(a) Explain in brief the deductions that are expressly allowed in computing the income from business under the Income-tax Act…

(a)

The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026; the provisions below are those of the 1961 Act, which the question asks about and which governs the years in this question. The Act computes business income by deducting only the outgoings expressly allowed under Sections 30–37 from gross business receipts. Section 30 allows rent, rates, taxes and repairs of business premises; Section 31 allows repairs and insurance of plant, machinery and furniture; Section 32 allows depreciation on assets used for business (with Section 32(1)(iia) additional depreciation on new plant and Section 32AD investment allowance of 15% for new plant in notified backward areas); Sections 33AB/33ABA allow deposits with NABARD/Site Restoration Account; Section 35 allows scientific-research expenditure and Section 35D amortises pre-commencement expenses over five years; Section 36(1) allows insurance on stocks, bonus and commission, employer's contributions to PF/gratuity, interest on borrowed capital, bad debts and certain provisions; and Section 37 allows any other business expenditure laid out wholly and exclusively for the business (not capital or personal). The mechanism is selective: only these statutory items are deductible, and Sections 40, 40A and 43B restrict these deductions: section 40(a) disallows payments on which TDS was not deducted or paid, section 40A(3) disallows cash payments above ₹10,000 a day, and section 43B allows statutory dues, bonus and certain other items only on actual payment.

(b)

Jewellery is a capital asset and, being held from 25.5.2002 to 15.6.2023, the gain is long-term. Indexed cost of acquisition = ₹94,500 × 348/105 = ₹3,13,200. Net sale proceeds = ₹10,10,000 − ₹10,000 brokerage = ₹10,00,000. Long-term capital gain = ₹10,00,000 − ₹3,13,200 = ₹6,86,800. Under section 54F, Harish did not own a residential house on 15.6.2023 and purchased one for ₹5,00,000 within the period, so exemption = ₹5,00,000/₹10,00,000 × ₹6,86,800 = ₹3,43,400. Chargeable capital gain for AY 2024-25 = ₹6,86,800 − ₹3,43,400 = ₹3,43,400.

(i) Under section 54F(3), if the new house is sold within three years of its purchase, i.e. before 15.12.2026, the exempted ₹3,43,400 is deemed to be long-term capital gain of the previous year in which the new house is sold, and is taxed in the corresponding assessment year (for example, a sale in PY 2025-26 is taxed in AY 2026-27, and a sale between 1.4.2026 and 15.12.2026 in AY 2027-28). The gain on the new house itself is computed normally; its cost is not reduced (that treatment applies under section 54, not 54F).

(ii) Under section 54F(2), if Harish purchases any other residential house within two years of the original transfer (before 15.6.2025) or constructs one within three years (before 15.6.2026), the exempted ₹3,43,400 is deemed to be long-term capital gain of the previous year in which that other house is purchased or constructed, and is taxed in the corresponding assessment year (for example, a purchase between 1.4.2025 and 15.6.2025 is taxed in AY 2026-27, and a construction completed between 1.4.2026 and 15.6.2026 in AY 2027-28).

(c)

Because applications exceeded the issue, the remaining 3,00,000 applied shares are allotted 2,00,000 shares in a 2:3 ratio, creating excess application money of ₹3 per allotted share. Dr Bank A/c 36,00,000; Cr Share Application A/c 36,00,000 (application money on 6,00,000 shares). Dr Share Application A/c 18,00,000; Cr Bank A/c 18,00,000 (refund on 3,00,000 shares). Dr Share Application A/c 18,00,000; Cr Share Capital A/c 8,00,000; Cr Securities Premium A/c 4,00,000; Cr Calls-in-Advance A/c 6,00,000 (allotment; excess adjusted to call). Dr First and Final Call A/c 12,00,000; Cr Share Capital A/c 12,00,000 (call made). Dr Bank A/c 5,94,000; Dr Calls-in-Advance A/c 6,00,000; Dr Calls-in-Arrears A/c 6,000; Cr First and Final Call A/c 12,00,000 (net call ₹6,00,000 received except default on 2,000 shares). Dr Share Capital A/c 20,000; Cr Share Forfeiture A/c 14,000; Cr Calls-in-Arrears A/c 6,000 (forfeiture; premium already received, so not reversed). Dr Bank A/c 14,000; Dr Share Forfeiture A/c 6,000; Cr Share Capital A/c 20,000 (reissue at ₹7). Dr Share Forfeiture A/c 8,000; Cr Capital Reserve A/c 8,000. Balance-sheet effect: share capital ₹20,00,000, securities premium ₹4,00,000 and capital reserve ₹8,000.