Skip to content

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

Pooja Logistics, a resident company, shows a net profit of ₹5,00,000 for tax year 2026-27 after debiting: bad debts written off ₹50,000 (the amounts had been included in income of an earlier year); provision for doubtful debts ₹20,000; penalty of ₹5,000 paid for violation of traffic laws by a delivery vehicle; and income-tax ₹40,000. No other adjustments are needed. Its income from business is:

Business income is ₹5,65,000. Bad debts written off that were earlier taxed remain deductible. The provision for doubtful debts, the penalty for breaking traffic law and the income-tax paid are not deductible, so ₹20,000, ₹5,000 and ₹40,000 are added back to the profit of ₹5,00,000.

  1. A₹5,65,000Correct
  2. B₹6,15,000
  3. C₹5,25,000
  4. D₹5,60,000

Explanation

Bad debts actually written off, which were earlier offered to tax, are allowable, so no add-back. The provision for doubtful debts (₹20,000), the penalty for an offence (₹5,000) and income-tax (₹40,000) are not deductible. Business income = 5,00,000 + 20,000 + 5,000 + 40,000 = ₹5,65,000. Adding back the bad debts as well would wrongly give ₹6,15,000.

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