CA Final · Direct Tax Laws & International Taxation · Deductions from Gross Total Income
Vihaan Builders runs a single eligible undertaking and also a separate trading unit. The undertaking transfers goods to the trading unit, recorded in its accounts at Rs. 8,00,000, while the open-market price of those goods would have been Rs. 11,00,000. The undertaking's profits as per its books are Rs. 20,00,000 and a 100% profit-linked deduction is available for the year. The transfer is not a specified domestic transaction. Under section 122 of the Income-tax Act, 2025, what are the profits of the undertaking for computing the deduction?
The profits become Rs. 23,00,000. Section 122(6) treats goods moved from the eligible undertaking to another business as transferred at market value, so the undertaking's profit rises by the Rs. 3,00,000 shortfall between the Rs. 11,00,000 market value and the Rs. 8,00,000 recorded value.
- ARs. 20,00,000, as book consideration prevails
- BRs. 17,00,000, by reducing the market value difference
- CRs. 23,00,000, as the transfer is taken at market valueCorrect
- DRs. 9,00,000, being the unit's profit after a notional margin
Explanation
Section 122(6) requires the profits to be computed as if the transfer had been made at market value when the recorded consideration differs from it. Market value exceeds the recorded value by Rs. 3,00,000, which increases the undertaking's profits to Rs. 23,00,000. Option Rs. 17,00,000 applies the adjustment in the wrong direction because the undertaking is the seller and understated its sale price.
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