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CA Final · Direct Tax Laws & International Taxation · Deductions from Gross Total Income

Kavita Infra's eligible undertaking transfers goods to its other business at Rs. 8,00,000 as recorded in its accounts. The market value of these goods on the date of transfer is Rs. 10,00,000. The undertaking's profits as per its books are Rs. 12,00,000. For computing the deduction under Part C of the deductions Chapter, what profits of the undertaking should be taken?

The profits to be taken are Rs. 14,00,000. Section 122(6) requires the transfer to be treated as made at market value of Rs. 10,00,000 rather than Rs. 8,00,000, so the undertaking's book profit of Rs. 12,00,000 increases by the Rs. 2,00,000 difference.

  1. ARs. 12,00,000
  2. BRs. 14,00,000Correct
  3. CRs. 10,00,000
  4. DRs. 2,00,000

Explanation

Under section 122(6), where consideration recorded does not match market value, profits are computed as if the transfer was at market value. Sale to another business at Rs. 10,00,000 instead of Rs. 8,00,000 raises the undertaking's profits by Rs. 2,00,000, so 12,00,000 + 2,00,000 = Rs. 14,00,000. Rs. 12,00,000 ignores the adjustment.

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