Deductions in computing profits and gains from pgbp read mo

CASE STUDY Mr. A purchases Material X for Rs. 100000 (Credit purchase) on 01.11.2013 from Mr. DEEP.

Case 1 Mr A pays 18000 in cash on 5/12/2013 and 40000 by a/c payee cheque on 5/12/2013 .Rest of the payment is made on on 5/5/2014 through a/c payee dd. What shall be amount of deduction in computing profits and gains FOR A.Y 2014-15 AND 2015-2016.

Case 2 Mr A pays 18000 in A/C payee dd on 5/12/2013 and 40000 by a/c payee cheque on 5/1/2014 .A cash payment of Rs 21000 is made on 5/4/2014 and Rest of the payment is made on on 5/5/2014 through a/c payee dd. What shall be amount of deduction in computing profits and gains FOR A.Y 2014-15 AND 2015-2016

PLEASE ANSWER WITH PROPER REASONING

It depends on the method of accounting followed by you i.e. whether it is on cash basis or mercantile basis.

Case 1 (Cash Basis) - Deduction for A.Y. 2014-15 Rs.58,000/- (18000+40000) for A.Y. 15-16 Rs.42,000/-

Case 1 (Mercantile Basis) - Deduction for A.Y. 2014-15 Rs. 1,00,000/- for A.Y.15-16 - No Deduction

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Case 2 (Cash Basis) - Deduction for A.Y. 2014-15 Rs.58,000/- for A.Y. 2015-16 - Rs.21,000/- (paid through a/c payee chq on 5/5/14) and in respect of Rs.21,000 paid on 5/4/14 no deduction would be available since you have paid cash payment exceeding Rs.20,000/- u/s 40A(3)

Case 2 (Mercantile Basis) - Deduction for A.Y. 14-15 Rs.1,00,000/- for A.Y. 15-16 - Rs.21,000/- (paid through a/c payee chq on 5/5/14) and in respect of Rs.21,000 paid on 5/4/14 no deduction would be available since you have paid cash payment exceeding Rs.20,000/- u/s 40A(3) & such amount i.e. Rs. 21,000/- i.e paid on 5/4/14 would be added back to your income since you had already claimed deduction in respect of such amount in A.Y.14-15.