Mr. Shobhit, a resident individual aged 54 years, engaged in the manufacture of spare parts of cars. He follows the mercantile system of accounting…

CA Intermediate · Taxation · RTP · September 2025
Mr. Shobhit, a resident individual aged 54 years, engaged in the manufacture of spare parts of cars. He follows the mercantile system of accounting and regularly files his return of income. The profit and loss account for the year ended 31.3.2025 shows a net profit of 57,25,000 after debiting/ crediting the following: (i) During the year, Mr. Shobhit purchased plant and machinery for 55 lakhs for which he took loan from a scheduled bank. (Date of loan 1.5.2024 and rate of interest 11% p.a.). The asset was acquired on 1.7.2024 and put to use on 1.9.2024. The entire interest amount is debited to the profit and loss account. (ii) On 1.4.2024, the production manager working in the factory of Mr. Shobhit took voluntary retirement from the services. Mr. Shobhit paid him - 8,00,000 as compensation for his services under the Voluntary Retirement Scheme. (iii) Mr. Shobhit purchased raw material from M/s Kamal & Sons, a micro enterprise, and M/s Hitesh & Sons, a medium enterprise, for 51,000 and - 75,000, respectively on 15.3.2025. As per the written agreement with them, both the payment has to be made by 10.4.2025. Mr. Shobhit made the payment to M/s Kamal & Sons on 9.4.2025 and to M/s Hitesh & Sons on 15.11.2025. (iv) He contributed 20% of basic salary to the account of each employee under a pension scheme referred to in section 80CCD which is debited to the profit and loss account. Basic salary of the employees aggregate to 10 lakhs and dearness allowance is 40% of basic salary and it forms part of retirement benefit. (v) Depreciation debited to profit and loss account is 27,50,000. (vi) He received - 13,850 as income-tax refund out of which - 3,850 is interest on refund. The entire amount is credited to profit and loss account. Additional Information: (a) Mr. Shobhit purchased a new computer on 31st August, 2024 and was put to use on the same day in his office. The payment was made as under: 28,000 paid in cash at the time of purchase of new computer on 31/08/2024 25,000 paid by account payee cheque on 05/09/2024 as balance cost of new computer (b) WDV (as per the Income-tax Act, 1961) of different assets as on 1.4.2024: Plant and machinery 8,00,000;Factory Building - 6,45,000 (c) He paid - 50,000 as life insurance premium taken on the life of his father who is dependent on him. The sum assured is 8,00,000 and the policy was taken on 1.4.2015. (d) He also paid - 45,000 as life insurance premium taken on the life of his married daughter who is not dependent on him. The sum assured is 5,00,000 and the policy was taken on 1.4.2017. (e) On 1.10.2024, he withdrew - 1.50 crores in cash from two current accounts maintained by him with PNB Bank of India. There are no other withdrawals during the year. (f) Mr. Shobhit had sold a house on 30th March, 2022 and deposited the long term capital gains of 25,00,000 in capital gain account scheme by the due date of filing return of income for that year. On 1st July, 2024, he sold another house property in which he resided for 1 crore. He earned a long-term capital gain (without indexation benefit) of 50,00,000 on sale of this property. On 5th January, 2025, he withdrew the whole money out of his capital gain account and invested 60 lakhs on construction of a house in Mumbai. The construction of the house completed on 23rd March 2025. The indexed cost of acquisition of the house property is 60 lakhs. You are required to compute the total income of Mr. Shobhit and also the tax payable by him after TDS/TCS credit, if any, for the A.Y. 2025-26 if he is opting out of the default tax regime.

Suggested Answer and Working Notes:

