Business: - Business includes

(a)Trade
(b)Commerce
(c)Manufacture
(d)Any adventure or concern in the nature of trade,
commerce or manufacture.

Method of accounting: Mercantile System

Cash System
 Block of Assets: -
• The term “block of assets” means a group of
assets falling within a class of assets
comprising –
a) Tangible assets, being building, machinery,
plant or furniture;
b) Intangible assets, being know how, patents,
copyrights, trademarks, licenses, franchises or
any other business or commercial rights of
similar nature
• Block Nature of Assets
Rate
of Dep.
• Block 1 Buildings (Residential building other
than hotels & boarding) 5%
• Block 2 Buildings (Office, factory or building
not used for residence)
10 %
• Block 3 Furniture 10 %
• Block 4 Plant and Machinery (Buses, Lorries
and taxies used for running in hire ) 30 %
•
 Depreciation…….
• Block 6 Plant and Machinery (Computer
including soft wares) 40 %
• Block 7 Plant and Machinery (Air/water
pollution control equipments) 40 %
• Block 8 Plants and Machinery 15%
• Block 9 Intangible assets (Know how, patents,
trademarks, copy rights) 25 %
• When an assets is put to use for less than 180
days in the year of acquisition: - If any asset is
acquired by the assessee during the previous
year and it is put to use for the purposes of
business or profession for less than 180 days
the depreciation shall be restricted to 50 % of
regular rate.
• If the asset is put to use in the subsequent
year , the usual rate of depreciation is allowed
irrespective of period of use.
• Scheme of Depreciation:
• OP WDV of Block ***
• Add: Purchases during the year ***
• Less: Sales during the year ***
• Net Amount ***
• Less: Depreciation ***
• Closing WDV of Block ***
• Depreciation is not charged if:
• -WDV of block becomes zero
• -If all the assets in the block are sold/discarded
General Deduction (Sec. 37 (1)): - In order to claim
deduction under this section, the following conditions
should be satisfied:
A) It should not be in the nature of capital expenditure.
B) It should not be personal expenditure
C) Incurred in the previous year.
D) It should have been expended wholly and
exclusively for the purpose of such business.
E) It should not have been incurred for any purpose
which is an offence or prohibited by any law.
 Disallowances
U/s 40 (a): Income Tax
U/s 40 A (2): Excessive Payment to Relatives for
goods/ services
 Disallowance if TDS not Deducted…
30% of the Expenditure is disallowed if TDS is not either
deducted or deposited on –
 Salary
 Interest
 Dividend
 Rent
 Winning from Lottery/ Horse Races/ Crossword puzzles
 Commission or Brokerage
 Payment to Contractor
 Technical / Professional fees
 Disallowances…..
U/s 40A (3): If expenses exceeding Rs. 10000 paid in single day
otherwise than Crossed Cheque or Demand Draft then such
expenses added back to profit of relevant financial year.
U/S 43 B: Deduction allowed on payment basis:
If Payment is on or before submission of Return of Income
Tax, Duty, Cess or Fee
Bonus / Commission to Employees
Leave Salary
Interest on loan of Public Financial Institution/Scheduled/ Co
Operative Bank
Employer’s Contribution to PF
 Incomes on Estimated Basis…..
• U/s 44 AD: Business
– Turnover not exceeding Rs. 2 Crores
– No need to maintain Books of Account
– Income @8% of Turnover
– Income @6% of Turnover received through Banking
Channels
• U/s 44ADA – Profession
– Gross receipts not exceeding Rs. 50 Lakhs
– No need to maintain Books of Account
– Income @50% of Gross Receipts
Tax Audit: - The following persons are required to get their
accounts compulsorily audited by a chartered accountant.

