1. Profits & gains of Business or profession (u/s 28-44D)
Charging Section S. 28 under section 28 the following income is chargeable to tax under the head business or profession:
Profits and gains of any business or profession;
Any compensation or other payment due to or received by any person specified in section 28(ii)
Income derived by trade, profession or similar association from specific services performed for its members;
The value of any benefit or perquisite whether convertible into money or not arising from the business or the exercise of a profession

2. Export incentives available to exporters
Any profit on transfer of duty Entitlement Pass Book Scheme;
Any profit on the transfer of any duty free replenishment certificate
Export incentives available to exporters
Any interest, salary ,bnus, commission or remuneration received by a partner from firm
Any sum received for not carrying out any activity in relation to business or not to share any know how, patent, copy right, trade mark, etc.,

3. Any sum received under a Keyman insurance policy including bonus;
Any sum received in cash or in kind or on account of any capital asset(other than the land or Goodwill or financial instrument ) being demolished, destroyed or discarded or transferred if the whole of the expenditure on such capital asset has been allowed as deduction under section 35D
Profits and gains of managing agency; and
Income from speculative transaction

4. Business Sec. 2(13)
Business includes any trade , commerce, manufacture, or any adventure or concern in the nature of trade , commerce or manufacture.
This definition covers every facet of an occupation carried on by a person with a view to earning profit. Production of goods from raw-material , buying and selling of business and selling of goods to make profits and providing services to others are different forms of business.
Activity for making profit
Activities of rendering services to others falls under business

5. Business income not taxable under this head
Rental income in the case of a dealer of a property
even if property constitutes stock-in-trade of recipient of rent the recipient of rent engaged in business of letting properties on rent
Dividend on shares are taxable under the head income from other source even if they are derived from shares held as stock-in-trade or recipient of dividend is dealer in shares
Winning from lotteries, races etc., are taxable under “income from other source” even if it is received from regular business activities

6. Basic principles for arriving at Business income
Business or profession carried on by the assessee
It is not the ownership of the business but the business must be carried on by the assessee . If he has the right to carry on the business , even though he is not physically carry on a business
Business or profession must be carried on during the previous year
It is not essential that the business to be conducted throughout the previous year or up to the end of the previous year

7. Profits and losses from speculative business is treated separately
Tax is chargeable to all business or profession
Tax incidence is on the aggregate of all business income and not separately chargeable to tax. If an assessee earns income from one business and loss from other business, income chargeable to tax is the net income that is after setting off loss against income
Profits and losses from speculative business is treated separately

8. Legal ownership and beneficial ownership.
Legal ownership and beneficial ownership is to be considered for taxation. Whoever really receive the income will be held liable for the tax
Real Profit & Anticipated profit
Taxable profit is the profit accrued or arising in the accounting year. Anticipated profit or potential profit or losses which may arise in future is not considered for arriving at the taxable income of a previous year

9. Recovery of sum already allowed as deduction
Any sum recovered from a deduction already allowed as deduction is taxable as business income
Mode of book entries not relevant
The mode of transaction is irrelevant for taxation. For example a trading receipt even though it was not recorded in the accounts does not prevent the assessing officer to treat it as a trading receipt
Illegal business
Income tax is not considered whether the income is from a legal or illegal business . Income is taxable
Commercial principles for computing business income
Profit arising from trading receipts only is taxable not the capital receipt

10. Trading losses
Trading losses of revenue nature are allowed to be deductible if they are incidental to the operation . The business losses can be allowed as deduction if only the following conditions are satisfied :
Losses should be of revenue nature
Losses shoul d be incurred during the previous year
Losses should be incidental to the business or profession carried on by the assessee

11. It should not be notional or fictitious
it should have been actually incured and not merely anticipated to incur in future
it should not be an item restricted under the act
Loss which is not incidental to trade or profession , carried on by the assessee is not allowed as deduction
Losses of advances made for setting up of new business which ultimately couldnot be started

12. Specific deductions
Rent, rates, taxes repairs and insurance for building used for business purpose(sec 30)
Not being capital expenditure
repairs only if there is an agreement to bear the repair expenses, if the assessee is a tenant
any sum on account of rent, land revenue , municipal taxes
if the assessee pays rent of the previous tenant cannot e deductible

13. Repairs and insurance of machinery plant and furniture Sec 31
Expenditure incurred on current repairs other than the capital expenditure and insurance premium in respect of plant, machinery and furniture used for business purpose is allowed as deduction under section 31

14. Depreciation Sec. 32 Conditions for claiming depreciation deductions
Assets must be owned by the assessee
it must be used for the purpose of business or profession
It must be used during the previous year
Deprecation is available on Specified tangible as well as intangible assets
Tangible assets
Buildings – includes roads, bridges, wells and tubewells etc
Machinery – includes any mechanical appliances
Plant –includes ships, vehicles, books, scientific apparatus etc.,
furniture –includes articles of convenience or decorations used to furnish a place of business

