INCOME TAX

Assessment Year 2022 – 23

Problems on Profits and Gains of Business and Profession

1. Sri Ganesh Sharma is the owner of a business. Following is the profit and loss account
for the previous year 2021-22. Compute his income from business for the current
assessment year 2022-23.
Profit and Loss Account
Particulars Amount Particulars Amount
To salary to staff 93,200 By Gross Profit 8,05,300
To Bonus 6250 By interest on bank
To proprietor’s salary 18,000 deposits 15,100
To Rent of the building 24,000 By Sale of waste
To Interest on loan Papers 1,000
For personal 5000
For business 7000 12,000
To Printing and Stationary 800
To Income Tax 4,100
To cost of new telephone 2,000
To telephone bill 18,000
To drawings 16,000
To Repairs to building
Current repairs 6,000
Capital repairs 15,000
Capital Expendi-
-ture 32,000 53,000
To provision for doubtful debts 2,860
To provision for warranties 9,000
To Depreciation 11,200
To Net Profit 5,50,990
8,21,400 8,21,400
Additional Information
During the previous year due to negligence of an employee goods worth Rs.
4,000 were damaged fully and there is no insurance for it.

2. Following is the profit and loss account of Smt. Pushpalata. Compute income from
business and calculate tax liability for the current assessment year.

Profit and Loss Account

Particulars Amount Particulars Amount

To Salary 1,40,000 By Gross Profit 9,04,400
Add : outstanding 8,000 1,48,000 By Rent (sublet) 2,000
To Telephone Exp 15,000 By profit on sale of old
To Rent 18,000 machinery 68,000
To Legal Expenses By profit on sale of
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For protecting the empty bags 2,000
Business 30,000 By bad debts recovered 5,000
For personal suit 9,000 39,000 (allowed earlier)
To motor car expenses 44,000
To Income Tax 12,000
To Birthday party expenses 6,000
To Annual day expenses of
The shop 2,000
To Goods and Services tax 16,000
To Bad Debts 8,600
To Provision for Doubtful Debts 2,800
To Depreciation 16,000
To Net Profit 6,54,000
9,81,400 9,81,400
Additional Information :
(i) 50 % use of motor car is attributable to business purpose.
(ii) Depreciation allowed as per IT Rules Rs. 56,000.
(iii) Part of the sales is export of goods. Due to foreign exchange rate fluctuations
loss suffered Rs. 21,000.
(iv) Income from other sources Rs. 1,02,000.

3. Mr Sainath commenced a business unit in a backward region declared by Government of

India. The following is the summarised profit and loss account for the year ending 31
March 2022. Compute Income from Business and tax liability for the assessment year
2022-23.
Profit and Loss Account

Particulars Amount Particulars Amount

(Rs) (Rs)
To Payment to Staff By Gross Profit 8,77,800
Salaries 1,21,000 By Dividend on Shares 35,000
Allowances 86,000 By Income Tax Refund 7,200
Bonus 30,000 By Profit on Sale of Machinery 84,000
Add : Outstanding 12,500 42,500 By Hire of Machinery 36,000
Perquisites 92,800
To Expenses on own Building
(Business)
Municipal Taxes 14,000
General Repairs 6,000
Capital Repairs 32,000
Capital Expenditure 96,000 1,48,000
To Other Expenses 40,000
To Taxes
Income Tax (Advance) 6,500
Security Transaction Tax 8,400
Profession Tax 900
 GST 45,000
To Depreciation on
Land 15,000
Machinery 37,800
Building 32,100
Investments 9,000
Furniture 4,100 98,000
To Net Profit 3,50,900

10,40,000 10,40,000

Additional Information :
During the financial year for setting up the business in backward area notified by the
Government he received (i) Subsidy in GST Rs. 10,000 (ii) Power subsidy for using
conventional energy Rs. 21,800 (iii) During the previous year machinery for production
purpose costing Rs. 2,80,000 and Rs. 3,00,000 worth energy saving machinery are
purchased on 5 July 2022 and 10 % of the cost is received as subsidy (iv) Due to slowdown
in the business, part of the machinery is hired out for 3 months and hire charges received
(net) is credited to Profit and Loss Account Rs. 36,000.

