Question 1: Whether Bad Debts will be allowed in Business?
Answer: As per Section 36(1)(vii) Bad Debts will be allowed if the following conditions are satisfied:
It should be written off in the Books of Account in the previous year in which deduction is claimed.
To claim deduction the debtor must be written off by name.
Example: Suppose in F.Y-2019-20 Mr. A sells goods to Mr. B of Rs.1,50,000 but Mr. B has paid Rs. 1,35,000 to Mr. A only then Rs. 15,000 is Bad Debts for Mr. A. Mr. A has claimed this amount as Bad Debts in the F.Y-2020-21 & write off Mr. B from Rs. 15,000 then it is an allowable expenditure for Mr.A.
Question 2: Whether amount paid as Premium for Insurance of Stock in Trade is an allowable expenditure?
Answer: Yes, it is an allowable expenditure as per Section 36(1)(i).
Example: Rs.15,000 Paid to National Insurance Company Ltd. for Stock Insurance. It is an allowable expense as per section 36(1)(i).
Question 3: Whether Bonus & Commission paid to Employees are an allowable expenditures?
Answer: Yes, these are allowable expenditures if the following conditions are satisfied:
Bonus & Commission must be paid.
It should not be payable as profit to employees.
Deduction is allowed even if the payment exceeds the bonus payable under the payment of Bonus Act.
Example: Bonus allowable as per Bonus Act is Rs. 1,50,000. Bonus Paid to employees is Rs. 2,00,000 other then payable as profit then allowable Bonus is Rs. 2,00,000.
Question 4: What is the treatment of Interest on Borrowed Capital for acquisition of an asset?
Answer: As per Section 36(1)(iii) Interest paid before assets put to use will be added in the cost of assets & Interest after put to use of assets will be charged to Profit & Loss A/C.
Example: Suppose an asset is purchase dt. 01.04.2019 & it has put to used from 15.7.2019 then Interest from 01.04.2019 to 14.7.2019 will be added in the cost of assets & Interest from 15.7.2019 to further period it will be charged to profit & loss account.
Question 5: Whether Interest on loan taken to pay the Income Tax will be allowable as expenditure?
Answer: No, it is not an allowable expenditure as per section 37.
Example: Mr. X Income Tax Liability is Rs. 2,55,000. For this Mr. X has taken a loan from Bank. Mr. X is paying loan EMI which contains Rs. 25,240 interest in a year. It is not allowable expenditure as per section 37.
Question 6: Whether Interest & Penalty paid in case of GST will be allowable as expenditure?
Answer: Interest on GST will be allowed & Penalty on GST will not be allowed as per section 37.
Example: In F.Y-2019-20 M/s XYZ, a Proprietorship firm’s Books of Accounts shows Rs. 5,000/- Interest & Rs. 15,000 Penalty for GST then in this case Rs. 5,000 GST Interest will be allowed & Rs. 15,000 GST Penalty will be added back in the PGBP Income of M/s XYZ.
Question 7: Whether Income Tax, Surcharge & Education Cess are allowable as expenditure?
Answer: No, these are not allowable as expenditure.
Question 8: Whether Electricity Exp. Payable to State Govt. will be allowed as deduction?
Answer: Yes it is allowed as deduction as per Section 43B.
Question 9: Whether amount paid for to ROC for enhancement of Capital will be allowed as deduction?
Answer: No, it is not allowable because it is not revenue expenditure it is like as Capital Expenditure as per decision given in case of Punjab State Industrial Development Corporation Ltd.(Supreme Court).
Example: Suppose the Authorised Share Capital of XYZ Co. Pvt. Ltd. is 1,00,000. XYZ Co. Pvt. Ltd. want to enhance its Authorised Share Capital upto Rs. 5,00,000. XYZ Co. Pvt. Ltd. has paid a Fees to Registar of Companies for enhance its capital Rs. 10,000/- then it is disallowed in the hands of XYZ Co. Pvt. Ltd. as it is capital nature expenditure
Question 10: Whether provision for unascertained liability is allowed as deduction?
Answer: No, deduction will not be allowed in this case but if liability is certain & has been made on reliable basis then it is allowed as expenditure
Meaning of Unascertained Liabilities: Unascertained Liabilities are liabilities which are not certain.
Example: Provision for Doubtful Debts etc. These can be claimed as expenditure when they are certain i.e. Bad Debts Written off from the name of the party in the books of Accounts.
Question 11: What is the limit of cash expenditure?
Answer: The limit of Cash Expenditure is Rs. 10,000 as per section 40A(3).
Example: Suppose Mr. A has paid to a person for advertisement is Rs. 50,000 in cash then it will not be allowed as expenditure & it will be add in the business income of the person
Question 12: Whether leave encashment paid to employees will be allowed as expenditure?
Answer: Yes, it will be allowed as deduction but it should be paid.