BASIC CONCEPTS

QUESTION-1

Compute tax liability after marginal relief in the following situations for Resident assesses for
the previous year 2022-2023. (Assume that the Assessee has not opted for Provisions of Sec
115BAC)
Name Arun Murthy Shekhar
Age of Assessee 42 years 51 years 58 years
Total income Rs.51 lakhs Rs.1.01 crores Rs.2.20 crores

SOLUTION:

Computation of tax liability of Mr. Arun (42 years) for the A.Y.2023-24
Particulars Amount (₹)
Step-1: Tax on total income of 51,00,00 + Surcharge @10%
Upto Rs. 2,50,000 Nil Nil
2,50,000 to Rs.5,00,000 (5%) (2,50,000 x 5%) 12,500
5,00,000 to Rs.10,00,000 (20%) (5,00,000 x 20%) 1,00,000
10,00,000 to 51,00,000 (30%) (41,00,000 x 30%) 12,30,000
13,42,500
Add: Surcharge @ 10% on 13,42,500 1,34,250
Total 14,76,750
Step-2: Tax on ₹50L + ₹1Lac
Upto Rs. 2,50,000 Nil
2,50,000 to Rs.5,00,000 (5%) (2,50,000 x 5%) 12,500
5,00,000 to Rs.10,00,000 (20%) (5,00,000 x 20%) 1,00,000
10,00,000 to 50,00,000 (30%) (40,00,000 x 30%) 12,00,000
Total 13,12,500
Add: Surcharge Nil
Add: Income over ₹50L 1,00,000
Total 14,12,500
Step-3: Marginal relief = Step-1 (-) Step-2 [14,76,750-14,12,500] 64,250
Step-4: Tax payable [Step-1 (-) Step-3] 14,12,500
Add: H & EC@4% (14,12,500 x 4%) 56,500
Net tax payable 14,69,000

1.1
Computation of tax liability of Mr. Murthy for the A.Y.2023-24

Particulars Amount (₹)

Step-1: Tax on total income of 1,01,00,00 + Surcharge @15%
Upto Rs. 2,50,000 Nil
2,50,000 to Rs.5,00,000 (5%) 12,500
5,00,000 to Rs.10,00,000 (20%) 1,00,000
10,00,000 to 1,01,00,000 (30%) 27,30,000
28,42,500
Add: Surcharge @ 15% on 28,42,500 4,26,375
Total 32,68,875
Step-2: Tax on ₹1Cr +Surcharge @10%+ ₹1Lac
Upto Rs. 2,50,000 Nil
2,50,000 to Rs.5,00,000 (5%) 12,500
5,00,000 to Rs.10,00,000 (20%) 1,00,000
10,00,000 to 1,00,00,000 (30%) 27,00,000
Total 28,12,500
Add: Surcharge @10% (28,12,500 X 10%) 2,81,250
Add: Income over ₹1Cr 1,00,000
Total 31,93,750
Step-3: Marginal relief = Step-1 (-) Step-2 [32,68,875-31,93,750] 75,125
Step-4: Tax payable [Step-1 (-) Step-3] 31,93,750
Add: H & EC@4% (31,93,750 x 4%) 1,27,750
Net tax payable 33,21,500

Computation of tax liability of Mr. Shekhar (58 years) for the A.Y.2023-24

Particulars Amount (₹)

Step-1: Tax on total income of 2,20,00,00 + Surcharge @25%
Upto Rs. 2,50,000 Nil
2,50,000 to Rs.5,00,000 (5%) 12,500
5,00,000 to Rs.10,00,000 (20%) 1,00,000
10,00,000 to 2,20,00,000 (30%) 63,00,000
64,12,500
Add: Surcharge @ 25% on 64,12,500 16,03,125
Total 80,15,625
Step-2: Tax on ₹2Cr +Surcharge @15%+ ₹20Lacs
Upto Rs. 2,50,000 Nil

1.2
 2,50,000 to Rs.5,00,000 (5%) 12,500
5,00,000 to Rs.10,00,000 (20%) 1,00,000
10,00,000 to 2,00,00,000 (30%) 57,00,000
Total 58,12,500
Add: Surcharge @15% (58,12,500 X 15%) 8,71,875
Add: Income over ₹2Cr 20,00,000
86,84,375
Total
Step-3: Marginal relief = Step-1 (-) Step-2 [80,15,625 – 86,84,375] Nil
Step-4: Tax payable [Step-1 (-) Step-3] 80,15,625
Add: H & EC@4% (80,15,625 x 4%) 3,20,625
Net tax payable 83,36,250

QUESTION-2

Compute the tax liability of X Ltd., a domestic company, assuming that the total income of X
Ltd. is ₹1,01,00,000 and the total income does not include any income in the nature of capital
gains. (Assume that the Assessee has not opted for Provisions of Sec 115BAB/BAA)

SOLUTION:

Computation of tax liability of X Ltd for the A.Y.2023-24

Particulars Amount (₹)

Step-1: Tax on total income of ₹1,01,00,000 + Surcharge @ 7%
Tax @ 30% 30,30,000
Add: Surcharge @7% 2,12,100
Total
32,42,100
Step-2: Tax on ₹1Cr + 1Lac
Tax @ 30% on 1Cr 30,00,000
Add: Income over 1Cr 1,00,000

Total 31,00,000
Step-3: Marginal relief Step-1 (-) Step-2 [32,42,100 – 31,00,000] 1,42,100

Step-4: Tax payable Step-1 (-) Step-3 31,00,000

Add: H & EC @4% (31,00,000 x 4%) 1,24,000
Net tax payable 32,24,000

1.3
 RETURN OF INCOME
QUESTION-1
Manu furnishes the following information for the previous year 2022-23:

(a) Loss from business: ₹16,00,000

(b) Long-term capital loss: ₹10,00,000

(c) Loss from House property: ₹ 2,00,000

Does Manu require to submit return? Also state the consequences for non-filing of return.

What is the due date of submission of such return?

Solution:

An individual-assessee is not compulsorily required to furnish return of loss. However, the

following losses cannotbe carried forward if the return of loss is not submitted within the time

allowed u/s 139(1):

✓ Business loss (speculative or otherwise);

✓ Capital loss;

✓ Loss from the activity of owning and maintaining race horses.

Manu is required to file his return of income by 31-07-2023 (if audit is not required) else 31-

10- 2023 (if audit is compulsory).

QUESTION-2
Write the correct answer from the following statements as per provision of 139(1) of Income

Tax Act, 1961.

a) Mr. Rahaman, a salaried employee of Calcutta based company having Taxable Income ₹

4,00,000 for the Previous year 2022-23, whose due date of filing income tax return is

30th November, 2023.

b) Mr. Raghab, a salaried employee of Tata Motors having Taxable income ₹ 8,00,000 for

the previous year 2022-23, and fails to file Income Tax Return within Due date as per

Income Tax Act. He wants to file Belated Return. The time limit of filing Belated return

is within 31st March 2024.

c) M/s ABC, a Kolkata based partnership firm is required to get its Accounts Audited

under Income Tax Act. The Due Date of filing Income Tax Return of the firm for the

2.1
 Previous Year 2021-22 is within 31st July 2022.

d) Ms. Ankita is the working partner of a partnership firm and the accounts of the firm is

required to be audited. Due Date of filing Income Tax Return of Ms. Ankita for the

Previous Year 2021-22 is within 31st December, 2021.

Solution:

a) Due Date of filing Income Tax Return shall be 31st July, 2023.

b) He can file belated return upto 31-12-2023.

c) Partnership firm, whose accounts are required to be audited, is required to submit the

return of income by 31-10-2023

d) Due date of filing return shall be 31-10-2023

QUESTION-3
State whether the following persons have to mandatorily furnish their return of income for

the assessment year 2023-24:

a) Mr. Choudhury, aged 52 years whose gross total income ₹ 3,00,000 and total income

after deduction u/s 80C is ₹2,00,000.

b) M/s ROXY, a partnership firm, whose total income during the previous year 2022-23 ₹

50,000.

c) Smt. R. Bose aged 62 years, having total income ₹ 2,80,000.

d) Renbo India Ltd., a registered company in India, has incurred loss during the previous

year 2022-23 ₹ 2,20,000.

e) Smt. I. Shing, aged 50 years, whose total income is ₹ 2,40,000 before adjustment of

unabsorbed business loss of ₹ 1,00,000.

Solution:

a) Yes, as his gross total income exceeds basic exemption limit

b) Yes, partnership firm is required to file its return of income irrespective of its size of

turnover or income

c) No, as her gross total income does not exceed basic exemption limit applicable to her

(i.e., ₹ 3,00,000)

d) Yes, company is required to file its return of income irrespective of its size of turnover

or income

2.2
 e) An assessee is not compulsorily required to furnish return of loss. However, business

loss (among otherspecified losses) cannot be carried forward if the return of loss is

not submitted within the time allowed u/s 139(1)

QUESTION-4

X, an individual, has got his books of account for the year ending 31.3.2023 audited under

section 44AB. His total income for the assessment year 2023-24 is Rs. 5,20,000. He desires

to know if he can furnish his return of income for the assessment year 2023-24 through a Tax

Return Preparer.

Solution:

Section 139B provides for submission of return of income through Tax Return Preparers. It

empowers the Central Board of Direct Taxes (CBDT) to frame a scheme for the purpose of

enabling any specified class or classes of persons to prepare andfurnish their returns of income

through Tax Return Preparers. Specified class or classes of persons have been defined to mean

any person, other than a company or a person whose accounts are required to be audited under

section 44AB or under any other existing law, who is required to furnish a return of income

under the Act. Thus, companies and persons whose accounts are liable for tax audit under

section 44AB do not fall within the definition of ‘specified class or classes of persons’ and

consequently, cannot furnish their returns of income through Tax Return Preparers. In the

instant case, the books of account of X for the year ending 31.3.2023 have been audited

under section 44AB. As such, he cannot furnish his return of incomefor the A.Y. 2023-24

through a Tax Return Preparer.

matter. If Mr. Raghav is not able to prove that there was a reasonable cause for thesaid failure,

penalty under section 272B(2) would be imposable.

The answer would remain the same even if such cash payment was made for his travel to Nepal.

QUESTION-5
Mr.Srinivas (33 years) is a resident individual. He does not submit his return of income for the

AY 2021-2022. u/s 139(1)/ (4). Income -tax Department has not initiated any proceeding for

2.3
the AY 2021-22. He intends to submit return of income for the AY 2021-22 u/s 139(8A) on

10th December, 2022. The following information is available:

Total Income for AY 21-22 45,15,000

Advance tax paid on 1st January, 2021 3,00,000
TDS/TCS as per 26 AS 70,000
Due date of return filing is 31st July, 2021. Mr. Srinivas wants to know whether (or not)

updated return can be submitted and liability which he is required to pay. Assume assessee not

opted 115BAC.

Solution:

Particulars Amount ₹
Income as per updated return 45,15,000
Tax on total income
upto 2,50,000 Nil
>2,50,000 upto 5,00,000 12,500
>5,00,000 upto 10,00,000 1,00,000
> 10,00,000 upto 45,15,000 10,54,500 11,67,000
Add: HEC @ 4% 46,680

Tax as per Return Income

12,13,680
Less: TDS/TCS (70,000)
Less: Advance Tax paid (3,00,000)
Balance
8,43,680
Add: interest u/s 234A-Interest for late Return Filing
8,43,600x1%p.m.x17 months (1st August,21 till 10th December ,22) 1,43,412
Add: Interest u/s 234B -Interest for short payment of Advance Tax
8,43,600x1% p.m. x 21 months (1st April,21 till 10th December ,22) 1,77,156
Add: Interest u/s 234C – Interest for Deferment of Advance tax
Instalment
1st Instalment-11,43,680x15%=1,71,500x1%x3months=5,145
2nd Instalment-11,43,680x45%=5,14,600x1%x3months=15,438
3rd Instalment-11,43,680x75% =8,57,700x1%x3months=25,731 54,750
4th Instalment-11,43,680x100%= (11,43,680 -3,00,000) x1%x1month=8,436
Add: Fees u/s 234F(fees for late filing of Return) 5,000
Total of Tax +Interest+ Fees 12,23,998
Add: Additional Tax as per section 140B(3) [25%of 12,18,998} 3,04,750
Net Tax payable u/s 140B before filing Updated Return u/s 139(8A) 15,28,748
i.e. 15,28,750

2.4
QUESTION-6
Mr. X would like to furnish his updated return for the A.Y. 2021-22. In case he furnished his

updated return of income, he would be liable to pay ₹ 2,50,000 towards tax and ₹ 35,000

towards interest after adjusting tax and interest paid at the time filing earlier return. You

are required to examine whether Mr. X can furnish updated return

i. as on 31.3.2023

ii. as on 28.2.2024

iii. as on 31.5.2024

If yes, compute the amount of additional income-tax payable by Mr. X at the time of filing his

updated return.

Would your answer be different with respect to filing of updated return in case of (ii) above,

where he has received a notice under section 147 for the said A.Y. 2021-22 on 23.7.2023

Solution:

Mr. X may furnish an updated return of his income for A.Y. 2021-22 at any time within 24
months from the end of the relevant assessment year i.e., 31.3.2024.

Accordingly, Mr. X can furnish updated return for A.Y. 2021-22 as on 31.3.2023 and on
28.2.2024. However, he can not furnish such return as on 31.5.2024, since such date falls after
31.3.2024.

Mr. X would be liable to pay additional income-tax

- @25% of tax and interest payable, if updated return is furnished after the expiry of the
time limit available under section 139(4) or 139(5) i.e., 31st December 2022 and before the
expiry of 12 months from end of relevant assessment year i.e., 31.3.2023

- @50% of tax and interest payable, if updated return is furnished after the expiry of 12
months from end of relevant assessment year i.e., 31.3.2023 and before the expiry of 24
months from end of relevant assessment year i.e., 31.3.2024.

Accordingly, Mr. X is liable to pay additional income-tax in case he furnished his updated return
as on

i. 31.3.2023 - ₹ 71,250 [25% of 2,85,000, being tax of ₹ 2,50,000 plus interest of ₹

35,000]
ii. 28.2.2024 of ₹ 1,42,500 [50% of 2,85,000, being tax of ₹ 2,50,000 plus interest of ₹
35,000] He cannot furnish updated return where he has received notice u/s 147, since
proceeding for income escaping assessment for the A.Y. 2021-22 are pending.

2.5
 MCQ’S
1. Where the karta of a HUF is absent from India, the return of income can be verified by:

(a) any member of the family

(b) any male member of the family

(c) any other adult member of the family

(d) any member holding power of attorney

2. Where assessment has not been completed, belated income tax return for assessment year
2023- 24 can be filed up to

(a) 31.12.2023

(b) 31.12.2024

(c) 31.03.2023

(d) 31.12.2022

3. Following form number is to be used for filing the return of income by an individual having
business income?

(a) ITR 1

(b) ITR 2

(c) ITR 3

(d) ITR 5

4. Quoting ‘Permanent Account Number’ (PAN) is compulsory in the following transaction –

(a) Payment of LIP exceeding ₹ 50,000 in a financial year

(b) Sale or purchase of any immovable property valued at ₹ 4,00,000

(c) Time deposit upto ₹ 35,000 with a bank

(d) None of the above

5. When assessment has not been completed, revised return can be filed:

(a) Before the end of the relevant assessment year

(b) Within one year from the end of the relevant assessment year.

(c) Within two years from the end of the r elevant assessment year.

2.6
 (d) None of the above

6. In case of companies deriving loss for any assessment year, filing of return of income within

due date laid down in section 139(1) is compulsory -

(a) only where the Department issues notice to the assessee - company

(b) for domestic companies only

(c) for foreign comp anies only

(d) for all companies

7. Due date of furnishing return of income for a partner of a firm whose accounts are required
to be audited is –

(a) 31st July of the assessment year

(b) 31st Oct of the assessment year

(c) 31st December of the assessment year

(d) 31st March of the assessment year

8. Which return of income cannot be revised by the assessee?

(a) Return of loss

(b) Belated return

(c) Both of the above

(d) None of the above

9. For an individual assessee, who is absent from India, the return should be verified by –

(a) His guardian

(b) Any person duly authorized by him

(c) His tax consultant

(d) Either of the above

10. A return filed u/ s 1 39(4) is called –

(a) Belated Return

(b) Original return

(c) Revised return

2.7
(d) Loss return

Answer:

1. (c) any other adult member of the family

2. (a) 31.12.2023
3. (c) ITR 3

4. (a) Payment of LIP exceeding ₹ 50,000 in a financial year

5. (a) Before the end of the relevant assessment year.

6. (d) for all companies

7. (b) 31st Oct of the assessment year

8. (d) None of the above

9. (b) Any person duly authorized by him

10. (a) Belated Return

2.8
 IT AUTHORITIES
QUESTION-1
The jurisdiction of an Assessing Officer cannot be objected by the assesee. Discuss

Solution:

As per sec. 124(3), no person shall be entitled to call in question the jurisdiction of an
Assessing Officer:

a) where he has made a return u/s 139(1), after the expiry of 1 month from the date on
which he was served with a notice u/s 142(2) or 143(2) or after the completion of the
assessment, whichever is earlier.

b) where he has made no such return, after the expiry of the time allowed by the notice
u/s 142(1) or 148 for the making of the return or by the notice under the first proviso
to sec. 144 to show cause why the assessment should not be completed to the best of
the judgment of the Assessing Officer, whichever is earlier.

c) where an action has been taken u/s 132 or 132A, after the expiry of 1 month from the
date on which he was served with a notice u/s 153A or 153C or after the completion of
the assessment, whichever is earlier.

Where an assessee calls in question the jurisdiction of an Assessing Officer, then the
Assessing Officer shall, if not satisfied with the correctness of the claim, refer the matter
for determination by the Principal Director General or Director General or the Principal Chief
Commissioner or Chief Commissioner or the Principal Commissioner or Commissioner before the
assessment is made.

QUESTION-2
Write notes on provision relating to succession of income tax authority.

Solution:

Succession of income-tax authority [Sec. 129]

a) Whenever in respect of any proceeding under this Act an income-tax authority ceases to
exercise jurisdiction and another income tax authority exercises jurisdiction.

b) The income-tax authority so succeeding may continue the proceeding from the stage at
which the proceeding was left by his predecessor.

Opportunity of being re-heard the assessee may demand that before –

3.1
 a) Such succeeding authority reopens previous proceeding or any part thereof; or

b) any order of assessment is passed against him,

- he must be given an opportunity of being re-heard.

QUESTION-3
Who can appoint income-tax authorities?

Solution:

Appointment of income-tax authorities [Sec. 117]

(1) The Central Government may appoint such persons as it thinks fit to be income-tax
authorities.

(2) The Central Government may authorise the Board, or a Principal Director General or
Director-General, a Principal Chief Commissioner or Chief Commissioner or a Principal
Director or Director or a Principal Commissioner or Commissioner to appoint income-tax
authorities below the rank of an Assistant Commissioner or Deputy Commissioner.

(3) An income-tax authority authorised in this behalf by the Board may appoint such
executive or ministerial staff as may be necessary to assist it in the execution of its
functions.

All these appointments can be made subject to the rules and orders of the Central
Government.

QUESTION-4
Write notes on jurisdiction of income-tax authorities

Solution: Jurisdiction of income-tax authorities [Sec. 120]

a) Income-tax authorities shall exercise all or any of the powers and perform all or any of the
functions assigned to such authorities in accordance with directions of the Board

b) The directions of the Board may authorise any other income-tax authority to issue orders
in writing for the exercise of the powers and performance of the functions by any of its
subordinate.

c) The Board or other authorised income-tax authority may have regard to any one or more
of the following criteria:

 territorial area;

3.2
  persons or classes of persons;

 incomes or classes of income; and

 cases or classes of cases.

MCQ’S

1. Who among the following is not considered as income -tax authorities u/s 116

(a) CBDT

(b) ITAT

(c) Tax Recovery Officer

(d) Inspector of income -tax

2. The Central Board of Direct Taxes consists of a Chairman and Members:

(a) 5

(b) 6

(c) 3

(d) 2

3. Out of the following, which is the power of the CBDT

a) Instructions to subordinate authorities.

b) Issue General or Special order to subordinates

c) Admit application or claim after expiry of time limit

d) All of the above

Answer:

1. (b) ITAT

2. (b) 6

3. (d) All of the above

3.3
 IT AUTHORITIES
QUESTION-1
The jurisdiction of an Assessing Officer cannot be objected by the assesee. Discuss

Solution:

As per sec. 124(3), no person shall be entitled to call in question the jurisdiction of an
Assessing Officer:

a) where he has made a return u/s 139(1), after the expiry of 1 month from the date on
which he was served with a notice u/s 142(2) or 143(2) or after the completion of the
assessment, whichever is earlier.

b) where he has made no such return, after the expiry of the time allowed by the notice
u/s 142(1) or 148 for the making of the return or by the notice under the first proviso
to sec. 144 to show cause why the assessment should not be completed to the best of
the judgment of the Assessing Officer, whichever is earlier.

c) where an action has been taken u/s 132 or 132A, after the expiry of 1 month from the
date on which he was served with a notice u/s 153A or 153C or after the completion of
the assessment, whichever is earlier.

Where an assessee calls in question the jurisdiction of an Assessing Officer, then the
Assessing Officer shall, if not satisfied with the correctness of the claim, refer the matter
for determination by the Principal Director General or Director General or the Principal Chief
Commissioner or Chief Commissioner or the Principal Commissioner or Commissioner before the
assessment is made.

QUESTION-2
Write notes on provision relating to succession of income tax authority.

Solution:

Succession of income-tax authority [Sec. 129]

a) Whenever in respect of any proceeding under this Act an income-tax authority ceases to
exercise jurisdiction and another income tax authority exercises jurisdiction.

b) The income-tax authority so succeeding may continue the proceeding from the stage at
which the proceeding was left by his predecessor.

Opportunity of being re-heard the assessee may demand that before –

3.1
 a) Such succeeding authority reopens previous proceeding or any part thereof; or

b) any order of assessment is passed against him,

- he must be given an opportunity of being re-heard.

QUESTION-3
Who can appoint income-tax authorities?

Solution:

Appointment of income-tax authorities [Sec. 117]

(1) The Central Government may appoint such persons as it thinks fit to be income-tax
authorities.

(2) The Central Government may authorise the Board, or a Principal Director General or
Director-General, a Principal Chief Commissioner or Chief Commissioner or a Principal
Director or Director or a Principal Commissioner or Commissioner to appoint income-tax
authorities below the rank of an Assistant Commissioner or Deputy Commissioner.

(3) An income-tax authority authorised in this behalf by the Board may appoint such
executive or ministerial staff as may be necessary to assist it in the execution of its
functions.

All these appointments can be made subject to the rules and orders of the Central
Government.

QUESTION-4
Write notes on jurisdiction of income-tax authorities

Solution: Jurisdiction of income-tax authorities [Sec. 120]

a) Income-tax authorities shall exercise all or any of the powers and perform all or any of the
functions assigned to such authorities in accordance with directions of the Board

b) The directions of the Board may authorise any other income-tax authority to issue orders
in writing for the exercise of the powers and performance of the functions by any of its
subordinate.

c) The Board or other authorised income-tax authority may have regard to any one or more
of the following criteria:

 territorial area;

3.2
  persons or classes of persons;

 incomes or classes of income; and

 cases or classes of cases.

MCQ’S

1. Who among the following is not considered as income -tax authorities u/s 116

(a) CBDT

(b) ITAT

(c) Tax Recovery Officer

(d) Inspector of income -tax

2. The Central Board of Direct Taxes consists of a Chairman and Members:

(a) 5

(b) 6

(c) 3

(d) 2

3. Out of the following, which is the power of the CBDT

a) Instructions to subordinate authorities.

b) Issue General or Special order to subordinates

c) Admit application or claim after expiry of time limit

d) All of the above

Answer:

1. (b) ITAT

2. (b) 6

3. (d) All of the above

3.3
 ASSESSMENT PROCEDURES
QUESTION – 1
Rajesh regularly files his return of income electronically. While he was trying to upload his
return of income for assessment year 2023-24 on 31st August, 2023 (extended due date), last
date for filing the same, he found it extremely difficult todo the same due to network problems
and ultimately he became successful in making e-filing of his return only at 1 a.m. on 1st
September, 2023. The return contained a claim for carry forward of business loss of Rs.51
lakh. This circumstance was recorded in a letter delivered to the office of the Deputy
Commissioner of Income Tax on 1st September, 2023 during normal office hours. 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 ofincome 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 Rs.48 lakh.

Solution:

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 incase 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. UnderSecretary,
(ITA-II), Department of Revenue (2010) 323 ITR 0441, where the DelhiHigh Court held that
the Board has the power to condone the delay in case of a returnwhich 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 causegenuine hardship to the assessee. Therefore, the Court held that
the delay of one day in filing of the return had to be condoned.
Further, the CBDT Circular No. 9/2015 dated 09.06.2015 has expressly clarified that CBDT
can consider application for such claim where the amount exceeds Rs.50 lakhs.

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

4.1
of Mr. Rajesh and permit carry forward of business loss of Rs.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.
However, 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 (since the amount is between 10 lakhs to 50 lakhs). It may be noted that if the claim is
less than Rs.10 lakhs, the Principal Commissioner/Commissioner of Income-tax is empowered
to condone the delay.

QUESTION – 2

For facilitating expeditious resolution of disputes relating to international transactions

involving transfer pricing and foreign companies, the Income-tax Act, 1961, has provided for

"alternate dispute resolution mechanism". In this context, you are required to answer the

following:

(i) What meanings have been assigned to "dispute resolution panel” and the

"Eligible assessee" under this mechanism?

(ii) When can a grievance for resolution be filed by an assessee?

(iii) What evidences are being considered by the panel to redress the

grievance of the assessee?

Solution:
(i) The term “Dispute Resolution Panel” has been defined to mean a collegium

comprising of three Principal Commissioners or Commissioners of Income-tax constituted

by the Board for this purpose. The term “Eligible Assessee” means any person in whose

case the variation referred to in section 144C(1) arises as a consequence of the order

of the Transfer Pricing Officer passed under section 92CA(3) and any non-

corporate non-resident or any foreign company.

(ii) In case of an assessment of the eligible assessee, the Assessing Officer shall forward a

draft of the proposed order of assessment. The eligible assessee shall file his objections

to such variation within 30 days of receipt of such order, with the Dispute Resolution Panel

and with the Assessing Officer.

(iii) The Dispute Resolution Panel shall, in a case where any objections arereceived, take into

consideration:

4.2
 (a) the draft order

(b) the objections filed by the assessee

(c) the evidence furnished by the assessee

(d) the report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing

Officer or any other authority

(e) the records relating to the draft order

(f) the evidence collected by, or caused to be collected by it

(g) the result of any enquiry made by or caused to be made by it

QUESTION – 3

The Assessing Officer has the power to make an assessment to the best of his judgment, in

certain situations. What are they?

Solution:

Under section 144, the Assessing Officer, after taking into account all relevant material which

he has gathered, is under an obligation to make an assessment of the total income or loss to

the best of his judgment and determine the sum payable by the assessee in the following cases

(1) Where any person fails to make the return under section 139(1) and has not filed a

belated return under section 139(4) or a revised return under section 139(5).

(2) Where any person fails to comply with all the terms of a notice issued under section

142(1) or fails to comply with a direction issued under section 142(2A) for getting the

accounts audited.

(3) Where any person, having made a return, fails to comply with all the terms ofa notice

issued under section 143(2).

Further, section 145(3) of the Income-tax Act, 1961 permits the Assessing Officer to make an

assessment in the manner provided in section 144:

(i) Where the Assessing Officer is not satisfied about the correctness or completeness of

the accounts of the assessee; or

(ii) Where the method of accounting under section 145(1) has not been regularly followed by

the assessee;

4.3
(iii) Where the income has not been computed in accordance with “Income Computation and

Disclosure Standards” notified by the Central Government under section 145(2).

Faceless assessment as per section 144B shall be applicable to best judgement assessment

under section 144 i.e, the assessment proceedings shall be conducted electronically in e-

Proceeding facility through assessee’s registered account in designated portal. The faceless

assessment shall be made in respect of such territorial area, or persons or class of persons,

or incomes or class of incomes, or cases or class of cases, as may be specified by the Board.

QUESTION – 4

A search was conducted under section 132 in the business premises of Sanskar on 5th May,

2021. The search was concluded by executing last of authorisation for search on 21st May,

2021. Since the search is concluded in the financial year 2021- 22, and other conditions are

also fulfilled, the Assessing Officer with the prior approval of the Principal Commissioner,

issued notice under section 148 on Sanskar for preceding six Assessment Years prior to the

Assessment Year relevant to the previous year 2021-22. Thus, he issued the notice from A.Y.

2016-17 to A.Y.2021-22. Discuss the correctness of the action taken by Assessing Officer.

Solution:

As per section 148, the Assessing Officer shall be deemed to have information which suggests

that the income chargeable to tax has escaped assessment in the case of the assessee where

a search is initiated under section 132 or books of account, other documents or any assets are

requisitioned under section 132A, on or after01.04.2021, for the three assessment years

immediately preceding the assessment year relevant to the previous year in which the search is

initiated or books of account, other documents or any assets are requisitioned or survey is

conducted in the case of the assessee or money, bullion, jewellery or other valuable article or

thing or booksof account or documents are seized or requisitioned in case of any other person.

Further, no inquiry has to be conducted in such cases as per the provisions of section148A

before issue of notice under section 148. In this case, the three assessment years would be

A.Y. 2019-20, A.Y. 2020-21 and A.Y. 2021-22.

Thus, in this case, the Assessing Officer can issue notice for A.Y. 2019-20, A.Y. 2020-21 and

4.4
A.Y. 2021-22 and cannot issue notice for A.Y. 2016-17 to A.Y. 2018-19. Hence, the notice issued

by the Assessing Officer A.Y. 2019-20, A.Y. 2020-21 and A.Y. 2021-22is only valid.

QUESTION – 5
Examine whether the Assessing Officer has the power to make any adjustment to income

disclosed by the assessee in the return of income in course of processing thereturn under

section 143(1)?

Solution:

The procedure to be followed for summary assessment is contained in section 143(1). As per

section 143(1), the total income or loss of an assessee shall be computed after making the

following adjustments to the returned income:

(i) any arithmetical error in the return; or

(ii) an incorrect claim, if such incorrect claim is apparent from any information inthe return.

(iii) disallowance of loss claimed, if return is filed beyond due date u/s 139(1)

(iv) disallowance of expenditure or increase in income indicated in the audit report but not

taken into account in computing the total income in the return

(v) disallowance of deduction claimed under section 10AA or under any of the provisions of

Chapter VI-A under the heading "C.—Deductions in respect of certain incomes", if return

is filed beyond due date u/s 139(1)

No such adjustment shall be made unless as intimation is given to the assessee of such

adjustment either in writing or electronic mode. Further, Assessing Officer shall make any

adjustment after considering the response received from the assessee, if any. Where no

response is received with 30 days of theissue of such notice, the above adjustment can be

made.

For the purpose of section 143(1), “an incorrect claim apparent from any information in the

return” means such claim on the basis of an entry, in the return of income:

(i) of an item, which is inconsistent with another entry of the sameor some other item in

such return;

(ii) in respect of which, the information required to be furnished under the Income-tax Act,

1961 to substantiate such entry, has not been sofurnished;

4.5
(iii) in respect of a deduction, where such deduction exceeds specifiedstatutory limit which

may be expressed as monetary amount or percentage or ratio or fraction.

QUESTION – 6
Can the Assessing Officer complete the assessment of income from international transactions

in disregard of the order passed by the Transfer Pricing Officer by accepting the contention

of the assessee?

Solution:

Section 92CA(4) provides that the order of the Transfer Pricing Officer determiningthe arm’s

length price of an international transaction is binding on the Assessing Officer and the

Assessing Officer shall proceed to compute the total income in conformity with the arm’s

length price determined by the Transfer Pricing Officer. Therefore, the Assessing Officer

cannot complete the assessment of income from international transactions in disregard of the

order of Transfer Pricing Officer andon the basis of contention raised by the assessee.

QUESTION – 7

Tai Ltd. filed its return of income for assessment year 2023-24 on 26th September,2023. The

return is selected for regular assessment under section 143(3) for which notice under section

143(2) is served on the company on 3rd July, 2023. The companyresponded to the notice under

section 143(2). Examine whether the service of the notice is within time and if not, whether

the assessment order can be challenged bythe assessee.

Solution:

The time limit for service of notice under section 143(2) is three months from the end of the

financial year in which the return of income was furnished by the assessee. The return of income

for assessment year 2023-24 was filed by the assessee on 26th September, 2023. Therefore,

the notice under section 143(2) has to be servedby 30th June, 2023. However, the notice was

served on the assessee only on 3rd July, 2023. Hence, the notice issued under section 143(2)

is time- barred.

However, as per section 292BB, where an assessee had appeared in any proceedings or co-

4.6
operated in any enquiry relating to an assessment or reassessment, it shall bedeemed that any

notice required to be served upon him, has been duly served upon him in time in accordance

with the provisions of the Act and such assessee shall be precluded from raising any objection

in any proceeding or enquiry that the notice was

(a) not served upon him or

(b) not served upon him in time or

(c) served upon him in an improper manner.

The above provision shall not be applicable where the assessee has raised such objection

before the completion of such assessment or reassessment. Therefore, in the instant case, if

the assessee, Tai Limited, had raised an objection to the proceeding, on the ground of non-

service of the notice under section 143(2) upon it on time, then, the validity of the assessment

order can be challenged. In absence of such objection, the assessment order cannot be

challenged.

QUESTION – 8
Discuss the correctness or otherwise of the following proposition in the context of the
Income-tax Act, 1961:

A fresh claim before the Assessing Officer can be made only by filing a revised return and not
otherwise.
Solution:

This proposition is correct. A return of income filed within the due date under section139(1) or a

belated return filed under section 139(4) may be revised by filing a revised return under

section 139(5) where the assessee finds any omission or wrong statement in the original return

subject to satisfying other conditions. There is no provision in the Income-tax Act, 1961, to

make changes or modification in the returnof income by filing a letter before the Assessing

Officer. The revised return can befiled at any time before three months prior to the end of

the relevant assessment year or before completion of assessment, whichever is earlier. In a

case where a return of income has been filed within the due date under section 139(1) or a

belatedreturn is filed under section 139(4), the only option available to the assessee to makean

amendment to such return is by way of filing a revised return under section 139(5).Therefore, a

fresh claim can be made before the Assessing Officer only by filing a revised return and not

otherwise. The Supreme Court, in Goetze (India) Ltd. vs. CIT(2006) 284 ITR 323, has held

4.7
that there is no power available under the provisions of the Income-tax Act, 1961 enabling the

Assessing Officer to allow a claim made bythe assessee except by way of filing a revised return.

QUESTION – 9

The Assessing Officer within the powers vested in him under section 142(2A), while examining

the accounts of PNF Ltd., had ordered to get the same audited. The company challenges this

order on the ground “that the opportunity was not provided to them by the Assessing Officer

prior to passing of such an order”. Decide the correctness of the action of the Assessing

Officer.

Solution:

As per the proviso to section 142(2A), the Assessing Officer shall not direct the assessee to

get the accounts so audited unless the assessee has been given a reasonable opportunity of

being heard.

Therefore, in this case, the order of the Assessing Officer is not valid, since the assessee was

not given an opportunity of being heard prior to passing of such order.

QUESTION – 10
The Assessing Officer issued a notice under section 142(1) on the assessee on 24th April, 2022

calling upon him to file return of income for Assessment Year 2022-23. In response to the said

notice, the assessee furnished a return of loss and claimed carry forward of business loss and

unabsorbed depreciation. State whether the assessee would be entitled to carry forward as

claimed in the return.

Solution:

As per the provisions of section 139(3), any person who has sustained loss under the head ‘Profit

and gains of business or profession’ is allowed to carry forward such a loss under section 72(1)

or section 73(2), only if he has filed the return of loss withinthe time allowed under section

139(1). Also, the provisions of section 80 specify thata loss which has not been determined as

per the return filed under section 139(3) shall not be allowed to be carried forward and set-

off under, inter alia, section 72(1) (relating to business loss) or section 73(2) (losses in

4.8
speculation business) or section74(1) (loss under the head “Capital gains”) or section 74A(3)

(loss from the activity or owning and maintaining race horses) or section 73A (loss relating to

a “specified business”). However, there is no such condition for carry forward of loss from

houseproperty under section 71B or unabsorbed depreciation under section 32.

In the given case, the assessee has filed its return of loss in response to notice undersection

142(1). As per the provisions stated above, assessee furnished return in response to notice

under section 142(1) after the due date specified under section 139(1) and therefore, the

benefit of carry forward of business loss under section 72(1) or section 73(2) or section 73A

shall not be available.

The assessee shall, however be entitled to carry forward the unabsorbed depreciation as per

provisions of section 32(2).

