Shubh Fragrance Ltd. established in 2015, is engaged in the manufacturing and selling of pharmaceutical products. The net profit of the company as…

14. Computation of total income and tax liability of Shubh Fragrance Ltd. for A.Y.2024-25 under the regular provisions of the Act Particulars Amount (in ₹) I Profits and gains of business and profession Net profit as per Statement of profit and loss 9,00,00,000 Add: Items debited but to be considered separately or to be disallowed (i) Payment towards know-how for a product [Payment towards obtaining know-how is capital expenditure i.e., an intangible asset and eligible for depreciation. Since the same is debited in statement of profit and loss, it has to be added back] 50,00,000 (ii) Electricity charges unpaid upto the due of filing return of income [Electricity charges are not included within the scope of section 43B 1 , therefore no disallowance would be attracted. Since the same is already debited in statement of profit and loss, no further adjustment is required] - (iii) Loss due to hedging contract in respect of raw material [Loss due to hedging contract against future price fluctuations in respect of import of raw material is not deemed to be speculative transaction. Hence, the same is allowable as deduction while computing income from manufacturing. Since the same is already debited in statement of profit and loss, no further adjustment is required] - (iv) Depreciation as per books of account 45,00,000 (v) Loss from hedging contract in respect of imported machinery from Japan [Loss from hedging contracts entered for mitigating loss arising due to fluctuation in foreign currency payment towards import of machinery has to added to the actual cost of the machinery as per section 43A. Since the same is wrongly debited to statement of profit and loss, same has to be added back]. 2,00,000 97,00,000 9,97,00,000 Less: Items credited but chargeable to tax under other head (vi) Non-compete fees for not carrying out any business in a particular product [Non-compete fees for not carrying out any business in a particular product would be chargeable to tax as business income under section 28(va). Since the same is already credited in statement of profit and loss, no further adjustment is required] - (vii) Advance forfeited in respect of sale of land [With effect from A.Y. 2015-16, advance forfeited in respect of sale of land due to non-receipt of balance amount of consideration taxable under the head "Income from other sources". Since the same has been credited to the statement of profit and loss, the same has to be deducted while computing business income] 20,00,000 (viii) Profit on sale of unlisted shares [Profit on sale of unlisted shares is taxable under the head "Capital Gains". Since profits has been credited to the statement of profit and loss, the same has to be deducted while computing business income] 15,00,000 35,00,000 9,62,00,000 Less: Depreciation as per Income-tax Act, 1961 [other than on imported plant & machinery and know-how] 35,00,000 Depreciation on: Plant & Machinery imported 65,00,000 Add: Loss on hedging contract 2,00,000 67,00,000 Normal depreciation @7.5% of 67,00,000 [only 50% of the 15% is allowable since machinery is put to use for less than 180 days] 5,02,500 Additional depreciation @10% of 67,00,000 [only 50% of the 15% is allowable since machinery is put to use for less than 180 days] 6,70,000 Know-how @ 12.5% of 50,00,000 [50% of 25% since know how was obtained in the month of November 2023] 6,25,000 52,97,500 9,09,02,500 II Capital Gains Long term capital gain on sale of unlisted shares [Since shares were held for more than 24 months] Full value of consideration [15,00,000 +80,00,000] 95,00,000 Less: Indexed cost of acquisition [80,00,000 x 348/301] 92,49,169 2,50,831 III Income from Other Sources Advance forfeited on sale of land 20,00,000 Total income/Gross Total Income 9,31,53,331 Total income/Gross Total Income (rounded off) 9,31,53,330 Computation of tax liability under the regular provisions of the Act Tax on 2,50,831@20% under section 112 50,166 Tax on 9,29,02,500@25% [Since the turnover of the company for the previous year 2021-22 does not exceed 400crore] 2,32,25,625 2,32,75,791 Add: Surcharge @ 7%, since the total income of the company > 1 crore but ≤ 10crores 16,29,305 2,49,05,096 Add: Health and education cess @ 4% 9,96,204 Tax liability 2,59,01,300 Computation of tax liability of Shubh Fragrance Ltd. for the A.Y. 2024-25 under section 115JB Particulars ₹ Minimum Alternate Tax @15% on book profit of 15,20,00,000 2,28,00,000 Add: Surcharge@12%, since the book profit of the company > 10 crores 27,36,000 2,55,36,000 Add: Health and Education cess@4% 10,21,440 Tax liability under section 115JB 2,65,57,440 Since the regular income-tax payable is less than the minimum alternate tax payable, the book profit of 1520lakhs shall be deemed to be the total income and tax is leviable @15% thereof plus surcharge@12% and cess@4%. Therefore, the tax liability is 2,65,57,440. MAT Credit to be carried forward Tax liability under section 115JB 2,65,57,440 Less: Tax liability under the regular provisions of the Income-tax Act, 1961 2,59,01,300 Amount of Credit (115JAA) 6,56,140 MAT credit of 20,00,000 of A.Y. 2016-17 is allowed to be carried forward till A.Y. 2031-32 and MAT credit of 6,56,140 relating to A.Y. 2024-25 is allowed to be carried forward till A.Y. 2039-40. Note - Shubh Fragrance Ltd. is eligible for concessional rate under section 115BAA @25.168% i.e., tax@22% plus surcharge@10% plus HEC@4% subject to tax at the rates mentioned in the said sections in Chapter XII. In case Shubh Fragrance Ltd. opted for concessional rate of tax u/s 115BAA, it would not be eligible for additional depreciation on plant and machinery. In that case, its total income u/s 115BAA would be- Particulars ₹ Total income/Gross Total Income under regular provisions of the Act 9,31,53,330 Add: Additional depreciation on plant & machinery 6,70,000 Gross Total Income/ Total Income 9,38,23,330 Tax on 2,50,831@20% under section 112 50,166 Tax on 9,35,72,499 @22% under section 115BAA 2,05,85,950 2,06,36,116 Add: Surcharge @ 10% 20,63,612 2,26,99,728 Add: Health and education cess @ 4% 9,07,989 Tax liability 2,36,07,717 Tax liability (Rounded Off) 2,36,07,720 Suggestion to Shubh Fragrance Ltd In case Shubh Fragrance Ltd opts for section 115BAA for assessment year 2024-25, it would not be eligible for balance 10% additional depreciation on plant & machinery in A.Y. 2025-26 and would also lose MAT credit of 20lakhs. Further, once option under section 115BAA has been exercised for any P.Y., it cannot subsequently be withdrawn for the same or any other P.Y. However, in such a case its tax liability for A.Y. 2024-25 would be - 2,36,07,720 which would be lower than tax liability under regular provisions of the Act including MAT.