Profit & Gains from Business & Profession

Part-2
Module-2
Income Tax-II

ASSESSMENT YEAR: 2023-2024

PREVIOUS YEAR: 2022- 2023

Compiled by :

[Link].S, [Link] Rai, Mr. Vivek Gupta, Ms. Manisha.T &

Ms. Anusha N

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 Profit & Gains from Business & Profession –Part II INCOME TAX-II [AY: 2023-2024]

COMPUTATION OF INCOME FROM BUSINESS

Indirect Method (sec 30-43D)

Particular `
NET PROFIT AS PER PROFIT AND LOSS A/C
ADD: INADMISSIBLE EXPENSES
(Expenses Debited To P/L A/c But Not Allowed As Per IT Act)
Any provision and reserves
Any Capital Loss
Any Donations
Personal Expenses
Any Gift (except business gift)
Fine/Penalty
Past losses
Any personal savings
Expenses on illegal business
Interest on capital
Payment exceeding ₹ 10,000, not by cheque (100% of such amount
disallowed)
Income tax and Wealth tax
Charity and Donations
Household expenses
Legal expenses for the criminal case
Legal expenses on acquiring an asset
Patents purchased
Drawings
Excess Depreciation
Life Insurance Premium
Salary paid outside India without TDS
Tax on perquisites paid by the employer
Contribution to Un-recognized gratuity fund, URPF and Welfare
fund
Advertisement in magazines, brochure, pamphlet, etc of the political
party
Over-Valuation of opening stock
Undervaluation of closing stock

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 Profit & Gains from Business & Profession –Part II INCOME TAX-II [AY: 2023-2024]

ADD: Business income

(Not credited to P/L account)
Amount of liability foregone by the creditor/ Sales / Commission /
sundry receipts received.
Bad debts recovered but fully allowed earlier
Cash assistance received by the assessee against exports under any
scheme of government of India or export incentives
Interest from debtors for delayed payments
Profit on sale import license
Rent received from employees
Rent received from paying guest
Profit on sale of license
Custom/excise duties recovered but earlier allowed as deduction.

LESS: ADMISSIBLE EXPENSES NOT DEBITED TO P/L A/C

Under-Valuation of opening stock
Overvaluation of closing stock
Advertisements expenses/ (Advertisement given in magazines or
Souvenir of a political party is inadmissible)
Rent rates and repairs and insurance for the building
Audit fees
Bad debts
Contribution towards rural development program and conservation
of natural resources
Demurrage paid to railways (allowance for undue detention of railway
wagon or ship)
Discount and allowances
Depreciation allowable
Unabsorbed depreciation
Establishment expenses
Expenditure on the guest house or holiday home facility
Electricity bill/land revenue/repairs/Fire insurance premium/rent of
the premises, which is used for business
Entertainment expenses
Expenditure by way of payment to association and institutions for
rural development programme

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 Profit & Gains from Business & Profession –Part II INCOME TAX-II [AY: 2023-2024]

Expenditure on scientific research

Revenue expenditure on research carried on by the assessee is fully
deductible if such research relates to the assessee business, 100%
Capital expenditure on research carried on by the assessee is fully
deductible If such research relates to the assessee's business.
(Deduction is available even if the asset is not put into use for
research by the assessee during the previous year)
Contribution to an approved scientific research association or
university or company registered in India is admissible to the extent
of 100% of actual contribution
Contribution to an approved university, college or other
institutions for the purpose of research in social sciences is
admissible to the extent of 100% of actual contribution
Contribution to the National Laboratoryis admissible to the extent of
100% of actual contribution
Festival expenses
Gifts and presents not made in a personal capacity
Expenditure on promoting family planning among the employee's
Income tax expenses
Loss of stock due to theft by an employee
Legal expenses for filing an income tax appeal
Legal expenses to defend an existing title to a capital asset
Municipal taxes of quarters let out to employees
Other expenses incurred according to provisions of law
Postage and telegrams
Printing and stationery
Railway freight and octroi expenses
Services charges
Subscription to a trade or professional association
Salaries/wages/perquisites/allowances to employees
Staff welfare expenses
Tournament expenses
Telephone installation charges under OYT scheme
Travelling expenses related to business
Training expenses
1/5th of Preliminary expenses
LESS: INCOME NOT TAXABLE UNDER THIS HEAD
Interest on Government securities
Dividend on shares

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 Profit & Gains from Business & Profession –Part II INCOME TAX-II [AY: 2023-2024]

A gift from Father or Relative

Bad debts recovered but disallowed earlier
Agricultural Income ( India)
The gift from father/ Relatives
Income tax refund
Withdrawal From PPF
Rent from House Property
Income tax refund
Sale of a car
Customs duty/excise duty recovered but disallowed earlier
Dividend from an Indian company / UTI
Interest from PO savings bank account
Refund from LIC
INCOME FROM BUSINESS

1. Following is the profit & loss account for [Link] for the year ending 31.3.2023.

Particulars ₹ Particulars ₹
To Salaries 3,30,000 By Gross Profit 5,00,000
To Office expenses 36,000 By Bad debts recovered 20,000
To Depreciation 28,000 By Dividends 6,000
To Sales Tax 18,000 By Rent from House property 18,000
To Legal expenses 16,000 By Commission 20,000
To Income Tax 14,000 By Brokerage 20,000
To Exp. On acquisition. of 24,000 By Sundry Income 10,000
Patent rights ½ of ₹ 48000
being the cost of patent
To Repairs 12,000 By Share of Income from HUF 6,000
To Donation 4,000
To Provision for bad debts 6,000
To General expenses 24,000
To Net Profit 88,000
6,00,000 6,00,000
Additional Information:

1) Salaries include ₹ 12,000 paid to workers employees at home.

