Business Income. Key issues

Transcription

1 Business Income Key issues

2 Index Sr. No. Topics covered Page Framework Income chargeable under PGBP (Sec. 28) Speculation business Issues relating to setting-up of business Deductions Disallowances

3 Framework Section 28, 41 What types of income shall be included in business profits Section 29 Manner of computation of PGBP Section Specified deductions Section 37 General deductions Section 44AA, 44AB Procedural requirements Section 43, 43A Defines certain expressions used in connection with computation Section 40, 40A,43B Disallowances Section 44AD to 44BBB Deeming Provisions Page 3

4 Incomes chargeable under PGBP [Section 28] Important to identify the source of income: Interest on deposits from business surplus PGBP or IOS? Purpose test: eg deposit kept to get bank guarantee vs deposit maintained out of surplus funds Section 28 is the charging section : Provides the list of type of income which is included in PGBP Some examples: Any benefit or perquisite whether convertible into money or not, arising from business/ profession: Is discount received a perquisite? Any sum received under an agreement for not carrying out any activity in relation to business, not sharing any business or commercial rights like patent, copyright etc Amount received for exercise of voting right in a certain manner/ non exercising the voting right is taxable income? Page 4

5 Incomes chargeable under PGBP [Section 28] Some examples (cond..) Any sum received under a Keyman insurance policy by an employer in respect of insurance of the employee including the bonus allocated on such policy Question: In case a policy taken as keyman insurance policy is assigned to the keyman before its maturity. The keyman pays the remaining premium on the policy and claim the sum received under the policy as exempt under Section 10 on the ground that the policy was no longer a keyman insurance policy. Should the sum not received by the company still be taxed under Section 28? Any sum received in cash or kind, on account of any capital asset being demolished, destroyed, discarded or transferred, if the whole of the expenditure on such capital asset has been allowed as a deduction under section 35AD of the Act Page 5

6 Speculation business

7 Speculation business Definition of speculative transaction [Section 43(5)] Contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by actual delivery or transfer of commodity or scripts subject to exceptions provided therein (for eg. trading in exchange traded derivatives, trades by a brokers to guard against loss) Explanation to Section 73: Where a part of a business of a company whose gross total income mainly consists of income under the head profits and gains of business or profession(other than a banking entity or a company in the business of granting of loans and advances) consists in the purchase and sale of shares of other companies, such company will be deemed to be carrying speculative business. The object of this provision is to curb the device sometimes resorted to by business houses controlling groups of companies to manipulate and reduce the taxable income of companies under their control. Page 7

8 Illustration X Limited is engaged in the business of real estate. For the AY following are its income. Profits from real estate business Rs 10 lacs Loss from sale of shares Rs. 5 lacs [income from such trading of shares is considered under the head profits and gains of business or profession.] Interest income of Rs 1 lac Capital Gains of Rs 1 lac State whether explanation to section 73 would trigger in this case? Find total income of X Limited? Page 8 Set off or carry forward of losses and set-off

9 Issues relating to setting-up of business

10 Set up of business Significance? The term set up of business assumes importance in the context of determining the previous year of any company. It can assist the taxpayer in determination of the following: Fixation of initial previous year Taxability of income earned in the initial previous year Deductibility of expenses under the Act Claiming depreciation and other allowances Determining set off and carry forward of the losses Further, set up is also important in the context of section 35D to claim expenses incurred in the pre-operative period (discussed in subsequent slides) Expenditure incurred only after the date of setting up business which is of revenue nature is allowed as a deduction in computing business income Pre-setup capitalization of expenditure is allowed only of those expenses that contribute directly or bring the assets to the present location and existence. Hence, pre-setup expenditure which does not satisfy this criteria would neither be capitalized nor allowed as a revenue deduction Page 10

11 Set up of business Significance? Set-up has not been defined in the Act however reliance is placed on various judicial precedents As per Oxford English Dictionary setting up means to place on foot or to establish. In view of the same, a view may be taken that a business can be said to have been set up when it is established, ie when it is ready to commence business Ruling Ramaraju Surgical Cotton Mills Ltd. (Supreme Court)(63 ITR 478) Saurashtra Cement and Chemical Industries Ltd (91 ITR 170) Western India Vegetable Products Limited vs CIT (26 ITR 151) Observation The term setting up of business is different and distinct from the term commencement of business. A unit cannot be said to have been set up unless it is ready to discharge the function for which it is being set up. As soon as an activity which is an essential activity in the course of carrying on the business, or which, in other words, is a business activity is started, the assessee must be held to have commenced the business. Business can be said to be set up when it is established and ready to commence business. There may be an interregnum, an interval, between the time when a business is set up and the time when a business has commenced, and all expenses incurred after the setting up of business and before the commencement of business would be permissible deductions Page 11

