PGBP Adjustments
Points to be considerd always while solving Questions
1. Never forget Additional depreciation (i.e. always check whether additional depreciation
applicable in the Question or Not ?
2. Assumption / Comment is must to write for each & every adjustment (even if it is a common
sense basic assumption)
3. Do not calculate Income Tax unless specifically stated in the Question (i.e. if question says to
calculate Total Income than only Total income is required & not Total Tax Liability)
4. Do not Ignore MAT/AMT unless, specifically stated in the Question to ingnore MAT/AMT
computation.
5. Check purchase date / put to use date of asset twice in the Question for correct calculation of
Depreciation & Additional Depreciation
S.No Particulars Amt Adjustment & Reference
Items Credited to P & L A/c
1 Sales / Fees / Commission 25,00,000 No Adjustment - normal income as per Sec 28.
2 Sale of Scrap by assessee 5,00,000 No Adjustment - taxable as PGBP (Judiciary)
3 Interest from Firm @ 15% 1,50,000 Less 3% i.e. 30,000 (Interest Amount >12% p.a.)
4 Assessee (being a partner of Firm) Salary received 2,00,000 Less 80,000 (As per Sec 28 Any Interest, Salary,
from firm (Allowed to firm 1,20,000) Bonus, commission, etc is taxable as income of
partner to the extent deduction is allowed to firm.
5 Sale of 35AD Assets (Deduction allowed 10,00,000) 12,00,000 No Adjustment Sale of 35AD asset is fully taxable
under PGBP as per Sec 28.
6 Gifts received in course of Business or Profession 30,000 No Adjustment, Fully Taxable in the course of
Business or Profession as per Section 28.
7 Gifts from Relative 3,00,000 Less 3,00,000 (Not Taxable)
8 Gifts from Friend 3,00,000 Less 3,00,000 & Add 3,00,000 under IOS
9 Refund of Expense earlier allowed as deduction 80,000 No Adjustment Income u/s 41(1)
10 Income Tax Refund 85,000 Not Taxable
11 Interest on Income Tax Refund 8,000 Less 8,000 & Add 8,000 under IOS
12 Recovery of Expense earlier not allowed as 80,000 Less 80,000 Not Taxable u/s 41(1)
deduction
13 Recovery of Baddebts earlier allowed as deduction 40,000 No Adjustment Taxable Income u/s 41(4)
14 Recovery of Baddebts by successor of business 40,000 Not Taxable (as it does not get covered u/s 41(4)
15 Recovery of Baddebts earlier not allowed as 40,000 Less 40,000 Not Taxable u/s 41(4)
deduction
16 Profit on Sale of Scientific Research Asset 5,30,000 Less 1,30,000 & Add 1,30,000 under Cap Gain
(Deduction allowed 4,00,000)
17 Profit on Sale of SLM Asset (Depreciation Allowed 1,15,000 No Adjustment, Taxable u/s 41(2)
2,10,000)
18 Profit on Sale of SLM Asset (Depreciation Allowed 2,80,000 Less 70,000 & Add 70,000 under Cap Gain
2,10,000)
19 Closing Stock (overvalued by 10%) 2,20,000 Less 20,000
20 Closing Stock (undervalued by 10%) 3,60,000 Add 40,000
21 Amount received by assessee (engaged in real 50,00,000 Add 5,00,000 as per Sec 43CA
estate business) from sale of Immovable Assets
(SDV 55,00,000)
22 Pre Incorporation Profit or Income earned by 80,000 Less 80,000 as it is taxable in the hands of promoters
promoters of company & not in hand of company
, S.No Particulars Amt Adjustment & Reference
Items Credited to P & L A/c
23 Compensation awarded by court on dispute with 5,00,000 No Adjustment - Fully Taxable under PGBP
trade debtor / creditor (Judiciary)
24 Compensation received from termination of service 80,000 Not Taxable - It is in the nature of loss of source of
(resulting in loss of source of profit) by the assessee income thus, Capital Receipt (Judicary)
25 Compensation received by assessee due to delay in 1,80,000 Not Taxable - It is in the nature of Capital Receipt
supply of capital asset by Supplier (SC)
