Narmada Ltd. is engaged in the business of manufacturing car spare parts since 1 st April 2021. Its statement of profit and loss shows a net profit…

Computation of Total Income of Narmada Ltd. for the A.Y.2025-26 Particulars Amount (₹) Profits and Gains from Business and Profession Net profit as per profit and loss account 3,50,00,000 Add: Items debited but to be considered separately or to be disallowed Fees paid to directors without deducting tax at source [Disallowance@30% would be attracted under section 40(a)(ia) for non-deduction of tax at source from director's remuneration on which tax is deductible under section 194J] 30,000 Depreciation provided on straight line basis [Depreciation provided in the accounts on straight line basis (i.e.,50 lakhs) has to be added back] 50,00,000 Contribution to a National Laboratory [Contribution to a National Laboratory under section 35(2AA) qualifies for deduction@100%]. Nil GST liability [GST liability of 2.10 lakhs would attract disallowance under section 43B, since it was paid only on 27.12.2025 (i.e., after the due date of filing return of income of A.Y.2025-26). It would be allowed in the year of payment (i.e., P.Y.2025-26). Hence, it has to be added back for computing business income] 2,10,000 Disallowance under section 40A(2) for excess payment to related person [Saraswati Ltd. is a related person under section 40A(2), since the directors of Narmada Ltd. have substantial interest in Saraswati Ltd. Therefore, excess payment of 5lakh to Saraswati Ltd. for purchase of goods would attract disallowance under section 40A(2).] 5,00,000 Disallowance under section 40A(3) for payment exceeding - 10,000 made in cash for purchases and expenditure [Cash payments exceeding - 10,000 a day attracts disallowance under section 40A(3). Accordingly, cash payment of 5lakhs made on 17-8-2024 would attract disallowance under section 40A(3), even if such payment is made due to demand of supplier] 5,00,000 Disallowance under section 40A(3) for cash payment exceeding - 35,000 in a day to transport operators for hiring of lorry [In respect of cash payments to transport operators, a higher limit of 35,000 per day is permissible. Therefore, cash payment of 35,000 on 03-07-2024 would not attract disallowance under section 40A(3). However, cash payments of 40,000 and - 52,000 on 06-06-2024 and 15-01-2025, respectively, would attract disallowance under section 40A(3) since the same exceeds - 35,000 per day] 92,000 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 5lakhs in connection with issue of bonus shares is revenue expenditure and is hence, allowable as deduction. It has been so held by Apex Court in case of CIT vs. General Insurance Corpn. (2006) 286 ITR 232. Legal expenses for issue of right shares [4lakhs, being legal expenses in relation to issue of rights shares results in expansion of the capital base of the company and is, hence, a capital expenditure. Therefore, the same is not allowable as deduction. It has been so held in Brooke Bond India Ltd. v. CIT (1997) 225 ITR 798 (SC)] 4,00,000 Donation to a registered political party [Donation paid to a political party is not an allowable expenditure under section 37 since it is not laid out wholly or exclusively for the purposes of business or profession. Hence, the same has to be added back while computing business income. 17,00,000 Bad debt written off earlier, recovered now [The amount of bad debt written off earlier when recovered subsequently, such recovery is taxable under section 41(4)] 2,00,000 86,32,000 4,36,32,000 Less: Items credited but to be considered separately or to be allowed/ Expenditure to be allowed Depreciation allowable under the Income-tax Act, 1961 [Depreciation calculated as per Income-tax Rules, 1962 (i.e.62 lakhs) is allowable as deduction under section 32] 62,00,000 Over-valuation of stock [55lakhs x 10/110] [The amount by which stock is over-valued has to be reduced for computing business income.50 lakhs, being the difference between closing and opening stock, has to be adjusted to remove the effect of over-valuation] 5,00,000 67,00,000 Gross Total Income 3,69,32,000 Less: Deduction under Chapter VI-A Donation to registered political party [under section 80GGB] [Donation made by a company to a political party is allowable deduction under section 80GGB from gross total income, subject to the condition that payment is made otherwise than by way of cash. Since the donation is made by cheque the same is allowed as deduction under section 80GGB] 17,00,000 Total Income 3,52,32,000 Computation of tax liability of Narmada Ltd. for A.Y.2025-26 Particulars ₹ Tax@25% on total income of 3,52,32,000 [Since the total turnover or gross receipt in P.Y. 2022-23 ≤ 400 crore] 88,08,000 Add: Surcharge@7% (since total income exceeds 1crore but does not exceed 10crores) 6,16,560 Tax payable including surcharge 94,24,560 Add: Health and Education cess@4% 3,76,982 Total tax payable 98,01,542 Tax payable (Rounded off) 98,01,540