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2) Depreciation of ₹ 6,000 being unabsorbed depreciation of earlier years, not recorded in

P&L a/c.
3) Legal expenses include ₹ 2,000 paid to the lawyer in connection with the personal case.
4) General expenses include ₹ 8,000 as a contribution to staff welfare Fund.
5) Out of bad debts recovered only ₹ 8,000 were allowed as a deduction earlier
6) Depreciation on patents has not been recorded in Books of Accounts.

Calculate the income of Mr. Chandru from the Business for AY 2023-24.

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 Profit & Gains from Business & Profession –Part II INCOME TAX-II [AY: 2023-2024]

2. From the P& L account of Mr. Raj for the year ended 31/3/2023, compute the income
from Business for the AY 2023-2024.

Particulars ₹ Particulars ₹
To Office expenses 40,000 By Gross profit b/d 6,40,000
General expenses 16,000 Interest on Govt Securities 11,200
Bad debts Recovered
Interest on bank o/d 4,000 (not written off earlier 800
year)
Audit Fees 4,000 Sundry Receipts 16,000
Interest on Capital 12,000 Dividend 16,000
Rent 20,000
Provision for Income Tax 16,000
Charity 8,000
Legal expenses 4,000
Compensation to
20,000
retrenched
employees
Extension of Building 36,000
Sales Tax 8,000
Net profit 5,12,000
7,00,000 7,00,000
Additional Information:

1) General expenses included ₹ 8,000 towards Purchase of a Computer

2) Legal expenses include ₹ 1,600 penalties by the customs authority.

3) Rent includes ₹ 8,000 paid as the rent of the house in which the assessee lives.

4) Depreciation allowed ₹ 12,000 as per Income Tax rules. (Excluding depreciation on

Computer Purchased)
5) Income Tax Provision is excessive to the extent of ₹ 5,000.

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 Profit & Gains from Business & Profession –Part II INCOME TAX-II [AY: 2023-2024]

3. Mr. Prasad has prepared the following P& L Account for the year ending 31.3.2023.

Particulars ₹ Particulars ₹
To Salary to Employees 8,000 By Gross profit 1,37,300
Dividends from Indian
Advertisement expenses 4,000 4,000
Company
Rent from House Property
Sundry expenses 4,500 16,500
Interest on Securities(Non-
Interest on Capital 2,000 92,000
Trade)
Fire Insurance Premium Lottery Winning 15,000
3,000 (TDS ₹ 3,000)
(₹ 1000 relates to HP)
Income tax 7,000
Household expenses 2,500
Bad debts 1,000
Provision for Bad debts 500
Repairs for HP 1,000
Municipal Tax of HP 3,600
Life Insurance Premium 6,000
Donation to Congress party 2,000
Depreciation (allowable) 3,700
Net Profit 2,16,000
2,64,800 2,64,800
Additional Information:

1) Mr. Prasad owns a house property, which is used as follows: 25% of carpet area for his own
business, 25% for his own residence, 50% is let out.

2) Advertising expenses include the expenditure of ₹ 3,000 on Neon signboard.

Compute his Taxable income from Business for AY 2023-24.

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 Profit & Gains from Business & Profession –Part II INCOME TAX-II [AY: 2023-2024]

4. From the following Profit & Loss account of Mr. Sachin, compute his income from the business
for the AY 2023-24.

Particulars ₹ Particulars ₹
To salaries 6,000 By gross Profit 1,22,000
Purchase of Machinery for
11,000 Interest on Debentures 2,000
research
Life insurance premium 6,000 Dividend from UTI 2,000
Bonus to staff 12,000 Discount received 6,000
Printing & Stationery 4,000 Horse race gains (gross) 32,000
Household expenses 15,000 Refund of IT 7,500
Miscellaneous expenses 5,000 Cash assistance from Govt. 6,000
Advertisement paid in cash 22,000
To car expenses
Petrol ₹ 12000 18,000
Driver’s salary ₹ 6000
Property tax (Relates to HP) 4,000
Medical expenses of his wife 3,000
Provision for sales tax 10,000
Depreciation 10,000
Gifts & presents to relatives 2,000
Net profit 49,500
1,77,500 1,77,500
Adjustment Information:

1) ½ of the car expenses are for personal use

2) Depreciation on all assets is ₹ 7,200
3) Research conducted by Mr. Sachin is related to his Business.

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 Profit & Gains from Business & Profession –Part II INCOME TAX-II [AY: 2023-2024]

5. Mr. Sairam, a trader furnishes the following information. Compute taxable income from
business for the AY 2023-2024

Particulars ₹ Particulars ₹
To General expenses 4,80,000 By Gross Profit 22,00,000
Salary of staff 2,40,000 Commission 40,000
Salary to Sairam 1,20,000 Bad debts recovered 60,000
(Earlier allowed)
Interest on Capital 60,000 Interest on listed debentures 1,00,000
Interest on overdraft 40,000
To extension of building 1,50,000
Interest on loan 40,000
Depreciation 1,20,000
Travelling expenses 80,000
Audit fees 72,000
Fire insurance 78,000
Bonus to staff 1,00,000
Contribution to RPF 1,22,000
Advertisement 2,00,000
Reserve for bad debts 60,000
Bad debts are written off 90,000
Net Profit 3,48,000
24,00,000 24,00,000
Additional Information:

1. Depreciation was allowable as per IT rules ₹ 1,40,000 excludes depreciation on a

permanent signboard.
2. Advertisement includes ₹ 50,000 being the cost of Permanent signboard.

3. Income of ₹ 60,000 accrued the previous year not entered into P& L Account, Loan
was taken to pay Income tax arrears.
4. ₹ 40,000 paid as damages for failure to fulfill a contract in time are included in general
expenses.

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6. From the following compute Business Income for the AY 2023-24

Particulars ₹ Particulars ₹
To Rent 60,000 By Gross profit 5,23,000
Rates 6,000 Interest on Debentures 28,000
Salary to staff 54,000 Rent from property 24,000
Diwali puja expense 2,000 Sunday Income 16,000
Interest on Loan 1,25,000 Commission 37,000
Bad debts recovered
Sundry expenses 55,000 10,000
(Disallowed Earlier)
Bad debts 6,000
Charity 1,000
Reserve for Bad debt 2,000
Entertainment expenses 8,500
Loss by theft 14,000
Sales Tax penalty 10,000
Net profit 2,94,500
6,38,000 6,38,000
Additional Information:

1) Rent includes ₹ 12,000 of a shop belonging to assessee himself.

2) Salary of staff includes a salary of ₹ 24,000 of a son who is a [Link] student and who

casually helps in the business and proprietors’ salary ₹ 1,000 p.m.

3) A loan of ₹ 60,000 at 15% p.a. is taken from his wife out of funds advanced by him and
interest is included in interest on the loan.
4) Sundry expenses include ₹ 9,000 being expenses incurred on Pilgrimage to Haridwar.,

5) Entertainment expenses ₹ 1,500 spent on tea of the some guests of a local MLA. ,
6) Loss by theft took place when somebody pretending to be a customer stole a necklace worth
₹ 6,000 in his shop, ₹ 8,000 was stolen from his house. He earned ₹ 40,000 in gold
smuggling not shown in books.
7) Rates include ₹ 4,000 for the Property let out.

8) GST paid and depreciation not taken to Profit and loss account ₹ 8,000 and ₹ 5,000
respectively.

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7. Mr. Dravid presents a Trading & P& L Account for the previous year ended 31stMarch 2023 and
requires you to compute from Business for the Assessment year 2023-2024.

Particulars ₹ Particulars ₹
To opening stock 85,000 By sales 394000
To purchases 2,40,000 By Closing stock 1,10,000
To wages 35,000
To carriage forward 12,000
To Gross profit 1,32,000
5,04,000 5,04,000
To staff salary 18,750 By Gross Profit 1,32,000
By interest on
To bank cash transaction tax 12,000 Debentures(net) 17,800
By bad debts
To audit fee 5,500 recovered 5,200
(Previously allowed)
To income tax 32,000 By Sundry Income 2,650
By Rent from House
To car expense 15,000 90,000
let out
To Office expense 40,000
To Donation 2,500
To general expense 18,650
T o sales tax provision 16,000
To Technical Know-How
30,000
purchased during the year
To interest on capital 16,000
To Depreciation on car 18,000
To provision for Bad debts 6,500
To net Profit 16,750
2,47,650 2,47,650
Additional Information:

1) Opening stock is undervalued by 15%

2) Closing stock is overvalued by 10%
3) Purchase includes a cash payment of ₹ 30,000 towards raw materials
4) 20% of car expenses are attributable to the use of the car for personal purposes.
5) Out of the income tax and sales tax provision, Income tax of ₹ 6,250 and sales tax of ₹
1,250 were paid before filing the return of Income.
6) Donation of ₹ 5,000 to Delhi University for carrying on research in Social Sciences.

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 Profit & Gains from Business & Profession –Part II INCOME TAX-II [AY: 2023-2024]

8. Dr. Ram has prepared the following P/L account for the assessment year 2023-2024.

Particulars ₹ Particulars ₹

To Salary 48,000 By Gross profit 2,37,000

Advertisement expenses 24,000 Rental Income 1,65,000
Dividends from Indian
Sundry expenses 54,500 24,000
Company

