Chapter 5 - PGBP

Q1. State the income-tax consequence of the following transactions: Charlie & Co is a partnership firm consisting of 4
equal partners. Firm took Keyman Insurance Policy & paid premium of Rs. 50,000 annually. Upon the death of one partner
in Jan 2025, firm received Rs.50 lacs from the insurance company i.r.o Keyman Insurance Policy. [Dec 21 - 3 Marks]
Answer:
▪ As per section 10(10D), any sum received under a Keyman Insurance Policy would not be exempt from tax. In other
words, it is chargeable to tax as income.
▪ The firm while paying premium on Keyman Insurance Policy would have claimed the same as expenditure u/s 37.
▪ When the amount is received from the policy, the amount so received becomes chargeable to tax as income of the
firm. Therefore, the sum of Rs. 50 lacs received upon the death of one partner of the firm is chargeable to tax.

Q2. Answer the following question with brief reason/working: Are profits on transfer of shares & securities held by a
Foreign institutional Investor chargeable to tax u/h PGBP or “capital gains? [Dec 15 - 2 Marks]
Answer: Profits on transfer of shares and securities held by a Foreign Institutional Investor (FII) are chargeable to tax u/h
"Capital Gains" & not under "PGBP". As per Section 115AD of Income Tax Act, any income arising from transfer of
securities by an FII is deemed to be capital gains, irrespective of whether such securities are held as capital asset or SIT.

Q3. State whether disallowance is attracted under any provision of the income Tax Act, 1961 in following cases, while
computing income u/h ‘Profits & gains of business or profession’: [Dec 14 - 4 Marks]
(a) Salary of Rs. 3,00,000 to each working partner by a firm without deduction of tax at source.
(b) Interest to a nationalized bank on term loan Rs. 72,000 of which the amount actually paid during year was Rs.
40,000 & Rs. 15,000 was paid before the ‘due date’ for filing the return of income.
(c) Demerger expenses of Rs. 7,00,000 wholly debited to P&L A/c.
(d) Expenditure incurred towards issue of bonus shares Rs. 2 lacs
Answer
(a) Salary paid to each working partner by a firm Rs. 3,00,000 without deduction of tax at source will not attract
disallowance u/s 40a(ia) & Section 40(b).
(b) Interest paid to a nationalized bank on term loan during the year Rs. 40,000 & the amount paid before the ‘due
date’ for filing the return Rs. 15,000 are eligible for deduction as there will be no disallowance u/s 43B. The
balance of Rs. 17,000 will be disallowed u/s 43B.
(c) Demerger expenses applicable for companies contained in Section 35DD of Rs. 7,00,000 is deductible in five
equal annual instalments. Therefore, Rs. 1,40,000 is allowable & Rs. 5,60,000 would be disallowed.
(d) Expenditure incurred towards issue of bonus shares Rs. 2,00,000 is deductible & would not attract any
disallowance. Issue of bonus shares would not bring any fresh inflow of funds or increase in capital employed,
hence, the expenditure is fully deductible. CIT vs. General Insurance Corporation (2006) 286ITR 232 (SC).

Q4. Mr. Sivasankar carrying on trading business could not recover Rs. 1,00,000 due from a customer. He deems that the
amount is not recoverable & hence has to be written off as bad debt. State the conditions that are to be satisfied for
allowance of bad debt claim. [June 15 - 3 Marks]
Answer: Bad debt written off in the books is eligible for deduction u/s 36(1)(vii) if following conditions are satisfied:
(1) The debt should be incidental to the business.
(2) The debt should have been taken into account in computing the income of the assessee or it should represent money
lent in the ordinary course of banking or money lending business
(3) It should be written off in the books of account.
If assessee is able to satisfy all 3 conditions given above, he can claim the same as bad debt.
Q5. Vivitha Pipes Ltd., set up a new unit for extension of its manufacturing activity. It incurred Rs. 45 lacs towards
preliminary expenses. The cost of the project is Rs. 600 lacs & the amount of capital employed is Rs. 700 lacs. Determine
the amount eligible for amortization u/s 35D & period of amortization. [June 15 - 6 Marks]
Answer:
▪ Preliminary expenses are eligible for amortization in 5 equal annual instalments.
▪ In the case of company, 5% of cost of the project or capital employed (whichever is higher) shall be considered for
computing the amount eligible for amortization.
▪ 5% of cost of project = Rs. 600 lacs x 5% = Rs. 30 lacs
▪ 5% of capital employed = Rs. 700 lacs x 5% = Rs. 35 lacs
▪ Actual preliminary expenditure incurred = Rs. 45 lacs.
▪ The assessee hence is eligible to amortise Rs. 35 lacs u/s 35D.
▪ Amount eligible for amortization for 5 years = 35 lacs ÷ 5 years = Rs. 7 lacs for each year

Q6. Mr. Ghosh established an undertaking in a notified backward area in the State of West Bengal. He invested Rs. 150
lacs in June, 2024 towards acquisition of P&M & was engaged in manufacturing activity. The regular rate of depreciation
on such machineries is 15%. Advise the maximum amount of deduction that Mr. Ghosh could avail by way of
depreciation, additional depreciation & deduction u/s 32AD of the Income-tax Act, 1961. State the closing WDV of the
P&M after such claim. [June 15 – 4 Marks]
Answer: Depreciation, Additional depreciation & WDV
Particulars Rs.
Normal depreciation u/s 32 at 15% of the actual cost of P&M (15% of Rs. 150 lacs) 22.5 Lacs
Additional depreciation u/s 32 (iia) (20% of Rs. 150 lacs) 30 Lacs
Closing WDV of the P&M (150 - 52.5) 97.5 Lacs