26 Compensation received by assessee due to delay in 1,80,000 No Adjustment as it is Taxable under PGBP
supply of raw material by Supplier
27 Compensation received for loss of office (full) 1,50,000 Less 1,50,000 (Judiciary)
28 Compensation received for loss of office (partial) 90,000 No Adjustment it is taxable under PGBP
29 Insurance Compensation Received for Machinery 2,50,000 Less 2,50,000 to be reduced from block
30 Rental Income received from house property held 7,50,000 Less 7,50,000 it is taxable under the head house
as Stock in Trade Property (After giving deduction of Municipal taxes
actually paid & then standard deduction of 30%)
31 Rental Income received from House Property by 7,00,000 No Adjustment, taxable as PGBP (SC)
assessee engaged in Renting Business
32 Production Linked Subsidy 7,00,000 No Adjustment, taxable as PGBP
33 Subsidy received from Government 2,00,000 Taxable as per Sec 2(24)(xviii)
34 Amount received by assesee which is disallowed 60,000 Taxable even if it is disallowed to payer
u/s 40A(2) in the hands of payer
35 Goods sold to relative or specified person (FMV 2,25,000 No adjustment as 40A(2) is applicable only in case
3,00,000) of Expense & not in case of sale
36 Waiver of working capital loan 2,00,000 Taxable u/s 41(1)
37 Liability forgone by Creditor 50,000 Taxable u/s 41(1)
38 Waiver of Term loan for acquring capital asset 75,000 Less 75,000 from actual cost (Judiciary)
39 Waiver of Interest by PFI 1,75,000 41(1) is not get attracted as deduction for such
interest is earlier not allowed to the assessee.
However, as per the amendment via F.Act 15 such
waiver to be treated as Income u/s 2(24)(xviii).
40 Rental Income from non commercial asset 3,50,000 Less 3,50,000 & taxable under IOS
41 Sum received not to carry on profession 5,00,000 No Adjustment - Taxable as per 28
42 Sum received for Goodwill of Firm 5,00,000 Not Taxable - Less 5,00,000
43 Sum received from Key-man insurance 2,00,000 Fully Taxable as per 28
44 Profit from sale of production generated during 2,15,000 Less- 2,15,000 It is to be reduced from Actual Cost
Test Run of Machinery of Machinery (Judiciary)
45 Income from sale of Tree (attached in agriculture 87,000 Less 87,000 Both Sale of Tree & Agriculture land is
land) along with agriculture land. exempt as Tree forms part of Agriculture land
(Judiciary)
46 Unilateral waiver of unclaimed wages of employee 75,000 No Adjustment it is taxable u/s 41(1)
(for which deduction is already claimed) by the
assessee in its books of accounts
47 Asseessee credited the Deposit (received from 58,000 41(1) not get attracted but it is still Taxable as
customer as an advance) to P&L A/c which is Business Income as it is in ordinary course of
remaining unclaimed for a long period Business (Judiciary)
48 Refund of sales tax earlier allowed as deduction 3,00,000 No Adjustment it is taxable u/s 41(1)
49 Liability payable by assessee to third party has - 41(1) will not be attracted - it is attracted only when
become time baared (but not w-off by assessee) liability is written off in the Books of A/c.
50 Refund of Excise duty received by assessee on the 57,000 Taxable u/s 41(1) - Polyflex India (P) Ltd (SC)
basis of decision of CESTAT, however matter has
been taken in further appeal to HC by Excise
Department
51 Dividend Received from Foreign company 2,00,000 Less 2,00,000 & Add 2,00,000 under IOS (to be taxed
(assessee also incurred expense of 35,000 on at 15% and no deduction relating to any expense
earning this income) incurred in earning divided will be allowed)
Points to be considerd always while solving Questions
1. Never forget Additional depreciation (i.e. always check whether additional depreciation
applicable in the Question or Not ?