Interest on own Capital 12,000

Fire insurance (₹ 10,000 relates Winnings from Lottery

30,000 1,15,000
(Gross)
to HP)
Interest on Non-
Income tax 27,000 1,92,000
Government Securities.
Household expenses 42,500
Contribution to National
Laboratory for carrying on 11,000
Research
Provision for bad debts 10,500
Repairs to HP 10,000
Municipal Taxes of House
36,000
Property
Insurance Premium on own life 6,000
Donation to Political Party 12,000
Depreciation (Allowable) 23,800
Net Profit 3,85,700
7,33,000 7,33,000
[Link] owns a house property having 4 units out of which Unit –I: having 25% carpet area is
used for own business purpose. Determine the income under the head profits and gains from
Business or Profession for the PY 2022-2023

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9. From the following P&L account of a manufacturing, compute the income under the head profits
and gains of business or profession for the year ending on 31st march 2023.
Particulars ₹ Particulars ₹
To salaries to employees 1,95,000 By gross profit 5,80,000
To advertisement
24,000 By interest on securities 14,000
expenses (in cash)
By income from house
To general expenses 16,000 25,000
property
To entertainment By bad debts recovered
22,000 12,000
expenses (allowed earlier)
To bad debts 1,500
To drawing by the
24,000
proprietor
To GST (due and paid on
6,000
01-07-2022)
To interest on proprietor’s
7,000
capital
To repairs 2,500
To rent 21,000
To legal expenses 5,000
To depreciation 15,000
To bonus (due) 6,000
To bonus to proprietors 4,000
To car purchased 72,000
To expenses on car during
12,000
the year
To donations 2,000
To provisions for bad
6,000
debts
To net profit 1,90,000
6,31,000 6,31,000
Additional information
a. Advertisement expenses were spent on insertions in newspaper.
b. ₹ 3,000 was spent on purchase of land and included in legal expenses.
c. Half of the repair expenses were on let-out building.
d. Depreciation allowable on all assets including car is ₹ 14,400.
e. Bonus was paid to employees on 30-06-2023 and date of filing of return is 31-07-2023.

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FORMAT FOR COMPUTATION OF INCOME FROM PROFESSION

AY: 2023-24
Assessee: FY: 2022-23
PARTICULARS AMOUNT AMOUNT
Add: PROFESSIONAL RECEIPTS --
LESS: PROFESSIONAL EXPENSES --
INCOME FROM PROFESSION --

In case of Doctor or Medical Practitioner

Particulars Amount
Professional Receipts
(i) Consultation fees --
(ii) Operation fees --
(iii) Visiting fees --
(iv) Sale of medicines --
(v) Gift from patients (because these are received as token of gratitude for
professional services rendered) --
(vi) Value of any perquisite received by such person --
(vii) Examiner's fees --
(viii) Nursing home receipts --
(ix) Any other professional receipt Total Receipts --
Less: Professional Expenses

(i) Dispensary Expenses (i.e., rent, light, water charges, salary to staff, telephone
expenses etc.)
--
(ii) Cost of Medicines
(a) If accounts are maintained on cash basis:
Cost of actual medicines purchased during in previous year --
(b) If accounts are maintained on mercantile basis:
Opening stock + New purchases - Closing stock --
(iii) Depreciation on assets used for professional work; --
Surgical Equipment, X-ray Machines, Computer, furniture, etc., at prescribed
rates
--
(iv) Cost of books for professional purposes
(v) Motor car expenses: depreciation relating to professional work --
(vi) Expenditure incurred to increase professional knowledge --
(vii) Nursing home expenses --
(viii) Any other expenditure incurred during the year --
Income from Profession --

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In case of Chartered Accountant

Particulars Amount
Professional Receipts
(i) Audit fees --
--
(ii) Income from accountancy work
--
(iii) Institute fees
--
(iv) Examiner's fees
--
(v) Gifts from clients, if any
--
(vi) Consultancy Services --
(vii) Remuneration received for writing articles in journals --
(viii) Any other receipt --
Less: Professional Expenditure
--
(i) Office expenses
--
(ii) Institute expenses
--
(iii) Cost of books
--
(iv) Motor car expenses relating to professional work
--
(v) Membership fees
vi) Depreciation on office furniture, equipment, car or scooter, computer,
books, etc. --
(vii) Any other expenditure incurred to increase professional knowledge --
(viii) Stipend to trainees --
(ix) Subscriptions --
(x) Professional Tax --
Income from Profession --

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Income of a Lawyer or an Advocate

Particulars Amount
Professional Receipts
(i) Practicing fees --
--
(ii) Legal fees
--
(iii) Special commission
--
(iv) Presents from clients --
(v) Examiner's fees --
(vi) Remuneration received for writing articles in journals --
(vii) Any other receipt Total Professional Receipts --
Less: Professional Expenses
(i) Office expenses --
--
(ii) Salary of staff, if any
--
(iii) Cost of books for professional purposes
--
(iv) Depreciation on professional books at the prescribed rate --
(v) Depreciation of office equipment or vehicles --
(vi) Expenditure incurred to increase professional knowledge --
(vii) Subscription --
(viii) Purchase of stamp paper and court fee --
(ix) Travelling expenses --
(x) Motor car expenses: depreciation relating to professional work --
Income from Profession --

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Problems on Profession:

1. Dr. Gupta is a Medical Practitioner of Lucknow. Calculate his income from profession for the AY
2023- 24.

Particulars ₹
Gross receipts from dispensary 2,35,000
Gross receipts from Consultation 1,65,000
Operation fees 2,50,000
Visiting Fees 50,000
Gifts from patients 30,000
Medicines Purchased 1,25,000
Closing stock of Medicine 35,000
Salaries paid to the employee 1,50,000
Surgical equipment Purchased 48,000
Attended a medical seminar in Germany to update Knowledge 25,000
He owns a house whose municipal value is ₹ 50,000. Half
portion of the house is used for the profession.
Expenses paid on the house is municipal tax 10% of M.V Repairs ₹ 10,000
Medical books purchased 30,000

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2. Shri. Som is a leading lawyer of Mumbai. He deposits in the Bank all the receipts and always
pays all the expenses by cheque. The analysis of his bank account for the year ending 31.3.2023
is as follows-

Particulars (Received) ₹ Particulars (Paid) ₹

Balance b/d 58,340 Salaries 14,000
Professional fees 3,90,000 Rent of Chamber 9,500
Dividend 7,160 Telephone Expenses 1,000
House rent 22,500 Magazine Subscription 3,000
Income from Horse Race (Gross 10,000 Motor car exp. 28,000
15000)
Share of Income from HUF 7,110 Misc. office Expenses 5,500
Purchase of motor Car 2,00,000
Advance Payment of Income 40,000
Tax
Donation to Bombay University 10,000
Personal Exp. 1,45,500
HP expenses 10,000
Taxes: ₹ 5000
Repairs ₹ 1500
Insurance ₹ 1500
Collection charges ₹ 2000
Balance c/d 28,610
4,95,110 4,95,110
Compute his Income from Profession after taking into account the following information:

1. 1/4th of the Motor car expenses related to Personal use.

2. Rate of Depreciation of Motor car is 15%.
3. Shri. Som stays in his own house; the gross annual value is ₹ 9,800 which includes
Insurance Premium ₹ 500 Municipal Taxes ₹ 2,400.

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 Profit & Gains from Business & Profession –Part II INCOME TAX-II [AY: 2023-2024]

3. Shri. Naik is a Chartered Accountant. He has prepared the following Income and
expenditure account for the year ending 31.3.2023.

Particulars (Exp) ₹ Particulars (Income) ₹

Office expenses 10,000 Audit fees 1,70,500

Employees salary 5,000 A gift from Father-in-law 5,050

Books other than annual 5,500 Dividend 8,000

Publication

Personal expenses 1,02,000 Profit from sale of 6,450

Investments

Donations to NDF 500

Interest on loan 700

Income tax 13,300

Car expenses 2,000

Net surplus 51,000

1,90,000 1,90,000

Additional Information

1. The car is used equally in official and personal purpose and allowed depreciation for

official work is ₹ 500.

2. ₹ 1000 is a domestic servant salary is included in employee’s salary. The loan has

been taken for personal purposes.

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 Profit & Gains from Business & Profession –Part II INCOME TAX-II [AY: 2023-2024]

4. Mr. Hari lives in Delhi is an advocate and his receipt and payment accounts as follows:

Receipts ₹ Payments ₹
Books purchased
Balance b/d 1,892 800
(Annual Publication)
Sitting fee 40,000 Repairs to godown 1,200
Municipal tax on
Salary as a part-time 3,600 600
godown
lecturer
Exam remuneration from Maintenance expenses
2,300 2,000
University of car
Telephone installation
Interest on fixed deposits 1,200 4,000
charges
Sale proceeding of car 18,000 Domestic expenses 20,000
Plant purchased for
Sale proceeds of shares 16,000 700
office
Dividends received 1,540 Car purchased 25,000
Life insurance premium 5,000
Donation to
1,200
Recognized Institution
Gift to Father 400
Income Tax 3,500
IT Assessment Expenses 200
By Installment of 17,000
housing loan (Principal
amount Rs. 10,000)
Bank deposit 13,000
Public provident fund 4,000
Balance c/d 2,932
84,532 84,532

Additional information:

1. 1/3 part of godown is used for profession and 2/3 for self-occupation.
2. Books purchased for teaching Rs. 200 and remaining for the profession
3. Car is used 50% for professional purpose.

Compute Mr. Hari’s Professional Income.

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 Profit & Gains from Business & Profession –Part II INCOME TAX-II [AY: 2023-2024]

5. Shri Pandey is a lawyer from Bikaner. Based on the following details prepare his income
from profession. Compute taxable professional income of Pandey for the AY-2023-24.

Particulars ₹ Particulars ₹
Household expenses 1,12,000 Legal fees 3,26,000
Office expenses 7,000 Special Commission 1,400
appointment fees
Charity 500 Cash gift received from 2,000
clients
Telephone expenses 500 House rent 15,000
Income Tax 900 Int. on Govt. Securities 3,000
Rent 4,000 Salary as a part-time lecturer 6,000
in law
Gifts to Daughter 2,000
Electricity Charges 1,000
Donation to NDF 1,000
Contribution to PPF 2,400
Books used in the 3,000
profession
(Annual
Publications)
Salaries 15,000
Purchase of Motor Car 60,000
Purchase of Furniture 2,000
Life Insurance Premium 5,000
Motor car Expenses 6,000
Purchase of Typewriter 6,000
Expenses of Income over 1,25,100
expenditure
3,53,400 3,53,400
Additional Information

1. He lives one half of the house, and the other half is used for the office. Rent
& electricity charges are with respect to the house.
2. One-half of car expenses are for personal use.
3. Depreciate motor car @15%, Typewriter @15% and furniture @ 10%.

