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Test Series: October, 2022
MOCK TEST PAPER 2

FINAL COURSE: GROUP – II
PAPER – 7: DIRECT TAX LAWS & INTERNATIONAL TAXATION
SOLUTIONS
Division A – Multiple Choice Questions
MCQ No. Most Appropriate Answer MCQ No. Most Appropriate Answer
1. (b) 9. (c)
2. (b) 10. (d)
3. (c) 11. (d)
4. (c) 12. (b)
5. (d) 13. (a)
6. (c) 14. (a)
7. (d) 15. (c)
8. (b)
Division B – Descriptive Questions
1. (a) Computation of Business Income of S Ltd. for the A.Y.2022-23
Particulars Amount (`)
Profits and gains of business and profession
Net profit as per the statement of profit and loss 5,60,00,000
Add: Items debited but to be considered separately or to be
disallowed
(a) Depreciation as per Companies Act 52,00,000
(c) Contribution to National Laboratory -
[Contribution to National laboratory for scientific research
qualifies for 100% deduction u/s 35(2AA).
Since 100% has been debited to the statement of profit and
loss, no adjustment required to be made while computing
business income]
(e) Payment to transporter -
[No tax is required to be deducted at source u/s 194C on
payment to a transporter declaring income under section
44AE, who has furnished a declaration to that effect along
with PAN. Therefore, disallowance@30% of payment for
non-deduction at source u/s 40(a)(ia) would not be
attracted in respect of payment of ` 3.50 lakhs to M/s. BP
Transport]
(f) Interest on loan for purchase of plant and machinery 5,00,000
[Interest on loan taken for purchase of plant and machinery
for use in business is allowable as deduction u/s 36(1)(iii)
for the period after the date the asset is first put to use.
Hence, such interest for the period upto the date the asset
is first put to use is not allowable as deduction.
© The Institute of Chartered Accountants of India

Accordingly, out of ` 15 lakhs paid towards such interest,
only ` 10 lakhs is allowable as deduction. ` 5 lakhs, being
interest paid upto the the date till such machinery was
commissioned has to be added back while computing
business income]
(g) Bad debts written off -
[No adjustment is required in respect of debt of ` 20 lakhs
written off owing to insolvency of the debtor, since bad
debts written off in the books of account is fully allowable
as deduction u/s 36(1)(vii).
Since the said amount has already been debited to the
statement of profit and loss, no further adjustment is
required]
(i) Payment for online advertisement services 5,00,000
[Since the payment for online advertisement services is
made to a non-resident not having PE in India, equalization
levy@6% has to be deducted. Since the same has not been
deducted, disallowance@100% of the payment would be
attracted u/s 40(a)(ib)]
(j) Expenses on foreign travel of two directors for a 2,00,000
collaboration agreement which failed to materialize
[Where expenditure is incurred for a project not related to
the existing business and the project was abandoned
without creating a new asset, the expenses are capital in
nature.1
Since the amount has been debited to the statement of
profit and loss, the same has to be added back]
AI(iv) Purchase of cotton at a price higher than the FMV 4,00,000
[Since the purchase is from a related party, a firm in which
majority of the directors of the company are partners, at a
price higher than the fair market value, the difference
between the purchase price (` 5,000 per bale) and the fair
market value (` 4,600 per bale) multiplied by the quantity
purchased (1000 bales) has to be added back] 68,00,000
6,28,00,000
Less: Items credited to statement of profit and loss, but not
includible in business income/ permissible
expenditure and allowances
(b) Industrial power tariff concession received from State -
Government
[Any assistance in the form of, inter alia, concession
received from the Central or State Government would be
treated as income. Since the same has been credited to
statement of profit and loss, no adjustment is required]
(d) Profit on sale of plot of land 8,00,000
1 Mc Gaw-Ravindra Laboratories (India) Ltd. v. CIT (1994) 210 ITR 1002 (Guj).

[Short-term capital gains arise on sale of plot of land held
for less than 24 months. However, in this case, since the
transfer is to a 100% subsidiary company, which is an
Indian company, the same would not constitute a transfer
for levy of capital gains tax as per section 47(iv).
Since the same has been credited to the statement of
profit and loss, the same has to be reduced while
computing business income]
(h) Additional compensation received from State 5,00,000
Government in respect of land
[Since the additional compensation has been received
pursuant to an interim order of the Court, the same would be
deemed as income chargeable to tax under the head
“Capital Gains” in the year of final order as per section
45(5).
Since the compensation has been credited to the
statement of profit and loss, the same has to be deducted
while computing business income”]
AI(i) Depreciation as per Income-tax Rules, 1962 71,75,000
[` 71,00,000, being normal depreciation on book assets

+ ` 75,000, being 15% of ` 5,00,000, being the interest
on loan taken for acquiring plant and machinery upto the
date of commissioning]
AI(ii) Discount on issue of debentures 9,00,000
[Allowable as deduction over the tenure of debentures i.e.,

5 years Hence, 1/5 th allowable as deduction in P.Y.2021-
22 (1/5th of ` 45 lakhs, being 3% of ` 1500 lakhs)]
AI(iii) Purchases omitted to be recorded in the books of 3,00,000
account
Since the purchase is made in March, 2022 (i.e., P.Y.
2021-22), in respect of which bill of ` 3 lakhs received in
March, 2022, which has been omitted to be recorded in
the books in this year, it has to be deducted to compute
the business income 2 It is logical to assume that the
company is following mercantile system of accounting 96,75,000
Profits and gains from business and profession 5,31,25,000
2. (a) Computation of book profit for levy of MAT under section 115JB for A.Y. 2022-23
Particulars ` `
Net Profit as per Statement of Profit and Loss 95,00,000
Add: Net Profit to be increased by the followings amounts as per
Explanation 1 below section 115JB(2)
- Depreciation 10,00,000
2 Kedarnath Jute Manufacturing Company Ltd. v. CIT (1971) 82 ITR 363 (SC)

- Provision for doubtful debts i.e. provision for diminution in
value of asset i.e. debtors 2,00,000
- Reserve for currency fluctuation reserve 1,25,000
13,25,000
1,08,25,000
Less: Net Profit to be decreased by the followings amounts as per
- Net agricultural income 5,00,000
Net agricultural income is to be reduced, since it is exempt
under section 10(1)]
- Depreciation other than deprecation on revaluation of assets 8,10,000
is to be reduced while computing book profit [10,00,000 –
1,90,000] 13,10,000
Book profit under section 115JB 95,15,000
Computation of Minimum Alternate Tax under section 115JB

Particulars `
15% of book profit (` 95,15,000 x 15%) 14,27,250
Add: Health & Education cess@4% 57,090
Minimum Alternate Tax under section 115JB 14,84,340
Notes:
(1) Only the specified items mentioned under Explanation 1 below section 115JB(2) can be added
back or deducted to the net profit as per the Statement of Profit and Loss prepared as per the
Companies Act for computing book profit for levy of MAT. Since the following items are not
specified in the said Explanation 1, the same cannot be added back or deducted for computing
book profit:
• Penalty for infraction of law
• Unpaid interest to financial institutions
• Profits from a new industrial undertaking eligible for deduction under section 80 -IA
(2) For computing the book profit, since provisions for GST is an ascertain liability, it is not added
back.
(3) No adjustment is required in respect of interest on borrowed capital of ` 1,00,000 payable to
Y, not debited to statement of profit and loss, since the net profit as per the Statement of Profit
and Loss prepared as per the Companies Act and the items specified for exclusion/inclusion
under section 115JB alone have to be considered while computing the book profit for levy of
MAT.
(4) Depreciation as per Income-tax Act, 1961 is not relevant for computing book profit for levy of
MAT.
(b) (i) International transaction is a transaction between associated enterprises, either or both of
whom are non-residents, in the nature of, inter alia, purchase, sale of tangible or intangible
property. Transfer pricing provisions under the Income-tax Act, 1961 would get attracted in
respect of an international transaction. In this case, one of the enterprises, i.e ., ABC Inc., a

London based company, is a non-resident. The transaction in question is the transfer of
engravings, i.e., transfer is of an intangible property.
However, two enterprises would be deemed as associated enterprises if one enterprise holds,
directly or indirectly, shares carrying not less than 26% voting power in the other enterprise.
In this case, ABC Inc. indirectly holds only 24% voting power / (32% of 75%) in Beta Ltd., an
Indian company. Hence, ABC Inc. and Beta Ltd. are not associated enterprises.
Since the transaction of transfer of engravings is not between associated enterprises, it would
not fall within the meaning of international transaction. Hence, transfer pricing provisions
would not be attracted in this case.
(ii) Tikku Infra is eligible for deduction@100% of the profits derived from its eligible business (i.e.,
the business of developing an infrastructure facility, namely, a highway project in this case)
under section 80-IA. However, Tikku Trading is not engaged in any “eligible business”. Since
Tikku Trading has transferred construction materials to Tikku Infra at a price lower than the
fair market value, it is an inter-unit transfer of goods between eligible business and other
business, where the consideration for transfer does not correspond with the market value of
goods.
This transaction would fall within the meaning of “specified domestic transaction” to attract
transfer pricing provisions, only if the aggregate value of such transactions during the year
exceeds a sum of ` 20 crore.
In this case, however, the aggregate value of transactions between Tikku Infra and Tikku
Trading does not exceed ` 20 crore. Hence, the transaction is not a specified domestic
transaction to attract transfer pricing provisions under the Income-tax Act, 1961. Accordingly,
transfer pricing provisions would not be attracted in respect of this transaction.
Note - In the absence of information in the question, it is assumed that there are no other
such transactions during the year falling within the scope of section 92BA.
(iii) Where a company eligible for benefit under section 115BAB enters into a transaction with any
other person with whom it has close connection, and the transactions between them are
arranged in a manner resulting in more than ordinary profits arising to the company eligible
for benefit u/s 115BAB, then, such transactions would fall within the scope of “specified
domestic transaction” under section 92BA, if the aggregate value of such transactions (listed
out in section 92BA) entered into by the company in the previous year exceeds ` 20 crore.
In this case, A Ltd. is a company eligible for deduction under section 115BAB which has
entered into a transaction with B Ltd., a company in which Mr. X (a person who has controlling
interest in A Ltd.) has controlling interest. Further, the said transaction for supply of cables by
B Ltd. to A Ltd. result in more than ordinary profits to A Ltd. (on account of the supply being
made by B Ltd. to A Ltd. at a lower rate than the arm’s length ra te).
Also, the aggregate value of such transactions entered into by the two companies exceed
` 20 crore. Consequently, the said transactions between A Ltd. and B Ltd. are “specified
domestic transactions” under section 92BA and transfer pricing provisions under the Income-
tax Act,1961 would be attracted.
3. (a) (i) The contention of the institution is not correct. Since the institution has receipts from a
university specified under section 10(23C)(iiiad) and a hospital specified under section
10(23C)(iiiae), and the combined receipts of ` 6.1 crore exceed the threshold receipt of ` 5
crore, the institution would not be eligible for exemption under sections 10(23C)(iiiad) and
10(23C)(iiiae). The institution has to make an application to the Principal Commissioner or
Commissioner within the prescribed time limit for grant of approval for claiming exemption
under section 10(23C)(vi) and (via).

(ii) The proposed action of the trust is not correct. As per Explanation 5 to section 11(1), with
effect from A.Y.2022-23, no set off or deduction or allowance of any excess application of any
of the year preceding the previous year shall be made in computation of income required to
be applied or accumulated during the previous year. Accordingly, excess application of `27
lakhs in the P.Y.2020-21 cannot be set-off while computing income required to be applied or
accumulated during the P.Y.2021-22.
(iii) The proposed claim of the trust is not correct. As per clause (ii) of Explanation 4 to section
11(1), application for charitable purposes from a loan or borrowing shall not be treated as
application of income for charitable purposes. However, the amount not so treated as
application, or part thereof, would be treated as application for charitable purposes in the
previous year in which the loan is repaid from the income of that year and to the extent of
such repayment.
Accordingly, the trust cannot claim ` 38 lakhs as application of income of A.Y.2022-23, since
the amount is spent out of loan taken from Canara Bank. However, it can treat the amount of
` 2.8 lakhs repaid during the P.Y.2021-22 as application of income in that year.
(b) (i) Computation of tax payable in case where there is a DTAA with the foreign country
The DTAA with the foreign country provides that the income would be taxable in country where
it is earned and not in other country, but it would be included for computation of tax rate in
such other country.
Thus, business income of ` 21,00,000 in foreign country would not be taxable in India in the
hands of Ms. Radha, however, such income has to be included in the total income to
determine the effective rate of tax applicable on Indian income chargeable to tax in India.
Computation of tax payable of Ms. Radha for A.Y.2022-23
Particulars `
Business Income
- Foreign country 21,00,000
- In India 8,75,000
Gross Total Income 29,75,000
Less: Deduction under Chapter VI-A
Section 80D – Medical insurance premium of ` 35,000 allowable to the
extent of ` 25,000 [Since her mother aged 63 years is a non-resident] 25,000
Total Income 29,50,000
Tax on total income [30% of ` 19,50,000 + ` 1,12,500] 6,97,500
Add: Health and education cess@4% 27,900
Tax Liability 7,25,400
Tax rate [` 7,25,400 / ` 29,50,000 x 100] 24.59%
Tax payable = 24.59% x ` 8,50,000 [` 8,75,000 – ` 25,000] 2,09,015
Tax payable (rounded off) 2,09,020
(ii) Computation of tax payable in case where there is no DTAA with the foreign country
In such case, Ms. Radha would be allowed deduction under section 91, since she has satisfied
the following conditions:-
(a) She is a resident in India during the relevant previous year i.e., P.Y.2021-22.

(b) The business income of ` 21,00,000 accrues or arises to her outside India and such
income is not deemed to accrue or arise in India during the previous year.
(c) Such business income has been subjected to tax in the foreign country@18%3
Particulars `
Tax Liability (computed above would remain same) 7,25,400
Less: Rebate under section 91 (See Working Note below) 3,78,000
Tax Payable 3,47,400
Working Note:
Calculation of Rebate under section 91
Average rate of tax in India [` 7,25,400/` 29,50,000 x 24.59%
100]
Average rate of tax in Foreign Country 18%
Doubly taxed income (Business income in foreign ` 21,00,000
country)
Rebate u/s 91 on ` 21,00,000 @18% [being the lower of average Indian 3,78,000
tax rate (24.59%) and foreign tax rate (18%)]
4. (a) (i) Section 206C(1G) provides for collection of tax@ 5% by every person, being a seller of an
overseas tour programme package, who receives any amount from the buyer who purchases
the package. The threshold limit of ` 7 lakh is not applicable in case of collection of tax at
source by a seller of an overseas tour programme package from a buyer who purchases such
package. Hence, tax has to be collected@5% of the amount received by the seller of an
overseas tour programme package from a buyer even if the amount is less than ` 7 lakh.
However, as per Notification No. 20/2022 dated 30.3.2022, TCS u/s 206C(1G) would not be
applicable, if the buyer is an individual who is not a resident in India in terms of section 6(1)
and (1A); and who is visiting India.
Mr. Aryan, an Indian citizen living in Australia, came on a visit to India during the
P.Y. 2021-22. He does not have any source of income in India. During that previous year, he
stayed in India for only 21 days (4 days in February + 17 days in March). Since his stay in
India during the P.Y.2021-22 is less than 182 days, he is non-resident in India for the said
previous year.
Accordingly, in this case, since Mr. Aryan is a non-resident who is visiting India,
M/s. Satya Travels, the tour package operator, is not required to collect tax at source under
section 206C(1G) on the amount of ` 5.2 lakh received from him for purchase of tour
programme package to Malaysia.
(ii) For the provisions of section 194Q to be attracted, a buyer is required to have a total sales or
gross receipts or turnover from the business carried on by it exceeding ` 10 crore during the
financial year immediately preceding the financial year in which the purchase of goods is
carried out. The CBDT has, vide Circular No. 13/2021, dated 30.6.2021, clarified that since
this condition would not be satisfied in the year of incorporation, the provisions of section
194Q shall not apply in the year of incorporation. Since Shristi Ltd. is incorporated in the P.Y.
3 It is presumed that she has paid tax on such income in that country.

2021-22, it would not qualify as a “buyer” for the purpose of section 194Q for the said previous
year, inspite of its turnover exceeding ` 10 crores in the said previous year.
However, since Filip & Co.’s turnover for the F.Y. 2020-21 exceeds ` 10 crores and its receipts
from Shristi Ltd. exceed ` 50 lakhs, TCS provisions under section 206C(1H) would be
attracted in its hands. TCS would be attracted at the time of receipt of consideration (i.e., in
respect of receipts in excess of sale consideration of ` 50 lakhs).
No tax is to be collected u/s 206C(1H) on 1.9.2021, since the aggregate receipts till that date
i.e., ` 32 lakhs, has not exceeded the threshold of ` 50 lakhs.
Tax of ` 1300 (i.e., 0.1% of ` 13 lakhs) has to be collected u/s 206C(1H) by M/s Filip & Co.
on 18.10.2021 (` 31 lakh – ` 18 lakhs, being the balance unexhausted threshold limit).
Tax of ` 1,800 (i.e., 0.1% of ` 18 lakhs) has to be collected u/s 206C(1H) by M/s. Filip & Co.
on 18.12.2021.
(iii) In a case where sale of goods of an e-commerce participant (Mr. Adheer) is facilitated by an
e-commerce operator (WINKLE) through its e-commerce website, section 194-O requires the
e-commerce operator to deduct tax at source@1% on ` 52 lakhs, being the gross amount of
sales facilitated through the e-commerce website.
As per section 206AA, in case where the deductee has not furnished his PAN, tax is required
to deducted at source at higher of 1% or 5%. Accordingly, tax has to be deducted at source
@5% of ` 52 lakhs = ` 2.6 lakhs.
(b) (i) Where Turnip Inc. and Sam Inc. have no permanent establishment in India
Equalisation levy would not be attracted in the present case since Turnip Inc., a non-resident
service recipient does not have a permanent establishment in India. Therefore, the Turnip Inc. is
not required to deduct equalisation levy @ 6% on ` 5 lakhs, being the amount paid towards online
advertisement services to Sam Inc.
However, equalisation levy @2% under section 165A is attracted on ` 5 lakhs, being the amount
of consideration received by Sam Inc, an e-commerce operator from e-commerce services
provided by it to Turnip Inc., a non-resident in the specified circumstance, namely, sale of
advertisement, which targets a customer, who is resident in India, since the gross receipt of Sam
Inc. in the P.Y. 2021-22 exceeds ` 2 crores.
(ii) Where Turnip Inc. has a permanent establishment in India but Sam Inc. does not have a
permanent establishment in India
In the present case, equalisation levy @6% is chargeable on the amount of ` 5,00,000 received
by Sam Inc., a non-resident not having a PE in India from Turnip Inc., a non-resident having a PE
in India. Accordingly, Turnip Inc. is required to deduct equalisation levy of ` 30,000 i.e., @6% of `
5 lakhs, being the amount paid towards online advertisement services provided by Sam Inc., a non-
resident having no permanent establishment in India. Non-deduction of equalisation levy would
attract disallowance under section 40(a)(ib) of 100% of the amount paid while computing business
income.
Since, equalisation levy is attracted on the amount of ` 5 lakhs, the said amount is exempt from
income-tax by virtue of section 10(50) of the Income-tax Act, 1961.
(iii) Where Sam Inc. has a permanent establishment in India and the advertisement services are
effectively connected with such PE
Equalisation levy would not be attracted where the non-resident service provider (Sam Inc., in this case)
has a permanent establishment in India and the service is effectively connected to the permanent
establishment in India. Therefore, Turnip Inc. is not required to deduct equalisation levy on ` 5 lakhs,
being the amount paid towards online advertisement services to Sam Inc, in this case.

Since equalisation levy is not attracted in this case, exemption under section 10(50) of the Income-
tax Act, 1961 would not be available.
It is immaterial whether Turnip Inc. has a PE in India or not for the purpose of equalisation levy
implication of advertisement transaction, as in both the cases, equalisation levy would not be
attracted.
However, since Sam Inc. has a PE in India and advertisement services are effectively connected with
the PE in India, income attributable from such advertisement would be deemed to accrue or arise in
India in the hands of Sam Inc. under section 9(1)(i) and be taxable in the hands of Sam Inc. under
the Income-tax Act, 1961.
5. (a) Dispute Resolution Committee (DRC) would resolve dispute in the case of a person who opts for
dispute resolution under Chapter XIX-AA in respect of dispute arising from any variation in the
specified order in his case and who fulfils the specified conditions. Specified order includes an
assessment order passed under section 143(3), where the aggregate sum of variations made vide
such order does not exceed ` 10 lakh; the total income as per such return furnished by the
assessee for the assessment year relevant to such order does not exceed ` 50 lakhs and such
order is not based on search or requisition or survey or any information under a DTAA.
In the present case, Mr. Sanjay cannot file an application before DRC, since the assessment order
received on 12.12.2022 is not a specified order since total income as per return furnished by Mr.
Sanjay of ` 5,00,000 exceeds the threshold limit of ` 50,00,000 though he satisfies the specified
conditions on account of no order of detention being made and no prosecution proceedings being
initiated or launched against him.
However, Mr. Sanjay, can file an appeal before the Commissioner of Income-tax (Appeals) under
section 246A(1) against such order passed under section 143(3) within 30 days of the date of
service of the notice of demand relating to the assessment. Moreover, in case he does not want
to prefer an appeal, then he can move a revision petition before the Principal Commissioner or
Commissioner of Income-tax under section 264 within a period of one year from the date of on
which the order was communicated to him or the date on which he otherwise came to know of it,
whichever is earlier.
(b) Section 119(2)(b) empowers the CBDT to authorise any income tax authority to admit an
application or claim for any exemption, deduction, refund or any other relief under the Act after
the expiry of the period specified under the Act, to avoid genuine hardship in any case or class of
cases. The claim for carry forward of loss in case of late filing of a return is relatable to a claim
arising under the category of “any other relief available under the Act”. Therefore, the CBDT has
the power to condone delay in filing of such loss return due to genuine reasons.
The facts of the case are similar to the case of Lodhi Property Company Ltd. v. Under Secretary,
(ITA-II), Department of Revenue (2010) 323 ITR 0441, where the Delhi High Court held that the
Board has the power to condone the delay in case of a return which was filed late and where a
claim for carry forward of losses was made. The delay was only one day and the assessee had
shown justifiable reason for the delay of one day in filing the return of income. If the delay is not
condoned, it would cause genuine hardship to the assessee. Therefore, the Court held that the
delay of one day in filing of the return had to be condoned.
The CBDT Circular No. 9/2015 dated 09.06.2015 expressly clarifies that the following authorities
to be approached for this purpose:
Quantum of loss Authority to be approached
Where the loss is upto `10 lakhs The Principal CIT or CIT
Where the loss is above ` 10 lakhs but upto `50 lakhs The Principal CCIT or CCIT
Where the loss is above ` 50 lakhs The CBDT

Applying the rationale of the above court ruling and the clarification given in CBDT Circular to the
case on hand, the CBDT has the power to condone the delay in filing the return of income of Mr.
Rajesh and permit carry forward of business loss of ` 51 lakhs, since the delay of one hour was
due to a genuine and justifiable reason i.e., network problem while e -filing the return.
Based on the circular mentioned above, if the claim for carry forward of business loss is 48 lakhs,
then, the Principal Chief Commissioner of Income-tax/Chief Commissioner of Income-tax has the
power to condone the delay.
(c) (i) The Model Conventions specify two approaches -
- Exemption method [Article 23A]; and
- Credit method [Article 23B]
Under the exemption method, tax exemption may be available in the Residence State. Under
the credit method, tax credit may be available in the Residence State for taxes deducted in
the Source State. These methods are not mutually exclusive and there may be cases where
a treaty may adopt exemption method for certain types of income and credit method for other
incomes.
(ii) “Juridical double taxation” arises when the same income or capital is taxable in the hands of
the same person by more than one State.
‘Economic double taxation’ happens when the same item of income or capital is taxed in more
than one States in hands of different persons.
(iii) Under Model Conventions, double taxation referred, is juridical double taxation, meaning the
same income or capital is taxable in the hands of the same person by more than one State.
It does not thus, encompass situations of economic double taxation, i.e., whe re two different
persons are taxable in respect of the same income or capital. If two States wish to solve
problems of economic double taxation, they must do so through bilateral negotiations.
6. (a) As per section 269SU, Rupal Ltd. is required to provide facility for accepting payment through the
prescribed electronic modes, in addition to the facility for other electronic modes of payment of
debit card or credit card provided by Rupal Ltd., since its total turnover in business during the
immediately preceding previous year. i.e., P.Y. 2020-21 is ` 51 crores, which exceeds the
prescribed threshold of ` 50 crores.
Prescribed electronic modes are
(1) Debit Card powered by RuPay;
(2) Unified Payments Interface (UPI) (BHIM-UPI); and
(3) Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code).
The failure to provide facility for electronic modes of payment prescribed under section 269SU by
Rupal Ltd. would attract a penalty under section 271DB of a sum of ` 5,000, for every day during
which such failure continues.
However, penalty shall not be imposed, if Rupal Ltd. proves that there were good and sufficient
reasons for such failure. Further, any such penalty shall be imposed by the Joint Commissioner.
(b) (i) In the present case, Dweep Ltd., an Indian company has 2 manufacturing units, unit M in the
SEZ and unit N in non-SEZ. Though unit M only does the packaging of goods manufactured
by Unit N, the company, in its books of account, shows the manufacture of goods by Unit N
as manufacture of goods by unit M to enjoy exemption under section 10AA. This is a case of
misrepresentation of facts by showing manufacture of non-SEZ unit as manufacture of SEZ
unit. Hence, this is an arrangement of tax evasion and not tax avoidance.
10

Tax evasion, being unlawful, can be dealt with directly by establishing correct facts. GAAR
provisions need not be invoked in such a case.
(ii) In this case, goods manufactured by unit Q, a non-SEZ unit, being a non-eligible business,
are transferred to unit P, a SEZ unit, being an eligible business, at a price significantly lower
than the market value of the goods to claim higher deduction under section 10AA in respect
of unit P.
As there is no misrepresentation of facts or false submissions, it is not a case of tax evasion.
The company has tried to take advantage of tax provisions by diverting profits from non -SEZ
unit to SEZ unit. However, this is not the intention of the legislation.
Such tax avoidance is specifically dealt with through the provisions contained in section
10AA(9), as per which provisions of section 80-IA(8) would get attracted in such a case.
Further, if the aggregate of such transactions entered into in the relevant previous year
exceed the threshold of ` 20 crore, domestic transfer pricing regulations under section 92BA
would be attracted. Hence, the Revenue need not invoke GAAR in such a case, though GAAR
and SAAR can co-exist as per clarification given in the CBDT Circular.
(c) (i) Where XYZ Ltd., a Country P company, does not have a PE in India
In this case, XYZ Ltd. would be eligible for a concessional rate of tax @10% (plus
surcharge@2% and HEC@4%) under section 115A on the fees for technical services of
` 567 lakhs (i.e., ` 265 lakhs plus ` 302 lakhs) received from the Indian companies, Y Ltd.
and G Ltd., since the same are in pursuance of agreements 4 approved by the Central
Government. No deduction, however, would be allowed in respect of expenditure of ` 59 lakhs
(i.e., ` 35 lakhs and ` 24 lakhs) incurred to earn such income.
If tax deductible at [email protected]% has been fully deducted, XYZ Ltd. need not file its return
of income in India under section 139 for A.Y.2022-23.
(ii) Where XYZ Ltd., a Country P company, has a PE in India and the contracts/agreements
are effectively connected with the PE in India.
In this case, XYZ Ltd. has a PE in India, and the agreements with Y Ltd. and G Ltd. are
effectively connected with such PE and such agreements have been entered into in the year
20155. Accordingly, as per section 44DA, the income from rendering technical services shall
be computed under the head “Profits and gains of business or profession” in accordance with
the provisions of the Income-tax Act, 1961; and shall be subject to tax@40% (plus
surcharge@2% and HEC@4%).
Accordingly, expenses of ` 35 lakhs and ` 24 lakhs incurred for earning fees for technical
services of ` 265 lakhs and ` 302 lakhs, respectively, from Y Ltd. and G Ltd., is allowable as
deduction therefrom. Further amount of ` 15.2 lakhs paid by the PE to the HO being in the
nature of reimbursement of actual expenses is allowable as deduction. However, expenditure
of ` 8.2 lakhs which is not incurred wholly and exclusively for the business of the PE and the
amount of ` 14.6 lakhs paid by the PE to the HO, not being in the nature of reimbursement of
actual expenses, are not allowable as deduction.
XYZ Ltd. is required to maintain books of account under section 44AA and get the same
audited under section 44AB and furnish report before the specified date i.e., the date one
month prior to the due date of filing return u/s 139(1) for A.Y. 2022-23.
4 entered into after 31.3.1976,

5 i.e., after 31.3.2003
11

MOCK TEST PAPER 2

SOLUTIONS
MCQ No. Most Appropriate Answer MCQ No. Most Appropriate Answer
1. (b) 9. (c)
2. (b) 10. (d)
3. (c) 11. (d)
4. (c) 12. (b)
5. (d) 13. (a)
6. (c) 14. (a)
7. (d) 15. (c)
8. (b)
1. (a) Computation of Business Income of S Ltd. for the A.Y.2022-23
Profits and gains of business and profession
Net profit as per the statement of profit and loss 5,60,00,000
Add: Items debited but to be considered separately or to be
disallowed
(a) Depreciation as per Companies Act 52,00,000
(c) Contribution to National Laboratory -
[Contribution to National laboratory for scientific research
qualifies for 100% deduction u/s 35(2AA).
Since 100% has been debited to the statement of profit and
loss, no adjustment required to be made while computing
business income]
(e) Payment to transporter -
[No tax is required to be deducted at source u/s 194C on
payment to a transporter declaring income under section
44AE, who has furnished a declaration to that effect along
with PAN. Therefore, disallowance@30% of payment for
non-deduction at source u/s 40(a)(ia) would not be
attracted in respect of payment of ` 3.50 lakhs to M/s. BP
Transport]
(f) Interest on loan for purchase of plant and machinery 5,00,000
[Interest on loan taken for purchase of plant and machinery
for use in business is allowable as deduction u/s 36(1)(iii)
for the period after the date the asset is first put to use.
Hence, such interest for the period upto the date the asset
is first put to use is not allowable as deduction.

