With the help of data provided by the Head Accountant of Kavya Hotels Ltd. and the following additional information, compute profits and gains of…

Computation of Profits and Gains of Business or Profession of Kavya Hotels Ltd. for the A.Y. 2024-25 Particulars Amount (₹) Profit as per Statement of profit and loss 1,50,00,000 Add: Items debited but to be considered separately or to be disallowed (a) Payment to middleman for purchase of vegetables, etc. in an amount exceeding - 10,000 30,000 [Under section 40A(3), disallowance is attracted in respect of expenditure for which cash payment exceeding - 10,000 is made on a day to a person. Payment of 35,000 to farmer for purchase of vegetables is covered by exception under Rule 6DD. However, payment of 30,000 to confectionery wholesaler is not covered under the exception - CBDT Circular 27/2017 dated 3/11/2017]. (b) Contribution towards employees' pension scheme in excess of 10% of salary disallowed under section 40A(9) 50,000 [Contribution to the extent of 10% of salary (basic salary + dearness allowance, if it forms part of pay for retirement benefits) is allowable as deduction under section 36(1)(iva)] (c) Payment to transport contractor without deduction of tax at source - [Since the contractor declares profit under presumptive taxation scheme under section 44AE and furnished a declaration to this effect, tax is not required to be deducted at source under section 194C in respect of payment to transport contractor]. (e) Contribution to IIT for scientific research - [Contribution to IIT for scientific research programme approved by the prescribed authority qualifies for deduction @100% under section 35(2AA). Since the amount of contribution has already been debited to the statement of profit and loss, there is no further adjustment required] (f) Expenses on foreign travel of two directors for a collaboration agreement which failed to materialize 5,00,000 [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 as per Mc Gaw-Ravindra Laboratories (India) Ltd. v. CIT (1994) 210 ITR 1002 (Guj.). Brewery project is not related to the existing business of running hotels] (g) Fees paid to directors without deducting tax at source [30% of 1lakh] 30,000 [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] 6,10,000 1,56,10,000 Less: Items credited but to be considered separately/ Expenditure to be allowed (d) Profit on sale of plot of land to 100% subsidiary 12,00,000 [Short-term capital gains arise on sale of plot of land held for less than 24 months. However, in this case, since the transfer is to a 100% subsidiary company and the subsidiary company is an Indian company, the same would not constitute a transfer for levy of capital gains tax as per section 47(iv). Since this amount has been credited to the statement of profit and loss, the same has to be deducted for computing business income]. (h) Depreciation 5,00,000 [Depreciation allowable under the Income-tax Act, 1961 is 15lakhs whereas the depreciation as per books of account debited to the statement of profit and loss is 10lakhs. Hence, the additional amount of 5 lakhs has to be deducted while computing business income] (i) Interest paid during the year 2,00,000 [Conversion of unpaid interest into loan shall not be construed as payment of interest for the purpose section 43B. The amount of unpaid interest converted into a new loan will be allowable as deduction only in the year in which such converted loan is actually paid. Since 2lakhs has been paid in the P.Y. 2023-24, the same is allowable as deduction] (iii) Purchases omitted to be recorded in the books 3,00,000 [Since the purchase is made in March, 2024 (i.e., P.Y.2023-24), in respect of which bill of 3lakhs received on 31.3.2024 has been omitted to be recorded in the books in that year, it has to be deducted to compute the business income [Kedarnath Jute Manufacturing Company Ltd. v. CIT (1971) 82 ITR 363 (SC)]. It is logical to assume that the company is following mercantile system of accounting.] Income under the head "Profits and Gains of Business or Profession" 1,34,10,000