Statement of Profit and Loss of SJ Industries Ltd., engaged in production and marketing of diversified products, shows a net profit of 72,00,000 for…

Computation of Total Income of SJ Industries Ltd. for the A.Y. 2024-25 Particulars Amount (₹) I Income from house property Unrealised rent [Taxable under section 25A, even if SJ Industries Ltd. is no longer the owner of commercial property] 3,80,000 Less: 30% of above 1,14,000 2,66,000 II Profits and gains of business and profession Net profit as per the statement of profit and loss 72,00,000 Add: Items debited but to be considered separately or to be disallowed (i) Depreciation as per Companies Act, 2013 24,00,000 (ii) Interest under section 234B for short payment of advance tax [Any interest payable for default committed by assessee for discharging his statutory obligations under Income-tax Act, 1961 which is calculated with reference to the tax on income is not allowable as deduction under section 40(a)(ii). Since the same has been debited to statement of profit and loss, it has to be added back] 1 60,000 (iii) Interest and borrowing cost included in Opening and Closing inventory [As per ICDS II, Interest and borrowing cost which does not meet the criteria for recognition as a component of the cost, cannot be included in the cost of inventory. Since the same have been included in the opening and closing inventory, the difference between - 9,50,000, being interest included in opening inventory - 7,00,000, being interest included in closing inventory, has to be added back] 2,50,000 (iv) Cash payment in excess of 10,000 [Disallowance u/s 40A(3) is attracted in respect of expenditure, for which payment exceeding - 10,000 in a day has been made in cash. Since expenditure of 19,000 towards printing and stationery items is debited to the statement of profit and loss, the same has to be added back. However, payment of 22,000 to producer for dairy farming products is not disallowed since it is covered under the exceptions specified in Rule 6DD] 19,000 (v) Repair work paid to contractor without deduction of tax at source [Disallowance of 30% of the amount of 3,50,000 paid for carrying out repair work to a contractor without deduction of tax at source would be attracted u/s 40(a)(ia)] 1,05,000 (vi) Expenditure for transfer of carbon credits [Income by way of transfer of Carbon Credits is chargeable to tax under section 115BBG at a flat rate. No deduction is allowed under any provision of the Act in respect of any expenditure or allowance in relation thereto. Since such expenditure is debited to the statement of profit and loss, the same has to be added back] 35,000 (vii) Contribution to electoral trust [Contribution to electoral trust is not allowable as deduction from business profits of the company. Since the expenditure has been debited to statement of profit and loss, the same has to be added back while computing business income] 3,00,000 (viii) Advertisement in brochure of a political party [Advertisement charges paid in respect of brochure published by a political party is not allowable as deduction from business profits of the company as per section 37(2B). Since the expenditure has been debited to statement of profit and loss, the same has to be added back while computing business income] 40,000 (ix) Interest to co-operative bank not paid on or before the due date [Disallowance under section 43B would be attracted for A.Y.2024-25, since the interest was not paid on or before the due date of filing of return] 2,60,000 (x) Contribution towards pension scheme of employees [Contribution towards pension scheme, referred to in section 80CCD, of employees is allowed only to the extent of 10% of salary of the employee in the P.Y. i.e.,1,00,000 being 10% of 10,00,000. Therefore, the excess contribution of 50,000 [i.e.,1,50,000 -1,00,000] is disallowed u/s 36(1)(iva).] 50,000 1,07,19,000 Add: Amount taxable but not credited to statement of profit and loss A(2) Expenditure pertaining to previous financial year [Cash payment in excess of 10,000 made in the current year in respect of expenditure allowed on mercantile basis in the previous financial year, would be deemed as income in the current year as per section 40A(3A)] 35,000 1,07,54,000 Less: Items credited to statement of profit and loss, but not includible in business income / permissible expenditure and allowances (i) Unrealised rent [Unrealised rent in respect of commercial property is taxable under the head "Income for house property". Since the said rent has been credited to the statement of profit and loss, the same has to be deducted while computing business income] 3,80,000 (ii) Dividend received from specified foreign company [Dividend received from specified foreign company is taxable under the head "Income from other sources". Since the said dividend has been credited to the statement of profit and loss, the same has to be deducted while computing business income] 1,60,000 (iii) Profit from hedging contract [Hedging contract is entered into for safeguarding against any loss that may arise due to currency fluctuation. The profit from such contract entered into for meeting loss in foreign currency payments towards imported printing machinery has to be adjusted against the cost of machinery. Since the said profit has been credited to the statement of profit and loss, the same has to be deducted while computing business income] 3,00,000 (iv) Interest from bank fixed deposit [Interest on fixed deposit is taxable under "Income from Other Sources". Since the said interest has been credited to the statement of profit and loss, the same has to be deducted while computing business income] 1,35,000 A(3) Audit fees of P.Y. 2022-23 [30% of 75,000, being the audit fees disallowed in the P.Y. 2022-23 for non-remittance of TDS on or before due date of filing return of income for P.Y. 2022-23 would be allowed in the year of payment of TDS i.e., P.Y. 2023-24] 22,500 A(4) Transfer of Carbon Credits chargeable to tax under section 115BBG [Income by way of transfer of Carbon Credits chargeable under section 115BBG can be treated as business income or income from other sources, depending upon the facts of the case. In this case, since the question mentions that SJ Industries Ltd. is engaged in production and marketing of diversified products, it is logical to assume that the same is in the nature of business income. Since the amount of 4lakh has already been credited to statement of profit and loss, no further adjustment is necessary] Nil 9,97,500 Less: Depreciation as per Income tax Rules A(1) Depreciation under section 32 28,00,000 Add: Depreciation @7.5% on 92 lakhs [95lakhs, being imported printing machinery -3 lakhs, being profit from hedging contract] since, machinery is put to use for less than 180 days]. 6,90,000 Add: Additional depreciation @10% on 92 lakhs, since machinery is put to use for less than 180 days assuming the conditions for claim of additional depreciation are satisfied 2 . 9,20,000 44,10,000 Profits and gains from business or profession 53,46,500 III Income from Other Sources Dividend from specified foreign company 1,60,000 Interest from banks on fixed deposits (Gross) [Interest on banks on fixed deposits is taxable as "Income from other sources”] [₹ 1,35,000 x 100/90] 1,50,000 3,10,000 Gross Total Income 59,22,500 Less: Deduction under Chapter VI-A Under section 80GGB [Contribution by a company to an electoral trust or registered political party is allowable as deduction, since payment is made otherwise than by cash. Expenditure incurred by an Indian company on advertisement in brochure published by political party tantamount to contribution to such political party] [₹ 3,00,000 +40,000] 3,40,000 Total income 55,82,500 1 Bharat Commerce and Industries Ltd. v. CIT [1998] 230 ITR 733 (SC) 2 Balance additional depreciation can be claimed in the A.Y.2025-26