Accordingly, out of ` 15 lakhs paid towards such interest,
only ` 10 lakhs is allowable as deduction. ` 5 lakhs, being
interest paid upto the the date till such machinery was
commissioned has to be added back while computing
business income]
(g) Bad debts written off -
[No adjustment is required in respect of debt of ` 20 lakhs
written off owing to insolvency of the debtor, since bad
debts written off in the books of account is fully allowable
as deduction u/s 36(1)(vii).
Since the said amount has already been debited to the
statement of profit and loss, no further adjustment is
required]
(i) Payment for online advertisement services 5,00,000
[Since the payment for online advertisement services is
made to a non-resident not having PE in India, equalization
levy@6% has to be deducted. Since the same has not been
deducted, disallowance@100% of the payment would be
attracted u/s 40(a)(ib)]
(j) Expenses on foreign travel of two directors for a 2,00,000
collaboration agreement which failed to materialize
[Where expenditure is incurred for a project not related to
the existing business and the project was abandoned
without creating a new asset, the expenses are capital in
nature.1
Since the amount has been debited to the statement of
profit and loss, the same has to be added back]
AI(iv) Purchase of cotton at a price higher than the FMV 4,00,000
[Since the purchase is from a related party, a firm in which
majority of the directors of the company are partners, at a
price higher than the fair market value, the difference
between the purchase price (` 5,000 per bale) and the fair
market value (` 4,600 per bale) multiplied by the quantity
purchased (1000 bales) has to be added back] 68,00,000
6,28,00,000
Less: Items credited to statement of profit and loss, but not
includible in business income/ permissible
expenditure and allowances
(b) Industrial power tariff concession received from State -
Government
[Any assistance in the form of, inter alia, concession
received from the Central or State Government would be
treated as income. Since the same has been credited to
statement of profit and loss, no adjustment is required]
(d) Profit on sale of plot of land 8,00,000
1 Mc Gaw-Ravindra Laboratories (India) Ltd. v. CIT (1994) 210 ITR 1002 (Guj).

[Short-term capital gains arise on sale of plot of land held
for less than 24 months. However, in this case, since the
transfer is to a 100% subsidiary company, which is an
Indian company, the same would not constitute a transfer
for levy of capital gains tax as per section 47(iv).
profit and loss, the same has to be reduced while
(h) Additional compensation received from State 5,00,000
Government in respect of land
[Since the additional compensation has been received
pursuant to an interim order of the Court, the same would be
deemed as income chargeable to tax under the head
“Capital Gains” in the year of final order as per section
45(5).
Since the compensation has been credited to the
statement of profit and loss, the same has to be deducted
while computing business income”]
AI(i) Depreciation as per Income-tax Rules, 1962 71,75,000
[` 71,00,000, being normal depreciation on book assets

+ ` 75,000, being 15% of ` 5,00,000, being the interest
on loan taken for acquiring plant and machinery upto the
date of commissioning]
AI(ii) Discount on issue of debentures 9,00,000
[Allowable as deduction over the tenure of debentures i.e.,

5 years Hence, 1/5 th allowable as deduction in P.Y.2021-
22 (1/5th of ` 45 lakhs, being 3% of ` 1500 lakhs)]
AI(iii) Purchases omitted to be recorded in the books of 3,00,000
account
Since the purchase is made in March, 2022 (i.e., P.Y.
2021-22), in respect of which bill of ` 3 lakhs received in
March, 2022, which has been omitted to be recorded in
the books in this year, it has to be deducted to compute
the business income 2 It is logical to assume that the
company is following mercantile system of accounting 96,75,000
Profits and gains from business and profession 5,31,25,000
2. (a) Computation of book profit for levy of MAT under section 115JB for A.Y. 2022-23
Particulars ` `
Net Profit as per Statement of Profit and Loss 95,00,000
Add: Net Profit to be increased by the followings amounts as per
- Depreciation 10,00,000
2 Kedarnath Jute Manufacturing Company Ltd. v. CIT (1971) 82 ITR 363 (SC)

- Provision for doubtful debts i.e. provision for diminution in
value of asset i.e. debtors 2,00,000
- Reserve for currency fluctuation reserve 1,25,000
13,25,000
1,08,25,000
Less: Net Profit to be decreased by the followings amounts as per
- Net agricultural income 5,00,000
Net agricultural income is to be reduced, since it is exempt
under section 10(1)]
- Depreciation other than deprecation on revaluation of assets 8,10,000
is to be reduced while computing book profit [10,00,000 –
1,90,000] 13,10,000
Book profit under section 115JB 95,15,000
Computation of Minimum Alternate Tax under section 115JB

Particulars `
15% of book profit (` 95,15,000 x 15%) 14,27,250
Add: Health & Education cess@4% 57,090
Minimum Alternate Tax under section 115JB 14,84,340
Notes:
(1) Only the specified items mentioned under Explanation 1 below section 115JB(2) can be added
back or deducted to the net profit as per the Statement of Profit and Loss prepared as per the
Companies Act for computing book profit for levy of MAT. Since the following items are not
specified in the said Explanation 1, the same cannot be added back or deducted for computing
book profit:
• Penalty for infraction of law
• Unpaid interest to financial institutions
• Profits from a new industrial undertaking eligible for deduction under section 80 -IA
(2) For computing the book profit, since provisions for GST is an ascertain liability, it is not added
back.
(3) No adjustment is required in respect of interest on borrowed capital of ` 1,00,000 payable to
Y, not debited to statement of profit and loss, since the net profit as per the Statement of Profit
and Loss prepared as per the Companies Act and the items specified for exclusion/inclusion
under section 115JB alone have to be considered while computing the book profit for levy of
MAT.
(4) Depreciation as per Income-tax Act, 1961 is not relevant for computing book profit for levy of
MAT.
(b) (i) International transaction is a transaction between associated enterprises, either or both of
whom are non-residents, in the nature of, inter alia, purchase, sale of tangible or intangible
property. Transfer pricing provisions under the Income-tax Act, 1961 would get attracted in
respect of an international transaction. In this case, one of the enterprises, i.e ., ABC Inc., a

London based company, is a non-resident. The transaction in question is the transfer of
engravings, i.e., transfer is of an intangible property.
However, two enterprises would be deemed as associated enterprises if one enterprise holds,
directly or indirectly, shares carrying not less than 26% voting power in the other enterprise.
In this case, ABC Inc. indirectly holds only 24% voting power / (32% of 75%) in Beta Ltd., an
Indian company. Hence, ABC Inc. and Beta Ltd. are not associated enterprises.
Since the transaction of transfer of engravings is not between associated enterprises, it would
not fall within the meaning of international transaction. Hence, transfer pricing provisions
would not be attracted in this case.
(ii) Tikku Infra is eligible for deduction@100% of the profits derived from its eligible business (i.e.,
the business of developing an infrastructure facility, namely, a highway project in this case)
under section 80-IA. However, Tikku Trading is not engaged in any “eligible business”. Since
Tikku Trading has transferred construction materials to Tikku Infra at a price lower than the
fair market value, it is an inter-unit transfer of goods between eligible business and other
business, where the consideration for transfer does not correspond with the market value of
goods.
This transaction would fall within the meaning of “specified domestic transaction” to attract
transfer pricing provisions, only if the aggregate value of such transactions during the year
exceeds a sum of ` 20 crore.
In this case, however, the aggregate value of transactions between Tikku Infra and Tikku
Trading does not exceed ` 20 crore. Hence, the transaction is not a specified domestic
transaction to attract transfer pricing provisions under the Income-tax Act, 1961. Accordingly,
transfer pricing provisions would not be attracted in respect of this transaction.
Note - In the absence of information in the question, it is assumed that there are no other
such transactions during the year falling within the scope of section 92BA.
(iii) Where a company eligible for benefit under section 115BAB enters into a transaction with any
other person with whom it has close connection, and the transactions between them are
arranged in a manner resulting in more than ordinary profits arising to the company eligible
for benefit u/s 115BAB, then, such transactions would fall within the scope of “specified
domestic transaction” under section 92BA, if the aggregate value of such transactions (listed
out in section 92BA) entered into by the company in the previous year exceeds ` 20 crore.
In this case, A Ltd. is a company eligible for deduction under section 115BAB which has
entered into a transaction with B Ltd., a company in which Mr. X (a person who has controlling
interest in A Ltd.) has controlling interest. Further, the said transaction for supply of cables by
B Ltd. to A Ltd. result in more than ordinary profits to A Ltd. (on account of the supply being
made by B Ltd. to A Ltd. at a lower rate than the arm’s length ra te).
Also, the aggregate value of such transactions entered into by the two companies exceed
` 20 crore. Consequently, the said transactions between A Ltd. and B Ltd. are “specified
domestic transactions” under section 92BA and transfer pricing provisions under the Income-
tax Act,1961 would be attracted.
3. (a) (i) The contention of the institution is not correct. Since the institution has receipts from a
university specified under section 10(23C)(iiiad) and a hospital specified under section
10(23C)(iiiae), and the combined receipts of ` 6.1 crore exceed the threshold receipt of ` 5
crore, the institution would not be eligible for exemption under sections 10(23C)(iiiad) and
10(23C)(iiiae). The institution has to make an application to the Principal Commissioner or
Commissioner within the prescribed time limit for grant of approval for claiming exemption
under section 10(23C)(vi) and (via).

(ii) The proposed action of the trust is not correct. As per Explanation 5 to section 11(1), with
effect from A.Y.2022-23, no set off or deduction or allowance of any excess application of any
of the year preceding the previous year shall be made in computation of income required to
be applied or accumulated during the previous year. Accordingly, excess application of `27
lakhs in the P.Y.2020-21 cannot be set-off while computing income required to be applied or
accumulated during the P.Y.2021-22.
(iii) The proposed claim of the trust is not correct. As per clause (ii) of Explanation 4 to section
11(1), application for charitable purposes from a loan or borrowing shall not be treated as
application of income for charitable purposes. However, the amount not so treated as
application, or part thereof, would be treated as application for charitable purposes in the
previous year in which the loan is repaid from the income of that year and to the extent of
such repayment.
Accordingly, the trust cannot claim ` 38 lakhs as application of income of A.Y.2022-23, since
the amount is spent out of loan taken from Canara Bank. However, it can treat the amount of
` 2.8 lakhs repaid during the P.Y.2021-22 as application of income in that year.
(b) (i) Computation of tax payable in case where there is a DTAA with the foreign country
The DTAA with the foreign country provides that the income would be taxable in country where
it is earned and not in other country, but it would be included for computation of tax rate in
such other country.
Thus, business income of ` 21,00,000 in foreign country would not be taxable in India in the
hands of Ms. Radha, however, such income has to be included in the total income to
determine the effective rate of tax applicable on Indian income chargeable to tax in India.
Particulars `
Business Income
- Foreign country 21,00,000
- In India 8,75,000
Section 80D – Medical insurance premium of ` 35,000 allowable to the
extent of ` 25,000 [Since her mother aged 63 years is a non-resident] 25,000
Tax on total income [30% of ` 19,50,000 + ` 1,12,500] 6,97,500
Tax Liability 7,25,400
Tax rate [` 7,25,400 / ` 29,50,000 x 100] 24.59%
Tax payable = 24.59% x ` 8,50,000 [` 8,75,000 – ` 25,000] 2,09,015
Tax payable (rounded off) 2,09,020
(ii) Computation of tax payable in case where there is no DTAA with the foreign country
In such case, Ms. Radha would be allowed deduction under section 91, since she has satisfied
the following conditions:-
(a) She is a resident in India during the relevant previous year i.e., P.Y.2021-22.

(b) The business income of ` 21,00,000 accrues or arises to her outside India and such
income is not deemed to accrue or arise in India during the previous year.
(c) Such business income has been subjected to tax in the foreign country@18%3
Particulars `
Tax Liability (computed above would remain same) 7,25,400
Less: Rebate under section 91 (See Working Note below) 3,78,000
Tax Payable 3,47,400
Working Note:
Calculation of Rebate under section 91
Average rate of tax in India [` 7,25,400/` 29,50,000 x 24.59%
100]
Average rate of tax in Foreign Country 18%
Doubly taxed income (Business income in foreign ` 21,00,000
country)
Rebate u/s 91 on ` 21,00,000 @18% [being the lower of average Indian 3,78,000
tax rate (24.59%) and foreign tax rate (18%)]
4. (a) (i) Section 206C(1G) provides for collection of tax@ 5% by every person, being a seller of an
overseas tour programme package, who receives any amount from the buyer who purchases
the package. The threshold limit of ` 7 lakh is not applicable in case of collection of tax at
source by a seller of an overseas tour programme package from a buyer who purchases such
package. Hence, tax has to be collected@5% of the amount received by the seller of an
overseas tour programme package from a buyer even if the amount is less than ` 7 lakh.
However, as per Notification No. 20/2022 dated 30.3.2022, TCS u/s 206C(1G) would not be
applicable, if the buyer is an individual who is not a resident in India in terms of section 6(1)
and (1A); and who is visiting India.
Mr. Aryan, an Indian citizen living in Australia, came on a visit to India during the
P.Y. 2021-22. He does not have any source of income in India. During that previous year, he
stayed in India for only 21 days (4 days in February + 17 days in March). Since his stay in
India during the P.Y.2021-22 is less than 182 days, he is non-resident in India for the said
previous year.
Accordingly, in this case, since Mr. Aryan is a non-resident who is visiting India,
M/s. Satya Travels, the tour package operator, is not required to collect tax at source under
section 206C(1G) on the amount of ` 5.2 lakh received from him for purchase of tour
programme package to Malaysia.
(ii) For the provisions of section 194Q to be attracted, a buyer is required to have a total sales or
gross receipts or turnover from the business carried on by it exceeding ` 10 crore during the
financial year immediately preceding the financial year in which the purchase of goods is
carried out. The CBDT has, vide Circular No. 13/2021, dated 30.6.2021, clarified that since
this condition would not be satisfied in the year of incorporation, the provisions of section
194Q shall not apply in the year of incorporation. Since Shristi Ltd. is incorporated in the P.Y.
3 It is presumed that she has paid tax on such income in that country.

2021-22, it would not qualify as a “buyer” for the purpose of section 194Q for the said previous
year, inspite of its turnover exceeding ` 10 crores in the said previous year.
However, since Filip & Co.’s turnover for the F.Y. 2020-21 exceeds ` 10 crores and its receipts
from Shristi Ltd. exceed ` 50 lakhs, TCS provisions under section 206C(1H) would be
attracted in its hands. TCS would be attracted at the time of receipt of consideration (i.e., in
respect of receipts in excess of sale consideration of ` 50 lakhs).
No tax is to be collected u/s 206C(1H) on 1.9.2021, since the aggregate receipts till that date
i.e., ` 32 lakhs, has not exceeded the threshold of ` 50 lakhs.
Tax of ` 1300 (i.e., 0.1% of ` 13 lakhs) has to be collected u/s 206C(1H) by M/s Filip & Co.
on 18.10.2021 (` 31 lakh – ` 18 lakhs, being the balance unexhausted threshold limit).
Tax of ` 1,800 (i.e., 0.1% of ` 18 lakhs) has to be collected u/s 206C(1H) by M/s. Filip & Co.
on 18.12.2021.
(iii) In a case where sale of goods of an e-commerce participant (Mr. Adheer) is facilitated by an
e-commerce operator (WINKLE) through its e-commerce website, section 194-O requires the
e-commerce operator to deduct tax at source@1% on ` 52 lakhs, being the gross amount of
sales facilitated through the e-commerce website.
As per section 206AA, in case where the deductee has not furnished his PAN, tax is required
to deducted at source at higher of 1% or 5%. Accordingly, tax has to be deducted at source
@5% of ` 52 lakhs = ` 2.6 lakhs.
(b) (i) Where Turnip Inc. and Sam Inc. have no permanent establishment in India
Equalisation levy would not be attracted in the present case since Turnip Inc., a non-resident
service recipient does not have a permanent establishment in India. Therefore, the Turnip Inc. is
not required to deduct equalisation levy @ 6% on ` 5 lakhs, being the amount paid towards online
advertisement services to Sam Inc.
However, equalisation levy @2% under section 165A is attracted on ` 5 lakhs, being the amount
of consideration received by Sam Inc, an e-commerce operator from e-commerce services
provided by it to Turnip Inc., a non-resident in the specified circumstance, namely, sale of
advertisement, which targets a customer, who is resident in India, since the gross receipt of Sam
Inc. in the P.Y. 2021-22 exceeds ` 2 crores.
(ii) Where Turnip Inc. has a permanent establishment in India but Sam Inc. does not have a
permanent establishment in India
In the present case, equalisation levy @6% is chargeable on the amount of ` 5,00,000 received
by Sam Inc., a non-resident not having a PE in India from Turnip Inc., a non-resident having a PE
in India. Accordingly, Turnip Inc. is required to deduct equalisation levy of ` 30,000 i.e., @6% of `
5 lakhs, being the amount paid towards online advertisement services provided by Sam Inc., a non-
resident having no permanent establishment in India. Non-deduction of equalisation levy would
attract disallowance under section 40(a)(ib) of 100% of the amount paid while computing business
income.
Since, equalisation levy is attracted on the amount of ` 5 lakhs, the said amount is exempt from
income-tax by virtue of section 10(50) of the Income-tax Act, 1961.
(iii) Where Sam Inc. has a permanent establishment in India and the advertisement services are
effectively connected with such PE
Equalisation levy would not be attracted where the non-resident service provider (Sam Inc., in this case)
has a permanent establishment in India and the service is effectively connected to the permanent
establishment in India. Therefore, Turnip Inc. is not required to deduct equalisation levy on ` 5 lakhs,
being the amount paid towards online advertisement services to Sam Inc, in this case.

Since equalisation levy is not attracted in this case, exemption under section 10(50) of the Income-
tax Act, 1961 would not be available.
It is immaterial whether Turnip Inc. has a PE in India or not for the purpose of equalisation levy
implication of advertisement transaction, as in both the cases, equalisation levy would not be
attracted.
However, since Sam Inc. has a PE in India and advertisement services are effectively connected with
the PE in India, income attributable from such advertisement would be deemed to accrue or arise in
India in the hands of Sam Inc. under section 9(1)(i) and be taxable in the hands of Sam Inc. under
the Income-tax Act, 1961.
5. (a) Dispute Resolution Committee (DRC) would resolve dispute in the case of a person who opts for
dispute resolution under Chapter XIX-AA in respect of dispute arising from any variation in the
specified order in his case and who fulfils the specified conditions. Specified order includes an
assessment order passed under section 143(3), where the aggregate sum of variations made vide
such order does not exceed ` 10 lakh; the total income as per such return furnished by the
assessee for the assessment year relevant to such order does not exceed ` 50 lakhs and such
order is not based on search or requisition or survey or any information under a DTAA.
In the present case, Mr. Sanjay cannot file an application before DRC, since the assessment order
received on 12.12.2022 is not a specified order since total income as per return furnished by Mr.
Sanjay of ` 5,00,000 exceeds the threshold limit of ` 50,00,000 though he satisfies the specified
conditions on account of no order of detention being made and no prosecution proceedings being
initiated or launched against him.
However, Mr. Sanjay, can file an appeal before the Commissioner of Income-tax (Appeals) under
section 246A(1) against such order passed under section 143(3) within 30 days of the date of
service of the notice of demand relating to the assessment. Moreover, in case he does not want
to prefer an appeal, then he can move a revision petition before the Principal Commissioner or
Commissioner of Income-tax under section 264 within a period of one year from the date of on
which the order was communicated to him or the date on which he otherwise came to know of it,
whichever is earlier.
(b) Section 119(2)(b) empowers the CBDT to authorise any income tax authority to admit an
application or claim for any exemption, deduction, refund or any other relief under the Act after
the expiry of the period specified under the Act, to avoid genuine hardship in any case or class of
cases. The claim for carry forward of loss in case of late filing of a return is relatable to a claim
arising under the category of “any other relief available under the Act”. Therefore, the CBDT has
the power to condone delay in filing of such loss return due to genuine reasons.
The facts of the case are similar to the case of Lodhi Property Company Ltd. v. Under Secretary,
(ITA-II), Department of Revenue (2010) 323 ITR 0441, where the Delhi High Court held that the
Board has the power to condone the delay in case of a return which was filed late and where a
claim for carry forward of losses was made. The delay was only one day and the assessee had
shown justifiable reason for the delay of one day in filing the return of income. If the delay is not
condoned, it would cause genuine hardship to the assessee. Therefore, the Court held that the
delay of one day in filing of the return had to be condoned.
The CBDT Circular No. 9/2015 dated 09.06.2015 expressly clarifies that the following authorities
to be approached for this purpose:
Quantum of loss Authority to be approached
Where the loss is upto `10 lakhs The Principal CIT or CIT
Where the loss is above ` 10 lakhs but upto `50 lakhs The Principal CCIT or CCIT
Where the loss is above ` 50 lakhs The CBDT

Applying the rationale of the above court ruling and the clarification given in CBDT Circular to the
case on hand, the CBDT has the power to condone the delay in filing the return of income of Mr.
Rajesh and permit carry forward of business loss of ` 51 lakhs, since the delay of one hour was
due to a genuine and justifiable reason i.e., network problem while e -filing the return.
Based on the circular mentioned above, if the claim for carry forward of business loss is 48 lakhs,
then, the Principal Chief Commissioner of Income-tax/Chief Commissioner of Income-tax has the
power to condone the delay.
(c) (i) The Model Conventions specify two approaches -
- Exemption method [Article 23A]; and
- Credit method [Article 23B]
Under the exemption method, tax exemption may be available in the Residence State. Under
the credit method, tax credit may be available in the Residence State for taxes deducted in
the Source State. These methods are not mutually exclusive and there may be cases where
a treaty may adopt exemption method for certain types of income and credit method for other
incomes.
(ii) “Juridical double taxation” arises when the same income or capital is taxable in the hands of
the same person by more than one State.
‘Economic double taxation’ happens when the same item of income or capital is taxed in more
than one States in hands of different persons.
(iii) Under Model Conventions, double taxation referred, is juridical double taxation, meaning the
same income or capital is taxable in the hands of the same person by more than one State.
It does not thus, encompass situations of economic double taxation, i.e., whe re two different
persons are taxable in respect of the same income or capital. If two States wish to solve
problems of economic double taxation, they must do so through bilateral negotiations.
6. (a) As per section 269SU, Rupal Ltd. is required to provide facility for accepting payment through the
prescribed electronic modes, in addition to the facility for other electronic modes of payment of
debit card or credit card provided by Rupal Ltd., since its total turnover in business during the
immediately preceding previous year. i.e., P.Y. 2020-21 is ` 51 crores, which exceeds the
prescribed threshold of ` 50 crores.
Prescribed electronic modes are
(1) Debit Card powered by RuPay;
(2) Unified Payments Interface (UPI) (BHIM-UPI); and
(3) Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code).
The failure to provide facility for electronic modes of payment prescribed under section 269SU by
Rupal Ltd. would attract a penalty under section 271DB of a sum of ` 5,000, for every day during
which such failure continues.
However, penalty shall not be imposed, if Rupal Ltd. proves that there were good and sufficient
reasons for such failure. Further, any such penalty shall be imposed by the Joint Commissioner.
(b) (i) In the present case, Dweep Ltd., an Indian company has 2 manufacturing units, unit M in the
SEZ and unit N in non-SEZ. Though unit M only does the packaging of goods manufactured
by Unit N, the company, in its books of account, shows the manufacture of goods by Unit N
as manufacture of goods by unit M to enjoy exemption under section 10AA. This is a case of
misrepresentation of facts by showing manufacture of non-SEZ unit as manufacture of SEZ
unit. Hence, this is an arrangement of tax evasion and not tax avoidance.
10