12 Set up of business? Nature of business Date when business set up Single manufacturing activity Series of integrated multiple activities, each of which is significant Trading activity?????? Consultancy services Property leasing business Hotel Page 12

13 Set up of business? Nature of business Date when business set up Single manufacturing activity Series of integrated multiple activities, each of which is significant Trading activity Consultancy services Property leasing business Hotel Unit ready to commence business for which set up Activity which is first in point of time, provided chain of subsequent activities is not broken Readiness of business infrastructure Readiness of business infrastructure Property ready for being leased out Equipped with infrastructure/ facilities and capable to discharge functions of hotel Page 13

14 Deductions

15 Depreciation - Section 32 Depreciation can be claimed on the written down value of block of assets : Tangible assets such as buildings, machinery, plant or furniture; Intangible assets such as know-how, patents, copyrights, trade marks, licenses, franchises or any other business or commercial rights of similar nature, (after April 1, 1998) Asset must be wholly or partly owned and used for purposes of the business or profession Leasehold improvements considered as Building Depreciation to be allowed to assessee if he undertakes any construction/ renovation/ extension/ improvement to building taken on lease or any other right of occupancy In case of new machinery/ plant acquired and installed after March 31, 2005 by an assessee engaged in business of manufacture/ production of article or thing, an additional depreciation of 20% of actual cost of machinery will be allowed (subject to certain conditions) : Asset acquired but not installed in year of purchase No additional depreciation in year of installation If asset has been acquired and put to use for less than 180 days in that previous year, depreciation will be allowed at 50% of the applicable rates Page 15

16 Investment allowance - Section 32(AC) The aggregate amount of actual cost of new asset during specified period should exceed INR 1,000 million 15% shall be as below: Eligible company: A company engaged in manufacture or production of any article or thing The company must acquire and install the new assets of aggregate value more than INR 1,000 million (approximately EURO 13 million) after 31 March 2013 but before 1 April 2015 (A) In AY % of the actual cost of the new asset acquired and installed during FY , if investment > INR 1,000 million (B) In AY % of the actual cost of the new asset acquired and installed during the period 1 April 2013 to 31 March 2015 as reduced by deduction under (A) above, if aggregate investment > INR 1000 million For assets used up to 31st March 2014, depreciation (including additional depreciation) admissible in FY , even if allowance is deferred Unabsorbed allowance will form part of overall business loss and can be carried forward for set off for 8 years. Transfer of new assets within 5 years from the date of installation, except upon merger or demerger, will require the company to offer to tax the allowance so availed as business income Page 16

17 Depreciation on assets under Finance lease Issue: Assets under finance lease whether depreciation allowed to the lessor or lessee? Arguments in favour of depreciation to the lessor Lessor has legal title to asset and is engaged in carrying on leasing business hence eligible to depreciation [CIT Vs Shaan Finance (1998) 231 ITR 308 (SC)] Only owner is entitled to depreciation if the asset is used in the business ownership to be determined by the terms of the contract between lessor and lessee and capitalisation according to AS 19 by the lessee will have no implication (CBDT Circular 2/ 2001) Arguments in favour of depreciation to the lessee (Industrial Finance Corporation Limited Vs CIT (2005) 4 SOT 223 Delhi HC) Depreciation allowed to the lessee if: Finance leasing mere financing arrangement and lessor only providing funds for acquisition of asset Asset for all intents and purposes becomes the property of the lessee Page 17

18 Case study Depreciation on goodwill Facts X Co recently acquired an undertaking comprising assets of book value INR 100 crores and liabilities worth INR 80 crores Total consideration payable is INR 50 crores Issues Is X Co eligible to claim depreciation on the goodwill of INR 30 crores? In what situations can he claim the same? Page 18

