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We start with the Net Profit as per the Profit & Loss Account and make adjustments for disallowed expenses, non-business income, and stock valuations.

Net Profit as per P/L A/c: $\text{Rs. } 14,94,000$

Add: Disallowed Expenses / Non-business Items

• Salary (paid to non-PAN holder): $\text{Rs. } 20,000$
• General Reserve: $\text{Rs. } 2,50,000$ (Appropriation of profit, not an expense)
• Office Expenses (Donation): $\text{Rs. } 90,000$ (Disallowed as business expense, allowed as a deduction from total income)
• Office Expenses (Personal health expenses): $\text{Rs. } 20,000$
• Repair Expenses (Excess over allowed limit): $\text{Rs. } 1,70,000 - \text{Rs. } 1,20,000 = \text{Rs. } 50,000$
• Miscellaneous Expenses (Trademark purchase): $\text{Rs. } 70,000$ (Capital expenditure, disallowed as revenue expense)
• Legal Expenses (Suit against tax officer): $\text{Rs. } 13,000$ (Disallowed)
• Depreciation (Excess charged in P/L): $\text{Rs. } 20,000$
• Life Insurance Premium: $\text{Rs. } 12,000$ (Personal expense)
• Health Insurance Premium (for proprietor): $\text{Rs. } 37,000$ (Personal expense)
• Loss on sale of business assets: $\text{Rs. } 36,000$ (Can only be set off against gain from sale of business assets)
• Opening Stock Overvaluation: $\text{Rs. } 1,80,000 - \left(\frac{\text{Rs. } 1,80,000}{1.20}\right) = \text{Rs. } 30,000$ (Overvaluation of opening stock reduces profit, so add back)

Total Additions: $\text{Rs. } 20,000 + 2,50,000 + 90,000 + 20,000 + 50,000 + 70,000 + 13,000 + 20,000 + 12,000 + 37,000 + 36,000 + 30,000 = \text{Rs. } 6,48,000$

Less: Non-business Income / Items Credited to P/L

• Income Tax Refund (excluding custom duty refund): $\text{Rs. } 2,00,000 - \text{Rs. } 10,000 = \text{Rs. } 1,90,000$ (Not business income)
• Closing Stock Overvaluation: $\text{Rs. } 9,50,000 - \left(\frac{\text{Rs. } 9,50,000}{1.20}\right) = \text{Rs. } 1,58,333.33$ (Overvaluation of closing stock increases profit, so subtract)
• Amortization of Trademark (Allowable): $\frac{\text{Rs. } 1,20,000}{6 \text{ years}} = \text{Rs. } 20,000$

Total Subtractions: $\text{Rs. } 1,90,000 + 1,58,333.33 + 20,000 = \text{Rs. } 3,68,333.33$

Adjusted Business Income: $\text{Rs. } 14,94,000 + 6,48,000 - 3,68,333.33 = \text{Rs. } 17,73,666.67$

Less: Brought Forward Business Loss (3rd year): $\text{Rs. } 1,50,000$

Assessable Income from Business: $\text{Rs. } 17,73,666.67 - 1,50,000 = \text{Rs. } 16,23,666.67$

$$\boxed{\text{a) Assessable Income from Business: Rs. 16,23,666.67}}$$

We identify all investment-related income items.

• Rent from staff quarter: $\text{Rs. } 2,40,000$
• Interest on investment: $\text{Rs. } 40,000$
• Gain on sales of non-business assets: $\text{Rs. } 1,40,000$

Total Assessable Income from Investment: $\text{Rs. } 2,40,000 + 40,000 + 1,40,000 = \text{Rs. } 4,20,000$

$$\boxed{\text{b) Assessable Income from Investment: Rs. 4,20,000}}$$

We sum up all assessable incomes and deduct allowable expenses.

Assessable Income from Business: $\text{Rs. } 16,23,666.67$
Assessable Income from Investment: $\text{Rs. } 4,20,000$

Gross Assessable Income: $\text{Rs. } 16,23,666.67 + 4,20,000 = \text{Rs. } 20,43,666.67$

Less: Allowable Deductions

• Donation to tax-exempt institution: $\text{Rs. } 90,000$ (Allowed up to 5% of Gross Assessable Income or Rs. 1,00,000, whichever is less. 5% of Rs. 20,43,666.67 = Rs. 1,02,183.33. So, Rs. 90,000 is fully allowed.)
• Contribution to CIT (Self): $\text{Rs. } 1,50,000$ (Allowed up to 1/3 of Gross Assessable Income or Rs. 3,00,000, whichever is less. 1/3 of Rs. 20,43,666.67 = Rs. 6,81,222.22. So, Rs. 1,50,000 is fully allowed.)

Total Deductions: $\text{Rs. } 90,000 + 1,50,000 = \text{Rs. } 2,40,000$

Total Taxable Income: $\text{Rs. } 20,43,666.67 - 2,40,000 = \text{Rs. } 18,03,666.67$

$$\boxed{\text{c) Total Taxable Income: Rs. 18,03,666.67}}$$

We apply the tax rates for an individual running an industry (unmarried status assumed).

Total Taxable Income: $\text{Rs. } 18,03,666.67$

• On first $\text{Rs. } 4,00,000 \text{ @ } 1\% = \text{Rs. } 4,000$
• On next $\text{Rs. } 1,00,000 \text{ @ } 10\% = \text{Rs. } 10,000$
• On next $\text{Rs. } 2,00,000 \text{ @ } 20\% = \text{Rs. } 40,000$
• On remaining $\text{Rs. } (18,03,666.67 - 7,00,000) = \text{Rs. } 11,03,666.67 \text{ @ } 20\% = \text{Rs. } 2,20,733.33$

Total Tax on Income: $\text{Rs. } 4,000 + 10,000 + 40,000 + 2,20,733.33 = \text{Rs. } 2,74,733.33$

Tax on Lottery Income:
Lottery Income (Net): $\text{Rs. } 70,000$
Tax Rate: $25\%$
Tax on Lottery Income: $\text{Rs. } 70,000 \times 25\% = \text{Rs. } 17,500$

Total Tax Liability: $\text{Rs. } 2,74,733.33 + 17,500 = \text{Rs. } 2,92,233.33$

$$\boxed{\text{d) Tax Liabilities: Rs. 2,92,233.33}}$$