Tax evasion, being unlawful, can be dealt with directly by establishing correct facts. GAAR
provisions need not be invoked in such a case.
(ii) In this case, goods manufactured by unit Q, a non-SEZ unit, being a non-eligible business,
are transferred to unit P, a SEZ unit, being an eligible business, at a price significantly lower
than the market value of the goods to claim higher deduction under section 10AA in respect
of unit P.
As there is no misrepresentation of facts or false submissions, it is not a case of tax evasion.
The company has tried to take advantage of tax provisions by diverting profits from non -SEZ
unit to SEZ unit. However, this is not the intention of the legislation.
Such tax avoidance is specifically dealt with through the provisions contained in section
10AA(9), as per which provisions of section 80-IA(8) would get attracted in such a case.
Further, if the aggregate of such transactions entered into in the relevant previous year
exceed the threshold of ` 20 crore, domestic transfer pricing regulations under section 92BA
would be attracted. Hence, the Revenue need not invoke GAAR in such a case, though GAAR
and SAAR can co-exist as per clarification given in the CBDT Circular.
(c) (i) Where XYZ Ltd., a Country P company, does not have a PE in India
In this case, XYZ Ltd. would be eligible for a concessional rate of tax @10% (plus
surcharge@2% and HEC@4%) under section 115A on the fees for technical services of
` 567 lakhs (i.e., ` 265 lakhs plus ` 302 lakhs) received from the Indian companies, Y Ltd.
and G Ltd., since the same are in pursuance of agreements 4 approved by the Central
Government. No deduction, however, would be allowed in respect of expenditure of ` 59 lakhs
(i.e., ` 35 lakhs and ` 24 lakhs) incurred to earn such income.
If tax deductible at [email protected]% has been fully deducted, XYZ Ltd. need not file its return
of income in India under section 139 for A.Y.2022-23.
(ii) Where XYZ Ltd., a Country P company, has a PE in India and the contracts/agreements
are effectively connected with the PE in India.
In this case, XYZ Ltd. has a PE in India, and the agreements with Y Ltd. and G Ltd. are
effectively connected with such PE and such agreements have been entered into in the year
20155. Accordingly, as per section 44DA, the income from rendering technical services shall
be computed under the head “Profits and gains of business or profession” in accordance with
the provisions of the Income-tax Act, 1961; and shall be subject to tax@40% (plus
surcharge@2% and HEC@4%).
Accordingly, expenses of ` 35 lakhs and ` 24 lakhs incurred for earning fees for technical
services of ` 265 lakhs and ` 302 lakhs, respectively, from Y Ltd. and G Ltd., is allowable as
deduction therefrom. Further amount of ` 15.2 lakhs paid by the PE to the HO being in the
nature of reimbursement of actual expenses is allowable as deduction. However, expenditure
of ` 8.2 lakhs which is not incurred wholly and exclusively for the business of the PE and the
amount of ` 14.6 lakhs paid by the PE to the HO, not being in the nature of reimbursement of
actual expenses, are not allowable as deduction.
XYZ Ltd. is required to maintain books of account under section 44AA and get the same
audited under section 44AB and furnish report before the specified date i.e., the date one
month prior to the due date of filing return u/s 139(1) for A.Y. 2022-23.
4 entered into after 31.3.1976,

5 i.e., after 31.3.2003
11

MOCK TEST PAPER 2
FINAL COURSE: GROUP - II
PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXAXTION
Working Notes should form part of the answer. Wherever necessary, suitable assumptions may be made by
the candidates and disclosed by way of a note. However, in answers to Questions in Division A, working
notes are not required.
All questions relate to Assessment Year 2022-23, unless stated otherwise in the question.
Total Marks: 100 Marks Time Allowed: 3 Hours

Write the most appropriate answer to each of the following multiple-choice questions by choosing
one of the four options given. All questions are compulsory.
Case Scenario I
Neha purchased a land in Surat at a cost of ` 60 lakhs in August 2008 and held the same as her capital asset
till 31st August, 2020. She started her real estate business on 1 st September, 2020 and converted the said
land into stock-in-trade of her business on the said date, when the fair market value of the land was ` 350
lakhs.
She constructed 25 apartments of equal size, quality and dimension and the construction was completed in
January, 2022. Cost of construction of each apartment is ` 20 lakhs. She sold 20 apartments at
` 40 lakhs per apartment in January 2022 and February, 2022. The remaining 5 apartments were held in
stock as on 31st March, 2022. All the five apartments were sold in April, 2022 at ` 42 lakhs per apartment.
She also holds a penthouse in Nagpur, construction of which was completed in March, 2021, as stock -in-
trade. She let out the penthouse to Mr. Harsh, a salaried individual, for ` 62,000 per month from April, 2021
to March, 2023, to whom she has furnished her PAN. He paid municipal taxes of ` 6,400 each for the years
2021-22 and 2022-23 in March, 2022 and March, 2023, respectively. The said penthouse was, thereafter,
sold in April, 2023 for ` 70 lakhs.
She invested ` 20 lakhs in bonds issued by National Highway Authority of India on 31 st March, 2022;
` 20 lakhs in bonds of Rural Electrification Corporation Ltd. on 15th September 2022, ` 10 lakhs in bonds of
Rural Electrification Corporation Ltd. on 30 th September, 2022 and ` 10 lakhs in bonds of National Highway
Authority of India on 31 st December, 2022. Neha is subject to tax audit for the P.Y.2021-22.
Cost Inflation Indices:
F.Y.2008-09: 137;
F.Y.2018-19: 280;
F.Y.2019-20: 289;
F.Y.2020-21: 301;
F.Y.2021-22: 317.
On the basis of the facts given above, choose the most appropriate answer to Q.1 to Q.5 below -
1 What is the amount of capital gains chargeable to tax in the hands of Neha for A.Y.2022-23?
(a) ` 1,18,93,431

(b) ` 1,54,54,015
(c) ` 1,48,93,431
(d) ` 1,24,54,015
2. What is the amount of income chargeable to tax in the hands of Neha for A.Y.2022-23 under the head
“Profits and gains of business or profession”?
(a) ` 400 lakhs
(b) ` 120 lakhs
(c) ` 50 lakhs
(d) ` 660 lakhs
3. What is the amount of income chargeable to tax under the head “Capital gains” and “Profits and gains
of business or profession” in the hands of Neha for the A.Y.2023-24?
(a) Nil and Nil, respectively
(b) ` 39,99,972 and ` 40,00,000, respectively
(c) ` 13,63,504 and ` 40,00,000, respectively
(d) ` 3,63,504 and ` 40,00,000, respectively
4. Is the annual value of penthouse held as stock-in-trade taxable? If so, under which head and what is
the amount taxable for A.Y.2022-23?
(a) No, since annual value of property held as stock-in-trade is exempt for a period of two years from
the end of the financial year of completion of construction
(b) Yes, ` 5,16,320 under the head “Income from house property”
(c) Yes, ` 5,20,800 under the head “Income from house property”
(d) The rental income of ` 7,44,000 is chargeable under the head “Profits and gains of business or
profession”, since property is held as stock in trade
5. Is Mr. Harsh liable to deduct tax at source on rent paid to Neha in the F.Y.2021-22? If so, what is the
amount of tax to be deducted and when?
(a) No, since Mr. Harsh, being a salaried employee, is not subject to tax audit; hence, there is no
obligation to deduct tax at source
(b) Yes, he has to deduct tax at source of ` 6,200 from rent payable every month
(c) Yes, he has to deduct tax at source of ` 3,100 from rent payable every month
(d) Yes, he has to deduct tax of ` 37,200 from the rent payable for March, 2022 (2 x 5 = 10 Marks)
Case Scenario II
Mr. Anmay, a resident Indian, is in retail business in Delhi and his turnover for F.Y.2020-21 was ` 9.2 crores.
He regularly purchases goods from another resident, Mr. Parth, a wholesaler in Delhi, and the aggregate
payments made by Mr. Anmay to Mr. Parth during the F.Y.2021-22 was ` 85 lakh (` 25 lakh on 8.5.2021,
` 20 lakh on 27.8.2021, ` 25 lakh on 18.10.2021 and ` 15 lakh on 11.2.2022). Mr. Parth’s turnover for
F.Y.2020-21 was ` 13.5 crores.

Mr. Parth paid ` 5.2 lakhs on 1.9.2021 to M/s. Sharp Travels for a holiday package to Singapore for a week
with his family, comprising of his wife and two children, being twins aged 21 years, in the last week of
September. He also took an education loan of ` 13 lakhs on 1.2.2022 from Bank of India, Madam Cama
Road, Mumbai, for his son’s two-year Master of Public Administration program in Columbia University, USA
and remitted the said amount through the same bank, which is an authorised dealer, under the Liberalised
Remittance Scheme of RBI (LRS). For his daughter’s MBA in Iowa State University, USA, he remitted ` 12
lakhs on 15.2.2022, out of his personal savings, through Bank of India, Bandra branch, Mumbai which is also
an authorised dealer, under LRS. Mr. Parth also remitted ` 6.5 lakh on 28.3.2022, out of his personal savings,
under LRS through Bank of India, Bandra branch, as gift to his sister residing in London, on the occasion of
her 50th birthday.
On the basis of the facts given above, choose the most appropriate answer to Q. 6 to Q.10 below -
6. Are provisions of TDS/TCS under the Income-tax Act, 1961 attracted in respect of purchase/sale
transaction between Mr. Anmay and Mr. Parth? If so, what is the quantum of tax to be deducted/collected
for the P.Y.2021-22?
(a) No; TDS/TCS provisions are not attracted for F.Y.2021-22, since the turnover of Mr. Anmay in the
immediately preceding financial year i.e., F.Y.2020-21 does not exceed ` 10 crores.
(b) Yes, Mr. Anmay has to deduct [email protected]% of ` 40 lakhs (` 25 lakhs on 18.10.2021 and
` 15 lakhs on 11.2.2022)
(c) Yes, Mr. Parth has to collect [email protected]% of ` 35 lakhs (` 20 lakhs on 18.10.2021 and ` 15 lakhs on
11.2.2022)
(d) Yes, Mr. Parth has to collect [email protected]% of ` 35 lakhs (` 20 lakhs on 18.10.2021 and ` 15 lakhs on
11.2.2022)
7. In case of failure to furnish PAN by the deductee/collectee as required based on the answer to Q. 6
above, what would be the applicable rate of TDS/TCS?
(a) Not applicable, since there is no requirement to deduct or collect tax
(b) 20%
(c) 5%
(d) 1%
8. Is Sharp Travels required to collect tax at source on receipt of ` 5.2 lakh from Mr. Parth for holiday
package to Singapore? If so, what is the amount of tax to be collected?
(a) TCS provisions are not attracted in respect of this transaction
(b) Yes; ` 26,000
(c) Yes; ` 2,600
(d) No tax is required to be collected at source, since the receipt does not exceed ` 7 lakh
9. What is the amount of tax to be collected from Mr. Parth in respect of the remittance of amounts overseas
for his son’s and daughter’s education?
(a) [email protected]% of ` 6 lakhs and ` 5 lakhs are attracted in respect of remittance for son’s and
daughter’s education, respectively.
(b) TCS@5% of ` 6 lakhs and ` 5 lakhs are attracted in respect of remittance for son’s and daughter’s
education, respectively

(c) [email protected]% of ` 6 lakhs and TCS@5% of ` 5 lakhs are attracted in respect of remittance for son’s
and daughter’s education, respectively.
(d) TCS@5% of ` 6 lakhs is attracted in respect of remittance for son’s education; No TCS is attracted
in respect of remittance for daughter’s education.
10. Are TCS provisions attracted in respect of remittance of gift to sister? If so, what is the amount of tax to
be collected from Mr. Parth?
(a) No, since the remittance is out of personal savings for a personal purpose
(b) No, since the amount remitted to his sister is less than ` 7 lakhs
(c) No, due to reasons stated in (a) and (b) above
(d) Yes, ` 32,500. (2 x 5 = 10 Marks)
11. Under which of the following methods, arm’s length price shall be the arithmetical mean of all values
included in the dataset, irrespective of the number of entries in the dataset. It may be assumed that the
variation between the arm’s length price computed and the transaction price is 15%.
(a) Resale price method
(b) Cost plus method
(c) Transactional net margin method
(d) Profit split method (2 Marks)
12. In the course of search operations under section 132 in the month of April, 2022, Mr. Atharv makes a
declaration under section 132(4) on the earning of income not disclosed in respect of P.Y. 2021 -22. He
also explains the manner in which he has derived such income and he pays the tax together with interest
on such income and declares such income in the return of income filed by him in the month of June,
2022. Is penalty leviable in this case? If so, how much?
(a) No penalty is attracted since Mr. Atharv has voluntarily made a declaration under section 132(4)
(b) Yes; Penalty@30% of undisclosed income would be attracted even if Mr. Atharv has voluntarily
made a declaration under section 132(4)
(c) Yes; Penalty@10% of undisclosed income would be attracted even if Mr. Atharv has voluntarily
(d) Yes; Penalty@60% of undisclosed income would be attracted even if Mr. Atharv has voluntarily
made a declaration under section 132(4) (2 Mark)
13. MNO Ltd. is an eligible start-up engaged in eligible business. Its gross total income included profits of
` 30 lakhs from such business. The Assessing Officer made disallowance of ` 3.2 lakhs under section
40(a)(ia) and of ` 2.5 lakhs under section 43B. The deduction allowable under section 80-IAC would
be–
(a) ` 35.7 lakhs
(b) ` 33.2 lakhs
(c) ` 30 lakhs
(d) ` 24.3 lakhs (2 Marks)

14. Mr. Ranger, a foreign national and citizen of UK, working with TPO Inc., a UK based company, came to
India during the P.Y. 2021-22 for rendering services on behalf of the employer. He wishes to claim his
salary income earned during his stay in India as exempt. Which of the following is not a condition to be
fulfilled to claim such remuneration as exempt income under the Income-tax Act, 1961?
(a) Mr. Ranger should not be engaged in any trade or business in India
(b) TPO Inc. should not be engaged in any trade or business in India
(c) Mr. Ranger’s stay in India should not exceed 90 days in aggregate during the P.Y. 2021-22
(d) Remuneration received by Mr. Ranger should not liable to be deducted from TPO Inc.'s income
chargeable to tax under the Income-tax Act, 1961 (2 Marks)
15. K Ltd. is an Indian Company in which A Inc., a Country P company, holds 32% shareholding and voting
power. During the previous year 2018-19, the Indian company supplied computers to the Country P
based company @CPD 2300 per piece. The price of computer supplied to other unrelated parties in
Country P is @CPD 2700 per piece. During the course of assessment proceedings relating to A.Y.2019 -
20, the Assessing Officer carried out primary adjustments and added a sum of ` 154 lakhs, being the
difference between actual price of computer and arm's length price for 450 pieces and it was duly
accepted by the assessee. The Assessing Officer passed the order, in which the primary adjustments
were made, on 1.7.2021. On account of this adjustment, the excess money of ` 154 lakhs is available
with A Inc, Country P. What would be the effect of this transaction while computing the total income of
K Ltd. for the assessment year 2022-23, assuming that –
(i) K Ltd. declared an income of ` 340 lakhs;
(ii) the excess money is still lying with A Inc. till today;
(iii) K Ltd. has not opted to pay additional income-tax on such excess money not repatriated; and
(iv) Six-month LIBOR as on 30.9.2021 is 9%.
[CPD stands for Country P Dollars, which is the currency of Country P].
The correct answer is -
(a) Interest of ` 13.873 lakhs would be added to the total income of K Ltd.
(b) Interest of ` 14.1099 lakhs would be added to the total income of K Ltd.
(c) Interest of ` 13.822 lakhs would be added to the total income of K Ltd.
(d) Interest of ` 10.367 lakhs would be added to the total income of K Ltd. (2 Marks)
Question No. 1 is compulsory
Attempt any four questions from the remaining five questions
1. S Ltd., engaged in the manufacture of textile since 01.05.2010. Statement of Profit and Loss for the
financial year ended 31st March, 2022 shows a profit of ` 560 lakhs after debiting or crediting the
followings items:
(a) Depreciation charged on the basis of useful life of assets as per Companies Act is ` 52 lakhs.
(b) Industrial power tariff concession of ` 5.40 lakhs, received from Uttar Pradesh Government was
credited to Statement of Profit and Loss.

(c) Contribution of ` 2.50 lakhs to a scientific laboratory functioning at the national level with a specific
direction for use of the amount for scientific research programme approved by the prescribed
authority.
(d) Profit of ` 8 lakhs on sale of a plot of land to PQR Limited, a domestic company, the entire shares
of which are held by the S Ltd. The plot was acquired by S Ltd. on 30 th June, 2021.
(e) Payment of ` 3.50 lakhs towards transportation of various materials procured by one of its units to
M/s BP Transport, a partnership firm, without deduction of tax at source. The firm opts for
presumptive taxation under section 44AE and has furnished a declaration to this effect. It also
furnished its Permanent Account Number in the tender document.
(f) Interest of 15 lakhs paid on loans taken specifically for purchase of second hand plant and
machinery. Out of this ` 5 lakhs is for the period till such machinery was commissioned on
12.08.2021.
(g) A debtor who owed the company an amount of ` 20 lakhs was declared insolvent and hence, was
written off by debiting the Statement of Profit and Loss.
(h) ` 5 lakhs, being the additional compensation received from the State Government pursuant to an
interim order of Court in respect of land acquired by the State Government in the previous year
2015-16.
(i) In order to expand its overseas business, the company planned online advertisement campaign for
which it engaged Fastex Inc., a Malaysian company not having any PE in India, and paid ` 5 lakhs
for services availed. No tax/TDS was deducted by the company.
(j) Expense of ` 2 lakhs on foreign travel of two directors for a collaboration agreement with a foreign
company for a new construction project to be set up. The negotiation did not succeed, and the
project was abandoned.
Additional Information:
(i) Normal depreciation computed as per Income-tax Rules on the book assets is ` 71 lakhs.
(ii) Debenture of face value of ` 1500 lakhs having 5 years tenure were issued at a discount of 3%
and were subscribed in full.
(iii) The company received a bill for ` 3 lakhs on 31st March, 2022 from a supplier of cotton for supply
made in March, 2022. The bill was omitted to be recorded in the books in March, 2022. Payment
against the bill was made in April, 2022 and necessary entry was made in the books then. The
same has been considered in closing inventory valuation during physical verification conducted on
31.03.2022.
(iv) The company has purchased 1000 bales of cotton at ` 5,000 per bale from PB LLP, a firm in which
majority of the directors of S Ltd. are partners. The normal selling price in the market for the same
material is ` 4,600 per bale.
Compute total business income of for A.Y. 2022-23 giving a brief explanation to each item of addition or
deletion. Ignore MAT provisions and the provisions of section 115BAA. (14 Marks)
2. (a) The accounts of Sun Pvt. Ltd. are prepared in accordance with the provisions of the Companies
Act, 2013. Its Statement of Profit and Loss for the previous year ended 31st March, 2022 shows a
net profit of ` 95 Lacs after debiting or crediting the following items:

Credits in Statement of Profit and Loss `
(1) Profit from a new industrial undertaking qualifying for deduction under 17,00,000
section 80-IA (Net)
(2) Dividend received from Investment in Indian companies 2,50,000
(3) Net agricultural income 5,00,000
Debits in Statement of Profit and Loss
(1) Depreciation 10,00,000
(2) Penalty for infraction of law 1,00,000
(3) Provision for GST 3,00,000
(4) Provision for doubtful debts 2,00,000
(5) Interest on financial institutions unpaid before due date of filing return of 1,50,000
income
(6) Reserves of currency foreign fluctuation 1,25,000
Other Information:
(i) Depreciation admissible under the Income-tax Rules, 1962 for the previous year 2021-22 is
` 19,50,000.
(ii) Depreciation (as per books) includes ` 1,90,000 on account of revaluation of assets.
(iii) Interest on borrowed capital ` 1,00,000 payable to Y, not debited to Statement of profit and
loss.
(iv) GST provided in the accounts has been remitted before the due date for filing return of
income.
Compute book profits and minimum alternate tax thereon, assuming that Sun Pvt. Ltd. is not
required to comply with the Indian Accounting Standards (Ind AS). (8 Marks)
(b) State with brief reasons, whether transfer pricing provisions are attracted in the following cases:
(i) ABC Inc, a London based foreign company transferred engravings valued at ` 55 crores to
Beta Ltd, an Indian Company during the previous year 2021-22. ABC Inc, holds 32% of voting
power in Alpha Ltd, an Indian Company which in turn holds 75% of shares in Beta Ltd.
(ii) Tikku Projects Ltd., an Indian Company, has two units, Tikku Infra and Tikku Trading. While
the Tikku Infra is engaged in the development of highway project pursuant to the agreement
entered into with Central Government since past 3 years. Tikku Trading is engaged in the
business of trading of construction materials. During the previous year 2021-22, Tikku Trading
transferred 12,000 MT of cement at ` 14,000 per MT against the prevailing market value at
` 16,000 per MT.
(iii) A Ltd, engaged in manufacturing activity of power generation, opted for concessional rate of
tax under Section 115BAB. B Ltd, supplied 10,000 MT of power cables valued at ` 23,000 per
MT to A Ltd. at ` 21,000 per MT during the previous year 2021-22. Mr. X, an individual, holding
controlling interest in both A Ltd. and B Ltd. (6 Marks)
3. (a) Examine the correctness of contention/action/treatment of the institution/charitable trust in each of
the following separate cases –
(i) An institution runs a university solely for educational purposes and a hospital solely for
philanthropic purposes. Both the university and the hospital are not for profit. The gross
receipts from the university and hospital during the F.Y.2021-22 are ` 2.5 crores and 3.6
crores, respectively. The institution contended that the income from university is eligible for
exemption u/s 10(23C)(iiiad) and income from hospital is eligible for exemption u/s
7

10(23C)(iiiae), since the aggregate annual receipts in each case does not exceed the
prescribed threshold; and there would be no requirement to get the approval of Principal
Commissioner or Commissioner for availing the benefit of exemption under section 10(23C).
(ii) A registered charitable trust, with the main object of relief of poor, wan ts to set off its excess
application of ` 15 lakhs in the P.Y.2020-21 while computing its income required to be applied
during the P.Y.2021-22.
(iii) A charitable trust registered u/s 12AB borrowed ` 38 lakhs from Canara Bank in August 2021
for purchase of building for opening a school in a rural area for primary education of children
in backward areas. It spent the entire amount for the said purpose and claimed the same as
application of income. In March, 2022, it repaid the first instalment of ` 2.8 lakhs. (8 Marks)
(b) During the Previous Year 2021-22, Ms. Radha (39 years), a citizen of India and resident of India
earned business income of ` 21,00,000 from a foreign country with which India has a Double
Taxation Avoidance Agreement (DTAA), which provides that "the income would be taxable in
country where it is earned and not in other country but would be included for computation of tax
rate in such other country."
Her income is ` 8,75,000 from business in India. In foreign country, the rate of tax is 18%. During
the year, she paid a premium of ` 35,000 to insure the health of her mother, a non-resident, aged
63 years, through her credit card. You are required to compute the tax liability by Ms. Radha in
India for the A.Y.2022-23.
Also, show the tax payable of Ms. Radha in India, had there been no DTAA with such foreign
country. Ms. Radha does not want to opt for 115BAC. (6 Marks)
4. (a) Examine the applicability of provisions relating to deduction/collection of tax at source and compute
the liability, if any, for deduction/collection of tax at source in the following cases for financial year
ended 31st March, 2022 as per provisions contained under the Income-tax Act, 1961:
(i) Mr. Aryan, an Indian Citizen, residing in Australia, came to India on a visit on 25.2.2022. He
paid ` 5.2 lakhs to a tour operator, M/s Satya Travels, based in Delhi for a tour package to
Malaysia for 2 week. He left for Malaysia on 5.3.2022 and returned to India on 20.3.2022.
Thereafter, he was in India upto 15.4.2022 on which date he took his return flight to Australia.
He does not have any source of income in India. (2 Marks)
(ii) Shristi Ltd. was incorporated on 1.4.2021 for trading of goods. Its turnover for the P.Y. 2021-
22 is ` 14.5 crores. During the P.Y.2021-22, it purchased goods from M/s. Filip Co., the details
of which are as follows:
On 1.9.2021 for ` 32,00,000;
On 18.9.2021 for ` 31,00,000 and
On 18.11.2021 for ` 18,00,000.
The above dates represent the date of credit to the account of M/s. Filip & Co. Payment is
made after one month (i.e., on the same date in the immediately following month). M/s Filip &
Co.’s turnover for the F.Y. 2020-21 and F.Y. 2021-22 was ` 11 crores and ` 9.7 crores,
respectively. (4 Marks)
(iii) Mr. Adheer [E-commerce participant] sells goods worth ` 52 lakhs on e-commerce website of
WINKLE [E-commerce operator]. Mr. Adheer has not furnished PAN or AADHAR no. to the e-
commerce operator. He has furnished his return of Income for all the assessment years before
the due date of filing return of Income. (2 Marks)
(b) Turnip Inc., a Country D based company, is carrying on the business of manufacture and sale of
Mixture Grinder under the brand name “FINEST”. In order to increase its share in Indian market, it
launched a massive advertisement campaign of its products. For the purpose of online
8

advertisement, it utilized the services of Sam Inc., a Country Y based company which also owns
and operates a digital platform. The gross receipt of Sam Inc. from provision of such services
during the P.Y.2021-22 is ` 4.2 crores. During the previous year 2021-22, Turnip Inc. paid ` 5
lakhs to Sam Inc. for such services. Discuss the tax implications of such payment and receipt in
the hands of Turnip Inc. and Sam Inc., respectively, if –
(i) Both Turnip Inc. and Sam Inc. have no permanent establishment in India
(ii) Turnip Inc. has a permanent establishment in India, but Sam Inc. has no permanent
establishment in India
(iii) Sam Inc. has a permanent establishment in India and the advertisement services are
effectively connected with such PE. (6 Marks)
5. (a) Mr. Sanjay furnished his return of income for A.Y.2021-22 declaring total income of ` 52,00,000.
He received an assessment order under section 143(3) on 12.12.2022 enhancing the total income
for the A.Y.2021-22 by ` 3,20,000. He is aggrieved by the said order and is desirous of knowing
whether he can file an application before the Dispute Resolution Committee (DRC). He informs you
that no order of detention has been made and no prosecution proceedings have been initiated or
launched against him under any law for the time being in force. However, penalty under section
271E has been levied on him for failure to comply with the provisions of section 269T.
Can Mr. Sanjay file an application before the DRC? If no, what are the other remedies available
under the Income-tax Act, 1961? (4 Marks)
(b) Rajesh regularly files his return of income electronically. While he was trying to upload his return
of income for assessment year 2021-22 on 31st December, 2021, extended due date for filing the
same, he found it extremely difficult to do the same due to network problems and ultimately, he
became successful in making e-filing of his return only at 1 a.m. on 1 st January,2022. The return
contained a claim for carry forward of business loss of ` 51 lakh. This circumstance was recorded
in an e-mail addressed to the competent income-tax authority on 1st January,2022. Rajesh made
a request to the CBDT for condonation of delay in filing the return of income.
Discuss whether the CBDT has the power to condone the delay in filing the return of income and
permit carry forward of loss in the given circumstance.
Would your answer change, if the return contained a claim for carry forward of business loss of
` 48 lakh. (4 Marks)
(c) "The application of tax treaty may result into double taxation for the taxpayers. In the light of the
statement, answer the following questions-
(i) What are the approaches for the elimination of double taxation under Model Conventions?
Explain.
(ii) Explain the meaning of Juridical Double Taxation and Economic Double Taxation.
(iii) Can the problems of Economic Double Taxation be solved by the above approaches? Explain.
(6 Marks)
6. (a) Rupal Ltd., an Indian Company engaged in trading of electronic appliances through retail stores all
across India, reported a total turnover of ` 51 crores during the previous year 2020-21 and ` 47
crores during the previous year 2021-22. The customers who purchase appliance from its stores
can pay only through cash, cheque, credit card or debit card.
Discuss the relevant provisions of the Act with respect to relevant compliances that should have
been ensured by Rupal Ltd. and in the absence of such compliances, what will be the amount of
penalty, if any, that can be levied on Rupal Ltd (4 Marks)

