Blue Cloths Ltd. is engaged in the manufacture of fabrics since 01-06-2014. Its Statement of Profit and Loss for the previous year ended 31st March,…

Computation of Total Income of Blue Cloths Ltd. for the A.Y. 2025-26 Particulars Amount (₹) I Profits and gains of business and profession Net profit as per the statement of profit and loss for manufacturing of fabric business 8,40,00,000 Add: Items debited but to be considered separately or items of expenditure to be disallowed (a) Provision for wages payable to workers [Since the provision is based on a fair estimate of wages payable with reasonable certainty, the provision is allowable as deduction. ICDS X requires a reliable estimate of the amount of obligation and 'reasonable certainty' for recognition of a provision, which is present in this case. - (b) Expenses on foreign travel of two directors for a collaboration agreement which failed to materialize [Where expenditure is incurred for a project not related to the existing business and the project was abandoned without creating a new asset, the expenses are capital in nature. Since the amount has been debited to the statement of profit and loss, the same has to be added back] 4,50,000 (c) Depreciation as per the Companies Act, 2013 43,00,000 (d) Bad Debts Written off [No adjustment is required in respect of debt of 29lakhs written off owing to insolvency of the debtor, since bad debts written off in the books of account is fully allowable as deduction u/s 36(1)(vii). Since the said amount has already been debited to the statement of profit and loss, no further adjustment is required] - (f) Provision for gratuity [Provision of 440lakhs for gratuity based on actuarial valuation is not allowable as deduction. However, actual gratuity of 280lakhs paid is allowable as deduction. Hence, the difference has to be added back to income [440lakhs (-) 280lakhs] 1,60,00,000 (h) Loss due to destruction of machinery by fire [Loss of 21lakhs due to destruction of machinery caused by fire is not deductible since it is capital in nature. Since the loss has been debited to statement of profit and loss, the same is required to added back while computing business income] 21,00,000 2,28,50,000 A(iii)GST not refunded to customers out of GST refund received from State Govt. [The amount of GST refunded to the company by the Government is a revenue receipt chargeable to tax. Out of the refunded amount of 2.5 lakhs, the amount of 2lakhs stands refunded to customers would not be chargeable to tax. The balance amount of 50,000 lying with the company would be chargeable to tax] 50,000 10,69,00,000 Less: Items credited to statement of profit and loss, but not includible in business income/ permissible expenditure and allowances (g) Industrial power tariff concession received from State Government [Any assistance in the form of, inter alia, concession received from the Central or State Government would be treated as income. Since the same has been credited to statement of profit and loss, no adjustment is required] - (h) Scrap value of machinery [Scrap value of machinery, being capital in nature, has to be reduced from WDV of machinery. Since the same has been credited to statement of profit and loss, it has to be deducted while computing business income] 5,50,000 (e) Long term capital gains on sale of equity shares [The taxability or otherwise of long-term capital gain on sale of equity shares has to be considered while computing income under the head "Capital Gains". Since such capital gains has been credited to statement of profit and loss, the same has to be reduced to arrive at the business income.] 6,20,000 A(i) Depreciation as per Income-tax Rules, 1962 78,00,000 89,70,000 Profits and gains from manufacturing of fabric business 9,79,30,000 Profit from business of developing and building rental housing projects Net profit from business of developing and building rental housing projects. 38,00,000 Income from housing projects executed as a work contract 12,00,000 50,00,000 III Capital Gains Long term capital gain on sale of equity shares [Long term capital gains in excess of 1.25 lakhs taxable u/s 112A] 6,20,000 Gross Total Income 10,35,50,000 Less: Deduction under Chapter VI-A Under section 80-IAB [100% of profits from business of developing and building rental housing projects. No deduction is allowed in respect of income from housing project executed as a work contractor] 38,00,000 Total Income 9,97,50,000 Computation of tax liability of Blue Cloths Ltd. for A.Y.2025-26 Particulars ₹ Tax @12.5% on long term capital gains in excess of 1.25 lakh (i.e.,4.95 lakh, being - 6.2 lakh - 1.25 lakh) 61,875 Tax @30% on balance income of 9,91,30,000 (i.e.,9,97,50,000 -6,20,000) (since the turnover exceeded 400crores in the P.Y. 2022-23) 2,97,39,000 2,98,00,875 Add: Surcharge @ 7% (since total income exceeds 1crore but does not exceed 10 crores). 20,86,061 3,18,86,936 Add: Health and Education cess @ 4% 12,75,477 Total tax liability 3,31,62,413 Total tax liability (Rounded off) 3,31,62,410