Answer Computation of total income of Mrs. Nisha for A.Y. 2022-23

Particulars	₹
1. Income from business or profession
Net Profit as per profit and loss account			5,61,000
Add: Items not credited but taxable while computing business income
- Commission from agent on settlement [Since deduction was allowed in respect of commission in earlier year and during the P.Y. 2021-22 Mrs. Nisha received back such amount due to settlement, the same would be deemed as her income]	50,000
- Interest on capital from partnership firm [2,00,000/15% x 12%] [Since interest on capital from M/s Ramji textiles is authorized by partnership deed, interest@12% p.a. would be allowed as deduction in the hands of firm under section 40(b). Consequently, interest @ 12% p.a. would be the business income of Mrs. Nisha under section 28. For allowability of interest in the hands of the firm, there is no requirement that the partner should be a working partner]	1,60,000
		2,10,000
			7,71,000
Less: Items not debited but allowable while computing business income
- Job charges without deduction of tax [90,000 – 30% of ₹90,000] [Mrs. Nisha's turnover for the P.Y. 2020-21 exceeds 1 crore, hence, she is liable to deduct tax at source u/s 194C on Job charges of ₹90,000. Since Mrs. Nisha has not deducted tax at source on ₹90,000, 30% would be disallowed under section 40(a)(ia). Remaining job charges paid would be allowable as deduction while computing business income	63,000
- Payment to creditor in cash [Payment to creditor in cash is not allowable as business expenditure, since such amount exceeds ₹ 10,000 and paid in cash by virtue of section 40A(3)]	-
		63,000
			7,08,000
Less: Depreciation as per Income-tax Rules
Opening WDV of machinery	4,75,000
Add: Purchase of machinery for ₹ 7,25,000 during the P.Y. 2021-22 by A/c payee cheque. Subsidy of ₹ 1,45,000, being 20% of cost, received from Central Government on new machinery is to be reduced from actual cost (₹ 7,25,000 – ₹1,45,000).	5,80,000
	10,55,000
Less: Sale proceeds	75,000
WDV as on 31.3.2022 before depreciation for P.Y. 2021-22	9,80,000
Depreciation @15% on ₹ 9,80,000	1,47,000
Additional Depreciation@20% on ₹5,80,000 (As new machinery is used in manufacturing business and put to use for more than 180 days in the P.Y. 2021-22, depreciation and additional depreciation will be allowed in full)	1,16,000
		2,63,000
			4,45,000
Less: Loss from eligible transaction carried out in respect of trading in derivatives in a recognized stock exchange is not a speculative business and hence, the same is allowed to be set off from textile business income as per section 70.	1,17,500
			3,27,500
II Capital Gains
Long term capital gain on sale of gold bracelet since it is held for more than 36 months
Sales consideration	5,00,000
Less: Cost of acquisition (40,000 x 317/113)	1,12,212
Less: Cost of improvement (50,000 x 317/129)	1,22,868
Long- term capital gain on sale of gold bracelet		2,64,920
Note - In the additional information (xiii), it is mentioned that Mrs. Nisha has purchased a new residential house during the previous year. In such a case, she would be eligible for exemption u/s 54F in respect of amount invested in purchase of new residential house from long term capital gain on sale of gold bracelet. However, the cost of new residential house is not provided in the question but only stamp duty and registration fee is given which would also be the part of cost of house. In such case exemption u/s 54F would be ₹2,64,920 x 1,55,000/5,00,000 = ₹ 82,125. Accordingly, long term capital gain would be₹ 1,07,795 (instead of ₹ 1,89,920). In such a case, Rebate u/s 87A would be ₹5,060 (instead of ₹12,500) and tax liability of Mrs. Nisha would be Nil (instead of ₹9,340).
Less: Long term capital loss from sale of STT paid shares of an Indian company allowed to be set off from long term capital gain on sale of gold bracelet as per section 70.		75,000
			1,89,920
III Income from Other Sources
Fair market value of gold coin received from cousin [Taxable u/s 56(2)(x), since cousin is not a relative and the fair market value exceeds ₹50,000]		55,000
Pre-mature withdrawal from post office time deposit [Amount including interest received on pre-mature withdrawal from post office time deposit, in respect of which deduction u/s 80C was claimed, would be deemed to be the income of Mrs. Nisha]		60,000
		1,15,000
Gross Total Income			6,32,420
Less: Deduction under Chapter VI-A
Deduction under section 80C
Stamp duty and registration fee of ₹ 1,55,000 for the purpose of transfer of house property, restricted to		1,50,000
Deduction under section 80DD
Sum deposited with LIC for the maintenance of her dependent mother and suffering from severe disability [Eligible for higher deduction ₹1,25,000 in case of severe disability irrespective of amount deposited with LIC]		1,25,000
		2,75,000
Total Income			3,57,420