(b) (i) Dweep Ltd., an Indian company has 2 manufacturing units, unit M in the Special Economic
Zone (SEZ) and unit N in non-SEZ. Manufacturing activities are carried out in Unit N while unit
M only does the packaging of the goods manufactured by unit N. In its books of accounts, it
shows the manufacturing to be carried out in unit M and claims allowable deductions.
(ii) Isha Ltd., an Indian company has 2 manufacturing units, unit P in the Special Economic Zone
(SEZ) and unit Q in non-SEZ. It transfers the goods manufactured by unit Q to unit P at a
price significantly lower than the market value of the goods and thus becomes eligible for
higher deductions.
Examine the above cases and discuss whether the provisions of General Anti-avoidance Rules
(GAAR) can be invoked in these cases? (4 Marks)
(c) XYZ Ltd., a Country P company, had entered into agreements with Y Ltd., and G Ltd., Indian
companies in the year 2015 to provide technical services to them to be utilised for the business
carried on by them in India. The agreements were approved by the Central Government. Foll owing
particulars are provided by XYZ Ltd. in respect of previous year 2021-22.
Particulars Amount
(1) Fees for technical services received from Y Ltd. 265 lakhs
(2) Expenses incurred for earning such income 35 lakhs
(3) Fees for technical services received from G Ltd. 302 lakhs
Other expenses [not included in (2) and (4) above]
(5) General Expenditure not wholly and exclusively incurred for the business 8.2 lakhs
of the PE
(6) Amounts paid by the PE to HO (not being in the nature of reimbursement 14.6 lakhs
of actual expenses)
(7) Amounts paid by the PE to HO (being in the nature of reimbursement of 15.2 lakhs
actual expenses)
Examine the taxability of the income received by XYZ Ltd. on the following assumptions:
(i) XYZ Ltd., does not have a permanent establishment in India.
(ii) XYZ Ltd., has a permanent establishment in India and the contracts/ agreements are
effectively connected with such PE.
Also, discuss the requirements relating to maintaining books of accounts and audit and filing of
return of income in India by XYZ Ltd. under both the assumptions made above, under the Income-
tax Act, 1961. Also assume no DTAA exists between India and Country P. (6 Marks)
10

MOCK TEST PAPER 2

Case Scenario I
Neha purchased a land in Surat at a cost of ` 60 lakhs in August 2008 and held the same as her capital asset
till 31st August, 2020. She started her real estate business on 1 st September, 2020 and converted the said
land into stock-in-trade of her business on the said date, when the fair market value of the land was ` 350
lakhs.
She constructed 25 apartments of equal size, quality and dimension and the construction was completed in
January, 2022. Cost of construction of each apartment is ` 20 lakhs. She sold 20 apartments at
` 40 lakhs per apartment in January 2022 and February, 2022. The remaining 5 apartments were held in
stock as on 31st March, 2022. All the five apartments were sold in April, 2022 at ` 42 lakhs per apartment.
She also holds a penthouse in Nagpur, construction of which was completed in March, 2021, as stock -in-
trade. She let out the penthouse to Mr. Harsh, a salaried individual, for ` 62,000 per month from April, 2021
to March, 2023, to whom she has furnished her PAN. He paid municipal taxes of ` 6,400 each for the years
2021-22 and 2022-23 in March, 2022 and March, 2023, respectively. The said penthouse was, thereafter,
sold in April, 2023 for ` 70 lakhs.
She invested ` 20 lakhs in bonds issued by National Highway Authority of India on 31 st March, 2022;
` 20 lakhs in bonds of Rural Electrification Corporation Ltd. on 15th September 2022, ` 10 lakhs in bonds of
Rural Electrification Corporation Ltd. on 30 th September, 2022 and ` 10 lakhs in bonds of National Highway
Authority of India on 31 st December, 2022. Neha is subject to tax audit for the P.Y.2021-22.
Cost Inflation Indices:
F.Y.2008-09: 137;
F.Y.2018-19: 280;
F.Y.2019-20: 289;
F.Y.2020-21: 301;
F.Y.2021-22: 317.
On the basis of the facts given above, choose the most appropriate answer to Q.1 to Q.5 below -
1 What is the amount of capital gains chargeable to tax in the hands of Neha for A.Y.2022-23?
(a) ` 1,18,93,431

(b) ` 1,54,54,015
(c) ` 1,48,93,431
(d) ` 1,24,54,015
2. What is the amount of income chargeable to tax in the hands of Neha for A.Y.2022-23 under the head
“Profits and gains of business or profession”?
(a) ` 400 lakhs
(b) ` 120 lakhs
(c) ` 50 lakhs
(d) ` 660 lakhs
3. What is the amount of income chargeable to tax under the head “Capital gains” and “Profits and gains
of business or profession” in the hands of Neha for the A.Y.2023-24?
(a) Nil and Nil, respectively
(b) ` 39,99,972 and ` 40,00,000, respectively
(c) ` 13,63,504 and ` 40,00,000, respectively
(d) ` 3,63,504 and ` 40,00,000, respectively
4. Is the annual value of penthouse held as stock-in-trade taxable? If so, under which head and what is
the amount taxable for A.Y.2022-23?
(a) No, since annual value of property held as stock-in-trade is exempt for a period of two years from
the end of the financial year of completion of construction
(b) Yes, ` 5,16,320 under the head “Income from house property”
(c) Yes, ` 5,20,800 under the head “Income from house property”
(d) The rental income of ` 7,44,000 is chargeable under the head “Profits and gains of business or
profession”, since property is held as stock in trade
5. Is Mr. Harsh liable to deduct tax at source on rent paid to Neha in the F.Y.2021-22? If so, what is the
amount of tax to be deducted and when?
(a) No, since Mr. Harsh, being a salaried employee, is not subject to tax audit; hence, there is no
obligation to deduct tax at source
(b) Yes, he has to deduct tax at source of ` 6,200 from rent payable every month
(c) Yes, he has to deduct tax at source of ` 3,100 from rent payable every month
(d) Yes, he has to deduct tax of ` 37,200 from the rent payable for March, 2022 (2 x 5 = 10 Marks)
Case Scenario II
Mr. Anmay, a resident Indian, is in retail business in Delhi and his turnover for F.Y.2020-21 was ` 9.2 crores.
He regularly purchases goods from another resident, Mr. Parth, a wholesaler in Delhi, and the aggregate
payments made by Mr. Anmay to Mr. Parth during the F.Y.2021-22 was ` 85 lakh (` 25 lakh on 8.5.2021,
` 20 lakh on 27.8.2021, ` 25 lakh on 18.10.2021 and ` 15 lakh on 11.2.2022). Mr. Parth’s turnover for
F.Y.2020-21 was ` 13.5 crores.

Mr. Parth paid ` 5.2 lakhs on 1.9.2021 to M/s. Sharp Travels for a holiday package to Singapore for a week
with his family, comprising of his wife and two children, being twins aged 21 years, in the last week of
September. He also took an education loan of ` 13 lakhs on 1.2.2022 from Bank of India, Madam Cama
Road, Mumbai, for his son’s two-year Master of Public Administration program in Columbia University, USA
and remitted the said amount through the same bank, which is an authorised dealer, under the Liberalised
Remittance Scheme of RBI (LRS). For his daughter’s MBA in Iowa State University, USA, he remitted ` 12
lakhs on 15.2.2022, out of his personal savings, through Bank of India, Bandra branch, Mumbai which is also
an authorised dealer, under LRS. Mr. Parth also remitted ` 6.5 lakh on 28.3.2022, out of his personal savings,
under LRS through Bank of India, Bandra branch, as gift to his sister residing in London, on the occasion of
her 50th birthday.
On the basis of the facts given above, choose the most appropriate answer to Q. 6 to Q.10 below -
6. Are provisions of TDS/TCS under the Income-tax Act, 1961 attracted in respect of purchase/sale
transaction between Mr. Anmay and Mr. Parth? If so, what is the quantum of tax to be deducted/collected
for the P.Y.2021-22?
(a) No; TDS/TCS provisions are not attracted for F.Y.2021-22, since the turnover of Mr. Anmay in the
immediately preceding financial year i.e., F.Y.2020-21 does not exceed ` 10 crores.
(b) Yes, Mr. Anmay has to deduct [email protected]% of ` 40 lakhs (` 25 lakhs on 18.10.2021 and
` 15 lakhs on 11.2.2022)
(c) Yes, Mr. Parth has to collect [email protected]% of ` 35 lakhs (` 20 lakhs on 18.10.2021 and ` 15 lakhs on
11.2.2022)
(d) Yes, Mr. Parth has to collect [email protected]% of ` 35 lakhs (` 20 lakhs on 18.10.2021 and ` 15 lakhs on
11.2.2022)
7. In case of failure to furnish PAN by the deductee/collectee as required based on the answer to Q. 6
above, what would be the applicable rate of TDS/TCS?
(a) Not applicable, since there is no requirement to deduct or collect tax
(b) 20%
(c) 5%
(d) 1%
8. Is Sharp Travels required to collect tax at source on receipt of ` 5.2 lakh from Mr. Parth for holiday
package to Singapore? If so, what is the amount of tax to be collected?
(a) TCS provisions are not attracted in respect of this transaction
(b) Yes; ` 26,000
(c) Yes; ` 2,600
(d) No tax is required to be collected at source, since the receipt does not exceed ` 7 lakh
9. What is the amount of tax to be collected from Mr. Parth in respect of the remittance of amounts overseas
for his son’s and daughter’s education?
(a) [email protected]% of ` 6 lakhs and ` 5 lakhs are attracted in respect of remittance for son’s and
daughter’s education, respectively.
(b) TCS@5% of ` 6 lakhs and ` 5 lakhs are attracted in respect of remittance for son’s and daughter’s
education, respectively

(c) [email protected]% of ` 6 lakhs and TCS@5% of ` 5 lakhs are attracted in respect of remittance for son’s
and daughter’s education, respectively.
(d) TCS@5% of ` 6 lakhs is attracted in respect of remittance for son’s education; No TCS is attracted
in respect of remittance for daughter’s education.
10. Are TCS provisions attracted in respect of remittance of gift to sister? If so, what is the amount of tax to
be collected from Mr. Parth?
(a) No, since the remittance is out of personal savings for a personal purpose
(b) No, since the amount remitted to his sister is less than ` 7 lakhs
(c) No, due to reasons stated in (a) and (b) above
(d) Yes, ` 32,500. (2 x 5 = 10 Marks)
11. Under which of the following methods, arm’s length price shall be the arithmetical mean of all values
included in the dataset, irrespective of the number of entries in the dataset. It may be assumed that the
variation between the arm’s length price computed and the transaction price is 15%.
(a) Resale price method
(b) Cost plus method
(c) Transactional net margin method
(d) Profit split method (2 Marks)
12. In the course of search operations under section 132 in the month of April, 2022, Mr. Atharv makes a
declaration under section 132(4) on the earning of income not disclosed in respect of P.Y. 2021 -22. He
also explains the manner in which he has derived such income and he pays the tax together with interest
on such income and declares such income in the return of income filed by him in the month of June,
2022. Is penalty leviable in this case? If so, how much?
(a) No penalty is attracted since Mr. Atharv has voluntarily made a declaration under section 132(4)
(b) Yes; Penalty@30% of undisclosed income would be attracted even if Mr. Atharv has voluntarily
(c) Yes; Penalty@10% of undisclosed income would be attracted even if Mr. Atharv has voluntarily
(d) Yes; Penalty@60% of undisclosed income would be attracted even if Mr. Atharv has voluntarily
made a declaration under section 132(4) (2 Mark)
13. MNO Ltd. is an eligible start-up engaged in eligible business. Its gross total income included profits of
` 30 lakhs from such business. The Assessing Officer made disallowance of ` 3.2 lakhs under section
40(a)(ia) and of ` 2.5 lakhs under section 43B. The deduction allowable under section 80-IAC would
be–
(a) ` 35.7 lakhs
(b) ` 33.2 lakhs
(c) ` 30 lakhs
(d) ` 24.3 lakhs (2 Marks)

14. Mr. Ranger, a foreign national and citizen of UK, working with TPO Inc., a UK based company, came to
India during the P.Y. 2021-22 for rendering services on behalf of the employer. He wishes to claim his
salary income earned during his stay in India as exempt. Which of the following is not a condition to be
fulfilled to claim such remuneration as exempt income under the Income-tax Act, 1961?
(a) Mr. Ranger should not be engaged in any trade or business in India
(b) TPO Inc. should not be engaged in any trade or business in India
(c) Mr. Ranger’s stay in India should not exceed 90 days in aggregate during the P.Y. 2021-22
(d) Remuneration received by Mr. Ranger should not liable to be deducted from TPO Inc.'s income
chargeable to tax under the Income-tax Act, 1961 (2 Marks)
15. K Ltd. is an Indian Company in which A Inc., a Country P company, holds 32% shareholding and voting
power. During the previous year 2018-19, the Indian company supplied computers to the Country P
based company @CPD 2300 per piece. The price of computer supplied to other unrelated parties in
Country P is @CPD 2700 per piece. During the course of assessment proceedings relating to A.Y.2019 -
20, the Assessing Officer carried out primary adjustments and added a sum of ` 154 lakhs, being the
difference between actual price of computer and arm's length price for 450 pieces and it was duly
accepted by the assessee. The Assessing Officer passed the order, in which the primary adjustments
were made, on 1.7.2021. On account of this adjustment, the excess money of ` 154 lakhs is available
with A Inc, Country P. What would be the effect of this transaction while computing the total income of
K Ltd. for the assessment year 2022-23, assuming that –
(i) K Ltd. declared an income of ` 340 lakhs;
(ii) the excess money is still lying with A Inc. till today;
(iii) K Ltd. has not opted to pay additional income-tax on such excess money not repatriated; and
(iv) Six-month LIBOR as on 30.9.2021 is 9%.
[CPD stands for Country P Dollars, which is the currency of Country P].
The correct answer is -
(a) Interest of ` 13.873 lakhs would be added to the total income of K Ltd.
(b) Interest of ` 14.1099 lakhs would be added to the total income of K Ltd.
(c) Interest of ` 13.822 lakhs would be added to the total income of K Ltd.
(d) Interest of ` 10.367 lakhs would be added to the total income of K Ltd. (2 Marks)
1. S Ltd., engaged in the manufacture of textile since 01.05.2010. Statement of Profit and Loss for the
financial year ended 31st March, 2022 shows a profit of ` 560 lakhs after debiting or crediting the
followings items:
(a) Depreciation charged on the basis of useful life of assets as per Companies Act is ` 52 lakhs.
(b) Industrial power tariff concession of ` 5.40 lakhs, received from Uttar Pradesh Government was
credited to Statement of Profit and Loss.

(c) Contribution of ` 2.50 lakhs to a scientific laboratory functioning at the national level with a specific
direction for use of the amount for scientific research programme approved by the prescribed
authority.
(d) Profit of ` 8 lakhs on sale of a plot of land to PQR Limited, a domestic company, the entire shares
of which are held by the S Ltd. The plot was acquired by S Ltd. on 30 th June, 2021.
(e) Payment of ` 3.50 lakhs towards transportation of various materials procured by one of its units to
M/s BP Transport, a partnership firm, without deduction of tax at source. The firm opts for
presumptive taxation under section 44AE and has furnished a declaration to this effect. It also
furnished its Permanent Account Number in the tender document.
(f) Interest of 15 lakhs paid on loans taken specifically for purchase of second hand plant and
machinery. Out of this ` 5 lakhs is for the period till such machinery was commissioned on
12.08.2021.
(g) A debtor who owed the company an amount of ` 20 lakhs was declared insolvent and hence, was
written off by debiting the Statement of Profit and Loss.
(h) ` 5 lakhs, being the additional compensation received from the State Government pursuant to an
interim order of Court in respect of land acquired by the State Government in the previous year
2015-16.
(i) In order to expand its overseas business, the company planned online advertisement campaign for
which it engaged Fastex Inc., a Malaysian company not having any PE in India, and paid ` 5 lakhs
for services availed. No tax/TDS was deducted by the company.
(j) Expense of ` 2 lakhs on foreign travel of two directors for a collaboration agreement with a foreign
company for a new construction project to be set up. The negotiation did not succeed, and the
project was abandoned.
Additional Information:
(i) Normal depreciation computed as per Income-tax Rules on the book assets is ` 71 lakhs.
(ii) Debenture of face value of ` 1500 lakhs having 5 years tenure were issued at a discount of 3%
and were subscribed in full.
(iii) The company received a bill for ` 3 lakhs on 31st March, 2022 from a supplier of cotton for supply
made in March, 2022. The bill was omitted to be recorded in the books in March, 2022. Payment
against the bill was made in April, 2022 and necessary entry was made in the books then. The
same has been considered in closing inventory valuation during physical verification conducted on
31.03.2022.
(iv) The company has purchased 1000 bales of cotton at ` 5,000 per bale from PB LLP, a firm in which
majority of the directors of S Ltd. are partners. The normal selling price in the market for the same
material is ` 4,600 per bale.
Compute total business income of for A.Y. 2022-23 giving a brief explanation to each item of addition or
deletion. Ignore MAT provisions and the provisions of section 115BAA. (14 Marks)
2. (a) The accounts of Sun Pvt. Ltd. are prepared in accordance with the provisions of the Companies
Act, 2013. Its Statement of Profit and Loss for the previous year ended 31st March, 2022 shows a
net profit of ` 95 Lacs after debiting or crediting the following items:

Credits in Statement of Profit and Loss `
(1) Profit from a new industrial undertaking qualifying for deduction under 17,00,000
section 80-IA (Net)
(2) Dividend received from Investment in Indian companies 2,50,000
(3) Net agricultural income 5,00,000
Debits in Statement of Profit and Loss
(1) Depreciation 10,00,000
(2) Penalty for infraction of law 1,00,000
(3) Provision for GST 3,00,000
(4) Provision for doubtful debts 2,00,000
(5) Interest on financial institutions unpaid before due date of filing return of 1,50,000
income
(6) Reserves of currency foreign fluctuation 1,25,000
Other Information:
(i) Depreciation admissible under the Income-tax Rules, 1962 for the previous year 2021-22 is
` 19,50,000.
(ii) Depreciation (as per books) includes ` 1,90,000 on account of revaluation of assets.
(iii) Interest on borrowed capital ` 1,00,000 payable to Y, not debited to Statement of profit and
loss.
(iv) GST provided in the accounts has been remitted before the due date for filing return of
income.
Compute book profits and minimum alternate tax thereon, assuming that Sun Pvt. Ltd. is not
required to comply with the Indian Accounting Standards (Ind AS). (8 Marks)
(b) State with brief reasons, whether transfer pricing provisions are attracted in the following cases:
(i) ABC Inc, a London based foreign company transferred engravings valued at ` 55 crores to
Beta Ltd, an Indian Company during the previous year 2021-22. ABC Inc, holds 32% of voting
power in Alpha Ltd, an Indian Company which in turn holds 75% of shares in Beta Ltd.
(ii) Tikku Projects Ltd., an Indian Company, has two units, Tikku Infra and Tikku Trading. While
the Tikku Infra is engaged in the development of highway project pursuant to the agreement
entered into with Central Government since past 3 years. Tikku Trading is engaged in the
business of trading of construction materials. During the previous year 2021-22, Tikku Trading
transferred 12,000 MT of cement at ` 14,000 per MT against the prevailing market value at
` 16,000 per MT.
(iii) A Ltd, engaged in manufacturing activity of power generation, opted for concessional rate of
tax under Section 115BAB. B Ltd, supplied 10,000 MT of power cables valued at ` 23,000 per
MT to A Ltd. at ` 21,000 per MT during the previous year 2021-22. Mr. X, an individual, holding
controlling interest in both A Ltd. and B Ltd. (6 Marks)
3. (a) Examine the correctness of contention/action/treatment of the institution/charitable trust in each of
the following separate cases –
(i) An institution runs a university solely for educational purposes and a hospital solely for
philanthropic purposes. Both the university and the hospital are not for profit. The gross
receipts from the university and hospital during the F.Y.2021-22 are ` 2.5 crores and 3.6
crores, respectively. The institution contended that the income from university is eligible for
exemption u/s 10(23C)(iiiad) and income from hospital is eligible for exemption u/s
7

10(23C)(iiiae), since the aggregate annual receipts in each case does not exceed the
prescribed threshold; and there would be no requirement to get the approval of Principal
Commissioner or Commissioner for availing the benefit of exemption under section 10(23C).
(ii) A registered charitable trust, with the main object of relief of poor, wan ts to set off its excess
application of ` 15 lakhs in the P.Y.2020-21 while computing its income required to be applied
during the P.Y.2021-22.
(iii) A charitable trust registered u/s 12AB borrowed ` 38 lakhs from Canara Bank in August 2021
for purchase of building for opening a school in a rural area for primary education of children
in backward areas. It spent the entire amount for the said purpose and claimed the same as
application of income. In March, 2022, it repaid the first instalment of ` 2.8 lakhs. (8 Marks)
(b) During the Previous Year 2021-22, Ms. Radha (39 years), a citizen of India and resident of India
earned business income of ` 21,00,000 from a foreign country with which India has a Double
Taxation Avoidance Agreement (DTAA), which provides that "the income would be taxable in
country where it is earned and not in other country but would be included for computation of tax
rate in such other country."
Her income is ` 8,75,000 from business in India. In foreign country, the rate of tax is 18%. During
the year, she paid a premium of ` 35,000 to insure the health of her mother, a non-resident, aged
63 years, through her credit card. You are required to compute the tax liability by Ms. Radha in
India for the A.Y.2022-23.
Also, show the tax payable of Ms. Radha in India, had there been no DTAA with such foreign
country. Ms. Radha does not want to opt for 115BAC. (6 Marks)
4. (a) Examine the applicability of provisions relating to deduction/collection of tax at source and compute
the liability, if any, for deduction/collection of tax at source in the following cases for financial year
ended 31st March, 2022 as per provisions contained under the Income-tax Act, 1961:
(i) Mr. Aryan, an Indian Citizen, residing in Australia, came to India on a visit on 25.2.2022. He
paid ` 5.2 lakhs to a tour operator, M/s Satya Travels, based in Delhi for a tour package to
Malaysia for 2 week. He left for Malaysia on 5.3.2022 and returned to India on 20.3.2022.
Thereafter, he was in India upto 15.4.2022 on which date he took his return flight to Australia.
He does not have any source of income in India. (2 Marks)
(ii) Shristi Ltd. was incorporated on 1.4.2021 for trading of goods. Its turnover for the P.Y. 2021-
22 is ` 14.5 crores. During the P.Y.2021-22, it purchased goods from M/s. Filip Co., the details
of which are as follows:
On 1.9.2021 for ` 32,00,000;
On 18.9.2021 for ` 31,00,000 and
On 18.11.2021 for ` 18,00,000.
The above dates represent the date of credit to the account of M/s. Filip & Co. Payment is
made after one month (i.e., on the same date in the immediately following month). M/s Filip &
Co.’s turnover for the F.Y. 2020-21 and F.Y. 2021-22 was ` 11 crores and ` 9.7 crores,
respectively. (4 Marks)
(iii) Mr. Adheer [E-commerce participant] sells goods worth ` 52 lakhs on e-commerce website of
WINKLE [E-commerce operator]. Mr. Adheer has not furnished PAN or AADHAR no. to the e-
commerce operator. He has furnished his return of Income for all the assessment years before
the due date of filing return of Income. (2 Marks)
(b) Turnip Inc., a Country D based company, is carrying on the business of manufacture and sale of
Mixture Grinder under the brand name “FINEST”. In order to increase its share in Indian market, it
launched a massive advertisement campaign of its products. For the purpose of online
8

advertisement, it utilized the services of Sam Inc., a Country Y based company which also owns
and operates a digital platform. The gross receipt of Sam Inc. from provision of such services
during the P.Y.2021-22 is ` 4.2 crores. During the previous year 2021-22, Turnip Inc. paid ` 5
lakhs to Sam Inc. for such services. Discuss the tax implications of such payment and receipt in
the hands of Turnip Inc. and Sam Inc., respectively, if –
(i) Both Turnip Inc. and Sam Inc. have no permanent establishment in India
(ii) Turnip Inc. has a permanent establishment in India, but Sam Inc. has no permanent
establishment in India
(iii) Sam Inc. has a permanent establishment in India and the advertisement services are
effectively connected with such PE. (6 Marks)
5. (a) Mr. Sanjay furnished his return of income for A.Y.2021-22 declaring total income of ` 52,00,000.
He received an assessment order under section 143(3) on 12.12.2022 enhancing the total income
for the A.Y.2021-22 by ` 3,20,000. He is aggrieved by the said order and is desirous of knowing
whether he can file an application before the Dispute Resolution Committee (DRC). He informs you
that no order of detention has been made and no prosecution proceedings have been initiated or
launched against him under any law for the time being in force. However, penalty under section
271E has been levied on him for failure to comply with the provisions of section 269T.
Can Mr. Sanjay file an application before the DRC? If no, what are the other remedies available
under the Income-tax Act, 1961? (4 Marks)
(b) Rajesh regularly files his return of income electronically. While he was trying to upload his return
of income for assessment year 2021-22 on 31st December, 2021, extended due date for filing the
same, he found it extremely difficult to do the same due to network problems and ultimately, he
became successful in making e-filing of his return only at 1 a.m. on 1 st January,2022. The return
contained a claim for carry forward of business loss of ` 51 lakh. This circumstance was recorded
in an e-mail addressed to the competent income-tax authority on 1st January,2022. Rajesh made
a request to the CBDT for condonation of delay in filing the return of income.
Discuss whether the CBDT has the power to condone the delay in filing the return of income and
permit carry forward of loss in the given circumstance.
Would your answer change, if the return contained a claim for carry forward of business loss of
` 48 lakh. (4 Marks)
(c) "The application of tax treaty may result into double taxation for the taxpayers. In the light of the
statement, answer the following questions-
(i) What are the approaches for the elimination of double taxation under Model Conventions?
Explain.
(ii) Explain the meaning of Juridical Double Taxation and Economic Double Taxation.
(iii) Can the problems of Economic Double Taxation be solved by the above approaches? Explain.
(6 Marks)
6. (a) Rupal Ltd., an Indian Company engaged in trading of electronic appliances through retail stores all
across India, reported a total turnover of ` 51 crores during the previous year 2020-21 and ` 47
crores during the previous year 2021-22. The customers who purchase appliance from its stores
can pay only through cash, cheque, credit card or debit card.
Discuss the relevant provisions of the Act with respect to relevant compliances that should have
been ensured by Rupal Ltd. and in the absence of such compliances, what will be the amount of
penalty, if any, that can be levied on Rupal Ltd (4 Marks)

