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

Arjun Engineering, a resident company, has the following items in tax year 2026-27. Net profit per books is Rs 14,00,000 after debiting: (i) provision for gratuity of Rs 2,00,000 not paid to an approved fund; (ii) a penalty of Rs 50,000 for violation of a law; (iii) depreciation per books of Rs 1,20,000; and after crediting: (iv) interest on income-tax refund of Rs 30,000. Depreciation allowable under tax rules is Rs 1,80,000. What is the business income, assuming the interest on refund is taxed under another head and nothing else is relevant?

Business income is Rs 15,60,000. Add back the unpaid gratuity provision, the penalty and book depreciation to the book profit of Rs 14,00,000, then deduct tax depreciation of Rs 1,80,000 and the refund interest of Rs 30,000, which is taxable under a different head.

  1. ARs 15,60,000Correct
  2. BRs 15,10,000
  3. CRs 15,40,000
  4. DRs 16,10,000

Explanation

Start with Rs 14,00,000. Add back gratuity provision 2,00,000, penalty 50,000 and book depreciation 1,20,000 = 17,70,000. Deduct allowable depreciation 1,80,000 = 15,90,000 and interest on refund 30,000 = 15,60,000. Rs 16,10,000 results if the interest is not removed and penalty is ignored incorrectly in the build-up.

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