Case Study

on

Income from Business

Najam Nawaz Saqib

Expenses
1. Salaries

Business
Expense

Non-Business
Expense

Revenue
Nature

Capital Nature

S.No. Name Salary

Akram 100,00
0
Kamra
n
80,100

Adil

100,00
0

Ahmad 195,00
0

Zia

195,00
1

Ratio of
Mode of
Tax
Tax
Tax
Admissible
Legal
Payment Deductible Deducted deduction Expenses Authority
at Source
Cross
Cheque
Cross
Cheque

Cross
Cheque

Cash

Cross
Cheque

0
1,500

7.5

1,500

10,875

10,875

21(c),
149

NA

80%

375

25%

5250

48.3%

6525

60%

64,080

21(c),
149

25,000

21(c),
149

21(m)

116,999

21(c),
149

2. Payment of Rent
Business
Expense

Non-Business
Expense

Revenue
Nature

Capital Nature

Mode of Payment

Cross Cheque

Amount of Rent

200,000/-

Amount of Tax Deducted

and Deposited

7500/(Only for the period from July

2002 to December 2002)

Expense Claimed

200,000/-

Expense Admissible

100,000/-

Legal Authority

21(c), 155, Division V of Part

III of First Schedule

3. Rent of Godown
Rent of Godown

150,000/-

Nature of Expense

Accrual basis

Tax Liability

Due Tax Paid

Admissibility

Admissible

4. Entertainment
Expenses
Business
Expense

Non-Business
Expense

Revenue
Nature

Capital Nature

Expenses

30,000/- including the

amounts of Rs. 7,000/- on 159-2002 and 8,000/- on 15-52003

Admissibility

Admissible

Legal Authority

21 (l)

5. Payment to Legal
Consultant
Business
Expense

Non-Business
Expense

Revenue
Nature

Capital Nature

Amount Paid

(1) 45,000/- on 15-12-2002

(2) 15,000/- on 31-05-2003

Mode of Payment

Cash

Admissibility

Inadmissible

Legal Authority

21(l)

6. Advertisement
Expense
Business
Expense

Non-Business
Expense

Revenue
Nature

Capital Nature

Amount Paid

4999/- on Every Working Day

for 300 Working Days
Total Amount= 1499700/-

Mode of Payment

Cash

Admissibility

Amortization Admissible

Amount of Amortization
Admissible

149970/-

Legal Authority

20(2), 24(1), 24 (3)

7. Tax Witheld on Account of

Supplies
Supplier

M/s ABC Steel Mills (PVT) Ltd

Purchaser

M/s XYZ (PVT) Ltd

Value of Supplies

400,000/-

Tax Withheld by M/s XYZ

(PVT) Ltd

14,000/-

Admissibility

Inadmissible

Legal Authority

21(b)

8. Refund
Amount of Refund
Received

20,000/Earlier claimed and allowed as

expenditure in assessment
year 1999-2000

Admissibility

Inadmissible

Treatment of Amount

Income from Business

Chargeable to Tax

Legal Authority

18 (1) (d)

9. Loan from HBL

Amount of Loan

1 M on 01-07-2000

Interest Rate

10% per Annum

Deduction of Interest Charges
in the Tax Year 2001 and
2002.

Interest Paid in Tax Year

2001 and 2002

100,000 + 100,000 =
200,000/-

Interest Written Of

50% Interest of Two

Proceeding Tax years

Written Of Amount

100,000/-

Treatment of Amount
Written Of

Income from Business

Chargeable to Tax

Legal Authority

18 (1) (d)

10. Purchases
Purchases from MNO (PVT)
Ltd

1M

Mode of Payment

Cash

Admissibility

Inadmissible

Treatment of Amount

Deduct from Purchases

Legal Authority

21 (l)

11. Credit Purchases and

Liability
Tax Year
(Being
Assessed)

Assessment
Year/ Tax Year
(Current)

Purchases

1998-1999

1999-2000

800,000

1999-2000

2000-2001

300,000

2000-2001

2001-2002

300,000

2001-2002

2002-2003

100,000

2002-2003

2003-2004

500,000

Therefore the credit purchases of 0.5 M to be

deducted from total Purchases of 9 M.

Liability
Tax Year

Liability

2000

600,000

2001

600,000 200,000 =400,000/-

2002

400,000 100,000 = 300,000/-

2003

300,000 100,000 = 200,000/-

2004

Unpaid Liability of 200,000/- But

will not be treated as Income
from Business in the Tax Year
2003. However it will be treated
as Income from Business in the
Tax Year 2004 if remains unpaid.

Legal Authority

34 (5)