Skip to content

CA Final · Direct Tax Laws & International Taxation · Profits and Gains of Business or Profession

Ishaan Traders opted for valid safe harbour for its raw diamond business. Its books show gross receipts of Rs 2,00,00,000 and it declares profit of Rs 8,00,000 as business income. It later wants to claim additional depreciation of Rs 1,50,000 and a further business expense of Rs 50,000 under the provisions of sections 28 to 34, and asks about the WDV of its assets. Which position follows from rule 100?

Profit of Rs 8 lakh is exactly 4% of Rs 2 crore, meeting the threshold. Deductions under sections 28 to 34 are deemed already given, so no more are allowed, and asset WDV is deemed computed as if depreciation for the year was actually allowed.

  1. ASafe harbour is satisfied; the additional depreciation and expense can be claimed, reducing income to Rs 6,00,000
  2. BSafe harbour is satisfied at exactly 4%; no further deduction under those sections is allowed, and WDV is deemed computed as if depreciation for the year was actually allowedCorrect
  3. CSafe harbour is not satisfied because profit must be above 4%
  4. DSafe harbour is satisfied; additional depreciation is disallowed but the Rs 50,000 expense is allowed

Explanation

4% of Rs 2 crore = Rs 8,00,000, so declared profit meets the 4% or more test. Rule 100(3)(a) deems all deductions under sections 28 to 34 and others already given effect, so no further deduction is allowed, and (b) deems WDV calculated as if depreciation was allowed.

Did you get it right without looking?

One question tells you little. A timed set on Profits and Gains of Business or Profession shows your real accuracy, how long you take and where you lose marks.

Practise Profits and Gains of Business or ProfessionFree diagnostic mock

More Profits and Gains of Business or Profession questions