Q7. Profit & Loss of XYZ Limited for PY 24-25 shows a net profit of Rs. 8,50,390 after debiting/crediting the following items:
(a) Purchase of goods for Rs. 42,000 (market value Rs. 35,000) from one of the directors of the company.
(b) Interest of 11,00,000 paid on loan taken from Mr. Ron of USA without deducting tax at source.
(c) Advance of Rs. 90,000 paid in earlier year for purchase of machinery written off.
(d) Income tax on perquisites of employees paid by the company Rs. 20,000.
(e) Recovery of bad debt of Rs. 30,000 which was disallowed in previous assessment of the company.
Compute income of XYZ Ltd. u/h PGBP for AY 25-26 indicating reasons for treatment of each item. [Dec 15 - 6 Marks]
Answer: Calculation of profit & gain of XYZ Limited
Net profit as per books 8,50,390
Add:
Excess amount paid to director 7,000
If the payment to director is excessively higher than market value, excess amount will be disallowed u/s 40A(2).
Interest paid to Mr. Ron (USA) 1,00,000
Interest paid to NR without deducting tax at source leads to disallowance as per section 40A(i)
Advance payment for purchase of Machinery 90,000
Capital expenditure is not allowed as deduction
Disallowance of tax on perquisites 20,000
Tax on perquisites is not deductible
Less: Recovery of Bad Debts disallowed in earlier year (30,000)
Bad debts, earlier claimed as deduction & disallowed, if recovered subsequently, shall not be taxable as business income u/s 41(4).

Net Profit taxable u/h PGBP 10,37,390

Q8. P&L A/c of KCL Limited is debited by an amount of Rs. 1,20,000 in respect of an advertisement of company’s product
in a newspaper owned by a political party. Is such expense allowable in computation of income from business?
Answer: Advertisement expenses is allowed to be deducted u/s 37(1); provided it is not of a capital nature & it is incurred
wholly & exclusively for the purpose of business. [Dec 15 - 2 Marks]
However, as per section 37(2B), Any expenditure on advertisement in any souvenir, brochure, tract, pamphlet published
by Political parties is not deductible. Hence, the amount of Rs. 1,20,000 is disallowed.

Q9. The P&L A/c of a company includes interest of 5,00,000 on a loan taken for financing its expansion scheme. The
machineries purchased with the borrowed amount were in transit at the end of year. Is such interest allowable as
deduction in computation of the company’s business income? [Dec 15 - 2 Marks]
Answer: Section 36(1)(ii) provided that any amount of the interest paid in respect of an asset for extension of existing
business or profession (whether capitalized in the books of accounts or not) for any period beginning from the date on
which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall
not be allowed as deduction.
So, Amount of interest of Rs. 5 lacs is not allowed as deduction because it is interest on borrowing of machine for
expansion scheme.

Q10. Vimala Pharma Ltd. informs that it has net profit of Rs. 60 lacs for PY 24-25. It gives you the following information:
(a) Depreciation as per books Rs. 3,50,000.
(b) Bad debts written off in the books Rs. 5,00,000, which includes Rs.1 lakh due from one customer who has disputed
the liability to pay but continues to have business relationship with the company.
(c) Proposed dividend debited to P&L A/c Rs. 6 lacs.
(d) One machinery which has become useless has been written off in P&L A/c, amount debited being Rs. 90,000.
(e) Provident Fund collections from employees for the year Rs. 1,50,000 & company’s own contribution of Rs.1,10,000
for the year have not been remitted. These amounts are shown as Sundry Liability in the books. Assume it will be
remitted after 31 Dec 2025.
(f) Income from agricultural lands surrounding the factory Rs. 50,000 credited to P&L A/c.
(g) Bank term loan for purchase of machinery waived Rs.2 lacs is credited to capital reserve account.
(h) The opening WDV of P&M was Rs. 15,90,000. One machinery for Rs. 4,10,000 was acquired on 01.06.2023 & was put
to use immediately.
(i) Provisions for taxation debited in the P&L A/c amounts to Rs. 15 lacs.
You are requested to compute the income of the company u/h PGBP for AY 25-26 [June 15 - 9 Marks]
Answer: Computation of business income of Vimala Pharma Ltd. for AY 25-26
Particulars Rs.
Net Profit as per P&L A/c 60,00,000
Add:
Depreciation debited to P&L A/c 3,50,000
Bad debts are deductible if it is written off in the books. Even if the customer has relationship with the Nil
assessee the write off is deductible without any attendant conditions.
Proposed dividend debited to P&L A/c 6,00,000
Machinery discarded debited to P&L A/c – disallowed 90,000
Provident fund collections & deductions out of salary not remitted to be treated as income 2,60,000
Provision for taxation debited to P&L A/c 15,00,000
Less:
Agricultural income credited to P&L A/c (50,000)
Bank term loan waiver is not liable to tax as Section 41(1) Nil
Depreciation on P&M (WN) 3,00,000
Income from Business 84,50,000
Working Note for Depreciation of P&M:
Opening WDV 15,90,000
Add: New additions 4,10,000
20,00,000
Depreciation @ 15% on 20 lacs 3,00,000

