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1.

What are the expressly disallowed expenses while computing income under the
head profits and gains from business or profession?

Ans.

The following expenses are expressly disallowed by the Act while computing income
chargeable under the head “Profit and Gain of business or profession.

Expenditure on advertisement in any souvenir, etc published by a political party in the


case and assessee.

(1) Payments outside India. Royalty fees for technical services etc. which tax is
deductible at not been paid during the previous year or in prescribed time.
Shall not ne allowed as a deduction.

(2) Payments to residents any interest, commission or brokerage, fees for


professional services or feeds for technical and such tax has not been deducted
or after deduction.

• Any sum paid on account of securities transaction tax.

• Any sum paid on account of fringe benefit tax

• Wealth tax. Chargeable under wealth tax act

• Tax on profits and gains. Any sum paid on accont of any tax levied on the
profits and gains of any business or profession.

• Salaries payable outside India or to a non-resident, if tax has not been paid
thereon nor deducted at source.

• Payment to P.F. etc. any payment to a provident or other funds shall not
allowed a s deduction unless it is ensured that tax shall be deducted at source
from any payment made from the fund provided it is chargeable to tax.

• Tax on perquisites or employee

Expenses not deductible in certain circumstances

• Excessive payments of an expenditure to a relative it to be excessive or


unreasonable to be disallowed.

• Payment in cash any expenditure in respect of which payment is made


exceeding Rs. 20,000/- otherwise that by a crossed cheque drawn on a bank or
by crossed bank draft will be disallowed to the extent of 20% further, the limit
of Rs. 20,000/- applies to the payment made to a party at ta time and not the
aggregate of the payments made to a party in the course of a day.

• No deduction shall be allowed in respect of any sum paid by the assessee as an


employer towards the setting up of, or as contribution to, any unapproved
fund.

• Drawing of proprietor or partners.

• Personal expenses of the proprietor for partner.

• Capital expenditure

• Any provision or transfer to reserve except transfer to reserves as provident in


the ACT.

• Amounts paid as charity or presents.

• Past losses charges to Profit & Loss Account.

• Any Expenditure not incurred wholly and exclusively for the porposes fo the
business or profession.

• Income tax, wealth tax and other taxes on income.

• Expenditure incurred to buy off competition, e.g a sum paid by a company to


retiring director or a managing agent in consideration of their agreement not to
complete with the company.

• Penalties paid by the assessee for infringement of law.

• Payments made by an assessee in the nature of sharing the profits to the sole
selling agents under an agreement are not deductible.

• Contribution to a political party where there is no direct relationship between


contribution and the business of the assessee.

• Insurance premium paid by a firm on the life insurance policies of its partners.

• Expenditure incurred in violating of another statute.

• Gift made on occasion of marriages in the families of friends and others with
whom assessee has business dealing cannot qualify as business expenditure
even on grounds of commercial expediency.
2. Write short notes:

a. Unabsorbed depreciation

b. General deductions (Section 37(1) )

Ans.

A. Unabsorbed Deprecation:

Deprecation allowance for particular previous year is first decutable from the profits
and gains of the business or profession, if the profits and gains of the same business or
profession are insufficient for the propose, the balance of the amount of current
depreciation allowance is deductable from the profits of any other business or
profession of the assessee. If the profits of any other business or profession are alos
unable to absorb the whole amount of depreciation allowance, the balance of such
allowance which remains unabsorbed can be set-off against any other taxable income
fo the same year. If still, the whole amount of current depreciation allowance is not
deductable on account of the insufficiency of the other taxable income the remaining
unabsorbed amount is called “Unabsorbed Depreciation”.

If Unabsorbed depreciation cannot be wholly set-off, the amount of depreciation not


set-off shall be carried forward to the following assessment year.

B. General Deduction Sec 37 (1)

Under Section 37 (1), the following conditions should be fulfilled, in order that a
particular item of expenditure may be deductible under this head:

• The Expenditure should not be of the nature described in section 30 to 36.

• It should be in respect of a business or profession carried on by the assessee


and the profit and gains of which are to be computed and assessed.

• It should not be in the nature of personal expenses of the assessee.

• It should have been paid out or expended wholly and exclusively for the
purpose of such business or profession.

• It should not be in the nature of capital expenditure.

• It should relate to the previous year concerned.


3. Mr. Radha Krishna, an individual submits the following information
relevant for the assessment year 2009-10

Profit Loss
Salary Income (computed) 54.000
Income from House Property
House 1 17,000
House 2 23,000
Profit & Gains of business or Profession
Business X 7,000
Business Y 14,000
Business Z (speculative) 15,000
Business A (speculative) 19,000
Capital Gains
Short term capital gains 8,000
Short term capital loss 12,000
Long term capital gains on sale of land 24,000
Income from other sources:
Income from card games 6,000
Loss on card games 9,000
Loss on maintenance of race horses 4,500
Interest on securities 3,000
Determine the net income of Mr. Radha Krishna for the
assessment year 2009-10

Solutions: Ans.

Computation of total Income for the assessment year 2009-10

Income from Salary 54,000.00

Income from House property:

House X (+) 17,000.00

House Y (-) 23,000.00 (-) 6,000.00

Profit and gains of business or profession

Non-speculative

Business A (+) 7,000.00

Business B (-) 14,000.00

Non- speculative loss


Rs. 4,000/- C/f to next year (-) 3,000.00

Speculative

Business Z (+) 15,000.00

Business A (-) 19,000.00

It will be carried forward to the next year (-) 4,000.00

Capital gain

Short term Capital gains 8,000.00

Short term Capital loss (-) 12,000.00

Short term Capital Loss (-) 4,000.00

Long term Capital gain on sale of land 24,,000.00 20,000.00

Income from other source:

Income from card games (loss from card games cannot 6,000.00
be deducted)

Interest on Securities 3,000.00 9,000.00

Loss on maintenance of race horses c/f 4,500.00

Net Income 74,000.00

Note:

• Loss on maintenance of race horses can be set off only against income from
the business of owing and marinating race horses. In the absence of such
income, it cannot be set off. However, it can be carried forward to next year
for claiming set off against income from such business.

• The house property loss can be set off against salary income and / or interest
on securities. It cannot be set off against income from card games.

• Business loss (non-speculative) can be set off against interest on securities. It


cannot be set off against salary income and income from card games.