19 Case study Depreciation on goodwill Supreme Court decision in the case of SMIFS Securities Limited (2012) (Civil Appeal No /2009): Goodwill falls under the category of any other business or commercial right of a similar nature with the definition of intangible asset and is eligible for depreciation Key considerations for applying the above decision: Taxpayer acquired a capital asset in the form of goodwill pursuant to a High Court approved scheme of amalgamation In terms of interpretive rule of ejusdem generis, the meaning of general words will take color from specific words that precede them In line with the above interpretive rule, goodwill is a specified intangible asset entitled to depreciation Page 19

20 Expenditure on scientific research [Section 35] Expenditure both capital and revenue, incurred for carrying out scientific research related to the business of the assessee. Revenue expenditure incurred during 3 years before the commencement of assessee s business also allowed as deduction Weighted deduction for expenditure on scientific research Nature of payments Payments to approved scientific research association, college, university or other institution Contribution to university, college or institution for carrying on research in social sciences or statistical research Amount of deduction 175% 125% Contribution to National Laboratories, Universities, IITs 200% Payments to a company carrying on scientific research activity 125% Revenue and capital expenditure on in-house R&D facility 200% Page 20

21 Preliminary Expenses [Section 35D] Amortization available in respect of specified expenses incurred Before commencement of business After commencement, in connection with extension of undertaking or in connection with setting up a new unit 1/5 th of the amount incurred allowed as a deduction over a period of 5 years Conditions: Amortization not to exceed 5% of total project cost or capital employed Deduction available only to Indian resident assessee Deduction is available from the previous year in which the business commences/ extension of undertaking is completed/ new unit commences production or operation Preliminary expenses include expenses incurred on preparation of feasibility/ project report, conducting market survey, legal charges for drafting any agreement/memorandum and articles of association, expenses in connection with issue, for public subscription, of shares or debentures. Question: Whether the word being used in Sec 35D(2)(c)(iv) is illustrative or exhaustive? Page 21

22 Specific deductions [Section 36] Insurance premium paid against risk of damage to stocks or stores used for the purpose of the business Insurance premium paid on the health of employees (other than payments in cash) Bonus or commission paid to employees provided its not paid in lieu of dividends or profits Interest paid on capital borrowed for the purpose of business(except to the extent required to be capitalized) Employer s contribution to recognized provident fund / approved superannuation fund/notified pension scheme/approved gratuity fund established for the benefit of employees Employees contribution to such funds Bad debts written off as irrecoverable in accounts of the previous year Banking cash transaction tax, Securities transaction tax Page 22

23 Interest paid on borrowed capital Relevant provisions Section 36: the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession: Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset; for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. Section 43A: Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset in any previous year from a country outside India, in consequence of a change in the rate of exchange during any previous year after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency (as compared to the liability existing at the time of acquisition of the asset) at the time of making payment..provided that where an addition to or deduction from the cost of acquisition has been made under this section, on account of an increase or reduction in the liability as aforesaid, the amount to be added to, or, deducted under this section from, the cost of acquisition at the time of making the payment shall be so adjusted that the total amount added to, or, deducted from, the cost of acquisition, is equal to the increase or reduction in the aforesaid liability taken into account at the time of making payment. Page 23

24 Case study Interest paid on borrowed capital Facts X Co is setup with following: Equity: 100 cr ECB: 100 cr (taken as on 1 April 2013) Investment is as follows: Fixed asset: 80 cr (constructed during the year and put to use as on 31 January 2014) Other asset: 100cr Interest paid on ECB: Rs 10 cr Issues What is the amount of interest that can be capitalized as cost in connection with fixed asset Page 24

25 Case study Employees contribution Facts X Co has failed to deposit employees contribution to PF within the statutory timelines under PF regulations X Co plans to deposit the same before filing the return of income Issues What are the sections you will look at? Is the expense deductible/ taxable? Page 25

26 General deductions [Section 37] Expenditure not of the nature described in section 30 to 36 Incurred in the previous year Incurred after the business is set up; in respect of a business carried on by the assessee Conditions It should not be in the nature of personal expenses It should not be in the nature of capital expenditure It should have been laid out or expended wholly and exclusively for business It should not be prohibited by law Question: In case the permit/ license for carrying out a certain business activity expires, there is a time lag between date of expiry and date of renewal of the license. Whether the expenses incurred during the period for which no license exists are deductible business expenditure? Page 26