2. Assumption / Comment is must to write for each & every adjustment (even if it is a common
sense basic assumption)
3. Do not calculate Income Tax unless specifically stated in the Question (i.e. if question says to
calculate Total Income than only Total income is required & not Total Tax Liability)
4. Do not Ignore MAT/AMT unless, specifically stated in the Question to ingnore MAT/AMT
computation.
5. Check purchase date / put to use date of asset twice in the Question for correct calculation of
Depreciation & Additional Depreciation
S.No Particulars Amt Adjustment & Reference
Items Credited to P & L A/c
1 Sales / Fees / Commission 25,00,000 No Adjustment - normal income as per Sec 28.
2 Sale of Scrap by assessee 5,00,000 No Adjustment - taxable as PGBP (Judiciary)
3 Interest from Firm @ 15% 1,50,000 Less 3% i.e. 30,000 (Interest Amount >12% p.a.)
4 Assessee (being a partner of Firm) Salary received 2,00,000 Less 80,000 (As per Sec 28 Any Interest, Salary,
from firm (Allowed to firm 1,20,000) Bonus, commission, etc is taxable as income of
partner to the extent deduction is allowed to firm.
5 Sale of 35AD Assets (Deduction allowed 10,00,000) 12,00,000 No Adjustment Sale of 35AD asset is fully taxable
under PGBP as per Sec 28.
6 Gifts received in course of Business or Profession 30,000 No Adjustment, Fully Taxable in the course of
Business or Profession as per Section 28.
7 Gifts from Relative 3,00,000 Less 3,00,000 (Not Taxable)
8 Gifts from Friend 3,00,000 Less 3,00,000 & Add 3,00,000 under IOS
9 Refund of Expense earlier allowed as deduction 80,000 No Adjustment Income u/s 41(1)
10 Income Tax Refund 85,000 Not Taxable
11 Interest on Income Tax Refund 8,000 Less 8,000 & Add 8,000 under IOS
12 Recovery of Expense earlier not allowed as 80,000 Less 80,000 Not Taxable u/s 41(1)
deduction
13 Recovery of Baddebts earlier allowed as deduction 40,000 No Adjustment Taxable Income u/s 41(4)
14 Recovery of Baddebts by successor of business 40,000 Not Taxable (as it does not get covered u/s 41(4)
15 Recovery of Baddebts earlier not allowed as 40,000 Less 40,000 Not Taxable u/s 41(4)
deduction
16 Profit on Sale of Scientific Research Asset 5,30,000 Less 1,30,000 & Add 1,30,000 under Cap Gain
(Deduction allowed 4,00,000)
17 Profit on Sale of SLM Asset (Depreciation Allowed 1,15,000 No Adjustment, Taxable u/s 41(2)
2,10,000)
18 Profit on Sale of SLM Asset (Depreciation Allowed 2,80,000 Less 70,000 & Add 70,000 under Cap Gain
2,10,000)
19 Closing Stock (overvalued by 10%) 2,20,000 Less 20,000
20 Closing Stock (undervalued by 10%) 3,60,000 Add 40,000
21 Amount received by assessee (engaged in real 50,00,000 Add 5,00,000 as per Sec 43CA
estate business) from sale of Immovable Assets
(SDV 55,00,000)
22 Pre Incorporation Profit or Income earned by 80,000 Less 80,000 as it is taxable in the hands of promoters
promoters of company & not in hand of company
, S.No Particulars Amt Adjustment & Reference
Items Credited to P & L A/c
23 Compensation awarded by court on dispute with 5,00,000 No Adjustment - Fully Taxable under PGBP
trade debtor / creditor (Judiciary)
24 Compensation received from termination of service 80,000 Not Taxable - It is in the nature of loss of source of
(resulting in loss of source of profit) by the assessee income thus, Capital Receipt (Judicary)
25 Compensation received by assessee due to delay in 1,80,000 Not Taxable - It is in the nature of Capital Receipt
supply of capital asset by Supplier (SC)
