Sunshine Industries Limited, a domestic company, is engaged in the manufacturing of washing machines since 01-11-2021 in the State of Rajasthan. The…

Computation of total income and tax liability by Sunshine Industries Ltd. for A.Y.2024-25 in accordance with the provisions of section 115BAA Particulars Particulars ₹ Profits and gains of business or profession Net profit as per statement of profit and loss 1,47,50,000 Add: Items debited but to be disallowed - Depreciation as per books of account 34,00,000 - Consideration for designs & models [Consideration for designs & models of washing machines is in the nature capital expenditure and hence, is an intangible asset which is eligible for depreciation as per section 32. Since lumpsum consideration has been debited to statement of profit and loss, the same has to be added back while computing business income] 36,00,000 - Purchased washing machine panels at a price higher than the fair market value [As per section 40A(2), the difference between the purchase price (96lakhs) and the fair market value (82lakhs) has to be added back since the purchase is from a related party, i.e., Shine Ltd., a company in which directors of Sunshine Industries Ltd. have substantial interest and at a price higher than the fair market value] 14,00,000 - Legal expenses for issue of bonus shares [There is no fresh inflow of funds or increase in capital employed on account of issue of bonus shares and there is only reallocation of the company’s fund. Consequently, since there is no increase in the capital base of the company, legal expenses of 6lakhs in connection with issue of bonus shares is a revenue expenditure and is hence, allowable as deduction¹] Nil - Legal expenses for issue of right shares [Expenses incurred in relation to rights issue are of capital in nature². Hence, not allowed as deduction from business income. Since, it is already debited in statement of profit and loss, the same has to be added back while computing business income] 8,00,000 92,00,000 2,39,50,000 Less: Items credited but to be considered separately - Short term capital gains on equity shares [Not taxable under this head] 15,00,000 - Long term capital gains on Zero coupon bonds [Not taxable under this head] 8,00,000 - Cash Subsidy [Subsidy from State Government on acquisition of asset is reduced from the actual cost of the asset. Hence, such subsidy is not the income of Sunshine Industries Ltd. Since, subsidy is already credited in the statement of profit and loss, the same has to be reduced while computing business income] 15,00,000 38,00,000 2,01,50,000 Less: Depreciation as per Income-tax Rules - Depreciation 36,00,000 - Depreciation on New Plant and machinery [*50 lakhs x 15%, since it has been put to use for more than 180 days during the year] [Any expenditure for acquisition of any asset in respect of which payment or aggregate of payment made to a person in a day, otherwise than by an a/c payee cheque/ bank draft or use of ECS or through prescribed electronic mode, exceeds - 10,000, such expenditure would not form part of actual cost of such asset. Further, where any part of the cost of asset acquired has been met directly or indirectly, inter alia, by State Government, then, so much of the cost as relates to subsidy would not be included in the actual cost. Hence,10 lakhs paid by bearer cheque and 15lakhs of cash subsidy received by State Government for acquisition of asset would not be included in the actual cost of plant and machinery.] 7,50,000 - Depreciation on Intangible asset, being designs & models of washing machines [36lakhs X 25% x 50%, since put to use for less than 180 days during P.Y. 2023-24] 4,50,000 - No additional depreciation is allowable under section 32(1)(iia) since the assessee has opted for the provisions of section 115BAA. 48,00,000 1,53,50,000 Capital Gains - Short term capital gains on transfer of listed equity shares 15,00,000 - Long term capital gains on transfer of zero-coupon bonds [after indexation benefit] 8,00,000 - Short term capital gains on transfer of unlisted equity shares [Since not held for more than 24 months] Full value of consideration Less: Cost of acquisition 22,00,000 12,00,000 10,00,000 33,00,000 Gross Total Income/Total Income 1,86,50,000 Computation of tax payable under section 115BAA Tax u/s 115BAA on business income [₹ 1,53,50,000 x 22%] 33,77,000 Tax u/s 111A on Short-term capital gains on transfer of listed equity shares on which STT is paid [15lakhs x 15%] 2,25,000 Tax u/s 112 on Long-term capital gains on transfer of zero-coupon bonds with indexation benefit [8lakhs x 20%] 1,60,000 Tax u/s 115BAA on short term capital gains on transfer of unlisted equity shares [10lakhs x 22%] 2,20,000 39,82,000 Add: Surcharge @10% 3,98,200 43,80,200 Add: HEC@4% 1,75,208 Tax liability 45,55,408 Tax liability (rounded off) 45,55,410 ¹ It was held by Apex Court in case of CIT vs. General Insurance Corpn. (2006) 286 ITR 232 ² It was held by Karnataka High Court in case of CIT Vs Motor Industries Ltd (1998) 229 ITR 137