Mr. Sahil, resident Indian aged 40 years, a Manufacturer at Chennai, gives the following Manufacturing, Trading and Profit & Loss Account for…

Computation of total income and tax liability of Mr. Sahil for A.Y. 2024-25 Particulars ₹ I Income from house property Annual value of self-occupied property Nil Less: Deduction under section 24(b) Interest on housing loan of 2,60,000 restricted to 2,00,000 2,00,000 (2,00,000) II Profits and gains of business or profession Net Profit 13,56,000 Add: Expenses debited to Profit and loss A/c but not allowable as deduction or to be considered under other head Commission paid to brother [Commission paid to a related person/relative to the extent it is excessive to market rate is disallowed under section 40A(2)] 10,000 Cash payment to a Transport Carrier [Not disallowed under section 40A(3) since the limit for one time cash payment is 35,000 in respect of payment to transport operators] Nil Interest to bank on term loan [Interest paid to bank after the due date of filing of return under section 139(1) is disallowed as per section 43B] 40,000 Contribution to Prime Minister's Relief Fund [Not allowable since the same is not incurred wholly and exclusively for business purpose] 10,000 SGST Penalty paid [SGST penalty paid is not compensatory in nature and therefore, not allowable] 7,000 Loss on sale of shares 20,000 Depreciation as per books of account 2,00,000 16,43,000 Less: Incomes credited to profit and loss account but not taxable as business income Dividend from Domestic Companies 15,000 Winnings from lotteries 10,500 Profit on sale of shares 45,000 15,72,500 Less: Depreciation allowable as per Income-tax Rules,1962 On Plant & Machinery [@15% on 14,00,000, being opening WDV of 12lakhs and additions put to use for more than 180 days of 2lakhs + @7.5% on 2,00,000, being additions put to use for less than 180 days] 2,25,000 13,47,500 [8% of sales i.e.43,50,000 x 8% 1 assuming entire amount of sales are not received by A/c payee cheque or A/c payee draft or ECS or other electronic prescribed modes] 3,48,000 Business Income 13,47,500 [As per section 44AD, in case of Mr. Sahil, being an eligible assessee, a sum equal to 3,48,000 (8% 1 of total turnover i.e.,43,50,000) or as the case may be, a sum higher than the aforesaid sum claimed to have been earned by him would be deemed to be the business income. In this case, since Mr. Sahil has maintained books of account, he can claim the higher sum actually earned - 13,47,500 as his income from business.] (See Note below the solution for alternate answer) Less: Set off of loss from house property as per section 71(3A) 2,00,000 11,47,500 Add: Salary paid to staff not recorded in the books [Assuming the expenditure is in the nature of unexplained expenditure, the same is deemed to be income as per section 69C of Mr. Sahil. No deduction would be allowed in respect of such expenditure.] 48,000 11,95,500 Alternatively, it is possible to assume that the salary not recorded in the books of account was an erroneous omission and the assessee has offered satisfactory explanation about the source of such expenditure. In such a case, it would not be considered as deemed income and the same would be allowed as deduction III Capital Gains Long term capital gains taxable u/s 112A [Since shares are held for 2 years and STT has been paid] 45,000 Less: Set off of short term capital loss as per section 70(2) 20,000 25,000 IV Income from Other Sources Dividend from Domestic Companies 15,000 Winning from lotteries (₹ 10,500 +4,500) 15,000 30,000 Gross Total Income 12,50,500 Less: Deduction under Chapter VI-A Deduction under section 80C Principal repayment of housing loan 50,000 Deduction under section 80EE Interest on housing loan of 60,000 [₹ 2,60,000 - 2,00,000, allowed u/s 24(b)] allowable under section 80EE upto 50,000 50,000 Deduction under section 80G Contribution to Prime Minister's Relief Fund 2 10,000 1,10,000 Total Income 11,40,500 Tax Liability Tax on LTCG of 25,000 u/s 112A [Exempt upto 1 lakh] Nil Tax on winning from lotteries of 15,000 @30% 4,500 Tax on unexplained expenditure of 48,000 @60% 28,800 Tax on balance income of 10,52,500 at slab rate Upto 2,50,000 Nil From 2,50,001 to 5,00,000 @5% 12,500 From 5,00,001 to 10,00,000 @20% 1,00,000 From 10,00,001 to 10,52,500 @30% 15,750 1,28,250 1,61,550 Add: Surcharge @25% on tax on unexplained expenditure of 28,800 7,200 1,68,750 Add: Health and education cess @4% 6,750 Tax Liability 1,75,500 Note – Alternatively, if Mr. Sahil claims his business income as 3,48,000 i.e., 8% 3 of total turnover under section 44AD, his total income and tax liability would undergo a change.