4. Profit and Loss Account of Mr. Banwarlal for the year ended 31st March 2022 is as
follows. Compute income from the business and tax liability for the assessment year
2022-23.

Particulars Amount Particulars Amount

To Salaries (including By Gross Profit @ 15 % 2,86,000
-proprietors salary 6,000) 75,000 By Commission 8,400
To Gen. Insurance Premium 4,200 By Profit on sale of
To Bad Debts 11,500 long term investments 22,000
To Provision for doubtful debts 5,000 By Bad debts recovered
To Rent 7,000 (allowed earlier as
To Discount 2,460 deduction) 15,000
To Interest on loan 11,000
To Annual licence fee 2,080
To GST 8,000
To Income Tax 12,000
To Interest on capital 7,500
To Net Profit 1,85,660
3,31,400 3,31,400

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 Additional Information :

(i) Present rate of gross profit is 15 % and earlier it was 20 %.

(ii) The details of interest debited are : Rs. 6,000 for working capital ; Rs. 2,000 for
purchasing an asset ; Rs. 3,000 for personal loans.
(iii) Rent payable is Rs. 750 per month and prepaid insurance is Rs. 1,200.
(iv) Assessee is unwilling to claim Rs. 4,800. Telephone charges Rs. 5,100 for
depreciation on the business assets.
(v) A sale of Rs. 40,000 is not recorded in the books.
(vi) For achieving the sales target one of the distributor presented a TV set worth Rs.
17,000.
(vii) Salaries to employees is paid through bank except for watchman, whose monthly
salary is Rs. 2,000 is paid in cash.

5. Sri Kamal Kishore is the proprietor of the business. His profit and loss account for the
year ended 31st March 2022 is as follows :
Profit and Loss Account
Particulars Amount Particulars Amount
To Establishment Expenses 84,000 By Gross Profit 5,71,840
To Rent, Rates and Taxes 32,900 By Interest on Securities
To General Charges 1,000 (net) (Tax deducted at
To Repairs and Renewals 4,500 source is Rs. 1,050) 5,200
To Loss on sale of land (securities are part of
(used for business purpose) 31,800 stock)
To Life Insurance Premium 11,800 By Rent from house
To Pilgrimage expenses 3,750 property 22,960
To Pooja expenses in the shop 800
To Security Transaction Tax 2,300
To Interest on bank loan 8,140
To Profession tax 1,250
To Gen. Insurance premium 1,350
To Advertising 30,000
To Guest house expenses 24,000
To Law Charges 450
To Postage and Telegram 250
To Discount allowed 1,850
To Household expenses 16,200
To Provision for warranty
On goods sold 1,500
To Provision for bad debts 1,200
To Gifts and Presents 3,300
To Interest on capital 1,950
To Provision for Depreciation 27,200
To Provision for Income Tax 4,000
To Net Profit 3,04,510
6,00,000 6,00,000
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 Following further information is given :

(i) Mr. Suresh is a trade debtor for Rs. 6,500 (for the last 2 years) and it is decided
to write off as bad debt, but Income Tax Officer is objecting to it.
(ii) Amount of Income Tax actually paid during the year is Rs. 4,200.
(iii) Depreciation allowable is Rs. 30,000 as per I.T. Rules.
(iv) Advertising expenses include Rs. 5,000 spent on special advertising campaign to
expand the business in the new markets.
(v) Sri.Kamal Kishore carries on his business from rented premises, half of which is
used as his residence. Rent, Rates and Taxes include Rs. 24,000 paid as rent
of the premises during the year.
(vi) During the year a cash purchase of goods for Rs. 42,000 is settled through credit
card.

Compute the business income of Mr. Kamal Kishore for the current assessment year.

6. From the following Profit and Loss Account of Sri. Vidyanand Cycle manufacturer and
also a dealer for sale of lottery business, compute the Income under the head “Profits
and Gains of Business or Profession” for the year ending on 31 st March 2022.

