XYZ & Co., a partnership firm consisting of three working partners A, B and C and one non-working partner D, engaged in the business of…

Computation of total income of XYZ & Co. for the A.Y. 2024-25 Particulars Particulars ₹ Profits and Gains of business or profession Presumptive income under section 44AD [₹ 16,05,000, being 6% of 2,67,50,000 (excluding cash receipts and amount received by cheque other than A/c payee cheque and - 1,00,000, being 8% of 12,50,000] [See Note 1] 17,05,000 Less: Brought forward business loss under section 72 [See Note 2] 75,000 16,30,000 Capital Gains Sale consideration 57,00,000 Less: Indexed cost of acquisition [₹ 12,00,000 x 348/289] 14,44,983 Long-term capital gains, since plot is held for more than 24 months 42,55,017 Gross Total Income/ Total Income 58,85,017 Gross Total Income/ Total Income (Rounded off) 58,85,020 Notes: (1) Interest on capital and working partner salary are not deductible while computing the presumptive income of a partnership firm under section 44AD. (2) Brought forward business loss of assessment year 2020-21 can be set-off against current year business income as per section 72. (ii) In case, XYZ & Co. received - 4,00,000 instead of 2,00,000 by cheque other than A/c payee cheque it cannot declare profits as per the presumptive provisions of section 44AD, since the percentage of cash receipts of 14.50 lakhs to the total turnover/gross receipts of 280lakhs is 5.17%. As per section 44AB, every person carrying on business or profession is required to get his accounts audited before the "specified date", if the total sales, turnover or gross receipts in business exceeds 1crore in any previous year. However, tax audit is not required in case of such person carrying on business whose total sales, turnover or gross receipts in business ≤ 10crore in the relevant previous year (P.Y.), if - aggregate cash receipts including amount received for sales, turnover, gross receipts in the relevant previous year ≤ 5% of such receipts; andaggregate cash payments including amount incurred for expenditure in the relevant P.Y. ≤ 5% of such payments or In this case, the turnover of XYZ & Co. exceeds 1crore but does not exceed 10 crore. Accordingly, percentage of cash receipts to aggregate receipts and percentage of cash payments to aggregate payments need to be checked. The percentage of cash receipts of 31.30 lakhs [₹ 16,80,000 +10,50,000 +4,00,000] to aggregate receipts of 337lakhs is 9.287% and the percentage of cash payments of 4,50,000 to aggregate payments of 1,95,00,000 is 2.308%. Since the cash receipts made during the year exceed 5% of aggregate receipts, the firm is required to get its accounts audited under section 44AB. Computation of total income of XYZ & Co. for the A.Y. 2024-25 Particulars Particulars ₹ Net profit as per profit & loss account 8,65,000 Add: Interest paid to partner B allowable to the extent of 12%. Thus, excess interest of 30,000 [3% of 10lakhs] would be disallowed. 30,000 Salary paid to working partners considered separately. 28,80,000 Salary to clerk would be disallowed as per section 40A(3), since payment exceeding - 10,000 made in cash [12,000 x 12] 1,44,000 39,19,000 Less: Profit on sale of land [Taxable under the head "Capital Gains"] 45,00,000 Book Profits/loss (5,81,000) Less: Salary to working partners - (i) As per section 40(b) in case of loss, limit is 1,50,000 (ii) Salary actually paid only to working partners 21,60,000 Deduction allowed being (i) or (ii), whichever is less 1,50,000 Business Loss (It can be set-off against long-term capital gains 7,31,000 Brought forward business loss relating to A.Y. 2020-21 of 75,000 will be carried forward to the subsequent year Capital Gains Sale consideration 57,00,000 Less: Indexed cost of acquisition [12,00,000 x 348/289] 14,44,983 Long-term capital gains, since plot is held for more than 24 months 42,55,017 Less: Current year business loss (7,31,000) 35,24,017 Gross Total Income/ Total Income 35,24,017 Gross Total Income/ Total Income (Rounded off) 35,24,020