M/s. Zenpack Manufacturing Pvt. Ltd., an Indian company engaged in the manufacture of eco-friendly packaging products, operates a production…

CA Final · Direct Tax Laws and International Taxation · MTP · September 2025
M/s. Zenpack Manufacturing Pvt. Ltd., an Indian company engaged in the manufacture of eco-friendly packaging products, operates a production facility in Indore, Madhya Pradesh. For the financial year ended 31st March 2025, the company has reported a net profit of 68,50,000 in its Profit and Loss Account after considering the following items: (a) Depreciation as per the Companies Act:59,00,000 (b) Loss of 19,00,000 arising from destruction of old machinery by fire. Scrap value of 9,10,000 was realised on 31st August 2024. The insurance claim was rejected on grounds of negligence. (c) Tax demand of 8,40,000 (including cess of 33,600) relating to A.Y. 2022-23 was paid during F.Y. 2024-25 upon completion of assessment in September 2024. (d) Power subsidy of 17,00,000 received from the Central Government during F.Y. 2024-25 to be adjusted against electricity bills of F.Y. 2023-24. This amount was not credited to income for F.Y. 2023-24. (e) Interest income of 7,50,000 earned on margin money deposits for securing bank guarantees (included in the P&L Account). (f) Raw material of 14,00,000 (including - 2,75,000 GST with no ITC) used exclusively for in-house R&D, debited to the P&L. (g) Online advertisement payment of 18,00,000 made to Yulong Materials Ltd., China (a non-resident with no PE in India) as on 15th July 2024, without deduction of TDS or payment of equalisation levy. (h) Dividend of 3,33,000 received from a foreign company (in which Zenpack holds 29% of equity share capital). Expenses of 19,000 (other than interest) were incurred to earn such income. (i) Interest expense of 15,00,000 for a loan took from PNB Bank relating to F.Y. 2024-25 was discharged through issue of 7.5% debentures in March 2025. Additional Information: 1. Depreciation allowable as per Income-tax Act, 1961:43,20,000 (including scrap value adjustment but not on assets mentioned in 2,3 and 4 below) 2. A printer (integral to the packaging plant and qualifying for additional depreciation) was installed on 1st May 2024 at a cost of 92,50,000. 3. Another specified printer was installed on 23rd October 2024 for 26,34,000. 4. The following assets were acquired after 30th October 2024: (a) Lorries for transport to depots - 85,00,000 (b) Machinery imported from Hungary - 1,35,00,000 (arrived on 30th March 2025, installed on 10th April 2025) All other fixed assets (except the Hungarian machine) were installed and put to use before 31st March 2025. The turnover of the company for F.Y. 2022–23 was 415 crores. The company has not opted for section 115BAA/115BAB, and you may ignore the provisions of MAT for this question. Compute the Total Income and Tax Payable of M/s. Zenpack Manufacturing Pvt. Ltd. for the Assessment Year 2025-26, clearly stating the brief reasons for treatment of each of the above adjustments.

Suggested Answer and Working Notes:

Computation of Total Income and Tax Payable by M/s Zenpack Manufacturing Pvt. Ltd. for the A.Y. 2025-26 Particulars Amount (₹) I Profits and gains of business and profession Net profit as per profit and loss account 68,50,000 Add: Items debited but to be considered separately or to be disallowed (a) Depreciation as per Companies Act 59,00,000 (b) Loss due to destruction of machinery by fire [Loss of 19lakhs due to destruction of old machinery caused by fire is not deductible since it is capital in nature. Since the loss has been debited to profit and loss account, the same is required to be added back while computing business income.] 19,00,000 (c) Tax paid (including surcharge and cess) [Tax paid including surcharge and cess is not allowed while computing business income under section 40(a)(ii). Since the tax paid has been debited to profit and loss account, the same is required to added back while computing business income] 8,40,000 (f) Purchase price of raw material for in-house research [Purchase price of raw material used for the purpose of in-house research and development qualifies for 100% deduction u/s 35(2AB) or 35(1)(i). GST on which ITC is not admissible is an expense and can be claimed as deduction under section 37. As the amount has already been debited to profit and loss account, no further adjustment is necessary.] Nil (g) Payment to Yulong Materials Ltd. for online digital advertisement [Disallowance @100% would be attracted under section 40(a)(ib) for non-deduction of equalization levy on payment for online digital advertisement to Yulong Materials Ltd. Since the payment has been debited to profit and loss account, the same is required to added back while computing business income as payment made before 1st August 2024.] 18,00,000 (h) Expenses on earning dividend income [The allowability or otherwise of expenses on dividend income has to be considered while computing income under the head

Topics: Profits and Gains of Business or Profession

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