Profit and Loss Account

Particulars Amount Particulars Amount
To Salaries to employees 26,000 By Gross Profit 1,95,800
To Advertising expenses 7,000 By Interest on securities 10,000
To General Expenses 4,000 By Income from house
To Entertainment Expenses 15,000 property 12,000
To Bad debts 1,000 By Bad debts recovered
To Drawings 8,000 (allowed earlier) 5,200
To Goods and Services Tax 2,000 By Sale of Building 1,52,000
To Interest on capital 2,000 By winning from lottery 40,000
To Repairs 1,000 (part of the business
To Patents acquired 28,000 activity)
To Legal Expenses 8,000 By Compensation received
To Income Tax 4,500 from an employee for
To Bonus 4,000 leaving the job without
To Bonus to the proprietor 4,000 advance notice) 5,000
To Computer purchased
(hardware) 76,000
To Computer expenses
(software) 8,000
To Printer for computer 12,000
To Donations 5,000
To Printing & Stationary 2,000
To Postage & Telegram 500
To Telephone 2,800
To Provision for bad debts 4,000
To Fire Insurance Premium
 For goods 1,000
To Contribution to Scientific
Research to Delhi
University 10,000
To Interest on loan 7,000
To Apprentices training exp 12,000
To Net Profit 1,65,200
4,20,000 4,20,000

From the examination of books of accounts the following other information is available :

(i) Out of the advertisement expenses Rs. 1,500 were spent on neon sign boards.
(ii) Rs. 1,000 were spent on purchase of land are included in legal expenses.
(iii) Half of the repair expenses were on let out building.
(iv) Mr. Vidynand is having enough money, inspite of that he took a loan with interest.
(v) During the inspection of the books it is found that investments purchased 4 years
ago is understated by Rs. 70,000.
(vi) During the previous year Rs. 5,000 is advanced to purchase the raw material to a
supplier, who is absconding from the country.

7. The Profit and Loss Account of Mr. S. Vidya Sagar, Haridwar is as under. Compute the
income from business and tax liability for the current assessment year. If deduction u/s
80 C is Rs. 72,000.

Particulars Amount Particulars Amount

(Rs) (Rs)
To Payment to Staff By Gross Profit 4,47,780
Salaries 30,000 By Interest from Customers 8,120
Allowances 18,000 By Interest on Advances to
Bonus 6,000 Employees 1,500
Perquisites 14,000 By Interest on Bank Deposits 13,200
Advances 21,000 By Rent Received 12,500
To Taxes By Bad debts recovered
Municipal Taxes (Business (out of this Rs. 3,000 is
Licence Fees) 800 disallowed earlier) 7,000
Income Tax (advance) 4,000 By Gross profit from
Goods and Services Tax 11,000 speculation business 3,30,000
GST Payable 2,000
To Scientific Research
(i) In Home :
Revenue Expenses 5,000
Capital Expenses 30,000
(ii) To Outsiders :
A Scientist 20,000
Amaravathi University 11,000
To Termination of Agency 18,500
To Club admission fee to
 manager 5,000
To Membership fee of traders
association 2,000
To Fines
For Adultration 3,000
For late delivery of goods 500
To Payment ot Competitors :
For acquiring competing
business 75,000
For not to sell a product in
his area 20,000
To Speculation business
expenses 1,80,000
To Depreciation :
On business assets 30,000
On assets at the residence
of the employees 5,000
On assets at the residence
of the owner 17,000
To Rent of own premises 30,000
To Net Profit 2,61,300
8,20,100 8,20,100

8. Mr. Kishore Kumar, a resident individual furnishes the following particulars for the
previous year relevant to the current assessment year. Compute income from business.

Profit and Loss Account for the year ending 31 March 2022

Particulars Amount Particulars Amount

(Rs) (Rs)
To Salary to Staff 1,13,000 By Gross Profit 5,99,000
To Staff Welfare Expenditure 36,000 By Sundry Receipts 5,000
To Goods and Service Tax 42,000 By Profit on sale of land 2,08,000
To General Expenses 5,000
To Bad Debts 9,500
To Reserve and Bad and
Doubtful debts 12,000
To Fire Insurance 4,000
To Advertisement Expenses 31,000
To Interest on Krishna Kumar’s
Capital and Loan 3,500
To Expenditure on acquisition
of copy right 75,000
To Lumpsum consideration for
acquiring know-how 1,10,000
To Loss on sale of shares 18,000
To Provision for Income Tax 4,000
To Net Profit 3,49,000
8,12,000 8,12,000

Other Information :
(i) Salary to staff includes salary paid to a relative which is unreasonable to the extent of Rs.
30,000.
(ii) Advertisement expenses include Rs. 10,300 being cost of 15 brief cases, presented to
customers.
(iii) For recovery of the amount due from debtors the assessee has not made any effort.
(iv) WDV of machinery block with 15 % depreciation is Rs. 5,10,000.
(v) WDV of furniture with 10 % depreciation on first day of the previous year is Rs. 30,000.
Half of it is sold out for Rs. 42,000.
(vi) Copy rights and know how are acquired 2 months back.
(vii) Outstanding salary is Rs. 16,800.
(viii) Refund from Goods and Services Tax during the previous year is Rs. 8,150. (pertaining
to 2020-21 year).