15. Intangible assets:
Know-how –means industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well etc.,
Patents – means exclusive right granted by the government to the first inventor of a new product for making and selling such product
copyright – is the exclusive right given under law for a certain number of years to an author, composer, etc, to print, publish and sell copies of his original work

16. Intangible assets:
Trademark – is a mark, secured by legal registration, used by a businessman to distinguish his goods from the goods of other business concerns
License – a legal permission for any business operation eg., license for digging n oil well
Franchise – is a license from the owner of trade –mark permitting another to use that trade –mark for business

17. Computation of Depreciation
Block of Assets
Means a group of assets in respect of which the same percentage of depreciation has been prescribed
Different rates of depreciation are prescribed for different items even falling within the same class. For eg., Building having 5% depreciation is one block and depreciation having 10% is another block , furniture having 10% depreciation is one block and furniture having 20 % depreciation is another group

18. Computation of written down value
Opening WDV xxx
Add cost of Assets purchased form
the same block during the previous year xxx
Less sale proceeds of assets sold from
the Block xxx
Closing Written Down Value xxx

19. Cost of Asset includes expenses to acquire the asset(purchase price; interest on loan taken for purchase of assets)
Expenses to bring the asset to the site
Expenses to bring the asset to working condition
depreciation is charged at the prescribed rates on the written down value but if an asset is used for less than 180 days in the year of acquisition, the depreciation rate will be only 50% of the normal rate
this is applicable only for the year of acquisition

20. Question
Find out the depreciation for the following information for the assessment year
After April 1,2013, the company purchases the following assets
Block of Assets
Rate of depreciation
WDV on 1/4/2013
Plant A,B & C 15
10,40,000
Plant D and E 40
2,60,000
Plant F 50
70,000
Building A, B, C, and D 10
10,90,000
Building E, F, and G 5
7,10,200
Building H,I,J and K
100
16,90,000
Assets
Date of purchase
Rate of depreciation
Cost of Purchase
Plant G
April, 6, 2013 50
6000
Plant H
May 11, 2013 15
18000
Furniture
June 6,2013 10
56000
Car
July 7,2013
2,56,000
Building L
Sept 26,2013 5
7,28,700
Computer
Sep 27,2013 60
90,000
Copyright
Sep 30,2013 25
17,50,000

21. The following assets are transferred
Date of Sale
Sale Consideration
Plant B
Dec 20, 2013
25,10,900
Plant D
January 31,2014
12,000
Building L
March 6, 2014
6,00,000

22. Block -1 plant & Machinery (dep 15%) Opening wdv 10,40,000
Answer
Block -1 plant & Machinery (dep 15%)
Opening wdv 10,40,000
Add purchases(car + plant H) 2,74, ,14,000 Less Sale proceeds (plant B) 13,14,000
Nil
Sale proceed of plant B is Rs. 25,10,900 that is more than Rs. 13,14000 therefore wdV is taken as Zero

23. Block -2 plant & Machinery (dep 40%) Opening wdv 2,60,000
Answer
Block -2 plant & Machinery (dep 40%)
Opening wdv 2,60,000
Add purchases Nil ,60,000
Less Sale proceeds ,000
2,48000

24. Block -3 plant & Machinery (dep 50%) Opening wdv 70,000
Answer
Block -3 plant & Machinery (dep 50%)
Opening wdv 70,000
Add purchases Plant G) 6, ,000
Less Sale proceeds NIL
76,000

25. Block -4 Building A,B,C (dep. 10%) Opening wdv 10,90,000
Answer
Block -4 Building A,B,C (dep. 10%)
Opening wdv 10,90,000
Add purchases NIL ,90,000
Less Sale proceeds NIL
10,90,000

26. Answer
Block -5 Building E,F,G(dep. 5%)
Opening wdv 7,10,200
Add purchases Buil L 7,28, ,38,900
Less Sale proceeds Buil F 6,00,000
Closing WDV 8,38,900

27. Answer
Block -6 Building H,I,J,K(dep. 100%)
Opening wdv 16,90,000
Add purchases Nil ,90,000
Less Sale proceeds Nil
Closing WDV 16,90,000

28. Answer
Block -7 Furniture (dep. 10%)
Opening wdv Nil
Add purchases , ,000
Less Sale proceeds Nil
Closing WDV 56,000

29. Answer
Block -8 Computer (dep. 60%)
Opening wdv Nil
Add purchases , ,000
Less Sale proceeds Nil
Closing WDV 90,000

30. Answer
Block -9 Pcopyright (dep. 25%)
Opening wdv Nil
Add purchases ,50, ,50,000
Less Sale proceeds Nil
Closing WDV 17,50,000

31. Deductions allowable under section 35:
Expenditure on Scientific research
Any activity for the extension of knowledge in the fields of natural or applied science including agriculture, animal husbandry or fisheries.
Deduction
Any expenditure incurred on scientific research related to the assessee’s business-any salary, purchase on materials such scientific research during the period of three years immediately preceding the commencement of the business will be deemed to have pent in the year of commencement of the business
Any expenditure of capital nature except the purchase of Land