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6. From the following income and expenditure account and additional information of Dr.
Deva who maintains books of accounts under mercantile system of accounting,
compute taxable income from profession for the assessment year 2023-24.

Expenditure ₹ Income ₹
Rent of clinic Consultation fees
20-21 1,000 20-21 5,500
21-22 20,000 21-22 85,000
22-23 2,000 22-23 10,000
Electricity and water 2,200 Visiting fees 65,000
Household expenses 15,000 Loan from bank (for 1,25,000
profession)
Municipal taxes on house 3,000 Loan from bank (for 50,000
property personal)
Purchase of motor car 1,20,000 Gifts from patients 20,000
Laptop purchased (on 1- 3-2022) 30,000 Remuneration for articles 8,000
published in professional
journal
Income tax 12,000 Gift from medical 60,000
representatives
Salary to compounder 24,000 Operation theatre rent 15,000
Purchase of books 6,000 Rent from house property 12,000
Expenses on IT 8,000 Interest on post office NSC 2,000
proceedings
Life insurance premium 15,000 Income from horse race 30,000
Gift to wife 10,000
Interest on loan 10,000
(profession)
Interest on loan 4,000
(personal)
Loan installment paid 25,000
(profession)
Donation to a notified 10,000
temple
Car expenses 20,000
Purchase of surgical 30,000
equipment
Purchase of medicines 35,000
Excess of income over 85,300
expenditure
4,87,500 4,87,500

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Additional information
a. 40% of car expenses are for personal use.
b. Depreciation on car and surgical equipment is @ 15% and on laptop and books is @
40%.
c. Income tax includes ₹ 2,000 professional tax paid to state government
d. Gifts from patients include ₹ 8,000 received on the occasion of marriage from friends.
e. Closing stock of medicines is ₹ 7,500.

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 Profit & Gains from Business & Profession –Part II INCOME TAX-II [AY: 2023-2024]

7. Dr. Lakshmi is a renowned medical practitioner. He furnishes his receipts and payments
account for the financial year 2021-2022
Receipts ₹ Payments ₹
To balance b/d 35,000 By electric & water 12,000
To consultation fees By rent of clinic
2020-2021 50,000 2020-2021 16,000
2021-2022 70,000 2021-2022 14,800
2022-2023 12,000 2022-2023 16,600
To visiting fees 30,000 By purchase of professional 18,000
books
To loan from bank for 1,75,000 By household expenses 17,800
professional purposes
To sale of medicines 70,000 By municipal taxes paid on 2,000
property
To sales tax on medicine 3,000 By sales tax on medicine 2,800
To gift from patient 50,000 By purchase of motor car 1,45,000
To remuneration from 16,000 By fire insurance on 2,000
articles published in the property
professional magazine
To rent from house 11,000 By surgical equipment 37,000
property
To interest on post office 7,000 By advance income tax 13,000
national saving certificate
By salary to nurse 12,000
By entertainment expenses 6,000
By purchase X-ray machine 94,500
By expenses on income tax 15,000
proceedings
By life insurance premium 15,000
By gift to wife 5,000
By interest on loan 2,000
By loan a/c – installment paid 15,000
By donation to apolitical 500
party
By car expenses 15,000
By the purchase of medicines 35,000
By balance c/d 17,000
5,29,000 5,29,000
Compute Dr. Lakshmi professional income for the assessment year 2020-2021 with the
help of the following additional information
a. One-third of car expenses is for personal use
b. Depreciation on the motor car is 15%,
c. Remuneration from articles includes₹ 3,000 received for setting the question paper.

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8. From the following statement, compute the income from profession of Dr. Kapoor if
accounts on cash/receipts system
Cash receipts ₹ Cash payments ₹
To visiting fees 45,000 By dispensary rent 36,000
To consultation fees 1,25,000 By electricity and water 6,000
charges
To sale of medicine 72,000 By telephone expenses 6,000
To dividend 5,000 By salary to nurse and 36,000
compounder
By depreciation on 6,000
surgical equipment
By purchase of medicines 38,000
By depreciation on X-\ray 4,000
machine
By income tax 5,500
By donation to Rama 4,000
Krishna mission
By motor car expenses 9,600
By depreciation on car 4,800
By balance c/d 91,100
2,47,000 2,47,000
Additional information
a. Electricity and water charges include domestic bill of ₹ 2,500.
b. Half of motor car expenses are for professional use.
c. Telephone expenses include 40% for personal use.
d. Opening stock of medicines was ₹ 6,000 and closing stock was ₹ 4,000.

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 Profit & Gains from Business & Profession –Part II INCOME TAX-II [AY: 2023-2024]

9. Mr. A, a trader makes the following payments during the course of his business. Identify whether it is allowable
expenses or not allowable expenses.
A. Discuss the allowability of following payments:

1. Mr. A purchases Agricultural produce from a cultivator and pays him ₹ 30,000 in cash.

2. On 1st June, Mr. A sends his goods to Bombay by rail and pays freight charges of ₹ 21,000 in cash.

3. On 5th July, he deposits GST (Goods & Services Tax) for the first quarter of the year and the amount deposited
in cash is ₹ 65,400.