9. Mr. Anil Kumar furnishes the following particulars for the assessment year 2020-21.
Compute income from business.
Profit and Loss Account
Expenditure Amount Income Amount
To Salary to Staff 2,34,000 By Gross Profit 8,55,000
To Interest on bank loan 18,000 By Rent from Staff
To Expenditure on promotion Quarters 12,000
Of family planning among the By Sundry Receipts 5,000
Employees 3,000 By Interest on bank
To Goods and Services Tax 6,000 deposits 17,000
To Income Tax 2,000 By Profit on sale of
To Gratuity to staff 90,000 equity shares
To Reserve for future losses 15,000 (long term) 6,000
To Reserve for bad debts 8,000
To Reserve for payment of
Income Tax 13,000
To Car Expenses 9,000
To Office Expenses 7,000
To Rent & Repairs of building 3,000
To Municipal Taxes for Staff
Quarters 7,000
To Sundry Expenses 13,000
To Depreciation on :
Computer 18,000
Car 3,000
Furniture 5,000
 Building 3,000 29,000
To Net Profit 4,38,000
8,95,000 8,95,000

Additional Information :

(i) Salary to staff includes Mrs. Arun Kumar’s salary of Rs. 10,000 who is working
as typist and Mr. Arun Kumar’s salary is Rs. 30,000.
(ii) Salary to staff includes salary of Mr. Naveen for a month Rs. 45,000 paid in cash.
(iii) A sale transaction of Rs. 60,000 is not recorded in the books and the profit is
10 %.
(iv) Gratuity paid to staff is 20 % in excess than the statutory limit.

10. From the following Profit and Loss Account of Sri Murthy, a Sole Trader, compute his
Business Income for the Assessment Year 2020-21.

Particulars Amount Particulars Amount

To General Expenses 18,000 By Gross Profit 89,000
To Staff Salaries 7,000 By Bad Debts recovered 1,000
To Bad debts 3,000 By Income tax refund 4,500
To Depreciation 4,000 By Dividend on shares 8,000
To Advertisement 5,000 By Dividends on units of UTI 5,000
To Income Tax Appeal 11,000
To Fire Insurance on stock 2,000
To Donation to National
Defence Fund 7,000
To Patents purchased 10,500
To Audit fees 1,000
To Provision for doubtful debts 3,800
To Life Insurance Premium 5,200
To Net Profit 30,000
1,07,500 1,07,500

Other Information :
(i) Patents are purchased in the previous year.
(ii) Bad debts recovered is allowed earlier.
(iii) Depreciation on assets other then Patents is Rs. 4,800.

11. Mr. Shyam Sunder is the owner of a business. From the following Profit and Loss
Account compute income under the head ‘profit and gains of business’ for the Previous
Year 2019-20.

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Particulars Amount Particulars Amount

To Salaries 80,000 By Gross Profit 7,00,000
 To Proprietor’s Salary 10,000 By Rent 50,000
To Taxes and Insurance 5,000 By Interest on bank deposit 10,000
To Advertising 1,05,000 By bad debts received 5,000
To Electricity 11,000 (out of this Rs. 3,000 is
To LIC Premium 4,000 disallowed earlier)
To Bad debts 2,500
To Provision for bad debts 3,500
To Interest on loan 16,000
To Interest on capital 8,000
To Penalty & Fines 10,000
To Depreciation 20,000
To General Reserve 25,000
To Net Profit 4,65,000
7,65,000 7,65,000

Additional Information :
(i) Depreciation allowed as per IT Rules Rs. 15,500.
(ii) Advertisement Expenses includes Rs. 25,000 paid in cash.
(iii) On the last date of the accounting year the cashier reported a cash shortage of
Rs. 2,000.
(iv) Interest on loan includes Rs. 3,000 interest on loan taken from wife out of her
‘Stridhan’.