QUESTION – 11
Distinguish between: ‘Tax audit under section 44AB’ and ‘special audit under section 142(2A)’

Solution:

Point of Tax Audit u/s 44AB Special Audit u/s 142(2A)

difference

Requirement The tax audit is mandatory in The special audit is at the direction

nature and is required to be of the Assessing Office

done in all applicable case.

Appointment Auditor is appointed by the Auditor is appointed is appointed by

of auditor assessee the Assessing Officer with the prior

approval of the Chief Commissioner

or commissioner.

Completion Tax audit is required to be The audit report shall be furnished

of Audit uploaded one month prior to by the assessee within the period

the due date of furnishing specified by the Assessing Officer.

return of income The Assessing Officer has power to

extend such period on an application

4.9
 made by the assessee or suomotu.

However, the aggregate period

(fixed originally and extended) shall

not exceed 180 days from the date

on which such direction is received

by the assessee.

Form Form 3CA (or Form 3CB) with Form 6B

Form 3CD

Fees Fees to the auditor is required Fees to the auditor shall be paid by

to be paid by the assessee the Central Government.

Penalty Failure to complete and Failure to comply with direction

furnish tax audit report issued u/s 142(2A) attracts penalty

within prescribed time of ₹ 10,000 u/s 271(1)(b).

attracts penalty u/s 271B. The

quantum of penalty is lower of

the following:

a. ½% of turnover; or

b. ₹ 1,50,000

4.10
 MCQ’S

1. Which of the following can be corrected while pr ocessing the return of income under

section 143(1)?

(a) any arithmetical error in the return

(b) any mistake in the return of income

(c) any error in the return of income

(d) any claim by the taxpayer which is against law

2. Section 144C envisages an alternate dispute resolution mechanism by empowering the

CBDT to constitute a .

(a) Securities and Exchange Board of India

(b) Dispute Resolution Panel

(c) Constitution of India

(d) Central Board of Direct taxes

3. The time limit for rectification of mistakes is a period of from the end of the
financial year in which the order sought to be amended was passed.

(a) four years

(b) three years

(c) two years

(d) one year

4. Regular assessment means assessment made under section —

(a) 143(3)

(b) 147

(c) Both (A) and (B) above

(d) None of the above

4.11
5. If the Assessing Officer has reason to believe that any income chargeable to tax has
escaped assessment for any assessment year, he may initiate proceedings of —

(a) Re- assessment

(b) Regular assessment

(c) Self-assessment

(d) Best judgement assessment

6. Assessment is required to be completed within specified time frame. However, while

computing such time following period shall be excluded –

(a) Time taken in reopening the whole or any part of the proceeding or in giving an
opportuni ty to the assessee to be re -heard under the proviso to sec. 129

(b) Period during which the assessment proceeding is stayed by an order or injunction
of a court

(c) Both (a) and (b)

(d) None of the above as time limit for assessment cannot be increased any
circumstances

Answer:

1. (a) any arithmetical error in the return

2. (b) Dispute Resolution Panel

3. (a) four years

4. (a) 143(3)

5. (a) Re-assessment

6. (c) Both (a) and (b)

4.12
 SEARCH & SEIZURE AND SURVEY
QUESTION-1
An Assessing Officer entered a hotel run by a person, in respect of whom he exercises
jurisdiction, at 8 p.m. for the purpose of collecting information, which maybe useful for the
purposes of the Act. The hotel is kept open for business every daybetween 9 a.m. and 9 p.m.
The hotelier claims that the Assessing Officer could not enter the hotel after sunset.
The Assessing Officer wants to take away with him the books of account kept at thehotel.
Examine the validity of the claim made by the hotelier and the proposed action of the Assessing
Officer with reference to the provisions of section 133B of the Income-tax Act, 1961.
Solution:

Section 133B (2) of the Income-tax Act, 1961 empowers an income-tax authority to enter any
place of business during the hours at which such place is open for the conduct of business. The
hotel is open from 9.00 a.m. to 9.00 p.m. for the conduct ofbusiness. The Assessing Officer
entered the hotel at 8.00 p.m. which falls within theworking hours. The claim made by the
hotelier to the effect that the Assessing Officer could not enter the hotel after sunset is not
in accordance with law.
Section 133B(3) provides that an income tax authority acting under this section shall, on no
account, remove or cause to be removed from the place wherein he has entered, any books of
account. In view of this clear prohibition in section 133B (3), the proposed action of the
Assessing Officer to take away with him the books of account kept at the hotel is not valid in
law.

QUESTION-2
The Assessing Officer within his jurisdiction surveyed a popular Cyber Café at 12 o’clock in
night for the purpose of collecting information which may be useful for thepurposes of the
Income-tax Act, 1961. The Cyber Café is kept open for business every day between 2 p.m. and
2 a.m. The owner of the Cyber Café claims that the Assessing Officer could not enter the café
in late night. The Assessing Officer wanted to take away with him the books of account kept
at the Cyber Café. Examinethe validity of the claim made by owner and the proposed action of
the Assessing Officer.
Solution:

The Assessing Officer can exercise his power of survey under section 133A only after
obtaining the approval. Assuming that he has obtained such approval in this case, he is

5.1
empowered under section 133A to enter any place of business of the assessee within his
jurisdiction only during the hours at which such place is open forthe conduct of business.
In the case given, the cyber cafe is open from 2.00 p.m. to 2.00 a.m. for the conductof business.
The Assessing Officer entered the cyber cafe at 12 o’clock in the nightwhich falls within the
working hours of the cyber cafe. Therefore, the claim made bythe owner to the effect that
the Assessing Officer could not enter the cyber cafe at late night is not in accordance with
law.
Further, as per section 133A(3)(ia), the Assessing Officer may, impound and retain in his
custody for such period as he thinks fit, any books of account or other documents inspected
by him. However, he shall not impound any books of account or other documents except after
recording his reasons for doing so. He shall not retainin his custody any such books of account
or other documents for a period exceedingfifteen days (exclusive of holidays).

QUESTION-3
In the course of search on 25.03.2021, assets were seized. Examine the procedure laid down
to deal with such seized assets under the Act.

Solution:

Section 132B of the Income-tax Act, 1961 deals with the application of assets seized under
section 132. Such assets will be first applied towards the existing liability under the Income-
tax Act, 1961, etc. Further, the amount of liability determined on completion of search
assessment (including any penalty levied or interest payable in connection with such
assessment) and in respect of which the assessee is in default or deemed to be in default, may
be recovered out of such assets.

Where the nature and source of acquisition of such seized assets is explained to thesatisfaction

of the Assessing Officer, the amount of any existing liability mentionedin para 1 above may be

recovered out of such asset and the remaining portion, if any,of the asset may be released,

with the prior approval of the Principal Chief Commissioner or Chief Commissioner or Principal

Commissioner or Commissioner, as the case may be. The release must be made within 120 days

from the date on which the last of the authorisations for search under section 132 or for

requisition under

5.2
QUESTION – 4
Cash of Rs. 25 lacs was seized on 12.9.2022 in a search conducted as per section 132of the Act.
The assessee moved an application on 27.10.2022 to release such cash after explaining the
sources thereof, which was turned down by the department. Theassessee seeks your opinion on,
the following issues:
(i) Can the department withhold the explained money?
(ii) If yes, then to what extent and upto what period?

Solution:

The proviso to section 132B(1)(i) provides that where the person concerned makes anapplication
to the Assessing Officer, within 30 days from the end of the month in which the asset was
seized, for release of the asset and the nature and source of acquisition of the asset is
explained to the satisfaction of the Assessing Officer, then, the Assessing Officer may, with
the prior approval of the Principal Chief Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner, release the asset after recovering the existing liability under
the Income-tax Act, 1961, etc. out of such asset. Such asset or portion thereof has to be
released within120 days from the date on which the last of the authorizations for search under
section 132 was executed.
In this case, since the application was made to the Assessing Officer within the 30 day period
the amount of existing liability may be recovered out of the asset and the balance may be
released within 120 days from the date on which the last of the authorizations for search
under section 132 was executed.

Note: It may be noted that one of the conditions mentioned above for release of anasset is
that the nature and source of acquisition of the asset should be explained tothe satisfaction of
the Assessing Officer. However, in this case, it has been given that the assessee’s application
for release of the asset, explaining the sources thereof, was turned down by the
Department. If the application was turned down bythe Department due to the reason that it was
not satisfied with the explanation given by the assessee as to the nature and source of
acquisition of the asset, then, the asset (in this case, cash) cannot be released, since the
condition mentioned above isnot satisfied.

5.3
QUESTION – 5
The business premises of Ram Bharose Ltd. and the residence of two of its directorsat Delhi
were searched under section 132 by the DDI, Delhi. The search was concluded on 9.8.2020 and
following were also seized besides other papers and records:
(i) Papers found in the drawer of an accountant relating to Shri Krishna Ltd., Mumbai
indicating details of various business transactions. However, Ram Bharose Ltd. is not having
any direct or indirect connection of any nature withthese transactions and Shri Krishna
Ltd., Mumbai and its directors.
(ii) Jewellery worth Rs. 5 lacs from the bed room of one of the director, which was claimed
by him to be of his married daughter.
(iii) Papers recording certain transactions of income and expenses having direct nexus with the
business of the company for the period from 16.4.2016 to dateof search. It was admitted
by the director that the transactions recorded in such papers have not been incorporated
in the books.
You are required to answer on the basis of aforesaid and the provisions of Act, following
questions:
(a) What action the DDI shall be taking in respect of the seized papers relating to Shri
Krishna Ltd., Mumbai?
(b) Whether the contention raised by the director as to jewellery found from hisbed-room will
be acceptable?
(c) What presumption shall be drawn in respect of the papers which indicatetransactions
not recorded in the books?
(d) Can the company move an application for settlement of case as per Chapter XIX-A of the
Act?

Solution:

(a) The authorised officer being DDI, Delhi is not having any jurisdiction over Shri Krishna
Ltd., Mumbai, and therefore as per section 132(9A), the papers seized relating to this
company shall be handed over by him to the Assessing Officer having jurisdiction over
Shri Krishna Ltd., Mumbai within a period of 60 days from the date on which the last of
the authorisations for search wasexecuted for taking further necessary action thereon.
(b) The contention raised by the Director will not be acceptable because as per the provisions
of sub-section (4A)(i) of section 132, where any books of account, other documents, money,
bullion, jewellery or other valuables are found in the possession or control of any person in
the course of search, then,in respect thereof, it may be presumed that the same belongs

5.4
 to that person.
(c) As per section 132(4A), the presumptions in respect of the papers, indicatingtransactions
not recorded in the books but having direct nexus with the business of the company, are
that the same belong to the company, contents of such papers are true and the handwriting
in which the same are written is/are of the persons(s) whose premises have been searched.
(d) As per clause (iiia) in the Explanation to section 245A, the assessee can approach the
Settlement Commission at any time after the date of issue of notice under section 153A
or section 153C initiating the assessment proceedings. Therefore, an application can be
made to the Settlement Commission where search has been initiated under section 132
followed by assessment under section 153A or section 153C.
The proviso to section 245C (1) specifies the monetary limit for making application for

settlement of cases, in respect of search cases. Accordingly, the additional amount of income-

tax payable on the income disclosed in the application must exceed Rs. 50 lacs so that

application for settlement of thecase is eligible for admission.

QUESTION – 6

The premises of Ganesh were subjected to a search under section 132 of the Act. The search

was authorized and the warrant was signed by the Joint Commissioner ofIncome-tax having

jurisdiction over the assessee, consequent to information in his possession. The assessee

challenged the validity of search on the ground that section132(1) does not empower Joint

Commissioner to authorise a search under the Act. Decide the correctness of the contention

raised by the assessee.

Solution:

Under section 132(1), the income-tax authorities listed therein are empowered to authorise
other income-tax authorities to conduct search and seizure operations. The authorities
empowered to issue authorization include such Additional Director, Additional Commissioner,
Joint Director and Joint Commissioner as are empowered by the CBDT to do so.
However, a Joint Commissioner can issue warrant of authorization only if he has beenspecifically
empowered to do so by the CBDT. Therefore, only if the Joint Commissioner has not been
specifically empowered by the CBDT to do so, the contention of the assessee would hold good.

5.5
QUESTION – 7
The Director General of Income Tax after getting the information that Mr. Mogambo is in
possession of unaccounted cash of Rs.50 lacs, issued orders by invoking powers vested in him
as per section 131(1A), for its seizure. Is the order for seizure of cashissued by the Director
General of Income Tax, correct? If not, does the Director General of Income Tax have any
other power to seize such cash?

Solution:

The powers under section 131(1A) deal with power of discovery and production of evidence.
They do not confer the power of seizure of cash or any asset. The DirectorGeneral, for the
purposes of making an enquiry or investigation relating to any incomeconcealed or likely to be
concealed by any person or class of persons within his jurisdiction, shall be competent to
exercise powers conferred under section 131(1), which confine to discovery and inspection,
enforcing attendance, compelling the production of books of account and other documents and
issuing commissions. Thus, the power of seizure of unaccounted cash is not one of the powers
conferred on theDirector General under section 131(1A).
However, under section 132(1), the Director General has the power to authorize any Additional
Director or Additional Commissioner or Joint Director or Joint Commissioner etc. to seize
money found as a result of search [Clause (iii) of section 132(1)], if he has reason to believe
that any person is in possession of any money which represents wholly or partly income which
has not been disclosed [Clause (c) of section 132(1)]. Therefore, the proper course open to the
Director General is to exercise his power under section 132(1) and authorize the Officers
concerned to enter the premises where the cash is kept by Mr. Mogambo and seize such
unaccounted cash.
QUESTION – 8
Write notes on deemed or constructive seizure.
Hint:

QUESTION – 9
What are the presumptions in case of search?
Hint:

QUESTION – 10
During the course of survey operations u/s 133A, the Income-tax authority, impounded the
books of account and other documents inspected by him, relating to the assessee and retained
in his custody. Is the action of the officer justified under law?

5.6
 Hint:

QUESTION – 11
Discuss the provision relating to application of assets seized u/s 132
Hint:

QUESTION – 12
An income-tax authority visits to the registered office of a company and ask to inspect certain
register of the companies which is required to be maintained by the company as per Company
law. The company denies to show such registers of the company stating that such registers can
be inspected by any member, debenture-holder, other security holder or beneficial owner only.
Discuss.
Hint:

QUESTION – 13
Describe the power of authorized officer while conducting search u/s 132.
Hint:

MCQ’S
1. The examination on oath u/ s 132(4) of a person searched can be done by:

(a) The Assistant Director / Deputy Director / Joint / Additional Director

(b) All the officers accompanying the search party including the Inspectors

(c) The authorised officers

(d) The Income -tax Officer

2. U/s 131(3), an income tax authority cannot retain in his custody any books or documents for

a period without obtaining approval from higher authorities.

(a) exceeding 30 days

(b) exceeding 15 days

(c) upto completion of assessment

(d) None of the above

3. Door to door survey is covered by section

(a) 133B

(b) 133

5.7
 (c) 133A

(d) 133C

4. For conducting survey u/s 133A, the income -tax authority may enter into a place, where it is
deemed as business or profession is carried on,:

(a) Only after sunrise and before sunset

(b) During the business hours

(c) Any time

(d) None of these

5. While search u/ s 132, one of the following assets shall not be seized:

(a) Bullion

(b) Cash

(c) Stock- in-trade

(d) None of the above

6. As per sec. 132B, asset or any portion thereof shall be r eleased within a period of __days
from the date on which the last of the authorisations for search u/ s 132 or for requisition
u/ s 132A, as the case may be, was executed.

(a) 30

(b) 60

(c) 120

(d) 180

Answer:

1. (c) The authorised officers

2. (b) exceeding 15 days

3. (a) 133B

4. (a) Only after sunrise and before sunset

5. (c) Stock-in-trade

6. (c) 120

5.8
 APPEAL AND REVISION
QUESTION-1
Who can file memorandum of cross-objections before the Income-tax Appellate Tribunal?
What is the time limit? What is the fee for filing memorandum of cross objections?

Solution:

As per sec. 253(4), Assessing Officer or the assessee, as the case may be, on receipt of notice
that an appeal against the order of the Commissioner (Appeals) has been filed by the other
party, may file a memorandum of cross objection in Form 36A with the Tribunal within 30 days
of receipt of notice that appeal has been filed by the other party. However, Tribunal may
admit belated memorandum of cross objection on sufficient cause being shown. There is no
fee to file such memorandum.

QUESTION-2
An assessee, who is aggrieved by all or any of the following orders, is desirous to know the
available remedial recourse and the time limit against each order under theIncome-tax Act,
1961:
(i) Passed under section 143(3) by the Assessing Officer.
(ii) Passed under section 263 by the Commissioner of Income-tax.
(iii) Passed under section 272A by the Director General.
(iv) Passed under section 254 by the ITAT.
Solution:

(i) An assessee, aggrieved by the order passed under section 143(3) by the Assessing Officer,
can file an appeal before the Commissioner of Income- tax (Appeals) under section
246A(1) within 30 days of the date of service of the notice of demand relating to the
assessment. However, where the assessee 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.
(ii) An assessee, aggrieved by the order passed under section 263 by theCommissioner of
Income-tax, can file an appeal to Income-tax Appellate Tribunal under section 253(1)(c)
within 60 days of the date on which the ordersought to be appealed against is communicated
to the assessee.
(iii) An assessee, aggrieved by the order passed under section 272A by the Director General,

6.1
 can file an appeal before the Income-tax Appellate Tribunal under section 253(1)(c) within
60 days of the date on which the order soughtto be appealed against is communicated to
the assessee.
(iv) An assessee, aggrieved by the order passed under section 254 by the Income-tax Appellate
Tribunal, can file an appeal before the High Court under section260A within 120 days from
the date of receipt of order of Income-tax Appellate Tribunal, only where the order gives
rise to a substantial question of law.

QUESTION-3
Examine the circumstances where the appellant shall be entitled to produce additional

evidence, oral or documentary, before the Commissioner of Income-tax (Appeals) other than

the evidence produced during the proceedings before the Assessing Officer.

Solution:

As per Rule 46A (1) of the Income-tax Rules 1962, an appellant shall be entitled to produce
before the Commissioner (Appeals), evidence, either oral or documentary, other than the
evidence produced by him during the course of proceedings before the Assessing Officer, only
in the following circumstances –
(a) Where the Assessing Officer has refused to admit evidence which ought to have been
admitted; or
(b) Where the appellant was prevented by sufficient cause from producing the evidence which
he was called upon to produce by the Assessing Officer; or

(c) Where the appellant was prevented by sufficient cause from producing beforethe Assessing
Officer any evidence which is relevant to any ground of appeal;or
(d) Where the Assessing Officer has made the order appealed against without giving sufficient
opportunity to the appellant to adduce evidence relevant to any ground of appeal.
Further, no evidence shall be admitted unless the Commissioner (Appeals) records inwriting the
reasons for its admission.

QUESTION – 4
An assessee who had been served with an order of assessment passed under section 143(3) on
1.1.2023 had filed an application against this order before the CIT as per section 264 on
11.1.2023. However, the CIT refused to entertain the application on the pretext of premature
application. Assessee seeks your opinion.

6.2
Solution:

An assessee, who is aggrieved by the order of the Assessing Officer under section 143(3)

passed on 1.1.2023, had moved an application for revision of order under section 264 on

11.1.2023. The order passed by the Assessing Officer under section 143(3) is an order

appealable before the Commissioner (Appeals). The time limit for filing an appeal is 30 days

from the date of order i.e., upto 31.1.2023. This time limithad not expired on 11.1.2023 and the

assessee had also not waived his right of appeal while filing the application for revision on

11.1.2023 before the Commissioner of Income-tax.

The application filed before the Commissioner of Income-tax forrevision under section 264 by

the assessee will only be considered when the conditions specified under section 264(4) have

been complied with. One of the conditions is that the Commissioner shall not revise any order

where an appeal against the order lies to the Commissioner (Appeals) or Appellate Tribunal and

the time within which such appeal may be made has not expired, unless the assessee has waived

his right of appeal.

In the present case, the time limit had not expired on 11.1.2023 and the assessee had also not

waived the right of appeal while filing the application for revision before the Commissioner of

Income-tax on 11.1.2023 under section 264.Therefore, the Commissioner’s refusal to entertain

such application is correct.

QUESTION – 5
A petition for stay of demand was filed before ITAT by XYZ Ltd. in respect of a disputed
demand for which appeal was pending before it, on which stay was granted by the ITAT vide
order dated 1.1.2021. The bench could not function thereafter till1.2.2022 and therefore, the
disputed matter could not be disposed off. The Assessing Officer attached the bank account
on 16.2.2022 and recovered the amountof Rs. 15 lacs against the arrear demand of Rs. 25 lacs.
The assessee requested theAssessing Officer to refund back the amount as it holds stay over
it. The AssessingOfficer rejected the contention of the assessee. Now the assessee seeks
your opinion.

6.3
Solution:

The Appellate Tribunal may, on merit, pass an order of stay in any proceedings relating to an
appeal. However, such period of stay cannot exceed 180 days from the date of such order
[subject to the condition that the assessee deposits not less thantwenty per cent of the amount
of tax, interest, fee, penalty, or any other sum payableunder the provisions of this Act, or
furnishes security of equal amount in respect thereof].
The Appellate Tribunal has to dispose off the appeal within this period of stay. Where the
appeal has not been disposed off within this period and the delay indisposing the appeal is not
attributable to the assessee and assessee makes an application and has complied with the
condition referred above, the Appellate Tribunal can further extend the period of stay
originally allowed. Section 254(2A) provides that the aggregate of the period originally allowed
and the period or periodsso extended or allowed shall not, in any case, exceed 365 days, even
if the delay in disposing of the appeal is not attributable to the assessee. If the appeal is not
disposed of within such period or periods, the order of stay shall stand vacated after the expiry
of such period or periods.
Accordingly, even if an appeal is not heard by the bench, say, due to the bench not functioning
or due to the department seeking adjournment, the stay granted by theAppellate Tribunal shall
stand vacated after the period of 365 days, inspite of the assessee having taken all steps to
ensure speedy disposal of the appeal and having a good prima facie case.

QUESTION – 6
The ITAT can grant indefinite stay for the demand disputed in appeals before it. Discuss
Solution:
The Tribunal, after considering the merits, may pass an order of stay in any proceedings for a
period not exceeding 180 days (provided the assessee deposits not less than 20% of the amount
of tax, interest, fee, penalty, or any other sum payable or furnishes security of equal amount
in respect thereof) from the date of such order and the Tribunal shall dispose of the appeal
within the said period of stay specified in that order.
However, no extension of stay shall be granted by the Appellate Tribunal, where such appeal
is not so disposed of within the said period of stay as specified in the order of stay, unless the
assessee makes an application and has complied with the condition and the Appellate Tribunal
is satisfied that the delay in disposing of the appeal is not attributable to the assessee, so
however, that the aggregate of the period of stay originally allowed and the period of stay so
extended shall not exceed 365 days and the Appellate Tribunal shall dispose of the appeal

6.4
within the period or periods of stay so extended or allowed.
Further if such appeal is not so disposed of within the period allowed (original and extended),
the order of stay shall stand vacated after the expiry of such period (i.e., 365 days), even if
the delay in disposing of the appeal is not attributable to the assessee

QUESTION – 7
An Income-tax authority did not file an appeal to the Income-tax Appellate Tribunalagainst an
order of the Commissioner (Appeals) decided against the Income-tax department on a
particular issue incase of one assessee, Alpi for assessment year 2020-21 on the ground that
the tax effect of such dispute was less than the monetary limit prescribed by CBDT. In
assessment year 2022-23, similar issue arosein the assessments of Alpi and her sister Palki,
which was decided by the

Solution:

Under section 268A(1), the CBDT is empowered to issue orders, instructions or directions to
the other income-tax authorities, fixing such monetary limits, as it maydeem fit, to regulate
filing of appeal or application for reference by any income-taxauthority.
Under section 268A(2), where an income-tax authority has not filed any appeal or application
for reference on any issue in the case of an assessee for any assessment year, due to above-
mentioned order/instruction/direction of the CBDT, such authority shall not be precluded from
filing an appeal or application for reference onthe same issue in the case of the same assessee
for any other assessment year or any other assessee for the same or any other assessment
year. Further, in such a case, it shall not be lawful for an assessee to contend that the income-
tax authorityhas acquiesced in the decision on the disputed issue by not filing an appeal or
application for reference in any case.
In view of above provision, it would be in order for the Income-tax Department to move an
appeal to the Tribunal against the orders of the CIT(A) in respect of A.Y. 2023-24 both for
Alpi and Palki.

6.5
QUESTION – 8
Examine the correctness of the following statement:
“The Appellate Tribunal is empowered to grant indefinite stay for the demand disputed in
appeals before it.”

Solution:

Section 254(2A) provides that the Appellate Tribunal, where it is possible, may hearand decide
an appeal within a period of four years from the end of the financial yearin which such appeal
is filed.
The Appellate Tribunal may, on merit, pass an order of stay in any proceedings relating to an
appeal. However, such period of stay cannot exceed 180 days from the date of such order
[subject to the condition that the assessee deposits not less thantwenty per cent of the amount
of tax, interest, fee, penalty, or any other sum payableunder the provisions of this Act, or
furnishes security of equal amount in respect thereof]. The Appellate Tribunal has to dispose
off the appeal within this period of stay.

Where the appeal has not been disposed off within this period and the delay in disposing the
appeal is not attributable to the assessee and assessee makes an application and has complied
with the condition referred above, the Appellate Tribunal can further extend the period of
stay originally allowed. However, the aggregate of period originally allowed and the period so
extended should not exceed 365 days even if the delay in disposing of the appeal is not
attributable to the assessee. The Appellate Tribunal is required to dispose off the appeal
within this extended period. If the appeal is not disposed of within such period or periods, the
order of stay shall stand vacated after the expiry of such period or periods.

Therefore, the statement given in the question is not correct.

QUESTION – 9
Examine the correctness or otherwise of the following statements with reference to the
provisions of the Income-tax Act, 1961:
(i) An appeal before Income-tax Appellate Tribunal cannot be decided in the event of
difference of opinion between the Judicial Member and the Accountant Member on a
particular ground.
(ii) A High Court does not have an inherent power to review an earlier order passed by it on
merits.

6.6
Solution:
(i) The statement given is not correct. As per the provisions of section 255, in the event of
difference in opinion between the members of the Bench of the Income-tax Appellate
Tribunal, the matter shall be decided on the basis of the opinion of the majority of the
members. In case the members are equally divided, they shall state the point or points of
difference and the case shall be referred by the President of the Tribunal for hearing on
such points by one or more of the other members of the Tribunal. Such point or points shall
be decided according to the opinion of majority of the members of the Tribunal who heard
the case, including those who had first heard it.

(ii) The statement given is not correct. The Supreme Court, in CIT v. MeghalayaSteels Ltd.
(2015) 377 ITR 112, observed that the power of review would inhere on High Courts, being
courts of record under article 215 of the Constitution of India. There is nothing in article
226 of the Constitution to preclude a High Court from exercising the power of review which
inheres in every court of plenary jurisdiction to prevent miscarriage of justice or to correct
grave and palpable errors committed by it. The Supreme Court further observed that
section 260A(7) does not purport in any manner to curtail or restrict the application of the
provisions of the Code of Civil Procedure. Section 260A(7) only states that all the
provisions that would apply qua appeals in the Code of Civil Procedure would apply to appeals
under section 260A. The Supreme Court opined that this does not in any manner suggest
either that the other provisions of the Code of Civil Procedure are necessarily excluded
or that the High Court’s inherent jurisdiction is in any manner affected.

QUESTION – 10
"SVS Propcon" did not make a claim of ₹ 20 lacs in the return of income filed for A.Y.2022-23
which was disallowed in the previous assessment year under section 43B. However, the said
claim was also not considered by the Assessing Officer during assessment proceedings on the
ground that no revised return was filed. Can the assessee now make such claim before the
appellate authority?
Solution:
Yes, the assessee is entitled to raise additional claims before the appellate authorities.
The restriction that an additional claim has to be made by filing a revised return applies only
in respect of a claim made before the Assessing Officer. An assessee cannot make a claim
before the Assessing Officer otherwise than by filing a revisedreturn. It was so held by the
Supreme Court in Goetze (India) Ltd v. CIT (2006) 284ITR 323.
However, this restriction does not apply to an additional claim made before an appellate
authority. The appellate authorities have jurisdiction to permit additional claims before them,
though, the exercise of such jurisdiction is entirely the authorities’ discretion. It was so held

6.7
by the Bombay High Court in CIT v. Pruthvi Brokers & Shareholders (2012) 349 ITR 336.
Thus, an additional claim can be raised before the Appellate Authority even if no revised return
is filed.

QUESTION – 11
Assessment of Bhajan Ltd. was completed under section 143(3) with an addition of Rs. 15 lakhs
to the returned income. The assessee-company preferred appeal before the Commissioner
(Appeals) which is pending now.
In this backdrop, answer the following:
(i) Based on fresh information that there was escapement of income for the same assessment
year, can the Assessing Officer initiate reassessment proceedings when the appeal is
pending before Commissioner (Appeals)?
(ii) Can the Assessing Officer pass an order under section 154 for rectification of mistake in
respect of issues not being subject matter of appeal?

(iii) Can the assessee-company seek revision under section 264 in respect ofmatters other
than those preferred in appeal?
(iv) Can the Commissioner make a revision under section 263 both in respect of matters
covered in appeal and other matters?
Solution:
(i) As per the third proviso to section 147, the Assessing Officer may assess orreassess such
income, other than the income involving matters which are the subject matters of any
appeal, reference or revision, which is chargeable to tax and has escaped assessment. The
doctrine of partial merger would apply in this case.
Therefore, even when an appeal is pending before Commissioner (Appeals), the Assessing
Officer can initiate reassessment proceedings in respect of income chargeable to tax which
has escaped assessment, provided such income is not the subject matter of the appeal
before the Commissioner (Appeals) i.e., such income which has escaped assessment does
not form partof the additions of Rs.15 lakhs to the returned income, which is the subject
matter of appeal.
(ii) As per section 154(1A), the Assessing Officer can pass an order under 154(1) to rectify a
mistake apparent from the record, provided the rectification is in relation to a matter,
other than the matter which has been considered and decided in the appeal before
Commissioner (Appeals). The doctrine of partial merger holds good for section 154 also.
Since the issue under consideration in this case relates to rectification of a mistake in
respect of a matter which is not the subject matter of appeal, the Assessing Officer can

6.8
 pass an order under section 154 for rectification of the same provided the same is a mistake
apparent from the record.
(iii) As per section 264(4), the Commissioner shall not revise any order under section 264,
where such order has been made the subject of an appeal to the Commissioner (Appeals).
Thus, the concept of total merger would apply in the case of section 264.

Therefore, under section 264, the Commissioner cannot revise an order which is pending
before the Commissioner (Appeals), even if the revision pertains to a matter, other than
the matter(s) covered in the appeal.
(iv) As per section 263, the Commissioner has the power to revise an order prejudicial to
revenue, even if the order is the subject matter of appeal before Commissioner (Appeals).
However, the power of the Commissioner under section 263 shall extend to only such
matters as had not been considered and decided in such appeal. Here again, the doctrine
of partial merger would apply.
In a case where the appeal is pending but not yet decided, the Commissioner cannot
exercise his revisionary jurisdiction in respect of those issues which are the subject matter
of appeal.

QUESTION – 12
An Assessee, who is aggrieved by all or any of the following orders, is desirous to know the
remedial recourse and the time limit against each order under the Income-tax Act, 1961 –
(1) Passed under section 153A (except an order passed in pursuance of thedirection of the
Dispute Resolution Panel) by the Assessing Officer.
(2) Passed under section 263 by the Commissioner of Income-tax.
(3) Passed under section 272A by the Principal Commissioner.
(4) Passed under section 254 by the ITAT.

6.9
Solution:
Remedial measures against certain orders and time limit

Order Remedy available Time limit

Passed u/s
1 153 A File an appeal before the Within 30 days of the date of service
Commissioner (Appeals) u/s of the notice of demand relating to the
246A (1) assessment.
(or) Within period of one year from:
Move a revision petition u/s (i) The date of on which theorder
264 before the commissioner was communicated to him;or
or Principal Commissioner (ii) The date on which he otherwise
came to know of it,
Whichever is earlier.

2. 263 File an appeal before the Within 60 days of the date on which
Appellate Tribunal (ITAT) the order sought to be appealed against
u/s 253 (1) (c) is communicated to the assessee.
3. 272 A File an appeal before the Within 60 days of the date on which
Appellate Tribunal (ITAT) the order sought to be appealed against
u/s 253 (1) (c) is communicated to the assessee.
4. 254 File an appeal before the High Within 120 days from the date of
Court u/s 260 A receipt of order of ITAT

QUESTION – 13
Commissioner of Income-tax has power only to revise an order in favour of the assessee.
Comment.
Solution:
The Commissioner has power u/s 263 to revise any erroneous order, which are prejudicial to
the interest of revenue. The Commissioner may call for and examine the records of any
proceeding under the Act.

If he considers that any order passed by the Assessing Officer is prejudicial to the interest
of the revenue, he can revise and rectify the assessment. No revision order shall be passed
u/s 263 without giving the assessee an opportunity of being heard.

6.10
Such order can be passed by the Commissioner within 2 years from the end of the financial
year in which the order sought to be revised was passed.

QUESTION – 14
With reference to the provisions of the Income-tax, 1961, critically examine the proposition
that ‘the Commissioner (Appeals) has no power to decide a matter that was not raised before
him’.
Solution:
According to explanation to sec. 251, while disposing an appeal, the CIT(Appeals) may consider
and decide any matter arising out of the proceedings in which the order appealed against was
passed, notwithstanding that such matter was not raised before the Commissioner (Appeals)
by the appellant. Thus, the given statement is not correct

QUESTION – 15
What are pre-conditions to be fulfilled for exercising revisionary powers by the Commissioner
of Income tax under Section 263 of the Income-tax Act, 1961? Can he revise an order without
affording an opportunity to the assessee? What is the time limit to exercise such powers?
Briefly explain
Solution:
Any order passed by the Assessing Officer, which is –

a) Erroneous;

b) Prejudicial to the interests of the revenue; and

c) Passed by an authority subordinate to the Principal Commissioner or Commissioner.

- is revised by the Commissioner u/s 263

If the aforesaid conditions are satisfied, the Principal Commissioner or Commissioner may call
for and examine the records of any proceeding under the Act. If he considers that any order
passed by the Assessing Officer is prejudicial to the interest of the revenue, he can revise
and rectify the assessment. No revision order shall be passed u/s 263 without giving the
assessee an opportunity of being heard. Such order can be passed by the authorities within 2
years from the end of the financial year in which the order sought to be revised was passed.

6.11
QUESTION – 16
State the provision regarding avoidance of repetitive appeals.
Solution:
Special provision for avoiding repetitive appeals [Sec. 158A]

1. Where an assessee claim (a declaration in the Form 8 and verified in the prescribed manner)
that:

 any question of law arising in his case for an assessment year which is pending before the
Assessing Officer or any appellate authority (such case being hereafter in this section
referred to as the relevant case) is identical

 with a question of law arising in his case for another assessment year which is pending
before the High Court or the Supreme Court (such case being hereafter in this section
referred to as the other case),

 and if the Assessing Officer or the appellate authority, as the case may be, agrees to
apply in the relevant case the final decision on the question of law in the other case,

 he shall not raise such question of law in the relevant case in appeal before any appellate
authority.

2. The Assessing Officer or the appellate authority, as the case may be, may, by order in
writing:

 admit the claim of the assessee if he or it is satisfied that the question of law arising
in the relevant case is identical with the question of law in the other case; or

 reject the claim if he or it is not so satisfied.

3. Such order shall be final and shall not be called in question in any proceeding by way of
appeal or revision under this Act.

4. Where a claim is admitted:

 the Assessing Officer or the appellate authority may make an order disposing of the
relevant case without awaiting the final decision on the question of law in the other
case; and

 the assessee shall not be entitled to raise, in relation to the relevant case, such question
of law in appeal.

5. When the decision on the question of law in the other case becomes final, it shall be applied
to the relevant case and the Assessing Officer or the appellate authority, shall, if

6.12
 necessary, amend the order conformably to such decision.

