Business income from a proprietor's profit and loss account, and her taxable income (as set, 1961 Act, AY 2018-19)

Readings

1. Ms. Jyoti's turnover (₹15,72,000) is below the audit limit, so the due date for her return for assessment year 2018-19 is 31 July 2018; the bonus paid on 02.11.2018 is paid after it on any reading.
2. The employer's contribution to the recognised provident fund (₹20,000) is taken to have been paid by that due date (section 43B(b) and its first proviso), and to be within the limits prescribed for recognising the fund and the conditions the Board may specify (section 36(1)(iv)).
3. The contribution to the national laboratory is taken to be for scientific research under a programme approved by the prescribed authority, with that direction, and the laboratory to be a National Laboratory as section 35 defines it: one working at the national level under the aegis of a listed body (such as the Council of Scientific and Industrial Research or the Indian Council of Medical Research) and approved as a National Laboratory by the prescribed authority (section 35, Explanation 2, clause (a)).

Computation of income from business

Notes on the adjustments

• Salary to the proprietor: a proprietor cannot pay herself; it is a withdrawal of profit.
• Bonus: bonus to employees for services rendered, where the sum would not have been payable to them as profits or dividend had it not been paid as bonus (section 36(1)(ii)), is allowed only in the year of payment unless paid by the due date of the return (section 43B(c) and its first proviso). It will be allowed in assessment year 2019-20.
• Advertisement: a payment above ₹10,000 to a person in a day, made otherwise than by an account payee cheque, an account payee draft or electronic clearing, is disallowed in full (section 40A(3)); the payments to one person in a day are added together for the limit, and a bearer cheque is not an account payee cheque. (The limit is ₹10,000 from assessment year 2018-19: its footnote; it is ₹35,000 for payments for plying, hiring or leasing goods carriages.) No disallowance is made in the cases and circumstances prescribed under the first proviso to section 40A(3A); none is suggested here.
• Income-tax: tax on profits is not deductible (section 40(a)(ii)); its refund is not income.
• Provision for bad debts: only a debt written off as irrecoverable in the accounts is allowed, and a provision for bad and doubtful debts is not such a write-off (section 36(1)(vii) and Explanation 1). The one exception is a debt already taken into income under the notified income computation and disclosure standards without being recorded in the accounts: it is allowed in the year it becomes irrecoverable and treated as written off (second proviso to section 36(1)(vii)). Under section 36(2)(i) any bad debt is allowed only if it was taken into account in computing the income of that year or an earlier one, or is money lent in the ordinary course of a banking or money-lending business. The ₹2,000 here is a provision, not a write-off, so it is added back.
• National laboratory: a sum paid to a national laboratory for approved scientific research is allowed at one and one-half times (section 35(2AA)); this rate applies from assessment year 2018-19 (it was two times before 1 April 2018, its footnote). ₹1,00,000 is debited, ₹1,50,000 allowed, so a further ₹50,000 is deducted. No deduction for the same sum is allowed under any other provision (section 35(2AA)(b)).
• Allowed as debited: purchases, salaries and commission to staff, gifts to customers (a business expense under section 37), and the employer's provident fund contribution (section 36(1)(iv), on reading 2).
• Bad debts recovered: a debt allowed earlier and recovered now is business income (section 41(4)); it stays in the profit.
• Salary to her brother-in-law: section 40A(2) disallows an excessive payment only to a specified person, which for an individual includes a relative, and a relative is a spouse, brother, sister or lineal ascendant or descendant (section 2(41)). A brother-in-law is none of these, so the ₹5,000 is not disallowed under that section.
• Gift from her father: a gift from a relative, as her father is, is not her income.

Computation of taxable income