Kalpesh Classes

Questions 7-12 mark types

Question (ID 026 006) (firm fundamental computation)

Section 40(b) a firm comprising​​ of four Partners A,B,C and D carrying on business in partnership, sharing profits and losses equally shows a profit of Rs.1,00,000 in its books after deduction of the following amounts for the year​​ 

The deed of partnership provides for the payment of above​​ remuneration and interest to partners. You are required to work out the taxable income of the firm as well as partners.

Question (ID 14) (Revision ​​ / Home work) (firm fundamental computation)

Work out the taxable income for of a partnership firm engaged in retail trade from the following particulars:

• Net profit of ​​ 3,65,000 arrived at after debit of interest on capital of partners of ​​ 1,80,000 and salaries to working partners of ​​ 4,80,000.

• Total capital of the partners on which interest paid is debited in​​ the profit and loss account was ​​ 10,00,000.

Question (ID 01) (firm fundamental computation)

A partnership firm, consisting of three partners A, Band C was engaged in the business of Civil Construction and received the following amounts by way of contract​​ receipts:

Each partner of the firm was entitled to draw Rs. 2,500 per month by way of salary as authorized by the terms​​ of the partnership deed. ​​ Interest of Rs. 1,00,000 was also paid to partner C on the capital of Rs. 5,00,000 contributed by him. ​​ The profit as per books of accounts, before deduction of salary to partners and interest to C amounted to Rs. 2,50,000. ​​ Compute the total income of the firm, applying the provisions of section 44AD.

Question (ID 15) (Revision ​​ / Home work) (firm fundamental computation)

A partnership firm consisting of three partners X,Y, and Z is engaged in the business of manufacturing and​​ selling toys.

Turnover of the business for the year ended 31st​​ March, amount to​​ ​​ 55 lakh.

Bad debts written off in the books are ​​ 75,000.

Interest at 12% is provided to partner, Z on his capital of​​ ​​ 6 lakh as authorized by the partnership deed.

The firm​​ had business loss of​​ ​​ 50,000 and unabsorbed depreciation of 1,50,000 carried forward from 2 years back. The firm did not pay tax under presumptive tax system in last year. The firm opts for presumptive taxation under section 44 AD for the first time.

Compute the income of the chargeable under the head “profits and gains of business or profession”.

Question (ID 11) (firm fundamental computation)

M/s. Harilal Industries, a partnership firm, submits the following profit and loss account for computation of its business income Profit and loss account for the year ending is given below.​​ 

Additional information:​​ 

• Salaries include 1,50,000 paid to working partner A (administrative head and making business policies for the firm) and 1,00,000 to working partner B (Looking after day to day routine matter and execution of transactions. Includes Rs. 20,000 paid to him for extra work done by him during diwali season.). (authorized by the partnership deed)​​ 

• Interest paid includes 54,000, being interest paid on loan given​​ by partner B at the rate 18% simple interest.​​ 

• Out of provident fund contribution debited to profit and loss account, 10,000 is outstanding beyond the due date of filing of return balance is paid before due date of filing of return of income but after the​​ date of dissolution of firm.​​ 

• The firm purchased goods by issuing account payee drafts except in the case of one bill for 80,000 for which payment has been made by cash. This has been debited to trading account as part of purchases.​​ 

The firm was dissolved and business is discontinued on 21st​​ of march of PY, above income and expense is thus prepared up to date of dissolution​​ of business. However one debtor Mr. D who was written off 3 years back has made the payment of Rs. 12,600 on 28th​​ March, but since the firm was already dissolved it made payments to one of the partner Mr. Harilal. You are also required to explain how the​​ assessment of the firm will be made.

Question (ID 12) (Revision ​​ / Home work) (firm fundamental computation)

HSP, a partnership firm engaged in the business of running a heritage hotel approved by the competent authority provides the following​​ information relating to the year​​ 

• Net profit as per P & L account of 200 lacs was arrived at after charge of the following:

  • Depreciation on hotel building having W.D.V. 500 lacs was charged by treating the same as plant and machinery.​​ 

  • Expenses of 1,00,000​​ incurred for the purpose of promoting family planning among its employees.​​ 

  • Payment of 50,000 for an advertisement published in the souvenir released on 15 August by Bhartiya Janta Party.​​ 

  • Compensation of 1,00,000 paid to the suppliers of automatic kitchen appliances because of termination of the contract after receipt of 50% of appliances.​​ 

  • Wines and liquor imported in for 20 lacs and were available in the stock at cost of 5 lacs were confiscated by the Govt. authority and therefore were written of.​​ 

