INCOME TAX Business & Profession MCQ - TY B COM

AUDITING AND TAXATION
1. ----------------, expenses are expressly allowed as deductions against profit and gains of a
business or profession.
a) Rent, rates, taxes, repairs and insurance on buildings

b) Repairs and insurance on plant machinery furniture
c) Both a and b
Answer: c) All the above expenses are expressly allowed as deductions under
Sec 31 and 32 of Income Tax Act.
2. If the asset is owned by the business and used for business purpose during the relevant
previous year, depreciation can be charged on-------------- basis as per the provisions of
Income tax.
a) Written down value method

b) Any method desired by the Assessee
c) Straight line method
Answer: c) Written down value method needs to be adopted for each block of
asset. If the value is zero then no depreciation can be charged with a few
exceptions.
3. As per Income Tax rules, depreciation is chargeable to block of assets which may be-----
-----------------------.
a) Tangible Assets
b) Intangible Assets
c) Both a and b
Answer: c) Both a and b – Depreciation can be deducted from the profits and
gains of business on both tangible and intangible assets under 13 different
blocks of assets.
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TY BCOM – AUDITING AND TAXATION – MCQ – QUESTION BANK - COMPILED BY MANOJ

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4. As per Income Tax rules, depreciation chargeable to Intangible block of assets like;
know – how, patents, copyrights, trademarks, license etc can be charged at ----------------
percentage.
a) 20%
b) 25%
c) 15%
Answer: b) 25% - Intangible assets acquired by the firm after 31 st March 1998
are eligible for 25% rate o depreciation.
5. The deduction of depreciation on an asset, in the block of asset is restricted to fifty

percent of the percentage prescribed by the provisions of income tax if-------------------.
a) It is acquired in the previous year and put to use for less than 180 days
b) It is acquired in the previous year, but put to use for more than 182 days
c) It is acquired in the previous year and put to use for less than 182 days
Answer: a) It is acquired in the previous year and put to use for less than
180 days- The above deduction is only for the asset in that block which
has been put to use for less than 180 days and has been acquired in the
current previous year. For all other assets in the block of asset, 100% of
the prescribed depreciation needs to be charged.
6. The following expenditure cannot be claimed under the head Income from business and
profession
a) Illegal expenses
b) Personal expenses of the owner
c) Both a and b
Answer: c) Both illegal expenses and personal expenses of owner cannot

be shown as business expenses. Both the expenses are inadmissible under
the head Income from Business and profession
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7. While computing income from business and profession, inadmissible expenses need to
be------------------------ to the net profits.
a) Added back to the net profit

b) Deducted from the net profit
c) None of the above
Answer: c) Added back to the net profits.
8. XYZ company paid Rs500000/- as salary to the foreign staff, without deducting TDS.
The entire amount was shown as expenditure in the profit and loss account. Comment
how much is admissible?
a) Entire amount is not admissible

b) Entire amount is admissible
c) Rs350000/- is admissible
Answer: a) Entire amount is inadmissible because the company has not

deducted tax at source. Even if the company has deducted the tax at
source but not remitted to income tax department within the stipulated
period of time it is inadmissible.
9. XYZ Company purchased goods from a relative and paid Rs80000/- as the purchase
price. It had paid Rs. 9000/- in excess to the fair market value. The total purchase
account included the actual (full) payment made to the relative. How much is admissible
expense under the head Income from business.
a) Entire amount is inadmissible

b) Entire amount is admissible
c) Rs71000/- is admissible
Answer: c) Rs71000/- will be treated as admissible expense for the

computation of Income from business. Any amount which is in excess to
the fair market value, paid to relatives is inadmissible. Rs9000/- should
be disallowed from the net profit.
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10. XYZ Company purchased goods from a relative and paid Rs80000/- as the purchase
price through a bearer cheque. It paid Rs30000 /- repair charges to the repairing
company in cash. How much is admissible expense.
a) Entire amount is inadmissible Rs110000/-

b) Nil -. Entire amount paid will be disallowed
c) Rs30000/- paid in cash is inadmissible
Answer: a) Both the expenses are inadmissible – Any expenditure in