Computation of tax liability of Mrs. Nisha for A.Y.2022-23

Particulars	₹
Tax on long-term capital gains @20% on ₹ 1,07,420 [₹ 1,89,920 – ₹ 82,500, being unexhausted basic exemption limit (₹ 2,50,000 – ₹1,67,500)]	21,484
Tax on other income of ₹ 1,67,500 [₹ 3,57,420 – ₹ 1,89,920, being LTCG], being lower than the basic exemption limit	Nil
	21,484
Less: Rebate u/s 87A [Tax payable or ₹12,500, whichever is less]	12,500
	8,984
Add: Health and education cess@4%	359
Tax liability	9,343
Tax liability (rounded off)	9,340

**Note -** The last two lines in the first para of the question reads as follows- “The net profit as per the profit and loss account as on 31.3.2022 is ₹5,61,000. **She provides the following additional information those were not considered while making the profit and loss account for the previous year 2021-22**" Items (i) to (xiii) are listed thereunder. On a plain reading of the above sentences, it appears that none of the expenditures/receipts in (i) to (xiii) were considered while making the profit and loss account. The above solution has been prepared accordingly. Alternatively, it is possible to interpret the last sentence (**bold underlined above**) to mean that as far as items (iii) and (v) are concerned, wherein disallowance of expenditure is attracted u/s 40(a)(ia) and 40A(3), respectively, such disallowances (and not the expenditure itself) were not considered while making the profit and loss account of the previous year 2021-22. If so interpreted, then, for item (iii), instead of reducing ₹63,000, ₹ 27,000 has to be added back. Likewise for item (v), ₹25,000 has to be added back. In such a case, profits and gains from business and profession, Gross Total Income, Total Income and Tax Payable would change accordingly. An alternate solution based on this interpretation has been worked out as follows: **Alternate solution** Computation of total income of Mrs. Nisha for A.Y. 2022-23

