Illustration 1
Illustration 1
Illustration 1
Following is the statement of Profit and Loss of RP Ltd., an Indian Company for the previous
year 2021-22 showing a net profit of Rs. 5,40,000.
Items charged Rs. Items credited Rs.
Raw material 15,00,000 Sales 60,00,000
Wages and Salaries 25,00,000
Advertisement 2,50,000
Expenses
Insurance 35,000
Audit fees 80,000
Depreciation 70,000
Provision for 50,000
Income Tax
Provision for 45,000
Contingent liabilities
Transfer to general 1,00,000
reserve
Proposed dividend 2,00,000
Office Expenses 3,00,000
Losses of Subsidiary 2,00,000
Co.
Legal charges 75,000
Repairs to 55,000
Machinery
Additional Information:
(i) The above statement of Profit and Loss has been prepared as per Companies Act,
2013.
(ii) Brought forward losses and depreciation
As per Books of A/c As per I. Tax Act
Brought forward business loss 2,00,000 2,50,000
Unabsorbed Depreciation 1,00,000 2,00,000
Calculate:
(i) Total income tax liability as per normal provisions of I.T. Act.
(ii) Book Profits and Tax liability as per sec 115 JB
(iii) Ultimate Tax liability of the Company
Solution:
Illustration 2
Following is the Statement of Profit and Loss of YZ, an Indian Company for the assessment
year 2022-23 which showed a net profit of Rs. 8,10,000.
Items debited Rs. Items credited Rs.
Material Consumed 22,50,000 Sales 90,00,000
Salaries 37,50,000
Advertisement 3,75,000
Provision for 37,500
doubtful debts
Insurance 52,500
Audit fess 1,20,000
Depreciation.. 1,05,000
Provision of Income 75,000
Tax..
Provision for 30,000
Contingent
liabilities..
Transfer to general 1,50,000
Reserve..
Proposed dividend.. 3,00,000
Office Expenses 4,50,000
Losses of Subsidiary 3,00,000
Co..
Legal fees 1,12,500
Repair to P and M 82,500
Additional Information:
1. Provision for doubtful includes Bad debt RS. 20,000.
2. The company has various depreciable assts. During the year, a block of plant and
machinery (15%) was revalued at the start of current previous year from 2 lacs to 3
lacs. However, depreciation as per sec 32 of Income Tax Act is Rs. 1,00,000.
3. Provision for Income tax includes advance Income tax for Assessment Year 2022-23
Rs. 25,000
4. B/F losses and unabsorbed depreciation.
As per books As per Income
B/F business 2,20,000 2,70,000
Unabsorbed dep. 62,500 2,00,000
Calculate, for the Assessment year 2021-22:
A. Total Income as per normal provisions of IT Act.
B. Book profits under MAT
C. Final Tax liability
D. Tax credit allowable to Co. under Sec 115 JAA.
Solution:
(A) Computation of Total Income as per Income Tax Act
i) Calculation of Business Income
*"It is assumed that the total turnover of the company for the previous year 2019-20 did not
exceed 400 crores. Hence, tax rate applicable for AY. 2022-23 is 25%,
(D) As the company is not required to pay tax under MAT, therefore, no tax credit is
allowable t company in the future years.
ILLUSTRATION 3
The statement of Profit and Loss of Sonia Co. Ltd. for the year ended 31.03.22 showed a net
profit of Rs. 5,75,000. Compute the taxable income of the company for Assessment Year
2022-23.
Additional Information:
1. General charges include donation to Prime Minister’s Relief Fund of Rs.22,000.
2. Depreciation as per Income tax Act Rs. 3,00,000.
3. Brought forward Business Losses and Depreciation.
As per A/cs. As per I.T. tax
B/P business Losses 3,00,000 4,00,000
Unabsorbed Depreciation 50,000 1,50,000
4. Investment Reserve was created during Previous year 2000-01 as a result of profit on
revolution of investment directly credited.
5. The LTCG has been invested in NHAI Bonds as per sec. 54EC.
Calculate the tax liability as per Normal provisions of I.T. Act and as per MAT.Is the
company entitled to any tax credit under section 115 JAA?
Solution:
Computation of Total Income Under Normal Provisions
Particulars Rs. Rs
NP as per P&L Account 5,75,000
Add:
Income tax 15,000
Fine 25,000
Provision for Contingent Liability 70,000
Proposed dividend 1,50,000
Loss of subsidiary Company 2,00,000
Donation 22,000 582,000
11,57,000
Less:
Agricultural Income 55,000
Transfer from Investment Reserve 2,00,000
LTCG 2,50,000
5,05,000
6,52,000
40,000
Less allowable depreciation
6,12,000
Business Income
Ultimate Tax Liability or Final Tax Liability is Tax as per normal provisions or MAT
WIH
Therefore, Tax liability would be Rs.1,56,780