excess of Rs 20000/- need to be paid by an account payee or crossed
cheque or draft or bank transfer (NEFT). Expenses in excess of Rs.
20000/- to a party are disallowed if the payment is made by cash or
bearer cheque.
11. XYZ Company sells goods worth Rs. 50000/- to Mr. Rakesh on credit basis in the
month April 2015. Mr. Rakesh pays only Rs.35000/- and the balance is claimed as bad
debts by XYZ company in the PY15-16. Mr. Rakesh pays Rs. 5000/- in the month Feb
2019.. Rs.5000/- will be treated as----------------- by XYZ in the year 18-19.
a) Rs. 5000/- will chargeable as taxable business income

b) Rs. 5000/- will be shown as income from other sources.
c) Rs5000/- will be shown under the head capital gains.
Answer: a) Rs.5000/- has to be shown as business income. Any recovery

of bad debt, which has been allowed as deduction under
sec36 (1)(vii) and the amount subsequently recovered on such debt shall
be treated as the business income in the year of recovery.
12. Mr. Mahesh owns a building having three floors. He has rented the first floor and
receives Rs480000/- annual rent from the part of house property. He uses the top floor
for his own residence. He uses the ground floor for carrying on his own business. The
entire income he earns from conducting the business he needs to show it as taxable
income under the head
a) Income from House Property

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b) Income from business and profession

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c) None of the above
Answer: a) Income from business and profession. – Any benefits from

the use of own building will be shown as business income. All expenses
like the municipal taxes, repairs and maintenance expenses, etc
proportionately, which are pertaining to the part of building in which
the business is conducted will also be admissible expenses under business
income.
13. Mr. Yogesh runs a business dealing in old cars. He has shown Rs 600000/- as Net
income from business, which include, Rs 25000/- dividends received from investment in
Indian companies, Rs 12000/- Interest, earned on bank deposits. How much should the
inadmissible income and what treatment to be done in the computation of income from
business?
a) Rs. 37000/- inadmissible income will be deducted from net profits

b) Rs. 25000/- inadmissible income will be added back to the net profits
c) Rs. 37000/- inadmissible income will be added back to the net profits.
Answer: a) Rs. 37000/- inadmissible income will be deducted from net

profits – both have to be shown under the head income from other
sources.
14. Mr. Ratan runs a business dealing in scrap material. He paid Rs25000/- as Income tax,
Rs 22000/- as the wealth Tax ; Rs .26000/- as GST., and Rs. 20000/- as municipal tax
for his residential house property. All the above were shown as expenses while
computing the income from business. How much expenses are inadmissible?
a) Rs. 67000/- inadmissible expenses will be added back to net profits

b) Rs. 25000/- inadmissible expenses will be added back to the net profits
c) Rs. 20000/- inadmissible expenses will be added back to the net profits.
Answer: a) Rs. 67000/- inadmissible expenses will be added back to the

net profits – Wealth Tax, Income Tax are personal expenses and not
business expenses. Only the part of residential property used for own
business purpose, incidental expenses can de deducted under income
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AUDITING AND TAXATION

a) Rent, rates, taxes, repairs and insurance on buildings

a) Written down value method

TY BCOM – AUDITING AND TAXATION – MCQ – QUESTION BANK - COMPILED BY MANOJ

5. The deduction of depreciation on an asset, in the block of asset is restricted to fifty

Answer: c) Both illegal expenses and personal expenses of owner cannot

TY BCOM – AUDITING AND TAXATION – MCQ – QUESTION BANK - COMPILED BY MANOJ

a) Added back to the net profit

Answer: c) Added back to the net profits.

a) Entire amount is not admissible

Answer: a) Entire amount is inadmissible because the company has not

a) Entire amount is inadmissible

Answer: c) Rs71000/- will be treated as admissible expense for the

TY BCOM – AUDITING AND TAXATION – MCQ – QUESTION BANK - COMPILED BY MANOJ

a) Entire amount is inadmissible Rs110000/-

Answer: a) Both the expenses are inadmissible – Any expenditure in

a) Rs. 5000/- will chargeable as taxable business income

Answer: a) Rs.5000/- has to be shown as business income. Any recovery

a) Income from House Property

b) Income from business and profession

Answer: a) Income from business and profession. – Any benefits from

a) Rs. 37000/- inadmissible income will be deducted from net profits

Answer: a) Rs. 37000/- inadmissible income will be deducted from net

a) Rs. 67000/- inadmissible expenses will be added back to net profits

Answer: a) Rs. 67000/- inadmissible expenses will be added back to the

TY BCOM – AUDITING AND TAXATION – MCQ – QUESTION BANK - COMPILED BY MANOJ

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