Rakesh, a resident individual, provides the following Profit & Loss Account for the year ending 31st March 2025, from his business. You are required to compute income under the head "Profits and Gains from Business o

CS Executive · Tax Laws and Practice · PYQS · December 2025
Rakesh, a resident individual, provides the following Profit & Loss Account for the year ending 31st March 2025, from his business. You are required to compute income under the head "Profits and Gains from Business or Profession" for A.Y. 2025-26, considering the applicable provisions of the Income-Tax Act, 1961, and ICDS (if relevant). He maintains books of account on a mercantile basis. Profit and Loss Account of Rakesh for the year ending 31.03.2025 Particulars Amount (₹) Particulars Amount (₹) Consumption of Raw material 26,00,000 Gross receipts from business 60,00,000 Salary to Employees 18,00,000 Interest on capital to proprietor 2,00,000 Profit on Sale of Car 4,00,000 Depreciation (as per books) 12,00,000 Refund of Income-tax 1,50,000 Donation to political party 1,00,000 Commission to Agents 3,00,000 Cash payment to contractor 30,000 Goods withdrawn for personal use 50,000 Net profit 2,70,000 Total 65,50,000 Total 65,50,000 Additional Information: Depreciation (other than Car) as per Income Tax Act amounts to ₹ 10 lakhs. Commission to agents includes ₹ 2 lakhs was paid to Mr. Hari without deducting TDS. Cash payment to contractor ₹ 30,000 was made on a single day. Car sold was used for business and forms part of the block (Sale value of Car = ₹ 6 lakhs, WDV of block before sale = ₹ 2 lakhs). There are no other assets in this block. Donation to political party was made to a registered political party via account payee cheque. Assume that Rakesh has opted out of presumptive taxation scheme u/s 44AD.

Answer & Explanation:

Computation of Income under the head of Profits and Gains from Business & Profession for Rakesh for A.Y. 2025-26 Particulars Amount (₹) Amount (₹) Net Profit as per P & L A/c 2,70,000 Add: Disallowed Exp. (i) Interest on capital to proprietor Not allowable (personal expense) 2,00,000 (ii) Depreciation (as per books) (Allowed separately as per Income-tax) 12,00,000 (iii) Donation to political party Disallowed under PGBP (eligible under Chapter VI-A) 1,00,000 (iv) Commission to Agents (30% disallowed under Section 40(a)(ia) on which TDS is not deducted) [₹ 2,00,000 * 30%] 60,000 (v) Cash payment to contractor Disallowed under Section 40A(3) (cash > ₹10,000 per day) 30,000 (vi) Goods withdrawn for personal use (Personal drawings, not business expense) 50,000 Total Disallowed Exp. 16,40,000 Adjusted Net Profit 19,10,000 Less: Allowed Depreciation as per Income Tax Act (10,00,000) Profit before non-taxable income 9,10,000 Less: Income not taxable under PGBP (i) Profit on Sale of Car (Taxable under STCG) 4,00,000 (ii) Refund of Income Tax (not income) 1,50,000 Total Non-taxable Income (5,50,000) Taxable Income from Business and Profession 3,60,000

Topics: Income Tax

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