4. On 15th July, there was a bank strike and he pays a bill of ₹ 28,000 in cash.

5. Mr. A purchases goods worth ₹ 11,000 and makes the payment through a crossed cheque which was
dishonored. Finally, account was settled by making cash payment of ₹ 11,000.

B. State whether the following items are deductible or not and why:

1. GST and Wealth-tax.

2. Cost of installing a new telephone.
3. Fees paid to the lawyer for drafting partnership deed.
4. Loss due to embezzlement by an employee.
5. Penalty paid to custom authorities for violating custom rules.
6. Some amount paid to a Labour leader to call off the strike.
7. In the course of money-lending business, the assessee acquired certain properties in lieu of debts and held them
as stock-in-trade. The properties so acquired were destroyed by enemy action and the assessee claims the loss
as deduction.
8. ₹ 1,000 were snatched from the cashier while he was going to the bank to deposit the amount.
9. Subsidy received under export promotion scheme from Government.

C. Discuss how the following items are to be dealt with in the income tax assessment of a company

1. Capital expenditure on scientific research ₹ 4,00,000.

2. Expenses incurred in respect of a branch of the business which was discontinued by the assessee during the
accounting year.
3. Expenses for shifting an industrial undertaking from the urban to rural area.

D. Treatment of Bad Debts

1. During 2022-23, assessee fails to recover debts worth ₹ 1,90,000 and after making all possible efforts treats ₹
1,90,000 as bad debts.

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2. During the year 2022-23, assessee is unable to recover debts worth ₹ 1,20,000 but treats only ₹ 80,000 as bad
debts.
3. During the last 3 years assessee suffers loss in his business and was unable to recover his debts worth ₹
2,60,000 and treats these debts as bad debts in his books of accounts and ultimately closes this business in the
year 2021-22. During the previous year 2022-23 sets up a new business and earns a profit of ₹ 60,000 in the
very first year.
4. During 2022-23 assessee makes a provision for bad and doubtful debts of ₹ 1,00,000.

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 Profit & Gains from Business & Profession –Part II INCOME TAX-II [AY: 2023-2024]

10. From the following profits and loss a/c for the year ending 31-3-2023, compute business income
of Mr. Shobit.

Particulars Amount Particulars Amount

To opening stock 25,00,000 By sales (including 1,55,00,000
GST)
To purchases 94,00,000 By closing stock 20,00,000

To gross profit c/d 56,00,000

1,75,00,000 1,75,00,000

To salaries and wages 5,00,000 By gross profit b/d 56,00,000

To rent 1,20,000 By interest from 10,500

debtors
To advertisement 3,00,000 By bad debt recovered 20,000
(not allowed as
deduction)
To travelling expenses 2,00,000 By refund of income 10,000
tax
To bad debts 52,000 By interest on income
tax refund 1,500

To general expenses 3,00,000

To Franchises Purchased 3,00,000

To addition to office building 3,00,000

To GST paid 2,50,000

To income tax paid 1,50,000

To net profit 31,70,000

total 56,42,000 56,42,000

Additional information:
1) Both opening and closing stock are undervalued by 20% of cost. Stock taking at the end revealed
a theft of good amounting to ₹ 20,000.
2) Franchises were purchased on 1-8-2022 and were put to use on 1-11-2022.
3) Advertisement expenditure includes cost of neon sign boards installed at various places in the
cities amounting to ₹ 1,00,000.
4) On 1-4-2022 the WDV of office building is ₹ 50,00,000. The expenditures on addition to office
building includes ₹ 50,000 in respect of furnishing of the meeting hall.
5) GST of ₹ 20,000 for P.Y. 2021-22 was paid on 15-1-2023 but not included in the above profit
and loss a/c.

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6) Bad debt recovered ₹ 20,000 during the previous year in respect of past bad debt of a
discontinued business and have not been included in the above P & L Account. The amount was
claimed as deduction as bad debt in the past.
7) General expenses include ₹ 20,000 on account of donation to national urban poverty eradication
fund and ₹ 10,000 to National Defense Fund.
8) a) Plant and machinery (15%) WDV on 1-4-2022 ₹ 5,00,000.
b) Computers (40%) WDV on 1-4-2022 ₹ 1,00,000.
c) A new packaging machine purchased and put to use on 1-11-2022 in the factory ₹ 1,00,000.
d) Furniture (10%) WDV as on 1-4-2022 ₹ 2,00,000.

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11. From the following Profit and Loss a/c for the year ending 31-3-2023, compute business income of Mr.
Vipin for the AY 2023-24.