(b) (i) Dweep Ltd., an Indian company has 2 manufacturing units, unit M in the Special Economic
Zone (SEZ) and unit N in non-SEZ. Manufacturing activities are carried out in Unit N while unit
M only does the packaging of the goods manufactured by unit N. In its books of accounts, it
shows the manufacturing to be carried out in unit M and claims allowable deductions.
(ii) Isha Ltd., an Indian company has 2 manufacturing units, unit P in the Special Economic Zone
(SEZ) and unit Q in non-SEZ. It transfers the goods manufactured by unit Q to unit P at a
price significantly lower than the market value of the goods and thus becomes eligible for
higher deductions.
Examine the above cases and discuss whether the provisions of General Anti-avoidance Rules
(GAAR) can be invoked in these cases? (4 Marks)
(c) XYZ Ltd., a Country P company, had entered into agreements with Y Ltd., and G Ltd., Indian
companies in the year 2015 to provide technical services to them to be utilised for the business
carried on by them in India. The agreements were approved by the Central Government. Foll owing
particulars are provided by XYZ Ltd. in respect of previous year 2021-22.
Particulars Amount
(1) Fees for technical services received from Y Ltd. 265 lakhs
(3) Fees for technical services received from G Ltd. 302 lakhs
Other expenses [not included in (2) and (4) above]
(5) General Expenditure not wholly and exclusively incurred for the business 8.2 lakhs
of the PE
(6) Amounts paid by the PE to HO (not being in the nature of reimbursement 14.6 lakhs
of actual expenses)
(7) Amounts paid by the PE to HO (being in the nature of reimbursement of 15.2 lakhs
actual expenses)
Examine the taxability of the income received by XYZ Ltd. on the following assumptions:
(i) XYZ Ltd., does not have a permanent establishment in India.
(ii) XYZ Ltd., has a permanent establishment in India and the contracts/ agreements are
effectively connected with such PE.
Also, discuss the requirements relating to maintaining books of accounts and audit and filing of
return of income in India by XYZ Ltd. under both the assumptions made above, under the Income-
tax Act, 1961. Also assume no DTAA exists between India and Country P. (6 Marks)
10

Test Series: September, 2022
MOCK TEST PAPER 1

SOLUTIONS
MCQ No. Most Appropriate MCQ Most Appropriate Answer
Answer No.
1. (c) 9. (b)
2. (d) 10. (c)
3. (d) 11. (a)
4. (a) 12. (d)
5. (a) 13. (b)
6. (d) 14. (c)
7. (b) 15. (d)
8. (a)

1. Computation of Total Income of STP Construction Ltd. for the A.Y.2022-23
I Profits and gains of business and profession
Net profit as per the statement of profit and loss 85,00,000
Add: Items debited but to be considered separately or
to be disallowed
(a) Interest to public financial institution paid on 3,00,000
20.12.2022
[Disallowance under section 43B would be attracted,
since the interest is paid on or after 30.11.2022, being
the due date of filing of return]
(b) Fees for technical services paid to non-resident 6,00,000
without deduction of tax at source
[Disallowance of 100% of the amount towards fees for
technical services to a non-resident, would be attracted
under section 40(a)(i) during the previous year 2021-
22 since tax was deducted and paid during the
subsequent previous year i.e., P.Y. 2022-23]
(c) Damages paid to State Government for defects in -
construction of flyover
[Payment of damages as per the terms of the contract
for defects in construction is compensatory in nature

and incurred in the normal course of construction
business, and hence, such expenditure is deductible
under section 37.
Since such payment is debited to the statement of
profit and loss, no further adjustment is required]
(e) Marked to market losses 6,00,000 15,00,000
[As per ICDS I, marked to market losses cannot be
recognized unless the recognition of such loss is in
accordance with the provisions of any other ICDS.
Since such losses have been debited to the statement
of profit and loss, they have to be added back for
1,00,00,000
Less: Items credited to statement of profit and loss,
but not includible in business income
(f) Profit on sale of land to wholly owned subsidiary 10,00,000
[Income is chargeable to tax under the head “Capital
Gains”. Since the same has been credited to statement
of profit and loss, it has to be reduced while computing
business income]
(g) Retention money -
[Section 43CB read with ICDS III requires recognition
of contract revenue, including retention money, on
percentage of completion method.
Since such amount has been credited to the statement
of profit and loss, no adjustment is required]
(h) Interest on bank fixed deposit -
[Since the fixed deposit has been made with a bank as
margin money for obtaining a guarantee required by a
State Government for a particular contract, interest
income of such deposit is inextricably linked to the
business of the assessee and hence, has to be treated
as business income and not as income from other
sources1.
profit and loss, no adjustment is required]
(i) Income received from REIT 6,00,000
Short-term capital gain component of ` 6 lakhs is
taxable in the hands of REIT and hence, exempt in the
hands of the unit holder under section 10(23FD).
Since ` 6 lakhs has been credited to the statement of
profit and loss, the same has to be deducted for
computing business income
Rental income component distributed by REIT - 16,00,000
As per section 115UA(3), such income would be
deemed as income in the hands of unit holder. By
1 CIT v. K and Co. (2014) 364 ITR 93 (Del)

virtue of section 115UA(1), income distributed by
REIT to a unit holder would be deemed to be of the
same nature and same proportion in the hands of the
unit holder as it had been received by or accrued to
the REIT.
Accordingly, rental income component would be
taxable under the head “Profits and gains of business
and profession”2, since REIT is engaged in the
business of letting out real estate properties.
84,00,000
Less: Permissible deduction
Depreciation 5,00,000
Depreciation of ` 25 lakh computed as per Income-
tax Rules, 1962 is allowable as deduction u/s 32.
However, depreciation of ` 20 lakh has only been
charged in the statement of profit and loss. Therefore,
the difference of ` 5 lakh has to be deducted for
Profits and gains from business and profession 79,00,000
II Capital Gains
Full value of consideration under section 50C 50,00,000
[Stamp duty value of ` 50 lakh would be deemed as full
value of consideration since it is higher than 110% of actual
consideration of ` 40 lakh (i.e., Cost of ` 30 lakh + Profit of
` 10 lakh)]
Less: Indexed Cost of Acquisition [` 30,00,000 × 317/254] 37,44,094
[Note - Even though STP Construction Ltd. holds 100% of
shareholding of Max Inc., transfer of land by STP
Construction Ltd. to Max Inc. would be regarded as a
transfer for the purpose of levy of capital gains, since
Max Inc. is not an Indian company].
Long-term capital gain [Since held for a period of more 12,55,906
than 24 months]
Deduction u/s 80JJAA [See Working Note below] 12,96,000
(Deduction under section 80JJAA is allowable even though
it is opting for 115BAA)
Total Income (rounded off) 78,59,910
Computation of tax liability as per section 115BAA

Tax u/s 115BAA on business income [` 66,04,000 x 22%] 14,52,880
2 Chennai Properties and Investments Ltd. (2015) 373 ITR 673 (SC)

Tax u/s 112 on Long-term capital gains on transfer of land
with indexation benefit [` 12,55,906 x 20%] 2,51,181
17,04,061
Add: Surcharge @10% 1,70,406
18,74,467
Add: HEC@4% 74,979
Tax liability 19,49,446
Tax liability (rounded off) 19,49,450
Working Note: Computation of deduction u/s 80JJAA
(i) Since casual employees do not participate in recognized provident fund, they do not qualify as
additional employees. Further, 35 regular employees employed on 1.5.2021 also do not qualify as
additional employees since their monthly emoluments exceed ` 25,000. Also, 10 regular
employees employed on 1.9.2021 do not qualify as additional employees for the P.Y.2021-22, since
they are employed for less than 240 days in that year.
Therefore, only 15 employees employed on 1.4.2021 qualify as additional employees, and the total
emoluments paid or payable to them during the P.Y.2021-22 is deemed to be the additional
employee cost. Additional employee cost = ` 24,000 × 12 × 15 = ` 43,20,000
Deduction under section 80JJAA = 30% of ` 43,20,000 = ` 12,96,000.
(ii) As regards 10 regular employees employed on 1.9.2021, they would be treated as additional
employees for previous year 2022-23, if they continue to be employees in that year for a minimum
period of 240 days. Accordingly, 30% of additional employee cost in respect of such employees
would be allowable as deduction under section 80JJAA during the A.Y. 2023-24.
2. (a) (i) Computation of taxable capital gains for A.Y.2022-23
Particulars `
Gross consideration 95,00,000
Less: Expenses on transfer (1% of the gross consideration) 95,000
Net consideration 94,05,000
Less: Indexed cost of acquisition (` 27,36,000 × 317/105) 82,60,114
11,44,886
Less: Exemption under section 54GB (` 11,44,886 × ` 69,00,000 / 8,39,948
` 94,05,000)
Taxable long-term capital gains 3,04,938
Deemed cost of new plant and machinery for exemption under section 54GB
Particulars ` `
(1) Purchase cost of new plant and machinery acquired in 66,00,000
August, 2022
Less: Cost of vehicles, i.e., cars 8,00,000
Cost of air-conditioners installed at the residence of Mr.
Adarsh 1,00,000 9,00,000
57,00,000
(2) Amount deposited in the specified bank before the due
date of filing of return 12,00,000
Deemed cost of new plant and machinery for exemption 69,00,000
under section 54GB

(ii) The company had advanced a loan to an employee who in turn had advanced the same to
the Managing Director of the company holding 72% of its capital. By virtue of the provisions
of section 2(22)(e), the same shall be treated as the payment by a company in which public
are not substantially interested, on behalf of, or for individual benefit of any such share holder
(who holds not less than 10% of the voting power), to the extent to which the company
possesses accumulated profits.
In this case, the company has reserves of ` 8 lakhs and the amount of loan advanced is
` 5.5 Lakhs. Therefore, the payment is to be treated as deemed dividend. The amount of
interest-free loan of ` 5.5 lakhs given by the company to the supervisor who in turn had given
the same to Mr. Priyanshu, shall be construed as the amount given for the benefit of
Mr. Priyanshu and would be treated as deemed dividend. This has been held by the Supreme
Court in the case of L. Alagusundaram Chettiar v. CIT (2001) 252 ITR 893.
(b) Computation of total income and tax liability of Mr. Dinesh for A.Y. 2022-23
Particulars ` `
Profits and gains from business and profession
Income from sole proprietary concern in India 50,00,000
Share of profit from a partnership firm in India of ` 30 lakhs, is
exempt Nil
Business profit 50,00,000
Less: Business Loss3 in Country D (CAD 4000 x ` 60/CAD) 2,40,000
47,60,000
Income from Other Sources
Agricultural income from coffee estates in Country D, is taxable
in India (CAD 32000 x ` 60/CAD) 19,20,000
Less: Deductions under Chapter VI-A
Under section 80C [deposit in PPF] 1,50,000
Under section 80D 75,000
[Medical insurance premium paid ` 25,000 for self, allowable in
full; ` 55,000 for senior citizen parents, restricted to ` 50,000]
Under section 80DD
[Flat deduction of ` 1,25,000 irrespective of the expenditure
incurred on dependent sister, being a person with severe 1,25,000
disability]
3,50,000
Tax on total income
Tax on ` 63,30,000 [(30% x ` 53,30,000) plus ` 1,10,000] 17,09,000
Add: Surcharge@10%, since total income exceeds ` 50 lakh 1,70,900
18,79,900
Add: HEC@4% 75,196
19,55,096
3Since the eight year has not expired from the assessment year in which such business loss was incurred, such
business loss can be set-off against current year business income.

Average rate of tax in India 30.886%
[i.e., ` 19,55,096/` 63,30,000 x 100]
Average rate of tax in Country A 25%
[i.e., CAD 8000/CAD 32000]
Doubly taxed income [` 19,20,000 – ` 2,40,000] 16,80,000
Rebate under section 91 on ` 16,80,000@25%
(lower of average Indian tax rate and rate of tax in Country D) 4,20,000
Tax payable in India [` 19,55,096 – ` 4,20,000] 15,35,096
Tax payable in India (rounded off) 15,35,100
Note: Since Mr. Dinesh is resident in India for the P.Y.2021-22, his global income would be subject
to tax in India. He is eligible for deduction under section 91 since the following conditions are
fulfilled:-
(a) He is a resident in India during the relevant previous year.
(b) Agricultural income accrues or arises to him outside India during that previous year.
(c) Such agricultural income is not deemed to accrue or arise in India during the previous year.
(d) The income in question i.e., agricultural income, has been subjected to income-tax in Country
D in his hands and he has paid tax on such income in Country D.
(e) There is no agreement under section 90 for the relief or avoidance of double taxation between
India and Country D, where the income has accrued or arisen.
3. (a) Tax consequences in the hands of the charitable trust/institution for A.Y.2022-23
(i) In this case, the main object of the charitable institution is “any other object of general public
utility” and therefore, its aggregate receipts from business undertaken in the course of actual
carrying out of such advancement of any other object of general public utility should not
exceed 20% of total receipts, if it wants to retain its “charitable status”. However, the
aggregate receipts from business for P.Y.2021-22, in this case, is 24.76% of total receipts.
Hence, the institution would lose its “charitable status” for the P.Y.202 1-22. Application of
85% of receipts for its main object during the year would not help in retaining its “charitable”
status for that year.
(ii) Rent paid in respect of a building used for charitable purposes can be claimed as application
of income for charitable purposes. However, since tax deducted on such rent paid for
P.Y.2020-21 was remitted after the due date of filing of return of income u/s 139(1) for
A.Y.2021-22, ` 5,40,000, being 30% of annual rent of ` 18 lakh, would not have been allowed
as application in the P.Y.2020-21, by virtue of Explanation 3 to section 11(1) read with section
40(a)(ia). However, since tax so deducted was remitted in December, 2021, the said amount
of ` 5,40,000 (i.e., 30% of rent not allowed as application in the P.Y.2020-21) would be
allowed as application in the P.Y.2021-22 (A.Y.2022-23). Further, the rent of ` 21 lakh paid
in the P.Y.2021-22 would also be allowed as application in A.Y.2022-23, since the tax
deducted in respect of such rent was remitted in July, 2022 i.e., before the due date of filing
of return u/s 139(1) for A.Y.2022-23. Therefore, an amount of ` 26,40,000 towards rent paid
would be allowed as application of income in the P.Y.2021-22 (A.Y.2022-23).
(iii) The effective date of making the application for re-registration under section 12AB is
30.6.2021, being three months from 1 st April, 2021. CBDT has, vide Circular No.16/2021 dated
29.8.2021, extended the date upto 31.3.2022. No, the registration granted under section 12AB
would be valid only for 5 years and not perpetually, as in the case of registration granted
under section 12AA.

(b) (i) Finetune Ltd., an Indian company and Iris Inc, a Country M company are deemed to be
associated enterprises since the latter has advanced a loan to the former which constitutes
58.54% of the book value of total assets of the former [Euro 380 crores x ` 90/Rs.58,420
crores]. Since the loan advanced by Iris Inc is not less than 51% of the book value of the total
assets of Finetune Ltd., the two companies are deemed to be associated enterprises.
A loan transaction between two enterprises, one of whom is a non-resident (Iris Inc, Country
M, in this case), would be an international transaction. Accordingly, transfer pricing provisions
would be attracted in this case.
(ii) The interest rate charged by Iris Inc. on loan advanced to Finetune Ltd. is 9% p.a. whereas
the arm’s length interest charged by Iris Inc. in a comparable uncontrolled transaction with
Bigbumper Ltd., another Indian company, is 7% p.a. Therefore, the arm’s length adjustment
(primary adjustment) to be made is = 9% - 7% = 2% of ` 34,200 crores (Euro 380 crores x
` 90, being the value of 1 Euro) = ` 684 crores
The total income (after primary adjustment) of Finetune Ltd for P.Y.2021-22 = ` 1900 crores
+ primary adjustment of ` 684 crores = ` 2,584 crores.
(iii) Since the primary adjustment has been made by Finetune Ltd. suo moto while filing its return
of income for A.Y.2022-23, Finetune Ltd. has to carry out secondary adjustment in the
following manner.
The excess money (i.e., ` 684 crores) lying with Iris Inc has to be repatriated within 90 days
from 30.11.2022, being the due date for filing return of income.
If the excess money is not repatriated on or before 28 th February, 2023, it would be deemed
as an advance made by Finetune Ltd. to Iris Inc and interest would be chargeable from
30.11.2022 at six month LIBOR as on 30 th September, 2022 + 3%, since the loan is
denominated in Euros. Such interest for the period from 30.11.2022 to 31.3.2023 (assuming
that it has not been repatriated upto 31.3.2023) would be included in the total income of
Finetune Ltd. for P.Y.2022-23.
(iv) If Finetune Ltd. opts for payment of additional income-tax, it has to pay ` 143.410 crores [i.e.,
20.9664% (tax@18% + surcharge@12% + cess@4%) of ` 684 crores].
4. (a)
Particulars `
Gross salary, allowances and monetary perquisites 7,30,000
Non-Monetary perquisites 1,20,000
8,50,000
Less: Standard deduction under section 16(ia) [not allowable, since Mr. Arun is
opting for section 115BAC -
8,50,000
Tax Liability
Upto ` 2,50,000 Nil
` 2,50,001 – ` 5,00,000 @5% - 12500
` 5,00,001 – ` 7,50,000 @ 10% 25,000
` 7,50,001 – ` 8,50,000 @ 15% 15,000 52,500
Add: Health and Education cess @4% 2,100
54,600
Average rate of tax (` 54,600 / ` 8,50,000 × 100) 6.424 %

The company can pay tax on non-monetary perquisites as under –
Tax on non-monetary perquisites = 6.424% of ` 1,20,000 = ` 7,709
Balance to be deducted from salary = ` 46,891 [` 54,600 – ` 7,709]
(b) The Explanation below section 194A(1) provides that where any income by way of interest other
than interest on securities is credited to any account, whether called ‘interest payable account’ or
‘suspense account’ or by any other name, in the books of account of the pers on liable to pay such
income, such crediting shall be deemed to be credit of such income to the account of the payee
and provisions of section 194A, shall, thus, apply.
However, the CBDT has, vide Circular No.3/2010 dated 2.3.2010, clarified that Explanation below
section 194A(1) will not apply in cases of banks where credit is made to provisioning account on
daily/monthly basis for the purpose of macro monitoring only by the use of CBS software.
Since no constructive credit to the depositor's/ payee's account takes place while calculating
interest on daily / monthly basis in the CBS software used by banks, tax need not be deducted at
source on such provisioning of interest by banks for the purposes of macro monitoring only.
In such cases, tax shall be deducted at source on accrual of interest at the end of the financial year
or at periodic intervals as per practice of the bank or as per the depositor's or payee’s requirement
or on maturity or on encashment of time deposit, whichever event takes place earlier and wherever
the aggregate amount of interest income credited or paid or likely to be credited or paid during the
financial year by the bank exceeds the limits specified in section 194A i.e., ` 40,000.
In view of the above, the action of the Assessing Officer in disallowing the interest expenditure
credited in a separate account for macro monitoring purpose is not valid and consequent initiation
of penalty proceedings under section 271C is not tenable in law.
(c) (i) Equalisation levy @ 2% is attracted on the amount of consideration received or receivable by an
e-commerce operator from e-commerce supply or services made or provided or facilitated by it,
inter alia, -
- to a person resident in India; or
- to a non-resident in specified circumstances, which include sale of advertisement targeting
a customer who is resident in India.
Citax.com is an e-commerce operator since it is a non-resident managing an electronic facility
for online sale of goods and provision of services.
Equalisation levy@2% would not be attracted, if -
(i) Citax.com has a PE in India; or
(ii) Equalization levy@6% is deductible by the service recipients, resident in India, in respect
of online advertisement services rendered to them; or
(iii) The sales/turnover/gross receipts of Citax.com from taxable e-commerce supply or services
is less than ` 2 crore in the current previous year i.e., P.Y.2021-22.
In the present case, Equalisation levy @ 2% would be attracted since -
(i) Citax.com does not have a PE in India.
(ii) The amount of billing (or the aggregate amount of billing) to each recipient of
advertisement service (being a person resident in India) does not exceed ` 1 lakh.
Consequently, there would be no requirement for them to deduct equalization levy of 6%.

(iii) The sales/turnover/gross receipts of Citax.com from taxable e-commerce supply or
services exceeds ` 2 crore in the current previous year i.e., P.Y.2021-22.
Accordingly, equalization levy of ` 4,20,000 @2% of Rs. 2.10 crores would be attracted.
(ii) As per section 245S, the advance ruling pronounced by the Authority for Advance Rulings
upto 31.8.2021 would be binding on the applicant. Accordingly, the advance rulings
pronounced on 25.8.2021 by the Authority for Advance Rulings would be binding on SPO Ltd.
With the constitution of Boards for Advance Rulings for giving advance rulings on or after
1.9.2021, the Authority for Advance Rulings ceased to operate with effect from such date.
With effect from 1.9.2021, advance ruling would be pronounced by the Board for Advance
Rulings. The binding provision contained in section 245S will not apply to an adva nce ruling
pronounced on or after 1.9.2021 by the Board for Advance Rulings. Accordingly, in the case
of SPO Ltd., the binding provision would not apply in respect of the advance ruling pronounced
on 5.10.2021 by the Board for Advance Rulings. If SPO Ltd. is aggrieved by the advance
ruling pronounced by the Board for Advance Rulings on 5.10.2021, it may appeal to the High
Court against such ruling, within 60 days from the date of communication of that ruling.
5. (a) In order to deter the practice of non-disclosure of income, section 271AAB(1A) provides for levy of
penalty on undisclosed income found during the course of a search, which relates to specified
previous year, i.e.-
- the previous year which has ended before the date of search, but the due date o f filing return
of income for the same has not expired before the date of search and the return has not yet
been furnished (P.Y. 2020-21);
- the previous year in which search is conducted (P.Y. 2021-22).
Accordingly, under section 271AAB(1A), in respect of searches initiated on 30.4.2021,
• penalty@30% would be attracted, if undisclosed income is admitted during the course of
search in the statement furnished under section 132(4), and the assessee explains the
manner in which such income was derived, pays the tax, together with interest if any, in
respect of the undisclosed income, and furnishes the return of income for the sp ecified
previous year declaring such undisclosed income on or before the specified date .
In all other cases, penalty @60% of undisclosed income would be attracted.
(b) In respect of Mr. Sahil, the Assessing Officer has information suggesting that income has escaped
assessment for the purposes of section 148 and 148A, since information has been flagged for the
relevant assessment year as per risk management policy formulated by the CBDT. Notice can be
issued for A.Y.2020-21, A.Y.2019-20 and A.Y.2018-19, since the three year time limit from the end
of the relevant assessment year has not expired as on May, 2021. Such notice can be issued after
conducting an enquiry, if required, with respect to the information suggesting escapement of
income; and providing an opportunity of being heard to Mr. Sahil by serving a show cause notice.
Thereafter, on the basis of material available on record including the reply of Mr. Sahil, in response
to show cause notice, the Assessing Officer has to decide whether or not it is a fit case to issue
notice under section 148 by passing an order, with the prior approval of Principal Commissioner or
Principal Director or Commissioner or Director. However, notice cannot be issued in respect of
A.Y.2017-18, since the three year time limit has expired in March, 2021. The extended time limit of
10 years from the end of the relevant assessment year cannot be invoked in this case, since the
income escaping assessment in respect of Mr. Sahil is not ` 50 lakh or more.
In case of Mr. Rahul, the Assessing Officer shall be deemed to have information suggesting that
income has escaped assessment for three assessment years immediately preceding A.Y.2022 -23,
9

relevant to P.Y.2021-22 in which search is initiated. Hence, the relevant assessment years in
respect of which the Assessing Officer can issue notice to Mr. Rahul are A.Y.2021-22, A.Y.2020-
21 and A.Y.2019-20. In this case, there is no requirement to conduct an enquiry or provide an
opportunity of being heard to Mr. Rahul by serving a show cause notice.
(c) Article 31 of Vienna Convention of Law of Treaties contains the General Rule of Interpretation. It
lays down that following general rule of interpretation:
• A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given
to the terms thereof in the context and in the light of its object and purpose.
• The context for the purpose of interpretation of a treaty shall comprise, in addition to the text,
including its preamble and annexure
(a) Any agreement relating to the treaty which was made between all the parties in
connection with the conclusion of the treaty;
(b) Any instrument which was made by one or more parties in connection with the conclusion
of the treaty and accepted by the other parties as an instrument related thereto .
• The following shall be taken into account, together with the context in that:
(a) Any subsequent agreement between the parties regarding the interpretation of the treaty
or the application of its provisions;
(b) Any subsequent practice in the application of the treaty which establishes the agreement
of the parties regarding its interpretation;
(c) Any relevant rules of international law applicable to relation between the parties.
A special meaning shall be given to a term if it is established that the parties so intended.
6. (a) Section 179 contains the provisions relating to the liability of directors of a private company in
liquidation in respect of tax due from the company. Where any tax due from a private company in
respect of income of any previous year or from any other company in respect of any income of any
previous year during which such other company was a private company cannot be recovered, then,
every person who was a director of such company at any time during the relevant previous year
shall be jointly and severally liable for the payment of such tax. However, the director shall not be
so liable if he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance
or breach of duty on his part in relation to the affairs of the company.
Explanation to section 179 clarifies that the expression “tax due” includes penalty, interest or
any other sum payable under the Act. Therefore, the directors’ liability is not confined to tax
alone but extends to penalty, interest or any other sum payable by the company
(b) The arrangement of routing investment through Country ‘Y’ results into a tax benefit. Since there
is no business purpose in incorporating company Zen Pvt. Ltd. in Country ‘Y’, it can be said that
the main purpose of the arrangement is to obtain a tax benefit. The alternate course available in
this case is direct investment in Ren (P) Ltd. joint venture by Den Pvt. Ltd. The tax benefit would
be the difference in tax liabilities between the two available courses.
The next question is, does the arrangement have any tainted element? It is evident that there is no
commercial substance in incorporating Zen Pvt. Ltd. as it does not have any effect on the business
risk of Den Pvt. Ltd. or cash flow of Den Pvt. Ltd. As the twin conditions of main purpose being tax
benefit and existence of a tainted element are satisfied, GAAR may be invoked.
Additionally, as all rights of shareholders of Ren (P) Ltd. are being exercised by Den Pvt. Ltd
instead of Zen Pvt. Ltd, it again shows that Zen Pvt. Ltd lacks commercial substance.
Hence, GAAR provisions can be invoked in this case.
10

(c) Computation of total income and tax liability of Flax Ltd., a non-resident foreign company,
for the A.Y. 2022-23
Particulars `
Business Income from a unit established at Delhi 9,50,000
Income from other sources
- Fees for technical services [would be equivalent to the amount of 32,00,000
debentures of ` 32,00,000 received from an Indian company, issued in
consideration of providing technical knowhow for the purpose of business
carried out in India]
- Interest on Debentures 2,88,000
- Dividend on Global Depository Receipts (GDRs) of MN Ltd. an Indian 8,50,000
company, issued under a scheme of Central Government against the
initial issue of MN Ltd. and purchased in foreign currency by Flax Ltd.
- Dividend income on equity shares of Indian companies 16,80,000
- Royalty income received from Flip Ltd., an Indian company. Since such
agreement is not approved by the Central Government, TDS is to be
deducted @41.6%. [` 8,76,000 x 100/58.4, since tax would have been 15,00,000
deducted at source @ 41.6%]
Gross Total Income/ Total income 84,68,000
Computation of tax liability
Dividend income of ` 16,80,000, taxable @20% u/s 115A 3,36,000
Dividend on GDRs of ` 8,50,000, taxable @10% u/s 115AC 85,000
FTS of ` 32,00,000, taxable @10% u/s 115A, since it is in pursuance of an 3,20,000
agreement approved by the Central Government
Royalty income of ` 15,00,000, taxable @40%, since it is not in pursuance of 6,00,000
an agreement approved by the Central Government
Interest on debentures of ` 2,88,000, taxable @40%, since debt is incurred in 1,15,200
Indian currency, it is not eligible for concessional rate of 20% provided u/s
115A
Business income of ` 9,50,000 [taxable @40%] 3,80,000
18,36,200
11

