Chapter 2 Capsule Sessions

Residential Status
Problem 1
Problem 2
Problem 3

Problem 4
Problem 5
Set-off and Carry forwards
Problem 6
Problem 7
Problem 8
Problem 9

Problem 10
House Property
Problem 11
Problem 12
Problem 13
Problem 14
Problem 15
Profits and Gains of Business or Profession
Problem 16
Problem 17
Problem 18
Problem 19

ADDITIONAL INFORMATION:
1. General expenses include Rs 2000 paid as compensation to an employee whose services were
terminated as his continuing in service was considered detrimental to the profitable conduct of the
business.
2. The assessee has received demand notice of sales tax for the preceding year amounting to Rs
8000 and he has not disputed the liability.

3. The gratuity paid had no relation to the service or salary drawn by the staff. It was given on ad
hoc basis.

4. Donation was given to the chamber of commerce to work against the treat of nationalization of
the type of business carried on by the assessee. The chamber collected such donations from
several other parties also doing the same business. The chamber in turn donated money to
different parties who exercised their pressure with the government and ultimately it was averted.

5. The assessee purchased land in the name of the District Magistrate for constructing houses for
its workers. It was done by the government under the subsidized housing scheme for industrial
workers. The ownership would vest in the government.

6. Depreciation is found to be in excess By Rs 2000.

Computation of taxable income from Business

Assessee: X Assessment year: 2021-22

Status : Individual Previous Year: 2020-21

Particulars Amount Amount

Net profit as per P & l A/c 61,000

Add: Inadmissible expenses and business Income

Proprietors salary 15,000

Interest on capital 3,000

Reserve for Sales tax 8,000

Gratuity to staff 40,000

Advance income tax 5,000

Excess Depreciation 2,000

73,000

Less: Non-Business income and Allowed expenses

Dividend from Indian agricultural Company (5,000)

Interest on notifies capital investment bonds (1000)

(6,000)

Taxable income from Business 1,28,000

Note

• Since gratuity is paid on adhoc basis, hence it is not allowed

• Donation is paid for the benefit of the business , hence it is treated as allowed expenses.
• Assessee purchased the land not in his own name and ownership is vested with the
government, therefore it is not a capital expenditure of the assessee and hence it is
allowed expense.
• Compensation to terminated employee is in the interest of the business and hence it is
allowed.
Problem 20
From the following Profit and loss account of a sole proprietorship business for the year ended 31st
March 2021. Compute his taxable income from business and gross total income for the assessment
year 2021-2022

Office salary 10000 Gross profit 157500

Proprietor salary 5000 Profit on sale of residential 20000

house

Interest on proprietor 2000 Bad debts recovered not 3000

capital allowed as deduction by
assessing officer in earlier
previous year for lack of
proof

General expenses 5000 Interest from government 5000

securities

Bad debts 2000 Dividend from Indian 2500

agricultural companies

Advertisements 4500 Refund of penalty on custom 2000

duty paid in an earlier year

Fire insurance premium 2000 Interest from post office 2000

saving bank a/c

Depreciation 4000

Reserve for future losses 8000

Custom duty 2000

Income tax on last 4000

assessment

Advance income tax paid 2000

Donations to Delhi govt to 1000

provide medical relief to
poor

Legal charges for defending 500

suit for alleged breach of
trading contract

Motor car expenses 1000

Net profit 139000

192000 192000
ADDITIONAL INFORMATION:

1. General expenses include Rs 1000 paid as compensation to an old employee whose services
were terminated as his continuance in service was considered detrimental to the profitable
conduct of the business and Rs 200 by way of help to a poor university student.
2. The depreciation is found to be in excess by Rs 1800.
3. The advertisement cost includes one wooden showcase Rs 500, Calendars and diaries Rs
1500.
4. Motor car expenses include Rs 500 as motor car expenses for private use of car.
5. The assesses has received demand notices of sales-tax amounting to Rs 8000 and he has not
disputed this liability.
6. Reserve for future losses is meant for this liability.
7. The net consideration received on the sale of residential house is Rs 150000.

Computation of taxable income from Business

Assessee: X Assessment year: 2021-22

Status : Individual Previous Year: 2020-21

Particulars Amount Amount

Net profit as per P & l A/c 1,39,000

Add: Inadmissible expenses and business Income (Inadmissible expenses

debited to P & L A/c)

Proprietor salary 5,000

Interest on proprietors capital 2,000

General expenses( help to poor university student) 200

Advertisement expenses(Wooden showcase) 500

Excess Depreciation 1800

Reserve for future losses 8,000

Income tax on last assessment 4,000

Advance income tax 2,000

Donation to Delhi government 1,000

Motor car expenses 500 25,000

 1,64,000

Less: Non-Business income credited to P & L A/c and Allowed business expenses
not debited to P & L A/c

Profit on sale of residential property (20,000)

Bad debts recovered( not allowed earlier) (3,000)

Interest on Government on Securities (5,000)

Dividend from Indian Co. (2,500)

Refund of Penalty (2,000)

Interest from post office savings Bank A/c (2,000)

34,500

Taxable income from business 1,29.500

Capital Gains
Problem 21

Problem 22
Problem 23
Problem 24
Problem 25
Taxable Income
Problem 26
Tax Liability
Problem 27
Problem 28
Problem 29
Problem 30