  • Expenses of 20 lacs incurred on replacement of carpets in the foyer, lounge and bar.​​ 

• Amount of 4 lacs equal to U.K. £ 5000 was remitted and paid to a travel agent resident of U.K. as commission for the booking of international tourists in the hotel. Tax at source was not deducted out of such payment.​​ 

• Amount of 40,000 each was paid in cash to the suppliers of vegetables, milk products and eggs on 05.09. because of suspension of banking operations due to strike of bank employees.​​ 

• Amount of 5 lacs written off 12 years back as irrecoverable from a travel agent; an amount of ​​ 2 lacs was recovered and credited to a reserve account.​​ 

Compute the income chargeable to tax under the head business and profession and give reasons in brief for treatment given to each​​ of the items.​​ 

Questions 12-20 mark types

Question (ID 026 001) ​​ (full computation of firm)

X,Y and Z are equal partners in a firm carrying on some business. Compute the total income of the firm. The profit and the loss account of the firm is as follows. With the return of income computation of income with account statements have been enclosed.

Following additional information is available

• Depreciation includes Rs. 2,000 for the assets purchased on hire purchases basis.

• Bad debts include Rs. 1050 as amount written off which was given as advance to supplier.

• Bad debts include Rs. 300 as​​ provision for bad debts as general practice of the firm.

• Bad debts include Rs. 200 debt which represents receivable from Mr. A, this was taken over at time of purchase of business some 12 years back. However during previous year no police complaint has been filed or no suit has been initiated for the recovery of said amount from Mr. A.

• Selling and administrative expense include fees paid to CA for preparation of return and audit Rs. 1,000.

• During the year some loans of Rs. 6,000 were advances to b & co. in​​ which there are common partners. There is no interest charges from b & co. prevailing interest rate is 10 % per annum.

• In the past assets of the firm was revalued and there was corresponding increase in capital of the partner. The revaluation had doubled the capital of partners as appearing in previous balance sheet.

• In the balance sheet of the firm loan from Mr. B Rs. 275 is being carried forward since last 15 years.

• Miscellaneous receipts include sum of Rs. 245 as refund of Indirect Tax. However this refund is under protest.

• Miscellaneous receipts include sum of Rs. 260 (include interest of past Rs. 10) which is loan written off. The loan was granted by b & co for the purpose of business needs.

• Assessing officer observed introduction of capital from partner Mr. X Rs. 4,500 in his capital account. This was in cash. However corresponding entry in personal books of Mr. X is not observed. Since the account does not tally officer proposes to add it to the income of the firm.

You are required to compute the total​​ income of the firm in the following situations.

• The firm failed to comply with the provisions of section 184.

• Suppose Mr. Z died on 1-12-PY.

• Suppose Mr. Z retired on 1-12-PY.

• Firm in the course of the assessment did not comply with notice of scrutiny and​​ officer has resorted to best judgement assessment.

• Suppose Z was minor and was admitted to benefits of partnership had attained majority on 1-6-PY.

• Suppose during the year Mr. A and B was admitted and Y and Z retired.​​ 

Question (ID 04) (full computation of firm)

Patel & Co., is a partnership firm consisting of three partners, Mr. Patel, Mr. Malhotra and Mr. Anand, sharing profit and losses in ratio of 3:2:3. The firm was doing business in manufacture of electrical appliances. The Profit loss account of the firm was under:

The following further details are furnished:

• The firm has completed all the formalities to be considered as a partnership assessed as such.

• The firm satisfies​​ all the conditions of Sec. 80-IA but is not found to be eligible for deduction.

• The partnership deed was amended on 1st​​ April, providing remuneration and interest to partners as under:

• Depreciation eligible under the Income-tax Act works to Rs. 96,000.

• Under Miscellaneous​​ expense Rs. 82,000 are inadmissible expenses, out of which Rs. 60,000 were donations given to an approved charitable trust.

• Two years back, the firm was assessed on a business loss of Rs. 40,000 and long term capital loss of Rs. 10,000.

• Partnership deed contains clause for the allowance of partners remuneration and interest as per the provisions of income tax act.

• The firm has borrowed monies on account of loan and it is outstanding at year end of Rs. 3,00,000 from Mr. M (Money Lender)

You are required to :​​ 

• Compute the total income of the firm and the tax payable by it.​​ 

• You are also required to answer if there was carried forward depreciation of Rs. 2,88,000.  ​​ ​​​​ 

• Explain the tax obligations associated with outstanding loan.