MCQ’S
1. Fee for filing an appeal u/ s 249(1) to the Commissioner of Income tax (Appeals) when the
assessed income is more than ₹ 2 lakh is –
(a) ₹ 250
(b) ₹ 500
(c) ₹ 1,000
(d) None of the above

2. An assessee aggrieved by the order of Commissioner of Income– tax (Appeals) can file an
appeal before the Income tax Appellate Tribunal within certain period from the date on
which the order sought to be appealed against is communicated to him. Such appeal has to
be filed within –

(a) 60 days

(b) 30 days

(c) 90 days

(d) 120 days

3. An appeal to the High Court u/ s 260A of the Income -tax Act, 1961 shall lie only if

(a) a substantial question of law is involved

(b) a substantial question of fact is involved

(c) a substantial question is involved

(d) the assessee is not satisfied with the order passed by Hon’ble ITAT

4. Generally, first appeal by Income -tax Department lies with –

(a) ITAT

(b) Commissioner (Appeals)

(c) High Court

(d) Central Government

5. Appeal to Commissioner of Income -tax (Appeals) is to be made in Form –

(a) 35

(b) 36

(c) 36A

6.13
 (d) plain paper

6. An assessee aggrieved with the order of the ITAT can file appeal before High Court

within______

(a) 120 days

(b) 30 days

(c) 60 days

(d) 180 days

7. On whose motion revision by Commissioner u/ s 264 of the Income- tax Act, 1961 is

possible.

(a) Commissioner’s own motion

(b) Application by assessee

(c) Any of the above two options

(d) Assessing Officer

8. Time limit for passing a revision order by Commissioner u/s 264, when initiated on his own

motion, is

(a) within 1 year from the date of original order

(b) within 1 year from the end of the financial year in which original order was passed

(c) within 2 year from the date of original order

(d) within 2 year from the end of the financial year in which original order was passed

9. An application for settlement shall be presented before Settlement Commission in Form

(a) 34B

(b) 34C

(c) 35

(d) 36

6.14
Answer:

1. (c) ₹ 1,000

2. (a) 60 days

3. (a) a substantial question of law is involved

4. (a) ITAT

5. (a) 35

6. (d) 120 days

7. (c) Any of the above two options

8. (a) within 1 year from the date of original order

9. (a) 34B

6.15
 ADVANCE TAX & INTEREST
QUESTION-1

Calculate interest u/s 234A in the following cases –

Name of the assessee A A Ltd. B
Due date of furnishing return 31st July 31st October 31st July
Date of filing return 4th December 28th December Not filed
Date of completion of assessment 1st March 15th April 15th
February
Income as per return ₹ 5,80,000 ₹ 5,00,000 --
Assessed Income ₹ 6,10,000 ₹ 5,50,000 ₹ 12,00,000
Advance tax paid ₹ 10,000 ₹ 25,000 ₹ 80,000
Tax deducted at source ₹ 10,000 ₹ 15,000 ₹ 80,000
Tax paid along with return ₹ 6,000 ₹ 1,50,000 --
Also state interest payable u/s 234A for the purpose of sec.140A. Ignore interest under any
other section.
Solution:

Computation of interest u/s 234A

Particulars Code A A Ltd. B

5 2 months 7 months
Period of default A
months
#
(Aug. to (Nov. to (Aug. to
Dec.) Dec.) Feb.)
Assessed Income B 6,10,000 5,50,000 12,00,000
Tax rate C Slab-rate 30% Slab rate
Tax liability before surcharge D=B*C 34,500 1,65,000 1,72,500
Rate of Surcharge E Nil Nil Nil
Surcharge F=D*E Nil Nil Nil
Tax and surcharge payable G=D+F 34,500 1,65,000 1,72,500
Health & Education cess H=G*4 1,380 6,600 6,900
%
Tax liability on assessed income I=G+H 35,880 1,71,600 1,79,400
Particulars Code A A Ltd. B
Less: Advance tax paid & tax J 20,000 40,000 1,60,000
deducted at source
Shortfall K=I-J 15,880 1,31,600 19,400
Rounded off L 15,800 1,31,600 19,400
Interest (1% * A * L) 790 2,632 1,358
Note: Tax paid along with return shall not be reduced while computing interest u/s 234A

7.1
Computation of interest u/s 234A for the purpose of sec.140A

Name of the assessee Code A A Ltd.

5 months 2 months
Period of default A# (Aug. to (Nov. to Dec.)
Dec.)
Returned Income B 5,80,000 5,00,000
Tax rate C Slab-rate 30%
Tax liability before surcharge D=B*C 28,500 1,50,000
Rate of Surcharge E Nil Nil
Surcharge F=D*E Nil Nil
Tax & surcharge on above G=D+F 28,500 1,50,000
Health & Education cess H=G*4% 1,140 6,000
Tax liability on assessed income I=G+H 29,640 1,56,000
Less: Advance tax paid & tax deducted at J 20,000 40,000
source
Shortfall K=I-J 9,640 1,16,000
Rounded off L 9,600 1,16,000
Interest (1% * A * L) 480 2,320
#
It is to be noted that when interest is calculated on monthly basis, any fraction of the
month shall be taken as full month.
Note: In case of B, return has not been filed, hence interest payable u/s 234A at the time
of self-assessment cannot be computed.

QUESTION-2
A firm furnished its return of income on 30th June, 2023 showing income of ₹ 1,00,000. The
return shows other particulars as follows -
Advance tax ₹ 20,000
TDS ₹ 1,000
The AO passed the assessment order enhancing income by ₹ 5,000 on 29-3-2024. Compute
interest u/s 234B.
Solution:

Computation of interest u/s 234B

Particulars Amount
Assessed Income 1,05,000
Tax liability before surcharge [₹ 1,05,000 x 30%] 31,500
Add: Health & Education cess @ 4% 1,260
Tax and cess payable 32,760
Less: Tax deducted at source 1,000
Assessed tax 31,760

7.2
 90% of above 28,584
Advance tax paid 20,000
Since advance tax paid by the firm is less than 90% of assessed tax,
sec. 234B is applicable
Shortfall (Assessed tax less Advance tax paid) 11,760
Rounded off 11,700
Period of default [From April 2023 to March 2024] 12 months
Interest u/s 234B (1% x ₹ 11,700 x 12) 1,404

QUESTION-3
How shall your answer differ if the assessee pays ₹ 10,200 as self-assessment tax along with
return. Ignore interest u/s 234C.
Solution:

Computation of interest u/s 234B

As per
Particulars
Assessed Returned
income income
Income 1,05,000 1,00,000
Tax on above (including cess) 32,760 31,200
Less: TDS and Advance tax 21,000 21,000
Shortfall for the period April’ 2023 to June’ 11,760 10,200
2023
Rounded off (a) 11,700 10,200
Period of default (b) [From April’ 2023 to June’ 3 months 3 months
2023]
Interest u/s 234B (1% x a x b) 351 306
Shortfall for the period July’ 2023 to March’ 1,866
2024
(₹ 11,760 – ₹ 9,894 as paid u/s 140A) [Note]
Rounded off (c) 1,800
Period of default (d) [From July’ 2023 to March’ 9 months
2024]
Interest u/s 234B (1% x c x d) 162
Note

Since, shortfall till June 2023 is ₹ 11,760 and thereafter assessee has paid ₹ 9,894 [i.e. ₹
10,200 (amount paid u/s 140A) – ₹ 306 (interest u/s 234B for the purpose of sec.140A)], hence
interest shall be calculated on the following -
For the period April’ 23 to June’ 23 - On ₹ 11,760

7.3
For the period July’ 23 to March’ 24 - On ₹ 1,866
Statement showing interest payable u/s 234B

Particulars Amount
For the period April to June 351
For the period July to March 162
513
Less: Interest paid on self-assessment 306
Interest payable 207

QUESTION-4
A firm made the following payments of advance tax during the financial year 2022-23:

₹ in lakh
September 15, 2022 7.00
December 15, 2022 7.75
March 15, 2023 10.75
25.50
The return of income is filed on 31-7-2023 showing -
Business income ₹ 80 lakh
Long term capital gain taxable @ 20% (as on 1-12-2022) ₹ 10 lakh
Compute interest payable u/s 234C.
Solution:

Computation of tax liability for A.Y. 2023-24 (₹ in lakh)

Particulars Business income Long term capital gain

Income 80.00 10.00
Tax rate 30% 20%
Tax liability before cess 24.00 2.00
Add: Health & Education cess 0.96 0.08
Tax liability including cess 24.96 2.08

Computation of interest payable u/s 234C

Installment of Advance tax

Particulars
15/6/2022 15/9/2022 15/12/2022 15/3/2023
Rate of Advance tax 15% 45% 75% 100%
Amount payable
(₹ 24,96,000 x 15%) 3,74,400
(₹ 24,96,000 x 45%) 11,23,200

7.4
 [(₹ 24,96,000 + ₹ 2,08,000) x 20,28,000
75%]
[(₹ 24,96,000 + ₹ 2,08,000) x 27,04,000
100%]
Less: Amount paid till date Nil 7,00,000 14,75,000 25,50,000
Shortfall 3,74,400 4,23,200 5,53,000 1,54,000
Rounded off (a) 3,74,400 4,23,200 5,53,000 1,54,000
Period of default (b) 3 months 3 months 3 months 1 month
Interest (1% x a x b) ₹ 11,232 ₹ 12,696 ₹ 16,590 ₹ 1,540
Total interest payable u/s 234C ₹ 42,058

QUESTION-5
A Ltd. made the following payments of advance tax during the financial year 2022-23:

₹ in lakh ₹ in lakh
June 15, 2022 3.70 September 15, 2022 3.50
December 15, 2022 10.25 March 18, 2023 8.80
The return of income is filed on 31-7-2023 showing -
Business income ₹ 80 lakh
Long term capital gain taxable @ 20% (as on 1-12-2022) ₹ 10 lakh

Compute interest payable u/s 234C.

Solution:

Computation of tax liability for A.Y. 2023-24 (₹ in lakh)

Particulars Business Long term capital

income gain
Income 80.00 10.00
Tax rate 30% 20%
Tax liability before surcharge 24.00 2.00
Add: Surcharge Nil Nil
Tax liability after surcharge 24.00 2.00
Add: Education cess 0.96 0.08
Tax liability after surcharge and 24.96 2.08
cess
Computation of interest payable u/s 234C:

Installment of Advance tax

Particulars
15/6/2022 15/9/2022 15/12/2022 15/3/2022
Rate of Advance tax 15% 45% 75% 100%
Amount payable

7.5
 (₹ 24,96,000 x 15%) 3,74,400
(₹ 24,96,000 x 45%) 11,23,200
[(₹ 24,96,000 + ₹ 2,08,000) 20,28,000
x 75%]
[(₹ 24,96,000 + ₹ 2,08,000) 27,04,000
x 100%]
Less: Amount paid till date 3,70,000 7,20,000 17,45,000 17,45,0003
Shortfall Nil 4,03,200 2,83,000 9,59,000
Rounded off (a) Nil 4,03,200 2,83,000 9,59,000
Period of default (b) -- 3 months 3 months 1 month
Interest (1% x a x b) -- ₹ 12,096 ₹ 8,490 ₹ 9,590
Total interest payable u/s ₹ 30,176
234C
1. Since assessee has paid at least 12% of tax (i.e., ₹ 2,99,520) on or before 15th June, 2022,
hence no interest u/s234C shall be levied.
2. Since assessee fails to pay 36% of tax (i.e., ₹ 8,98,560) on or before 15th September,
2022, hence interest u/s 234C shall be levied. It is to be noted that interest shall be
payable considering 45% of tax.
3. As payment has not been made within due date, hence advance tax paid on 18-03-2023 has
not been considered.

QUESTION-6
Tax audit u/s 44AB is applicable to Mr. S, a businessman. For the assessment year 2023- 24,
the due date of submission of return of income is September 30, 2023. The return, is uploaded
on September 25, 2023. Intimation u/s 143(1) is received by email on October 8, 2024. Date
of intimation and date of grant of refund is October 6, 2024. The following information are
related to how refund is calculated:

₹
Tax on income assessed 2,92,430
Add: interest u/s 234C 18,000
Total 3,10,430
Less: Credit for prepaid tax -
— TDS, TCS and tax paid in advance 4,70,000
— Self-assessment tax paid on August 18, 2023 9,000
Refund due 1,68,570
Compute the amount of interest payable by the Government u/s 244A.

7.6
 Solution:

Refund of ₹1,68,570 may be segregated as follows:

Option 1: ₹ 9,000 may be taken as refund of self-assessment tax and the balance of ₹
1,59,570 may be taken as refund of TDS/ TCS/ Advance Tax.

Option 2: As no formula for segregation is provided, it may be assumed that entire amount of
refund pertains to refund of TDS/ TCS/ Advance Tax.

In the two alternatives given above, interest u/s 244A will be calculated as follows:

Option 1 Option 2
Nature of refund Self-assessment TDS/ TCS/ Advance TDS/ TCS/
Tax Tax Advance Tax
Amount of refund (in ₹) 9,000 1,59,570 1,68,570
Amount of refund (in ₹) 9,000 1,59,500 1,68,500
(rounded off for the purpose
of calculation of interest)
Period for which interest is From 25.09.2023 From 01.04.2023 to From
available to 06.10.2024 06.10.2024 01.04.2022 to
Note 1 06.10.2023
Period for which interest is 13 19 19
available
Interest @ 0.5% per month 585 15,153 16,008
(in ₹)
Amount of interest is higher in Option 2. Interest payable by the Government is ₹ 16,008.

Note 1 — if return of income is submitted on or before the due date of submission of return
of income given u/s 139(1), interest is payable from the first day of the assessment year to
the date on which the refund is granted.

MCQ’S

1. An assessee who is entitled to get refund shall also be entitled to interest on such refund.
Interest on refund is granted @ of –

(a) ½% per month or part thereof

(b) 1½% per month or part thereof

(c) nil as assessee is not entitled for any interest on refund

(d) 1% per month or part thereof

2. Interest on refund due to TDS or TCS or Advance tax shall be allowed, provided the amount
of refund is not of the tax determined u/s 143(1) or on regular assessment.

(a) less than 90%

(b) less than 10%

7.7
 (c) more than 10%
(d) less than 20%

3. As per sec. 234D, where any refund is granted to the assessee u/s 143(1) and –

• No refund is due on regular assessment; or

• The amount refunded exceeds the amount refundable on the regular
assessment then he is liable to pay simple interest on the whole or excess
amount refunded. What will be the rate of such interest?
(a) 1% for every month or part of the month

(b) 1½% for every month or part of the month

(c) ½% for every month or part of the month

(d) there is no such provision in the Income tax Act

4. The provisions relating to interest on delay in payment of refund are given in section

(a) 244A

(b) 244B

(c) 234A

(d) None of these

5. Interest u/s 234B is not levied if of assessed tax is paid by way of advance tax.

(a) 90%

(b) 100%

(c) 85%

(d) 60%

6. Interest u/s 234A / 234B / 234C is payable at the rate of

(a) one- half percent per month

(b) two percent per month

(c) one percent per month

(d) depends on income

7. An assessee is required to pay interest u/s 234B on shortfall of ₹ 1,02,355.43, such amount
is rounded off to –

7.8
 (a) ₹ 1,02,300

(b) ₹ 1,02,355

(c) ₹ 1,02,360

(d) ₹ 1,02,400

8. Interest under section is levied from the first day of the assessment year, i.e., from 1st
April till the date of determination of income under section 143(1) or when a regular
assessment is made, then till the date of such a regular assessment.

(a) 234C

(b) 234A

(c) 234B

(d) 234D

9. Section provides for levy of interest for default in payment of instalment(s) of advance
tax.
(a) 234C

(b) 234A

(c) 234B

(d) 234D

Answer:

1. (a) ½% per month or part thereof

2. (b) less than 10%

3. (c) ½% for every month or part of the month

4. (a) 244A
5. (a) 90%

6. (c) one percent per month

7. (a) ₹ 1,02,300

8. (c) 234B

9. (a) 234C

7.9
 ADVANCE RULING
QUESTION-1
Write short note on “Applicability of advance ruling”.

Solution:

Advance ruling has been introduced in the Income-tax Act providing a scheme for giving
Advance Ruling on transaction involving non-residents and certain notified residents with the
view to avoid needless litigation and promoting better tax-payer relations. As per section 245S:

1. The advance ruling pronounced by the Authority u/s 245R shall be binding only—

a) on the applicant who had sought it;

b) in respect of the transaction in relation to which the ruling had been sought; and

c) on the Commissioner, and the income-tax authorities subordinate to him, in respect

of the applicant and the said transaction.

2. The advance ruling shall be binding as aforesaid unless there is a change in law or facts
on the basis of which the advance ruling has been pronounced.

QUESTION-2
Who is applicant for advance ruling?

Solution:

Applicant [Sec. 245N(b)]

Applicant means any person who is:

a) a non-resident referred to in sub-clause (i) of clause (a) above; or

b) a resident referred to in sub-clause (ii) of clause (a) above; or

c) a resident who has undertaken or propose to undertake one or more transactions of value
of ₹ 100 crore or more in total [Notification No. 73, dated 28-11-2014]

d) a public sector company [Notification No. 725, dated 03-08-2000]

e) a resident or a non-resident referred to in sub-clause (iv) of clause (a) above

f) an applicant as defined in sec. 28E(c) of the Customs Act, 1962

g) an applicant as defined in sec. 23A(c) of the Central Excise Act, 1944

8.1
h) an applicant as defined in sec. 96A(b) of the Finance Act, 1994 - makes an application u/s
245Q(1).

QUESTION-3
The Authority for Advance Ruling has the power of compelling the production of books of
account. Discuss.

Solution:

Powers of the Authority [Sec. 245U]

The Authority shall, for the purpose of exercising its powers, have all the powers of a civil
court under the Code of Civil Procedure, 1908 as are referred to in section 131 of this Act.
Further, sec. 131 provides following power to the income tax authority while trying a suit:

a) Discovery and inspection;

b) Enforcing the attendance of any person, including any officer of a banking company and
examining him on oath;

c) Compelling the production of books of account and other documents; and

d) Issuing commissions Thus, the Authority for Advance Ruling has the power of compelling
the production of books of account

All these appointments can be made subject to the rules and orders of the Central
Government.

QUESTION-4
When can an advance ruling become void? Explain

Solution:

Advance ruling to be void in certain circumstances [Sec. 245-T]

a) Where the Authority finds, on a representation made to it by the Commissioner or

otherwise, that an advance ruling pronounced by it has been obtained by the applicant by
fraud or misrepresentation of facts, it may, by order, declare such ruling to be void ab
initio and thereupon all the provisions of this Act shall apply to the applicant as if such
advance ruling had never been made.

b) A copy of such order shall be sent to the applicant and the Commissioner.

8.2
QUESTION-5
What is the composition of BAR?

Solution:

The Authority shall consist of a Chairman and such number of Vice-chairmen, revenue Members

and law Members as the Central Government may, by notification, appoint.

a) A person shall be qualified for appointment as—

 Chairman, who has been a Judge of the Supreme Court or the Chief Justice of a High
Court or for at least 7 years a Judge of a High Court;

 Vice-chairman, who has been Judge of a High Court;

 a revenue Member:

 where the Authority is dealing with an application seeking advance ruling in any
matter relating to this Act; the revenue member shall be appointed from the
Indian Revenue Service, who is (or is qualified to be), a Member of the Board; or

 in other case, revenue member shall be appointed from the Indian Customs and
Central Excise Service, who is (or is qualified to be), a Member of the Central
Board of Excise and Customs, on the date of occurrence of vacancy

 a law Member from the Indian Legal Service, who is (or is qualified to be), an
Additional Secretary to the Government of India on the date of occurrence of
vacancy.

QUESTION-6
What is the procedure for making an application for obtaining advance rulings u/s 245Q?

Solution:

a) An applicant desirous of obtaining an advance ruling may make an application stating the
question on which the advance ruling is sought in quadruplicate in:

1. in Form No. 34C in respect of a non-resident applicant;

2. in Form No. 34D in respect of a resident applicant seeking advance ruling in relation to
a transaction undertaken or proposed to be undertaken by him with a non-resident;

3. in Form No. 34DA in respect of a resident applicant referred to in sec. 245N(b)(iia)

8.3
 falling within any such class or category of person as notified by the Central
Government; and

4. in Form No. 34E in respect of a notified resident referred to in sec. 245N(b)(iii)

5. in Form No. 34EA in respect of a applicant referred to in sec. 245N(b)(iiia) and shall
be verified in the manner indicated therein.

b) The application shall be accompanied by a fee of a. ₹ 10,000 or b. such fees as may be

prescribed. – whichever is higher

c) An applicant may withdraw an application within 30 days from the date of the application.

MCQ’S

1. The authority for advance ruling will not allow consideration of any question involving
determination of ------- of any property.
(a) fair market value

(b) income

(c) reasonable expected rent

(d) none of the above

2. An application for advance ruling under section 245Q(1) of the Incomer -tax Rules, 1962
should made in –
(a) Form No. 34B

(b) Form No. 43

(c) Form No. 34C

(d) Form No. 3AA

3. The authority for advance ruling is required to pronounce its advance ruling in writing
within____ from the date of application.
(a) 150 days

(b) 120 days

(c) 60 days

(d) None of these

8.4
4. An application (in quadruplicate) for advance ruling by a resident applicant for
determination of his tax liability arising out of one or more transactions valuing ₹ 100
crore or more in total which has been undertaken or is proposed to be undertaken by him
is to be made in Form No.
(a) 34DA

(b) 34EA

(c) 34E

(d) 34D

5. Provisions relating to advance ruling are provided in sections .

(a) 245N to 245V

(b) 245A to 245L

(c) 237 to 245

(d) 119 to 126

Answer:

1. (a) fair market

2. (c) Form No. 34C

3. (d) None of these

4. (a) 34DA

5. (a) 245N to 245V

8.5
 ASSESSMENT OF VARIOUS ENTITIES
Company
QUESTION-1
Compute gross total income of Minakshi Ltd. under the head Profits & gains of business or
profession for the assessment year 2023-24
Profit & Loss A/c for the year ended 31/3/2023

Particulars Amount Particulars Amount

To Opening stock 4,00,000 By Sales 17,80,000
To Purchase of raw material 5,00,000 By Closing Stock 5,00,000
To Conversion cost 4,00,000 By Interest on 10,000
debenture
To Customs duty 1,70,000 By Bad debt recovery 25,000
To Salary and wages 80,000 (Previously allowed)
To Bonus to employee 15,000 By Interest on income 6,000
tax Refund
To Carriage inward 20,000 By Rent from house 40,000
property
To Advertisement 30,000
To Interest 2,000
To Carriage outward 38,000
To Depreciation 50,000
To Provision for income tax 20,000
To Compensation paid to 1,00,000
director
To Provision for bad debt 10,000
To Audit fees 20,000
To Bad debt 30,000
To Traveling expenses 25,000
To Municipal tax 5,000
To Net profit 4,46,000
23,61,000 23,61,000
Additional information

a. Minakshi, holder of 21% share, sold goods to the company for ₹ 40,000 though market
value is lower by ₹ 10,000. Payment to her made by way of bearer cheque.
b. Advertisement expenses relate to purchase of a machinery for advertisement.
Depreciation allowed on such machinery is ₹ 2,250.
c. Ritu, holder of 21% share, purchased goods from the company for ₹ 30,000 though market

9.1
 value is ₹ 35,000. She made payment by way of bearer cheque.
d. Purav, who supplies more than 25% of goods, sold goods to company for ₹ 10,000 however,
market value of such goods was ₹ 8,000.
e. Outstanding salary ₹ 20,000 was paid on 30-12-2023.

f. Bonus is not paid till due date of furnishing return.

g. Provision for bad debts is in excess of ₹ 1,000.

h. Salary paid in excess of requirement to non-relative ₹ 2,000 and to relative of director ₹

6,000.
i. Traveling expenses is on traveling of Minakshi for 10 days out of which she used 8 days
for acquiring a new machine from Jaipur for company and 2 days for meeting her relative.
However, Minakshi agreed to refund proportionate cost.
j. On 31-7-2022, company purchased a machine from Jaipur costing ₹ 5,00,000.

k. Customs duty paid on 30-11-2023. However, company paid ₹ 5,000 on 30-7-2022

outstanding customs duty
of earlier year
l. Company incurred capital expenditure of ₹ 1,00,000 for promoting family planning among
its workers.
m. Carriage inward shows the expenditure incurred for acquiring machine from Jaipur.

n. Interest paid is related to loan taken for purchasing debenture.

o. As on 1-4-2022, company holds following assets –

Assets Rate Value

Plant & Machinery 15% 6,00,000
Furniture 10% 1,00,000
Compute gross total income for assessment year 2023-24. Ignore provision of sec. 115JB.
Solution:

Computation of gross total income of Minakshi Ltd. for the A.Y. 2023-24

Notes Details Amount Amount

Particulars

Income from house property

Gross Annual value (Rent received) 40,000
Less: Municipal tax 5,000
Net annual value (NAV) 35,000
Less: Standard deduction u/s 24(a) [30% of 10,500 24,500
NAV]
Profits & gains of business or profession

9.2
 Net profit as per Profit and Loss A/c 4,46,000
Add: Expenditure disallowed but debited in
P/L A/c
Depreciation 1 50,000
Provision for income tax 2 20,000
Provision for bad debt 3 10,000
Municipal tax 4 5,000
Excessive payment to Minakshi 5 10,000
Cash payment to Minakshi in excess of ₹ 6 30,000
10,000
Advertisement expenditure 7 30,000
Bonus 8 15,000
Excess payment of salary to relative of 9 6,000
director
Travelling expenses 10 25,000
Customs duty 11 1,70,000
Carriage inward 10 20,000
Interest 12 2,000 3,93,000
8,39,000
Less: Expenditure allowed but not debited to
P/L A/c
Customs duty of earlier years 11 5,000
Expenditure on promoting family planning 13 20,000
among employees
Depreciation u/s 32 1 2,91,250
Less: Income taxable under other head but
credited in P/L A/c
Rent from house property 14 40,000
Interest on debenture 14 10,000
Interest on refund of income tax 14 6,000 3,72,250 4,66,750
Income from other sources
Interest on debenture 10,000
Less: Interest on borrowed capital 12 2,000 8,000
Interest on refund of income tax 6,000 14,000
Gross Total Income 5,05,250
Notes

1. Depreciation is allowed as per Income tax Act being calculated as under –

Particulars Details Amount

Block 1: Plant and Machinery @ 15%

9.3
 W.D.V. as on 1/4/2022 6,00,000
Add: Purchase during the year 5,40,000
#
11,40,000
Less: Sale during the year -
11,40,000
Depreciation @ 15% [₹ 11,40,000 x 15%] 1,71,000
Additional depreciation @ 20% [₹ 5,40,000 x 20%] 1,08,000 2,79,00
0
Block 2: Furniture @ 10%
W.D.V. as on 1/4/2022 1,00,000
Add: Purchase during the year -
1,00,000
Less: Sale during the year -
1,00,000
Depreciation @ 10% [₹ 1,00,000 x 10%] 10,000
On machinery for advertisement 2,250
Depreciation allowed u/s 32 2,91,250
# Computation of actual cost of machinery purchased during the year -

Particulars Amount
Purchase cost 5,00,000
Carriage inward 20,000
Traveling cost * 20,000
Actual cost of purchased machinery
5,40,000
* Since traveling cost for 10 days was ₹ 25,000. Hence cost for 8 days (used for
acquiring the new machine) is
₹ 20,000.
1) Income tax is not allowed u/s 40(a).
2) Any anticipatory loss is not allowed.
3) Municipal tax is not allowed as deduction from business income but allowed from Income
from house property.
4) Since Minakshi has a substantial interest in the company, hence, excessive payment is
disallowed u/s 40A(2).
5) Payment of allowed expenditure otherwise than by account payee cheque or demand
draft in excess of ₹ 10,000 shall be disallowed u/s 40A(3).
6) Any capital expenditure is not allowed.
7) By virtue of sec. 43B, bonus to employees is allowed as deduction on payment basis.
8) Excessive payment to relative of director is disallowed [Sec. 40A(2)].

9.4
9) Since traveling expenditure and carriage inward is related to acquisition of machine, hence
the same should be added with the cost of machine. Further, personal expenditure of
Minakshi being refundable shall not be treated as expenditure.
10) As per sec. 43B, customs duty is allowed as deduction on payment basis.
11) Interest on loan taken for acquisition of debenture is deductible from income from
debenture.
12) Any capital expenditure on promoting family planning among employees by a company is
allowed in 5 equal installments [Sec. 36(1)(ix)].
13) Rent from house property is taxable under the head Income from house property,
whereas interest income (including interest on income tax refund) is taxable under the head Income
from other sources.
14) Any excessive payment received from a person who has substantial interest is not governed
by sec. 40A(2).
15) A person supplying 25% of raw material is not treated as person who holds substantial
interest. Hence excessive payment to Purav is allowed.
16) Compensation paid to director shall be allowed u/s 37(1).
17) Sec. 43B covers bonus and commission paid to employee but does not cover salary paid to
employee.

QUESTION-2
Following are the details of X Pvt. Ltd., determine the brought forward loss available for set
off during the previous year 2022-23 relevant to the assessment year 2023-24:

Previous Year 2021-22 Previous Year 2022-23

Business Loss = ₹ 12 lakh Business Profit = ₹ 25 lakh
Unabsorbed depreciation: ₹ 2 (before adjusting brought forward loss and unabsorbed
lakh depreciation)
Details of Shareholders as on Details of Shareholders as on 31-03-2023
31-03-2022
A = 30% E = 30%
B = 25% F = 25%
C = 20% C = 20%
D = 25% D = 25%
How shall your view will differ, if Mr. B had gifted the shares to Mr. F, a relative of Mr. B.
Solution:

As per sec. 79, in case of a company in which public are not substantially interested, no loss
shall be carried forward and set off against the income of the previous year, unless at least
51% of the voting power of the company are beneficially held (on the last day of the previous
year in which the loss is sought to be set off) by the same person(s) who held at least 51% of
the shares on the last day of the financial year in which the loss was incurred. However, the

9.5
said provision is not applicable in case of unabsorbed depreciation Since, in the given case,
shareholders holding 51% shares as on 31-03-2022 (the last day of the previous year in
which loss has been incurred) and 31-03-2023 are not beneficially held by the same persons
hence such loss shall not be available for set off with the income of the previous year 2022-
23. Thus, no brought forward business loss is available for set off during the previous year
2022-23 relevant to the assessment year 2023-24. However, unabsorbed depreciation of ₹ 2
lakh shall be available for adjustment from the business income of the previous year 2022-23.
Thus, business income for the assessment year 2023-24 is ₹ 23 lakhs.
If Mr. B had gifted the shares to Mr. F Transfer of shares by way of gift to a relative is not
considered as change in shareholding for the purpose of sec.79. Hence, the loss of ₹ 12 lakh
of previous year 2021-22 shall be available for set off with income of the previous year 2022-
23.

QUESTION-3
A private limited company has share capital in the form of equity share capital. The shares
were held until 31st March, 2021 by 4 members A, B, C and D equally. The company made
losses/profits for the past three assessment years are as follow:

Asst. Business Loss Unabsorbed Total

Year depreciation
2019-20 Nil ₹ 15,00,000 ₹ 15,00,000
2020-21 Nil ₹ 12,00,000 ₹ 12,00,000
2021-22 ₹ ₹ 9,00,000 ₹ 18,00,000
9,00,000
The above figures have been accepted by the tax department.
During the previous year 31-3-2022, A sold his shares to Y and during the previous year
31-3-2023, B sold his shares to Z. The profits for the past two years are as follows:
31-3-2022 ₹ 18,00,000 (before charging depreciation ₹ 9,00,000)
31-3-2023 ₹ 45,00,000 (before charging depreciation ₹ 7,50,000) Compute taxable income

for A.Y. 2023-24

Solution:

According to sec. 79, loss sustained by the closely held company shall not allowed to be set off
unless in the year of such set off the shareholders holding not less than 51% of beneficial
interest in share capital of the company in the year of sustaining the loss shall continue to be
the shareholders of the company. Accordingly, the taxable income of the company for the
A.Y. 2022-23 shall be nil as detailed here below:
Particulars ₹ in lacs
Income before depreciation 18
Less: Depreciation of the current year 9

9.6
 Income after 9
depreciation
Less: Unabsorbed business loss b/f 9
Taxable income Nil
However, the abovementioned condition of beneficial ownership shall not be applied for carry
forward and set off of unabsorbed depreciation therefore, the company can carry forward and
set off the unabsorbed depreciation, even if there is a change in the shareholding pattern
between the year in which the loss was suffered and the year in which it seeks to set off such
loss. Thus, the taxable income of the company for A.Y. 2023-24 is worked out as follow:

₹ in lacs
Particulars Amount Amount
Income before depreciation 45
Less: Depreciation of the current year 7.5
Income after current 37.50
depreciation
Less: Unabsorbed Depreciation
A.Y. 2019-20 15
A.Y. 2020-21 12
A.Y. 2021-22 9 36
Taxable income 1.50

Particulars Year 1 Year 2 Year 3

Business Income after set off (-) ₹ 2,00,000 Nil ₹ 1,00,000
Tax on above @ 30% [A] Nil Nil ₹ 30,000
Book Profit ₹ 1,00,000 ₹ 60,000 ₹ 2,50,000
15% of Book Profit [B] ₹ 15,000 ₹ 9,000 ₹ 37,500
15
Tax [Higher of A & B] ₹ 15,000 ₹ 9,000 ₹ 37,500
Add: Surcharge* Nil Nil Nil
Tax & Surcharge ₹ 15,000 ₹ 9,000 ₹ 37,500
Add: Health & Education Cess ₹ 600 ₹ 360 ₹ 1,500
Tax Liability (R/off) ₹ 15,600 ₹ 9,360 ₹ 39,000
*
As total income of the company does not exceed ₹ 1 crore, hence surcharge is not applicable.
It is to be noted that when a company is liable to pay tax u/s 115JB, book profit of the company
shall be considered as total income of the company.

QUESTION-4
Apple Industries Ltd. provides the following information for the financial year 2022-23:
Net profit as per statement of profit and loss after debiting/crediting ₹ 120 lakh
the following:

9.7
 Proposed dividend ₹ 30 lakh
Profit from unit established in SEZ ₹ 20 lakh
Provision for income-tax ₹ 18 lakh
Provision for deferred tax ₹ 10 lakh
Provision for permanent diminution in value of investments ₹ 3 lakh
Depreciation debited to statement of profit and loss ₹ 10 lakh includes
depreciation on revaluation of assets to the tune of ₹ 1 lakh
Bought forward losses and unabsorbed depreciation as per books of the company are as
follows :
(₹ in lakh)
Brought Forward Unabsorbed
Previous Year
Losses Depreciation
2019 – 20 1 4
2020 – 21 1 1
2021 – 22 10 5
Compute the book profit of the company as per section 115JB for the assessment year 2023-24.
Solution:

Computation of Book Profit of Apple Industries Ltd. for the A.Y.2023-24

(₹ In lakhs)
Particulars Details Amount
Net profit as per books of accounts 120
Add:
Proposed Dividend 30
Provision for income tax 18
Provision for deferred-tax 10
Provision for permanent diminution in value of investments 3
Depreciation 10 71
191
Less:
Depreciation (ignoring depreciation on revaluation) 9
Lower of brought forward loss and unabsorbed 10 19
depreciation
Book Profit 172

QUESTION-5
The book profits of a company in the previous year 2022-23 computed in accordance with
section 115JB are ₹ 60,00,000. If the total income for the same period computed as per the
provisions of the Income-tax Act, 1961 is ₹ 12,00,000 calculate the tax payable by the company
in the assessment year 2023-24 and also indicate whether the company is eligible for any tax

9.8
credit.
Solution:

Computation of Tax Liability of …… for the A.Y. 2023-24

Particulars Amount
Total Income 12,00,000
Tax on above [A] 3,60,000
Book Profit 60,00,000
Tax on above [B] 9,00,000
Tax liability [Higher of (A) and (B)] 9,00,000
Add: Health & Education Cess 36,000
Tax & Cess payable u/s 115JB [B] 9,36,000

QUESTION-6

X Ltd. charged depreciation on its fixed assets at the rate prescribed in the income tax rules.
However, the Assessing Officer disallowed the same and allowed the rate as prescribed in the
Companies Act, 2013 for the purpose of computation of book profit under section 115JB for
the previous year 2022-23. Examine the legality of action taken by the Assessing Authority.

Solution:

This issue was settled by the Supreme Court in Malayala Manorama Co. Ltd. -vs.- CIT. The Apex
Court observed that for the purpose of computation of book profit under section 115JB, the
Assessing Officer’s power is restricted to examining whether the books of account are certified
by the authorities under the Companies Act as having been properly maintained in accordance with
the Companies Act. Thereafter, he only has the limited power of making additions and
deductions as provided for in Explanation 1 to section 115JB. The Assessing Officer does not
have the jurisdiction to go behind the net profit shown in the profit and loss account except
to the extent provided in Explanation 1 to section 115JB. Where an assessee is consistently
charging depreciation in its books of account at the rates prescribed in Income-tax Rules and
the accounts of the assessee have been prepared and certified as per the provisions of the
Companies Act, the Assessing Officer does not have any jurisdiction under section 115JB to
rework the net profit of the assessee by substituting the rates of depreciation prescribed
under the Companies Act. Applying the ratio of the Supreme Court decision to this case, it may
be concluded that the action of the Assessing Officer is not correct.

