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Solaris Power Infra Ltd., a domestic company, presents the following Profit and Loss Account for the year ended 31st March, 2024: - Net Profit as per Statement of Profit and Loss: ₹80,00,000 - Debits in P&L: - Provision for Income-tax: ₹12,00,000 - Transfer to General Reserve: ₹8,00,000 - Provision for doubtful debts: ₹5,00,000 - Provision for unascertained liabilities: ₹4,00,000 - Depreciation charged: ₹16,00,000 (includes depreciation on revalued assets of ₹3,00,000) - Credits in P&L: - Amount withdrawn from Revaluation Reserve: ₹3,00,000 - Dividend from domestic company: ₹2,00,000 Other information: - Brought forward business loss as per books: ₹10,00,000 - Unabsorbed depreciation as per books: ₹6,00,000 - Total income computed under normal provisions of Income-tax Act is ₹35,00,000 (tax rate 25% + 4% HEC = 26%). Compute the Book Profit and Tax Liability of the company under Section 115JB for Assessment Year 2024-25.

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Detailed Solution & Explanation

### **Step 1: Computation of Book Profit under Section 115JB**

ParticularsAmount (₹)Amount (₹)
Net Profit as per Statement of Profit and Loss80,00,000
Add: Items specified in Explanation 1 to Section 115JB(2)
- Provision for Income-tax12,00,000
- Transfer to General Reserve8,00,000
- Provision for doubtful debts (unascertained/diminution)5,00,000
- Provision for unascertained liabilities4,00,000
- Total Depreciation debited to P&L16,00,00045,00,000
Sub-Total1,25,00,000
Less: Deductions specified in Explanation 1 to Section 115JB(2)
- Depreciation excluding revaluation depreciation (₹16,00,000 - ₹3,00,000)13,00,000
- Amount withdrawn from Revaluation Reserve (credited to P&L up to revaluation dep)3,00,000
- Lower of B/f business loss (₹10,00,000) or unabsorbed depreciation (₹6,00,000)6,00,000(22,00,000)
Book Profit under Section 115JB1,03,00,000

### **Step 2: Computation of Tax Liability under Normal Provisions vs MAT**

1. **Normal Tax Liability**:
- Total Income = ₹35,00,000
- Tax @ 25% = ₹8,75,000
- HEC @ 4% = ₹35,000
Normal Tax=₹9,10,000Normal Tax\displaystyle \text{Normal Tax} = ₹9,10,000

2. **MAT under Section 115JB**:
- Book Profit = ₹1,03,00,000 (exceeds ₹1 crore, so surcharge @ 7% applies)
- Base MAT @ 15% on ₹1,03,00,000 = ₹15,45,000
- Add: Surcharge @ 7% (since total income exceeds ₹1 crore but does not exceed ₹10 crore) = ₹1,08,150
- Tax before cess = ₹16,53,150
- Add: HEC @ 4% = ₹66,126
MAT Liability=₹17,19,276MAT Liability\displaystyle \text{MAT Liability} = ₹17,19,276

3. **Final Tax Payable and MAT Credit**:
- Since MAT (₹17,19,276\displaystyle ₹17,19,276) > Normal Tax (₹9,10,000\displaystyle ₹9,10,000), the company shall pay **₹17,19,280** (rounded off under Section 288B).
- **MAT Credit under Section 115JAA** allowable for carry forward:
MAT Credit=₹17,19,276−₹9,10,000=₹8,09,276MAT Credit\displaystyle \text{MAT Credit} = ₹17,19,276 - ₹9,10,000 = ₹8,09,276
Eligible to be carried forward for **15 assessment years**.

Key Concepts to Understand

Depreciation

Allocation of the cost of a tangible fixed asset over its useful life due to wear and tear, efflux of time, or obsolescence.

Profit and Loss Account

The second part of the final accounts that records all indirect incomes and indirect expenses to determine the Net Profit or Net Loss for the accounting period. It starts with Gross Profit from the Trading Account.

Net Profit

The final profit of a business after deducting all indirect operating expenses, non-operating expenses, and taxes from Gross Profit. It represents the actual earnings available to the owners.

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