Business income of a consultant from his profit and loss account

Assumptions

1. The brother is a relative (section 2(94)) and so a specified person (section 36(3)(a)(i), Table, Sl. No. 1). No market value is given for his services. Assumed: the Assessing Officer, having regard to the fair market value of the services, the legitimate needs of the business and the benefit derived by or accruing to Mr. Ashish from them (section 36(2)(a), (b) and (c)), finds the whole ₹50,000 excessive or unreasonable because the brother lacks the qualification the job needs, so all of it is disallowed (section 36(2), formerly section 40A(2)(a)). The Act disallows "so much of the expenditure as considered excessive or unreasonable by him" (section 36(2)); the whole goes only on that finding (see The other reading).
2. The advertisement payment of ₹40,000 in cash was a single payment to one person in one day.
3. The loan was taken for the business, and the insurance premium other than the life policy (₹10,500) insures business assets.
4. The depreciation of ₹40,000 under section 33 (formerly section 32) includes depreciation on the sign board, so the board's cost is capital expenditure.

Computation of business income for tax year 2026-27

Notes on each adjustment

1. Personal items: household expenditure and the premium on his own life are not business expenses; the premium may be claimed under section 123 in computing total income under the old regime, within the aggregate limit of ₹1,50,000 for all the sums listed in Schedule XV and subject to that Schedule's conditions.
2. Taxes: income-tax is not deductible (section 35(a)), and its refund is not income.
3. Provision for doubtful debts: a provision is not allowed for an ordinary business (section 31).
4. Sign board and depreciation: the board is a capital asset; depreciation under section 33 (₹40,000, including the board) replaces the book depreciation.
5. Brother's salary: the whole ₹50,000 is disallowed on the Assessing Officer's finding, under section 36(2), that the entire payment is excessive or unreasonable, since the brother lacks the qualification for the job (assumption 1).
6. Bonus: allowed only on actual payment, but a payment by the due date of the return (31/07/2027) counts for the year (section 37(3), the due date of the return under section 263(1), here the date the question sets; as substituted by the Finance Act, 2026, section 263(1) gives a business assessee whose accounts need no audit until 31 August 2027, which does not change the result); paid on 16th November 2027, it is allowed only in tax year 2027-28.
7. Salary to a non-resident: a salary paid to a non-resident (or payable outside India) is wholly disallowed where tax was deductible on it at source under Chapter XIX-B and was not deducted, or was deducted but not paid (section 35(c)). Here it was not deducted.
8. Cash payment: where a payment, or the aggregate of payments made to a person in a day, exceeds ₹10,000 and is not made through a specified banking or online mode, the expenditure is disallowed in full (section 36(4)). The limit is ₹35,000 only for payments for plying, hiring or leasing goods carriages (section 36(6)), which an advertisement payment is not. Section 36(7) lifts this rule only in the cases and circumstances prescribed by the Rules, having regard to the banking facilities available, business expediency and other relevant factors; nothing in the question places this advertisement payment in such a case, so the whole ₹40,000 is disallowed.
9. Staff welfare: the ₹2,000 Diwali celebration for staff is a business expense and is allowed. Interest on the business loan and the travelling, office and advertisement expenses (other than the cash payment) are allowed.

The other reading

If only the excess over a reasonable amount were disallowed, the business income would be ₹10,14,500 less the amount found reasonable: for example, ₹9,84,500 if ₹30,000 were accepted as reasonable (₹20,000 disallowed), and ₹9,64,500 if the whole ₹50,000 were found reasonable (nothing disallowed). The question gives no such value, so the whole payment is disallowed above.