MOCK TEST PAPER 1

SOLUTIONS
MCQ No. Most Appropriate MCQ Most Appropriate Answer
Answer No.
1. (c) 9. (b)
2. (d) 10. (c)
3. (d) 11. (a)
4. (a) 12. (d)
5. (a) 13. (b)
6. (d) 14. (c)
7. (b) 15. (d)
8. (a)

1. Computation of Total Income of STP Construction Ltd. for the A.Y.2022-23
I Profits and gains of business and profession
Net profit as per the statement of profit and loss 85,00,000
Add: Items debited but to be considered separately or
to be disallowed
(a) Interest to public financial institution paid on 3,00,000
20.12.2022
[Disallowance under section 43B would be attracted,
since the interest is paid on or after 30.11.2022, being
the due date of filing of return]
(b) Fees for technical services paid to non-resident 6,00,000
without deduction of tax at source
[Disallowance of 100% of the amount towards fees for
technical services to a non-resident, would be attracted
under section 40(a)(i) during the previous year 2021-
22 since tax was deducted and paid during the
subsequent previous year i.e., P.Y. 2022-23]
(c) Damages paid to State Government for defects in -
construction of flyover
[Payment of damages as per the terms of the contract
for defects in construction is compensatory in nature

and incurred in the normal course of construction
business, and hence, such expenditure is deductible
under section 37.
Since such payment is debited to the statement of
profit and loss, no further adjustment is required]
(e) Marked to market losses 6,00,000 15,00,000
[As per ICDS I, marked to market losses cannot be
recognized unless the recognition of such loss is in
accordance with the provisions of any other ICDS.
Since such losses have been debited to the statement
of profit and loss, they have to be added back for
1,00,00,000
Less: Items credited to statement of profit and loss,
but not includible in business income
(f) Profit on sale of land to wholly owned subsidiary 10,00,000
[Income is chargeable to tax under the head “Capital
Gains”. Since the same has been credited to statement
of profit and loss, it has to be reduced while computing
business income]
(g) Retention money -
[Section 43CB read with ICDS III requires recognition
of contract revenue, including retention money, on
percentage of completion method.
Since such amount has been credited to the statement
of profit and loss, no adjustment is required]
(h) Interest on bank fixed deposit -
[Since the fixed deposit has been made with a bank as
margin money for obtaining a guarantee required by a
State Government for a particular contract, interest
income of such deposit is inextricably linked to the
business of the assessee and hence, has to be treated
as business income and not as income from other
sources1.
(i) Income received from REIT 6,00,000
Short-term capital gain component of ` 6 lakhs is
taxable in the hands of REIT and hence, exempt in the
hands of the unit holder under section 10(23FD).
profit and loss, the same has to be deducted for
computing business income
Rental income component distributed by REIT - 16,00,000
As per section 115UA(3), such income would be
deemed as income in the hands of unit holder. By
1 CIT v. K and Co. (2014) 364 ITR 93 (Del)

virtue of section 115UA(1), income distributed by
REIT to a unit holder would be deemed to be of the
same nature and same proportion in the hands of the
unit holder as it had been received by or accrued to
the REIT.
Accordingly, rental income component would be
taxable under the head “Profits and gains of business
and profession”2, since REIT is engaged in the
business of letting out real estate properties.
84,00,000
Less: Permissible deduction
Depreciation 5,00,000
Depreciation of ` 25 lakh computed as per Income-
tax Rules, 1962 is allowable as deduction u/s 32.
However, depreciation of ` 20 lakh has only been
charged in the statement of profit and loss. Therefore,
the difference of ` 5 lakh has to be deducted for
Profits and gains from business and profession 79,00,000
II Capital Gains
Full value of consideration under section 50C 50,00,000
[Stamp duty value of ` 50 lakh would be deemed as full
value of consideration since it is higher than 110% of actual
consideration of ` 40 lakh (i.e., Cost of ` 30 lakh + Profit of
` 10 lakh)]
Less: Indexed Cost of Acquisition [` 30,00,000 × 317/254] 37,44,094
[Note - Even though STP Construction Ltd. holds 100% of
shareholding of Max Inc., transfer of land by STP
Construction Ltd. to Max Inc. would be regarded as a
transfer for the purpose of levy of capital gains, since
Max Inc. is not an Indian company].
Long-term capital gain [Since held for a period of more 12,55,906
than 24 months]
Deduction u/s 80JJAA [See Working Note below] 12,96,000
(Deduction under section 80JJAA is allowable even though
it is opting for 115BAA)
Total Income (rounded off) 78,59,910
Computation of tax liability as per section 115BAA

Tax u/s 115BAA on business income [` 66,04,000 x 22%] 14,52,880
2 Chennai Properties and Investments Ltd. (2015) 373 ITR 673 (SC)

Tax u/s 112 on Long-term capital gains on transfer of land
with indexation benefit [` 12,55,906 x 20%] 2,51,181
17,04,061
Add: Surcharge @10% 1,70,406
18,74,467
Add: HEC@4% 74,979
Working Note: Computation of deduction u/s 80JJAA
(i) Since casual employees do not participate in recognized provident fund, they do not qualify as
additional employees. Further, 35 regular employees employed on 1.5.2021 also do not qualify as
additional employees since their monthly emoluments exceed ` 25,000. Also, 10 regular
employees employed on 1.9.2021 do not qualify as additional employees for the P.Y.2021-22, since
they are employed for less than 240 days in that year.
Therefore, only 15 employees employed on 1.4.2021 qualify as additional employees, and the total
emoluments paid or payable to them during the P.Y.2021-22 is deemed to be the additional
employee cost. Additional employee cost = ` 24,000 × 12 × 15 = ` 43,20,000
Deduction under section 80JJAA = 30% of ` 43,20,000 = ` 12,96,000.
(ii) As regards 10 regular employees employed on 1.9.2021, they would be treated as additional
employees for previous year 2022-23, if they continue to be employees in that year for a minimum
period of 240 days. Accordingly, 30% of additional employee cost in respect of such employees
would be allowable as deduction under section 80JJAA during the A.Y. 2023-24.
2. (a) (i) Computation of taxable capital gains for A.Y.2022-23
Particulars `
Gross consideration 95,00,000
Less: Expenses on transfer (1% of the gross consideration) 95,000
Net consideration 94,05,000
Less: Indexed cost of acquisition (` 27,36,000 × 317/105) 82,60,114
11,44,886
Less: Exemption under section 54GB (` 11,44,886 × ` 69,00,000 / 8,39,948
` 94,05,000)
Taxable long-term capital gains 3,04,938
Deemed cost of new plant and machinery for exemption under section 54GB
Particulars ` `
(1) Purchase cost of new plant and machinery acquired in 66,00,000
August, 2022
Less: Cost of vehicles, i.e., cars 8,00,000
Cost of air-conditioners installed at the residence of Mr.
Adarsh 1,00,000 9,00,000
57,00,000
(2) Amount deposited in the specified bank before the due
date of filing of return 12,00,000
Deemed cost of new plant and machinery for exemption 69,00,000
under section 54GB

(ii) The company had advanced a loan to an employee who in turn had advanced the same to
the Managing Director of the company holding 72% of its capital. By virtue of the provisions
of section 2(22)(e), the same shall be treated as the payment by a company in which public
are not substantially interested, on behalf of, or for individual benefit of any such share holder
(who holds not less than 10% of the voting power), to the extent to which the company
possesses accumulated profits.
In this case, the company has reserves of ` 8 lakhs and the amount of loan advanced is
` 5.5 Lakhs. Therefore, the payment is to be treated as deemed dividend. The amount of
interest-free loan of ` 5.5 lakhs given by the company to the supervisor who in turn had given
the same to Mr. Priyanshu, shall be construed as the amount given for the benefit of
Mr. Priyanshu and would be treated as deemed dividend. This has been held by the Supreme
Court in the case of L. Alagusundaram Chettiar v. CIT (2001) 252 ITR 893.
(b) Computation of total income and tax liability of Mr. Dinesh for A.Y. 2022-23
Particulars ` `
Profits and gains from business and profession
Income from sole proprietary concern in India 50,00,000
Share of profit from a partnership firm in India of ` 30 lakhs, is
exempt Nil
Business profit 50,00,000
Less: Business Loss3 in Country D (CAD 4000 x ` 60/CAD) 2,40,000
47,60,000
Income from Other Sources
Agricultural income from coffee estates in Country D, is taxable
in India (CAD 32000 x ` 60/CAD) 19,20,000
Less: Deductions under Chapter VI-A
Under section 80C [deposit in PPF] 1,50,000
Under section 80D 75,000
[Medical insurance premium paid ` 25,000 for self, allowable in
full; ` 55,000 for senior citizen parents, restricted to ` 50,000]
Under section 80DD
[Flat deduction of ` 1,25,000 irrespective of the expenditure
incurred on dependent sister, being a person with severe 1,25,000
disability]
3,50,000
Tax on total income
Tax on ` 63,30,000 [(30% x ` 53,30,000) plus ` 1,10,000] 17,09,000
Add: Surcharge@10%, since total income exceeds ` 50 lakh 1,70,900
18,79,900
Add: HEC@4% 75,196
19,55,096
3Since the eight year has not expired from the assessment year in which such business loss was incurred, such
business loss can be set-off against current year business income.

Average rate of tax in India 30.886%
[i.e., ` 19,55,096/` 63,30,000 x 100]
Average rate of tax in Country A 25%
[i.e., CAD 8000/CAD 32000]
Doubly taxed income [` 19,20,000 – ` 2,40,000] 16,80,000
Rebate under section 91 on ` 16,80,000@25%
(lower of average Indian tax rate and rate of tax in Country D) 4,20,000
Tax payable in India [` 19,55,096 – ` 4,20,000] 15,35,096
Tax payable in India (rounded off) 15,35,100
Note: Since Mr. Dinesh is resident in India for the P.Y.2021-22, his global income would be subject
to tax in India. He is eligible for deduction under section 91 since the following conditions are
fulfilled:-
(a) He is a resident in India during the relevant previous year.
(b) Agricultural income accrues or arises to him outside India during that previous year.
(c) Such agricultural income is not deemed to accrue or arise in India during the previous year.
(d) The income in question i.e., agricultural income, has been subjected to income-tax in Country
D in his hands and he has paid tax on such income in Country D.
(e) There is no agreement under section 90 for the relief or avoidance of double taxation between
India and Country D, where the income has accrued or arisen.
3. (a) Tax consequences in the hands of the charitable trust/institution for A.Y.2022-23
(i) In this case, the main object of the charitable institution is “any other object of general public
utility” and therefore, its aggregate receipts from business undertaken in the course of actual
carrying out of such advancement of any other object of general public utility should not
exceed 20% of total receipts, if it wants to retain its “charitable status”. However, the
aggregate receipts from business for P.Y.2021-22, in this case, is 24.76% of total receipts.
Hence, the institution would lose its “charitable status” for the P.Y.202 1-22. Application of
85% of receipts for its main object during the year would not help in retaining its “charitable”
status for that year.
(ii) Rent paid in respect of a building used for charitable purposes can be claimed as application
of income for charitable purposes. However, since tax deducted on such rent paid for
P.Y.2020-21 was remitted after the due date of filing of return of income u/s 139(1) for
A.Y.2021-22, ` 5,40,000, being 30% of annual rent of ` 18 lakh, would not have been allowed
as application in the P.Y.2020-21, by virtue of Explanation 3 to section 11(1) read with section
40(a)(ia). However, since tax so deducted was remitted in December, 2021, the said amount
of ` 5,40,000 (i.e., 30% of rent not allowed as application in the P.Y.2020-21) would be
allowed as application in the P.Y.2021-22 (A.Y.2022-23). Further, the rent of ` 21 lakh paid
in the P.Y.2021-22 would also be allowed as application in A.Y.2022-23, since the tax
deducted in respect of such rent was remitted in July, 2022 i.e., before the due date of filing
of return u/s 139(1) for A.Y.2022-23. Therefore, an amount of ` 26,40,000 towards rent paid
would be allowed as application of income in the P.Y.2021-22 (A.Y.2022-23).
(iii) The effective date of making the application for re-registration under section 12AB is
30.6.2021, being three months from 1 st April, 2021. CBDT has, vide Circular No.16/2021 dated
29.8.2021, extended the date upto 31.3.2022. No, the registration granted under section 12AB
would be valid only for 5 years and not perpetually, as in the case of registration granted
under section 12AA.

(b) (i) Finetune Ltd., an Indian company and Iris Inc, a Country M company are deemed to be
associated enterprises since the latter has advanced a loan to the former which constitutes
58.54% of the book value of total assets of the former [Euro 380 crores x ` 90/Rs.58,420
crores]. Since the loan advanced by Iris Inc is not less than 51% of the book value of the total
assets of Finetune Ltd., the two companies are deemed to be associated enterprises.
A loan transaction between two enterprises, one of whom is a non-resident (Iris Inc, Country
M, in this case), would be an international transaction. Accordingly, transfer pricing provisions
would be attracted in this case.
(ii) The interest rate charged by Iris Inc. on loan advanced to Finetune Ltd. is 9% p.a. whereas
the arm’s length interest charged by Iris Inc. in a comparable uncontrolled transaction with
Bigbumper Ltd., another Indian company, is 7% p.a. Therefore, the arm’s length adjustment
(primary adjustment) to be made is = 9% - 7% = 2% of ` 34,200 crores (Euro 380 crores x
` 90, being the value of 1 Euro) = ` 684 crores
The total income (after primary adjustment) of Finetune Ltd for P.Y.2021-22 = ` 1900 crores
+ primary adjustment of ` 684 crores = ` 2,584 crores.
(iii) Since the primary adjustment has been made by Finetune Ltd. suo moto while filing its return
of income for A.Y.2022-23, Finetune Ltd. has to carry out secondary adjustment in the
following manner.
The excess money (i.e., ` 684 crores) lying with Iris Inc has to be repatriated within 90 days
from 30.11.2022, being the due date for filing return of income.
If the excess money is not repatriated on or before 28 th February, 2023, it would be deemed
as an advance made by Finetune Ltd. to Iris Inc and interest would be chargeable from
30.11.2022 at six month LIBOR as on 30 th September, 2022 + 3%, since the loan is
denominated in Euros. Such interest for the period from 30.11.2022 to 31.3.2023 (assuming
that it has not been repatriated upto 31.3.2023) would be included in the total income of
Finetune Ltd. for P.Y.2022-23.
(iv) If Finetune Ltd. opts for payment of additional income-tax, it has to pay ` 143.410 crores [i.e.,
20.9664% (tax@18% + surcharge@12% + cess@4%) of ` 684 crores].
4. (a)
Particulars `
Gross salary, allowances and monetary perquisites 7,30,000
Non-Monetary perquisites 1,20,000
8,50,000
Less: Standard deduction under section 16(ia) [not allowable, since Mr. Arun is
opting for section 115BAC -
8,50,000
Tax Liability
Upto ` 2,50,000 Nil
` 2,50,001 – ` 5,00,000 @5% - 12500
` 5,00,001 – ` 7,50,000 @ 10% 25,000
` 7,50,001 – ` 8,50,000 @ 15% 15,000 52,500
Add: Health and Education cess @4% 2,100
54,600
Average rate of tax (` 54,600 / ` 8,50,000 × 100) 6.424 %

The company can pay tax on non-monetary perquisites as under –
Tax on non-monetary perquisites = 6.424% of ` 1,20,000 = ` 7,709
Balance to be deducted from salary = ` 46,891 [` 54,600 – ` 7,709]
(b) The Explanation below section 194A(1) provides that where any income by way of interest other
than interest on securities is credited to any account, whether called ‘interest payable account’ or
‘suspense account’ or by any other name, in the books of account of the pers on liable to pay such
income, such crediting shall be deemed to be credit of such income to the account of the payee
and provisions of section 194A, shall, thus, apply.
However, the CBDT has, vide Circular No.3/2010 dated 2.3.2010, clarified that Explanation below
section 194A(1) will not apply in cases of banks where credit is made to provisioning account on
daily/monthly basis for the purpose of macro monitoring only by the use of CBS software.
Since no constructive credit to the depositor's/ payee's account takes place while calculating
interest on daily / monthly basis in the CBS software used by banks, tax need not be deducted at
source on such provisioning of interest by banks for the purposes of macro monitoring only.
In such cases, tax shall be deducted at source on accrual of interest at the end of the financial year
or at periodic intervals as per practice of the bank or as per the depositor's or payee’s requirement
or on maturity or on encashment of time deposit, whichever event takes place earlier and wherever
the aggregate amount of interest income credited or paid or likely to be credited or paid during the
financial year by the bank exceeds the limits specified in section 194A i.e., ` 40,000.
In view of the above, the action of the Assessing Officer in disallowing the interest expenditure
credited in a separate account for macro monitoring purpose is not valid and consequent initiation
of penalty proceedings under section 271C is not tenable in law.
(c) (i) Equalisation levy @ 2% is attracted on the amount of consideration received or receivable by an
e-commerce operator from e-commerce supply or services made or provided or facilitated by it,
inter alia, -
- to a person resident in India; or
- to a non-resident in specified circumstances, which include sale of advertisement targeting
a customer who is resident in India.
Citax.com is an e-commerce operator since it is a non-resident managing an electronic facility
for online sale of goods and provision of services.
Equalisation levy@2% would not be attracted, if -
(i) Citax.com has a PE in India; or
(ii) Equalization levy@6% is deductible by the service recipients, resident in India, in respect
of online advertisement services rendered to them; or
(iii) The sales/turnover/gross receipts of Citax.com from taxable e-commerce supply or services
is less than ` 2 crore in the current previous year i.e., P.Y.2021-22.
In the present case, Equalisation levy @ 2% would be attracted since -
(i) Citax.com does not have a PE in India.
(ii) The amount of billing (or the aggregate amount of billing) to each recipient of
advertisement service (being a person resident in India) does not exceed ` 1 lakh.
Consequently, there would be no requirement for them to deduct equalization levy of 6%.

(iii) The sales/turnover/gross receipts of Citax.com from taxable e-commerce supply or
services exceeds ` 2 crore in the current previous year i.e., P.Y.2021-22.
Accordingly, equalization levy of ` 4,20,000 @2% of Rs. 2.10 crores would be attracted.
(ii) As per section 245S, the advance ruling pronounced by the Authority for Advance Rulings
upto 31.8.2021 would be binding on the applicant. Accordingly, the advance rulings
pronounced on 25.8.2021 by the Authority for Advance Rulings would be binding on SPO Ltd.
With the constitution of Boards for Advance Rulings for giving advance rulings on or after
1.9.2021, the Authority for Advance Rulings ceased to operate with effect from such date.
With effect from 1.9.2021, advance ruling would be pronounced by the Board for Advance
Rulings. The binding provision contained in section 245S will not apply to an adva nce ruling
pronounced on or after 1.9.2021 by the Board for Advance Rulings. Accordingly, in the case
of SPO Ltd., the binding provision would not apply in respect of the advance ruling pronounced
on 5.10.2021 by the Board for Advance Rulings. If SPO Ltd. is aggrieved by the advance
ruling pronounced by the Board for Advance Rulings on 5.10.2021, it may appeal to the High
Court against such ruling, within 60 days from the date of communication of that ruling.
5. (a) In order to deter the practice of non-disclosure of income, section 271AAB(1A) provides for levy of
penalty on undisclosed income found during the course of a search, which relates to specified
previous year, i.e.-
- the previous year which has ended before the date of search, but the due date o f filing return
of income for the same has not expired before the date of search and the return has not yet
been furnished (P.Y. 2020-21);
- the previous year in which search is conducted (P.Y. 2021-22).
Accordingly, under section 271AAB(1A), in respect of searches initiated on 30.4.2021,
• penalty@30% would be attracted, if undisclosed income is admitted during the course of
search in the statement furnished under section 132(4), and the assessee explains the
manner in which such income was derived, pays the tax, together with interest if any, in
respect of the undisclosed income, and furnishes the return of income for the sp ecified
previous year declaring such undisclosed income on or before the specified date .
In all other cases, penalty @60% of undisclosed income would be attracted.
(b) In respect of Mr. Sahil, the Assessing Officer has information suggesting that income has escaped
assessment for the purposes of section 148 and 148A, since information has been flagged for the
relevant assessment year as per risk management policy formulated by the CBDT. Notice can be
issued for A.Y.2020-21, A.Y.2019-20 and A.Y.2018-19, since the three year time limit from the end
of the relevant assessment year has not expired as on May, 2021. Such notice can be issued after
conducting an enquiry, if required, with respect to the information suggesting escapement of
income; and providing an opportunity of being heard to Mr. Sahil by serving a show cause notice.
Thereafter, on the basis of material available on record including the reply of Mr. Sahil, in response
to show cause notice, the Assessing Officer has to decide whether or not it is a fit case to issue
notice under section 148 by passing an order, with the prior approval of Principal Commissioner or
Principal Director or Commissioner or Director. However, notice cannot be issued in respect of
A.Y.2017-18, since the three year time limit has expired in March, 2021. The extended time limit of
10 years from the end of the relevant assessment year cannot be invoked in this case, since the
income escaping assessment in respect of Mr. Sahil is not ` 50 lakh or more.
In case of Mr. Rahul, the Assessing Officer shall be deemed to have information suggesting that
income has escaped assessment for three assessment years immediately preceding A.Y.2022 -23,
9

relevant to P.Y.2021-22 in which search is initiated. Hence, the relevant assessment years in
respect of which the Assessing Officer can issue notice to Mr. Rahul are A.Y.2021-22, A.Y.2020-
21 and A.Y.2019-20. In this case, there is no requirement to conduct an enquiry or provide an
opportunity of being heard to Mr. Rahul by serving a show cause notice.
(c) Article 31 of Vienna Convention of Law of Treaties contains the General Rule of Interpretation. It
lays down that following general rule of interpretation:
• A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given
to the terms thereof in the context and in the light of its object and purpose.
• The context for the purpose of interpretation of a treaty shall comprise, in addition to the text,
including its preamble and annexure
(a) Any agreement relating to the treaty which was made between all the parties in
connection with the conclusion of the treaty;
(b) Any instrument which was made by one or more parties in connection with the conclusion
of the treaty and accepted by the other parties as an instrument related thereto .
• The following shall be taken into account, together with the context in that:
(a) Any subsequent agreement between the parties regarding the interpretation of the treaty
or the application of its provisions;
(b) Any subsequent practice in the application of the treaty which establishes the agreement
of the parties regarding its interpretation;
(c) Any relevant rules of international law applicable to relation between the parties.
A special meaning shall be given to a term if it is established that the parties so intended.
6. (a) Section 179 contains the provisions relating to the liability of directors of a private company in
liquidation in respect of tax due from the company. Where any tax due from a private company in
respect of income of any previous year or from any other company in respect of any income of any
previous year during which such other company was a private company cannot be recovered, then,
every person who was a director of such company at any time during the relevant previous year
shall be jointly and severally liable for the payment of such tax. However, the director shall not be
so liable if he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance
or breach of duty on his part in relation to the affairs of the company.
Explanation to section 179 clarifies that the expression “tax due” includes penalty, interest or
any other sum payable under the Act. Therefore, the directors’ liability is not confined to tax
alone but extends to penalty, interest or any other sum payable by the company
(b) The arrangement of routing investment through Country ‘Y’ results into a tax benefit. Since there
is no business purpose in incorporating company Zen Pvt. Ltd. in Country ‘Y’, it can be said that
the main purpose of the arrangement is to obtain a tax benefit. The alternate course available in
this case is direct investment in Ren (P) Ltd. joint venture by Den Pvt. Ltd. The tax benefit would
be the difference in tax liabilities between the two available courses.
The next question is, does the arrangement have any tainted element? It is evident that there is no
commercial substance in incorporating Zen Pvt. Ltd. as it does not have any effect on the business
risk of Den Pvt. Ltd. or cash flow of Den Pvt. Ltd. As the twin conditions of main purpose being tax
benefit and existence of a tainted element are satisfied, GAAR may be invoked.
Additionally, as all rights of shareholders of Ren (P) Ltd. are being exercised by Den Pvt. Ltd
instead of Zen Pvt. Ltd, it again shows that Zen Pvt. Ltd lacks commercial substance.
Hence, GAAR provisions can be invoked in this case.
10

(c) Computation of total income and tax liability of Flax Ltd., a non-resident foreign company,
for the A.Y. 2022-23
Particulars `
Business Income from a unit established at Delhi 9,50,000
Income from other sources
- Fees for technical services [would be equivalent to the amount of 32,00,000
debentures of ` 32,00,000 received from an Indian company, issued in
consideration of providing technical knowhow for the purpose of business
carried out in India]
- Interest on Debentures 2,88,000
- Dividend on Global Depository Receipts (GDRs) of MN Ltd. an Indian 8,50,000
company, issued under a scheme of Central Government against the
initial issue of MN Ltd. and purchased in foreign currency by Flax Ltd.
- Dividend income on equity shares of Indian companies 16,80,000
- Royalty income received from Flip Ltd., an Indian company. Since such
agreement is not approved by the Central Government, TDS is to be
deducted @41.6%. [` 8,76,000 x 100/58.4, since tax would have been 15,00,000
deducted at source @ 41.6%]
Gross Total Income/ Total income 84,68,000
Computation of tax liability
Dividend income of ` 16,80,000, taxable @20% u/s 115A 3,36,000
Dividend on GDRs of ` 8,50,000, taxable @10% u/s 115AC 85,000
FTS of ` 32,00,000, taxable @10% u/s 115A, since it is in pursuance of an 3,20,000
agreement approved by the Central Government
Royalty income of ` 15,00,000, taxable @40%, since it is not in pursuance of 6,00,000
an agreement approved by the Central Government
Interest on debentures of ` 2,88,000, taxable @40%, since debt is incurred in 1,15,200
Indian currency, it is not eligible for concessional rate of 20% provided u/s
115A
Business income of ` 9,50,000 [taxable @40%] 3,80,000
18,36,200
11

MOCK TEST PAPER 1
Case Scenario I
Dhruv Limited has three Units – A, B and C. It transferred its Unit C to Paras Limited by way of slump sale
on 1st April, 2021. The Balance Sheet of Dhruv Limited as on that date is given below:
Liabilities ` (in lakhs) Assets ` (in lakhs)
Paid up capital 2,900 Fixed Assets:
Reserve & Surplus 1280 Unit A 525
Unit B 475
Liabilities: Unit C 985
Unit A 160 Other Assets:
Unit B 465 Unit A 920
Unit C 335 Unit B 1,550
Unit C 685
Total 5,140 Total 5,140
Additional information:
(i) Lump sum consideration on transfer of Unit C is ` 1,340 lakhs.
(ii) Fixed assets of Unit C include land which was purchased at ` 85 lakhs in February, 2020 and revalued
at ` 150 lakhs as on March 31, 2021. The stamp duty value of land on 1st April, 2021 was ` 190 lakhs.
(iii) Other fixed assets represent plant and machinery and furniture, which are reflected at ` 835 lakhs (i.e.,
` 985 lakhs less value of land) which represents written down value of those assets as per books. The
written down value of these assets u/s 43(6) of the Income-tax Act, 1961 is ` 725 lakhs.
(iv) Other assets do not include jewellery, artistic work, shares and securities.
(v) Liabilities represent ascertained liabilities and does not include provision for taxation or proposed
dividend.
(vi) Unit C was set up by Dhruv Limited in February 2020.
(vii) Assume that the turnover of Dhruv Ltd. for F.Y. 2019-20 is ` 1455 lakhs and Dhruv Ltd. has not opted
for section 115BAA.
(viii) Book profit of Dhruv Ltd. computed as per section 115JB is ` 320 lakhs
Based on the facts of the above case scenario, choose the most appropriate answer to Q.1 to Q. 5 below:
1

1. For computing capital gains on slump sale of Unit C, what would be the deemed cost of acquisition and
improvement for the purposes of section 48 and 49 and the resultant capital gains?
(a) ` 1270 lakhs and ` 105 lakhs, respectively
(b) ` 1270 lakhs and ` 70 lakhs, respectively
(c) ` 1160 lakhs and ` 215 lakhs, respectively
(d) ` 1160 lakhs and ` 180 lakhs, respectively
2. What is the tax liability on capital gain arising on slump sale of Unit C? Assume for the purpose of
answering this MCQ that this is the only source of income of Dhaval Ltd.
(a) ` 50,07,600
(b) ` 62,60,800
(c) ` 71,77,560
(d) ` 59,81,300
3. If Unit C was set up on April, 2009 instead of February 2020, and the sale consideration is ` 3500 lakhs
instead of ` 1340 lakhs, what would be the capital gains arising to Dhruv Ltd. on slump sale and the
resultant tax liability? The CII of F.Y.2009-10 is 148 and F.Y.2021-22 is 317. Assume that there is no
change in any other information given in the case scenario.
(a) ` 1015.40 lakhs and ` 236.55 lakhs, respectively
(b) ` 1015.40 lakhs and ` 225.99 lakhs, respectively
(c) ` 2340 lakhs and ` 520.79 lakhs, respectively
(d) ` 2340 lakhs and ` 545.13 lakhs, respectively
4. What would be the minimum alternate tax computed under section 115JB for A.Y.2022-23, if Dhruv Ltd.
is located in an IFSC and derives its income solely in convertible foreign exchange?
(a) ` 32,04,864
(b) ` 53,41,440
(c) ` 33,54,624
(d) ` 55,91,040
5. If Dhruv Ltd. is a company, being a unit of an IFSC, deriving income solely in convertible foreign
exchange and has distributed dividend of ` 200 lakhs in the P.Y.2021-22, what would be the tax
implications in the hands of Dhruv Ltd. and shareholders?
(a) No distribution tax in the hands of Dhruv Ltd. and no income-tax in the hands of the shareholders
in respect of dividend so distributed
(b) Dhruv Ltd. is liable to pay distribution tax; income is exempt in the hands of shareholders
(c) No distribution tax in the hands of Dhruv Ltd.; shareholders liable to tax on dividend income
(d) No distribution tax in the hands of Dhruv Ltd.; shareholders liable to tax on aggregate dividend
income in excess of ` 10 lakh. (2 x 5 = 10 Marks)
Case Scenario II
Mittal Pvt. Ltd. (“M”) files its return of income for the P.Y. 2021-22 on 30 th September 2022 declaring loss of
` 18,00,000. The rate of income-tax applicable to the company is 25%.
The tax auditor of M, in his audit report submitted under section 44AB, has reported a disallowance of
` 1,60,000 towards personal expenditure of directors as no evidence was produced by M in support of this
expenditure. However, M did not disallow the same in its computation and return of income.