27 Exchange fluctuation gain / loss Tax treatment? Page 27

28 Exchange fluctuation loss recognized on MTM basis whether notional or real? Argument generally raised by Tax Department to deny deduction of exchange fluctuation loss was that if the loss is recognized on MTM basis w.r.t year end rates, it is notional or contingent in nature. Loss allowable only on actual crystallization on payment/receipt. (Refer, CIT vs. ONGC Ltd (301 ITR 415)(Uttarakhand) which upheld this view) SC has now settled this issue by holding that MTM loss recognized on the basis of recognized accounting standards is a real loss. (Refer CIT vs. Woodward Governor India (P) Ltd )(312 ITR 254)). Incidentally, Uttarakhand HC ruling in ONGC s case is also reversed by SC in (2010- TIOL-20-SC-IT) based on Woodward Governor ruling. As a corollary, gain on revenue account recognized in books on MTM basis will also be taxable. Taxpayer cannot avoid charge on the ground that it is contingent or notional. The propositions laid down by the SC in this case can be summarized as follows :- MTM loss is allowable in the year of recognition by debit to P&L A/c in terms of the mercantile method of accounting followed as per the mandatory Accounting Standards Though provisions of Section 37 refer to expenditure, the expenditure may, in some cases, cover an amount which is really a loss, even though the said amount has not gone out from the taxpayer s pocket. Reference made to earlier SC ruling in Madras Industrial Investment Corporation Ltd vs. CIT [225 ITR 802]. Page 28

29 Forex derivatives Impact of CBDT Instruction No. 3 of 2010 dated 23 March 2010 CBDT s instructions to Assessing Officers :- MTM losses are notional and contingent despite admitting that MTM restatement is a transparent accounting practice. Actual losses allowable as non-speculative only if the transactions qualify as eligible derivative transactions under clause (d) of Proviso to s.43(5). Assessing Officers should examine the accounts to find out if derivative losses are camouflaged as financial charges, foreign exchange loss or other similar head by making specific query and obtaining break up from the taxpayers. The Tax Department is likely to rely on the CBDT Instruction No. 3 to effect disallowance of forex derivative loss in all cases except where the following conditions are shown to have been fulfilled:- The derivative transaction is protected by proviso (d) to s.43(5) The loss has been ascertained on conclusion / settlement of the contract. Page 29

30 Forex derivatives Impact of CBDT Instruction No. 3 of 2010 dated 23 March 2010 It is possible to urge that the CBDT Instruction is not binding on the taxpayers on the following grounds: Contd.. The Instruction is not in consonance with SC and HC rulings on the issues dealt therein. CBDT cannot interfere with quasi-judicial powers of the A.O. CBDT cannot issue Circulars/Instructions u/s. 119 which are adverse to the taxpayer. Further, apart from taxpayers, it is also possible to argue on the above grounds, that the Instruction is not binding even on the Assessing Officers. Advisable course for taxpayers: Transparent disclosure in accounts/return to mitigate concealment penalty exposure. Maintain robust documentation to demonstrate non-speculative motive. Obtain professional advice on deductibility of derivative losses. Page 30

31 Case Study- Software expenses Facts: The assessee company, engaged in the business of development of computer software, has incurred the following expenses: Purchase of software to be applied for its internal use. Purchase of software proposed to be subsequently licensed to various clients. Costs related to the purchase of the abovementioned software are capitalized in the books of accounts and depreciation is claimed thereon. For tax purposes, acquisition expenses of software are written off as and when they are incurred on the grounds that: Issues: Acquired in the ordinary course of its business; and Constitutes part of its regular profit-making operations Whether the abovementioned software expenses are in the nature of revenue or capital expenditure? Where such expenditure is considered to be a capital expenditure, whether it is depreciable at the rate of 25% under the block intangibles or at the rate of 60% under the block computers? Page 31

32 Relevant principles based on judicial precedents In support of revenue expenditure No degree of durability or permanence attributable to software items (JCIT v Citicorp Overseas Software 85 TTJ 87 Mum) No benefit of enduring nature as software needs constant updation given the fast changing technological environment Being an important tool in bringing about a qualitative improvement in the functioning of an organization, needs frequent updation due to a fast rate of obsolescence (Media Video Ltd v JCIT 122 Taxman Mag 28) In support of capital expenditure Expenditure on acquisition of an asset (other than trading asset) is always capital expenditure. Hardware, commonly called as computer (a tangible asset), cannot function without the aid of software Amendment in the rates of depreciation with effect from Assessment Year provides for depreciation on computers (including computer software) at the rate of 60%. The amendment indicates that expenditure on purchase of software was always capital expenditure, earlier depreciable at the rate of 25% as intangibles Though expenditure on upgradation and maintenance of software is revenue expenditure, expenditure on acquisition of the software is capital in nature (Maruti Udyog limited v Dy CIT 92 TTJ 987 Del) der e block intangibles Being akin to know-how, purchase expenditure of software is a capital expenditure (Arawali Constructions co Pvt Ltd 259 ITR 30 Raj) Page 32

