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

Vihaan Traders buys goods from two micro enterprises with no written agreement on credit period. Goods worth Rs 2,40,000 were accepted from Micro Enterprise X on 20 December 2026 and goods worth Rs 1,00,000 from Micro Enterprise Y on 20 March 2027. Neither amount was paid by 31 March 2027, and both were paid on 15 April 2027. The credit period without agreement is 15 days from acceptance. What amount is added back to business income for tax year 2026-27 on account of this provision?

Rs 2,40,000 is added back. The payment to a micro enterprise is deductible only when actually paid if it is made after the permitted 15 days. Enterprise X's due date fell within the tax year and the payment was late, whereas Y's due date was after year-end, so Y's Rs 1,00,000 remains deductible.

  1. ARs 3,40,000
  2. BRs 1,00,000
  3. CRs 2,40,000Correct
  4. DNil

Explanation

Where payment to a micro or small enterprise is made after the permitted period (15 days if there is no agreement), the amount is deductible only in the year of actual payment. For X, the due date was 4 January 2027, which fell within the tax year, so Rs 2,40,000 is disallowed in 2026-27. For Y, the due date was 4 April 2027, after the year-end, so the Rs 1,00,000 stays allowed. The total of Rs 3,40,000 wrongly includes Y.

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