26 Compensation received by assessee due to delay in 1,80,000 No Adjustment as it is Taxable under PGBP
supply of raw material by Supplier
27 Compensation received for loss of office (full) 1,50,000 Less 1,50,000 (Judiciary)
28 Compensation received for loss of office (partial) 90,000 No Adjustment it is taxable under PGBP
29 Insurance Compensation Received for Machinery 2,50,000 Less 2,50,000 to be reduced from block
30 Rental Income received from house property held 7,50,000 Less 7,50,000 it is taxable under the head house
as Stock in Trade Property (After giving deduction of Municipal taxes
actually paid & then standard deduction of 30%)
31 Rental Income received from House Property by 7,00,000 No Adjustment, taxable as PGBP (SC)
assessee engaged in Renting Business
32 Production Linked Subsidy 7,00,000 No Adjustment, taxable as PGBP
33 Subsidy received from Government 2,00,000 Taxable as per Sec 2(24)(xviii)
34 Amount received by assesee which is disallowed 60,000 Taxable even if it is disallowed to payer
u/s 40A(2) in the hands of payer
35 Goods sold to relative or specified person (FMV 2,25,000 No adjustment as 40A(2) is applicable only in case
3,00,000) of Expense & not in case of sale
36 Waiver of working capital loan 2,00,000 Taxable u/s 41(1)
37 Liability forgone by Creditor 50,000 Taxable u/s 41(1)
38 Waiver of Term loan for acquring capital asset 75,000 Less 75,000 from actual cost (Judiciary)
39 Waiver of Interest by PFI 1,75,000 41(1) is not get attracted as deduction for such
interest is earlier not allowed to the assessee.
However, as per the amendment via F.Act 15 such
waiver to be treated as Income u/s 2(24)(xviii).
40 Rental Income from non commercial asset 3,50,000 Less 3,50,000 & taxable under IOS
41 Sum received not to carry on profession 5,00,000 No Adjustment - Taxable as per 28
42 Sum received for Goodwill of Firm 5,00,000 Not Taxable - Less 5,00,000
43 Sum received from Key-man insurance 2,00,000 Fully Taxable as per 28
44 Profit from sale of production generated during 2,15,000 Less- 2,15,000 It is to be reduced from Actual Cost
Test Run of Machinery of Machinery (Judiciary)
45 Income from sale of Tree (attached in agriculture 87,000 Less 87,000 Both Sale of Tree & Agriculture land is
land) along with agriculture land. exempt as Tree forms part of Agriculture land
(Judiciary)
46 Unilateral waiver of unclaimed wages of employee 75,000 No Adjustment it is taxable u/s 41(1)
(for which deduction is already claimed) by the
assessee in its books of accounts
47 Asseessee credited the Deposit (received from 58,000 41(1) not get attracted but it is still Taxable as
customer as an advance) to P&L A/c which is Business Income as it is in ordinary course of
remaining unclaimed for a long period Business (Judiciary)
48 Refund of sales tax earlier allowed as deduction 3,00,000 No Adjustment it is taxable u/s 41(1)
49 Liability payable by assessee to third party has - 41(1) will not be attracted - it is attracted only when
become time baared (but not w-off by assessee) liability is written off in the Books of A/c.
50 Refund of Excise duty received by assessee on the 57,000 Taxable u/s 41(1) - Polyflex India (P) Ltd (SC)
basis of decision of CESTAT, however matter has
been taken in further appeal to HC by Excise
Department
51 Dividend Received from Foreign company 2,00,000 Less 2,00,000 & Add 2,00,000 under IOS (to be taxed
(assessee also incurred expense of 35,000 on at 15% and no deduction relating to any expense
earning this income) incurred in earning divided will be allowed)