Q11. State, with reasons, whether the following items are allowable as deduction in computation of income of Tyagi
Aluminum Limited u/h PGBP or otherwise:
(a) Contribution of Rs. 1,20,000 to political party on the occasion of its silver jubilee.
(b) Interest of Rs. 80,000 paid to bank on loan taken & utilized for payment of dividend.
(c) Fees of Rs. 75,000 paid to independent director for attending board meetings without TDS u/s 194J.
(d) Interest of Rs. 40,000 on bank overdraft utilized for payment of dividend.
(e) Few customers are irregular in payment of dues against sale proceeds, for which provision for bad & doubtful debts
has been created by debiting P&L A/c. [Dec 16 - 5 Marks]
Answer:
(a) U/s 80 GGB: Deduction in respect of contribution given by companies to Political Parties is allowed as deduction if
paid by Account Payee Cheque. It is assumed that contribution made by Company to Political Party by Cheque.
Therefore, deduction u/s 80 GGB will be allowed.
(b) Interest of Rs. 80,000 paid to Bank on loan taken & utilised for payment of dividend will be allowed u/s 36 (1) (iii).
(c) 30% of Rs. 75,000 i.e. Rs. 22,500 will be disallowed due to non-deduction of TDS u/s 194J(1)(ba)
(d) Interest of Rs. 40,000 on Bank Overdraft utilised for payment of dividend will be allowed u/s 37.
(e) Provision for Bad & Doubtful Debts will not be allowed as deduction.

Q12. U/s 43B of the Income-tax Act, certain items are allowed only on actual payment basis, regardless of the method of
accounting followed by the assessee. Name four such items & the due date by which they can be paid to claim deduction
in the current year itself. [Dec 15 - 5 Marks]
Answer: Expenses allowed on actual payment basis u/s 43 B:
(a) Bonus & commission.
(b) Interest on loan or advances taken from Schedule Banks.
(c) Any sum payable by the assessee to the Indian Railways for the use of Railway Assets.
(d) Any sum payable by assessee by way of tax, duty, cess or fee, under any law for time being in force.
(e) Interest on any loan or borrowings from public financial institutions or state financial corporation.
(f) Any sum payable by an employer in lieu of any leave at the credit to his employee.
Due date for payment is on or before the due date for furnishing of Return of Income u/s 139(1).

Q13. Gopi Industries furnishes you the following details:

Particulars Machinery Computers Furnitures
WDV as on 01.04.2024 20,00,000 6,00,000 2,00,000
Purchased during the year & used for > 180 days 4,00,000 1,00,000 40,000
Purchased & used w.e.f. 01.01.2025 1,00,000 2,00,000 20,000
Sold a group of assets on 01.03.2025 2,00,000 1,00,000 50,000
Compute depreciation allowable for AY 25-26. Ignore additional depreciation. [June 17 - 6 Marks]
Answer: Computation of Depreciation Allowable to Gopi Industries for AY 25-26
Particulars Machinery Computers Furnitures
WDV as on 01.04.2024 20,00,000 6,00,000 2,00,000
Add: Purchased during the year & used for > 180 days 4,00,000 1,00,000 40,000
 Purchased & used w.e.f. 01.01.2025 1,00,000 2,00,000 20,000
Total 25,00,000 9,00,000 2,60,000
Less: Sold during the year on 01.03.2025 2,00,000 1,00,000 50,000
Balance 23,00,000 8,00,000 2,10,000
Less: Depreciation (WN) 3,37,500 2,80,000 20,000
WDV as on 31.03.2025 19,62,500 5,20,000 1,90,000

Working Note: Computation of Depreciation

Particulars Machinery Computer Furniture

WDV as on 31.03.2025 before Depreciation 23,00,000 8,00,000 2,10,000
Depreciation Rate 15% 40% 10%
Machinery:
On Rs. 22,00,000 @ 15% for full year 3,30,000 - -
On Rs. 1,00,000 @ 7.5% used for < 180 days 7,500 - -
Computer:
On Rs. 6,00,000 @ 40% - 2,40,000 -
On Rs. 2,00,000 @ 20% - 40,000 -
Furniture: - -
On Rs. 1,90,000 @ 10% - - 19,000
On Rs. 20,000 @ 5% - - 1,000
Total Depreciation 3,37,500 2,80,000 20,000

Q14. Ahuja Industries Ltd. engaged in manufacturing activity & generation of power, gives you the following information
for the year ended 31 March, 2025: [June 18 - 9 Marks]
Description Op WDV (01.04.2024) Acquisition/Date New acquisition used from Sold during the year
Plant Rs. 5,00,000 Rs. 60,000 Rs. 80,000
(01.05.2024) 01.11.2024 (01.01.2024)
Windmill - Rs. 60,00,000