32. Weighted Deduction
Any sum paid to an approved research association which undertake research for a university, college or other institution deductible amount is one and three-fourth of the amount paid
Sum paid to a company registered in India, or has the main object of the development of scientific research , or approved by the prescribed authority , or which fulfills such conditions prescribed
– one and one-fourth of the amount paid
Sum paid to a research association for social science or statistical research
- one and one-fourth of the amount paid
National Laboratory or a university or IIT or specific person
- 200 % of the amount so donated
In-house research and development (other than land & Building

33. Deductions allowable under section 35D:
Amortisation of preliminary expenses
An Indian co or a resdent non-corporate assessee can claim deduction u/s 35 D in respect of preliminary exp such exp may be incurred before the commencement of the business or in connection with extension of an undertaking or connection with setting up of a new unit.
The aggregate expenditure cannot exceed the following
5% of the cost of project or

34. U/s 35D……….
In case of an Indian co or at the option of the co, 5% of the cost of capital employed in the business of the co, which ever is higher.
Deduction:
Preliminary expenses incurred shall be amortised over a period of 5 years
Eligible expenses:
Expenses relating to:
Preparation of feasibility report
Preparation of project report
conducting market survey
Engineering services
Legal charges for drafting any agreement

35. Deductions allowable under section 35D:

36. Deductions allowable under section 36:
Insurance expenses [section 36(1)(i)
Insurance premium on health of employees [section 36(1)(ib)
Bonus or commission to employees [section 36(1)(ii)
Interest on borrowed capital [section 36(1)(iii)

37. Deductions allowable under section 36:
Contributions towards approved provident fund, superannuation fund and gratuity fund [section 36(1)(iv) and 36(1)(v)
Bad debts in respect of income considered in previous years can be written off and allowable as deduction [section 36(1)(viii)
Banking cash transaction tax [section 36(1)(xiii)

38. Deductions allowable under section 36:
Advertisement expenditure is fully allowed as deduction. However, expenditure incurred on advertisement in any souvenir, brochure, pamphlet etc. of a political party is not allowed as a deduction [section 37(2B)
Expenditure in maintenance of guest house is permissible as deduction [section 36(1)(i)

39. Deduction allowable under section 37:
Any other expenditure which is not of capital nature or personal expenses of the assessee is allowed if it is expended wholly and exclusively for the purposes of business or profession. However, it should not have been for purpose which is an offence or is prohibited by any law

40. Deduction allowable under section 37:
Conditions to be satisfied:
It should not be in the nature of capital expenditure
It should not be personal expenditure of the assessee
It should be expanded wholly and exclusively for the purposes of business or profession
It should not have been incurred for any purpose, which is an offence or is prohibited by any law

41. Totally disallow Expenditure (s 40(a)
Interest, royalty, fees for technical services payable to non-resident if TDS is deductible but has not been deducted or deducted but not properly deposited with the Government (S 40(b)
In case of residents, any expenditure where:
Tax is deductible but has not been deducted
Tax has been deducted but after deduction it has not been paid to the Government

42. totally disallow Expenditure
Securities Transaction Tax paid by the assessee
Fringe Benefit Tax paid by the assessee
Any Income Tax paid by the assessee
Wealth Tax paid by the assessee
Salary payable outside India without deduction of TDS
Provident Fund payment without tax deduction at source
Tax on perquisites paid by the employer

43. totally disallow Expenditure
Any amount paid to the relatives of the assessee to the extent such expenditure is considered to be excessive or unreasonable (S40A(3)
Employer’s contribution to non-statutory fund (unrecognized provident fund etc.) (S 40A(9)
Provision for Gratuity on retirement (S 40A(7)

44. totally disallow Expenditure
100% of the amount of expenses exceeding Rs (S 40A(3)) if the following conditions are satisfied:
The amount of expenditure exceeds Rs
A payment in respect of the above expenditure (or part thereof) exceeds Rs
The payment mentioned above has been made otherwise than by a crossed bank cheque or bank draft.

45. totally disallow Expenditure
Payment over Rs 20,000 should be made by cheque or demand draft. This restriction is not applicable in case of payments to RBI, other banks and financial institutions, LIC Government payments, payment by book adjustment, railway freight, Payment for agricultural produce, poultry, fish etc. to the cultivator, grower or producer (i.e. Payments to middlemen are not excluded from this provision) [rule 6DD

46. Computation of Profit/gain or Loss
Net Profit xxx
Add Disallowed expenses xxx
Add incomes taxable but not credited xxx xxx
Less expenses not debited in profit
& loss a/c but are allowed xxx
Incomes credited in Profit & Loss
Account but not taxble xxx xxx
Taxable Profit & gain XXX

47. Ded. Only on payment(s43B)
The following expenses are allowed only if it is paid within the prescribed period, i.e., during the relevant previous year or on or before the due date for filing return of income under se 139(1)
Tax, duty, cess or fee under any law
bonus or commission paid to employees
Interest on loan to any public financial institution or a state financial corporation
Interest on any loan or advance from a schedule bank
sum due to employee in lieu of leave balance
contribution payable by an employer to a provident/superanuation