Question (ID 07) (full computation of firm)

M/s ​​ HIG, a firm, consisting of three partners namely H , I and G, carried on the business of purchase and sale of television sets in wholesale and manufacture and sale of pens under a deed of partnership executed on 1-4-2004. H, I and G were​​ partners in their individual capacity. The deed of partnership provided for payment of salary amounting to Rs 2,00,000 each to H and G who were the working partners. A new deed of partnership was executed on 1-10-PY which, apart from providing for ​​ payment of simple interest @ 12% p.a ​​ on the balance standing to the credit of the capital accounts of partners from 1-4-PY. The firm was dissolved on 31-3-PY and the capital asset of the firm were distributed among the partners on 20-4-AY. The net profit of the​​ firm for the year after payments of salary to the working partners and debit /credit of the following items to the profit and loss account was 1,50,000.

The firm furnishes the following information relating to it:

Compute the total income of M/s HIG. You are required to​​ furnish explanations for treatment of the various items given above. ​​ 

Question (ID 08) (full computation of firm)

X, Y and HUF of Z (represented by Z) are partners with equal shares in profits and losses of a firm, ABC, which is engaged in the​​ production of TV serials and tele-films. Two years back, one partner A retired, but his dues have been settled in the previous year.

The earlier partnership deed did not authorize payment of remuneration or interest to partners. The partnership deed was revised by the partners on June 1, to authorize payment of remuneration of Rs. 1 lakh per month to each working partner and simple interest at 15 percent per annum to X and Y on their capital. X, Y and Z are actively associated with the affairs of the firm.​​ The profit and loss account of the firm for the year ending March 31, shows a net profit of Rs. 10 lakh after debiting/crediting the following:

• Interest amounting to Rs. 15 lakh paid to X and Y on the balances standing to their capital accounts from April​​ 1, to March 31,

• Remuneration to the partners including partner in representative capacity Rs. 30 lakh.

• Interest amounting to Rs. 2 lakh paid to Z on loan provided by him in his individual capacity at the rate of 16 percent per annum.

• Royalty of Rs. 5 lakh​​ paid to partner X, who is a professional scriptwriter, for use of his scripts as per an agreement between the firm and X.

• Two separate payments of Rs. 18,000 and Rs. 15,000 made in cash on February 7, to P, a hair dresser against his bill for services rendered in January, and two payments of Rs. 19,000 and Rs. 10,000 made in cash on February 7, and February 8, respectively to Q, assistant cameraman against her bill for services provided in January.

• Amount of Rs. 5 lakh provided in the books on March 31, as​​ liability for remuneration to S, a film artist and a non-resident. Tax deducted at source under section 195 from the amount so credited was paid on June 3 AY.

• Amount of Rs. 6 lakh provided as gratuity for the year on the basis of actuarial valuation.​​ Gratuity paid to retired employees in Rs. 1.50 lakh.

• Interest of Rs. 1.20 lakh received on income tax refund under section 244(1A) in respect of two years back.

• Mrs. X, Mrs. Y and Mrs. Z are looking after some administrative work of the firm, they are paid​​ 8,000 annually each. They do not possess any professional or technical qualification but in the course of the assessment assessing officer considers the payment as reasonable.

The firm has also provided the following additional information:

The amount due to A, the former partner was Rs. 15 lakh. The dues were settled on September 30, by transferring a plot of land purchased two years back having a book value of Rs. 10 lakh. The difference of Rs. 5 lakh was credited to the partners’ capital accounts in their profit sharing ratio. The fair market value of the plot on the date of transfer was Rs. 16 lakh.

Compute total income of the firm stating the reasons for treatment of each item.

Question (ID 16) (full computation of firm)

HSP, a partnership firm engaged in a business of running a heritage hotel approved by the competent authority provides the following information relating to the year:

• Net profit as per P & L account of Rs. 200 lakh was arrived at after charge the following:

• Depreciation on hotel​​ building having opening W.D.V on April 1, of Rs. 500 lakh was charged by treating the same as plant and machinery.

• Expensed of Rs. 1,00,000 incurred for the purpose of promoting family planning among its employees.

• Payment of Rs. 50,000 for an advertisement published in the souvenir released on August 15 by Bhartiya Janta Party.

• Compensation of Rs. 1,00,000 paid to the suppliers of automatic kitchen appliances because of termination of contract after receipt of 50% of appliances.

• Wines and liquor imported last year for Rs. 20,00,000 and were available in the stock on April 1, for Rs. 5 lakh were confiscated by the Government authority and therefore were written off.

• Expenses of Rs. 20 lakh incurred on replacement of carpets in the foyer, lounge and bar.