9.9
QUESTION-7

The net profit of Renuka Ltd. an Indian company, as per its profit and loss account prepared
as per the Income-tax Act, 1961 is ₹ 90,00,000 after debiting and crediting following items:
₹
Provision for income-tax 5,00,000
Provisions for deferred tax 3,00,000
Proposed dividend 7,50,000
Depreciation including depreciation on revaluation of assets ₹ 20,00,000 60,00,00
debited to profit and loss 0
account
Profit from industrial unit in SEZ area 80,000
Provision for permanent diminution in the value of investments 70,000
Compute tax liability under section 115JB for the assessment year 2023-
24.
Solution:

Computation of Book Profit for the purpose of Sec. 115JB

Particulars Details Amount

Net profit as per books of accounts 90,00,000
Add:
Provision for income tax 5,00,000
Provisions for deferred tax 3,00,000
Provision for permanent diminution in the value of 70,000
investments
Proposed dividend 7,50,000
Depreciation 60,00,000 76,20,000
1,66,20,000
Less:
Depreciation (without considering depreciation on 40,00,000
revaluation)
Profit from industrial unit in SEZ area Nil 40,00,000
Book Profit 1,26,20,000
Computation of Tax Liability under section 115JB

Particulars Amount
Book profit u/s 115JB 1,26,20,000
15% of book profit 18,93,000
Add: Surcharge [As total income exceeds ₹ 1,00,00,000/-] 1,32,510

9.10
 Tax & Surcharge 20,25,510
Add: Health & Education Cess @ 4% 81,020
Tax Liability u/s 115JB 21,06,530
The tax liability u/s 115JB is required to be compared with tax liability calculated on
income calculated as per other provisions of the Act.

QUESTION-8
Sun bright Ltd., an Indian company furnished following particulars of its income for the
previous year 2022-23. Calculate its total income and income tax liability for the assessment
year 2023-24:

₹
Income from business 5,00,000
Dividend received during the year:
— from Indian company 20,000
— from foreign company 5,000
Gains from transfer of capital assets:
— short term capital gains 25,000
— long term capital gains 50,000
Agricultural income in India 35,000
Additional information:
1. Business expenses already charged from business income include ₹ 10,000 revenue
expenditure and ₹ 30,000 capital expenditure on family planning programme for employees.
2. Company has debited following donations in the profit and loss account of the business of
company.
 Rajiv Gandhi Foundation: ₹ 50,000 ; and
 Prime Minister’s National Relief Fund: ₹ 25,000.
Solution:

Computation of Total Income of Sun Bright Ltd. for the Assessment Year 2023-24

Particulars Amount (₹) Amount (₹)

Income from Business
Profit as per Profit & Loss A/c 5,00,000
Add: Disallowed Expenditure
i. Donation 75,000
ii. Capital Expenditure on Family Planning (₹ 30,000 - ₹ 24,000 99,000
6,000)
5,99,000

9.11
 Capital Gain
- Long term 50,000
- Short term 25,000 75,000
Income from Other Sources
Dividend from:
- Indian Company 20,000
- foreign Company* 5,000
Agricultural Income Exempt 25,000
Gross Total Income 6,99,000
Less: Deduction u/s
- 80G (Prime Minister’s National Relief Fund + 50% of Rajiv 50,000
Gandhi Foundation)
Total Income 6,49,000
Computation of Tax Liability

Particulars Tax on LTCG Other Income

Total Income 50,000 5,99,000
Rate 20% 30%
Tax 10,000 1,79,700
Total tax 1,89,700
Surcharge Nil
Tax including surcharge 1,89,700
Health & Education Cess @ 4% 7,588
Total tax (Rounded Off) 1,97,290
*
It is assumed that foreign company is not a specified foreign company u/s 115BBD.

QUESTION-9
Following is the profit and loss account of Z Ltd. for the year ended on 31-3-2023

Particulars Amount (₹) Particulars Amount (₹)

To Raw material consumed 20,00,000 By Sale
To Rent 5,00,000 Export 50,00,000

To Salary & Wages 10,00,000 Domestic 30,00,000

To Depreciation 5,00,000 By Closing Stock 10,00,000
To Provision for contingencies 75,000
To Wealth Tax of earlier year 50,000
To Loss of subsidiary co. 50,000
To Custom Duty 40,000

9.12
 To Proposed dividend 1,00,000
To Provision for Income tax 1,05,000
To Net Profit 45,80,000
90,00,000 90,00,000
Additional Information

1. Interest on bank loan relating to year 2020-21 has been paid during the previous
year ₹ 1,00,000.
2. Whole of Custom duty is unpaid.

3. Company is entitled to get deduction u/s 80G ₹ 1,00,000

4. For the purpose of Income tax, depreciation is ₹ 4,00,000.

5. Turnover of the company during the previous year was ₹ 65 crores and it is life time
highest turnover achieved
by the company.
6. In past few years, company had suffered losses, following balances are still unabsorbed:

As per Income tax As per books of Accounts

Act
Depreciation -- ₹ 3,50,000
Losses ₹ 42,50,000 ₹ 4,00,000
Compute tax liability of the company.
Solution:

Computation of total income of Z Ltd. for the A.Y.2023-24 (as per other provisions of the
Act)

Particulars Details Amount

Net profit as per books of accounts 45,80,000
Add: Expenditure disallowed but debited in P/L A/c
Excess Depreciation 1,00,000
Provisions for Contingencies 75,000
Wealth Tax 50,000
Loss of subsidiary company 50,000
Proposed Dividend 1,00,000
Provision for income tax 1,05,000
Unpaid customs duty 40,000 5,20,000
51,00,000
Less: Expenditure allowed but not debited in P/L A/c
Interest on bank loan of earlier years 1,00,000
50,00,000
Less: Brought forward business loss 42,50,000

9.13
 Gross Total Income 7,50,000
Less: Deduction u/s 80G 1,00,000

Total Income 6,50,000

Computation of Book Profit of Z Ltd. for the A.Y.2023-24

Particulars Details Amount

Net profit as per books of accounts 45,80,000
Add:
Provision for contingencies 75,000
Loss of subsidiary company 50,000
Proposed Dividend 1,00,000
Provision for income tax 1,05,000
Depreciation 5,00,000 8,30,000
54,10,000
Less:
Depreciation (as assets are not revalued) 5,00,000
Lower of unabsorbed depreciation and brought 3,50,000 8,50,000
forward loss (as per books of account)
Book Profit 45,60,000
Computation of tax liability of Z Ltd.

Particulars Amount
Total income as per other provisions of the Act 6,50,000
Tax on above @ 25% [A] 1,62,500
Book profit u/s 115JB 45,60,000
15% of book profit [B] 6,84,000
Tax [Higher of A & B] 6,84,000
Add: Surcharge [As total income is only ₹ 45,60,000/-, thus, surcharge Nil
is not applicable]
Tax & Surcharge 6,84,000
Particulars Amount
Add: Health & Education Cess @ 4% 27,360
Tax Liability (Rounded off) 7,11,360

9.14
QUESTION-10
Following is the profit and loss account of Z Ltd. for the year ended on 31-3-2023

Particulars Amount Particulars Amount

To Raw material 23,25,000 By Sale 1,60,00,000
consumed
To Rent 3,50,000 By Closing Stock 10,00,000
To Salary & Wages 12,00,000 By Revaluation Reserve 25,000
To Depreciation 5,00,000 By General Reserve 1,00,000
To Provision for 75,000
contingencies
To Wealth Tax 50,000
To Provision for bad 40,000
debts
To Proposed dividend 1,00,000
To Provision for 1,05,000
Income tax
To Net Profit 1,23,80,000
1,71,25,000 1,71,25,000
Additional Information

1. The amount of depreciation includes depreciation on revaluation of assets ₹ 50,000.

Further, for the purpose of Income tax, depreciation is ₹ 4,00,000.
2. Turnover of the company during the previous year was ₹ 530 crores. However, during the
financial year 2020- 21, turnover of the company was ₹ 250 crores only.
3. In past few years, company had suffered losses, following balances are still unabsorbed:

As per Income tax Act As per books of Accounts

Depreciation ₹ 66,00,000 Nil
Losses ₹ 35,50,000 Nil
Compute tax liability of the company.
Solution:

Computation of total income of Z Ltd. for the A.Y.2023-24 (as per other provisions of the Act)

Partic Detail Amount

ulars s
Net profit as per books of accounts 1,23,80,000
Add: Expenditure disallowed but debited in P/L A/c
Excess Depreciation 1,00,000
Provisions for Contingencies 75,000

9.15
 Wealth Tax 50,000
Provision for bad debts 40,000
Proposed Dividend 1,00,000
Provision for income tax 1,05,000 4,70,000
1,28,50,000
Less: Amount credited to P/L A/c
Revaluation Reserve 25,000
General Reserve 1,00,000 1,25,000
1,27,25,000
Less: Brought forward business loss 35,50,000
91,75,000
Less: Unabsorbed Depreciation 66,00,000
Total 25,75,000
Income
Computation of Book Profit of Z Ltd. for the A.Y.2023-24

Particulars Details Amount

Net profit as per books of accounts 1,23,80,000
Add:
Provision for contingencies 75,000
Proposed Dividend 1,00,000
Provision for income tax 1,05,000
Provision for Bad Debts 40,000
Depreciation 5,00,000 8,20,000
1,32,00,000
Less:
Depreciation (ignoring depreciation on revaluation) 4,50,000
Amount transferred from Revaluation Reserve 25,000
Amount transferred from General Reserve 1,00,000 5,75,000
Book Profit 1,26,25,000
Computation of tax liability of Z Ltd.

Particulars Amount
Total income as per other provisions of the Act 25,75,000
Tax on above @ 25% [A] 6,43,750
Book profit u/s 115JB 1,26,25,000
15% of book profit [B] 18,93,750
Tax [Higher of A & B] 18,93,750
Add: Surcharge [As total income is ₹ 1,26,25,000] 1,32,563
Tax & Surcharge 20,26,313

9.16
 Add: Health & Education Cess @ 4% 81,053
Tax Liability (Rounded off u/s 288B) 21,07,370

QUESTION- 11
DEF is a real estate investment trust (REIT). It owns house properties in different parts of
Maharashtra. Besides, it holds controlling interest in A Ltd. (A Ltd., an Indian company, is SPV
created by DEF for the purpose of owning commercial properties). Annual income of DEF for
the previous year 2022-23 are calculated as under:

₹ in crore
Rental income from properties directly owned by DEF (computed) 7
Long-term capital gain on sale of land and buildings directly owned by 20
DEF (computed)
Short term capital gain on sale of listed shares of A Ltd. 2
Short term capital gain on sale of land and buildings directly owned by 8
DEF (computed)
Interest from A Ltd. 13
Total 50
DEF distributes ₹ 50 crore to its unitholders. X is one of the unitholders. He holds 10% units
in DEF. Compute income in hands of DEF and X

Solution:

Computation of total income and tax liability of DEF for the A.Y. 2023-24

Particulars ₹ in crore
Rental income from properties directly owned by DEF [Exempt u/s Nil
10(23FCA)]
Long-term capital gain on sale of land and buildings directly owned by 20
DEF
Short term capital gain on sale of listed shares of A Ltd. 2
Short term capital gain on sale of land and buildings directly owned by 8
DEF
Interest from A Ltd. [Exempt u/s 10(23FC)] Nil
Total Income 30
Computation of total income of X for the A.Y. 2023-24

Particulars ₹ in crore
Rental income from properties [₹ 5 crore x 7 / 50] 0.70
Long-term capital gain on sale of land and buildings [Exempt u/s Exempt
10(23FD)]

9.17
 Short term capital gain on sale of listed shares of A Ltd. [Exempt u/s Exempt
10(23FD)]
Short term capital gain on sale of land and buildings [Exempt u/s Exempt
10(23FD)]
Interest from A Ltd. [₹ 5 crore x 13 / 50] 1.30
Total 2.00
Income

QUESTION-12
Compute total income of each investment fund for A.Y. 2023-24 from the following details:
Income Fund A Fund B Fund C (₹)
(₹) (₹)

Business Income Nil 5,00,000 (2,00,000)

Capital Gains 20,00,000 15,00,000 (5,00,000)
Income from Other Sources 5,00,000 3,00,000 10,00,000
Further, it is also given that there are 20 unit-holders each holding one unit. You are also
requested to compute income of unit holder assuming that income from investment fund is the
only income of unit holder.
Solution:

Computation of total income of the investment fund for the A.Y. 2023-24

Particulars Fund A (₹) Fund B (₹) Fund C (₹)

Business Income Nil 5,00,000 Nil
Total Income Nil 5,00,000 Nil
Such income is taxable at the rate @ 30% if the fund is a company or firm else at maximum
marginal rate of tax. Computation of total income of the unit holder for the A.Y. 2023-24

Particulars Fund A (₹) Fund B Fund C

(₹) (₹)
Capital Gains [Income / 20] 1,00,000 75,000
Income from Other Sources [Income / 20] 25,000 15,000 40,000#
[#(₹ 10 lakh – ₹ 2 lakh) / 20]
Total Income 1,25,000 90,000 40,000

9.18
QUESTION-13
In case of case C of the aforesaid illustration, if Fund C has earned following income during
the previous year 2023-24, compute total income for the assessment year 2024-25
– Business Income: ₹ 2,00,000
– Capital Gains: ₹ 8,00,000
– Income from Other Sources: ₹ 9,00,000
Solution:

Computation of total income of the investment fund for the A.Y. 2023-24

Particulars Amount (₹)

Business Income 2,00,000
Total Income 2,00,000
Computation of total income of the unit holder for the A.Y. 2024-25

Particulars Amount (₹)

Capital Gains [(₹ 8 lakh – ₹ 5 lakh i.e., b/f loss) / 20] 15,000
Income from Other Sources [Income / 20] 45,000
Total Income 60,000

Trust
QUESTION-14
A charitable trust has furnished following details for computing tax liability:

Particulars Case 1 Case 2 Case 3

Anonymous Donations received 5,00,000 2,00,000 1,20,000
Other Donations 3,00,000 27,00,000 28,20,000
Other taxable income 7,00,000 4,00,000 (-) 22,00,000
Solution:

Computation of tax liability

Particulars Case 1 Case 2 Case 3

Details Amount Details Amount Details Amount
Anonymous 5,00,000 2,00,000 1,20,000
Donations received
Less: Specified limit
being higher of the

9.19
 following:

- Statutory limit 1,00,000 1,00,000 1,00,000

- 5% of total 40,000 1,00,000 1,45,000 1,45,000 1,47,000 1,20,000#
donation
Taxable Anonymous 4,00,000 55,000 Nil
Donation
Tax on above @ 1,20,000 16,500 Nil
30% [A]
Income being 10,00,000 31,00,000 6,20,000
other donation &
other income
Add: Anonymous 1,00,000 1,45,000 1,20,000
Donations [not
taxable above]
Other Taxable 11,00,000 32,45,000 7,40,000
Income
Tax on above (slab 1,42,500 7,86,000 60,500
rate) [B]
Total Tax [A + B] 2,62,500 8,02,500 60,500
Add: Health & 10,500 32,100 2,420
Education cess
Tax and cess 2,73,000 8,34,600 62,920
payable
(R/off u/s
288B)
#
Subject to maximum of anonymous donations

QUESTION-15
Compute taxable income of a charitable trust for the A.Y 2023-24 under the following
cases:

Particulars Case 1 Case 2 Case 3

Income other than voluntary contribution 4,00,000 5,00,000 15,00,000
Voluntary contribution 1,00,000 80,000 2,00,000
Voluntary contribution in the corpus of the 2,00,000 1,50,000 5,00,000
trust
Income applied for the purpose for which 4,50,000 4,93,000 2,00,000
trust is created

9.20
Solution:

Computation of taxable income of the charitable trust for the A.Y 2023-24

Amount
Particulars
Case 1 Case 2 Case 3
Income other than voluntary contribution 4,00,000 5,00,000 15,00,000
Add: Voluntary contribution 1,00,000 80,000 2,00,000
Total income of the trust 5,00,000 5,80,000 17,00,000
Less: 15% Free accumulation (75,000) (87,000) (2,55,000)
Balance 4,25,000 4,93,000 14,45,000
Less: Income exempted to the extent applied 4,25,000 4,93,000 2,00,000
for the purpose
Total Income Nil Nil 12,45,000
Note: Contribution in corpus of the trust shall not be treated as income of the trust.

QUESTION-16
Bangur Charitable Trust has earned income of ₹ 70 lacs during the previous year 2022-23. It
has applied the income of ₹ 15 lacs, during the previous year 2022-23 and also applied before
the due date u/s 139(1) for deferment of application of income of -

Case 1) ₹ 32 lacs

Case 2) ₹ 45 lacs

- as such income has not yet been received by the trust.

During the previous year 2024-25 such income is received and applied as under -

Amount applied for charitable purposes

Previous Year Case 1 Case 2
2024-25 ₹ 12 lacs ₹ 15 lacs
2025-26 ₹ 11 lacs ₹ 10 lacs
2026-27 ₹ 9 lacs ₹ 20 lacs
Compute taxable income of the A.Y. 2023-24 and 2026-27
Solution:

Computation of income of Bangur Charitable Trust for the A.Y.2023-24

Amount
Particulars
Case 1 Case 2
Income earned 70 lacs 70 lacs

9.21
 Less: Free accumulation of income @ 15% 10.5 lacs 10.5lacs
Balance 59.5 lacs 59.5 lacs
Less: Application of income during the previous year 15 lacs 15 lacs
44.5 lacs 44.5 lacs
Less: Amount for which deferment is allowed [Max. of taxable 32 lacs 44.5 lacs
income before deferment]
Taxable income 12.5 lacs Nil
Computation of income of Bangur Charitable Trust for the A.Y.2026-27

Amount
Particulars
Case I Case II
Amount deferred in the P.Y. 2022-23 and are to be applied till 32 44.5
P.Y.2025-26 i.e. one
year after the year in which such income is received
Less: Amount applied before 31/3/2026 23 25
Taxable income 9 19.5

Mutual Association

QUESTION-17
A is an association governed by the provisions of sec. 44A of the Income-tax Act. The
subscription receipts for the year ended 31st March, 2023 were ₹ 60,000. The expenditure in
the normal course of its activities was ₹ 85,000. Its other income taxable under the Act works
out to ₹ 75,000. On these facts, you are consulted as to:
a. How A’s taxable income will be determined for assessment year 2023-24.
b. In case the association did not have the other taxable income, will there be any
difference in the computation of its income?
Solution:

Computation of total income

Particulars Amount (₹)

Other Income 75,000
Less: Deficiency (Note 1) 25,000
Total Income 50,000
Note 1: Calculation of deficiency
Particulars Amount (₹)
Subscription received 60,000
Less: Expenditure 85,000
Deficiency 25,000

9.22
Maximum deficiency can be set off against other income is lower of the following: Actual

Deficiency i.e., ₹ 25,000

50% of other income i.e., ₹ 37,500 being 50% of ₹ 75,000

In case, association do not have any other taxable income, then the total income shall be nil
and the deficiency of₹ 25,000 shall not be carried forward.

QUESTION-18
Mamta, widow of Shri Kulkarni, supplies the following details for the P.Y. 2022-23:
a. She has two house properties. 2nd is self occupied and 1st is let-out for ₹ 10,000 p.m. Municipal
tax paid for 2nd house ₹ 5,000 and that for 1st house ₹ 3,000. Interest on loan for 1st house
is ₹ 22,000.

b. She is working with A Ltd. on following terms:

Basic Salary ₹ 5,000 p.m.

Bonus ₹ 40,000
D.A. ₹ 2,000 p.m.
HRA ₹ 3,000 p.m. (she resides in Kolkata)

Car of 1.4 ltr is provided for office as well as personal purpose.

c. She received interest on her fixed deposit ₹ 5,000. Interest on Saving Bank Account
₹ 6,000. Interest on deposits in a public Ltd. company ₹ 5,000.

d. She made a mediclaim policy of her dependent mother aged 62 years and paid a premium
of ₹ 5,000.
e. She donated to Rajiv Gandhi Memorial Fund ₹ 10,000
f. Her handicapped brother is fully dependent on her.
g. She paid LIC premium ₹ 8,000 and made repayment of housing loan taken for acquisition
of second house ₹ 43,000 (including ₹ 22,000 interest).

h. During the previous year, she sold 200 debenture of X Ltd. on behalf of her minor son
for ₹ 1,00,000. She acquired such debenture on 1-4-2004 for ₹ 50,000 and gifted the
same to her minor child on 1-4-2013.

i. She paid tuition fees for her –

 Elder son (Mumbai University) ₹ 10,000.
 Younger son (Melbourne University, Australia) ₹ 25,000
On the basis of aforesaid information, you are requested to choose correct options for the
following:
1. What will be value of taxable perquisites?
2. What will be her taxable salary?
3. What will be her taxable income under the head income from house property?
4. What will be taxable capital gain?
5. What will be her taxable income under the head income from other sources?

9.23
 6. State the amount of deduction under chapter VIA.
Solution:

Computation of total income of Mamta for A.Y.2022-23

Particulars Details Amount Amount

Salaries
Basic 60,000
Bonus 50,000

Allowances

Dearness Allowance 24,000

House Rent Allowance (as she resides in her own 36,000 60,000
house)

Perquisite u/s 17(2)

Car facility [₹ 1,800 x 12] 21,600
1,91,600
Less: Standard Deduction u/s 16(ia) 50,00 1,41,600
0
Income from house property
HP 1: Let out [Sec.
23(1)]

Gross Annual Value (being rent received) 1,20,000

Less: Municipal Tax 3,000
Net Annual Value 1,17,000
Less: Deduction
u/s

24(a) Standard Deduction 35,100

24(b) Interest on loan 22,000 59,900
HP 2: Self occupied [Sec. 23(2)(a)]
Net Annual Value Nil
Less: Deduction u/s 24(b) Interest on loan 22,000 (-) 37,900
22,000
Capital
gains

Long term capital gain of minor son [Clubbed u/s

64(1A)]

9.24
 Sale consideration 1,00,000
Less: Cost of acquisition (Indexation benefit is not 50,000
available on debenture)
50,000
Less: Exemption u/s 10(32) 1,500 48,500
Income from other
sources

Interest on Fixed Deposit 5,000

Interest on Saving Bank Account 6,000
Interest on deposits in a public limited company 5,000 16,000
Gross Total Income 2,44,000
Less: Deduction u/s
80C# 39,000
80D (Mediclaim insurance premium paid) 5,000
80DD (Assessee has handicapped dependent 75,000
relative)
80G (50% of donation to Rajiv Gandhi Memorial 5,000
Fund)
80TTA (Interest on Saving Bank Account) 6,000 1,30,000
Total Income 1,14,000
Tax on above Nil

# Deduction u/s 80C

Particulars Amount
Insurance premium 8,000
Tuition fees (Burdwan University) 10,000
Housing loan repayment (Maximum) 21,000
Total 39,000

QUESTION-19
Compare ‘minimum alternate tax’ u/s 115JB and ‘alternate minimum tax’ u/s 115JC?
Answer:

Comparison between ‘minimum alternate tax’ and ‘alternate minimum tax’ are as under:

Particulars Alternate Minimum Tax (AMT) Minimum Alternate Tax (MAT)

Applicability It is applicable on all assessee (other It is applicable on Companies (Subject to
than company) who has claimed any few exceptions)
deduction under:
 Sec. 80H to Sec. 80RRB (other
than sec. 80P); or

9.25
  Sec. 35AD less depreciation u/s 32
 Sec.10AA
Exception:
The provisions shall not apply to an
individual or a HUF or an AOP or a BOI,
whether incorporated or not, or an
artificial juridical person, if the
adjusted total income of such person
does not exceed ₹ 20 lakh.
Income It is calculated on It is calculated on Book Profit.
Adjusted Total Income.
Meaning of Adjusted total income means the total Book Profit means the profit as per profit
income income as per income tax provisions in and loss account of the company prepared
normal course as increased by in accordance with Schedule III of
deduction under: the Companies Act 2013 as
 Sec. 80H to Sec. 80RRB (other increased/decreased by certain items
than sec. 80P); or specified in Explanation to Section
 Sec. 35AD less depreciation u/s 32 115JB.
 Sec.10AA
Rate of Tax Rate of AMT is 18.5%. + surcharge + Rate of MAT is 15% + surcharge + cess
cess
Credit AMT paying assessee can claim its MAT paying companies can claim their
credit for 15 assessment years. credit for 15 assessment years.

Change of AMT credit in case of change Change in constitution, that

constitution in constitution is not available. is, conversion of private limited company or
unlisted public company into LLP sha ll
result in lapse of MAT credit which would
have been available to be set off to the
company if such conversion had not taken
place.
Brought While computing AMT, brought While computing MAT, what is allowable to
forward loss forward losses and unabsorbed be deducted is brought forward loss or
& depreciation both shall be taken into unabsorbed depreciation whichever is less
account. and not both. [DCIT Vs. Costal Resorts (I)
unabsorbed
Ltd. (2010) 125 ITD 170
depreciation
(Cochin)]
For the calculation of AMT For the calculation of MAT
brought forward loss and brought forward loss
unabsorbed depreciation liable to be and unabsorbed
set -off shall be in accordance with depreciation liable to be set off shall b e in
normal provisions of the Income -tax accordance with books of account.
Act, 1961.

9.26
 Such set-off of losses or depreciation Such set off of losses or depreciation shall
shall reduce the amount of loss or not affect the amount of loss or
depreciation to be carried forward in depreciation to be carried forward in next
next year. year.

Deductions Deductions, rebates, allowances and Deductions, rebates, allowances and

adjustments except that provided in adjustments except to the
Chapter VI -A under the heading “C - extent covered by the Explanation
Deductions in respect of certain to Section 115JB are not available in
incomes” and Section 10AA are computation of Book Profit. [Growth
available in computing Adjusted Total Avenue Securities (P.) Ltd. vs. DCIT (2010)
Income. 126 ITD 179 (Del.)]

QUESTION-20
Discuss the tax treatment of income of a professional institution.
Answer:

Income of professional institutions [Sec. 10(23A)]

Any income (other than income chargeable under the head “Income from house property” or any
income received for rendering any sp ecific services or income by way of interest or dividends
derived from its investments) of professional association shall be exempt provided -
(a) Such association or institution is established in India having as its object the control,
supervision, regulation or encouragemesnt of the profession of law, medicine, accountancy,
engineering or architecture or other specified profession;
(b) Such association or institution applies its income, or accumulates it for application, solely
to the objects for which it is established; and
(c) The association or institution is approved by the Central Government.

QUESTION-21
Write short note

(a) Tax on income from patent u/ s 115BBF

(b) TDS on income of units of Investment Fund [Sec. 194LBB]

(c) Business Trust and its taxability

(d) Meaning of Securitisation Trust

QUESTION-22
Mention any six items which are required to added while computing book profit u/s
115JB
Hint:

9.27
 QUESTION-23
Discuss the provision relating to concessional rate of tax in respect of domestic
manufacturing company.

Hint:

QUESTION-24
Discuss the cases when exemption u/ s 11 is forfeited.
Hint:

MCQ’S

1. MAT shall not apply to

(a) Any income accruing or arising to a company from Life insurance business

(b) Any person who has exercised the option referred to u/ s 115BAA

(c) Any person who has exercised the option referred to u/ s 115BAB

(d) All of the above

2. While computing book profit u/s 115JB, following amount of income being credited to the statement
of Profit and Loss shall not be reduced –

(a) Income covered u/ s 115BBF

(b) Income from Other Sources

(c) Income covered u/ s 86

(d) All of the above

3. Rate of MAT is

(a) 15%

(b) 18.5%

(c) 18%

(d) 20%

9.28
4. As per sec. 115BBF, where the total income of an eligible assessee includes any income by way of
royalty in respect of a patent developed and registered in India, tax @ __shall be payable on such
royalty income.

(a) 10%

(b) 5%

(c) 7.5%

(d) 12.5%

5. Provision relating to taxation on income from transfer of carbon credit is provided in sec.
of the Income -tax Act

(a) 115BBE

(b) 115BBD

(c) 115AD

(d) 115BBG

6. A foreign company means a company which is not —

(a) An Indian company

(b) A domestic company

(c) Either an India company or a domestic company

(d) An Indian company as well as a domestic company.

7. The registration of a charitable trust can be cancelled under section 12AA by the:

(a) Assessing officer

(b) Commissioner of Income -tax

(c) Chief Commissioner of Income -tax

(d) Central Board of Direct Taxes

8. Generally, income of a mutual concern from mutual activity is not taxable. However, exception to
this rule is / are:

9.29
 (a) Where the mutual concern is a mutual insurance society and the income is derived from the
carrying on of any business of insurance

(b) Where the mutual concern is a trade, professional or similar association and the income is
derived from specific service performed for its member

(c) Both (a) and (b)

(d) None of the above

9. The person responsible for making payment to a resident individual investor in respect of an
investment in a securitisation trust being referred to in sec. 115TCA, is r equired to deduct tax at
source @

(a) 25%

(b) 30%

(c) 10%

(d) 15%

Answer:

1. All of the above

2. (b) Income from Other Sources

3. (a) 15%

4. (a) 10%

5. (d) 115BBG

6. (b) A domestic company

7. (b) Commissioner of Income -tax

8. (c) Both (a) and (b)

9. (a) 25%

9.30
 BUSINESS RECONSTRUCTURING
QUESTION-1

Mr. Joseph has 1,000 equity shares of X Ltd. that he acquired on 17/08/2007 through will of
his father. His father acquired such shares on 17/07/2004 through gift from his father-in-law
(Mr. Z). Mr. Z acquired such shares on 18/08/2000 for ₹ 20 each. Fair market value of such
shares as on –
1/04/2001 17/07/2004 17/08/2007
₹ 18 each ₹ 25 each ₹ 40 each
On 31/03/2013, X Ltd. amalgamated with Y Ltd. and amalgamated company issued its 3 equity
shares for every two equity shares of amalgamating company. On 2/04/2022, Mr. Joseph sold
1,000 shares of Y Ltd to one of his friends for ₹ 38 each. Compute capital gain.
Solution:

1. When any shares become the property of assessee in a scheme of amalgamation, period of
holding of shares in amalgamated company shall be aggregate of period of holding of shares
in amalgamating company prior to amalgamation and period of holding of share in
amalgamated company. Hence, in the given case, asset transferred (being shares of Y Ltd)
were treated as long-term capital asset.
Calculation of cost of acquisition of shares of Y Ltd.

Cost of shares of X Ltd. (i.e., cost of the previous owner#) (1,000 ₹ 20,000
share @ ₹ 20 each)
Shares received on amalgamation of Y Ltd. (3 for every 2 shares 1,500 shares
held)
Cost of acquisition per share of Y Ltd. (₹ 20,000/1,500) ₹ 13.33
#.
Previous owner: Previous owner means the last owner who acquired the asset for a
value. In the given case Mr. Joseph acquired the shares through will of his father. Hence,
literally Joseph’s father is previous owner. But since Joseph’s father has not purchased
such shares but acquired by way of gift from his father in law, hence for this purpose,
Mr. Z is the previous owner. [Sec. 49(1)]
Computation of capital gains in the hands of Mr. Joseph for the A.Y. 2023-24

Particulars Workings Details Amount

Sale consideration 1,000 x ₹ 38 38,000
Less: Expenses on transfer Nil
Net Sale Consideration 38,000
Less: Indexed cost of acquisition 1,000 x ₹ 13.33 21,128
x 331/200
Less: Indexed cost of improvement Nil 22,061
Long Term Capital Gain 15,939

10.1
QUESTION-2
Dona purchases 600 equity shares in XY (P) Ltd. on 1-04-2022 @ ₹ 150 each. On 31-12-2022,
XY (P) Ltd. is demerged. In the scheme of demerger, division Y was transferred to Y (P) Ltd.
(resulting company). On that date balance sheet of XY (P) Ltd. is as follow –

Division Division
Liabilities Total Asset Total
X Y X Y
6,000 E. 6,00,000 Land - 2,50,000 2,50,000
Shares
General 4,00,000 Plant 1,75,000 1,00,000 2,75,000
Reserve
Loan 2,00,000 Investment 2,50,000 2,50,000
(General)
Loan 60,000 75,000 1,35,000 Stock 1,95,000 2,30,000 4,25,000
(Specific)
Creditors 25,000 40,000 65,000 Debtors 55,000 45,000 1,00,000
Cash and 25,000 75,000 1,00,000
Bank
14,00,000 14,00,000
Y (P) Ltd., in consideration of the demerger, issued equity share of ₹ 100 each (at par) to the
shareholders of XY
(P) Ltd. on proportionate basis. You are required to compute –
- Number of shares of Y (P) Ltd. received by Dona and cost thereof.
- Cost of acquisition of shares held by Dona in XY (P) Ltd. after demerger.
- Capital gain, if Dona sold 200 shares of XY (P) Ltd. @ ₹ 125 & 100 shares of Y(P) Ltd. @ ₹
110 on 31-03- 2023.
Solution:

Calculation of number of shares of Y (P) Ltd. received by Dona

Particulars Amount Amount

Net asset taken over by Y (P) Ltd
Assets taken over
Land 2,50,000
Plant 1,00,000
Stock 2,30,000
Debtors 45,000
Cash and bank 75,000
7,00,000
Less: Liabilities

10.2
 Loan (Specific) 75,000
Creditors 40,000
Share of General loan (₹ 2,00,000 x ₹ 7,00,000) / ₹ 1,00,000 2,15,000
14,00,000
Net asset taken over 4,85,000
No. of shares issued by Y (P) Ltd. 4,850 shares
(Consideration of ₹ 4,85,000 was discharged by issuing equity shares of ₹
100 each)
% of Dona’s holding in XY (P) Ltd. (600 shares, out of 6,000 shares of XY 10%
(P) Ltd.)
No. of shares allotted in Y (P) Ltd to Dona (10% of 4,850 shares) 485 shares
Cost of such shares is –

Cost of acquisition of shares in XY (P) Ltd. x Net book value of asset

transferred to Y (P) Ltd.
Net worth of XY (P) Ltd. immediately before demerger (i.e., Paid up
capital + General Reserve)
= (600 x ₹ 150) x ₹ 4,85,000
₹ 6,00,000 + ₹ 4,00,000
= ₹ 43,650

b) Cost of acquisition of shares = Original cost of acquisition – Cost of acquisition

of XY (P) Ltd. (after of shares of Y (P) Ltd. (as computed above)
demerger) = ₹ 90,000 – ₹ 43,650 = ₹ 46,350

Computation of capital gain in the hands of Dona for the A.Y. 2023-24

Shares of
Particulars Details XY (P) Ltd. Y (P) Ltd.
Sale Consideration 200 x ₹ 125 25,000 -
100 x ₹ 110 - 11,000
Less: Expenses on transfer Nil Nil
Net Sale Consideration 25,000 11,000
Less: [(₹ 46,350 x 15,450 -
i) Cost of acquisition 200)/600]
[(₹ 43,650 x - 9,000
100)/485]
ii) Cost of improvement Nil
Short Term Capital Gain 9,550 2,000

QUESTION-3
X Ltd. has several undertakings carrying on several businesses. During the year 2022-23, the
company sold one of its undertakings (as it was continuously generating loss since last 5 years)
for a lump sum value of ₹ 300 lacs without assigning value to individual asset and liabilities. Book
value of sundry assets and liabilities of the undertaking as on the date of sale is as under:

10.3
 Items Book Value Market Value
Land ₹ 50 lacs (Value for the purpose of Stamp duty ₹ ₹ 100 lacs
70,00,000)
Machinery ₹ 70 lacs (WDV as per IT Act ₹ 60 lacs) ₹ 100 lacs
Furniture ₹ 50 lacs (WDV as per IT Act ₹ 90 lacs) ₹ 75 lacs
Stock ₹ 30 lacs ₹ 35 lacs
Debtors ₹ 40 lacs ₹ 40 lacs
Creditors ₹ 50 lacs
Brokerage on transfer paid @ 5%. Compute capital gain.
Solution:

Since the undertaking is owned by the company for more than 3 years hence the gain on
transfer shall be liable to long term. Calculation of cost of acquisition (i.e. Net worth)

Particulars Workings Details Amount

Value of asset
taken over
Land Book value of non- ₹ 50 lacs
depreciable assets
Stock Book value of non- ₹ 30 lacs
depreciable assets
Debtors Book value of non- ₹ 40 lacs
depreciable assets
Machinery WDV as per I.T. Act ₹ 60 lacs
Furniture WDV as per I.T. Act ₹ 90 lacs ₹ 270 lacs
Less: Value of liabilities taken over
Creditors Book Value ₹ 50 lacs
Net worth (cost of ₹ 220 lacs
acquisition)
Computation of capital gains in the hands of X Ltd. for the A.Y. 2023-24

Particulars Details Amount Amount

Sale Consideration 300 lacs
Less: Expenses on 5% of ₹ 15 lacs
transfer 300 lacs
Net Sale Consideration 285 lacs
Less: Cost of Acquisition Calculated 220 lacs
above
Less: Cost of improvement Nil 220 lacs
Long Term Capital Gain 65 lacs

10.4
QUESTION-4
M/s AP a wholesale enterprise, has sold one of its undertakings consisting of Machinery A (rate
of depreciation 30%), Machinery X (rate of depreciation 15%), Building B (rate of depreciation
10%) for ₹ 15,00,000 on 1/9/2022.
 Machinery A, originally acquired for ₹ 5,00,000 on 1/8/2019
 Machinery X, originally acquired for ₹ 10,00,000, the amount of depreciation allowed on
such machinery up to the A.Y. 1988-89 ₹ 2,00,000 and depreciation for A.Y. 1989-90 to
2022-23 (assuming this is the only machinery in the block) is ₹ 7,94,000.
 Building B acquired on 17/7/2022 for ₹ 4,00,000.
 During the year, new machinery Z (15%) purchased for ₹ 5,00,000 on 7/7/2022.
Compute depreciation for the A.Y.2023-24:
– Machinery (rate of depreciation 30%) block [WDV as on 1/4/2022 is ₹ 9,00,000]

– Machinery (rate of depreciation 15%) block [WDV as on 1/4/2022 is ₹ 8,00,000]

– Building (rate of depreciation 10%) block [WDV as on 1/4/2022 is ₹ 5,00,000].