12. Compute Income from Business of Shanti from the information given below :

Profit and Loss Account

Particulars Amount Particulars Amount
To Salaries 50,000 By gross profit 2,50,000
To general expenses 60,000 By rent from house
To R.B.D. 10,000 property 50,000
To donations 15,000 By discounts 10,000
To IT Reserve 25,000 By bank interest 15,000
To Sales Tax 5,000 By dividends 25,000
To depreciation 12,000
To drawings 8,000
To interest on capital 10,000
To net profit 1,55,000
3,50,000 3,50,000

Other information :
(i) Actual bad debts Rs. 2,000.
(ii) Depreciation allowed Rs. 5,000.
(iii) General expenses include domestic expenses of proprietor Rs. 12,000.
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13. Income and Expenditure Account of Mr. Amresh Kumar an advocate of Nalgonda for the
year ended 31st March 2020 is as under. Compute the professional income for the
current assessment year and tax liability.

Expenditure Amount Income Amount

To Office rent 69,000 By Rent received 1,84,000
To Office expenses 1,38,000 By Dividends 46,000
To Salaries to Staff 92,000 By Special fees 92,000
To Court fees and stamps 27,600 By Gifts from clients 55,200
To Income Tax 13,800 By Interest on Bank
To Printing and Stationary 23,000 Deposits 92,000
To Municipal Taxes (letout) 9,200 By Insurance claim 92,000
To Travelling Expenses 23,000 By Examiners fees 1,05,800
To Telephone charges 18,400 By Legal fees 2,78,000
To Shares purchased of Ltd. Co. 69,000
To Books and Journals 27,600
To Life Insurance Premium (wife) 18,400
To Surplus 4,16,000
9,45,000 9,45,000
Other Information :
(i) Closing stock of court stamps Rs. 2,300.
(ii) Office expenses includes Rs. 23,000 as personal.

14. Dr. Goraknath submitted the following statement. Compute the Income from Profession.

Receipts Amount Payments Amount

Consultation fees 3,00,000 Ambulance van rent 34,000
Visiting fees 2,00,000 Purchase of Medicines 30,000
Sale of medicines 86,000 Salary to staff 15,400
Dividends 33,000 Income tax paid 3,000
Interest on fixed deposits 15,500 Purchase of surgical
Equipment 2,00,000
Purchase of life saving
Equipment 1,00,000
Purchase of Shares 75,000
Water charges 600
Telephone charges 2,500
Electricity 1,200
Donations 29,000
General Charges 4,000
Subscriptions to Journals 5,900
Purchase of Books 13,000
Balance 1,20,900
6,34,500 6,34,500

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 Additional Information :

(i) Stock of medicines at the end of the year 2022 is Rs. 10,000.
(ii) At the beginning of the year WDV of assets : machinery Rs. 2,00,000; Building
Rs. 8,00,000 and Furniture Rs. 30,000.

15. Dr. Kashipati submitted the following Receipts and Payments Account. Compute
Income from Profession.

Receipts Amount Payments Amount

Consultation Fees Ambulance van rent 24,000
General 4,20,000 Purchase of medicines 90,000
Under Arogya Sri Salary to staff 70,000
Scheme 1,60,000 5,80,000 Income tax paid 3,000
Visiting fees 75,000 Purchase of Surgical
Sale of medicines 61,000 Equipment 1,04,000
Dividends 8,000 Purchase of life saving
Interest on fixed deposit 15,500 Equipment 1,00,000
Water charges 500
Electricity 1.200
Telephone charges 3,000
Purchase of Shares 5,000
Donations 100
Subscriptions to Journals 400
General charges 4,200
Purchase of Books 3,000
Balance 3,31,100
7,39,500 7,39,500
Additional Information :
(i) Stock of medicines at close Rs. 12,000.
(ii) At the beginning of the year WDV of assets : Machinery Rs. 2,05,000; Building
Rs. 6,00,000 and Furniture Rs. 15,000.
(iii) Consultation fees due from Andhra Pradesh Government under Arogya Sri
Scheme Rs. 1,90,000.
(iv) Ambulance Van rent outstanding Rs. 18,000.
(v) During the previous year he received Rs. 4,00,000 from a private nursing home
and the same is not yet recorded.
(vi) In a bomb blasting incident two persons who were injured seriously treated by him
and expenditure incurred Rs. 82,000 is not yet recorded.