The return of income was processed by the Centralised Processing Centre making an addition of
` 1,60,000 towards personal expenditure and the loss u/s 143(1) was computed at ` 16,40,000.
The return of income was selected for scrutiny assessment and by order passed u/s 143(3), the loss as
per normal provisions was reduced to ` 12,20,000 by making an addition of ` 4,20,000.
The assessment was reopened u/s 147 and by order passed u/s 147, the loss as per preceding order
u/s 143(3) was converted into income of ` 2,20,000.
From the information given above, choose the most appropriate answer to the following questions
(Ignore MAT) –
6. Which of the following statements regarding penalty on addition of ` 1,60,000 towards personal
expenditure is correct?
(i) Since M has claimed deduction of amount incurred towards personal expenditure of directors,
M shall be considered to have under-reported its income.
(ii) The under-reporting on account of claiming personal expenditure of directors as deduction can be
construed as misreporting of income as it is a claim of expenditure not substantiated by any
evidence.
(iii) Since addition of ` 1,60,000 is an adjustment referred to in section 143(1)(a), no penalty is leviable
in respect of this addition.
(iv) No penalty is leviable if M offers an explanation and the Assessing Officer is satisfied that the
explanation is bona fide and M has disclosed all the material facts to substantiate the explanation
offered.
(a) (i) and (iv)
(b) (ii) and (iv)
(c) (iv) only
(d) (iii) only
7. What is the penalty leviable u/s 270A as a consequence of assessment u/s 143(3), if the addition was
not on account of misreporting?
(a) ` 52,500
(b) ` 54,600
(c) ` 1,09,200
(d) ` 2,18,400
8. What is the penalty leviable u/s 270A at the time of passing of the order u/s 147 considering that all
additions are on account of misreporting of income?
(a) ` 7,48,800
(b) ` 5,20,000
(c) ` 1,87,200
(d) ` 3,74,400
9. Assuming that the additions made in the order u/s 147 are not on account of misreporting of income but
only on account of under-reporting, M seeks to claim immunity from imposition of penalty u/s 270A and
initiation of proceedings u/s 276C of the Act by filing an application in this regar d before the Assessing
Officer. What are the other conditions that need to be satisfied by M in this regard?
(i) Pay the tax and interest payable as per the order u/s section 147 within the period specified in the
notice of demand.
3

(ii) Pay the tax as per the order u/s section 147 within the period specified in the notice of demand.
(iii) Contest the additions made in the order, after payment of tax and interest, within the period
specified in the notice of demand.
(iv) No appeal should be or should have been filed against the order.
The correct answer is-
(a) (ii) and (iv)
(b) (i) and (iv)
(c) (i) and (iii)
(d) (ii) and (iii)
10. Out of the addition of ` 4,20,000 made by order passed u/s 143(3), an amount of ` 1,80,000 is on
account of a false entry deliberately made by M in its books of account. Apart from penalty under section
270A, what are the are other prosecution and penal consequences, if any, that wou ld be attracted in
case of M?
(a) Once penalty u/s 270A is levied, no other penalty will be levied but prosecution may be initiated
u/s 276C
(b) Penalty of ` 54,000 u/s 271AAD and prosecution u/s 276C would be attracted
(c) Penalty of ` 1,80,000 u/s 271AAD and prosecution u/s 276C would be attracted
(d) Penalty u/s 271AAD may be levied but prosecution u/s 276C will not be initiated
(2 x 5 = 10 Marks)
11. M/s. Skyline Airlines, incorporated as a company in Country X, operated its flights to India and vice
versa during the year 2021-22 and collected charges of ` 40 crores for carriage of passengers and
cargo from Mumbai to Country X and ` 120 crores were received in US Dollars for the passenger fare
from Country X to Mumbai. Out of ` 120 crores, US dollars equivalent to ` 40 crores is received in India.
The total expenses for the year on operation of such flights were ` 78.8 crores. What would be the total
income and tax liability of M/s. Skyline Airlines for A.Y. 2022-23?
(a) ` 4 crores and ` 1,69,72,800
(b) ` 8 crores and ` 3,39,45,600
(c) ` 1,20,00,000 and ` 50,91,840
(d) ` 4 crores and ` 1,66,40,000 (2 Marks)
12. A notified infrastructure debt fund eligible for exemption under section 10(47) of the Income -tax Act,
1961 has to pay interest of ` 5.2 lakhs to a company incorporated in a foreign country. The foreign
company incurred expenditure of ` 20,000 for earning such interest. The fund also has to pay interest
of ` 3.2 lakhs to Mr. Peter, who is a resident of Country M, a notified jurisdictional area. Which of the
following statements is correct?
(a) No tax deduction at source is required in respect of both the payments
(b) No TDS is required in respect of ` 5.2 lakhs payable to the foreign company. However, payment
of interest to Peter attracts [email protected]%
(c) [email protected]% is attracted on ` 5,00,000 payable to the foreign company. [email protected]% is attracted
on interest payment of ` 3.2 lakhs to Mr. Peter
(d) [email protected]% is attracted on interest of ` 5.2 lakhs payable to the foreign company. [email protected]%
is attracted on interest of ` 3.2 lakhs payable to Mr. Pater (2 Mark)

13. Mr. Sahil has been holding 10% units in Real Estate Investment Trust, 7.5% units in Securitisation Trust
and 5% units in Investment Fund for more than 18 months. The following incomes were earned by the
Trust/Fund during the P.Y. 2021-22:
Particulars Investment Real Estate Securitisation
Fund (`) Investment Trust (`) Trust (`)
Rental Income from directly held real - 12,00,000 -
estate property
Interest income from Special - 8,20,000 -
Purpose Vehicle
Profit from Business 5,50,000 - 6,30,000
Other Income (not in the nature of 3,20,000 1,20,000 -
dividend)
Long-term capital loss (11,50,000) - -
REIT, Investment Fund and Securitization trust distributed 90% of their income during the P.Y. 2021-
22. What would be the total income of Mr. Sahil for P.Y. 2021-22, assuming that apart from share in
above income, Mr. Sahil had only long-term capital gains of ` 3,80,000?
(a) ` 5,87,750
(b) ` 5,67,550
(c) ` 5,66,975
(d) ` 5,62,825 (2 Marks)
14. Mr. Parth, a resident aged 63 years, and his brother Mr. Veer, a non-resident aged 65 years, earned
dividend of ` 6.5 lakhs and ` 4.8 lakhs, respectively, from Atharv Ltd., an Indian company in December
2021. The interest expenditure incurred by them in the P.Y. 2021-22 on loan taken for investing in shares
of Atharv Ltd. is ` 1.50 lakh and ` 80,000, respectively. What is the tax liability on such income,
assuming it is the only source of income of Mr. Parth and Mr. Veer and they wish to make maximum tax
savings?
(a) ` 15,080 and ` 9,360, respectively
(b) ` 14,560 and ` 9,360, respectively
(c) ` 14,560 and ` 99,840, respectively
(d) ` 15,080 and ` 99,840, respectively (2 Marks)
15. Mr. Suhash has to pay ` 4.2 lakhs on 4.2.2022 to “Go Trip”, a travel agency, for a holiday package to
Paris for himself and his wife. He obtained a loan of ` 12 lakhs for higher education of his son studying
in ABC University, London, on 15.2.2022 from Bank of India, and remitted, under LRS of RBI, the said
sum through the same bank, Bank of India, which is also an authorised dealer. Is tax required to be
collected at source from Mr. Suhash by travel agency and the bank? If so, how much?
(a) No tax is required to be collected by the travel agency since the payment for overseas tour
programme package is less than ` 7 lakhs; tax has to be collected by Bank of India @5% of ` 5
lakhs, being the amount in excess of ` 7 lakhs
(b) No tax is required to be collected by the travel agency since the payment for oversea s tour
programme package is less than ` 7 lakhs; tax has to be collected by Bank of India @0.5% of ` 5
(c) Tax has to be collected by the travel agency@5% on ` 4.2 lakhs; and by Bank of India @5% of
` 5 lakhs, being the amount in excess of ` 7 lakhs
(d) Tax has to be collected by the travel agency@5% on ` 4.2 lakhs; and by Bank of India @0.5% of
` 5 lakhs, being the amount in excess of ` 7 lakhs (2 Marks)
5

1. STP Construction Ltd., an Indian company is engaged in the business of executing civil contracts
awarded by various companies in relation to infrastructure facility.
Statement of Profit & Loss for the year ended 31 st March, 2022 reveals a net profit (before tax) amounting
to ` 85,00,000 after debiting/crediting the following items:
(a) Interest of ` 3,00,000 due to a public financial institution for the last quarter of the financial year
2021-22 paid on 20 th December, 2022.
(b) ` 6,00,000 to Mr. George, a non-resident, towards fee for technical services without deduction of
tax at source. TDS was, however, deducted and paid on 30 th December, 2022.
(c) Damages amounting to ` 15,00,000 paid to the Government of Maharashtra as per the terms of
contract for defects found in construction of a flyover after 5 years of its construction.
(d) Depreciation charged ` 20,00,000.
(e) Marked to market loss amounting to ` 6,00,000 in respect of an unsettled derivative contract. The
contract was settled in May, 2022 with a gain of ` 1,00,000.
(f) Profit of ` 10,00,000 on sale of land to Max Inc., U.S.A. which is a wholly owned subsidiary
company.
(g) Retention money amounting to ` 10,00,000 held by a public sector undertaking which can be
released after expiry of two years on the satisfaction of certain performance criteria as per the
terms of contract.
(h) ` 3,00,000 being interest on fixed deposit made with a bank as margin money for obtaining a
guarantee required by a State Government for a particular contract.
(i) Income of ` 10,00,000 received from a Real Estate Investment Trust (REIT), the break-up of which
is as follows:
- Component of short-term capital gain on sale of development properties by the REIT
` 6,00,000.
- Component of rental income from properties owned by the REIT ` 4,00,000.
Other Information:
(i) Depreciation as per Income-tax Rules, 1962 ` 25,00,000.
(ii) Land sold to Max Inc. was acquired at a cost of ` 30,00,000 on 25.05.2015. Value assessed by
the Stamp Valuation Authority on the date of sale was ` 50,00,000 (Cost Inflation Index- Financial
Year 2015-16 : 254; Financial Year 2021-22 : 317)
(iii) 102 new employees employed during the P.Y. 2021-22, the details of whom are as follows –
No. of Date of Regular/Casual Total monthly
employees employment emoluments per
employee (`)
(i) 15 1.4.2021 Regular 24,000
(ii) 35 1.5.2021 Regular 26,000
(iii) 42 1.8.2021 Casual 24,500
(iv) 10 1.9.2021 Regular 24,000
The regular employees participate in recognized provident fund while the casual employees do not.
6

The due date for filing of return of income for Assessment Year 2022-23 be taken as 30-11-2022.
Compute the total income and tax liability for the Assessment Year 2022-23 clearly stating the
reasons for treatment of each item. The Company has opted for concessional rate of tax under
section 115BAA. (14 Marks)
2. (a) (i) Mr. Adarsh sold his residential property on 22nd March, 2022 for ` 95 lakh and paid
brokerage@1% of sale price. He had purchased the said property in August 2002 for
` 27,36,000. In July, 2022, he invested ` 78 lakh in equity of TMN (P) Ltd., an eligible start-
up company (set up on 1 st March, 2022), which constituted 29% of share capital of the said
company. TMP(P) Ltd. utilized the said sum for the following purposes –
(a) Purchase of new plant and machinery during August 2022 – ` 66 lakh
(b) Included in (a) above is ` 8 lakh for purchase of cars.
(c) Air-conditioners purchased for ` 1 lakh, included in the (a) above, were installed at the
residence of Mr. Adarsh.
(d) Amount deposited in specified bank on 18.9.2022 – ` 12 lakh
Compute the chargeable capital gain for the A.Y.2022-23. Assume that Mr. Adarsh is liable
to file his return of income on or before 30 th September, 2022 and he files his return on
25.09.2022.
Cost Inflation Index: 2002-03: 105, 2021-22: 317. (4 Marks)
(ii) Priyanshu, Managing Director of HE Pvt. Ltd. holds 72% of its paid up capital of ` 25 lakhs.
The balance in General Reserve on 30.4.2021 was ` 8 lakhs. The company on 30.04.2021
gave an interest-free loan of ` 5.5 lakhs to its Supervisor having salary of ` 5,400 p.m., who
in turn on 22.5.2021 advanced the said amount of loan so taken from the company to Shri
Priyanshu. The Assessing Officer had treated the amount of advance as deemed dividend. Is
the action of Assessing Officer correct? (4 Marks)
(b) Mr. Dinesh, aged 64 years, is a resident individual having income from the following sources:
(i) Income from a sole-proprietary business in Pune = ` 50 lakhs.
(ii) Share of profit from a partnership firm in Delhi = ` 30 lakhs.
(iii) Agricultural Income (gross) from coffee estates in Country D, a foreign country with which
India has no DTAA, CAD 32000. Tax deducted on the above income CAD 8,000
(iv) Brought forward business loss of F.Y.2019-20 in Country D was CAD 4,000 which is not
permitted to be set off against other income as per the laws of that country.
(v) Mr. Dinesh has deposited ` 1,50,000 in public provident fund and paid medical insurance
premium of ` 25,000 by account payee cheque to insure his health. He has also paid ` 55,000
as insurance premium to insure the health of his mother and father, who are resident Indians
aged 83 years and 85 years, respectively. He also incurred ` 50,000 on the medical treatment
of his dependent sister, who is a person with severe disability. His sister does not claim
deduction under section 80U.
Compute total income and tax liability of Mr. Dinesh for the A.Y. 2022-23, assuming that 1 CAD =
` 60. Assume that Mr. Dinesh does not opt for section 115BAC. (6 Marks)
3. (a) Examine the tax consequences for A.Y.2022-23 in the case of the following charitable
institution/trust, considering each case independently -
(i) A charitable institution, having its main object as “any other object of general public utility”,
carries on business in the course of actual carrying out of such advancement of any other
object of general public utility and maintains separate books of account in respect of business.
The gross receipts during the P.Y.2021-22 is ` 2.10 crore, which comprises of receipts of

` 52 lakh from such business and ` 1.58 crore by way of voluntary contributions (not being
corpus donations). It has applied 85% of its gross receipts for charitable purposes.
(ii) A charitable trust paid annual rent of ` 18 lakh in the P.Y.2020-21 and ` 21 lakh in the
P.Y.2021-22 in respect of a building used for charitable purposes, after deducting tax at
source. However, tax deducted on such rent in the P.Y.2020-21 was remitted only in
December, 2021; and tax deducted in the P.Y.2021-22 was remitted only in July, 2022.
(iii) Social Welfare is a charitable institution registered under section 12AA. To continue claiming
the benefits of the exemption provisions contained in sections 11 & 12 for the assessment
year 2022-23, it wants to apply for re-registration under section 12AB. What would be the
effective date for making the application for re-registration under section 12AB? The trust
wants to confirm whether the registration granted under section 12AB has the same perpetual
validity as granted under section 12AA. (8 Marks)
(b) Finetune Ltd., an Indian company, declared total income of ` 1,900 crores computed in accordance
with Chapter IV-D before making primary adjustment, if required, in respect of the loan transaction
with Iris Inc, a Country M company, for the year ended 31.03.2022. Iris Inc. had advanced a loan of
Euro 380 crores carrying interest@9% p.a. on 1.4.2021 to Finetune Ltd. The total book value of
assets of Finetune Ltd. was ` 58,420 crores. Assume that the amount of interest computed@9% p.a.
and payable to Iris Inc. does not exceed 30% of EBITDA and that this is the only loan taken by
Finetune Ltd.
Iris Inc also advanced a loan of similar nature and amount to Bigbumper Ltd., another Indian
company@7% p.a. during the F.Y. 2021-22. The value of 1 Euro may be taken as ` 90. You are
required to:
(i) Examine whether transfer pricing provisions under the Income-tax Act, 1961 would be
attracted in this case and if so, on what basis.
(ii) Advise Finetune Ltd. regarding primary adjustments, if any, to be made to the above income
keeping in mind the transfer pricing provisions contained in the Income-tax Act, 1961 and
compute the total income for A.Y.2022-23.
(iii) Elaborate on secondary adjustments, if any, required to be made under the provisions of
Income-tax Act, 1961, assuming that Finetune Ltd. has made the primary adjustment suo
moto.
(iv) Calculate the additional income-tax liability, if Finetune Ltd. opts for payment of additional
income-tax in lieu of making secondary adjustment. (6 Marks)
4. (a) An Indian company pays gross salary including allowances and monetary perquisites amounting
to ` 7,30,000 to Mr. Arun, General Manager. Besides, the company provides non-monetary
perquisites to him whose value is estimated at ` 1,20,000. Tax on non-monetary perquisite is paid
by the company. General manager is opting for the provisions of section 115BAC. Examine the
liability for tax deduction at source in the hands of Indian company. (4 Marks)
(b) ABC Bank credited ` 83,60,000 towards interest on the deposits in a separate account for macro-
monitoring purposes by using Core-branch Banking Solutions (CBS) software. No tax was
deducted at source in respect of interest on deposits so credited even where the interest in respect
of some depositors exceeded the limit of ` 40,000.
The Assessing Officer disallowed 30% of interest expenditure, where the interest on time deposits
credited exceeded the limit of ` 40,000 and also levied penalty under section 271C.
Decide the correctness of action of the Assessing Officer. (4 Marks)
(c) (i) M/s. Citax.com, an e-commerce operator, incorporated in Japan has no physical presence in
India. It has no permanent establishment in India. It provided service to persons resident in
India by way of sale of online advertisement during the previous year 2021-22. The bill (or
8

aggregate amount of bills) to a recipient of service during the financial year does not exceed
` 1 lakh per recipient of service (Gross amount of all bills is ` 2.10 crores). Discuss the
implications of Equalisation levy on Citax.com for the Assessment year 2022-23. (3 Marks)
(ii) SPO Ltd., a domestic company, applied for advance ruling on 1.5.2021 in relation to tax
liability arising out of transactions valuing `122 crore which is proposed to be undertaken by
it. The advance ruling was pronounced on 25.8.2021. Is the same binding on SPO Ltd.?
Examine.
Would your answer change if the advance ruling was pronounced on 5.10.2021? What would
be the remedy available to SPO Ltd. if it is aggrieved by the advance ruling pronounced on
5.10.2021? Examine. (3 Marks)
5. (a) A search under section 132 was initiated in the premises of Mr. X on 30.4.2021 and undisclosed
money and jewellery belonging to Mr. X was found in his premises. Examine the penal provisions
under the Income-tax Act which are attracted in this case, assuming that the undisclosed assets
were acquired out of his undisclosed income of previous year 2020-21. (4 Marks)
(b) Mr. Sahil and Mr. Rahul are two friends. Mr. Sahil is engaged in export of fabrics and his friend Mr.
Rahul is engaged in trading of commodities. For A.Y.2017-18, A.Y.2018-19, A.Y. 2019-20 and
A.Y.2020-21 information is flagged as per the risk management strategy formulated by the CBDT
for Mr. Sahil. The income escaping assessment for these years aggregate to ` 38 lakhs.
A search was initiated u/s 132 in April, 2021, in the business premises of Mr. Rahul.
Can the Assessing Officer issue notice under section 148 to Mr. Sahil and Mr. Rahul in May, 2021?
If so, in respect of which assessment years can notice be issued? Is it necessary that they be
provided an opportunity of being heard before issuance of notice? Examine. (4 Marks)
(c) What is the General Rule of Interpretation under Vienna Convention of Law of Treaties?
(6 Marks)
6. (a) The directors of a private company are personally liable to pay the income tax due from the
company but their liability does not extend towards interest and penalty payable by the company.
Discuss? (4 Marks)
(b) Ipse Pvt. Ltd. is a domestic company in India. Den Pvt. Ltd. is a company incorporated in Country
‘X’ and it is a non-resident in India. Den Pvt. Ltd. forms a company Zen Pvt. Ltd, its 100%
subsidiary, in Country ‘Y’. Zen Pvt. Ltd. and Ipse Pvt. Ltd. form a joint venture company Ren (P)
Ltd. in India on 10.04.2021. There is no other activity in Zen Pvt. Ltd. As per the joint venture
agreement, 49% of Ren (P) Ltd.’s equity is allotted to Zen Pvt. Ltd. and 51% is allotted to Ipse Pvt.
Ltd. Zen Pvt. Ltd. is also designated as a permitted transferee of Den Pvt. Ltd. Permitted transferee
means that though shares of Ren (P) Ltd. are held by Zen Pvt. Ltd, all rights of voting, management,
right to sell etc., are vested in Den Pvt. Ltd. On 08.03.2022, the shares of Ren (P) Ltd. held by Zen
Pvt. Ltd. are sold to CFL Pvt. Ltd., a company connected to the Ipse Pvt. Ltd. group. The India-
Country ‘Y’ tax treaty provides for non-taxation of capital gains in the Source Country and Country
‘Y’ charges no capital gains tax in its domestic law. So, as per the tax treaty with Country ‘Y’, capital
gains arising to Zen Pvt. Ltd. are not taxable in India. As per India-Country X tax treaties, capital
gains is chargeable to tax in the source country.
Examine, whether General Anti-Avoidance Rules (GAAR) can be invoked to deny the treaty benefit,
assuming that the prescribed conditions for application of GAAR are satisfied. (4 Marks)
(c) Flax Ltd., a company incorporated in Country “F”, has the following incomes in India during the
year ended on 31.03.2022.
(i) Dividend of ` 8,50,000 earned on Global Depository Receipts of MN Ltd., an Indian company,
issued under a scheme of Central Government against the initial issue of shares of the
company and purchased by Flax Ltd. in foreign currency through an approved intermediary.
9

(ii) Dividend of ` 16,80,000 earned on equity shares of Indian companies.
(iii) Royalty amounting to ` 8,76,000, received from Flip Ltd., an Indian company, in pursuance
of an agreement entered between Flip Ltd. and Flax Ltd. The said agreement is not approved
by the Central Government.
(iv) Business Income of ` 9,50,000 from a unit established at Surat.
(v) Interest of ` 2,88,000 earned on debentures of ` 32,00,000 issued on 1 st July 2021, in
consideration of providing technical knowhow to Sangita Ltd., an Indian Company, for the
purpose of business carried out in India. Flax Ltd. received the consideration in pursuance to
an agreement approved by the Central Government.
Compute the total income and tax liability of Flax Ltd. for the Assessment Year 2022-23, assuming
that it does not have a PE in India and its POEM is outside India.
Note – No DTAA exists between India and Country “F”. (6 Marks)
10

MOCK TEST PAPER 1
Case Scenario I
Dhruv Limited has three Units – A, B and C. It transferred its Unit C to Paras Limited by way of slump sale
on 1st April, 2021. The Balance Sheet of Dhruv Limited as on that date is given below:
Liabilities ` (in lakhs) Assets ` (in lakhs)
Paid up capital 2,900 Fixed Assets:
Reserve & Surplus 1280 Unit A 525
Unit B 475
Liabilities: Unit C 985
Unit A 160 Other Assets:
Unit B 465 Unit A 920
Unit C 335 Unit B 1,550
Unit C 685
Total 5,140 Total 5,140
Additional information:
(i) Lump sum consideration on transfer of Unit C is ` 1,340 lakhs.
(ii) Fixed assets of Unit C include land which was purchased at ` 85 lakhs in February, 2020 and revalued
at ` 150 lakhs as on March 31, 2021. The stamp duty value of land on 1st April, 2021 was ` 190 lakhs.
(iii) Other fixed assets represent plant and machinery and furniture, which are reflected at ` 835 lakhs (i.e.,
` 985 lakhs less value of land) which represents written down value of those assets as per books. The
written down value of these assets u/s 43(6) of the Income-tax Act, 1961 is ` 725 lakhs.
(iv) Other assets do not include jewellery, artistic work, shares and securities.
(v) Liabilities represent ascertained liabilities and does not include provision for taxation or proposed
dividend.
(vi) Unit C was set up by Dhruv Limited in February 2020.
(vii) Assume that the turnover of Dhruv Ltd. for F.Y. 2019-20 is ` 1455 lakhs and Dhruv Ltd. has not opted
for section 115BAA.
(viii) Book profit of Dhruv Ltd. computed as per section 115JB is ` 320 lakhs
Based on the facts of the above case scenario, choose the most appropriate answer to Q.1 to Q. 5 below:
1

1. For computing capital gains on slump sale of Unit C, what would be the deemed cost of acquisition and
improvement for the purposes of section 48 and 49 and the resultant capital gains?
(a) ` 1270 lakhs and ` 105 lakhs, respectively
(b) ` 1270 lakhs and ` 70 lakhs, respectively
(c) ` 1160 lakhs and ` 215 lakhs, respectively
(d) ` 1160 lakhs and ` 180 lakhs, respectively
2. What is the tax liability on capital gain arising on slump sale of Unit C? Assume for the purpose of
answering this MCQ that this is the only source of income of Dhaval Ltd.
(a) ` 50,07,600
(b) ` 62,60,800
(c) ` 71,77,560
(d) ` 59,81,300
3. If Unit C was set up on April, 2009 instead of February 2020, and the sale consideration is ` 3500 lakhs
instead of ` 1340 lakhs, what would be the capital gains arising to Dhruv Ltd. on slump sale and the
resultant tax liability? The CII of F.Y.2009-10 is 148 and F.Y.2021-22 is 317. Assume that there is no
change in any other information given in the case scenario.
(a) ` 1015.40 lakhs and ` 236.55 lakhs, respectively
(b) ` 1015.40 lakhs and ` 225.99 lakhs, respectively
(c) ` 2340 lakhs and ` 520.79 lakhs, respectively
(d) ` 2340 lakhs and ` 545.13 lakhs, respectively
4. What would be the minimum alternate tax computed under section 115JB for A.Y.2022-23, if Dhruv Ltd.
is located in an IFSC and derives its income solely in convertible foreign exchange?
(a) ` 32,04,864
(b) ` 53,41,440
(c) ` 33,54,624
(d) ` 55,91,040
5. If Dhruv Ltd. is a company, being a unit of an IFSC, deriving income solely in convertible foreign
exchange and has distributed dividend of ` 200 lakhs in the P.Y.2021-22, what would be the tax
implications in the hands of Dhruv Ltd. and shareholders?
(a) No distribution tax in the hands of Dhruv Ltd. and no income-tax in the hands of the shareholders
in respect of dividend so distributed
(b) Dhruv Ltd. is liable to pay distribution tax; income is exempt in the hands of shareholders
(c) No distribution tax in the hands of Dhruv Ltd.; shareholders liable to tax on dividend income
(d) No distribution tax in the hands of Dhruv Ltd.; shareholders liable to tax on aggregate dividend
income in excess of ` 10 lakh. (2 x 5 = 10 Marks)
Case Scenario II
Mittal Pvt. Ltd. (“M”) files its return of income for the P.Y. 2021-22 on 30 th September 2022 declaring loss of
` 18,00,000. The rate of income-tax applicable to the company is 25%.
The tax auditor of M, in his audit report submitted under section 44AB, has reported a disallowance of
` 1,60,000 towards personal expenditure of directors as no evidence was produced by M in support of this
expenditure. However, M did not disallow the same in its computation and return of income.

