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CA Intermediate · Taxation · Profits and Gains of Business or Profession

Anand Industries, a resident company using the mercantile system, claimed the following in the profit and loss account for the tax year: (i) bonus to employees of ₹1,00,000, paid after the due date of filing the return for the year; (ii) interest of ₹30,000 on a term loan from a scheduled bank, unpaid at year end and paid after the due date of filing the return; (iii) employer's contribution of ₹40,000 to the provident fund, deposited after the due date under the PF law but before the due date of filing the return. What total amount must be added back to the profit for the tax year because of the rule allowing certain expenses only on payment?

The add-back is ₹1,30,000. Bonus and bank term-loan interest are allowed only if paid by the due date of filing the return, and both were paid later. The employer's PF contribution was deposited before that date, so it stays allowed. The disallowance is therefore ₹1,00,000 plus ₹30,000.

  1. A₹1,70,000
  2. B₹1,30,000Correct
  3. C₹1,00,000
  4. D₹30,000

Explanation

Bonus and interest on a term loan from a scheduled bank are allowed only if actually paid by the due date of filing the return. Both were paid later, so ₹1,00,000 + ₹30,000 = ₹1,30,000 is added back. The employer's PF contribution is allowed because it was deposited before the return due date. Adding it as well gives ₹1,70,000, which is wrong.

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