16. Sri Ram is the proprietor of a business. His profit and loss account for the year ending
31st March 2020 is as follows :

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 Profit and Loss Account
Particulars Amount Particulars Amount
To Salaries 90,000 By Gross Profit 5,62,800
To General Expenses 10,000 By Rent from house 31,200
To Discount 5,000 By Interest on securities 10,000
To Brokerage 5,000 By Dividends 10,000
To Legal Expenses 15,000 By Interest on Debts 10,000
To Advertising 18,000 By Bad debts recovered 26,000
To Gifts to relatives 12,000
To Bad debts 10,000
To Provision for bad debts 15,000
To Loss on sale of machinery 10,000
To Depreciation 40,000
To Wealth Tax 10,000
To LIC Premium 8,000
To Net Profit 4,02,000
6,50,000 6,50,000

Other Information :

(i) Allowable depreciation Rs. 66,000.

(ii) Brokerage is paid for raising commercial loan.
(iii) Bad debts recovered were disallowed earlier.
(iv) Advertising expenses incurred for insertion in a magazine released by a political
party.

17. Compute Income from Business of Madhu from the following information.

Profit and Loss Account

Particulars Amount Particulars Amount

To Salaries 80,000 By Gross Profit 7,00,000

To Income Tax 10,000 By Rents 2,00,000
To Sales Tax 5,000 By Bank Interest 10,000
To Bad Debts 5,000
To R.B.D. 10,000
To Depreciation 1,50,000
To Donations 50,000
To Interest on capital 10,000
To Drawings 70,000
To Insurance 12,000
To Net Profit 5,08,000
9,10,000 9,10,000

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 Other Information :
(i) Salaries include proprietor’s salary of Rs. 10,000.
(ii) Depreciation allowed Rs. 1,30,000.

18. Income and Expenditure Account of Mr. Amresh Kumar an advocate of Nalgonda for the
year ended 31st March 2020 is as under. Compute the professional income for the
current assessment year and tax liability.

Expenditure Amount Income Amount

To Office rent 69,000 By Rent received 1,84,000
To Office expenses 1,38,000 By Dividends 46,000
To Salaries to Staff 92,000 By Special fees 92,000
To Court fees and stamps 27,600 By Gifts from clients 55,200
To Income Tax 13,800 By Interest on Bank
To Printing and Stationary 23,000 Deposits 92,000
To Municipal Taxes (letout) 9,200 By Insurance claim 92,000
To Travelling Expenses 23,000 By Examiners fees 1,05,800
To Telephone charges 18,400 By Legal fees 2,78,000
To Shares purchased of Ltd. Co. 69,000
To Books and Journals 27,600
To Life Insurance Premium (wife) 18,400
To Surplus 4,16,000
9,45,000 9,45,000
Other Information :
(iii) Closing stock of court stamps Rs. 2,300.
(iv) Office expenses includes Rs. 23,000 as personal.

19. Mrs. Shruthi a Chartered Accountant submits the following receipts and payments
account for the year ended 31st March 2020. Compute her professional income.

Receipts Amount Payments Amounts

To Opening balance 90,000 By Staff salaries 1,15,000
To Audit fees 1,25,000 By Books and magazines 35,000
To Dividends 48,000 By Office Expenses 36,000
To Examiners fees 65,000 By Printing & Stationary 42,000
To Fee of Accountancy Work 95,000 By Telephone Expenses 9,500
To Gifts from clients 85,000 By Donations 20,000
To Rent 40,000 By Travelling Expenses 68,000
To Institute Fees 74,000 By Balance c/d 3,91,500
To Interest on bank deposits 40,000
To Lottery winning 55,000
7,17,000 7,17,000

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Other Information :

(i) Gift include Rs. 48,000 received from her brother in law.
(ii) Closing stock of stationary as on 31-3-2020 is Rs. 18,000.
(iii) Travelling expenses include Rs. 35,000 on her personal trip to Ooty.
(iv) Salaries include Rs. 35,000 paid to household servants.