Given (to Producer) 7000
Gift and Presents Given (to Father) 7000
Gift and Present Received from Fans 25000
Fashion Designer Expenses 12000
Income from Advertisements / Branding 20000
on of income from business for the A.Y. 2019-20.An analysis of bank accounts reveal the following:
al the following:
Ans-3 Anuradha
PY : 2019-20 AY: 2020-21
Status : Individual Resd. Status: R & OR
Computation of Income from Profession (Direct Method)
Allowable incomes
Concert Income 24000
Receipts from producer 78000
Royalty from HMV & Music India 10000
Other receipts on tour 65000
Collection from Students for teaching music 12000
Gifts & presents from Fans 25000
Income from advertising & Branding 20000 234000

Allowable Expenses
Cost of tour tickets 14000
Payment to accompanying artist 8000
Car expenses on travelling to local concerts 18,000
Rent (50% * 9000) used for rehearsal 4500
Expenses on Maintenance of Musical Equip 5,000
Manager’s salary (50%*10000) 5000
Gift and Presents Given (to Producer) 7000
Fashion designer exp 12000 -73500
Taxable business income 160500

Note:
1) Amount of Rs 26000 received from LIC on maturity of Policy is not an income from profession, he
2) Rent and manager’s salary considered 50% only, as 50% for professional purpose only
3) Gift to father is gift given in personal capacity and hence not allowed as profession expenditure
me from profession, hence not to be considered while computing professional income.
urpose only
ofession expenditure
Q.7. Mr. Akshit is a proprietor of a business.
Trading & Profit & Loss Account for the year ending on 31.3.2020
Particulars Amount
To Opening stock 2,34,000
To Purchase 10,00,000
To Office salaries 57,000
To Proprietors salaries 30,000
To Bad Debts 25,000
To Advertisement 10,500
To fire Insurance Premium 4,500
To Conveyance exp 6,000
To Int on Proprietor's capital 25,000
To Medical exp 20,000
To General Exp 35,000
To Wealth tax paid 5,000
To Residential telephone exp 14,000
To GST penalty 4,000
To Depreciation 30,000
To Net Profit 20,000
15,20,000
Additional Information:
1. The residential telephone is used half the time for office work.
2. Purchases include Rs. 80,000 paid for cash purchase, exceeding the limit prescribed u
3. General exp include advance Income tax of Rs. 10,000 paid during the year & Rs.500
4. Depreciation allowable as per Income Tax rules Rs. 25,000
Compute Income from Business for A.Y. 2020-21
s Account for the year ending on 31.3.2020
Particulars Amount
By sales 12,40,000
By Closing Stock 2,05,000
By Income tax refund 15,000
By Dividend from UTI 20,000
By Dividend from Bajaj ltd 25,000
By Int on PPF 15,000

15,20,000

e time for office work.

ash purchase, exceeding the limit prescribed under Section 40A(3) of the Income Tax Act,1961
x of Rs. 10,000 paid during the year & Rs.500 for purchase of Lottery tickets.
ax rules Rs. 25,000
e Tax Act,1961
Ans-7 Mr. Akshit (Indirect Method)
PY : 2019-20 AY: 2020-21
Status : Individual Resd. Status: R & OR
Computation of Income from Business & Profession
Net Profit as per Profit & Loss A/c
Add: Disallowable Expenses
Purchase (Cash Purchase 40A(3) disallowed) 80,000
Proprietor Salary 30,000
Interest on Proprietor Capital 25,000
Wealth Tax Paid 5,000
Only Resd Tele Exp. (14000 X 50% Resd.) 7,000
GST Penalty 4,000
Depreciation as per P&L Account 30,000
Gen Exp. (I. Tax 10000+Lottery 500) 10,500

Less: Disallowable Income

Depreciation as per Income Tax Rules 25,000
Income Tax Refund 15,000
Dividend from UTI 20,000
Divident from Bajaj Ltd 25,000
Interest on PPF Account 15,000
Net Taxable Income from Business

Note-1 Opening and Closing stock should not be consider while computing income from Business &
Profession
Note-2 Actual Bad debt is an allowable expenses
A machine purchased on 1.1.20 Rs100000 Dep & 10%. PY 2019-20 (Rate as per IT Act 15%)
As per P&L = 100000*10%*3/12 = 2500
As per IT Act = 100000*15%*1/2 = 7500
R & OR
on
20,000

191,500
211,500

(100,000)
111,500

g income from Business &

e as per IT Act 15%)

Q.8. The following is the Profit & Loss Account of Mr.Mandar for the year en
Particulars Amount
To Repairs to Building 1,95,000
To Salaries 76,500
To Drawing 1,50,000
To Interest 1,65,000
To Travelling exp 1,95,000
To Net Profit 1,41,750
9,23,250
The following additional information is furnished:
1. Repairs to building includes Rs. 1,42,500 towards cost of constructing an ad
room for their own Residential premises
2. Int payments include interest of Rs. 18,000 payable outside India to a reside
tax has not been deducted & penalty of Rs. 36,000 for contravention of GST A
Compute the income chargeable under the heads Profits & Gains of Business o
Mr.Mandar for AY 2020-21 ignoring Depreciation.
& Loss Account of Mr.Mandar for the year ended 31-3-20
Particulars Amount
By Gross Profit 9,01,500
By Income tax Refund 6,750
By Int from Company Deposit 9,600
By Dividend 5,400

9,23,250
ation is furnished:
s. 1,42,500 towards cost of constructing an additional
remises
of Rs. 18,000 payable outside India to a resident Indian on which
nalty of Rs. 36,000 for contravention of GST Act.
under the heads Profits & Gains of Business or Profession of
oring Depreciation.
Ans-8 Mr. Mandar (Indirect Method)
PY : 2019-20 AY: 2020-21
Status : Individual Resd. Status: R & OR
Computation of Income from Business & Profession
Net Profit as per Profit & Loss A/c
Add: Disallowable Expenses
Repairs to Building (Residential Premises) 142,500
Drawings by Proprietor 150,000
Interest (Int outside India without TDS) 18,000
Interest (GST Penalty) 36,000

Less: Disallowable Income

Income Tax Refund 6,750
Interest from company deposits 9,600
Dividend 5,400

Net Taxable Income from Business

Note-1 Following income are not considered as business income and will be separtely
taxable as income from Other sources -
a) Interest from company deposits
b) Dividend
Note-2 Income Tax Refund is not an income from other sources, but interest on incom
tax refund will be considered as income from other sources.
20-21
tatus: R & OR
rofession
141,750

346,500
488,250

(21,750)

466,500

e and will be separtely

, but interest on income

Q.9.Mr.Sameer furnishes the following profit and loss Account for the year ended 31-

Particulars AMT Particular AMT

To salaries 18,000 By Gross Profit 48,000
To Printing & Stationery 2,000 By GST Refund 2,000
To Conveyance 4,500
To Int on loan 2,500
To Int on capital 2,500
To Bad Debts 1,000
To Donation for charity 500
To Net Profit 19,000
50,000 50,000
1.Salaries include Rs. 6,000 paid to Mr.Pratish as his salary
2. Personal Expenditure of Printing Mr.Pratish’s Greeting cards Rs. 500 has been incl
Compute the business income earned by Mr.Pratish during AY 2020-21.
or the year ended 31-3-20

Rs. 500 has been included in total printing & stationery expenses.