(01.06.2024) 01.09.2024 -
Computer Rs. 3,00,000 Rs. 90,000 01.11.2024 Rs. 40,000
(01.10.2024) (Office use) (01.03.2024)
Patent - Rs. 4,00,000
(01.12.2024) 01.12.2024 -
Compute the depreciation & additional depreciation for AY 25-26. The computation must be such that the same is most
beneficial to the assessee.
Answer: Assessee in the business of generation or generation & distribution of power, have the option to claim
depreciation on (a) SLM on each asset or (b) Written down value method on block of assets.
 Computation of depreciation allowance u/s 32 & 32 (1)(iia) for AY 25-26
Particulars Detail Normal Additional
Depreciation Depreciation
Depreciation on P&M
Opening WDV as on 01.04.2024 5,00,000
Acquire during the year 60,000
Less: Sale during the year 80,000
WDV as on 31.03.2025 4,80,000
P&M used for < 180 days = (60,000 x 7.5%) 4,500 -
P&M used for > 180 days = (4,80,000 - 60,000) x 15% 63,000 -
Additional depreciation on new plant purchased on 01.11.2024 (60,000 x 10%) - 6,000
Depreciation on Windmill
Opening WDV as on 01.04.2024 Nil
Acquire during the year 60 Lacs
Sale during the year Nil
WDV as on 31.03.2025 60 Lacs
Depreciation on windmill used for > 180 days (60,00,000 x 40 %) 24 Lacs -
Additional Depreciation on new Plant purchased (60,00,000 x 20%) - 12 Lacs
Depreciation on Computer
Opening WDV as on 01.04.2024 3,00,000
Acquire during the year 90,000
Sale during the year 40,000
WDV as on 31.03.2025 3,50,000
Computer used for < 180 days (90,000 x 20%) 18,000
Computer used for > 180 days (3,50,000 - 90,000) x 40% 1,04,000
Depreciation on Patent
Opening WDV as on 01.04.2024 Nil
Acquire during the year 4,00,000
Sale during the year Nil
WDV as on 31.03.2025 4,00,000
Depreciation of Patent used for < 180 days @ 12.5% 50,000
Total Depreciation & Additional Depreciation 26,39,500 12,06,000

PC Note: Asset acquired & put to use for < 180 days in a PY, depreciation shall be restricted to 50% of the prescribed rate.
Q15. Mr. Bhushan, engaged in manufacture of chemicals, furnishes his Manufacturing, Trading & P&L A/c for PY 24-25:
Particulars Rs. Particulars Rs.
To Opening stock 3,40,000 By Sales 1,14,00,000
To Purchases 1,00,20,000 By Closing stock 19,00,000
To Manufacturing Expenses 10,40,000
To Gross Profit 19,00,000
1,33,00,000 1,33,00,000
To Salary 4,30,000 By Gross Profit 19,00,000
To Bonus 80,000 By Discount 25,000
To Bank term loan interest 90,000 By Agricultural Income 1,50,000
To Factory rent 1,20,000 By Dividend from Indian Companies 75,000
To Office rent 2,10,000
To Administration Expenses 3,30,000
To Net Profit 8,90,000
21,50,000 21,50,000

Additional Information:
(a) The total turnover of Mr. Bhushan for the PY 23-24 was Rs. 132 lacs.
(b) Salary includes Rs. 1,80,000 paid to his daughter. The excess payment considering her qualification & experience is
ascertained as Rs. 40,000.
(c) Factory rent was paid to his brother. Similar portions are let out to others by him for a rent of Rs. 96,000 per annum.
(d) No tax was deducted at source from the office rent paid during the year.
(e) Purchases include Rs. 70,000 paid by cash to an agriculturist for purchase of grains (being raw material).
(f) Depreciation allowable u/s 32 of the Income-tax Act, 1961 amounts to Rs. 45,000 for assets held as on 01.04.2024.
During the year, a machinery costing Rs. 5,00,000 was acquired on 01.07.2024 & was put to use from 15.10.2024.
(g) Administration expenses include commission paid to a purchase agent of Rs. 12,000 for which no tax was deducted
at source.
(h) The following expenses debited above were not paid till 31.03.2025 & up to the ‘due date’ for filling the return specified
in section 139(1)
1. Term loan interest of Rs. 35,000.
2. Demurrages to Indian Railways for using their clearing yard beyond stipulated hours (disputed by the assessee)
forming part of manufacturing expenses Rs. 30,000.
Compute the income of Mr. Bhushan chargeable u/h PGBP for AY 25-26: [Dec 18 - 10 Marks]
Answer: Computation of income of Mr. Bhushan u/h PGBP for AY 25-26
Particulars Amount
Net profit as per P&L A/c 8,90,000
Add: Salary paid in excess to daughter-disallowed 40,000
Excessive payment to relatives is disallowed as per section 40A(2)
Add: Excess payment of Rent paid to brother-disallowed 24,000
Excessive payment to relatives is disallowed as per section 40A(2)
Add: Rent paid & TDS was not deducted [2,10,000 x 30%] 63,000
Sec. 40(a)(ia), if TDS provisions are not complied on payments to resident, 30% of payable amount shall be disallowed.
Add: Paid to agriculturist -
Exception to section 40A(3), payment made via non traceable mode to a person, in a day, for an expense > Rs. 10,000
Add: Term loan interest 35,000
Interest on loan is deductible on payment basis only as per section 43(B)
Add: Demurrage charges paid to Indian Railway [Note-4] 30,000
Any sum payable to Indian railways for use of railway’s assets are deductible on payment basis only as per section 43(B)
Less: Agricultural income [exempt] 1,50,000
Less: Depreciation [45,000 + (5,00,000 x 7.5%) 82,500
Less: Additional depreciation u/s 32(1) [5,00,000 x 10%] 50,000
Gross Total Income 7,99,500