Solution:

Computation of depreciation for Block

Particulars Machinery (30%) Machinery (15%) Building (10%)

W.D.V. as on 1/4/2022 9,00,000 8,00,000 5,00,000
Add: Purchase during the Nil 5,00,000 4,00,000
year
9,00,000 13,00,000 9,00,000
Less: Sale under slump 1,71,500 6,000 4,00,000
sale (Working)
7,28,500 12,94,000 5,00,000
Depreciation 2,18,550 1,94,100 50,000
Working: Written down value of the asset sold under slump sale

Particulars Machinery A Machinery X Building B

Original cost of asset sold under slump sale 5,00,000 10,00,000 4,00,000
Less: Depreciation (actual) allowed on such Nil 2,00,000 Nil
asset in respect
of any previous year commencing before
1987-88

10.5
 Less: Depreciation (notional) that would
have been allowable from the previous year
1987-88 onwards as if the asset is only 3,28,500* 7,94,000 Nil
asset in the relevant block.
* Depreciation ₹ 1,50,000 (for 2019-20) + ₹
1,05,000 (for 2020-21) + ₹ 73,500 (for
2022-23)
Written down value of the asset sold under 1,71,500 6,000 4,00,000
slump sale

QUESTION-5
M/S ABC converted itself into a company as on 31/03/2018. As on date, balance sheet of the
firm was as under:

Liabilities Amount Assets Amount

A’s Capital 40,000 Machinery (WDV as per 1,00,000
IT Act)
B’s Capital 1,10,000 Investments (acquired 50,000
on 14/08/2004)
C’s Capital 50,000 Stock 70,000
Creditors 1,00,000 Debtors 60,000
Bank 20,000
3,00,000 3,00,000
Following value was agreed upon on conversion – Machinery ₹ 1,20,000
Investments ₹ 2,50,000
Stock ₹ 90,000
Debtors ₹ 60,000
The firm fulfilled all the conditions of sec.47(xiii) and partners account are settled by way of
issuing equity shares in their capital ratio. However, on 01/04/2022, all partners transferred
all of their shares. Show tax treatment.
Solution:

As per sec. 47A(3), where any of the conditions laid down in sec. 47(xiii) are not complied with,
the gain exempted u/s 47(xiii) shall be charged to tax in the hands of successor company in the
previous year in which the requirements of sec. 47(xiii) are violated. One of the conditions
stated in sec. 47(xiii) is that the partner of the old firm cannot transfer shares of the
successor company till 5 years. In the given case, all partners sold shares of the successor
company within 5 years hence earlier exempted gain shall be revoked.

10.6
Computation of taxable income in the hands of successor company for the A.Y. 2023-24

Particulars Investments Machinery

Sale consideration 2,50,000 1,20,000
Less: Expenses on transfer Nil Nil
Net Sale Consideration 2,50,000 1,20,000
Less: Indexed cost of acquisition [₹ 50,000 x 1,20,354 Nil
272/113]
Less: Cost of acquisition (being WDV) Nil 1,00,000
Long Term Capital Gain 1,29,646 Nil
Short Term Capital Gain Nil 20,000
Note: Profit on transfer of stock by firm to company (i.e., ₹ 20,000 being ₹ 90,000 – ₹
70,000) is taxable as business income of the firm for the A.Y. 2018-19.

QUESTION-6
M/s. QQ Trading Co. a sole proprietary concern, was converted into a company w,e,f. 01-09-
2022. Before the conversion, the sole proprietary concern had a block of Plant & Machinery
(15%), whose WDV as on 1-4-2022 was ₹ 3,00,000. On 1st April itself, a new plant of the same
block was purchased for ₹ 1,20,000. After the conversion, the company has purchased the same
type of plant on 1-1-2023 for ₹ 1,60,000. Compute the depreciation that would be allocated
between the concern & the company.
Solution:

Computation of depreciation on plant and machinery if there were no succession

Particulars Plant & Machinery

W.D.V. as on 1/4/2022 3,00,000
Add: Purchase during the year 1,20,000
4,20,000
Less: Sale during the year Nil
4,20,000
Depreciation @ 15% of 63,000
₹ 4,20,000
Allocation of depreciation between sole proprietary concern and the successor company

The depreciation of ₹ 63,000 is to be allocated in the ratio of number of days the assets were
used by the sole proprietary concern and the successor company.

10.7
Calculation of allowable depreciation to sole proprietary concern

Particulars Amount
Ex-sole proprietary:
Plant & machinery are used by sole proprietary concern from 1/4/2022 to
31/8/2022 i.e., 153 days.
Depreciation for 153 days (₹ 63,000 x 153/365) 26,408
Calculation of allowable depreciation to successor company

Particulars Amount
Plant & machinery of sole proprietary concern used by the successor 36,592
company from 1/9/2022 to 31/3/2023 i.e., 212 days. Depreciation for such
period (₹ 63,000 x 212/365)
After conversion
Depreciation in respect of assets purchased by the successor company on 12,000
1/1/2023 is fully allowable in the hands of successor company [50% of 15%
on ₹ 1,60,000].
Total depreciation 48,592

QUESTION-7
M/s S & Co., a sole proprietary concern is converted into a company, Sid Co. Ltd. with effect
from November 29, 2022. The written down value of assets as on April 1, 2022 are as follows:

Items Rate of WDV as on 1 April,

Depreciation 2022
Building 10% ₹ 3,50,000
Furniture 10% ₹ 50,000
Plant & Machinery 15% ₹ 2,00,000
Further, on 15-10-2022, M/s S & Co. purchased a plant for ₹ 1,00,000 (rate of depreciation
15%). After conversion, the company added another plant worth ₹ 50,000 (rate of depreciation
15%). Compute the depreciation available to (i) M/s S & Co. and (ii) Sid Co. Ltd. for the A.Y.
2023-24
Solution:

Computation of depreciation on assets if there were no succession

Particulars Building Furnitur Plant & Machinery

e
Rate of depreciation 10% 10% 15%
W.D.V. as on 1/4/2022 3,50,000 50,000 2,00,000

10.8
 Add: Purchase during the year Nil Nil 1,00,000*
3,50,000 50,000 3,00,000
Less: Sale during the year Nil Nil Nil
3,50,000 50,000 3,00,000
Depreciation 35,000 5,000 37,500
It is assumed that the assessee is not entitled for additional depreciation.
Without considering assets acquired after succession. ** [(₹ 2,00,000 * 15%) + (₹ 1,00,000 *
15% * ½)]
Allocation of depreciation between sole proprietary concern and the successor company

The depreciation is to be allocated in the ratio of number of days the assets were used by
the sole proprietary concern and the successor company.
Calculation of allowable depreciation to sole proprietary concern

Particulars Amount
Depreciation on assets held as on 01/04/2022
Assets are used by sole proprietary concern from 1/4/2022 to
28/11/2022 i.e. 242 days, hence
depreciation shall be allowed for 242 days
- Building (₹ 35,000 x 242/365) 23,205
- Furniture (₹ 5,000 x 242/365) 3,315
- Plant and Machinery (₹ 30,000 x 242/365) 19,890
Depreciation on newly acquired assets
New asset has been used by it from 15/10/2022 to 28/11/2022 i.e., 45
days, hence depreciation shall be allowed for 45 days
- Plant and Machinery (₹ 7,500 x 45/168) 2,009
Depreciation allowable u/s 32 48,419

Calculation of allowable depreciation to successor company

Particulars Amount
Depreciation on assets held by sole-proprietary concern as on
01/04/2022
Asset of sole proprietary concern used by the successor company from
29/11/2022 to 31/3/2023
i.e. 123 days, hence depreciation shall be allowed for 123 days
- Building (₹ 35,000 x 123/365) 11,795
- Furniture (₹ 5,000 x 123/365) 1,685
- Plant and Machinery (₹ 30,000 x 123/365) 10,110
Depreciation on assets acquired by sole-proprietary concern during the
year

10.9
 New asset has been used by it from 29/11/2022 to 31/03/2023 i.e.
123 days, hence depreciation shall be allowed for 123 days
- Plant and Machinery (₹ 7,500 x 123/168) 5,491
After conversion
Depreciation in respect of plant purchased by the successor company 3,750
is fully allowable in the
hands of successor company [50% of 15% on ₹ 50,000].
Total depreciation 32,831

QUESTION-8
Balance sheet of Handoo & Handoo (P) Ltd. as on 1/04/2022

Liabilities Amount Assets Amount

Equity Share capital 10,00,000 Land (acquired on 17/05/2007) 10,00,000
of ₹ 10 each
Reserves 30,00,000 (Market value ₹ 50,00,000)
Building (WDV as per IT Act) 13,00,000
(Market value ₹ 30,00,000)
Machinery (WDV as per IT Act) 6,00,000
(Market value ₹ 10,00,000)
Investments (acquired on 4,00,000
18/08/2008)
(Market value ₹ 12,00,000)
Current Assets (Realizable) 7,00,000
40,00,000 40,00,000
Additional information

a. The company converts itself into limited liability partnership (LLP) [as per conditions
mentioned u/s 47(xiiib)] on the date of balance sheet.
b. All assets and liabilities of the company was transferred to the LLP. Further, it was also
agreed that assets shall be transferred to the LLP at market value.
c. Total number of shareholders in the company: 4 (each holding 25% of equity shares capital
and acquired at face value on 01-04-2001)
d. On 10-12-2022, the LLP has transferred land to Mr. Animesh for a consideration of ₹
63,00,000.
Discuss tax treatment in hands of company, shareholder and LLP.

Solution:

Computation of capital gain for the A.Y. 2023-24 in the hands of Handoo & Handoo (P) Ltd.

10.10
 Land Building Machinery Investment
Particulars

Full value of consideration 50,00,000 30,00,000 10,00,000 12,00,000

Less: Indexed Cost of Acquisition
[₹ 10,00,000 x 331 / 129] 25,65,891 - - -
[₹ 4,00,000 x 331 / 137] - - - 9,66,423
Less: Cost of Acquisition - 13,00,000 6,00,000 -
Long Term Capital Gain 24,34,109 - - 2,33,577
Short Term Capital Gain - 17,00,000 4,00,000 -
Note: Entire capital gain is exempt in hands of Handoo & Handoo (P) Ltd., if such conversion
fulfills all the conditions given in sec.47(xiiib). However, if such conditions are not fulfilled
at the time of conversion, then entire capital gain would be taxable in hands of the company.
Further, if later on, such conditions are violated, then such capital gain shall be taxable in
hands of the Limited Liability Partnership in the year of such violation.
Statement showing consideration received by a shareholder of the company

Land ₹ 50,00,000
Building ₹ 30,00,000
Machinery ₹ 10,00,000
Investment ₹ 12,00,000
Current Asset ₹ 7,00,000
Total worth available for 1,00,000 shares ₹ 1,09,00,000
To be received by each shareholder (₹ 1,09,00,000 x 25%) ₹ 27,25,000
- Received as Dividend [(₹ 30,00,000 x 25%] ₹ 7,50,000
- Received against shares ₹ 19,75,000
Computation of capital gain in hands of each Shareholder

Particulars Amount
Full value of consideration 19,75,000
Less: Indexed Cost of Acquisition [(₹ 10,00,000 x 25%) x 331 / 100] 8,27,500
Long Term Capital Gain 11,47,500
Note: Entire capital gain is exempt in hands of shareholder, if such conversion fulfills all
the conditions given in sec.47(xiiib). However, if such conditions are not fulfilled at the
time of conversion, then entire capital gain would be taxable in hands of the shareholder.
Further, if later on, such conditions are violated, then such capital gain shall be taxable in
hands of the shareholder in the year of such violation. Further, dividend is separately
taxable in hands of respective shareholder.

10.11
Computation of capital gain in hands of LLP (Sale of land)

Particulars Amount
Full value of consideration 63,00,000
Less: Cost of Acquisition 10,00,000
Short Term Capital Gain 53,00,000

QUESTION-9
Smile Ltd. is a wholly-owned subsidiary company of Happy Ltd., an Indian company. Smile Ltd.
owns Plant-A and Plant-B (depreciation rate 40%, depreciated value of the block ₹ 3,00,000 on
1st April, 2022). Plant-B was purchased and put to use on 10th November, 2020 (cost being ₹
70,000). Plant-B is transferred by Smile Ltd. to Happy Ltd. on 14th December, 2022 for ₹
20,000. It is put to use by Happy Ltd. on the same day. Happy Ltd. owns Plant-C on 1st April,
2022 (depreciation rate 40%, depreciated value ₹ 60,000). Find out the amount of depreciation
in the hands of Smile Ltd. and Happy Ltd. for the assessment year 2023-24.
Solution:

Depreciation in the hands of Smile Ltd. for the assessment year 2023-24

Particulars Amount
Depreciated value of the Plant A and B on 1st April, 2022 3,00,000
Less: Plant B transferred to Happy Ltd 20,000
WDV as on 31st March, 2023 2,80,000
Depreciation for the block P.Y.2022-23 1,12,000
WDV at the end of the year 1,38,000

Depreciation in the hands of Happy Ltd. for the assessment year 2023-24

Particulars Amount
Depreciated value of the block on 1st April, 2022 60,000
Add: Actual Cost of Plant B acquired from Smile Ltd (See Note) 33,600
WDV as on 31st March, 2023 93,600
Depreciation on transferred asset [₹ 33,600* ½ * 40%] 6,720
Other Asset @ 40% of ₹ 60,000 24,000
Total Depreciation 30,720
Note: Actual Cost of Plant B in the hands of Happy Ltd.

Particulars Amount
Actual Cost of Plant B in the hands of Smile Ltd on Nov 10, 2020 70,000

10.12
 Less: Depreciation for P.Y 2020-21 (1/2 of 40% of ₹ 70,000) 14000
Balance on April 1, 2021 56,000
Less: Depreciation for the P.Y.2021-22 22,400
Balance on April 1, 2022 33,600

QUESTION-10
Laxmi Ltd transferred its Unit X to Amin Ltd. by way of slump sale on 31st December, 2022
The summarized balance sheet of Laxmi Ltd. as on that date is given below:

Liabilities ₹ in lakhs Assets ₹ in lakhs

Share capital-paid up 2,000 Fixed Assets:
Reserves and Surplus 950 Unit X 700
Liabilities: Unit Y 900
Unit X 400 Unit Z 1,200
Unit Y 600 Other Assets:
Unit Z 1,050 Unit X 650
Unit Y 750
Unit Z 800
5,000 5,000
From the information given below compute the capital gain arising from slumpsale of Unit X:
i. Cost inflation index for the financial year 2007-08 is 129 being the year in which the Unit
X was established. The cost inflation index for the financial year 2022-23 is 317.
ii. The lump sum consideration received for transfer of Unit X is ₹ 1,100 lakhs.

iii. The fixed assets of Unit X includes a vacant land which was purchased in the financial year
2007-08 for ₹ 50 lakhs and it was revalued at ₹ 100 lakhs in the year 2022-23.

iv. Other fixed assets reflected in the balance sheet ₹ 600 (₹ 700 lakhs less value of land)
represents WDV of the assets as per books of account. The WDV of these assets under the
Income-tax Act is ₹ 200 lakhs
On the basis of aforesaid information, you are requested to choose correct options for the
following:
1. What will be the networth of unit X?
2. What will be the nature of gain (loss) on such slump sale?
3. What will be the taxable income on such slump sale?
Solution:

Computation of Net worth of Unit X

Particulars ₹ in lakhs

10.13
 Book value of non-depreciable asset
Land - ignoring the revaluation amount 50
Other assets 650
Depreciable assets - as per WDV 200
900
Less: Liabilities of Unit X 300
Net worth of Unit X 600
Computation of Capital gain on slump sale of Unit X

Particulars ₹ in lakhs
Sale consideration 1,100
Less: Net worth 600
Long-term capital gain arising on slump sale as the unit is 500
operational since 2007

QUESTION-11
What is ‘’slump sale’’? Explain provisions in Income Tax Act relating to slump sale.
Hint:

QUESTION-12
Discuss the tax issues including cost of acquisition and pe riod of holding, determined in the
hands of the shareholder determined after demerger, covering deemed dividend and capital
gains.

Hint:

QUESTION-13
What are the tax concessions available under the Income-tax Act, 1961 in the case of conversion of a firm
into a private limited company?

Hint:

QUESTION-14
Define ‘demerger’, ‘demerged company’ and ‘resulting company’ under the Income-tax Act, 1961.
Hint:

10.14
 MCQ’S

1. A loss incurring company and a profit making company may - in order to reduce the overall

incidence of-------under the Income- tax Act, 1961.

(a) merge, income

(b) merge, tax liability

(c) income, merge

(d) tax liability, merge

2. According to section 2(1B), “amalgamation, in relation to companies means, t he merger of one

or more companies with another company or the merger of two or more companies to form
one company” provided all conditions except the following are satisfied:

(a) All assets to be transferred from amalgamating company to the amalgamated company

(b) All liabilities including contingent liabilities to be transferred from amalgamating company
to amalgamated company

(c) Shareholders holding at least 3/ 4 th in value of shares of the amalgamating company

should become shareholders of the amalgamat ed company

(d) Shareholders holding at least 9 / 10 th in value of shares of the amalgamating company

should become shareholders of the amalgamated company

3. One of the following is not treated as amalgamation u/s 2(1B):

(a) Merger as a result of acquisition of the proper ty of one company by another company
pursuant to the purchase of such property by the other company

(b) Merger as a result of distribution of such property to the other company after the
winding up of the first-mentioned company

(c) Both (a) and (b)

(d) None of the above

10.15
4. Where a sole proprietary concern is succeeded by a company in the business carried on by
it as a result of which the sole proprietary concern sells or otherwise transfers any capital
asset to the company, the transaction is not regarded as transfer provided certain
conditions are satisfied. One of those condition is:

(a) Proprietor holds not less than 51% of the total voting pow er in the company and his
shareholding continues to remain as such for a period of 3 years from the date of
succession

(b) Proprietor holds not less than 51% of the total voting power in the company and his
shareholding continues to remain as such for a pe riod of 5 years from the date of
succession

(c) Proprietor holds not less than 50% of the total voting power in the company and his
shareholding continues to remain as such for a period of 3 years from the date of
succession

(d) Proprietor holds not less than 50% of the total voting power in the company and his
shareholding continues to remain as such for a period of 5 years from the date of
succession

5. Capital gain on Slump sale is –

(a) always short -term capital gain

(b) always long -term capital gain

(c) Depends on period of holding of capital asset being undertaking transferred

(d) Not taxable

Answer:

1. (b) merge, tax liability

2. (d) Shareholders holding at least 9/10th in value of shares of the amalgamating

company should become shareholders of the amalgamated company

3. (c) Both (a) and (b)

4. (d) Proprietor holds not less than 50% of the total voting power in the company
and his shareholding continues to remain as such for a period of 5 years
from the date of succession

5. (c) Depends on period of holding of capital asset being undertaking transferred

10.16
 TAX PLANNING
QUESTION-1
Naresh, who is neither a director nor has a substantial interest in any company, is offered
employment by Freewheel Ltd., Mumbai with the following two alternatives:

Particulars I II
Basic pay 66,000 66,000
Bonus 9,000 9,000
Education allowance for 2 children 30,200 -
Education facility for 2 children in school maintained by - 30,200
employer
Sweeper allowance 10,000 -
Sweeper facility - 10,000
Entertainment allowance 6,000 -
Club facility - 6,000
Transport allowance for personal use 1,800 pm -
Free car (1200 cc) facility for performing journey between - 12,000
office to home and vice versa (car owned by employer)
Medical allowance 18,000 -
Medical bills reimbursement facility - 18,000
Allowance for gas, electricity and water supply 4,500 -
Free gas, electricity and water supply (bills will be in the name - 4,500
of the employer)
Holiday home allowance 8,000 -
Holiday home facility - 8,000
Lunch allowance 18,000 -
Free lunch (₹ 70 x 200 days + ₹ 80 x 50 days) - 18,000
Diwali gift allowance 7,500 -
Gift on Diwali - 7,500
A rent-free unfurnished home – lease rent 14,000 14,000
Which of the two alternatives Naresh should opt for on the assumption that both employer
and employee will contribute 10% of salary towards unrecognized provident fund? Interest free
loan of ₹ 20,000 will be given to him for purchasing household items.
Solution:

As both the options are yielding equivalent facilities, hence the option where tax liability can
be minimized is the better choice for the assessee. Accordingly, computation of taxable salary
of Naresh under both options are as under

11.1
 Option1 Option2
Particulars Working Details Amount Details Amount
Basic salary 66,000 66,000
Bonus 9,000 9,000
Allowances
Children education allowance 30,200
Less: Exemption u/s 10(14) Rule 100 x 2 x 2,400 27,800
2BB 12
Transport allowance 21,600
Less: Exemption u/s 10(14) Nil 21,600
Holiday home allowance 8,000
Medical allowance 18,000
Sweeper allowance 10,000
Entertainment allowance 6,000
Lunch allowance 18,000
Gas, electricity & water 4,500
allowance
Diwali gift allowance 7,500
Perquisites u/s 17(2)
Rent free accommodation
(Being minimum of the
following):
Rent paid by employer 14,000 14,000
15% of salary* 29,460 14,000 11,250 11,250
Car facility for performing
Exempted Nil
journey between office to home
and vice versa
Education facility 30,200
Less: Exempted 24,000 6,200
Interest free loan exempted up Nil Nil
to ₹ 20,000
Sweeper facility 10,000
Club facility 6,000
Holiday home facility 8,000
Medical facility 18,000
Gift 7,500 2,500
–
5,000
Gas, electricity & water facility 4,500
Free lunch facility (20x2 5,500
00)+(3
0x50)
Gross Taxable Salary 2,10,400 1,46,950
Less: Standard Deduction u/s 16(ia) 50,000 50,000
Taxable Salary 1,60,400 96,950

11.2
Salary for the purpose of -

Rent free accommodation

Particulars
Option 1 Option 2
Basic 66,000 66,000
Bonus 9,000 9,000
Children education allowance 27,800 -
Transport allowance 21,600 -
Holiday home allowance 8,000 -
Medical allowance 18,000 -
Sweeper Allowance 10,000 -
Entertainment allowance 6,000 -
Lunch allowance 18,000 -
Gas, electricity & water allowance 4,500 -
Diwali gift allowance 7,500 -
Total 1,96,400 75,000
Note: Contribution to URPF is not taxable.
Conclusion: Option 2 is better.

QUESTION-2
Star Gas Ltd. commenced operations of the business of laying and operating a cross-country
natural gas pipeline network for distribution on 1st April, 2022. The company incurred capital
expenditure of ₹ 1,490 lakh (including the cost of financial instrument ₹ 2 lakh) during the
period January to March, 2022 exclusively for the above business and capitalized the same in
its books of account as on 1st April, 2022.
Further, during the financial year 2022-23, it incurred capital expenditure of ₹ 6,600 lakh
(including the cost of land ₹ 1,100 lakh) exclusively for the above business. Compute the amount
of deduction under section 35AD for the assessment year 2023-24, assuring that the company
has fulfilled all the conditions specified in sec. 35AD.
Solution:

Computation of the Amount of Deduction under Section 35AD for the Assessment Year 2023-
24

Particulars ₹ in lakh
Capital expenditure incurred during the Year (excluding cost of land) [₹ 5,500
6,600 lakh – ₹ 1,100 lakh]
Capital expenditure incurred prior to commencement of business & 1,488
capitalized (excluding cost of
Financial Instrument) [₹ 1,490 lakh – ₹ 2 lakh]
Total Deduction u/s 35AD 6,988

11.3
QUESTION-3
Lucent Ltd. purchased machinery on 1st April, 2022 for ₹ 10 crores by availing loan facility
from the bank. The machine was put to use in effective production on 1st February, 2023. The
interest on the loan works out to 12% per annum. Advise Lucent Ltd. on the treatment of
interest payment made on this loan and depreciation allowable for the previous year 2022-23.
You may assume that this is the only machine in its block.
Solution:

Computation of Depreciation

Particulars Amount (in Amount (In Crore)

Crore)
Block: Plant & Machinery (Rate 15%)
W.D.V. as on 1/4/2022 Nil
Add: Purchase 10
Interest on loan upto Jan. 2023 (₹ 10 cr x 1 11
12% x 10/12)
11
Depreciation [₹ 11 cr. * 15% * ½] 0.825

Interest cost from Feb 2023 shall be allowed as deduction u/s 36(1)(iii).

QUESTION-4

P Ltd. owns two undertakings. Undertaking-A is eligible for deduction u/s 80-IA and
Undertaking-B are not eligible for such deduction. The date of commencement of operation in
both the undertaking is 14th September, 2022. The profits earned by both the undertaking are
as under:

Previous Year Undertaking-A (₹ in Undertaking-B (₹ in

Lakhs) Lakhs)
2022-23 (–) 6 (–) 4
2023-24 (–) 4 10
2024-25 5 9
2025-26 8 6
2026-27 9 (–) 3
Calculate total income of P Ltd. for last three assessment years.

Solution:

In the given case, the entire loss of the undertaking A has been set-off under Sections 70 & 72
till the A.Y 2025-26

11.4
 Assessment Unit A Unit B GTI Carried forward losses
Year
2023-24 -6 -4 Nil -10
2024-25 -4 10 Nil -4
2025-26 5 9 10 Nil
2026-27 8 6 14 Nil
2027-28 9 -3 6 Nil
There is no loss brought forward for earlier years for the Assessment Year 2026-27 and
subsequent year. However, to compute profit eligible for tax holidays u/s 80-IA, it is assumed
that the undertaking is the only unit owned by P. Ltd. Consequently, deduction u/s 80-IA is as
under:

Computation of Total Income

Particulars A.Y. 2025-26 A.Y. 2026-27 A.Y. 2027-28

Profit from Unit A 5 8 9
Add: Profit from Unit B 9 6 -3
Gross Total Income (a) 14 14 6
Less: Deduction u/s 80-IA
Current year profit of Unit A 5 8 9
Less: Notional B/F loss from -10 -5 Nil
earlier years
Balance -5 3 9
6
Deduction U/S 80-IA @ 100% (b) Nil 3
(Restricted to
GTI)
Total Income [(a)-(b)] 14 11 Nil

QUESTION-5
Mr. A owned two residential house for his own residential purpose, details of which are as
follows –

Partic House 1 House 2

ulars
Gross Annual value 4,00,000 5,00,000
Municipal tax (paid) 2,000 10,000
Interest on loan taken for construction of house 20,000 25,000
On 1/4/2022, Mr. A gifted ₹ 25,00,000 to her wife. Out of such money, she acquired a house
property for her own residential purpose. The new house has a gross municipal value of ₹
2,50,000. She paid a corporation tax of ₹ 2,000. Compute income from house property of Mr. &

11.5
Mrs. A. (Assume that Mrs. A does not own any other property).
Solution:

Computation of income from house property of Mr. A for the A.Y. 2023-24

Particulars Amount
Self-occupied house properties
Net Annual Value Nil
Less: Deduction u/s
24(b) Interest on loan [₹ 25,000 + ₹ 20,000] 45,000
(45,000)
Add: Income of Mrs. A clubbed u/s 64(1)(iv) Nil
Income from house property (45,000)
Computation of income from house property of Mrs. A for the A.Y. 2023-24

Particulars Amount
Self-occupied house
Net Annual Value Nil
Less: Deduction u/s
24(b) Interest on loan Nil
Nil
Less: Income clubbed u/s 64(1)(iv) with the income of Mr. A Nil
Income from house property Nil

QUESTION-6
Specify whether the following acts can be considered as an act of (i) Tax management; or (ii)
Tax planning; or (iii)Tax evasion:
a. X has paid the premium of ₹ 72,000 for Life Insurance Policy so as to reduce Total
Income.
b. X has installed an air conditioner costing ₹ 60,000 at his residence but shows as it is
fitted in a factory. This is with the objective to claim depreciation.
c. Y Ltd maintains registers of tax deductions affected by it to enable timely compliance.
d. Z ltd issues a credit note for ₹ 36,000 for brokerage payable to A, who is the son of
G, managing director of the company. The purpose is to reduce Z ltd. income and increase
A’s income from ₹ 18,000 to ₹ 54,000.
e. A is a working partner in ABC Firm. In such a capacity, he is entitled to a salary of ₹
7,500 per month. He treats this as salary instead of business income.
f. A is using a motor car for his personal purposes, but charges as business expenditure.
g. X always pays advance tax on time
h. Y sell his residential house and purchased another residential house to claim exemption

11.6
 u/s 54
a. X had Fixed deposit interest amounting to ₹ 15,000 but did not disclose this amount in
his Income Tax Return
b. Y had Saving deposit interest amounting to ₹ 5,000, he disclosed this amount under other
sources and claimed deduction u/s 80TTA
Solution:

a. Tax planning;
b. Tax evasion;
c. Tax management;
d. Tax evasion;
e. Tax evasion;
f. Tax evasion
g. Tax management;
h. Tax planning;
i. Tax evasion;
j. Tax planning.

QUESTION-7
A business entity requires ₹ 50 lakhs for expansion of business. The entity has two
options

Option 1 Option 2 Option 3

Particulars
(₹ ) (₹ ) (₹ )
Equity Share of ₹ 10 each 40,00,000 30,00,000 30,00,000
12% Debentures 10,00,000 10,00,000 20,00,000
18% Loan from Bank 10,00,000
Expected rate of return is 15% (before tax). Tax Rate is 31.2% (including cess).
On the basis of aforesaid information, you are requested to choose correct options for the
following:
1. What will be the profit after tax in Option 1?
2. What will be the profit after tax in Option 2?
3. What will be the profit after tax in Option 3?
4. Which option is better?
Solution:

Particulars Option 1 Option 2 Option 3

Share Capital 40,00,000 30,00,000 30,00,000
12% Debentures 10,00,000 10,00,000 20,00,000
18% loan from Bank — 10,00,000

11.7
 EBIT 7,50,000 7,50,000 7,50,000
Cost to Company
Debenture Interest 1,20,000 1,20,000 2,40,000
Interest on loan from Bank — 1,80,000 --
Net Profit before tax and dividend 6,30,000 4,50,000 5,10,000
Tax Payable @ 31.2% 1,96,560 1,40,400 1,59,120
Profit after tax 4,33,440 3,09,600 3,50,880
Return on capital 10.84% 10.32% 11.70%
Option 3 is better as in this option return on capital is maximum

QUESTION-9
Write short notes on organisation tax planning cell?

Hint:

QUESTION-10
Write notes on Tax Evasion and Tax Avoidance?

Hint:

QUESTION-11
What are the essentials of tax planning?
Hint:

MCQ’S

1. In respect of which are tax planning cannot be attempted at the time of setting -up of new
business entity —

(a) Form of organization

(b) Locational aspects

(c) Nature of business

(d) Corporate restructuring

2. Filing return of income within prescribed time limit is .

(a) tax planning

(b) tax management

(c) tax evasion

11.8
 (d) tax avoidance

3. What are the objectives of tax planning:

(a) reduction of tax liability through proper utilisation of choices and options given under
the Income - tax Act

(b) economic stability by way of productive investment by the tax payer

(c) both (a) and (b)

(d) maximisation of litigation

4. It is an exercise by which the assessee legally takes advantage of the loopholes in the Act.

It is –

(a) tax avoidance

(b) tax management

(c) tax planning

(d) tax evasion

5. An exercise undertaken to minimize tax liability through the best use of all available
allowances, deductions, exclusions, exemptions, etc., to reduce income -tax liability is known
as —
(a) Tax evasion

(b) Tax planning

(c) Tax avoidance

(d) Tax dodging

7. Payment of advance tax on or before due date is termed as —

(a) Tax planning

(b) Tax management

(c) Tax avoidance

(d) None of the above.

11.9
Answer:

1. (d) Corporate restructuring

2. (b) tax management

3. (c) both (a) and (b)

4. (a) tax avoidance

5. (b) Tax palnning

6. (b) Tax management

11.10
 ICDS
QUESTION-1
Preamble of ICDS-I states that this ICDS is applicable for computation of income chargeable
under the head “Profits and gains of business or profession” or “Income from other sources”
and not for the purposes of maintenance of books of accounts. However, Para 1 of ICDS I
states that it deals with significant accounting policies. Accounting policies are applied for
maintenance of books of accounts and preparing financial statements. What is the interplay
between ICDS-I and maintenance of books of accounts?
Solution

As stated in the Preamble, ICDS is not meant for maintenance of books of accounts or preparing
financial statements. Persons are required to maintain books of accounts and prepare financial
statements as per accounting policies applicable to them. For example, companies are required
to maintain books of account and prepare financial statements as per requirements of
Companies Act 2013. The accounting policies mentioned in ICDS-I being fundamental in nature
shall be applicable for computing income under the heads “Profits and gains of business or
profession” or “Income from other sources”.

QUESTION-2
Certain ICDS provisions are inconsistent with judicial precedents. Whether these judicial
precedents would prevail over ICDS?
Solution

The ICDS have been notified after due deliberation and after examining judicial views for
bringing certainty on the issues covered by it. Certain judicial pronouncements were pronounced
in the absence of authoritative guidance on these issues under the Act for computing Income
under the head “Profits and gains of business or profession” or Income from other sources.
Since certainty is now provided by notifying ICDS u/s 145(2), the provisions of ICDS shall be
applicable to the transactional issues dealt therein in relation to assessment year 2017-18 and
subsequent assessment years.

QUESTION-3
Does ICDS apply to non-corporate taxpayers who are not required to maintain books of account
and/or those who are covered by presumptive scheme of taxation like sections 44AD, 44AE,
44ADA, 44B, 44BB, 44BBA, etc. of the Act?
Answer:

ICDS is applicable to specified persons having income chargeable under the head ‘Profits and
gains of business or profession’ or ‘Income from other sources’. Therefore, the relevant
provisions of ICDS shall also apply to the persons computing income under the relevant
presumptive taxation scheme. For example, for computing presumptive income of a partnership
firm u/s 44AD of the Act, the provisions of ICDS on Construction Contract or Revenue recognition

12.1
shall apply for determining the receipts or turnover, as the case may be.

QUESTION-4
If there is conflict between ICDS and other specific provisions of the Income-tax rules, 1962
(‘the Rules’) governing taxation of income like rules 9A, 9B etc. of the Rules, which provisions
shall prevail?
Solution:

ICDS provides general principles for computation of income. In case of conflict, if any, between
the provisions of Rules and ICDS, the provisions of Rules, which deal with specific
circumstances, shall prevail.

QUESTION-5
lCDS is framed on the basis of accounting standards notified by Ministry of Corporate Affairs
(MCA) vide Notification No. GSR 739(E) dated 7 December 2006 u/s 211(3C) of erstwhile
Companies Act 1956. However, MCA has notified in February 2015 a new set of standards
called ‘Indian Accounting Standards’ (Ind-AS). How will ICDS apply to companies which
adopted Ind-AS?
Solution:

ICDS shall apply for computation of taxable income under the head “Profit and gains of business
or profession” or “Income from other sources” under the Income Tax Act. This is irrespective
of the accounting standards adopted by companies i.e. either Accounting Standards or Ind-
AS.

QUESTION-6
Whether ICDS shall apply to computation of Minimum Alternate Tax (MAT) u/s 115JB of the
Act or Alternate Minimum Tax (AMT) under section 115JC of the Act?
Answer:

MAT u/s 115JB of the Act is computed on ‘book profit’ that is net profit as shown in the Profit
and Loss Account prepared under the Companies Act subject to certain specified adjustments.
Since, the provisions of ICDS are applicable for computation of income under the regular
provisions of the Act, the provisions of ICDS shall not apply for computation of MAT.
AMT u/s 115JC of the Act is computed on adjusted total income which is derived by making
specified adjustments to total income computed as per the regular provisions of the Act. Hence,
the provisions of ICDS shall apply for computation of AMT.