Particulars	₹
1. Income from business or profession
Net Profit as per profit and loss account			5,61,000
Add: Items not credited but taxable while computing business income
- Commission from agent on settlement [Since deduction was allowed in respect of commission in earlier year and during the Ρ.Υ. 2021-22 Mrs. Nisha received back such amount due to settlement, the same would be deemed as her income]	50,000
- Interest on capital from partnership firm [2,00,000/15% x 12%] [Since interest on capital from M/s Ramji textiles is authorized by partnership deed, interest@12% p.a. would be allowed as deduction in the hands of firm under section 40(b). Consequently, interest @ 12% p.a. would be the business income of Mrs. Nisha under section 28. For allowability of interest in the hands of the firm, there is no requirement that the partner should be a working partner]	1,60,000
		2,10,000
			7,71,000
Add: Disallowances not considered while computing business income
- Job charges without deduction of tax [30% of ₹ 90,000] [Mrs. Nisha's turnover for the P.Y. 2020-21 exceeds 1 crore, hence, she is liable to deduct tax at source u/s 194C on Job charges of 90,000. Since Mrs. Nisha has not deducted tax at source on ₹ 90,000, 30% would be disallowed under section 40(a)(ia).	27,000
- Payment to creditor in cash [Payment to creditor in cash is not allowable as business expenditure, since such amount exceeds ₹ 10,000 and paid in cash as per section 40A(3)]	25,000
		52,000
			8,23,000
Less: Depreciation as per Income-tax Rules
Opening WDV of machinery	4,75,000
Add: Purchase of machinery for ₹ 7,25,000 during the P.Y. 2021-22 by A/c payee cheque. Subsidy of ₹ 1,45,000, being 20% of cost, received from Central Government on new machinery is to be reduced from actual cost (₹7,25,000 – ₹ 1,45,000).	5,80,000
	10,55,000
Less: Sale proceeds	75,000
WDV as on 31.3.2022 before depreciation for P.Y. 2021-22	9,80,000
Depreciation @15% on ₹9,80,000	1,47,000
Additional Depreciation@20% on ₹5,80,000 (As new machinery is used in manufacturing business and put to use for more than 180 days in the P.Y.2021-22, depreciation and additional depreciation will be allowed in full)	1,16,000
		2,63,000
			5,60,000
Less: Loss from eligible transaction carried out in respect of trading in derivatives in a recognized stock exchange is not a speculative business and hence, the same is allowed to be set off from textile business income as per section 70.	1,17,500
			4,42,500
II Capital Gains
Long term capital gain on sale of gold bracelet since it is held for more than 36 months
Sales consideration	5,00,000
Less: Cost of acquisition (40,000 x 317/113)	1,12,212
Less: Cost of improvement (50,000 x 317/129)	1,22,868
Long- term capital gain on sale of gold bracelet		2,64,920
Note - In the additional information (xiii), it is mentioned that Mrs. Nisha has purchased a new residential house during the previous year. In such a case, she would be eligible for exemption u/s 54F in respect of amount invested in purchase of new residential house from long term capital gain on sale of gold bracelet. However, the cost of new residential house is not provided in the question but only stamp duty and registration fee is given which would also be the part of cost of house. In such case, exemption u/s 54F would be 2,64,920 x 1,55,000/5,00,000 = ₹ 82,125. Accordingly, long term capital gain would be ₹ 1,07,795 (instead of 1,89,920). In such a case, Rebate u/s 87A would remain as 12,500 and tax liability of Mrs. Nisha would be ₹11,111, before rounding off (instead of 28,193).
Less: Long term capital loss from sale of STT paid shares of an Indian company allowed to be set off from long term capital gain on sale of gold bracelet as per section 70		75,000
			1,89,920
III Income from Other Sources
Fair market value of gold coin received from cousin [Taxable u/s 56(2)(x), since cousin is not a relative and the fair market value exceeds ₹ 50,000]		55,000
Pre-mature withdrawal from post office time deposit [Amount including interest received on pre-mature withdrawn from post office time deposit, in respect of which deduction u/s 80C was claimed, would be deemed to be the income of Mrs. Nisha		60,000
		1,15,000
Gross Total Income			7,47,420
Less: Deduction under Chapter VI-A
Deduction under section 80C
Stamp duty and registration fee of ₹1,55,000 for the purpose of transfer of house property, restricted to		1,50,000
Deduction under section 80DD
Sum deposited with LIC for the maintenance of her dependent mother and suffering from severe disability [Eligible for higher deduction ₹1,25,000 in case of severe disability irrespective of amount deposited with LIC]		1,25,000
		2,75,000
Total Income			4,72,420

Computation of tax payable by Mrs. Nisha for A.Y.2022-23

Particulars	₹
Tax on long-term capital gains @20% on ₹1,89,920	37,984
Tax on other income of ₹2,82,500 [₹ 4,72,420 – ₹ 1,89,920, being LTCG] – 5% of ₹ 32,500 (₹ 2,82,500 – basic exemption limit ₹ 2,50,000)	1,625
	39,609
Less: Rebate u/s 87A [Tax payable or ₹ 12,500, whichever is less]	12,500
	27,109
Add: Health and education cess@4%	1,084
Tax Payable	28,193
Tax Payable (rounded off)	28,190

Taxation