Q16. Explain the allowability or taxability of following expenditure/income in computation of income u/h PGBP:
(a) Compensation of Rs. 30 lacs received by Mr. Jain, a businessman, under an agreement for not carrying on business
of software development.
(b) Vikram Ltd., engaged in growing & manufacturing tea in India, deposits Rs. 10 lacs in NABARD. Profit before
considering such deposit is Rs. 15 lacs.
(c) Construction of toilets in a rural area by Sigma Ltd. for Rs. 10 lacs in compliance with Corporate Social Responsibility
(CSR) under the Companies Act, 2013.
(d) Plot purchased for 120 lacs & construction of a building for Rs. 82 lacs by Mr. Madhusudan for storing sugar, in the
course of business of warehousing of sugar. Expenditure has been capitalized in the books.
(e) Depreciation on a machine acquired for business purpose by Mr. Anand for Rs. 2,50,000, out of which an amount of
Rs. 50,000 was paid in cash. [June 19 - 10 Marks]
Answer:
SN Particulars
(a) As per section 28, any sum whether received or receivable, under an agreement for not carrying out any activity in
relation to any business or profession is chargeable to tax u/h “PGBP”. Therefore, compensation of Rs. 30 lacs
received by Mr. Jain under an agreement for not carrying out software development business is taxable.
(b) As per section 33AB, in case of assessee engaged in growing & manufacturing tea in India, deduction allowed in
respect of deposit in NABARD is lower of the amount of such deposit or 40% of profit of such business computed
u/h PGBP (before this deduction & before adjusting brought forward business loss). Therefore, Rs. 6 lacs, being
40% of profit (lower than actual deposit) is allowable as deduction.
(c) U/s 37(1), 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 been incurred for the purpose
of business & hence, shall not be allowed as deduction. In view of above, expenditure of Rs. 10 lacs on
construction of toilets in rural area shall not be allowed as deduction.
(d) Business of warehousing of sugar is a specified business u/s 35AD. As per section 35AD, in case of specified
business capital expenditure incurred for construction of building for storage of sugar is allowable as deduction,
provided such expenditure is capitalized in the books. Land cost is not allowable as deduction. Therefore, the
whole amount of Rs. 82 lacs spent on building shall be allowed as deduction.
(e) As per section 43(1), any payment exceeding Rs. 10,000 on a single day otherwise by account payee cheque or
draft or by electronic mode towards acquisition of asset shall not form part of the actual cost. Therefore,
depreciation shall be allowed on Rs. 2,00,000 (i.e. Rs. 2,50,000 - Rs. 50,000)
Q17. Mr. Sarath commenced business of operating goods vehicles on 01.04.2024. He purchased the following vehicles
during PY 24-25.
SN Gross Vehicle Weight (in kilograms) Number of vehicles Date of purchase
1 7,500 2 10.04.2024
2 5,500 1 15.03.2025
3 10,500 3 16.07.2024
4 11,500 1 02.01.2025
5 15,000 2 29.08.2024
6 17,000 1 23.02.2025
Compute his income u/s 44AE. [Dec 19 - 7 Marks]
Would your answer change, if the goods vehicles purchased in April, 2024 were put to use only in Sep, 2024?
Answer:
As per Section 44AE, if assessee engaged in business of playing, hiring leasing, such goods carriage then PGBP will be:
For Heavy goods Vehicle: Rs.1,000/ ton of gross vehicle weight or unladen weight as the case may be for every month
or part of a month.
For Other Vehicle: Rs.7,500 for every month or part of a month.
Note: Heavy goods Vehicle means any goods carriage, the gross Vehicle weight of which exceeds 12,000 Kilograms.
Gross Vehicle No. of vehicles Date of purchase No. of Month Calculation Amount
1 7,500 2 10.04.2024 12 7,500 × 12 × 2 1,80,000
2 5,500 1 15.03.2025 1 7,500 × 1 × 1 7,500
3 10,500 3 16.07.2024 9 7,500 × 9 × 3 2,02,500
4 11,500 1 02.01.2025 3 7,500 × 3 × 1 22,500
5 15,000 2 29.08.2024 8 15,000
x 1,000 x 8 x 2 2,40,000
1,000

6 17,000 1 23.02.2025 2 17,000

x 1,000 x 2 x1 34,000
1,000

Income u/s 44AE 6,86,500

There will be no change in answer, if the goods vehicles purchased in April, 2024 were put to use only in Sep 2024.