12.2
QUESTION-7
Whether the provisions of ICDS shall apply to Banks, Non-banking financial institutions,
Insurance companies, Power sector, etc.?
Solution:

The general provisions of ICDS shall apply to all persons unless there are sector specific
provisions contained in the ICDS or the Act. For example, ICDS VIII contains specific
provisions for banks and certain financial institutions and Schedule I of the Act contains
specific provisions for Insurance business.

QUESTION-8
Para 4(ii) of ICDS-I provides that Market to Market (MTM) loss or an expected loss shall not
be recognized unless the recognition is in accordance with the provisions of any other ICDS.
Whether similar consideration applies to recognition of MTM gain or expected incomes?
Solution :

Same principle as contained in ICDS-I relating to MTM losses or an expected loss shall apply
mutatis mutandis to MTM gains or an expected profit.

QUESTION-9
ICDS-I provides that an accounting policy shall not be changed without ‘reasonable cause’. The
term ‘reasonable cause’ is not defined. What shall constitute ‘reasonable cause’?
Solution:

Under the Act, ‘reasonable cause’ is an existing concept and has evolved well over a period
of time conferring desired flexibility to the tax payer in deserving cases.

QUESTION-10
Which ICDS would govern derivative instruments?
Solution:

ICDS -VI (subject to para 3 of ICDS-VIII) provides guidance on accounting for derivative
contracts such as forward contracts and other similar contracts. For derivatives, not within
the scope of ICDS-VI, provisions of ICDS-I would apply.

QUESTION-11
Whether the recognition of retention money, receipt of which is contingent on the satisfaction
of certain performance criterion is to be recognized as revenue on billing?
Solution:

Retention money, being part of overall contract revenue, shall be recognised as revenue
subject to reasonable certainty of its ultimate collection condition contained in para 9 of

12.3
ICDS-III on Construction contracts.

QUESTION-12
Since there is no specific scope exclusion for real estate developers and Build-Operate-
Transfer (BOT) projects from ICDS IV on Revenue Recognition, please clarify whether ICDS-
III and ICDS-IV should be applied by real estate developers and BOT operators. Also, whether
ICDS is applicable for leases.
Solution:

At present there is no specific ICDS notified for real estate developers, BOT projects and leases.
Therefore, relevant provisions of the Act and ICDS shall apply to these transactions as may be
applicable.

QUESTION-13
The condition of reasonable certainty of ultimate collection is not laid down for taxation of
interest, royalty and dividend. Whether the taxpayer is obliged to account for such income even
when the collection thereof is uncertain?
Solution:

As a principle, interest accrues on time basis and royalty accrues on the basis of contractual
terms. Subsequent non- recovery in either cases can be claimed as deduction in view of
amendment to sec. 36(1)(vii). Further, the provision of the Act (e.g. sec. 43D) shall prevail over
the provisions of ICDS.

QUESTION-14
Whether ICDS is applicable to revenues which are liable to tax on gross basis like interest,
royalty and fees for technical services for non-residents u/s. 115A of the Act?

Solution:
Yes, the provisions of ICDS, shall also apply for computation of these incomes on gross basis
for arriving at the amount chargeable to tax.

QUESTION-15
Para 8 of ICDS-V states expenditure incurred on commissioning of project, including
expenditure incurred on test runs and experimental production shall be capitalized. It also
states that expenditure incurred after the plant has begun commercial production i.e.,
production intended for sale or captive consumption shall be treated as revenue expenditure.
What shall be the treatment of expense incurred after the conduct of test runs and
experimental production but before commencement of commercial production?
Solution:

12.4
As clarified in Para 8 of ICDS- V, the expenditure incurred till the plant has begun commercial
production, that is, production intended for sale or captive consumption, shall be treated as
capital expenditure.

QUESTION-16
What is the taxability of opening balance as on 1st day of April 2016 of Foreign Currency
Translation Reserve (FCTR) relating to non-integral foreign operation, if any, recognised as per
Accounting Standards (AS) II?
Solution:

FCTR balance as on 1 April 2016 pertaining to exchange differences on monetary items for non-
integral operations, shall be recognised in the previous year relevant for assessment year 2017-
18 to the extent not recognised in the income computation in the past.

QUESTION-17
For subsidy received prior to 1st day of April 2016 but not recognised in the books pending
satisfaction of related conditions and achieving reasonable certainty of receipt, how shall the
same be recognised under ICDS on or after 1st day of April 2016?
Solution:

Para 4 of ICDS- VII read with Para 5 to Para 9 of ICDS- VII provides for timing of recognition
of government grant. The transitional provision in Para 13 of ICDS-VII provides that a
government grant which meets the recognition criteria on or after 1st day of April 2016 shall
be recognised in accordance with ICDS- VII. All government grants actually received prior to
1st day of April 2016 shall be deemed to have been recognised on its receipt in accordance with
Para 4(2) of ICDS-VII and accordingly will be outside the transitional provision and therefore
the government grants received on or after 1st day of April 2016 and for which recognition
criteria provided in Para 5 to Para 9 of ICDS-VII is also satisfied thereafter, the same shall
be recognised as per the provisions of ICDS- VII. The grants received prior to 1st day of April
2016 shall continue to be recognised as per the law prevailing prior to that date.
E.g. if out of total subsidy entitlement of ₹ 10 Crore, an amount of ₹ 6 Crore is recognised in
the books of accounts till 31st day of March 2016 and recognition of balance ₹ 4 Crore is
deferred pending satisfaction of related conditions and/or achieving reasonable certainty of
receipt. The balance amount of ₹ 4 Crore will be taxed in the year in which related conditions
are met and reasonable certainty is achieved. If these conditions are met over two years,
the amount of 4 Crore shall be taxed over the period of two years. The amount of ₹ 6 Crore
for which recognition criteria were met prior to 1st day of April 2016 shall not be taxable post
1st day of April 2016.
But if the subsidy is already received prior to 1st day of April 2016, Para 13 of ICDS-VII shall
not apply even if some of the related conditions are met on or after 1 April 2016. This is in
view of Para 4(2) of ICDS- VII which provides that Government grant shall not be postponed
beyond the date of actual receipt. Such grants shall continue to be governed by the provisions

12.5
of law applicable prior to 1st day of April 2016.

QUESTION-18
If the taxpayer sells a security on the 30th day of April 2017. The interest payment dates
are December and June. The actual date of receipt of interest is on the 30th day of June
2017 but the interest on accrual basis has been accounted as income on the 31st day of March
2017. Whether the taxpayer shall be permitted to claim deduction of such interest i.e. offered
to tax but not received while computing the capital gain?
Solution:

Yes, the amount already taxed as interest income on accrual basis shall be taken into account
for computation of income arising from such sale.

QUESTION-19
Para 9 of ICDS-VIII on securities requires securities held as stock-in-trade shall be valued
at actual cost initially recognised or net realisable value (NRV) at the end of that previous year,
whichever is lower. Para 10 of Part-A of ICDS-VIII requires the said exercise to be carried
out category wise. How the same shall be computed?
Solution:

For subsequent measurement of securities held as stock-in-trade, the securities are first
aggregated category wise. The aggregate cost and NRV of each category of security are
compared and the lower of the two is to be taken as carrying value as per ICDS- VIII. This is
illustrated below

Security Category Cost NRV Lower of cost or NRV ICDS

Value
A Share 100 75 75
B Share 120 150 120
C Share 140 120 120
D Share 200 190 190
Total 560 535 505 535
E Debt Security 150 160 150
F Debt Security 105 90 90
G Debt Security 125 135 125
H Debt Security 220 230 220
Total 600 615 585 600
Securities Total 1160 1150 1090 1135

12.6
QUESTION-20
There are specific provisions in the Act read with Rules under which a portion of borrowing
cost may get disallowed under sections like 14A, 43B, 40(a) (i), 40(a)(ia), 40A(2)(b), etc. of the
Act. Whether borrowing costs to be capitalized under ICDS-IX should exclude portion of
borrowing costs which gets disallowed under such specific provisions?
Solution:

Since specific provisions of the Act override the provisions of ICDS, it is clarified that
borrowing costs to be considered for capitalization under ICDS IX shall exclude those
borrowing costs which are disallowed under specific provisions of the Act. Capitalization of
borrowing cost shall apply for that portion of the borrowing cost which is otherwise allowable
as deduction under the Act.

QUESTION-21
Whether bill discounting charges and other similar charges would fall under the definition of
borrowing cost?

Solution:

The definition of borrowing cost is an inclusive definition. Bill discounting charges and other
similar charges are covered as borrowing cost.

QUESTION-22
How to allocate borrowing costs relating to general borrowing as computed in accordance with
formula provided under Para 6 of ICDS-IX to different qualifying assets?
Solution:

The capitalization of general borrowing cost under ICDS-IX shall be done on asset- by-asset
basis.

QUESTION-23
What is the impact of Para 20 of ICDS X containing transitional provisions?
Answer:

Para 20 of ICDS - X provides that all the provisions or assets and related income shall be
recognised for the previous year commencing on or after 1st day of April 2016 in accordance
with the provisions of this standard after taking into account the amount recognised, if any, for
the same for any previous year ending on or before 31st day of March, 2016.
The intent of transitional provision is that there is neither ‘double taxation’ of income due to
application of ICDS nor there should be escape of any income due to application of ICDS from
a particular date. This is explained as under

12.7
 Provision required as per ICDS on 31 March 2017 for items brought INR 3 Crores
forward from 31st day of March 2016 ... (A)
Provisions as per ICDS for FY 2016-17 ... (B) INR 5 Crores
Total gross provision …(C) = (A)+(B) INR 8 Crores
Less: Provision already recognised for computation of taxable INR 2 Crores
income in FY 2016-17 or earlier ... (D)
Net provisions as per ICDS in FY 2016-17 to be recognised as per INR 6 Crores
transition provision…
(E)= (C) – (D)

QUESTION-24
Expenditure on most post-retirement benefits like provident fund, gratuity, etc. are covered
by specific provisions. There are other post-retirement benefits offered by companies like
medical benefits. Such benefits are covered by AS-15 for which no parallel ICDS has been
notified. Whether provision for these liabilities are excluded from scope of ICDS X?
Solution:

It is clarified that provisioning for employee benefit which are otherwise covered by AS 15
shall continue to be governed by specific provisions of the Act and are not dealt with by ICDS-
X.

QUESTION-25
ICDS-I requires disclosure of significant accounting policies and other ICDS requires specific
disclosures. Where is the taxpayer required to make such disclosures specified in ICDS?
Solution:

Net effect on the income due to application of ICDS is to be disclosed in the Return of income.
The disclosures required under ICDS shall be made in the tax audit report in Form 3CD.
However, there shall not be any separate disclosure requirements for persons who are not
liable to tax audit.

QUESTION-26
Preamble of ICDS-I states that this ICDS is applicable for computation of income chargeable
under the head “Profits and gains of business or profession” or “Income from other sources”
and not for the purposes of maintenance of books of accounts. However, Para 1 of ICDS I states
that it deals with significant accounting policies. Accounting policies are applied for maintenance
of books of accounts and pr eparing financial statements. What is the interplay between ICDS-
I and maintenance of books of accounts?

12.8
Solution:

As stated in the Preamble, ICDS is not meant for maintenance of books of accounts or
preparing financial statements. Persons are required to maintain books of accounts and prepare
financial statements as per accounting policies applicable to them. For example, companies are
required to maintain books of account and prepare financial statements as per requirements
of Companies Act 2013. The accounting policies mentioned in ICDS-I being fundamental in nature
shall be applicable for computing income under the heads “Profits and gains of business or
profession” or “Income from other sources”.

QUESTION-27
State the method of computation of income from construction and service contract.
Answer:

Computation of income from construction and service contracts [Sec. 43CB]

The profits and gains arising from a construction contract or a contract for providing services
shall be determined on the basis of percentage of completion method in accordance with the
ICDS.

Profits and gains arising from a contract for providing services:

Case Method
Contract for providing services with duration Project completion method
of not more than 90 days
A contract for providing services involving Straight line method
indeterminate number of actsover a specific
period of time

For the purpose of percentage of completion method:

 the contract revenue shall include retention money;

 the contract costs shall not be reduced by any incidental income in the nature of
interest, dividends or capital gains.

QUESTION-28
Discuss the various rules prescribed in ICDS IV regarding recognition of revenue.

Answer:

Scope

The Standard deals with the bases for recognition of revenue arising in the course of the
ordinary activities of a person from:

12.9
 a) the sale of goods;

b) the rendering of services;

c) the use by others of the person’s resources yielding interest, royalties or dividends.

 Revenue is the gross inflow of cash, receivables or other consideration arising

in the course of the ordinary activities of a person from the sale of goods,
from the rendering of services, or from theuse by others of the person’s
resources yielding interest, royalties or dividends. In an agency relationship,
the revenue is the amount of commission and not the gross inflow of cash,
receivables or other consideration.

 The Standard does not deal with the aspects of revenue recognition which are
dealt with by otherICDS.

Sale of Goods

Revenue from sales transactions should be recognized when the following conditions are
fulfilled -

The seller of goods has transferred to the buyer the property in the goods for a price
or all significant risks and rewards of ownership have been transferred to the buyer;

a) The seller retains no effective control of the goods transferred

to a degree usually associated withownership;

b) There is reasonable certainty of its ultimate collection.

Rendering of Services
 Revenue from service transactions shall be recognised by the percentage completion
method.
 Under this method, revenue from service transactions is matched with the service
transaction costs incurred in reaching the stage of completion, resulting in the
determination of revenue, expenses and profit whichcan be attributed to the proportion
of work completed.
 However, when services are provided by an indeterminate number of acts over a
specific period of time,revenue may be recognised on a straight line basis over the specific
period.
 Revenue from service contracts with duration of not more than 90 days may be
recognised when the rendering of services under that contract is completed or
substantially completed.
Interest
 Interest shall accrue on the time basis determined by the amount outstanding and the
rate applicable.
 Interest on refund of any tax, duty or cess shall be deemed to be the income of the
previous year in which such interest is received.

12.10
  Discount or premium on debt securities held is treated as though it were accruing over
the period to maturity.

Royalty
 Royalties shall accrue in accordance with the terms of the relevant agreement and
shall be recognised on that basis unless, having regard to the substance of the
transaction, it is more appropriate to recognise revenue on some other systematic and
rational basis.

Dividend
 Dividends are recognised in accordance with the provisions of the Act

QUESTION-29
What are the fundamental accounting assumptions?
Answer:

As per ICDS I, following are the fundamental accounting assumptions

a. Going Concern,

b. Consistency and

c. Accrual

MCQ’S
1. ICDS___deals with Government Grants

(a) VI

(b) VII

(c) VIII

(d) X

2. The ICDS is required to be followed:

(a) by all assessee (other than an individual or a Hindu undivided family who is not required to
get his accounts of the previous year audited u/ s 44AB)

(b) by all assessee

(c) by all assessee (other than an individual or a Hindu undivided family)

(d) None of the above

12.11
3. ICDS II shall be applied for valuation of inventories, except:

(a) Work-in-progress arising under ‘construction contract’

(b) Shares, debentures and other financial instruments held as stock- in-trade

(c) Machinery spares, which can be used irregularly in connection with a tangible fixed asset

(d) All of the above

4. The comparative Accounting Standard with ICDS III is

(a) AS 7

(b) AS 9

(c) AS 2

(d) AS 10

5. Borrowing costs are interest and other costs incurred by a person in connection with the
borrowing of funds and include:

(a) commitment charges on borrowings;

(b) amortised amount of discounts or premiums relating to borrowings;

(c) amortised amount of ancillary costs in curred in connection with the arrangement of
borrowings;

(d) All of the above

Answer:

1. (b) VII
2. (a) by all assessee (other than an individual or a Hindu undivided family who is not required
to get his accounts of the previous year audited u/s 44AB)
3. (d) All of the above
4. (a) AS 7
5. (d) All of the above

12.12
 LIABILITY IN SPECIAL CASES

QUESTION-1
The directors of a private company are personally liable to pay the income tax due from the
company but their liability does not include liability towards interest and penalty payable by the
company. Comment
Answer:

Liability of directors of private company in liquidation [Sec. 179]

Where any tax due from a private company –

- in respect of any income of any previous year; or

- from any other company in respect of any income of any previous year during which such
other companywas a private company
cannot be recovered, then, every person who was a director of the private company at any
time during the relevant previous year shall be jointly and severally liable for the payment
of such tax. However, no suhdirector shall be 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.

Here, tax due includes penalty, interest or any other sum payable under the Act. In light of

aforesaid provision, the statement is not correct.

QUESTION-2

Write short notes on

a. Service of notice when family is disrupted or firm, etc., is dissolved

b. Service of notice in the case of discontinued business

Answer:

a. Service of notice when family is disrupted or firm, etc., is dissolved [Sec. 283]

 After a finding of total partition has been recorded by the Assessing Officer u/s 171 in
respect of any Hindu family, notices under this Act in respect of the income of the Hindu
family shall be served on the person who was the last manager of the Hindu family, or, if
such person is dead, then on all adults who were members of the Hindu family immediately
before the partition.

 Where a firm or other association of persons is dissolved, notices under this Act in respect

13.1
 of the incomeof the firm or association may be served on any person who was a partner
(not being a minor) or member of the association, as the case may be, immediately before
its dissolution.

b. Service of notice in the case of discontinued business [Sec. 284]

Where an assessment is to be made u/s 176, the Assessing Officer may serve on the person whose
income isto be assessed, or, in the case of a firm or an association of persons, on any person who
was a member ofsuch firm or association at the time of its discontinuance or, in the case of a
company, on the principalofficer thereof, a notice containing all or any of the requirements
which may be included in a notice u/s139(2), and the provisions of this Act shall, so far as may
be, apply accordingly as if the notice were a notice issued under that section.

QUESTION-3
Explain the provision relating to restrictions on receipt of cash u/s 269ST.

Answer:

Mode of undertaking transactions [Sec. 269ST]

No person shall receive an amount of ₹ 2,00,000 or more:

a. in aggregate from a person in a day; or

b. in respect of a single transaction; or

c. in respect of transactions relating to one event or occasion from a person,

otherwise than by an account payee cheque or an account payee bank draft or use of
electronic clearingsystem through a bank account or through other prescribed electronic modes.
Exception

The provisions shall not apply to:

(i) any receipt by:

a) Government;
b) any banking company, post office savings bank or co-operative bank;
(ii) transactions of the nature referred to in sec. 269SS
(iii) such other persons or class of persons or receipts, which the Central Government may notify.
Penalty [Sec. 271DA]

If a person receives any sum in contravention of the provisions of sec. 269ST, he shall be liable to
pay, by way ofpenalty, a sum equal to the amount of such receipt. However, no penalty shall be
imposable if such personproves that there were good and sufficient reasons for the contravention.

13.2
QUESTION-4
Representative assessee have right to recover tax paid by him. Comment

Answer:

Right of representative assessee to recover tax paid [Sec. 162]

 Every representative assessee who, as such, pays any sum under this Act, shall be entitled
to recover thesum so paid from the person on whose behalf it is paid, or to retain out of any
moneys that may be in hispossession or may come to him in his representative capacity, an
amount equal to the sum so paid.
 Any representative assessee who apprehends that he may be assessed as a representative
assessee, mayretain out of any money payable by him to the person on whose behalf he is liable
to pay tax (hereinafter in this section referred to as the principal), a sum equal to his estimated
liability.
 In the event of any disagreement between the principal and such representative assessee,
such representative assessee may secure from the Assessing Officer a certificate stating
the amount to be soretained pending final settlement of the liability, and the certificate
so obtained shall be his warrant for retaining that amount.
 The amount recoverable from such representative assessee at the time of final settlement
shall not exceed the amount specified in such certificate, except to the extent to which such
representative assessee may,at such time, have in his hands additional assets of the principal.

QUESTION-5
Who is termed as representative assessee?

Answer:

Representative assessee [Sec. 160]

Representative assessee means:

In respect of the income Representative Assessee

(i) of a non-resident specified in Sec. 9(1) Agent of the non-resident, including a
personwho is treated as an agent u/s 163
(ii) of a minor, lunatic or idiot A guardian or manager who is entitled to
receive or is in receipt of such income on
behalfof such minor, lunatic or idiot.

13.3
(iii) which is received by Such –
 the Court of Wards; Court of Wards;
 the Administrator-General; Administrator-General;
 the Official Trustee; or Official Trustee; or
 any receiver or manager, Receiver or Manager
appointed by or u nder any order of a
court onbehalf of or for the benefit of any
person.
(iv) which is received by trustee [appointed under Such trustee or trustees
a trust declared by a duly executed
instrument in writing whether
testamentary or otherwise (including any
valid wakf deed)] on behalf of or for the
benefit of any person
(v) which is received receives or entitled to Such trustee or trustees
receive by trustee (appointed under an oral
trust) on behalf of or for the benefit of any
person

QUESTION-6
Discuss the special provision regarding assessment of a person leaving India.

Answer:

Assessment of persons leaving India [Sec. 174]

 When it appears to the Assessing Officer that any individual may leave India during the current
assessment year or shortly after its expiry and that he has no present intention of returning to
India, the total income of such individual for the period from the expiry of the previous
year for that assessment year up to the probable date of his departure from India shall be
chargeable to tax in that assessment year.
 The total income of each completed previous year or part of any previous year included in such
period shall be chargeable to tax at the rate or rates in force in that assessment year, and
separate assessments shall be made in respect of each such completed previous year or part of
any previous year.
 The Assessing Officer may estimate the income of such individual for such period or any part
thereof, where it cannot be readily determined in the manner provided in this Act.
 For the purpose of making an assessment, the Assessing Officer may serve a notice upon
such individualrequiring him to furnish, within such time, not being less than 7 days, as may
be specified in the notice, areturn in the same form and verified in the same manner as a

13.4
 return u/s 142(1)(i), setting forth his totalincome for each previous year and his estimated
total income for any part of the previous year and theprovisions of this Act shall, so far as
may be, and subject to the provisions of this section, apply as if thenotice were a notice
issued u/s 142(1)(i).

QUESTION-7
Are producers of cinematograph films required to submit any statement. If yes, please explain
the provision relating thereto?

Answer:

Submission of statements by producers of cinematograph films [Sec. 285B]

Any person carrying on the production of a cinematograph film during the whole or any part of
any financialyear shall, in respect of the period during which such production is carried on by
him in such financial year,prepare and deliver to the Assessing Officer, within 30 days from the
end of such financial year or within 30 daysfrom the date of the completion of the production of
the film, whichever is earlier, a statement in the prescribed form (Form 52A) containing
particulars of all payments of over ₹ 50,000 in the aggregate made byhim or due from him to each
such person as is engaged by him in such production.

QUESTION-8

Discuss the chargeability provision of equalisation levy u/s 165A.

Answer:

Charge of equalisation levy on e -commerce supply of services [Sec. 165A]

Equalisation levy shall be charged @ 2% of 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—
a. to a person resident in India; or
b. to a non-resident in the specified circumstances; or
• “Specified circumstances” mean—
i. sale of advertisement, which targets a customer, who is resident in India or a
customer who accesses the advertisement though internet protocol address located
in India; and
ii. sale of data, collected from a person who is resident in India or from a person who
uses internet protocol address located in India
c. to a person who buys such goods or services or both using internet protocol address located in

13.5
 India.
Exception
The equalisation levy shall not be charged:
a. where the e-commerce operator making or providing or facilitating e-commerce supply or
services has a permanent establishment in India and such e-commerce supply or services is
effectively connected with such permanent establishment;
b. where the equalisation levy is leviable u/s 165 [i.e. A supra]; or
c. sales, turnover or gross receipts, as the case may be, of the e-commerce operator from the
e-commercesupply or services made or provided or facilitated is less than ₹ 2 crore during the
previous year.

QUESTION-9

Define qualifying ship in the context of tonnage tax scheme.

Answer:

Qualifying ship [Sec. 115VD]

A ship is a qualifying ship if:

a. it is a sea going ship or vessel of 15 net tonnage or more;

 Seagoing ship means a ship if it is certified as such by the competent authority of any
country.

b. it is a ship registered under the Merchant Shipping Act, 1958 or a ship registered outside India
in respect of which a licence has been issued by the Director-General of Shipping u/s 406 or
section 407 of the Merchant Shipping Act, 1958; and

a valid certificate in respect of such ship indicating its net tonnage is in force- but does not
include —

i. Factory ships;

 Factory ship includes a vessel providing processing services in respect of processing

of the fishingproduce.

ii. Pleasure crafts;

 Pleasure craft means a ship of a kind whose primary use is for the purposes of sport
or recreation.

iii. Harbour and river ferries;

iv. A seagoing ship or vessel if the main purpose for which it is used is the provision of goods
or services ofa kind normally provided on land;

13.6
 v. Off-shore installations;

vi. Fishing vessels

vii. a qualifying ship, which is used as a fishing vessel for a period of more than 30 days
during a previous year.

MCQ’S
1. Equalisation levy u/ s 165 shall be payable @ ---------- of the consideration for any specified
service received or receivable by a person, being a non -resident.
(a) 5%

(b) 6%

(c) 7.5%

(d) 12%

2. If a person makes a false statement in any verification or delivers an account or statement,

which is false, and which he either knows or believes to be false, or does not believe to be true,

he shall be punishable with imprisonment for a term which may extend to:

(a) 3 years and with fine

(b) 7 years and with fine

(c) 6 months and with fine

(d) 2 years and with fine

3. Tonnage taxation scheme is applicable in case of:

(a) Shipping business

(b) Aircraft operation business

(c) Road transport business

(d) All of the above

4. As per sec. 115VG, daily tonnage income of a qualifying ship having net tonnage upto 1000 ton

is:

(a) ₹ 60 for each 100 tons

13.7
 (b) ₹ 65 for each 100 tons

(c) ₹ 70 for each 100 tons

(d) ₹ 72 for each 100 tons

Answer:

1. (b) 6%

2. (a) 3 years and with fine

3. (a) Shipping business

4. (c) ₹ 70 for each 100 tons

13.8
 NON - RESIDENT
QUESTION-1
USA Airlines incorporated as a company in USA operates its flights to India and vice versa during
the year 2022-23 and collects charges of ₹ 150 lakh for carriage of passengers and cargo out
of which ₹ 90 lakh were received in US Dollars for the passenger fare booked from New York
to Mumbai. The total expenses for the year on operation of such flights were ₹ 195 lakh. Income
chargeable to tax of the foreign airlines may please be computed.
Solution:

Computation of income of USA Airlines

Fare booked from New York to

Fare booked
Mumbai
from Mumbai to
Particulars If paid in India If paid outside
New York
(or deemed to be India
whether paid in
India or outside received in India)
India
Fare ₹ 60 lakh [₹ ₹ 90 lakh ₹ 90 lakh
150–₹ 90]
Taxable Income @ 5% of ₹ 3,00,000 ₹ 4,50,000 -
the above

QUESTION-2
Anthoy, a non-resident Indian, acquired 1,000 shares in A Ltd. (an Indian Company) for ₹
20,000 by utilizing foreign currency ($) on 18/08/2022. On 16/09/2022, Anthony sold such
shares for ₹ 45,000 and utilized the proceeds in acquisition of 500 shares of B Ltd. (an Indian
Company) after paying expenditure on transfer on 13/8/2022 ₹ 5,000. Compute capital gain
liability in the previous year 2022-23.
Date $ Buying rate US $ Selling rate
18/08/2022 45 46
13/08/2022 48 50
16/09/2022 46 48

Solution:

Since the assessee is a non-resident and shares of an Indian company were acquired by utilizing
foreign currency, hence first proviso to sec. 48 and Rule 115A shall be applicable on above
transactions. Computation of capital gain for the A.Y. 2023-24

14.1
 Particulars Working Rate applied Amount Amount
Sale consideration ₹ Av. Rate as on $957.4
45,000/₹ 16/09/2022
47
Less: Expenditure on ₹ 5,000/₹ Av. Rate as on $106.4
transfer 47 16/09/2022
Net Sale $851.0
consideration
Less: Cost of ₹ Av rate as on $439.6
acquisition 20,000/₹ 18/08/2022
45.5
Less: Cost of Nil $439.6
improvement
Short term Capital $411.4
Gain
Short term capital $411.4 x ₹ Buying rate as on ₹ 18,924
gain 46 16/09/2022

QUESTION-3
Smart (a non-resident) has computed his tax liability as under –
₹ in lakhs
Particulars Details Amount
Income from business A 2,80,000
Long term capital gain 10,000
Less: Income from business B u/s 71 (10,00) Nil
Income from other sources 30,000
Gross Total Income 3,10,000
Less: Deduction u/s 80CCC to 80U -
Total Income 3,10,000
Tax liability (after rebate u/s 87A) 520
Comment on the above computation.
Solution:

Computation made by Smart is incorrect, as because first intra head set-off shall be made,
thereafter inter head set-off can be made. The correct computation is shown below -
Computation of total income and tax liability of Smart for the A.Y. 2023-24

Particulars Details Amount

Profits & Gains of Business or Profession
Income from business A 2,80,000

14.2
 Income from business B u/s 70 (10,000) 2,70,000
Capital Gains
Long term capital gain 10,000
Income from other sources 30,000
Gross Total Income 3,10,000
Less: Deduction u/s 80CCC to 80U -
Taxable Income 3,10,000
Tax liability [{₹ 10,000 x 20% + (₹ 3,00,000 – ₹ 4,680
2,50,000) x 5%} x 104%]
In case of non-resident individual, rebate u/s 87A is not available.

QUESTION-4
Mr. Crown, a non-resident, gives you the following information for the year ended 31-3-2023
Interest on Government securities (gross) 21,000
Dividend on shares of foreign companies received aboard 52,000
Interest from deposits in Indian companies (gross) 30,000
Income from horse races in India 20,000
He has donated a sum of ₹ 10,000 to Municipal Corporation of Delhi for promotion of family
planning. He has paid ₹ 2,000 by cheque to New India Assurance Co. for mediclaim for himself.
He has also spent ₹ 16,000 on medical treatment of his minor son who is physically handicapped.
Compute total income of Mr. Crown for the assessment year 2023-24.
Solution:

Computation of Total Income of Mr. Crown, a non-resident, for the A.Y.2023-24

Particulars Working Amount Amount

Income from other sources
Dividend from
Foreign company Non- Nil
resident
Interest from
Government securities 21,000
Indian company deposits 30,000 51,000
Casual income
Winning from horse races 20,000
Gross Total Income 71,000
Less: Deduction
U/s 80D (Medical insurance) 2,000
U/s 80DD (Handicapped son) Non- Nil
resident

14.3
 U/s 80G (Donation) Note 6,900 8,900
Total Income 62,100
Note: Computation of Deduction u/s 80G

Computation of Adjusted GTI:

Adj. GTI = GTI – Deduction u/s 80CCC to 80U other than 80G
= ₹ 71,000 – ₹ 2,000 = ₹ 69,000
Qualifying amount for donation = 10% of Adjusted GTI = 10% of ₹ 69,000 = ₹ 6,900
Deduction: In case of donation to Municipal Corporation for family planning, rate of
deduction is 100% of qualifying amount. Hence, deduction u/s 80G shall be ₹ 6,900 (being 100%
of ₹ 6,900).

QUESTION-5
Roger, a foreign national, furnishes the following data for the previous year ended 31st March,
2023:
i. Royalty from Indian concern under an agreement made on 15-09-1996 approved by the
Central Government ₹ 3,00,000.
ii. Expenditure as per section 28 to 44C for earning such income ₹ 2,00,000.
iii. Interest from an Indian company on money lent in foreign currency ₹ 11,00,000.
iv. Expenditure on collection of above interest ₹ 90,000.
v. Gross sale of business in India ₹ 30,00,000.
vi. Expenditure as per sections 28 to 44C for above business ₹ 28,00,000.
vii. Donation to Prime Minister National Relief Fund ₹ 6,00,000.

viii. Determine the total income of Roger for the assessment year 2023-24.

Solution:

Computation of Total income of Roger for the A.Y.2023-24

Particulars Amount Amount Amount

Profits and gains of business or profession
Sale 30,00,000
Less: Expenditure 28,00,000 2,00,000
Royalty income 3,00,000
Less: Expenditure (Not allowed u/s 115A) Nil 3,00,000 5,00,000
Income from other
sources

Interest income 11,00,000

Less: Expenses (Not allowed u/s 115A) Nil 11,00,000
Gross Total Income 16,00,000

14.4
 Less: Deduction u/s 80G (Note 2) 5,00,000
Total 11,00,000
Income
Note:

a. As per sec. 115A, no expenses shall be allowed from royalty and interest income.
b. As per sec. 115A, no deduction under chapter VIA shall be allowed from interest on money
lent in foreign currency.

QUESTION-6
The total income of a non-resident Indian includes:
– Investment income (net) ₹ 50,000
– Long term capital gain ₹ 25,000
– Other income ₹ 2,65,000
What will be the tax payable by him in respect of assessment year 2023-24 on the above
income under chapter XIIA (special provisions relating to certain income of non-residents) of
the I.T. Act, 1961?
Solution:

Since the assessee is non-resident hence income shall be taxable as per provision of sec. 115E
as under –

Particulars Income Rate Tax liability

Investment income (Net) 50,000 20% 10,000
Long term capital gain 25,000 10% 2,500
Other income 2,65,000 [(2,50,000×Nil) + 750
(15,000×5%)]
Tax before surcharge 13,250
Add: Health & Education cess 530
@ 4%

QUESTION-7
Mr. Q, a non-resident, operates an aircraft between Singapore and Chennai. He received the
following amounts in the course of the business of operation of aircraft during the previous
year:
i. ₹ 2 crores in India on account of carriage of passengers from Chennai.
ii. ₹ 1 crore in India on account of carriage of goods from Chennai.
iii. ₹ 3 crores in India on account of carriage of passengers from Singapore.
iv. ₹ 1 crore in Singapore on account of carriage of passengers from Chennai.
v. The total expenditure incurred by Mr. Q for the purposes of the business during the year

14.5
 was ₹ 6.75 crores.
Compute income chargeable to tax of the foreign airlines
Solution:

Computation of income of Mr. Q for the A.Y. 2023-24

Particulars Amount
Amount received in India on account of carriage of passengers from 2,00,00,000
Chennai
Amount received in India on account of carriage of goods from Chennai 1,00,00,000
Amount received in India on account of carriage of passengers from 3,00,00,000
Singapore
Amount received in Singapore on account of carriage of passengers 1,00,00,000
from Chennai
Total 7,00,00,000
Total Income (as per sec. 44BBA being 5% of above) 35,00,000

QUESTION-8
The net result of the business carried on by a branch of foreign company in India for the
year ended 31.03.2023 was a loss of ₹ 50 lacs after charge of head office expenses of ₹ 100
lacs allocated to the branch. Compute income of the branch for the assessment year 2023-
24.
Solution:

Computation of income of the branch for the A.Y. 2023-24

Particulars Amount Amount

Net Income for the year ended on 31-03-2023 (50,00,000)
Add: Head office expenses (to be considered separately) 1,00,00,000
Adjusted 50,00,000
Total Income
Less: Head office expenses allowable u/s 44C being lower of
the following:
– 5% of ₹ 50,00,000 2,50,000
– Actual Expenses 1,00,00,000 2,50,000
Total Income 47,50,000

14.6
QUESTION-9
Roger Federer, a tennis professional and a non-Indian citizen participated in India in a tennis
Tournament and won the prize money of ₹ 15 lakh. He contributed articles on the tournament in
a local newspaper for which he was paid ₹ 1 lakh. He was also paid ₹ 4 lakh by a Soft Drink
Company for appearance in a T.V. advertisement. Although his expenses in India were met by
the sponsors, he had to incur ₹ 1,30,000 towards his travel cost to India. He was a non-resident
for tax purposes in India. What would be his tax liability in India for A.Y. 2023-24. Is he
required to file his return of income u/s 139(1).
Solution:

U/s 115BBA, where a sportsman who is not a citizen of India receives any income by way of i)
participating in any game in India; or ii) advertisement; or iii) contributing articles relating to
any game or sport in India in newspapers, magazines or journals, then such income shall be
chargeable to tax @ 20% + cess @ 4% on the tax.
Accordingly, his income for the A.Y. 2023-24 are as under:

Particulars Amount
Tennis tournament prize 15,00,000
Amount received on contributing articles in the newspaper 1,00,000
Amount received on advertisement 4,00,000
Total Income 20,00,000
Tax on above [₹ 20,00,000 x 20% x 104%] 4,16,000
Notes

a. While computing income, no deduction in respect of any expenditure or allowance shall be

allowed
b. It shall not be necessary for the assessee to furnish return of his income if:
i. his total income consisted only of income referred to in sec. 115BBA; and
ii. the tax deductible at source has been deducted from such income

QUESTION-10
Compute the income-tax in the following cases:
a) Royalty of ₹ 10 lakh received by a foreign company from an Indian concern in pursuance
of an agreement approved by the Central Government in the previous year 2022-23.
b) ₹ 10 lakh long-term capital gains received by an overseas financial organisation on transfer
of unit purchased in foreign currency.
Solution:

a. As per Section 115A(i)(b), the rate of income tax applicable on royalty is 10%. Therefore,
Income tax = 10% of ₹ 10,00,000 = ₹ 1,00,000
Health & Education cess = 4% of ₹ 1,00,000 = ₹ 4,000 Total tax payable = ₹ 1,00,000 + ₹

14.7
 4,000 = ₹ 1,04,000
b. Long term Capital Gain = ₹ 10,00,000
Income-tax u/s 115AB = 10% of ₹ 10,00,000 = ₹ 1,00,000 Health & Education cess = 4% of
₹ 1,00,000 = ₹ 4,000 Total tax payable = ₹ 1,00,000 + ₹ 4,000 = ₹ 1,04,000

QUESTION-11
A non-resident foreign company has a permanent establishment (PE) in India, in respect of
which royalty ₹ 101 lakh was earned from an Indian company in pursuance of an agreement dated
10th June, 2016 (expenditure incurred on PE in India ₹ 12,37,600). Compute the gross tax
liability of foreign company ignoring TDS/advance tax for the assessment year 2023-24,
assuming that there is no other income of the company for the year.