The return of income was processed by the Centralised Processing Centre making an addition of
` 1,60,000 towards personal expenditure and the loss u/s 143(1) was computed at ` 16,40,000.
The return of income was selected for scrutiny assessment and by order passed u/s 143(3), the loss as
per normal provisions was reduced to ` 12,20,000 by making an addition of ` 4,20,000.
The assessment was reopened u/s 147 and by order passed u/s 147, the loss as per preceding order
u/s 143(3) was converted into income of ` 2,20,000.
From the information given above, choose the most appropriate answer to the following questions
(Ignore MAT) –
6. Which of the following statements regarding penalty on addition of ` 1,60,000 towards personal
expenditure is correct?
(i) Since M has claimed deduction of amount incurred towards personal expenditure of directors,
M shall be considered to have under-reported its income.
(ii) The under-reporting on account of claiming personal expenditure of directors as deduction can be
construed as misreporting of income as it is a claim of expenditure not substantiated by any
evidence.
(iii) Since addition of ` 1,60,000 is an adjustment referred to in section 143(1)(a), no penalty is leviable
in respect of this addition.
(iv) No penalty is leviable if M offers an explanation and the Assessing Officer is satisfied that the
explanation is bona fide and M has disclosed all the material facts to substantiate the explanation
offered.
(a) (i) and (iv)
(b) (ii) and (iv)
(c) (iv) only
(d) (iii) only
7. What is the penalty leviable u/s 270A as a consequence of assessment u/s 143(3), if the addition was
not on account of misreporting?
(a) ` 52,500
(b) ` 54,600
(c) ` 1,09,200
(d) ` 2,18,400
8. What is the penalty leviable u/s 270A at the time of passing of the order u/s 147 considering that all
additions are on account of misreporting of income?
(a) ` 7,48,800
(b) ` 5,20,000
(c) ` 1,87,200
(d) ` 3,74,400
9. Assuming that the additions made in the order u/s 147 are not on account of misreporting of income but
only on account of under-reporting, M seeks to claim immunity from imposition of penalty u/s 270A and
initiation of proceedings u/s 276C of the Act by filing an application in this regar d before the Assessing
Officer. What are the other conditions that need to be satisfied by M in this regard?
(i) Pay the tax and interest payable as per the order u/s section 147 within the period specified in the
notice of demand.
3

(ii) Pay the tax as per the order u/s section 147 within the period specified in the notice of demand.
(iii) Contest the additions made in the order, after payment of tax and interest, within the period
specified in the notice of demand.
(iv) No appeal should be or should have been filed against the order.
The correct answer is-
(a) (ii) and (iv)
(b) (i) and (iv)
(c) (i) and (iii)
(d) (ii) and (iii)
10. Out of the addition of ` 4,20,000 made by order passed u/s 143(3), an amount of ` 1,80,000 is on
account of a false entry deliberately made by M in its books of account. Apart from penalty under section
270A, what are the are other prosecution and penal consequences, if any, that wou ld be attracted in
case of M?
(a) Once penalty u/s 270A is levied, no other penalty will be levied but prosecution may be initiated
u/s 276C
(b) Penalty of ` 54,000 u/s 271AAD and prosecution u/s 276C would be attracted
(c) Penalty of ` 1,80,000 u/s 271AAD and prosecution u/s 276C would be attracted
(d) Penalty u/s 271AAD may be levied but prosecution u/s 276C will not be initiated
(2 x 5 = 10 Marks)
11. M/s. Skyline Airlines, incorporated as a company in Country X, operated its flights to India and vice
versa during the year 2021-22 and collected charges of ` 40 crores for carriage of passengers and
cargo from Mumbai to Country X and ` 120 crores were received in US Dollars for the passenger fare
from Country X to Mumbai. Out of ` 120 crores, US dollars equivalent to ` 40 crores is received in India.
The total expenses for the year on operation of such flights were ` 78.8 crores. What would be the total
income and tax liability of M/s. Skyline Airlines for A.Y. 2022-23?
(a) ` 4 crores and ` 1,69,72,800
(b) ` 8 crores and ` 3,39,45,600
(c) ` 1,20,00,000 and ` 50,91,840
(d) ` 4 crores and ` 1,66,40,000 (2 Marks)
12. A notified infrastructure debt fund eligible for exemption under section 10(47) of the Income -tax Act,
1961 has to pay interest of ` 5.2 lakhs to a company incorporated in a foreign country. The foreign
company incurred expenditure of ` 20,000 for earning such interest. The fund also has to pay interest
of ` 3.2 lakhs to Mr. Peter, who is a resident of Country M, a notified jurisdictional area. Which of the
following statements is correct?
(a) No tax deduction at source is required in respect of both the payments
(b) No TDS is required in respect of ` 5.2 lakhs payable to the foreign company. However, payment
of interest to Peter attracts [email protected]%
(c) [email protected]% is attracted on ` 5,00,000 payable to the foreign company. [email protected]% is attracted
on interest payment of ` 3.2 lakhs to Mr. Peter
(d) [email protected]% is attracted on interest of ` 5.2 lakhs payable to the foreign company. [email protected]%
is attracted on interest of ` 3.2 lakhs payable to Mr. Pater (2 Mark)

13. Mr. Sahil has been holding 10% units in Real Estate Investment Trust, 7.5% units in Securitisation Trust
and 5% units in Investment Fund for more than 18 months. The following incomes were earned by the
Trust/Fund during the P.Y. 2021-22:
Particulars Investment Real Estate Securitisation
Fund (`) Investment Trust (`) Trust (`)
Rental Income from directly held real - 12,00,000 -
estate property
Interest income from Special - 8,20,000 -
Purpose Vehicle
Profit from Business 5,50,000 - 6,30,000
Other Income (not in the nature of 3,20,000 1,20,000 -
dividend)
Long-term capital loss (11,50,000) - -
REIT, Investment Fund and Securitization trust distributed 90% of their income during the P.Y. 2021-
22. What would be the total income of Mr. Sahil for P.Y. 2021-22, assuming that apart from share in
above income, Mr. Sahil had only long-term capital gains of ` 3,80,000?
(a) ` 5,87,750
(b) ` 5,67,550
(c) ` 5,66,975
(d) ` 5,62,825 (2 Marks)
14. Mr. Parth, a resident aged 63 years, and his brother Mr. Veer, a non-resident aged 65 years, earned
dividend of ` 6.5 lakhs and ` 4.8 lakhs, respectively, from Atharv Ltd., an Indian company in December
2021. The interest expenditure incurred by them in the P.Y. 2021-22 on loan taken for investing in shares
of Atharv Ltd. is ` 1.50 lakh and ` 80,000, respectively. What is the tax liability on such income,
assuming it is the only source of income of Mr. Parth and Mr. Veer and they wish to make maximum tax
savings?
(a) ` 15,080 and ` 9,360, respectively
(b) ` 14,560 and ` 9,360, respectively
(c) ` 14,560 and ` 99,840, respectively
(d) ` 15,080 and ` 99,840, respectively (2 Marks)
15. Mr. Suhash has to pay ` 4.2 lakhs on 4.2.2022 to “Go Trip”, a travel agency, for a holiday package to
Paris for himself and his wife. He obtained a loan of ` 12 lakhs for higher education of his son studying
in ABC University, London, on 15.2.2022 from Bank of India, and remitted, under LRS of RBI, the said
sum through the same bank, Bank of India, which is also an authorised dealer. Is tax required to be
collected at source from Mr. Suhash by travel agency and the bank? If so, how much?
(a) No tax is required to be collected by the travel agency since the payment for overseas tour
programme package is less than ` 7 lakhs; tax has to be collected by Bank of India @5% of ` 5
(b) No tax is required to be collected by the travel agency since the payment for oversea s tour
programme package is less than ` 7 lakhs; tax has to be collected by Bank of India @0.5% of ` 5
(c) Tax has to be collected by the travel agency@5% on ` 4.2 lakhs; and by Bank of India @5% of
` 5 lakhs, being the amount in excess of ` 7 lakhs
(d) Tax has to be collected by the travel agency@5% on ` 4.2 lakhs; and by Bank of India @0.5% of
` 5 lakhs, being the amount in excess of ` 7 lakhs (2 Marks)
5

1. STP Construction Ltd., an Indian company is engaged in the business of executing civil contracts
awarded by various companies in relation to infrastructure facility.
Statement of Profit & Loss for the year ended 31 st March, 2022 reveals a net profit (before tax) amounting
to ` 85,00,000 after debiting/crediting the following items:
(a) Interest of ` 3,00,000 due to a public financial institution for the last quarter of the financial year
2021-22 paid on 20 th December, 2022.
(b) ` 6,00,000 to Mr. George, a non-resident, towards fee for technical services without deduction of
tax at source. TDS was, however, deducted and paid on 30 th December, 2022.
(c) Damages amounting to ` 15,00,000 paid to the Government of Maharashtra as per the terms of
contract for defects found in construction of a flyover after 5 years of its construction.
(d) Depreciation charged ` 20,00,000.
(e) Marked to market loss amounting to ` 6,00,000 in respect of an unsettled derivative contract. The
contract was settled in May, 2022 with a gain of ` 1,00,000.
(f) Profit of ` 10,00,000 on sale of land to Max Inc., U.S.A. which is a wholly owned subsidiary
company.
(g) Retention money amounting to ` 10,00,000 held by a public sector undertaking which can be
released after expiry of two years on the satisfaction of certain performance criteria as per the
terms of contract.
(h) ` 3,00,000 being interest on fixed deposit made with a bank as margin money for obtaining a
guarantee required by a State Government for a particular contract.
(i) Income of ` 10,00,000 received from a Real Estate Investment Trust (REIT), the break-up of which
is as follows:
- Component of short-term capital gain on sale of development properties by the REIT
` 6,00,000.
- Component of rental income from properties owned by the REIT ` 4,00,000.
Other Information:
(i) Depreciation as per Income-tax Rules, 1962 ` 25,00,000.
(ii) Land sold to Max Inc. was acquired at a cost of ` 30,00,000 on 25.05.2015. Value assessed by
the Stamp Valuation Authority on the date of sale was ` 50,00,000 (Cost Inflation Index- Financial
Year 2015-16 : 254; Financial Year 2021-22 : 317)
(iii) 102 new employees employed during the P.Y. 2021-22, the details of whom are as follows –
No. of Date of Regular/Casual Total monthly
employees employment emoluments per
employee (`)
(i) 15 1.4.2021 Regular 24,000
(ii) 35 1.5.2021 Regular 26,000
(iii) 42 1.8.2021 Casual 24,500
(iv) 10 1.9.2021 Regular 24,000
The regular employees participate in recognized provident fund while the casual employees do not.
6

The due date for filing of return of income for Assessment Year 2022-23 be taken as 30-11-2022.
Compute the total income and tax liability for the Assessment Year 2022-23 clearly stating the
reasons for treatment of each item. The Company has opted for concessional rate of tax under
section 115BAA. (14 Marks)
2. (a) (i) Mr. Adarsh sold his residential property on 22nd March, 2022 for ` 95 lakh and paid
brokerage@1% of sale price. He had purchased the said property in August 2002 for
` 27,36,000. In July, 2022, he invested ` 78 lakh in equity of TMN (P) Ltd., an eligible start-
up company (set up on 1 st March, 2022), which constituted 29% of share capital of the said
company. TMP(P) Ltd. utilized the said sum for the following purposes –
(a) Purchase of new plant and machinery during August 2022 – ` 66 lakh
(b) Included in (a) above is ` 8 lakh for purchase of cars.
(c) Air-conditioners purchased for ` 1 lakh, included in the (a) above, were installed at the
residence of Mr. Adarsh.
(d) Amount deposited in specified bank on 18.9.2022 – ` 12 lakh
Compute the chargeable capital gain for the A.Y.2022-23. Assume that Mr. Adarsh is liable
to file his return of income on or before 30 th September, 2022 and he files his return on
25.09.2022.
Cost Inflation Index: 2002-03: 105, 2021-22: 317. (4 Marks)
(ii) Priyanshu, Managing Director of HE Pvt. Ltd. holds 72% of its paid up capital of ` 25 lakhs.
The balance in General Reserve on 30.4.2021 was ` 8 lakhs. The company on 30.04.2021
gave an interest-free loan of ` 5.5 lakhs to its Supervisor having salary of ` 5,400 p.m., who
in turn on 22.5.2021 advanced the said amount of loan so taken from the company to Shri
Priyanshu. The Assessing Officer had treated the amount of advance as deemed dividend. Is
the action of Assessing Officer correct? (4 Marks)
(b) Mr. Dinesh, aged 64 years, is a resident individual having income from the following sources:
(i) Income from a sole-proprietary business in Pune = ` 50 lakhs.
(ii) Share of profit from a partnership firm in Delhi = ` 30 lakhs.
(iii) Agricultural Income (gross) from coffee estates in Country D, a foreign country with which
India has no DTAA, CAD 32000. Tax deducted on the above income CAD 8,000
(iv) Brought forward business loss of F.Y.2019-20 in Country D was CAD 4,000 which is not
permitted to be set off against other income as per the laws of that country.
(v) Mr. Dinesh has deposited ` 1,50,000 in public provident fund and paid medical insurance
premium of ` 25,000 by account payee cheque to insure his health. He has also paid ` 55,000
as insurance premium to insure the health of his mother and father, who are resident Indians
aged 83 years and 85 years, respectively. He also incurred ` 50,000 on the medical treatment
of his dependent sister, who is a person with severe disability. His sister does not claim
deduction under section 80U.
Compute total income and tax liability of Mr. Dinesh for the A.Y. 2022-23, assuming that 1 CAD =
` 60. Assume that Mr. Dinesh does not opt for section 115BAC. (6 Marks)
3. (a) Examine the tax consequences for A.Y.2022-23 in the case of the following charitable
institution/trust, considering each case independently -
(i) A charitable institution, having its main object as “any other object of general public utility”,
carries on business in the course of actual carrying out of such advancement of any other
object of general public utility and maintains separate books of account in respect of business.
The gross receipts during the P.Y.2021-22 is ` 2.10 crore, which comprises of receipts of

` 52 lakh from such business and ` 1.58 crore by way of voluntary contributions (not being
corpus donations). It has applied 85% of its gross receipts for charitable purposes.
(ii) A charitable trust paid annual rent of ` 18 lakh in the P.Y.2020-21 and ` 21 lakh in the
P.Y.2021-22 in respect of a building used for charitable purposes, after deducting tax at
source. However, tax deducted on such rent in the P.Y.2020-21 was remitted only in
December, 2021; and tax deducted in the P.Y.2021-22 was remitted only in July, 2022.
(iii) Social Welfare is a charitable institution registered under section 12AA. To continue claiming
the benefits of the exemption provisions contained in sections 11 & 12 for the assessment
year 2022-23, it wants to apply for re-registration under section 12AB. What would be the
effective date for making the application for re-registration under section 12AB? The trust
wants to confirm whether the registration granted under section 12AB has the same perpetual
validity as granted under section 12AA. (8 Marks)
(b) Finetune Ltd., an Indian company, declared total income of ` 1,900 crores computed in accordance
with Chapter IV-D before making primary adjustment, if required, in respect of the loan transaction
with Iris Inc, a Country M company, for the year ended 31.03.2022. Iris Inc. had advanced a loan of
Euro 380 crores carrying interest@9% p.a. on 1.4.2021 to Finetune Ltd. The total book value of
assets of Finetune Ltd. was ` 58,420 crores. Assume that the amount of interest computed@9% p.a.
and payable to Iris Inc. does not exceed 30% of EBITDA and that this is the only loan taken by
Finetune Ltd.
Iris Inc also advanced a loan of similar nature and amount to Bigbumper Ltd., another Indian
company@7% p.a. during the F.Y. 2021-22. The value of 1 Euro may be taken as ` 90. You are
required to:
(i) Examine whether transfer pricing provisions under the Income-tax Act, 1961 would be
attracted in this case and if so, on what basis.
(ii) Advise Finetune Ltd. regarding primary adjustments, if any, to be made to the above income
keeping in mind the transfer pricing provisions contained in the Income-tax Act, 1961 and
compute the total income for A.Y.2022-23.
(iii) Elaborate on secondary adjustments, if any, required to be made under the provisions of
Income-tax Act, 1961, assuming that Finetune Ltd. has made the primary adjustment suo
moto.
(iv) Calculate the additional income-tax liability, if Finetune Ltd. opts for payment of additional
income-tax in lieu of making secondary adjustment. (6 Marks)
4. (a) An Indian company pays gross salary including allowances and monetary perquisites amounting
to ` 7,30,000 to Mr. Arun, General Manager. Besides, the company provides non-monetary
perquisites to him whose value is estimated at ` 1,20,000. Tax on non-monetary perquisite is paid
by the company. General manager is opting for the provisions of section 115BAC. Examine the
liability for tax deduction at source in the hands of Indian company. (4 Marks)
(b) ABC Bank credited ` 83,60,000 towards interest on the deposits in a separate account for macro-
monitoring purposes by using Core-branch Banking Solutions (CBS) software. No tax was
deducted at source in respect of interest on deposits so credited even where the interest in respect
of some depositors exceeded the limit of ` 40,000.
The Assessing Officer disallowed 30% of interest expenditure, where the interest on time deposits
credited exceeded the limit of ` 40,000 and also levied penalty under section 271C.
Decide the correctness of action of the Assessing Officer. (4 Marks)
(c) (i) M/s. Citax.com, an e-commerce operator, incorporated in Japan has no physical presence in
India. It has no permanent establishment in India. It provided service to persons resident in
India by way of sale of online advertisement during the previous year 2021-22. The bill (or
8

aggregate amount of bills) to a recipient of service during the financial year does not exceed
` 1 lakh per recipient of service (Gross amount of all bills is ` 2.10 crores). Discuss the
implications of Equalisation levy on Citax.com for the Assessment year 2022-23. (3 Marks)
(ii) SPO Ltd., a domestic company, applied for advance ruling on 1.5.2021 in relation to tax
liability arising out of transactions valuing `122 crore which is proposed to be undertaken by
it. The advance ruling was pronounced on 25.8.2021. Is the same binding on SPO Ltd.?
Examine.
Would your answer change if the advance ruling was pronounced on 5.10.2021? What would
be the remedy available to SPO Ltd. if it is aggrieved by the advance ruling pronounced on
5.10.2021? Examine. (3 Marks)
5. (a) A search under section 132 was initiated in the premises of Mr. X on 30.4.2021 and undisclosed
money and jewellery belonging to Mr. X was found in his premises. Examine the penal provisions
under the Income-tax Act which are attracted in this case, assuming that the undisclosed assets
were acquired out of his undisclosed income of previous year 2020-21. (4 Marks)
(b) Mr. Sahil and Mr. Rahul are two friends. Mr. Sahil is engaged in export of fabrics and his friend Mr.
Rahul is engaged in trading of commodities. For A.Y.2017-18, A.Y.2018-19, A.Y. 2019-20 and
A.Y.2020-21 information is flagged as per the risk management strategy formulated by the CBDT
for Mr. Sahil. The income escaping assessment for these years aggregate to ` 38 lakhs.
A search was initiated u/s 132 in April, 2021, in the business premises of Mr. Rahul.
Can the Assessing Officer issue notice under section 148 to Mr. Sahil and Mr. Rahul in May, 2021?
If so, in respect of which assessment years can notice be issued? Is it necessary that they be
provided an opportunity of being heard before issuance of notice? Examine. (4 Marks)
(c) What is the General Rule of Interpretation under Vienna Convention of Law of Treaties?
(6 Marks)
6. (a) The directors of a private company are personally liable to pay the income tax due from the
company but their liability does not extend towards interest and penalty payable by the company.
Discuss? (4 Marks)
(b) Ipse Pvt. Ltd. is a domestic company in India. Den Pvt. Ltd. is a company incorporated in Country
‘X’ and it is a non-resident in India. Den Pvt. Ltd. forms a company Zen Pvt. Ltd, its 100%
subsidiary, in Country ‘Y’. Zen Pvt. Ltd. and Ipse Pvt. Ltd. form a joint venture company Ren (P)
Ltd. in India on 10.04.2021. There is no other activity in Zen Pvt. Ltd. As per the joint venture
agreement, 49% of Ren (P) Ltd.’s equity is allotted to Zen Pvt. Ltd. and 51% is allotted to Ipse Pvt.
Ltd. Zen Pvt. Ltd. is also designated as a permitted transferee of Den Pvt. Ltd. Permitted transferee
means that though shares of Ren (P) Ltd. are held by Zen Pvt. Ltd, all rights of voting, management,
right to sell etc., are vested in Den Pvt. Ltd. On 08.03.2022, the shares of Ren (P) Ltd. held by Zen
Pvt. Ltd. are sold to CFL Pvt. Ltd., a company connected to the Ipse Pvt. Ltd. group. The India-
Country ‘Y’ tax treaty provides for non-taxation of capital gains in the Source Country and Country
‘Y’ charges no capital gains tax in its domestic law. So, as per the tax treaty with Country ‘Y’, capital
gains arising to Zen Pvt. Ltd. are not taxable in India. As per India-Country X tax treaties, capital
gains is chargeable to tax in the source country.
Examine, whether General Anti-Avoidance Rules (GAAR) can be invoked to deny the treaty benefit,
assuming that the prescribed conditions for application of GAAR are satisfied. (4 Marks)
(c) Flax Ltd., a company incorporated in Country “F”, has the following incomes in India during the
year ended on 31.03.2022.
(i) Dividend of ` 8,50,000 earned on Global Depository Receipts of MN Ltd., an Indian company,
issued under a scheme of Central Government against the initial issue of shares of the
company and purchased by Flax Ltd. in foreign currency through an approved intermediary.
9

(ii) Dividend of ` 16,80,000 earned on equity shares of Indian companies.
(iii) Royalty amounting to ` 8,76,000, received from Flip Ltd., an Indian company, in pursuance
of an agreement entered between Flip Ltd. and Flax Ltd. The said agreement is not approved
by the Central Government.
(iv) Business Income of ` 9,50,000 from a unit established at Surat.
(v) Interest of ` 2,88,000 earned on debentures of ` 32,00,000 issued on 1 st July 2021, in
consideration of providing technical knowhow to Sangita Ltd., an Indian Company, for the
purpose of business carried out in India. Flax Ltd. received the consideration in pursuance to
an agreement approved by the Central Government.
Compute the total income and tax liability of Flax Ltd. for the Assessment Year 2022-23, assuming
that it does not have a PE in India and its POEM is outside India.
Note – No DTAA exists between India and Country “F”. (6 Marks)
10

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Test Series: October, 2022

MOCK TEST PAPER 2

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

[` 71,00,000, being normal depreciation on book assets

[Allowable as deduction over the tenure of debentures i.e.,

Profits and gains from business and profession 5,31,25,000

© The Institute of Chartered Accountants of India

Computation of Minimum Alternate Tax under section 115JB

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

4 entered into after 31.3.1976,

© The Institute of Chartered Accountants of India

MOCK TEST PAPER 2

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

[` 71,00,000, being normal depreciation on book assets

[Allowable as deduction over the tenure of debentures i.e.,

Profits and gains from business and profession 5,31,25,000

© The Institute of Chartered Accountants of India

Computation of Minimum Alternate Tax under section 115JB

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

4 entered into after 31.3.1976,

© The Institute of Chartered Accountants of India

Total Marks: 100 Marks Time Allowed: 3 Hours

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Total Marks: 100 Marks Time Allowed: 3 Hours

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

MOCK TEST PAPER 1