It any expenses is not covered under any other section of PGBP then it is allowed as deduction under this general section
Conditions to be fulfilled to claim deduction
(a) It should not be a capital expenditure (like Purchase of fixed assets )
(b) It should be incurred within the Financial Year (Prepaid expenses not allowed)
(c) It should not be of personal nature (like drawings)
(d) It should be incurred wholly and exclusively for the purpose of business
(e) It should not be Illegal Expense (like bribe)
Not Covered in Any other Section
+Not Capital Exp
+ Not personal Exp
+ Not Illegal
+For Business
+Incurred in Financial Year
=Deduction under Section 37
Note:
Deduction for CSR Expenditure
CSR means Corporate Social Responsibility Expenditure.i,e,expenditure on social work etc.
As per new Companies Act, Certain companies have to compulsorily incur such expense
As per Section 37(1),this expenditure shall not be allowed as deduction as it is not incurred wholly and exclusively for the purpose of business.
However if CSR expenditure is of nature Section 30-36,then deduction may be allowed under those sections subject to fulfillment of conditions mentioned in that section.
Example of expenditure not allowed as deduction under section 37(1)
(1) Fee paid to registrar for company incorporation / increase in capital etc.
(2) Penalty paid under any law
(3) Expenditure on dismantling of any asset
(4) Any bribe paid .
Example of expenditure A llowed as deduction
(1)Diwali expenses
(2)Mahurat/Inaugration expense
(3)Expenditure for the phone connection
(4)Professional tax paid by business
(5)Stock exchange annual membership fees
(6)Expenditure on raising loans
(7)Interest or penalty which is compensatory in nature
Q1
| Proft and Loss of A Ltd | |
| SALES | 1500000 |
| Less | |
| EXPENSES | 800000 |
| PROFIT | 700000 |
Suppose 30000 expenses illegal
View Answer| Computation of PGBP Income | |
| Profit as per P& L A/c | 700000 |
| Add | |
| Expense Disallowed | |
| Illegal Exp | 30000 |
| Less | |
| Expense Allowed | |
| PGBP INCOME | 730000 |
Q2
| Proft and Loss of A Ltd | |
| SALES | 150000 |
| Less | |
| EXPENSES | 75000 |
| PROFIT | 75000 |
Suppose 10000 worth of furniture purchased and included in above expenses.
Depreciation on Furniture is 10%
View Answer| Computation of PGBP Income | |
| Profit as per P& L A/c | 75000 |
| Add | |
| Expense Disallowed | |
| Capital Exp | 10000 |
| 85000 | |
| less | |
| Expense Allowed | |
| Dep on Furniture 10% | 1000 |
| PGBP INCOME | 84000 |
Q3
| Proft and Loss of A Ltd | |
| SALES | 350000 |
| Less | |
| EXPENSES | 150000 |
| PROFIT | 200000 |
Suppose 4000 worth of personal expenses paid through office, which is included in above expenses
View Answer| Computation of PGBP Income | |
| Profit as per P& L A/c | 200000 |
| Add | |
| Expense Disallowed | |
| Personal expenses | 4000 |
| PGBP INCOME | 204000 |
Q4
| Proft and Loss of A Ltd | |
| SALES | 200000 |
| Less | |
| EXPENSES | 60000 |
| PROFIT | 140000 |
suppose a penalty of Rs 9000 is levied because of violation of law which is included in above expenses
View Answer| Computation of PGBP Income | |
| Profit as per P& L A/c | 140000 |
| Add | |
| Expense Disallowed | |
| Penalty for violation of law | 9000 |
| PGBP INCOME | 149000 |