• Out​​ of amount credited to the reserve created under section 80HHD(1), an amount of Rs. 15 lakh could not be utilized for the purposes as per section 80HHD(4) ​​ till March 31, and time limit of reserve is expired.

• Amount of Rs. 4 lakh equal to U.K. £5000 was remitted and paid to a travel agent resident of U.K. as commission for the booking of international tourists in the hotel. Tax at source was not deducted out of such payment.

• Amount of Rs. 40,000 each was paid in cash to the suppliers of vegetables, milk products and eggs on February 11, because of suspension of banking operations due to strike of bank employees.

• Amount of Rs. 5 lakh was written off in the financial year 2012-13 as irrecoverable from a travel agent; an amount of Rs. 2 lakh out of it was recovered on March 13, and credited to a reserve account.

Compute the income chargeable to tax and give reasons in brief for treatment given to each of the items.​​ 

Question (ID 17) (full computation of firm)

XYZ and Co., is a partnership firm consisting of three partners X, Y and Z. it is engaged in the business of manufacturing and selling toys. Turnover of the business for the year ending March 31, amounts to Rs. 55 lakh. The following additional income is available –

• Bad debts written off in the books are​​ Rs. 75,000.

• Interest at 12 per cent is provided to partner Z on his capital of Rs, 6 lakh as authorized by the partnership deed.

• The firm had business loss of Rs. 50,000 and unabsorbed depreciation of Rs. 1,50,000 carried forward from 2 years back. The firm did not pay tax under presumptive tax system in last year.

• The firm opts for presumptive taxation under section 44AD for the first time.

Compute the income of the firm chargeable under the head, “profits and gains of business or profession”.​​ 

Question​​ (ID 18) (full computation of firm) (Revision ​​ / Home work)

X (28years), Y (30years) and Z (32years) are three partners of a firm [profit sharing ratio being 1 : 3 : 5]. The following information is available from the record of the company for the year.

• Net​​ profit as per profit and loss account is Rs.32,000.

• Credit side of the profit and loss account includes -

  • Interest recovered from X on drawing : Rs. 5,000

  • Gift from Mrs. D : Rs. 75,000

  • Interest on income-tax refund : Rs. 16,000

  • Income tax refund : Rs. 80,000

  • Long-term capital gain : Rs. 2,10,000 (computed as per section 45)

  • Rent of property at Delhi : Rs. 72,000

  • Interest on fixed deposit kept for business purposes : Rs. 40,000 (tax deducted out of it : Rs. 4,000) ;

  • Interest on fixed deposit (not being kept​​ for business purposes) : Rs. 60,000 (tax deducted out of it : Rs. 6,000).

• Debit side of the ​​ profit and loss includes -

  • Salary and commission to partners- X : Rs.6,00,000; Y : Rs.8,40,000, Z : Rs.90,000 (Z is not working partner);

  • Interest on capital to​​ partners @ 24 per cent –X :Rs.40,000,Y : Rs. 20,000,Z : Rs. 2,00,000;

  • Salary to employees include Rs. 40,000 being an outstanding liability of bonus which is paid on December 10, AY and employer’s contribution towards unrecognised provident fund : Rs. 30,000;

  • Outstanding sales tax : Rs.10,000 (which is paid on may 10,2015);

  • depreciation on Delhi house which is let out : Rs.20,600;

  • depreciation on other assets : Rs.4,10,000 (as per section 32 amount deductible is Rs.3,90,000);

  • advance income-tax : Rs,70,000;

  • expenditure on income tax appeals :Rs.20,000;

  • outstanding interest on term loan taken from SBI :Rs. 60,000 paid on December 20, AY);

  • outstanding interest on term loan taken from IDBI : Rs.65,000(paid on May 20, AY);

  • municipal tax of ​​ house at Delhi​​ :Rs.2,000 (paid on April 6, AY);

  • repairs to compound wall collapsed due to heavy rains : Rs.25,000;

  • donation to PM’s Drought Rolief Fund : Rs. 10,000;

  • office expences : Rs.50,640.

The firm wants to set-off the following unadjusted losses brought forward from earlier years

Partners

Compute the net income and tax liability of the firm and its​​ partners on the assumption that the firm satisfies all condition of section 184 and 40(b).

Question (ID 19) (full computation of firm) (Revision / Home work)

XY & co. is a partnership firm. It has two partners X (34 years) and Y (36 years) (1:2). The firm is engaged in the business of manufacture of chemicals and repairs of dams and supply of labour for civil construction. The profit and loss account of the firm for the year is as follows :

Other information :

• Out of other expenses​​ debited to P & L a/c Rs. 12,700 is not deductible under section 37(1).