Particulars Amount Particulars Amount

To salary to staff 6,10,000 By Gross Profit 25,65,600
To advertisement expenses paid in cash 28,000 By sundry receipts 26,000

To office expenses 1,06,000 By custom duty recovered (not allowed

as deduction earlier) 12,000
To rent and repairs 84,000 By interest on bank deposits 1,08,000
To legal expenses for the filling income By profit on sale of import license
tax appeal 16,000 65,000
To bad debts 42,000 By gift from father 18,000
To depreciation 2,10,000 By profit on sale of share 80,000
To reserve for bad and doubtful debts By bad debts recovered 16,000
18,000
To interest on bank loans 78,000
To donation to a political party 10,000
To commission 22,000

To interest on own capital 14,000

To household expenses 36,000

To income tax for the 2016-17 15,000

To sales tax 36,000
To sales tax penalty 12,000
To entertainment expense 20,000
To extension of business premises 2,00,000

To net profit 13,33,600

Total 28,90,600 Total 28,90,600

ADDITIONAL INFORMATION.
a) Salary to staff includes salary paid to a relative employee which is unreasonable to the extent up
to ₹10,000
b) Office expenses include a payment of ₹ 16,000 to given to notified University for carrying on
research.

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c) Salary to staff includes a payment of pension ₹ 8,400 to a widow of a former employee.

d) Office expenses include a gift of ₹ 2,000 given to a sales tax officer on Diwali.
e) Depreciation includes depreciation of personal car of manager ₹ 24,000.
f) Entertainment expenses include expenses incurred in a five-star hotel for entertainment of a
customer.
g) Interest on bank loans includes interest on loan taken to buy a personal car Rs:20,000.
h) Bad debts of ₹ 5,000 allowed in the year 2020-21 were recovered during the year but were not
recorded.

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12. Mr. Santhosh & Company are Chartered Accountants in Delhi. They have submitted the following
Income and Expenditure Account for the year. Compute the income from profession.

Receipts ₹ Payments ₹
Audit fees 2,24,000 drawings 48,000
Financial Consultancy service 98,000 Office rent 42,000
Dividends from an Indian 6,000 Telephone Installation charges 15,000
company (GROSS) Under O.Y.T. scheme
Dividends on units of UTI 4,000 Electricity Bill 4,200
Accountancy works 24,000 Salary to Staff 66,000
Charities 1,200
Gifts given to relatives 9,600
Car expense 21,000
Subscription for journals 2,500
Institute fee 1,200
Stipends given to trainees 12,000
Net income 1,33,300
3,56,000 TOTAL 3,56,000

Additional Information:
• Depreciation of car during the year amounts to Rs. 5,000
• 30% of the time car is used for personal purposes

(Note: Deposit made under "Own Your Telephone" (OYT) scheme is an asset within the meaning of section 2(e)
and, as such, includible in the net wealth of an assessee.)

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13. Dr. Kaushik is a leading doctor who maintains his book of account on cash basis furnishes the following
receipts and payments A/c for the financial year 2022-23. (Ignore Alternative Tax Regime)

Receipts and Payments Account for the year ending 31st March 2021

Receipts ₹ Payments ₹
Balance b/d 10,000 Salaries, General expenses 25,000
Professional fees 1,00,000 Magazine Subscription 3,000
Dividend from an Indian Co., 9,000 Motor Car expense 20,000
Share from HUF 11,000 Purchase of scanning machine 50,000
Share of Profits from partnership firm 15,000 Income tax 5,000
Professional tax 2,000
House property expenses:
Taxes 6,000
Repairs 3,000
Interest on loan 9,000 18,000
Balance c/d 22,000
1,45,000 1,45,000

Compute his Gross Total Income for the relevant Assessment Year 2023-24 after considering the following
information:
1. 30% of the car expenses are in respect of personal use.
2. Depreciate scanning machine @ 15% it was purchased on 10th Dec. 2022.
3. He stays in his house; One-third of the house is used as his clinic. The gross annual value of the whole house
is ₹ 24,000.

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14. Following is the Receipts and Payments Account of Mr. Ambarish (resident) a lawyer for the year
ended
31-3-23.

Receipts ₹ Payments ₹
To Balance b/d 10,000 By Staff salaries 56,000
To Arbitration fees 2,40,000 By Professional books 18,000
To Legal counselling fees 30,000 By Subscription to Journals 2,000
To Loan from bank 25,000 By Refreshment charges 4,000
To Rent from property 45,000 By Rent of office 15,000
To Interest on bank FD 21,000 By Telephone charges 18,000
To Dividend from Tata Ltd. 8,000 By Printing charges 3,000
To Share of Income from HUF 1,00,000 By Electric charges 6,000
By Purchase of car 2,50,000
By Computer purchased 50,000
By Car expenses 7,000
By Contribution to PPF 10,000
By NSC purchased 14,000
By BAR association fees 2,000
By Balance c/d 24,000
4,79,000 4,79,000

Additional information:

1. 1/2 of the car expenses pertain to personal use.

2. Depreciation rate-car 15%, computer 40% and books 40%.
3. 25% of telephone expenses pertain to personal use.
4. Half of the electric charges are for the house property.
5. Gifts from clients ₹ 10,000 not included in the above account.
6. Loan from Bank is for personal use.

Compute his total income from profession for the A.Y. 2023-24.

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For Private Circulation Only, JU-CMS – [Link].S, [Link] Rai, Mr. Vivek Gupta, Ms. Manisha.T &
Ms. Anusha N