33 Conclusion Re-consideration of judicial precedents subsequent to the amendment to the depreciation rates schedule The higher rate of 60 percent, prescribed for computer and computer software, factor in the high degree of obsolescence associated with such assets Computer software defined to mean any computer programme recorded on any disc, tape, perforated media or other information storage device Based on the above, the expenses on purchase of software for internal use to be capitalized under the block computers This position gets further augmented if such expenditure is capitalised in the books Software purchased for commercial exploitation assumes the form of an IPR, which are then exploited commercially such software expenses, being akin to know-how to be classified under the block intangibles Page 33

34 Case Study- Liquidated damages Facts: The assessee company, engaged in the business of providing electrical and optical connectivity in field of communication. In addition to the above, it entered into business of wholesale trading, bulk exports, providing technical consultancy and specialised after sales services. The assessee entered into a contract with another company for supply of stores. The assessee had defaulted in the time for delivery of goods and hence, had to pay liquidated damages, which is penal in nature. The assessee claimed deduction u/s 37(1) on the above mentioned liquidated damages. Issue: Whether the abovementioned expenses on account of liquidated damages are allowable u/s 37? Page 34

35 Case Study- Subvention payments Facts: I Co has substantial accumulated losses F Co voluntarily proposes to provide a subvention payment to I Co to help it run its business operations smoothly Issue: Whether the subvention receipt is to be treated as business income or capital receipt? Page 35

36 Case Study- CSR expenditure Issue: Whether CSR related expenditure mandated by New Companies Act, 2013 is application of profits or business expenditure? Possible defences in support of CSR being a charge against profits: Statutory compulsion Default attracts penalty Spending necessary even in case of loss in particular year (since 2% is of average profits of last three years) CSR expenses to be reflected as additional information to P&L A/c as per Part II of schedule III (and not as appropriation from profits under Reserves & Surplus in Balance Sheet). Page 36

37 Case Study- CSR expenditure Contd CSR expenditure incurred on voluntary basis was held deductible in the following illustrative circumstances: Statutory mandate, if at all, further strengthens allowability. Funds provided for establishing drinking water facilities and providing aid to school meant for residents of the locality in which the taxpayer operated Expenditure on community assistance programmes and welfare measures undertaken in the vicinity of taxpayer s manufacturing unit Installation of traffic lights in the vicinity of taxpayer s office to improve traffic situation, serving dual purpose of benefitting the employees as also social commitment Trips to Bhuj and Jamnagar post earthquake for relief work. Construction of hockey stadium for use of local residents. Sponsorship of sports tournaments bearing the sponsor s name on banners and association with the trophy. Contributions made by Pharma company to health care society and science foundation allowed as it would bring Goodwill to the assessee. Page 37

38 Disallowances

39 Non deduction/ deposit of taxes at source S. 40(a) Payment on which tax at source has not been deducted or after deduction has not been paid within the prescribed time while making payment, then such amount will not be allowed as deduction from income: Particulars Payment to nonresident Relevant Section 40(a)(i) 40(a)(ia) Payment to resident Payments covered Interest Royalty Fees for technical services Any other sum chargeable under the Act Interest Commission or brokerage Rent Royalty Fees for professional services Fees for technical services Amounts credited/ paid for carrying out any work If the tax is deducted or paid in any subsequent year, then the expenditure will be allowed as a deduction from computation of taxable income in the subsequent year Page 39

40 Expenses not deductible Income/ Wealth tax paid Tax borne by employer (section 10CC) Salaries, which are payable outside India; or to a non-resident, and on which tax has not been paid nor deducted therefrom under Chapter XVII-B Any expense incurred by an assessee in respect of payments made to related parties is liable to be disallowed to the extent it is considered excessive or unreasonable Payments exceeding Rs 20,000 in cash Payments towards unapproved gratuity fund Employer s contribution towards unrecognized provident fund Page 40