Q18. Ram Balaji is engaged in manufacture of electronic spares which are used in computers. His aggregate turnover for
PY 24-25 was Rs.1,71,00,000. His profit as per P&L A/c is Rs. 12,45,000. His sale proceeds were realized as under:
Upto the end of PY From 01.04.2025 to ‘due date’ for filing ROI
Sales realized in cash 40,00,000 73,00,000
Sale realized through banking channel 11,00,000 26,00,000
(a) Current year depreciation u/s 32 allowable Rs. 2,75,000.
(b) Cash payment made exceeding Rs.10,000 per day & the aggregate payment for the year in such manner Rs.4,11,000.
(c) Interest on term loan debited in P&L A/c of the assessee for the year ended 31.03.2025 = Rs.1,05,000. Amount actually
up to 31.03.2025 Rs. 15,000 & amount paid from 01.04.2025 & upto due date for filing ROI = Rs.40,000.
(d) He has b/f business loss of AY 21-22 of Rs. 1,40,000 & unabsorbed depreciation of Rs. 50,000 of AY 24-25.
Compute his income from business for AY 25-26 u/s 44AD & as per the regular provisions. [Dec 19 - 10 Marks]
Answer: Computation of Income of Ram Balaji business income u/s 44AD
Rs. Rs.
Add: Sales realized in cash up to 31.03.2025 [Rs. 40,00,000 x 8%] 3,20,000
Sales realized in cash upto due date for filing ROI u/s 139(1) [Rs. 73,00,000 x @ 8%] 5,84,000
Sales realized through banking channel upto 31,03.2025 [Rs.11,00,000 x 6%] 66,000
 Sales realized through banking channel from 01.04.2025 upto DD of ROI [Rs. 26 Lacs x 6%] 1,56,000
Balance sales not realized up to the due date for filing the return [Rs. 21,00,000 @ 8%] 1,68,000 12,94,000
Less: Brought forward business loss 1,40,000
Brought forward unabsorbed depreciation deemed to have been allowed Nil
Current year depreciation deemed to have been allowed Nil
Income from business 11,54,000
PC Note: Expenditure disallowed u/s 40A(3) & interest on term loan deductible u/s 43B on payment basis are not
applicable while computing income u/s 44AD, as income is computed as per presumptive scheme.

Computation of Business income of Ram Balaji as per regular provisions

Particulars Rs.
Net Profit as per P&L A/c 12,45,000
Add: Expenditure incurred in contravention of section 40A(3) - disallowed 4,11,000
Interest on term loan debited in the books Rs. 1,05,000. Amount actually paid up to end of PY & up to 50,000
the due date for filing the return is deductible. Unpaid amount is liable for disallowance u/s 43B.
17,06,000
Less: Current year depreciation u/s 32 2,75,000
Less: Unabsorbed depreciation 50,000
13,81,000
Less: Brought forward business loss 1,40,000
Income u/h PGBP 12,41,000

Q19. Mr. Bhat acquired a generator for Rs. 3 lacs on 30.11.2024 by taking a bank loan of 2 lacs. Interest on bank loan
payable for the year is Rs. 7,500 & it was not paid up to the ‘due date’ for filing the return specified in section 139(1). He
paid salary to operator @ Rs.12,000 per month in cash for 4 months. Hire charges received Up to 31.03.2025 was Rs.
2,25,000. Compute income of Mr. Bhat from the generator for the year ended 31.03.2025. [Dec 19 - 5 Marks]
Answer: Computation of Income of Bhat for AY 25-26
Generator hire charges 2,25,000
Less: Interest on bank loan is payable on payment basis only as per section 43(B) Nil
Less: Salary to operator Rs. 12,000 per month paid for 4 months by cash Rs. 48,000. Nil
Less: Since it is paid in contravention of section 40A(3) it is not deductible.
Less: Depreciation on generator [Rs. 3,00,000 x 15% x ½] 22,500
Income from generator u/h IFOS 2,02,500

Q20. M/s. Sridhar & Co., a sole proprietary concern (owned by Mr. P) is converted into a company, Sridhar Co. Ltd. w.e.f.
29th Nov 2024. The written down value of assets as on April 1, 2024 are as follows:
Items Rate of Depreciation WDV as on 1 April, 2024
Building 10% Rs. 3,50,000
Furniture 10% Rs. 50,000
P&M 15% Rs. 2,00,000
Further, on 15.10.2024, M/s. Sridhar & Co, purchased a plant for Rs. 5,00,000 (rate of depreciation 15%). After conversion,
the company added another plant worth Rs. 2,50,000 (rate of depreciation 15%). The payments in all cases were through
account payee cheques. Compute the depreciation available to (i) Mr. P & (ii) Sridhar & Co. Ltd. for the AY 25-26 Assume
that the assessee’s are not eligible for additional depreciation. [Dec 21 - 8 Marks]
Answer: Computation of Depreciation
Particulars Rs.
Depreciation on Building: on Rs. 3,50,000 @ 10% 35,000
Depreciation on furniture: on Rs. 50,000 @ 10% 5,000
Depreciation on P&M
On Rs. 2,00,000 @ 15% 30,000
On Rs. 5,00,000 @ 15% x ½ 37,500
67,500
On P&M purchased
After conversion 2,50,000 x 15% x ½ 18,750
Depreciation Allowable to Mr. P

Building: 35,000×
242 days Rs. 23,205
365 days

Furniture: 5,000 ×
242 days Rs. 3,315
365 days

P&M

30,000 ×
242 days Rs. 19,890
365 days

37,500 ×
45 days Rs. 10,045
168 days

Rs. 29,935
Depreciation Allowable to successor company Sridhar & Company Ltd.

