The profit and loss account of the LS & Associates, a partnership firm, showed a net profit of 80 lakhs after debiting/crediting of the…

Computation of Total Income of M/s LS & Associates, a partnership firm, for the A.Y. 2024-25 Particulars Amount (in ₹) Profits and gains of business and profession Net profit as per profit and loss account 80,00,000 Add: Items debited but to be considered separately or to be disallowed (1) Interest to partners on capital [As per section 40(b), interest to partners authorized by the partnership deed is allowable as deduction subject to a maximum of 12% p.a.] [* 7,15,000 x 1%/13%] 55,000 (2) Interest on loan taken from partner [As per section 40(b), interest to partners authorized by the partnership deed is allowable as deduction subject to a maximum of 12% p.a., whether it is interest on partner’s capital or loan] [₹ 90,000 x 3%/15%] 18,000 (3) Depreciation as per books of account 1,15,650 1,88,650 81,88,650 Less: Items credited but chargeable to tax under another head/expenses allowed but not debited 1. Interest on bank fixed deposits made out of surplus fund [Interest received from bank on bank fixed deposits made out of surplus funds is assessable under the head ‘Income from other sources’. Since the same has been credited to profit and loss account, it has to be deducted while computing business income] 35,000 2. Profit on sale of building [Capital gain on sale of building is taxable under the head “Capital Gains”. Since such gains has been credited to profit and loss account, the same has to be deducted while computing business income] 53,55,000 53,90,000 27,98,650 Less: Depreciation as per Income-tax Rules, 1962 Depreciation on Motor car [* 6,80,000 x 30%, eligible for higher depreciation since purchased and put to use on 1.1.2020] 2,04,000 Mobile phone [₹ 20,000 x 15% x 50%, since purchased and put to use for less than 180 days] 1,500 2,19,500 Book Profit 25,79,150 Less: Salary to working partners (i) As per limits given under section 40(b) On first - 3,00,000 @90% On the balance of 22,79,150 @ 60% 2,70,000 13,67,490 16,37,490 (ii) Salary actually paid to working partners [₹ 20,000 x 12 x 2] 4,80,000 Deduction allowed being (i) or (ii) whichever is less 4,80,000 20,99,150 II Capital Gains 1. Short term capital gain on sale of building forming part of block of asset [Since building was the only asset in the block] Full value of consideration Less: Cost of acquisition [WDV as on 1.4.2023] 90,00,000 36,45,000 53,55,000 Less: Exemption under section 54EC [Investment in bonds of NHAI, the maximum deduction u/s 54EC would be 50lakhs] [Available against depreciable asset, being a building held for more than 24 months and the payment for bonds has been made within six months from the date of transfer, exemption u/s 54EC would be available even if the allotment of bonds was made after the expiry of the six months³] 50,00,000 3,55,000 III Income from Other Sources Interest from bank on fixed deposits 35,000 Gross Total Income 24,89,150 Less: Deduction under section 10AA [*7,50,000 x 40,00,000/1,20,00,000 x 100%] [Unit in SEZ is eligible for deduction u/s 10AA since it obtained the letter of approval on or before 31st March, 2020 and started operations before 31.3.2021] 2,50,000 Total Income 22,39,150 ³ Hindustan Unilever Ltd. v. DCIT (2010) 325 ITR 102 (Bom.)