• Out of travelling, advertisement and entertainment expenses, Rs. 17,500 is not deductible under section 37 (1).

• On April 1, the firm owns the following depreciable assets:

  • Block-1 ​​ -Plant A, B and C, depreciated value : Rs.3,70,000, rate of depreciation : 15%.​​ 

  • Block-2 ​​ -Plants D and E, depreciated value : Rs. 1,98,000, rate of depreciation : 40%.​​ 

  • On January 1, the firm sells Plant D for Rs. 9,10,000 and purchases plant F (rate of depreciation 15%) for Rs. 4,86,000.

• The firm gives a donation of Rs. 1,70,000 to a notified charitable institute which is included in other expenses.​​ 

• The firm wants to set-off the following losses brought forward from earlier years. 

Income of partners X and Y ​​ is as follow​​ 

Find out the net income and tax liability of the firm and partners for the​​ year. The firm satisfies all conditions of sections 184 and 40(b).

Question (ID 20) (full computation of firm)

MNO Corporation LLP, is carrying on two businesses viz. Textile manufacture and Operation of cold chain facility. It gives you the following information for the year:

Net profit as per Profit & Loss Account:

From Textile Manufacture - 10,25,000

From Operation of cold chain facility - 20,50,000

The following items are debited to Profit & Loss Account:

• Interest on capital payable to partners @ 15% on total capital of ​​ 100 lakhs.

• Working partner salary 36 lakhs (i.e., 1 lakh each per month for 3 partners).

• Depreciation on textile factory building 5 lakhs.

• Depreciation on Plant & Machineries of textile business 35 lakhs.

• Keyman insurance policy​​ premium paid 1,55,000.

Other Information:

Eligible depreciation under section 32 for the year are​​ 

• On Plant & Machineries of textile business 27 lakhs.

• On factory building relating to textile business ​​ 4 Iakhs.

The assessee set up and operating a cold chain facility last year. It incurred capital expenditure and income towards construction of cold chain facility of last year:​​ 

• Cost of land 30 lakhs.

• Cost of construction of building and machineries installed, 75 lakhs.

• Income from Textile manufacture 12​​ lakhs.

• Income from cold chain facility 60 lakhs (before deduction under section 35AD)

• The firm originally had 4 equal partners and one partner retired on 31-3.​​ 

The partnership agreement authorizes payment of salary and interest on capital which are debited to Profit & Loss Account.

You are requested to compute the total income of the firm.

Note: Ignore Alternate Minimum Tax (AMT) under section 115 JC.​​ 

Question 01 (ID 13) (Revision ​​ / Home work)

Vyay Agencies, a partnership firm​​ constituted by three partners with equal shares was dissolved on 1.04.2011 after a search. The liability to tax finally decided against the firm outstanding to be paid was 15 Lacs. Out of three partners, one was declared insolvent on 18-03-2012 by the Court. The Assessing Officer, for recovering the demand, attached the Bank Accounts of other two partners and could recover an amount of 6 Lacs from the Account of one such partner. You are asked by the partners of dissolved firm :​​ 

(i) About the liability of​​ each of them to pay outstanding demand.​​ 

(ii) Whether the action of Assessing Officer to attach the Bank Account of partners against demand of dissolved firm is justified ?​​ 

Question 02 (ID 09) (Revision ​​ / Home work)

Partners of assessee-firm Kalpesh Sanghavi & co created another separate distinct firm Bhavesh Sanghavi & co, under separate partnership deed to carry on other business. Assessing Officer, however, included Bhavesh Sanghavi & co profit in income of Kalpesh Sanghavi & co. assessing officer applying certain principles enunciated by courts, held that two firms were not in reality one firm but two different legal entities for purpose of assessment. CIT does not agree with the officer. ​​ You are required to give your opinion on the same.

Question 03 (ID 10) (Revision ​​ / Home work)

Assessee firm Kalpesh Sanghavi & co’s ​​ business was taken over by a private limited company. Transfer deed stipulated that an outstanding disputed claim against certain completed piece of work was not transferred. Subsequently, firm was dissolved under deed wherein it was stated that disputed claim was to be treated as actionable claim realisable by all partners as tenants-in-common. Assessing Officer invoking section 176(3A) brought to tax under section 28(iv) amount realised after dissolution of firm in respect of aforesaid claim. Partners are of the view, while holding that section 176(3A) was not attracted nor section 28(iv) or section 60 was attracted. You are required to offer your comments on correct tax treatment of​​ the said actionable claim.

List of Important Question to be glanced for Revision before exam.

Wishing You all the best for exams.​​