Building = 35,000 x 123 days / 365 days Rs. 11,795

Furniture = 5,000 x 123 days / 365 days Rs. 1,685
P&M = 30,000 x 123 days / 365 days Rs. 10,110
37,500 x 123 days /365 days Rs. 12,635
on Plant Purchased after conversion Rs.18,750
54,975

Q21. Abhijit & Co. is a partnership firm engaged in manufacturing activity. Firm furnishes you following details:
Particulars P&M Furniture & Fitting Building
WDV as on 01.04.2024 20,00,000 1,40,000 9,90,000
Acquired (new) 10,00,000 60,000 20,00,000
(10.01.2025) (30.09.2024) (Includes land Rs. 5,00,000 acquired on 20.07.2024
Acquired (old) 5,00,000
(25.08.2023)
Note: P&M as on 01.04.2024 includes a new machine whose cost was 8 lacs & which was acquired on 22.01.2024 but
put to use from 01.02.2024. Compute eligible amount of depreciation u/s 32 of the Act. [Dec 22 - 7 Marks]
Answer: Computation of eligible depreciation u/s 32 of the Act
Particulars Rs.
Plant & Machinery
WDV as on 01.04.2024 20,00,000
Acquired (New) 10,00,000
Acquired (Old) 5,00,000
35,00,000
Normal depreciation
Depreciation @ 15% p.a.
7.5% of 10,00,000 (50% of 15%, since put to use for < 180 days) 75,000
15% of Rs. 25,00,000 3,75,000
Additional depreciation
20% of New P&M Purchased on 22.01.24 (8,00,000 x 20% x 6/12) (Since put to use for < 180 days) 80,000
(20% of New P&M which purchase on 10.01.25) (10,00,000 x 20% x 6/12) (Put to use < 180 days) 1,00,000
Depreciation on P&M 6,30,000
Furniture & Fittings @ 10%
Depreciation
Depreciation (1,40,000 x 10%) 14,000
Depreciation (60,000 x 10%) (Since put to use for > 180 days) 6,000
Depreciation on Furniture & Fittings 20,000
Building @ 10%
Depreciation (9,90,000 x 10%) 99,000
Depreciation (20,00,000 - 5,00,000) x 10% (Since put to use > 180 days) 1,50,000
Depreciation on Building 2,49,000

Q22. State the income-tax consequence of the following transactions:

Mr. A wrote off Rs. 3 lacs due from a customer Gas bad debt in the PY 21-22. He died on 23 June, 2022. His son, doing
some other business, received Rs. 1,40,000 as final settlement from G in March, 2025 in capacity of being the only legal
heir of late Mr. A. [Dec 21 - 3 Marks]
Answer: Recovery against any deduction [section 41 (1)]
▪ An allowance or deduction is allowed in any AY in respect of loss, expenditure or trading liability incurred by assessee.
▪ Subsequently during any PY such assessee has obtained, whether in cash or in any other manner any amount in
respect of such loss, expenditure, or any benefit i.r.o. such trading liability by way or remission or cessation thereof.
▪ Treatment: Amount obtained or benefit accrued shall be deemed to be the income from profits & gains of business or
profession & chargeable to tax.
▪ The amount received by the son of late Mr. A is chargeable to tax u/s 41(1) u/h PGBP.

Q23. Laxman engaged in textile trade reports a turnover of Rs. 170 lacs for the year ended 31.03.2025. It includes Rs. 60
lacs received by way of cash & Rs. 40 lacs received through banking channel up to 31 March, 2025. Of the balance of
turnover, Rs. 30 lacs were realized by cheque up to the due date for filing the return specified in section 139(1). On
25.05.2024, he acquired two heavy goods vehicles with each vehicle having capacity to carry goods up to 12,000 Kg.
Vehicles were operated for carrying goods of customers on hire. Vehicles were acquired through bank loan for which
interest due for the year amounts to Rs. 3,70,000. He wants to admit both the business incomes as referred above as per
applicable presumptive provisions. Compute total income of Laxman for AY 25-26. [Dec 22 - 8 Marks]
Answer: Income Computed u/s 44AE
Type of carriage Period during which Number of months Rate per Amount In Rs.
vehicles are owned (including a part of Month) Month
Light goods vehicles 25.5.2024 to 31.3.2025 11 7,500 1,65,000

Income from Business u/s 44AD:

On 1,00,00,000 x 8% 8,00,000
On 70,00,000 x 6% 4,20,000
12,20,000

Total Income of Laxman for AY 25-26

Particulars Amount
Income u/s 44AE 1,65,000
Income u/s 44AD 12,20,000
Total Income 13,85,000

Q24. Mr. Raja, a retail trader of Delhi gives the following Trading & P&L A/c for year ended 31 March, 2025:
Particulars Rs. Particulars Rs.
To Opening stock 90,000 By Sales 85,00,000
To Purchases 78,00,000 By Closing stock 80,000
To Gross Profit 6,90,000
85,80,000 85,80,000
To Salary 60,000 By Gross profit b/d 6,90,000
To Rent & rates 48,000 By Income from UTI 3,000
To Interest on loan 10,000
To Depreciation 1,05,000
To Printing & stationery 24,000
To Postage & telegram 1,200
To Loss on sale of shares (Short term) 9,500
To Other general expenses 8,000
To Net Profit 4,27,300
6,93,000 6,93,000
Additional Information:
(a) It was found that some stocks were omitted, to be included in both opening & closing Stock, the values of which were:
Opening stock = Rs. 9,000 & Closing stock = Rs. 18,000
(b) Salary includes Rs. 10,000 paid to his brother, which is unreasonable to the extent of Rs. 2,500.
(c) The whole amount of printing & stationery was paid in cash by way of one-time payment to Mr. Sonu.
(d) Rent & rates includes GST liability of Rs. 3,400 paid on 7 April, 2025.
(e) Other general expenses include Rs. 2,000 paid as donation to a Public Charitable Trust.
(f) Depreciation as per Income-tax Act, 1961 is Rs. 1,20,000.
You are required to calculate PGBP income of Mr. Raja as per normal provisions of the Act. Assuming he has not opted
for the provisions of Section 115BAC.
Also assume that the whole of the amount of turnover received by account payee cheque or use of electronic clearing
system through bank account during the PY. [June 23 - 6 Marks]
Answer: Computation of Profits & Gains of Business of Mr. Raja for AY 25-26:
Particulars Amount Amount
Net Profit as per P&L A/c 4,27,300
Add: Undervaluation of closing stock 18,000
Expenses disallowed but debited to P&L A/c:
Excess salary paid to his brother 2,500
Amount of printing & stationery paid in cash by way of one-time payment to Mr. Sonu 24,000
GST Liability of Rs. 3,400 paid on 7 April 2025 included in rent & rates (Allowed) NIL
Donation to public charitable trust 2,000
Depreciation as per books 1,05,000
Loss of other heads debited to P&L A/c: Loss on sale of shares (Short term) 9,500 1,61,000
Less: Income from UTI 3,000
Under valuation of opening stock 9,000
Depreciation as per Income Tax Act, 1961 1,20,000 1,32,000
Income taxable u/h PGBP 4,56,300