Computation of total income of Mr. Shobhit for A.Y. 2025-26 Particulars Particulars Particulars ₹ I Income from business or profession Net profit as per profit and loss account 57,25,000 Add: Items of expenditure not allowable while computing business income Depreciation as per books of accounts 27,50,000 Interest on loan taken for purchase of plant & machinery [Interest from the date on which capital was borrowed till the date on which asset was first put to use not allowable as deduction. Accordingly, interest of 2,01,667 [₹ 55,00,000 x 11% x 4/12] has to be added back, since the same is debited to the profit and loss account] 2,01,667 Compensation on voluntary retirement [Only 1/5th of the compensation paid is allowable in the current year. The remaining are allowable in the four succeeding years in equal installments. Hence, 4/5th of 8lakh debited to profit and loss account has to be added back] 6,40,000 Payment to M/s Kamal & Sons, a micro enterprise, for purchase of raw material [Allowable as per section 43B(h) since payment was made to a micro enterprise and the same was within the time specified in the written agreement which is within 45 days from 15.3.2025] Nil Payment to M/s Hitesh & Sons, a medium enterprise, for purchase of raw material [Allowable, as section 43B which mandates allowability of expenditure on actual payment basis is not applicable on medium enterprise and Mr. Shobhit follows mercantile system of accounting] Nil Excess Contribution towards employees' pension scheme [Contribution to the extent of 14% of salary (basic salary + dearness allowance, if it forms part of pay for retirement benefits) is allowable as deduction under section 36(1)(iva). Accordingly, disallowance is required to be made since contribution made is not within the prescribed limit. Disallowance under section 40A(9) = 2,00,000 (20% of 10lakh) - 14% of 14,00,000 (10lakh +4 lakh) = 4,000] 4,000 35,95,667 93,20,667 Less: Items of income to be treated separately under the respective head of income Income-tax refund including interest on refund of 3,850 13,850 93,06,817 Less: Allowable expenditure Normal depreciation on (i) Opening WDV - Factory Building - 6,45,000 @10% 64,500 - Plant & Machinery 8,00,000 @15% 1,20,000 (ii) Computer acquired on 31.8.2024 for 25,000 @40% [Since payment of 28,000 made in cash in a day to a person exceeds - 10,000, the same would not be included in the actual cost of computer. Hence, only actual cost of 25,000 is eligible for depreciation] 10,000 (iii) On Plant & Machinery acquired on 1.5.2024 for 57,01,667 @15% [₹ 55,00,000 plus - 2,01,667, being the amount of interest on loan taken for purchase of this plant and machinery from the date on which capital was borrowed till the date on which asset as first put to use shall be capitalized] 8,55,250 10,49,750 Additional depreciation on Plant & Machinery acquired on 1.5.2024 for 57,01,667 @20% 11,40,333 71,16,734 II Capital Gains Sale consideration 1,00,00,000 Less: Indexed cost of acquisition 60,00,000 Long term capital gains [Indexation benefit is available since the property is transferred before 23.7.2024] 40,00,000 Less: Exemption under section 54 [Since 35 lakhs is invested in construction of house within the stipulated time limit.] 35,00,000 Capital gain of 25lakhs in capital gain account scheme is not taxable in P.Y. 2024-25, since the same is withdrawn and invested in construction of house within the stipulated time limit. The remaining amount of 35lakhs invested in construction of house is eligible for exemption u/s 54 against the long-term capital gain on sale of house property during the P.Y.2024-25] 5,00,000 III Income from Other Sources Interest on income-tax refund 3,850 Gross Total Income 76,20,584 Less: Deduction under Chapter VI-A Deduction under section 80C Life insurance premium of his father [Not allowable as deduction, since not covered within the meaning of term "person" in case of an individual, though he is dependent on him] Nil Life insurance premium for married daughter [Allowable as deduction though she is not dependent, since child of an individual whether Dependent or not falls within the meaning of term "Person" and the premium does not exceed 10% of the - 5,00,000, being the sum assured] 45,000 45,000 Total Income 75,75,584 Total Income (Rounded off) 75,75,580 Computation of tax payable by Mr. Shobhit for A.Y. 2025-26 Particulars Particulars ₹ Tax @20% on LTCG of 5lakhs on sale of house property [Since the property is transferred before 23.7.2024] 1,00,000 Tax at slab rate on balance income of 70,75,580 Upto 2,50,000 Nil 2,50,001 - 5,00,000 [@5% of 2.50 lakh] 12,500 5,00,001 -10,00,000 [@20% of 5,00,000] 1,00,000 10,00,001 -70,85,580 [@ 30% of 60,75,580] 18,22,674 19,35,174 20,35,174 Add: Surcharge @10%, since total income exceeds - 50,00,000 but does not exceed 1crore 2,03,517 22,38,961 Add: Health and education cess@4% 89,548 Tax liability 23,28,239 Less: TDS u/s 194N @ 2% on 50 lakhs, being the cash withdrawals exceeding 1crore 1,00,000 Tax payable 22,28,239 Tax payable (Rounded off) 22,28,240

Topics: Paper 3A: Income Tax Laws, Paper 3B: Goods and Services Tax

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic