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BABY SEBASTIAN (Querist)
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17 September 2011 Dear Sirs,

I am posting this query to get a clarification as to where Income Tax debited in profit and loss account is to be shown in the schedule “P&L” and schedule “BP” of ITR 4.

According to my understanding, profit before tax should be shown under column A1 of schedule BP. In PART A- P&L, Sl. No. 43 will show Profit before Tax and the amount of income tax will be shown against Sl. No. 44 and Sl. No. 46 will show Profit after Tax. Income tax debited should neither be shown under Sl.No.16 of Schedule BP nor under Sl. No 8 Ac of PART A- OI. As per the guide for common errors published by the Income Tax department, Profit before Tax should be shown in Sl. No. No. A1 of schedule BP.

According to one of the leading Income Tax return preparation Software, Net profit as shown in the P&L a/c (Profit after tax) should be shown in Sl. No. A1 of schedule BP and Income Tax debited to the P&L a/c should be shown under Sl.No.16 of that schedule (amount debited to profit & loss account to the extent disallowable under section 40). Similarly income tax debited should also be shown under 8 Ac of schedule OI. According to the Software, in PART A- P&L of ITR4, Income Tax debited to the profit & loss account should be Shown under Sl. No.34 (f) (“any other rates, tax duly or cess”) and Sl. No.43 will show profit after tax. There will not be any figures in Sl. No. 44.

When I suggested that the method followed by them is not correct they argued that the software prepares Income Tax Return (ITR 4) as per the Schema provided by the Income Tax Department.

Kindly inform which of the treatments mentioned above are correct.

CA Sachin D Jain

CA Sachin D Jain (Expert)
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19 September 2011 Dear Baby,

As per my opinion, the Company's software is correct. Generally, profit after tax is considered while doing computation of income and then the adjustments for income tax and deferred tax are made. It is a well accepted principle.

The IT Dept may have suggested that profit before tax should be considered for preparing computation of income. But, this is suggested so that there is no mistake on the part of the assesses to take profit after tax and then forget to add back the same u/s 40 of IT Act. Hence, to be on a safer ship, they have suggested like this.

If you have any counter view, please share.