Q25. Mr. Gopal is the proprietor of a business. Following is his P&L A/c for the year ended on 31.03.2025:
Particulars Amount Particulars Amount
Establishment charges 5,110 Gross profit 5,00,000
Rent, rates & taxes 2,900 Interest on Govt. Securities (Gross) 5,350
Sundry expenses 7,050 Rent from property 5,400
Household expenses 1,880
Provision for bad debts 1,200
Loss on sale of motor car (used for private purpose) 1,800
Salaries 3,00,000
Insurance premium (including life insurance of 1,790) 2,880
Interest on bank loan 1,380
Provision for Depreciation 6,400
Net Profit 1,80,150
5,10,750 5,10,750
Additional information:
(a) Bad debts written off during the year: Rs. 650
(b) Admissible depreciation as per Income-tax rules: Rs. 1,600
(c) The assessee is running his business in a rented property, half of which is used by him for his own residence. Rent of
Rs. 2,400 in respect of entire house in included in rent, rates & taxes. Balance of Rs. 500 is on account of municipal
tax paid for property given on rent.
Compute Income u/h PGBP for AY 25-26. Mr. Gopal has opted out of default tax regime u/s 115 BAC. [Dec 23 -7 Marks]
Answer:
Net Profit 1,80,150
Less: Interest on Government Securities 5,350
Rent from property 5,400
Bad debts written off 650
 Depreciation under Income Tax Act 1,600
Add: Personal share in Rent, Rates & Taxes 1,700
Household expense 1,880
Provision for bad debts 1,200
Loss on sale of Motor Car 1,800
Life Insurance Premium 1,790
Provision for depreciation 6,400
Income taxable u/h PGBP 1,81,920

Q26. Mr. Aman engaged in retail trade of stationary items, reports a turnover of Rs. 2,99,00,000 for the FY 24-25. Amount
received in cash during PY 24-25 is Rs. 13,50,000 & balance through prescribed electronic modes on or before the due
date for filing the return specified in section 139(1) of the Income Tax Act, 1961. His income from the said business as
per books of account is Rs. 14,50,000 computed as per the provisions of Chapter IV-D, Profit & gains from business or
profession of the Income Tax Act, 1961.
Retail trade is the only source of income for Mr. Aman. AY 24-25 was the first year for which he declared his business
income in accordance with the provisions of presumptive taxation u/s 44AD. Decide whether Mr. Aman is eligible for
presumptive determination of his income chargeable to tax for AY 25-26.
If so, determine his income from retail trade as per the applicable presumptive provisions.
Indicate clearly the reasons for treatment of each item. [June 24 - 7 Marks]
Answer:
(a) U/s 44AD, for eligible business, where the amount or aggregate turnover of the amounts received during the PY, in
cash, does not exceed 5% of the total turnover or gross receipts, a threshold limit of Rs. 3,00,00,000 will apply.
Since his cash receipts during the PY does not exceed 5% of the total turnover i.e., 4.52% & his total turnover for
the PY 24-25 is below Rs. 3,00,00,000, i.e., Rs. 2,99,00,000, he is eligible for presumptive taxation scheme u/s
44AD in respect of his retail trade business.
(b) Realized by cash Rs. 13,50,000 during the PY @ 8% Rs. 1,08,000
Realized balance Rs. 2,85,50,000 through prescribed electronic modes on or before the due Rs. 17,13,000
date for filing the return specified in section 139(1) @ 6%
Income from retail trade, applying the presumptive tax provisions u/s 44AD Rs. 18,21,000

Q27. Write short note on Tax audit requirement in the case of notified professions. [Dec 21 - 3 Marks]
Answer:
▪ In case of persons carrying on notified profession, provisions of tax audit contained in section 44AB would be attracted
when the gross receipt exceeds Rs. 50 lacs in PY.
▪ However, where the gross receipt does not exceed Rs. 50 lacs, assessee must admit income @ 50% or more of gross
receipt in order to be eligible for exemption from tax audit. Thus, by default the provisions of section 44ADA would
apply.
▪ Where the assessee has gross receipt below Rs. 50 lacs & does not want to admit income of 50% or more of the gross
receipts, then the books of account have to be maintained u/s 44AA & have to be audited u/s 44AB
▪ In such case, the presumptive provision contained in section 44ADA would not be applicable.