41 Case study section 40(a)(ia) Facts A Ltd incurred certain expenses of INR 10 crores during FY to B Ltd A Ltd did not withhold taxes on such expenses payable to B Ltd Assessing Officer ( AO ) did not concur with the position of A Ltd, and disallowed INR 10 crores under section 40(a)(ia) on the basis that the expenses were liable to TDS As on March 31, 2010, the amount outstanding for payment as per books of accounts of A Ltd is only INR 3 crores. Balance INR 7 crores has already been paid by A Ltd Issues What is the amount that can be disallowed under section 40(a)(ia)? Would your answer change if B Ltd has paid income tax on revenue accrued from A Ltd? Page 41

42 Recovery against deduction allowed earlier [Section 41] Where the assessee has claimed a deduction in respect of loss, expenditure or trading and subsequently Any amount has been received in respect of such loss or expenditure or By way of remission or cessation or trading liability Then the benefit so obtained by the assessee/successor shall be deemed to be income under the head PGBP of the previous year in which such amount is received. Applicable even if business in respect of which the allowance/deduction has been made is not in existence. Unilateral Remission of liability by the assesee or the successor is also liable to tax under this section. Page 42

43 Case study - Remission of Liability The assessee took a loan from Mr. A of Rs. 100,000 for purchase of Motor Car Subsequently the assessee and Mr. A decided that the loan need not be repaid and therefore the assessee wrote off the loan to the credit of P&L A/c Would Section 41(1) be attracted as it is a case of remission or cessation of trading liability Section 41(1) is attracted when there is a remission or cessation of trading liability. Loan received for acquiring capital asset is not a trading liability Loan transaction have no application w.r.t Section 28(iv) of the Act As the loan is a capital advance, the remission of the same is not chargeable to tax under the provisions of section 41(1) of the Act. The above principles have been derived from the following case laws: - Iskrameco Regent Ltd. Vs CIT (331 ITR 317) (Madras HC) - CIT vs Xylon Holdings Pvt. Ltd. (ITA No.374/2010) (Bombay HC) - Mahindra and Mahindra Ltd vs CIT (261 ITR 501) (Bombay HC) Page 43

44 Impact of foreign exchange fluctuations on cost of asset [Section 43A] Conditions: Asset should have been acquired from outside India The increase or reduction in the liability should be in relation to the cost of the asset or towards repayment of moneys borrowed, including interest, specifically for acquiring the asset The increase or reduction in the liability is at the time of making the payment The increase or decrease is adjusted towards the cost of the asset Page 44

45 Case study - Section 43A Company A took a foreign currency loan on June 30, 2008 amounting to $100,000 for purchasing an asset. Rate of exchange as on various dates is as follows: June 30, 2008: 1$ = Rs 40 March 31, 2009: 1$ = Rs 42 November 30, 2010: 1$ = Rs 43 (Loan repaid $ ) What is the amount of adjustment to the cost of asset as on 31 March 2009? Solution: On June 30, 2008, the asset shall be recorded as under: Asset Dr 4,000,000 To Foreign currency loan 4,000,000 On March 31, 2009, since no repayment of loan has been made, hence no adjustment shall be made to the cost of the asset as per the provisions of section 43A and depreciation shall be charged on 4,000,000 Page 45

46 Case study - Section 43A Incase the loan liability is restated on at Rs 42, there will be an exchange loss [(Rs 42-40)*100,000] of Rs 200,000 which shall not be allowed as a deduction, as it is a capital loss In previous year , loan of $25,000 is repaid on 1$ = Rs 43 Adjustment as per section 43A shall be : (Rs 43-40) * 25,000= Rs 75,000 Rs 75,000 shall be added to the WDV of the asset and depreciation shall be allowed on the revised value. Page 46

47 Deductions allowed on actual payment [Section 43B] Nature of expenses Due date Any sum payable by an employer by way of contribution to any provident fund, gratuity fund or welfare fund of employees The due date of Any bonus or commission to employees for services rendered Interest on loan or borrowing from a bank or a public financial institution Any sum payable way of tax, duty, cess or fee Leave encashment furnishing the return of income in the previous year in which such sum is to be paid In case the payment of outstanding liability is made after the due date, the deduction can be claimed in the year of payment Page 47

48 Thank You