M/s RST Ltd., a company resident in India, engaged in the manufacturing of leather products. The Statement of Profit & Loss for the year ended…

Computation of Total Income of M/S RST Ltd. for the A.Y. 2025-26 Particulars Amount (in ₹) I. Profits and gains of business or profession Net profit as per the Statement of profit and loss 97,38,000 Add: Items debited but to be considered separately or to be disallowed (i) Expenses on foreign travel of three 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 nature¹. Manufacturing plastic products is not related to the existing business of manufacturing leather products. Since the same has been debited to the statement of profit and loss, the same has to be added back while computing business income.] 12,00,000 (ii) Sum payable for purchase of goods from M/s Shiv Traders, a micro enterprise [Since payment was made to a micro enterprise on 29.4.2025 i.e., within 45 days from date of delivery, deduction for purchase of goods is allowed in the P.Y. 2024-25. Since the same has been debited to the statement of profit and loss, no adjustment is required to be made] Nil (iii) Forgoing of security deposit to settle a dispute [The character of the security deposit is of capital nature and remained so though it is decided to forgo it. It cannot be treated as revenue expenditure merely because it was paid in the course of dispute.² Since it has been debited to the statement of profit and loss, the same has to be added back while computing business income] 6,50,000 (v) Depreciation as per the Companies Act, 2013 13,00,000 (vii) Provision for gratuity [Provision of 9 lakhs for gratuity based on actuarial valuation is not allowable as deduction. However, actual gratuity of 5.80 lakhs paid is allowable as deduction. Hence, the difference has to be added back to income. [9lakhs (-) ₹ 5.80 lakhs] 3,20,000 34,70,000 1,32,08,000 Less: Items credited but not taxable or chargeable to tax under another head (iv) Profit from hedging contract [The profit from hedging contract entered into for meeting loss in foreign currency payments towards imported machinery has to be adjusted against the cost of plant and machinery. Since it has been credited to the statement of profit and loss, the same has to be reduced while computing business income] 6,25,000 (vi) Profit on sale of plot of land [Profit on sale of plot of land taxable or otherwise under the head "Capital Gains". Since this amount has been credited to the statement of profit and loss, the same has to be deducted for computing business income]. 15,00,000 21,25,000 1,10,83,000 Less: Depreciation as per the Income-tax Rules Depreciation of fixed assets other than imported machine 12,60,000 Depreciation on imported printing machine [1,03,75,000 (110lakhs -6,25,000) x 15% x 50%, since machinery is put to use for less than 180 days] 7,78,125 Additional depreciation on imported printing machine [₹ 1,03,75,000 x 20% x 50%] 10,37,500 30,75,625 80,07,375 II. Capital Gains Long term capital gain on sale of plot of land As the sale is made to wholly owned subsidiary being a foreign company the transaction would not be tax-free. It would be regarded as 'transfer' and the capital gain is liable to tax. Actual sale consideration [32lakhs +15 lakhs] 47,00,000 Valuation as per stamp valuation authority 60,00,000 Full value of consideration (Since the stamp duty value exceeds 110% of the actual sale consideration, the stamp duty value shall be taken to be the full value of consideration as per section 50C) 60,00,000 Less: Cost of acquisition [No indexation benefits allowable if transfer takes place on or after 23.7.2024] 32,00,000 Long term capital gain [Since plot of land is held for more than 24 months] 28,00,000 III. Income from Other Sources Acquisition of equity shares for inadequate consideration [Since the difference between fair market value of shares i.e.,7,12,500 (7500 x 95) and consideration i.e.,3,00,000 (7500 x 40) exceeds - 50,000, the difference would be taxable under section 56(2)(x)] 4,12,500 Gross Total Income 1,12,19,875 Less: Deduction under Chapter VI-A Deduction under section 80JJAA [30% of additional employee cost of the employees having emoluments of not exceeding - 25,000 employed for 150 days or more, in case of leather industry and participate in recognized provident fund is allowed as deduction. Accordingly, in the present case, 55 regular employees employed on 1.9.2024 would be considered for deduction] [₹ 25,000 x 55 x 7 months] x 30% 28,87,500 Total Income 83,32,375 Total Income (rounded off) 83,32,380