Solution:

Computation of Total Income and Tax Liability

Particulars Amount
Royalty covered u/s 44DA 1,01,00,000
Less: Expenses 12,37,600
Income 88,62,400
Tax on above [104% {₹ 88,62,400 * 40%} [Rounded off] 36,86,760

QUESTION-12
How could you compute income of a non-resident engaged in the business of exploration of mineral
oils?

Hint:

QUESTION-13
What do you mean by place of effective management?

Hint:

QUESTION-14
Discussion the provision relating to deduction of Head Office Expenditure in the case of
Non-residents u/s 44C
Hint:

14.8
QUESTION-15
Discuss the provision u/s 115JH which states that foreign company said to be resident in India.

Answer:

Foreign company said to be resident in India [Sec. 115JH]

Where,

(i) a foreign company is said to be resident in India in any previous year; and

(ii) such foreign company has not been resident in India in any of the previous years
preceding the said previous year,

then, the provisions relating to the computation of total income, treatment of unabsorbed
depreciation, set offor carry forward and set off of losses, collection and recovery and special
provisions relating to avoidance of tax shall apply with such exceptions, modifications and
adaptations as may be specified in notification2 issuedby the Government for the said previous
year.

Consequences when such company fails to comply with the conditions

Where, in a previous year, any benefit, exemption or relief has been claimed and granted to the
foreign company and, subsequently, there is failure to comply with any of the conditions
specified in the notification, then,:

(i) such benefit, exemption or relief shall be deemed to have been wrongly allowed; the
Assessing Officer may, notwithstanding anything contained in this Act, re-compute the total
income of the assessee for the said previous year and make the necessary amendment as
if the exceptions,modifications and adaptations did not apply; and
(ii) the provisions of sec. 154 shall, so far as may be, apply thereto and the period of 4 years
specified therein being reckoned from the end of the previous year in which the failure
to comply with the conditions takes place.

QUESTION-16

Write notes on conversion of an Indian branch of Foreign Company into Subsidiary Indian Company

Answer:

Conversion of an Indian branch of Foreign Company into Subsidiary Indian Company [Sec. 115JG]

Where a foreign company is engaged in the business of banking in India through its branch
situated in India and such branch is converted into a subsidiary company thereof, being an Indian
company (hereafter referred

to as an Indian subsidiary company) in accordance with the scheme framed by the Reserve Bank

14.9
 of India (and subject to the conditions as may be notified by the Central Government), then,

(a) The capital gains arising from such conversion shall not be chargeable to tax in the
assessment year relevant to the previous year in which such conversion takes place.

(b) The provisions of this Act relating to treatment of unabsorbed depreciation, set off or carry
forward and set off of losses, tax credit in respect of tax paid on deemed income relating
to certain companies and thecomputation of income in the case of the foreign company and
the Indian subsidiary company shall apply with such exceptions, modifications and adaptations
as may be specified in that notification.

Consequence of failure to Comply with any of the Conditions:

In case of failure to comply with any of the conditions specified in the scheme or in the
notification, all the provisions of this Act shall apply to the foreign company and the said
Indian subsidiary company without aforesaid benefit, exemption or relief.

Consequence of failure to Comply with any of the conditions after Claiming Benefit:

Where, in a previous year, any benefit, exemption or relief has been claimed and granted to
the foreign company or the Indian subsidiary company and, subsequently, there is failure to
comply with any of the conditions specified in the scheme or in the notification, then:

(a) Such benefit, exemption or relief shall be deemed to have been wrongly allowed;

(b) The Assessing Officer may, notwithstanding anything contained in this Act, re-compute the
total income of the assessee for the said previous year and make the necessary amendment;
and
The provisions of sec. 154 shall, so far as may be, apply thereto and the period of 4 years specified
in that section being reckoned from the end of the previous year in which the failure to comply with
the condition takes place.

14.10
 MCQ’S
1. Sec. 44B of the Income- tax Act relates to the –

(a) shipping business in the case of non- resident assessee

(b) foreign company engaged in the business of turnkey power project

(c) business of operation of aircraft of non -resident assessee

(d) business of exploration of mineral oils of non -resident assessee

2. Section 115A to section 115BBD provides special tax rates on certain income of non -resident. Some
of these provisions also states that assessee is not required to furnish return of income if his total
income consists of such specified income only and tax has been deducted from such income. Following
section(s) have such provision?

(a) Sec. 115AC

(b) Sec. 115BBA

(c) Both (a) and (b)

(d) None of the above

3. Section 44C of the Income tax Act imposes restriction on deduction in respect of head office
expenditure in the case of non -residents. As per such provision, head office expenditure cannot
exceed:

(a) 5% of adjusted total income

(b) 3% of adjusted total income

(c) 8% of adjusted total income

(d) 10% of adjusted total income

4. Special rate of tax as provided in sec. 115A on interest on infra -bond being issued to non -resident

is:

(a) 5%

(b) 20%

(c) 10%

(d) 15%

14.11
5. Royalty or fees for technical services (other than income covered u/ s 44DA) received by a non -
resident is taxable at the rate of –

(a) 20%

(b) 10%

(c) 25%

(d) 5%

6. Income of a non -resident sportsman by way of participation in India in any game or sport is taxable
at the rate of –

(a) 20%

(b) 25%

(c) 10%

(d) not taxable in India

7. As per sec. 115ACA, long term capital gain in hands of resident individual on transfer of GDR of an
Indian com pany engaged in specified knowledge based industry or service shall be taxable at the
rate of –

(a) 10%

(b) 20%

(c) 5%

(d) Exempt

8. The rate of tax u/s 115AD, on short -term capital gains arising from the transfer of equity shares
in a company or a unit of an equity oriented funds where such transaction is chargeable to securities
transaction tax (STT) is –

(a) 15%

(b) 10%

(c) 20%

(d) 25%

14.12
9. As per sec. 115JG, capital gain arising from conversion of an Indian branch of foreign company into
Indian subsidiary company is not chargeable to tax subject to certain conditions. In this context,
you are requested to choose business of foreign company for which such section provides such relief
–

(a) business of operation of aircraft

(b) business of shipping

(c) business of banking

(d) any business

10. Any person who is responsible for paying interest (at the rate notified by the Central Government)
to a person being a Foreign Institutional Investor or a Qualified Fo reign Investor in respect of
investment made by the payee in a rupee denominated bond of an Indian company, is liable to deduct
tax @ -

(a) 5%
(b) 10%

(c) 20%
(d) 30%

Answer:

1. (a) Shipping business in the case of non -resident assessee

2. (c) Both (a) and (b)

3. (a) 5% of adjusted total income

4. (a) 5%

5. (b) 10%

6. (a) 20%

7. (a) 10%

8. (a) 15%

9. (c) business of banking

10. (a) 5%

14.13
 DTAA
QUESTION-1
 Mr. A is a resident of country X, went on 3 months assignment to Country Y

 Salary income of Mr. A is ₹ 24,00,000

 Of the above, Country Y taxed 3 months income of ₹ 6,00,000 @ 28%

Compute tax liability of Mr. A considering full credit method and ordinary credit method.
Solution:

Computation of tax liability of Mr. A

Particulars Country X Country Y

Total Income 24,00,000 6,00,000
Tax rate Slab 28%
Particulars Country X Country Y
Tax on above before relief 5,53,800 1,68,000
Relief:
Full Credit 1,68,000
Ordinary Credit [Lower of the following] 1,38,450
- Tax paid in country Y 1,68,000
- Tax paid in country X [₹ 5,53,800 x ₹ 6,00,000 / ₹ 1,38,450
24,00,000]

QUESTION-2
 A Co, the parent company, being located in Country X has a branch in Country Y

 Branch earns a profit of ₹ 10,00,000

 Country X taxes residents on global income @ 30%

 Tax rate in country Y is 25%. However, as a measure to promote economic development

therein (like special economic zones), country Y is not levying any tax.
 DTAA between Country X-Y has tax sparing provisions.

Compute tax sparing if branch operates in a specified area and is not taxed in Y
Solution:

Computation of tax liability of A Co

Particulars Country X Country Y

Total Income 10,00,000 10,00,000
Tax on above before relief 3,00,000 0

15.1
 Relief as per tax sparing provision
Relief [₹ 10,00,000 x rate of tax in foreign country i.e., 2,50,000
25%]
Tax Payable 50,000 0
Relief is available in country X deeming that tax has been paid in the country Y @ 25% though
no tax has been paid in the country Y.

QUESTION-3
Mr. Ramesh, a resident Indian, has derived the following incomes for the previous year relevant
to the A.Y. 2023- 24:

a. Income from profession in India ₹ 2,44,000

b. Income from profession in country A (Tax paid in foreign country ₹ 4,50,000
@ 5%)
Compute Indian tax liability of the assessee assuming that as per treaty between India and
Country A, ₹ 4,50,000 is taxable in India. However foreign tax can be set off against Indian
tax liability.
Solution

Computation of total income and tax liability of Mr. Ramesh for the A.Y. 2023-24

Particulars Amount
Income from profession in India 2,44,000
Income from profession in Country A 4,50,000
Gross Total Income 6,94,000
Less: Deduction u/ch. VIA Nil
Total income 6,94,000
Tax on above 51,300
Add: Health & Education cess 2,052
Tax and cess payable 53,352
Less: Relief u/s 90 [₹ 4,50,000 x 5%] 22,500
Tax payable in India (Rounded off u/s 288B) 30,850

QUESTION-4

Shri Anuj, an ordinarily resident in India, provides following details of his income for the
previous year relevant to the A.Y. 2023-24

– Income from India ₹ 3,40,000

– Income from Country Z ₹ 2,00,000

15.2
 – Investment in PPF ₹ 10,000

Further, it is to be noted that:

a. India has avoidance of double taxation agreement with Country Z. According to the said
agreement, income is taxable in the country in which it is earned and not in the other country.
However, in the other country, such income can be included for the purpose of computation
of tax rate.

b. Foreign income has been taxed in Country Z @ 20%.

Compute Indian tax payable.

Solution

Computation of total income and tax liability of Shri Anuj for the A.Y. 2023-24

Partic Amount
ulars
Income from India 3,40,000
Income from Country Z 2,00,000
Gross Total Income 5,40,000
Less: Deduction u/s 80C [Investment in PPF] 10,000
Total income 5,30,000
Tax on above 18,500
Add: Health & Education cess 740
Tax and cess 19,240
payable
Less: Relief u/s 90 [₹ 2,00,000 x 3.63%1] 7,260
Tax payable in India (Rounded off u/s 288B) 11,980
1. Average rate of Indian tax = ₹ 19,240 / ₹ 5,30,000 x 100 = 3.63%

QUESTION-5
Mr. Saha, a resident Indian, has derived the following incomes for the previous year relevant
to the A.Y. 2023-24:

a. Income from profession ₹ 3,74,000

b. Royalty on books from foreign country Y (₹ 3,00,000 is eligible for ₹ 5,00,000
deduction u/s 80QQB) (Tax paid in foreign country @ 20%)
Compute Indian tax liability of the assessee assuming that India does not have any
agreement with country Y.
Solution:

Computation of total income and tax liability of Mr. Saha for the A.Y. 2023-24

15.3
 Particulars Amount
Income from profession 3,74,000
Royalty earned in country Y 5,00,000
Gross Total Income 8,74,000
Less: Deduction u/s 80QQB 3,00,000
Total income 5,74,000
Tax on above 27,300
Add: Health & Education cess 1,092
Tax and cess payable 28,392
Average rate of tax [₹ 28,392 / ₹ 5,74,000 x 100] 4.95%
Rate of tax in country Y 20%
Relief u/s 91 [4.95%1 of ₹ 2,00,000] 9,900
Tax payable (Rounded off u/s 288B) 18,490
Indian average tax rate: 04.95%
Foreign average tax rate: 20.00%
Relief u/s 91 is available at lower of aforesaid rate. i.e., 4.95%

QUESTION-6
Arvind, a textile merchant and resident Indian is doing business in India and abroad. During
the previous year 2022-23, he disclosed the following information:

₹
Income from business in India 27,00,000
Income from business in Country- A with which
India does not have agreement for avoidance of double taxation 15,00,000
Income-tax levied by government in Country-A 5,00,000
Loss from business in Country-B with which also
India does not have agreement for avoidance of double taxation (4,00,000)
Contribution to public provident fund 1,50,000
Payment of life insurance premium on the life of his Father and mother 20,000
Solution:

Computation of total income and tax liability for the A.Y. 2023-24

Particulars Amount
Income from business in India 27,00,000
Income from business in Country A 15,00,000
Income from business in Country B (-) 4,00,000
Gross Total Income 38,00,000

15.4
 Less: Deduction u/s 80C 1,50,000
Total income 36,50,000
Tax on above 9,07,500
Add: Health & Education cess 36,300
Tax and cess payable 9,43,800
Average rate of tax [₹ 9,43,800 / ₹ 36,50,000 x 100] 25.86%
Rate of tax in country A 33.33%
Particulars Amount
Relief u/s 91 [25.86%1 of ₹ 15,00,000] 3,87,900
Tax payable (Rounded off u/s 288B) 5,55,900
Indian average tax rate: 25.86%
Foreign average tax rate: 33.33%
Relief u/s 91 is available at lower of aforesaid rate. i.e., 25.86%

QUESTION-7
Amar, an individual, resident of India, receives the following payments after TDS during the
previous year 2022- 23:

i Professional fees on 17.08.2022 2,40,000

ii Professional fees on 04.03.2023 1,60,000
Both the above services were rendered in country X on which TDS of ₹ 50,000 and ₹ 30,000
respectively has been deducted. He had incurred an expenditure of ₹ 2,40,000 for earning both
these receipts / incomes. His income from other sources in India is ₹ 5,00,000 and he has made
payment of ₹ 70,000 towards LIC. Compute the tax liability of Amar and also the relief u/s 91,
if any, for A.Y.2023-24.
Solution

Computation of total income and tax liability of Mr. Amar for the A.Y. 2023-24

Particulars Amount Amount

Income from profession from foreign 4,80,000
Less: Expenses 2,40,000 2,40,000
Income from profession in India 5,00,000
Gross Total Income 7,40,000
Less: Deduction u/s 80C 70,000
Total income 6,70,000
Tax on above 46,500
Add: Health & Education cess 1,860
Tax and cess payable 48,360
Average rate of tax [₹ 48,360 / ₹ 6,70,000 x 100] 7.22%

15.5
 Rate of tax in Country X 16.67%
Relief u/s 91 [7.22%^ of ₹ 2,40,000] 17,328
Tax payable (Rounded off u/s 288B) 31,030
Relief u/s 91 is available at lower rate. i.e., 7.22%

QUESTION-8
Mr. Amin, a resident individual in India (age 42) furnishes you the following particulars of
income for the previous year 2022–23:

Particulars ₹
Income from business in India (computed) 11,00,000
Dividend received from Company incorporated in Country X (gross) 2,00,000
Royalty income from writing text book for schools in Country Y (gross) 6,00,000
Expenditure incurred for authoring text book 50,000
Business loss in Country Y (gross) 2,50,000
Health insurance premium paid for his father (age 67) a resident in 30,000
India (His father is not
dependent on Mr. Amin)
The business loss in Country Y is eligible for set off against other income as per the Income-tax
law of that country.
There is no DTAA between India and Country “X” and Country “Y” given above. The rate of tax
in Country “X”
and Country “Y” may be taken as 10% and 25% respectively (without any threshold exemption
limit).
On the basis of aforesaid information, you are requested to choose correct options for the
following:
1. What will be his tax liability before any relief u/s 90 or 91?

2. What is his average rate of tax?

3. State the eligible amount of relief u/s 90 or 91

Solution:

Computation of Total Income of Mr. Amin for A.Y. 2023–24

Particulars ₹ ₹ ₹
Profits and gains of Business or profession
Income from business in India 11,00,000
Loss from business in Country “Y” 2,50,000
Less: Set off against royalty income 2,50,000 -
Income from other Sources

15.6
 Dividend from companies in Country “X” 2,00,000
Royalty income from Country “Y” 6,00,000
Less: Expenditure thereon 50,000
5,50,000
Loss from business in Country “Y” 2,50,000 3,00,000 5,00,000
Gross Total 16,00,000
Income
Less: Deduction under Chapter VI-A
Section 80D Health insurance premium for father, 30,000
senior citizen is deductible even though he is not
dependent on the assessee.
Section 80QQB: As the assessee has authored - 30,000
text-book for schools in Country “Y‟ hence it is not
eligible for deduction.
Total Income 15,70,000
Tax on above 2,83,500
Add: Cess 11,340
Tax and cess 2,94,840
Less: Relief u/s 91 [See Working] 76,339
Tax after relief 2,18,500
Working:

Average rate of tax in India ₹ 2,94,840 x 100 / ₹ 15,70,000 18.78%

Average rate of tax in country X 10%
Doubly taxed income of country X 2,00,000
Relief u/s 91 would be 10% or average rate @ 18.78%, ₹ 20,000
whichever is lower [10% on ₹ 2 lakhs]
Doubly taxed income of country Y (after set-off of business 3,00,000
loss)
Rate of tax country Y 25%
Relief u/s 91 would be @ 18.78% or 25% whichever is lower ₹ 56,339
[18.78% on ₹ 3 lakhs]
Relief under section 91 ₹ 76,339

QUESTION-9
Explain how the arms’s length price in relation to an international transaction is computed under the
resale price method as per Rule 10B of the Income-tax Rule, 1962

Hint:

15.7
QUESTION-10
Discuss when an enterprise is taken as ‘associated enterprise’ under section 92A.
Hint:

15.8
 TRANSFER PRICING
QUESTION-1
Profit and loss account of the assessee – Actual

₹ in lakhs ₹ in lakhs
Opening stock of raw 100 Sale of finished goods 2500
material (AE
purchases)
Opening stock of raw 150 Closing stock of raw 120
material (Non- AE material (AE
purchases) purchases)
Purchases of raw material 500 Closing stock of raw 160
from AE material (Non- AE
purchases)
Purchases of raw material 1000 Closing stock of finished 500
from Non- goods
AE
Manufacturing costs 400
Admin, selling and finance 200
expenses
Net profit 930
3280 3280
Solution:
Comparable operating margin (PLI being operating profit on sale): 45%
Profit and loss account - recast:

₹ in ₹ in lakhs
lakhs
Opening stock of raw 150 Sale of finished goods 2500
material
(Non-AE purchases)
Cost of purchase from AE 405 Closing stock of raw 160
(net of stock) material
(balancing figure) (Non-AE purchases)
Purchases of raw material 1000 Closing stock of finished 500
from Non AE goods
Manufacturing costs 400
Admin, selling and finance 200
expenses
Net profit 1125

16.1
 (arrived on basis of TNMM
margin)
3280 3280
Arm’s length Purchase value:
Cost of purchase from AE (net of stock) 405
Add : Closing stock of Raw Material 120
Add : Closing stock of Raw Material in finished goods (see Note 1 below) 20
Less : Opening stock 100
Arm’s length Purchase value 445
Actual purchase 500
Excess price paid 55
Notes:

1. In the above illustration, the raw material cost (of purchases from AE) built into closing
stock of finished goods is assumed to be ₹ 20.

2. It is assumed that there is no opening stock of finished goods.

QUESTION-2
Brain Inc. London has 35% equity in Salem Ltd. The company Salem Ltd. is engaged in
development of software and maintenance of customers across the globe, which includes Brain
Inc.
During the year 2022-23, Salem Ltd. spent 2000 men hours for developing and maintaining a
software for Brain Inc. and billed at ₹ 1,000 per hour. The cost incurred for executing
maintenance work to Brain Inc. for Salem Ltd. amount to ₹ 15,00,000. Similar such work was
done for unrelated party Try Ltd. in which the profit was at 50%.
Brain Inc. gives technical support to Salem Ltd. which can be valued at 8% of gross profit.
There is no such functional relationship with try Ltd.
Salem Ltd. gives credit period of 90 days the cost of which is 3% of the normal billing rate
which is not given to other parties.
Compute ALP under cost plus method in the hands of Salem Ltd. and the impact of the
same on the total income.
Solution:

A. Computation of Arms Length Gross Profit Mark-up

Particulars %
Normal Gross Profit Mark up 50.00
Less: Adjustment for differences
Technical support from Brain Inc [ 8% of Normal GP = 8% of 50%] (4.00)
46.00

16.2
 Add: Cost of Credit to Brain Inc 3% of Normal Bill [3% ×GP 50%] 1.50
Arm’s Length Gross Profit mark-up 47.50

B. Computation of Increase in Total Income of Brain Inc

Particulars Amount (₹)

Cost of services 15,00,000
Arm’s length Billed Value [Cost/[(100 – Arm’s Length mark up)] [₹ 28,57,143
15,00,000/(100% - 47.50%)]
Less: Billed amount [ 2,000 hours x ₹ 1,000 per hour] 20,00,000
Therefore, Increase in Total Income 8,57,143

QUESTION-3
A Co. Ltd. of Chennai and Sky Inc. of Singapore are associate enterprises. A Co. Ltd. imported
1000 television sets at ₹ 16,000 per set without any warranty period. A Co. Ltd. also imports
similar TV sets from unrelated party Sign Inc. of Japan. It is imported at ₹ 15,000 per set
with warranty time of 2 years. The cost of warranty in respect of goods imported from Sky
Inc. for a period of 2 years would cost ₹ 2,000.
Compute arm’s length price and the amount of increase in total income of A Co. Ltd. as per CUP
method.
Solution:

Computation of Arms Length Price

Particulars Amount (₹)

Cost of TV Set acquired from Sign Inc 15,000
Less: Cost of Warranty 2,000
Arm’s Length Gross Profit mark-up 13,000
Computation of Increase in Total Income

Particulars Amount (₹)

Cost of TV Set acquired from Sky Inc [₹ 16,000 * 1,000] 1,60,00,000
Less: Arm’s length Value [₹ 13,000 * 1,000] 1,30,00,000
Therefore, Increase in Total Income 30,00,000

QUESTION-4
J Inc. of Korea and CD Ltd, an Indian Company are associated enterprises. CD Ltd manufactures
Cell Phones and sells them to J.K.& F Inc., a Company based at Nepal. During the year CD Ltd.
supplied 2,50,000 Cellular Phones to J Inc. Korea at a price of ₹ 3,000 per unit and 35,000
units to JK & F Inc. at a price of ₹ 5,800 per unit. The transactions of CD Ltd with JK & F Inc.

16.3
are comparable subject to the following considerations:
Sales to J Inc. are on FOB basis, sales to JK & F Inc. are CIF basis. The freight and insurance
paid by J Inc. for each unit @ ₹ 700. Sales to JK & F Inc. are under a free warranty for Two
Years whereas sales to J Inc. are without any such warranty. The estimated cost of executing
such warranty is ₹ 500. Since J Inc.’s order was huge in volume, quantity discount of ₹ 200 per
unit was offered to it.
Compute the Arm’s Length Price and the subsequent amount of increase in the Total Income of
CD Ltd, if any.
Solution:

Computation of Arm’s Length Price of Products sold to J Inc. Korea by CD Ltd

Particulars ₹ ₹
Price per Unit in a Comparable Uncontrolled Transaction 5,800
Less: Adjustment for Differences -
(a) Freight and Insurance Charges 700
(b) Estimated Warranty Costs 500
(c) Discount for Voluminous Purchase 200 (1,400)
Arms’s Length Price for Cellular Phone 4,400
sold to J Inc. Korea
Computation of Increase in Total Income of CD Ltd
Particulars ₹
Arm’s Length Price per Unit 4,400
Less: Price at which actually sold to J Inc. Korea (3,000)
Increase in Price per Unit 1,400
No. of Units sold to J Inc. Korea 2,50,000
Increase in Total Income of CD Ltd (2,50,000 x ₹ 1,400) ₹ 35 Crores

QUESTION-5

Megabyte Inc. of France and R Ltd. of India are associated enterprises. R Ltd. imports 3,000
compressors for Air Conditioners from Megabyte Inc. at ₹ 7,500 per unit and these are sold to
Pleasure Cooling Solutions Ltd at a price of ₹ 11,000 per unit. R Ltd. had also imported similar
products from Cold Inc. Poland and sold outside at a Gross Profit of 20% on Sales. Megabyte
Inc. offered a quantity discount of ₹ 1,500 per unit. Cold Inc. could offer only ₹ 500 per unit
as Quantity Discount. The freight and customs duty paid for imports from Cold Inc. Poland had
cost R Ltd. ₹ 1,200 per piece. In respect of purchase from Cold Inc., R Ltd. had to pay ₹ 200
only as freight charges. Determine the Arm’s Length Price and the amount of increase in Total
Income of R Ltd.
Solution:

Computation of Arm’s Length Price

16.4
 Particulars Amount (₹)
Resale Price of Goods Purchased from Megabyte Inc. 11,000
Less: Adjustment for Differences –
a) Normal Gross Profit Margin at 20% of Sale Price [20% x ₹ 11,000] 2,200
b) Incremental Quantity Discount by Megabyte Inc. [₹ 1,500 – ₹ 500] 1,000
c) Difference in Purchase related expenses [₹ 1,200 – ₹ 200] 1,000
Arms Length Price 6,800
Computation of Increase in Total Income of R Ltd
Particulars Amount (₹)
Price at which actually bought from Megabyte Inc. of France 7,500
Less: Arms Length Price per unit under Resale Price Method 6,800
Decrease in Purchase 700
Price per unit
No. of units purchased from Megabyte Inc. 3,000 units
Increase in Total Income (3,000 units x ₹ 700) ₹ 21,00,000

QUESTION-6
Fox Solutions Inc. a US Company, sells Laser Printer Cartridge Drums to its Indian Subsidiary
Quality Printing Ltd at S 20 per drum. Doc Solutions Inc. has other takers in India for its
Cartridge Drums, for whom the price is $ 30 per drum. During the year, Fox Solutions had
supplied 12,000 Cartridge Drums to Quality Printing Ltd.
Determine the Arm’s Length Price and taxable income of Quality Printing Ltd if its income
after considering the above is ₹ 45,00,000. Compliance with TDS provisions may be assumed
and Rate per USD is ₹ 45. Also determine income of Doc Solutions Inc.

Solution:

Computation of Total Income of Quality Printing Ltd.

Particulars Amount (₹) Amount (₹)

Total Income before adjusting for differences due to Arm’s 1,08,00,00
Length Price 0
Add: Difference on Account of adopting Arm’s Length Price 1,62,00,00
[12,000 x $20 x ₹ 45] 0
Less: Amount under Arm’s Length Price [12,000 x $ 30 x ₹ (54,00,000 45,00,000
45] )
Incremental Cost on adopting ALP u/s 92(3), Taxable
Income cannot be reduced on applying ALP. Therefore,
difference on account of ALP is ignored.
Total Income of Quality Printing Ltd. 45,00,000
Computation of Total Income of Fox Solutions Inc.

16.5
The provisions relating to taxing income of Fox Solutions Inc., on applying Arm’s Length Price
for transactions entered into by a Foreign Company is given in Circular 23 dated 23.7.1969,
which is as follows:
i. Transactions Not Taxable in India: Transactions will not be subject tax in India if
transactions are on principal- to-principal basis and are entered into at ALP, and the
subsidiary also carries on business on its own.
ii. Transactions Taxable in India if the Indian Subsidiary does not carry on any business on its
own. The following are the other considerations in this regard:
a. Adopting ALP does not affect the computation of taxable income of Fox Solutions Inc.
if tax has been deducted at source or if tax is deductible.
b. Where ALP is adopted for taxing income of the Parent Company, income of the recipient
Company (i.e. Quality Printing Ltd) will not be recomputed.

QUESTION-7
Khazana Ltd is an Indian Company engaged in the business of developing and manufacturing
Industrial components. Its Canadian Subsidiary Techpro Inc. supplies technical information and
offers technical support to Khazana for manufacturing goods, for a consideration of Euro
1,00,000 per year. Income of Khazana Ltd is ₹ 90 Lakhs. Determine the Taxable Income of
Khazana Ltd if Techpro charges Euro 1,30,000 per year to other entities in India. What will be
the answer if Techpro charges Euro 60,000 per year to other entities. (Rate per Euro may be
taken at ₹ 50.)
Solution:

Computation of Total Income of Khazana Ltd

Particulars Amount Amount (₹)

(₹)
When price charged for Comparable Uncontrolled € 1,00,000 € 50,000
Transaction
Price actually paid by Khazana Ltd [€1,00,000 x ₹ 50] 50,00,000 50,00,000
Less: Price charged in Rupees (under ALP)
[€1,30,000 x ₹ 50] 65,00,000
[€60,000 x ₹ 50] 30,00,000
Incremental Profit on adopting ALP (A) (15,00,000) 20,00,000
Total Income before adjusting for differences due to 90,00,000 90,00,000
Arm’s Length Price
Add: Difference on account of adopting Arms Length NIL 20,00,000
Price [if (A) is positive]
Total Income of Khazana Ltd. 90,00,000 1,10,00,000
Note: u/s 92(3), Taxable Income cannot be reduced on applying ALP. Therefore, difference
on account of ALP

16.6
which reduces the Taxable Income is ignored.

QUESTION-8
Videsh Ltd., a US company has a subsidiary, Hind Ltd. in India. Videsh Ltd. sells mobile phones
to Hind Ltd. for resale in India. Videsh Ltd. also sells mobile phones to Bharat Ltd. another
mobile phone reseller. It sold 48,000 mobile phones to Hind Ltd. at ₹ 12,000 per unit. The price
fixed for Bharat Ltd. is ₹ 11,000 per unit. The warranty in case of sale of mobile phones by Hind
Ltd. is handled by itself, whereas, for sale of mobile phones by Bhart Ltd., Videsh Ltd. is
responsible for warranty for 6 months. Both Videsh Ltd. and Hind Ltd. extended warranty at a
standard rate of ₹ 500 per annum.
On the above facts, how is the assessment of Hind Ltd. going to be affected?
Solution:

Computation of Arms Length Price

Particulars Amount (₹)

Cost of Mobile Phone sold to Bharat Ltd. 11,000
Less: Cost of Warranty 250
Arm’s Length Price 10,750
Computation of Increase in Total Income

Amount (₹)
Particulars
(in lacs)
Cost of mobile phone acquired from Videsh Ltd. [₹ 12,000 * 48,000] 5,760
Less: Arm’s length Value [₹ 10,750 x 48,000] 5,160
Therefore, Increase in Total Income 600

QUESTION-9
Compute arm’s length price from following information

Particulars Related Unrelated Party

Party
Price paid (inclusive of taxes) ₹ 25,000 ₹ 23,500
Delivery terms CIF FOB
Quantity 100 pcs 110 pcs
Availability of Input Tax Credit No Yes
Quantity 100 pcs 110 pcs
Freight cost - ₹ 1,200
Insurance cost - ₹ 700
Input Tax Credit - ₹ 2,000

16.7
Solution:

Computation of ALP

Particulars Amount (₹)

Price paid to unrelated party (inclusive of taxes) ₹ 23,500
Adjustments of differences -
Delivery terms – Freight cost ₹ 1,200
Delivery terms – Insurance cost ₹ 700
Quantity -
Input tax credit available (₹ 2000)
Arm’s Length ₹ 23,400
Price

QUESTION-10
Compute arm’s length price from following information

Particulars Related Party Unrelated Party

Price paid (inclusive of taxes) ₹ 25,000 ₹ 23,500
Delivery terms CIF FOB
Quantity 100 pcs 110 pcs
Availability of Input Tax Credit No Yes
Quantity 100 pcs 110 pcs
Freight cost - ₹ 1,200
Insurance cost - ₹ 700
Input Tax Credit - ₹ 2,000
Credit period 90 days Upon dispatch
Interest rate on working capital 12% p.a. -
Solution:

Computation of ALP

Particulars Amount (₹)

Price paid (inclusive of taxes) ₹ 23,500
Adjustments of differences
Delivery terms – Freight cost ₹ 1,200
Delivery terms – Insurance cost ₹ 700
Input Tax Credit available (₹ 2000)
Credit period (Interest on INR 23,500 for 3 months @ 12% p.a.) ₹ 705
Arm’s length price ₹ 24,105

16.8
QUESTION-11
Compute ALP through following information:
– A Ltd. is a distributor of IT products.
– A Ltd. purchases these products from its related party, P Ltd.
– A Ltd. also trades in laptops manufactured by X Ltd.
– P Ltd as well as X Ltd would supply the warranty replacements free of cost to A Ltd.
– Other details are as under:

Particulars P Ltd (AE) X Ltd

Purchase price of A Ltd. ₹ 15,000 ₹ 22,000
Sale price of A Ltd ₹ 18,000 ₹ 26,000
Other expenses incurred by A Ltd ₹ 500 ₹ 700
Solution:

Computation of gross profit margin on unrelated transaction

Particulars Amount (₹)
Sale price of laptop in India 26,000
Expenses incurred by A Ltd 700
Net Sale proceeds of laptop in India [A] 25,300
Purchase price [B] 22,000
Gross profit [A - B] 3,300
GP on sale (%) 12.69%
Computation of arm’s length price
Particulars Amount (₹)
Sales price of desktop in India 18,000
Less: Expenses incurred by A ltd 500
Less: Arm’s length resale margin @ 12.69 % of sale 2,284
Arm’s length purchase price 15,216
Purchase price paid to AE 15,000
Thus, no adjustment is required.

QUESTION-12
A sold a machine to B (associated enterprise) and in turn B sold the same machinery to C (an
independent party) at sale margin of 30% for ₹ 4,00,000 but B has incurred ₹ 4,000 in sending
the machine to C. From the above data, determine arm’s length price.
Solution:

Computation of Arm’s Length Price

16.9
 Particulars Details Amount (₹)
Sales price to B 4, 00,000
Less: Gross Margin 4,00,000 × 30% 1, 20,000
Balance 2, 80,000
Less: Expenses incurred by B 4,000
Arm’s length price 2,76,000

QUESTION-13
Terabyte Inc. of France and R Ltd. of India are associated enterprises. R Ltd. imports 6,000
compressors for Air Conditioners from Terabyte Inc. at ₹ 6,700 per unit and these are sold
to Refresh Cooling Solutions Ltd at a price of ₹ 10,000 per unit. R Ltd. had also imported similar
products from Gold Inc. Poland and sold outside at a Gross Profit of 20% on Sales. Terabyte
Inc. offered a quantity discount of ₹ 1,000 per unit. Gold Inc. could offer only ₹500 per unit
as Quantity Discount. The freight and customs duty paid for imports from Gold Inc. Poland had
cost R Ltd. ₹ 1,200 per piece. In respect of purchase from Terabyte Inc., R Ltd. had to pay ₹
200 only as freight charges.
On the basis of aforesaid information, you are requested to choose correct options for the
following:
1. What will be considered as arm’s length price per unit?

2. State the amount of addition required to be made in the computation of R Ltd.?

Solution:

Computation of Arm’s Length Price

Particulars Amount (₹)

Resale Price of Goods Purchased from Terabyte Inc. 10,000
Less: Adjustment for Differences –
a) Normal Gross Profit Margin at 20% of Sale Price [20% x ₹ 10,000] 2,000
b) Incremental Quantity Discount by Terabyte Inc. [₹ 1,000 – ₹ 500] 500
c) Difference in Purchase related expenses [₹ 1,200 – ₹ 200] 1,000
Arms Length Price 6,500
Computation of Increase in Total Income of R Ltd

Particulars Amount (₹)

Price at which actually bought from Terabyte Inc. of France 6,700
Less: Arms Length Price per unit under Resale Price Method 6,500
Decrease in Purchase Price per unit 200
No. of units purchased from Terabyte Inc. 3,000 units

16.10
 Increase in Total Income (6,000 units x ₹ 200) ₹ 12,00,000

QUESTION-14

What are the transactions covered by section 92BA as ‘specified domestic transactions’?
Hint:

QUESTION-15
Explain the importance of provision for transfer pricing?
Answer:

Transfer pricing mechanism is very important for following reasons:

1. Helpful in correct pricing of Product/Services: An effective transfer pricing mechanism

helps an organization in correctly pricing its product and services. Since in any organization,
transaction between associated parties occurs frequently, it is necessary to value all
transaction correctly so that the final product/ services may be priced correctly.