A) A person carrying on business: - If the total sales,

turnover or gross receipt in the business for the previous
year relevant to the assessment year exceeds Rs. 2 Crores

B) If the total sales, turnover or gross receipt in the business

for the previous year relevant to the assessment year
exceeds Rs. 10 Crores, if aggregate receipts and aggregate
payments in cash does not exceed 5% of such receipts and
payments respectively

C) A person carrying on profession: - If his gross receipts in

profession for the previous year relevant to the assessment
year exceeds Rs. 50 lakh.
 Income from Profession:
(Structure I : If Receipts & Payments A/c is given )

Gross Incomes Taxable under the head Income

from Profession
Less : Allowed Exps.
 Income from Business or
Profession:(Structure II)
Net Profit as per P & L A/c OR Net Surplus from Income &
Expenditure A/c
Add: 1. Disallowed/ Inadmissible Expenses debited to P & L
A/c (I & E A/c)
2. Business Income not credited to P & L A/c
(I & E A/c)

Less: 1. Expenses Allowed/ Admissible, but not debited to P

& L A/c (I & E A/c)

2. Income Taxable under Other heads credited to P & L

A/c (I & E A/c)
Other Information:
1. The amount of depreciation allowable is Rs. 37300 as per the I-Tax
rules. It includes depreciation on permanent sign board.
2. Advertisement exp. includes Rs. 3000, being cost of permanent sign
board fixed on office premises.
3. Income of Rs. 4500, accrued during the P.Y., is not recorded in the
Profit and Loss account.
4. Raj pays Rs. 6000 as premium on own life insurance policy of Rs.
70000
5.General expenses include (a) Rs. 500 given to Mrs. Raj for arranging a
party in honour of a friend who has recently come from Canada (b)
Rs. 1000 being contribution to political party.
6. Loan was taken from Mrs. Raj for payment of arrears of I-Tax.
Other Information:
1) Depreciation on furniture, as per tax
provisions is Rs. 17200.
2) Household expenses include a contribution of
Rs. 1000 towards public provident fund.
3) On September 20, 2022 X has received a gift
of Rs. 96000 from a friend settled in UK.
2) X (age 66 years) a resident individual, furnishes the following particulars
Profit and Loss account for the year ending March 31
Particulars Rs Particulars Rs
Salary to staff 34000 Gross Profit 686000
General Expenses 48000 Commission and Discount 217200
Bad debts written off 15000 Sundry Receipts 43000
Reserve for losses 2000 ST profit on sale on investment 31000
Fire insurance premium 4200
Advertisement 2400
Add: Outstanding 1600 4000
Interest on X’s capital 3500
Interest on Bank Loan 14500
Exp. on acq. of a patent right 17000
put to use on June 30
Con for acquiring 60000
Know how on March 3
Dep. on plant and machinery 28000
Prov. for outstanding tax 13000
Net Profit 734000
Total 977200 Total 977200
1. Advt. expenditure includes Rs. 3400, being cost of 2
diaries (cost of each being Rs. 1700) presented to
customers.
2. Depreciation on plant and machinery according to
income tax provision comes to Rs. 29700.
3. Salary to staff includes payment of Rs.8000 to a relative
which is unreasonable to the extent of Rs.3000.
4. General expenses include:
a) Expenditure of Rs.4800, incurred by X on training of his
employees,
b) Compensation of Rs. 6000 paid to an employee while
terminating his service in the business interest.
1) Sundry expenses include an expenditure of Rs.
9000 for the personal purpose.
2) Out of bonus of Rs. 36000, Rs. 4000 is paid
during 2022-23 and Rs. 26000 is paid before the
due date of furnishing return of income. The
balance of Rs. 6000 is, unpaid.
3) Depreciation on plant & machinery & extension
of building as per income tax provision is Rs.
19000.
Q 8. The following is the Profit and loss account of
R, Compute his taxable income from business for
that year
a) General expenses include Rs. 300 given to a poor
student to enable him to pursue his studies.
b) Depreciation is in excess by Rs. 1500.
c) Motor car expenses include Rs. 300 for personal
purposes.
d) Central library is an approved institution.
e) The proprietor draws Rs. 500 p.m. by way of
salary.