2. Helpful in Performance Evaluation: For the performance evaluation of any entity, it is

necessary that alleconomic transactions are accounted. Calculation of correct transfer
price is necessary for accounting of inter related transaction between two Associated
enterprises.

3. Helpful in complying Statutory Legislations: Since related party transaction have a

direct bearing on the profitability or cost of a company, the effective transfer pricing
mechanism is very necessary. For example,if the related party transactions are measured at
less value, one unit may incur loss and other unit may earnundue profit. This will result in income
tax imbalances at both parties end. Similarly, wrong transfer pricing may lead to wrong payment
of excise duty, custom duty /sales tax (if applicable) as well.

QUESTION-15

Medical Instruments Ltd. is a 100% India subsidiary of a US company. The parent company
sells one of its products to the Indian subsidiary at a price of US$ 100 per unit. The same
product is sold to unrelated buyers in India at a price of US$ 125 per unit.

Answer:

Computation of Arm’s Length price – Price charged by the US parent company for supply to its
100% subsidiaryper unit = 100 US$

And sale price to Unrelated buyers in India per unit = 125 US$
Arm’s Lengths price is computed where the international transaction may result in loss to the

16.11
Government. However, in the instant case, since the price charged from the associated
enterprise is lesser than the normalprice. Hence, there is no loss to the government. So, arm’s
Length Price is not required to be calculated in this case.

QUESTION-16
Define:

(a) Secondary adjustment

(b) Arm’s length price

(c) Enterprise

(d) Berry Ratio

Answer:

(a) “Secondary adjustment” means an adjustment in the books of account of the assessee and
its associatedenterprise to reflect that the actual allocation of profits between the assessee
and its associated enterprise are consistent with the transfer price determined as a result
of primary adjustment, thereby removing the imbalance between cash account and actual
profit of the assessee.

(b) Arm’s length price means

(i) a price which is applied or proposed to be applied in a transaction

(ii) between persons other than associated enterprises (i.e., unrelated person, resident
or non-resident),
(iii) in uncontrolled conditions [Sec. 92F(ii)]

(c) Enterprise means a person (including a permanent establishment1 of such person) who is,
or has been, or is proposed to be, engaged:

➢ in any activity, relating to the production, storage, supply, distribution, acquisition or

control of:
(a) articles or goods; or
(b) know-how, patents, copyrights, trademarks, licences, franchises or any other
business or commercial rights of similar nature; or

(c) any data, documentation, drawing or s pecification relating to any patent, invention,
model, design, secret formula or process, of which the other enterprise is the
owner or in respect of which the other enterprise has exclusive rights; or

➢ in the provision of services of any kind; or

16.12
 ➢ in carrying out any work in pursuance of a contract; or
➢ in investment, or providing loan; or
➢ in the business of acquiring, holding, underwriting or dealing with shares, debentures
or other securities of any other body corporate,

whether such activity or business is carried on, directly or through one or m ore of its
units or divisions or subsidiaries; or

whether such unit or division or subsidiary is located at the same place where the
enterprise is located or at a different place or places.

1. Permanent establishment includes a fixed place of business through which the business
of the enterprise is wholly or partly carried on [Sec. 92F(iiia)]

d) Berry ratio is the ratio of gross profit to operating expenses. It measures the return on
operating expenses. As the functions performed by the tax-payers are often reflected in
the operating expenses, this ratio determines the relationship of the income earned in
relation to the functions performed. This ratio helps in overcoming the difficulties in
applying the RPM, which does not explain the creation of gross profit. This ratio is used in
conducting an arm’s length analysis of service-oriented industry such as limited risk
distributor, advertising, marketing and engineering services. The Berry ratio may be used
to test whether service providers have earned enough mark-up on their operating expenses.
In essence, the Berry ratio implicity assumes that there is a relationship between the level
of operating expenses and the level of gross profits earned by routine distributors and
service providers.

16.13
 MCQ
1. Countries that employ explicit policies designed to attract international trade-oriented
activities by minimization of taxes and reduction or elimination of other restrictions on
business operations is described as .

(a) Tax Havens

(b) Tax Planning

(c) Tax Evasion

(d) Tax Management

2. The credit for tax paid should be allowed in the year in which the foreign
taxed income is in India.

(a) overseas, remitted

(b) overseas, doubly taxed

(c) income, doubly taxed

(d) income, remitted Reason:

3. Relief from double taxation is provided by way of –

(a) Bilateral Relief

(b) Unilateral Relief

(c) Both (a) and (b)

(d) None of the above

4. Where there is double taxation avoidance agreement exists with particular foreign country,

relief from double taxation on income from such country is available under section –

(a) 90

(b) 90A

(c) 91

(d) 92

5. Generally, in Indian context, the term permanent establishment” means a fixed place of

business through which the business of an enterprise is wholly or partly carried on. The term

“permanent establishment” shall also include –

16.14
 (a) the use of facilities solely for the purpose of storage or display of
goods or merchandise belonging to the enterprise

(b) the maintenance of a stock of goods or merchandise belonging to the

enterprise solely for the purpose of storage or display

(c) a warehouse in relation to a person providing storage facilities for others

(d) the maintenance of a stock of goods or merchandise belonging to the

enterprise solely for the purpose of processing by another enterprise

6. Transfer Pricing provisions are applicable if –

(a) There is an international transaction between associated enterprises

(b) There is an international transaction between two enterprises and the

transaction is not at arm’s length price

(c) There is an international transaction between any two parties

(d) None of these

7. As per section 92B of the Income- tax Act, international transaction means a transaction

between two or more associated enterprises,------------------are non -residents, of specified

nature.

(a) either or both of whom

(b) both of whom

(c) one of whom

(d) none of them

8. An advance pricing agreement shall not be valid for more than —

(a) 3 Years

(b) 5 Years

(c) 4 Years

(d) 7 Years

16.15
 9. As per provision of sec. 92A, two enterprises shall be deemed to be associated
enterprises if, at any time during the previous year fulfill any of the prescribed
conditions. In this context fill in the blanks of the following condition:

• The manufacture or processing of goods or articles or business carried out by one

enterprise is ----------dependent on the use of know -how, patents, copyrights, trade -
marks, licences, franchises or any other business or commercial rights of similar nature,
or any data, documentation, drawing or specification relating to any patent, invention,
model, design, secret formula or process, of which the other enterprise is the owner or
in respect of which the other enterprise has-------------
(a) wholly or partially; exclusive rights

(b) wholly; exclusive rights

(c) 90%; exclusive rights

(d) wholly; 90% rights

10. The following methods as per section 92C are used in determination of arm’s length prices for
international transactions and specified domestic transaction except

(a) Comparable uncontrolled price method

(b) Resale price method
(c) Cost method
(d) Transactional net margin method

11. The monetary limit for aggregate transactions between two enterprises to fall in the category
of specified domestic transaction is —

(a) ` 5 crore
(b) ` 3 crore
(c) ` 20 crore
(d) ` 25 crore

12. When an assessee fails to furnish any information relating to a specified domestic transaction,
the quantum of penalty as a percentage of value of the transaction would be

(a) 2%

(b) 1%

(c) 5%

(d) 3%

16.16
Answer:

1. (a) Tax Havens

2. (b) overseas, doubly taxed

3. (a) Both (a) and (b)4. (a) 90

5. (b) a warehouse in relation to a person providing storage facilities for others

6. (a) There is an international transaction between associated enterprises

7. (a) either or both of whom

8. (b) 5 Years

9. (b) wholly; exclusive rights

10. (c) Cost method

11. (c) ` 20 crore12. (a) 2%

16.17
 BLACK MONEY
QUESTION-1
How to compute total undisclosed foreign income and asset u/s 5 of Black Money (Undisclosed
Foreign Income and Assets) and Imposition of Tax Act, 2015.

Answer:

 In computing the total undisclosed foreign income and asset of any previous year of an assessee:
 No deduction in respect of any expenditure or allowance or set off of any loss shall be
allowed to theassessee, whether or not it is allowable in accordance with the provisions of the
Income-tax Act.
 Any income,—

a) which has been assessed to tax for any assessment year under the Income-tax Act
prior to the assessment year to which this Act applies; or

b) which is assessable or has been assessed to tax for any assessment year under this Act,

shall be reduced from the value of the undisclosed asset located outside India, if, the
assessee furnishes evidence to the satisfaction of the Assessing Officer that the asset
has been acquired from the incomewhich has been assessed or is assessable, as the case
may be, to tax.

The amount of deduction in case of an immovable property shall be the amount which bears to
the valueof the asset as on the first day of the financial year in which it comes to the notice of
the Assessing Officer,the same proportion as the assessable or assessed foreign income bears to
the total cost of the asset.

Explanation:

A house property located outside India was acquired by an assessee in the previous year 2010-11 for
₹ 50 lakh. Out of the investment of ₹ 50 lakh, ₹ 20 lakh was assessed to tax in the total income of
the previous year 2010-11 and earlier years. Such undisclosed asset comes to the notice of the
Assessing Officer in the year 2019-20. If thevalue of the asset in the year 2019-20 is ₹ 1 crore, the
amount chargeable to tax shall be ₹ 60,00,000 i.e.,:
₹ 1,00,00,000 – (₹ 20,00,000 / ₹ 50,00,000) = ₹ 60,00,000

QUESTION-2
State the provision relating to assessment u/s 10 of the Black Money (Undisclosed Foreign
Income and Assets) and Imposition of Tax Act, 2015.

17.1
Answer:

Assessment [Sec. 10]

 The Assessing Officer may, on receipt of an information from an income-tax authority or any
other authority under any law for the time being in force or on coming of any information
to his notice, serve on any person, a notice requiring him, on the specified date, to produce
such accounts or documents or evidenceas the Assessing Officer may require for the purposes
of this Act.

- No separate return is required to be filed under this Act

- There is no time limit for issuance of the aforesaid notice. The Assessing Officer may issue
such notice anytime on the basis of information.
 The Assessing Officer may, from time to time, serve further notices requiring the
production of such otheraccounts or documents or evidence as he may require.
 The Assessing Officer may make such inquiry, as he considers necessary, for the purpose of
obtaining fullinformation in respect of undisclosed foreign income and asset of any person for
the relevant financial yearor years.
 The Assessing Officer, after considering such accounts, documents or evidence, as he has
obtained, andafter taking into account any relevant material which he has gathered and
any other evidence produced by the assessee, shall by an order in writing, assess the
undisclosed foreign income and asset and determine the sum payable by the assessee.
 Such order shall be made within 2 years from the end of the financial year in which the notice
was issued by the Assessing Officer [Sec. 11]
 Best Judgment Assessment : If any person fails to comply with all the terms of the notice, the
Assessing Officer shall, after taking into account all the relevant material which he has
gathered, make the assessment ofundisclosed foreign income and asset to the best of his
judgment and determine the sum payable by theassessee. [Sec. 10(4)]
 Before making such an assessment, an opportunity of being heard is required to be given
to the assessee.

QUESTION-3

State the provision relating to rounding off of undisclosed foreign income and asset. Also state the
provision relating to rounding off of amount payable thereon.
Answer:

Rounding off

a. The amount of undisclosed foreign income and asset computed shall be rounded off to the
nearest multiple of ₹ 100.

17.2
 b. Any amount payable or receivable by the assessee shall be rounded off to the nearest multiple
of ₹ 10.

QUESTION-4
Does Central Government enter into an agreement with the government of any other country for
exchange of information? If yes, the state the provision.

Answer:

Agreement with foreign countries or specified territories [Sec. 73]

The Central Government may enter into an agreement with the Government of any other country:

a. for exchange of information for the prevention of evasion or avoidance of tax on

undisclosed foreign income chargeable under this Act or under the corresponding law in
force in that country, or investigationof cases of such evasion or avoidance;

b. for recovery of tax under this Act and under the corresponding law in force in that country.

Taxpoint :

 The Central Government may enter into an agreement with the Government of any
specified territory outside India
 The Central Government may, by notification, make such provisions as may be necessary for
implementing the agreements
 Any specified association in India may enter into an agreement with any specified
association in the specified territory outside India and the Central Government may by
notification make such provisions as may be necessary for adopting and implementing such
agreement.

QUESTION-5

Who shall be treated as tax authorities under the Black Money (Undisclosed Foreign Income and
Assets) and Imposition of Tax Act, 2015?

Answer:

Tax authorities [Sec. 6]

 The income-tax authorities shall be the tax authorities for the purposes of this Act.
 Every such authority shall exercise the powers and perform the functions of a tax authority
under this Act in respect of any person within his jurisdiction.
 The jurisdiction of a tax authority under this Act shall be the same as he has under the Income-
tax Act
 The tax authority having jurisdiction in relation to an assessee who has no income assessable to

17.3
 income-tax under the Income-tax Act shall be the tax authority having jurisdiction in respect
of the area in which the assessee resides or carries on its business or has its principal place of
business.

QUESTION-6

What do you mean by:

a. Undisclosed asset located outside India

b. Undisclosed foreign income and asset

Answer:

a. Undisclosed asset located outside India means an asset (including financial interest in
any entity) located outside India, held by the assessee in his name or in respect of which he
is a beneficial owner, and he has no explanation about the source of investment in such
asset or the explanation given by him is in the opinion of the Assessing Officer unsatisfactory
[Sec. 2(11)]

b. Undisclosed foreign income and asset means the total amount of undisclosed income of
an assessee from a source located outside India and the value of an undisclosed asset
located outside India, referred to in section 4, and computed in the manner laid down in section
5 [Sec. 2(12)]

QUESTION-7
Discuss the scope of t otal undisclosed foreign income and asset u/s 4 of the Black Money
(Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015

Answer:

Scope of total undisclosed foreign income and asset [Sec. 4]

 The total undisclosed foreign income and asset of any previous year of an assessee shall be:

a) the income from a source located outside India, which has not been disclosed in the
return of income furnished u/s 139 of the Income-tax Act;

b) the income, from a source located outside India, in respect of which a return is required
to be furnished u/s 139 of the Income-tax Act but no return of income has been
furnished u/s 139 of the Income-tax Act; and

c) the value of an undisclosed asset located outside India.

 Any variation made in the income from a source outside India in the assessment or reassessment
of the total income of any previous year, of the assessee under the Income-tax Act in
accordance with the provisions of section 29 to section 43C (Profits and gains of business or

17.4
 profession) or section 57 to section 59 (Income from other sources) or section 92C
(Transfer pricing) of the said Act, shall not be included in the total undisclosed foreign
income.
To avoid double taxation, the income included in the total undisclosed foreign income and asset
under thisAct shall not form part of the total income under the Income-tax Act.

MCQ’S
1. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015

extends to

(a) Whole of India except the state of Jammu and Kashmir.

(b) Whole of India

(c) Whole of India except the state of Arunachal Pradesh

(d) Whole of India except the state of Jammu and Kashmir & Assam

2. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015
provides that tax @ % shall be charged on every assessee for every assessment year in
respect of total undisclosed foreign income and asset of the previous year

(a) 30

(b) 20

(c) 60

(d) 50

3. Any variation made in the income from a source outside India in the assessment or
reassessment of the total income of any previous year, of the assessee under the Income
-tax Act in accordance with the provisions of section 29 to section 43C (Profits and ga ins
of business or profession) or section 57 to section 59 (Income from other sources) or
section 92C (Transfer pricing) of the said Act, __ included in the total undisclosed foreign
income.

(a) shall not be

(b) shall

(c) may be

(d) are

17.5
4. As per sec. 5, in computing the total undisclosed forei gn income and asset of any previous
year of an assessee:

(a) No deduction in respect of any expenditure or allowance or set off of any loss shall
be allowed
(b) Deduction in respect of any expenditure or allowance or set off of any loss shall be
allowed
(c) Deduction in respect of any expenditure or allowance shall be allowed but set off of
any loss shall not be allowed

(d) No deduction in respect of any expenditure or allowance shall be allowed but set off
of any loss shall be allowed

5. As per sec. 10, return is _

(a) required to be furnished in Form 1

(b) not required to be filed under this Act

(c) required to be furnished in Form 2

(d) None of the above

Answer

1. (b) Whole of India

2. (a) 30
3. (a) shall not be
4. (a) No deduction in respect of any expenditure or allowance or set off of any loss shall
be allowed
5. (b) not required to be filed under this Act

17.6
 COLLECTION, RECOVERY & REFUND

QUESTION-1

What is Garnishee order?

Answer:

Garnishee order
The Assessing Officer or Tax Recovery Officer may by notice in writing require, any person from
whom money isdue or any person holds or may subsequently hold money for or on account of
the assessee, to pay to the Assessing Officer or Tax Recovery Officer so much of the money
(subject to maximum of amount payable toassessee) as is sufficient to pay the amount due by the
assessee.

If the person to whom a notice is sent fails to make payment in pursuance thereof to the Assessing
Officer or TaxRecovery Officer, he shall be deemed to be an assessee in default in respect
of the amount specified in thenotice and further proceedings may be taken against him for
the realisation of the amount as if it were an arrear of tax due from him, in the manner provided
in sec. 222 to 225.

Any person discharging any liability to the assessee after receipt of a notice shall be
personally liable to theAssessing Officer or Tax Recovery Officer to the extent of his own
liability to the assessee so discharged or to theextent of the assessee’s liability for any sum due
under this Act, whichever is less.

A copy of the notice shall be forwarded to the assessee at his last address known to the Assessing
Officer or TaxRecovery Officer.

Where a person to whom a notice is sent objects to it by a statement on oath that the sum
demanded or anypart thereof is not due to the assessee or that he does not hold any money for
or on account of the assessee,then, nothing shall be deemed to require such person to pay any
such sum or part thereof. But if it is discovered that such statement was false in any material
particular, such person shall be personally liable to the Assessing Officer or Tax Recovery Officer
to the extent of his own liability to the assessee on the date of the notice, or to the extent of
the assessee’s liability for any sum due under this Act, whichever is less.

18.1
QUESTION-2

Explain the circumstances under which the Assessing Officer can resort to provisional
attachment of the property of the assessee.
Answer:

Where, during the pendency of any proceeding for the assessment or reassessment, the Assessing
Officer is of the opinion that for the purpose of protecting the interests of the revenue it is
necessary so to do, he may, with the previous approval of the Chief Commissioner, Commissioner,
Director General or Dire ctor, by order in writing, attach provisionally any property belonging
to the assessee in the manner provided in the Second Schedule.

Every such provisional attachment shall cease to have effect after the expiry of a period of 6
months from thedate of such order.

However, Principal Chief Commissioner or Chief Commissioner, Principal Commissioner or

Commissioner, Principal Director General or Director General or Principal Director or Director
may, for reasons to be recordedin writing, extend the aforesaid period by such further period
or periods as he thinks fit, so, however, that thetotal period of extension shall not in any case
exceed 2 years or 60 days after the date of order of assessment orreassessment, whichever is
later.

QUESTION-3
State the provision when certain transfers are considered as void under the Income-tax Act.

Answer:

Certain transfers to be void [Sec. 281]

 Where, during the pendency of any proceeding under this Act or after the completion
thereof, but beforethe service of notice by TRO, any assessee creates a charge on or parts
with the possession (by way of sale, mortgage, gift, exchange or any other mode of transfer
whatsoever) of, any of his assets in favour of anyother person, such charge or transfer shall
be void as against any claim in respect of any tax or any othersum payable by the assessee as
a result of the completion of the said proceeding or otherwise.
 Assets means land, building, machinery, plant, shares, securities and fixed deposits in banks, to
the extent towhich any of the assets aforesaid does not form part of the stock-in-trade of the
business of the assessee.
 However, such charge or transfer shall not be void if it is made:

a. for adequate consideration and without notice of the pendency of such

18.2
 proceeding or without noticeof such tax or other sum payable by the assessee; or

b. with the previous permission of the Assessing Officer.

 This section applies to cases where the amount of tax or other sum payable or likely to be
payable exceeds ₹ 5,000 and the assets charged or transferred exceed ₹ 10,000 in value.

QUESTION-4

Who can claim refund?

Answer:

Following person can claim refund -

1. A person who has paid tax more than the amount for which he is chargeable under this Act
[Sec. 237];

2. Where the income of one person is included in the total income of other person, such
other person is entitled to claim refund on tax paid on such income [Sec. 238(1)]

3. Where due to death, incapacity, insolvency, liquidation or any other cause, a person is
unable to claim orreceive any refund due to him, his legal representative, trustee, guardian or
receiver, as the case may be, can claim and receive such refund for the benefit of such person
or his estate [Sec. 238(2)]

MCQ’S
1. Where, during the pendency of any proceeding under Income tax Act or after the completion
thereof, but before the service of notice by TRO, any assessee creates a charge on or parts
with the possession (by way of sale, mortgage, gift, exchange or any other mode of transfer
whatsoever) of, any of his assets in favour of any other person, such charge or transfer shall
be void as against any claim in respect of any tax or any other sum payable by the assessee as
a result of the completion of the said proceedin g or otherwise. Such provision is mentioned
in which section of the Income -tax Act.

(a) Section 281

(b) Section 282

(c) Section 281A

(d) Section 282A

18.3
2. Where, during the pendency of any proceeding for the assessment or reassessment, the
Assessing Officer is of the opinion that for the purpose of protecting the interests of the
revenue it is necessary so to do, he may, with the previous approval of the Chi ef Commissioner,
Commissioner, Director General or Director, by or der in writing, attach provisionally any
property belonging to the assessee in the manner provided in the Second Schedule. Such
provision is mentioned in which section of the Income -tax Act.

(a) Section 281B

(b) Section 281A

(c) Section 281

(d) Section 282

3. As per section 222 of the Income tax Act, 1961, when an assessee is in default or is deemed to
be in default in making a payment of tax, the Tax Recovery Officer may draw up under his
signature a statement in the prescribed form specifying the amount of arrears due from the
assessee (such statement being hereafter referred to as “certificate”) and shall proceed to
recover from such assessee the amount specified in the certificate by one or more of the modes
(in accordance with the rules laid down in the Second Schedule). Such mode, inter alia, includes:

(a) attachment and sale of the assessee’s movable property

(b) arrest of the assessee and his detention in prison;

(c) both (a) and (b)

(d) none of the above

4. As per section 221, when an assessee is in default or is deemed to b e in default in making a

payment of tax, he shall, in addition to the amount of the arrears and the amount of interest
payable , be liable, by way of penalty, to pay such amount as the Assessing Officer may
direct.
(a) u/s 220(2)

(b) u/s 234B

(c) u/ s 220(1)

(d) u/s 234D

18.4
5. On completion of assessment, a demand notice is served for demand raised in the assessment.
The assessee should make the payment of amount demanded within-----of service of such notice
(a) 30 days
(b) 60 days
(c) 15 days
(d) 7 days

6. As per section 220(2A), the Principal Chief Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner may reduce or waive the amount of interest paid or payable by
an assessee u/s 220(2), if he satisfied that –

(a) payment of such amount has caused or would cause genuine hardship to the assessee

(b) default in the payment of the amount on which interest has been paid or was payable under
the said sub-section was due to circumstances beyond the control of the assessee

(c) the assessee has co- operated in any inquiry relating to the assessment or any proceeding
for the recovery of an y amount due from him

(d) all of the above

7. As per section 223, the Tax Recovery Officer competent to take action u/ s 222 shall be –

(a) the Tax Recovery Officer within whose jurisdiction the assessee carries on his business
or profession or within whose jurisdiction the principal place of his business or profession
is situate

(b) the Tax Recovery Officer within whose jurisdiction the assessee resides or any movable
or immovable property of the assessee is situate

(c) any of the above

(d) none of the above

8. As per section 222, an appeal from any original order passed by the Tax Recovery Officer shall
lie to the –

(a) Chief Commissioner or Commissioner

(b) Commissioner (Appeals)

(c) No appeal is possible

(d) ITAT

18.5
Answer:

1. (a) Section 281

2. (a) Section 281B

3. (c) both (a) and (b)

4. (a) u/s 220(2)

5. (a) 30 days

6. (d) all of the above

7. (c) any of the above

8. (a) Chief Commissioner or Commissioner

18.6
 PENALTIES & PROSECUTIONS
QUESTION-1
Computation of under-reported income assuming income has been assessed for the first time:

ROI Income Under- Tax Tax Tax Penalty

Assessee Assessed
Filed u/s reported payable on payable payable on
Income
143(1)(a) Income (a) on (b) (c)
a b c = d e f = (e – d) f x 50%
(b –
a)
Individual Yes 6L 10 L 4L 33,800 1,17,000 83,200 41,600
Firm Yes 17L 20 L 3L 5,30,400 6,24,000 93,600 46,800
Firm Yes (8L) 20 L 28 L - 8,73,600 8,73,600 4,36,800
Individual Yes (9L) (3 L) 6L - 33,800 33,800 16,900
Firm No N.A. 8L 8L - 2,49,600 2,49,600 1,24,800
Individual No N.A. 7.5L 5L# - 65,000 65,000 32,500
# Assessed income as reduced by basic exemption 200% of (f) shall be levied as penalty if the
case is misreporting of income.

QUESTION-2
Compute penalty leviable u/s 270A in case of X Ltd from the following details:

Particulars Total Tax on Total Book Profit Tax on Book

Income Income Profit
Return of income 80,00,000 24,96,000 2,00,00,000 33,38,400
Assessed income 1,20,00,000 40,06,080 2,10,00,000 35,05,320
Solution:

Computation of penalty

Particulars Amount
Under-reported income
Total income computed by the Assessing Officer A 1,20,00,000
Total income as per return of income B 80,00,000
Book profit computed by the Assessing Officer C 2,10,00,000
Book profit as per return of income D 2,00,00,000
Under-reported income [(A – B) + (C – D)] 50,00,000
Tax on under-reported income
Tax on A P 40,06,080
Tax on B Q 24,96,000
Tax on C R 35,05,320
Tax on D S 33,38,400
Tax on Under-reported income [(P – T 16,77,000

19.1
 Q) + (R – S)]
Penalty u/s 270A
– Minimum (being 50% of T) 8,38,500
– Maximum (being 200% of T) 33,54,000

QUESTION-3
In the above illustration, out of addition of ₹ 10 lakh made in the book profit and ₹ 40 lakh made
in the total income (under general provisions), ₹3,00,000 was made on the same ground. Compute
penalty u/s 270A.
Solution:

Computation of penalty

Particu Amount
lars
Under-reported income
Total income computed by the Assessing Officer A 1,20,00,000
Total income as per return of income B 80,00,000
Book profit computed by the Assessing Officer C 2,10,00,000
Book profit as per return of income D 2,03,00,000
Under-reported income [(A – B) + (C – D)] 47,00,000
Tax on under-reported income
Particulars Amount
Tax on A P 40,06,080
Tax on B Q 24,96,000
Tax on C R 35,05,320
Tax on D S 33,88,476
Tax on Under-reported income [(P – Q) + (R – S)] T 16,26,924
Penalty u/s 270A
– Minimum (being 50% of T) 8,13,462
– Maximum (being 200% of T) 32,53,848

QUESTION-4
Which cases are treated cases of misreporting of income for levy of penalty u/s 270A.

Answer:

Cases of misreporting of income [Sec. 270A(9)]

The cases of misreporting of income shall be the following:

a. misrepresentation or suppression of facts;

b. failure to record investments in the books of account;

c. claim of expenditure not substantiated by any evidence;

19.2
d. recording of any false entry in the books of account;

e. failure to record any receipt in books of account having a bearing on total income; and

f. failure to report any international transaction or any transaction deemed to be an

international transaction or any specified domestic transaction, to which the provisions of
Chapter X apply.

QUESTION-5
Which cases are treated cases of under-reporting of income for levy of penalty u/s 270A.

Answer:
Cases of under-reporting of income [Sec. 270A(2)]

A person shall be considered to have under-reported his income, if:

a. the income assessed is greater than the income determined in the return processed u/s
143(1)(a);

b. the income assessed is greater than the maximum amount not chargeable to tax, where
no return of income has been furnished or where return has been furnished for the first time
u/s 148;

c. the income reassessed is greater than the income assessed or reassessed immediately
before such reassessment;

d. the amount of deemed total income assessed or reassessed u/s 115JB or 115JC is greater
than the deemed total income determined in the return processed u/s 143(1)(a);

e. the amount of deemed total income assessed u/s 115JB or 115JC is greater than the maximum
amount not chargeable to tax, where no return of income has been filed or where return has
been furnished for the first time u/s 148;

f. the amount of deemed total income reassessed u/s 115JB or 115JC is greater than the
deemed total income assessed or reassessed immediately before such reassessment;

g. the income assessed or reassessed has the effect of reducing the loss or converting such loss
into income.

19.3
QUESTION-6
Discuss the power of Principal Commissioner or Commissioner to Grant Immunity from Penalty
u/s 273AA

Answer:

Power of Principal Commissioner or Commissioner to Grant Immunity from Penalty [Sec.

273AA]
1. A person may make an application to the Principal Commissioner or Commissioner for
granting immunityfrom penalty, if —

(a) he has made an application for settlement u/s 245C and the proceedings for
settlement have abatedu/s 245HA; and

(b) the penalty proceedings have been initiated under this Act.

2. The application to the Principal Commissioner or Commissioner shall not be made after
the imposition ofpenalty after abatement.

3. The Principal Commissioner or Commissioner may, subject to such conditions as he may think
fit to impose, grant to the person immunity from the imposition of any penalty under this
Act, if he is satisfied that the person has, after the abatement, co-operated with the
income-tax authority in the proceedings before him and has made a full and true disclosure
of his income and the manner in which such income has been derived.

4. The order, either accepting or rejecting the application in full or in part, shall be passed
within a period of 12 months from the end of the month in which the application is received
by the Principal Commissioner or the Commissioner. Further, no order rejecting the
application, either in full or in part, shall be passed unlessthe assessee has been given an
opportunity of being heard.

5. The immunity granted to a person shall stand withdrawn, if such person fails to comply with
any conditionsubject to which the immunity was granted and thereupon the provisions of
this Act shall apply as if suchimmunity had not been granted.

6. The immunity granted to a person may, at any time, be withdrawn by the Principal
Commissioner or Commissioner, if he is satisfied that such person had, in the course of
any proceedings, after abatement,concealed any particulars material to the assessment
from the income-tax authority or had given false evidence, and thereupon such person
shall become liable to the imposition of any penalty under this Actto which such person
would have been liable, had not such immunity been granted.

19.4
QUESTION-7

Discuss the limitation for imposing penalties.

Answer:

Bar of limitation for imposing penalties [Sec. 275]

No order imposing a penalty under this Chapter shall be passed after following time limit:

Where the relevant assessment or other An order imposing penalty shall be passed
order isthe subject-matter of an appeal to a. before the expiry of the financial year in
the Commissioner (Appeals) and the which the proceedings, in the course of
Commissioner (Appeals) passes the order on which action for imposition of penalty has
or after 01-06-2003disposing of such appeal been initiated, are completed; or

b. within 1 year from the end of the financial

year in which the order of the
Commissioner (Appeals) isreceived by the
Principal Chief Commissioner or Chief
Commissioner or Principal Commissioner or
Commissioner, whichever is later
Where the relevant assessment or other Penalty order shall not be passed after the
order isthe subject-matter of revision u/s 263 expiry of 6months from the end of the month
or 264 in which such orderof revision is passed
In any other case Penalty order shall not be passed:

a. after the expiry of the financial year in

which the proceedings, in the course of
which action for theimposition of penalty
has been initiated, are completed; or

b. six months from the end of the month in

which action for imposition of penalty is
initiated,

whichever period expires later

19.5
QUESTION-8
What do you understand by ‘wilful attempt to evade tax’? Mention the consequences of a
willful attempt to evade tax, etc., under section 276C of the income tax Act, 1961.
Answer:

For the purposes of section 276C, a wilful attempt to evade any tax, penalty or interest
chargeable orimposable under this Act or the payment thereof shall include a case where any person:

(a) has in his possession or control any books of account or other documents (being books of
account or otherdocuments relevant to any proceeding under this Act) containing a false entry
or statement; or

(b) makes or causes to be made any false entry or statement in such books of account or other
documents; or
(c) wilfully omits or causes to be omitted any relevant entry or statement in such books of
account or otherdocuments; or causes any other circumstance to exist which will have the
effect of enabling such person to evade anytax, penalty or interest chargeable or imposable
under this Act or the payment thereof.

If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest
chargeable or imposable, or under reports his income, or evade the payment of it, he shall,
without prejudice to any penaltythat may be imposable on him under any other provision of this
Act, be punishable,—

Attempt to evade tax, penalty

or interestchargeable/imposable, or under-
reports income
- If amount sought to be evaded exceeds ₹ 6 months (with fine) 7 years (with fine)
25,00,000
- If such amount involved does not exceed ₹ 3 months (with fine) 2 years (with fine)
25,00,000
Attempt to evade the payment of any tax, 3 months (with fine) 3 years (with fine)
penalty or interest.

19.6
QUESTION-9

Discuss the provision u/s 270AA relating to immunity from imposition of penalty

Answer:

Immunity from imposition of penalty, etc. [Sec. 270AA]

 An assessee may make an application to the Assessing Officer to grant immunity from
imposition of penalty u/s 270A and initiation of proceedings u/s 276C or 276CC, if he fulfils the
following conditions:

a. the tax and interest payable as per the order of assessment or reassessment u/s
143(3) or 147, as thecase may be, has been paid within the period specified in such
notice of demand; and

b. no appeal against aforesaid order has been filed.

 An application shall be made within 1 month from the end of the month in which the said
order has beenreceived and shall be made in such form (Form 68) and verified in prescribed
manner.

 The Assessing Officer shall (on fulfilment of the aforesaid conditions) and after the expiry
of the period of filing the appeal to the Commissioner (Appeals), grant immunity from
imposition of penalty u/s 270A andinitiation of proceedings u/s 276C or 276CC, where the
proceedings for penalty u/s 270A has not been initiated due to misreporting of income.

 The Assessing Officer shall, within a period of 1 month from the end of the month in which the
application is received, pass an order accepting or rejecting such application after giving an
opportunity of being heardto the assessee.

 The order made by the assessing officer in this regard is final. Where immunity is granted to
the assessee, then appeal to Commissioner (Appeals) or an application forrevision u/s 264
shall not be admissible against the order of assessment or reassessment.

19.7
 MCQ’S
1. Failure to keep, maintain or retain books of accounts, etc., as required under section 44AA will attract
minimum and maximum penalty of –

(a) ₹ 25,000 and ₹ 25,000 respectively

(b) ₹ 25,000 and ₹ 50,000 respectively

(c) ₹ 50,000 and ₹ 50,000 respectively

(d) ₹ 25,000 and ₹ 1,50,000 respectively

2. Failure to comply with notice u/s 143(2) will attract minimum and maximum penalty of –

(a) ₹ 10,000 and ₹ 10,000 respectively

(b) ₹ 5,000 and ₹ 10,000 respectively

(c) ₹ 10,000 and ₹ 25,000 respectively

(d) ₹ 5,000 and ₹ 5,000 respectively

3. Maximum penalty u/s 270A for misreporting or under -reporting of income is –

(a) 200% of tax payable on misreported income

(b) 50% of tax payable on misreported income

(c) 3 times of the amount of tax payable on misreported income

(d) 70% of the amount of tax payable on misreport ed income

4. Failure to pay tax on dividend u/s 115-O will attract penalty u/s 271C which is

(a) 2% of the amount of tax failed to pay

(b) ₹ 10,000

(c) ₹ 1,00,000

(d) equivalent of the amount of tax failed to pay

19.8
5. Taking or accepting any loan or deposit in contravention of the provisions of sec. 269SS of the Income-
tax Act attracts penalty which is equal to the amount of such loan or deposit. Such penalty is levied
under section –

(a) 271D

(b) 271E

(c) 271C

(d) 271A

6. Relief under section 273A(1) regarding waiver of certain penalty levied under the Income- tax Act
can be availed by the assessee .

(a) once in lifetime

(b) twice in lifetime

(c) any number of time as and when he satisfies t he conditions of such provision

(d) none of the above

7. No order imposing a penalty shall be made by the Assistant Commissioner of the Income -tax or
Deputy Commissioner of the Income -tax, where the penalty exceeds ₹ 20,000, except with the prior
approval of the .

(a) Joint Commissioner

(b) Commissioner

(c) Chief Commissioner

(d) No approval from any higher authority is required

8. The Department is empowered to put on prosecution proceeding u/ s 276BB for failure to pay tax
collected at source u/ s 206C to the credit of the Central Government. In such case minimum
punishment shall be –

(a) rigorous imprisonment for 3 months with fine

(b) rigorous imprisonment for 6 months with fine

(c) rigorous imprisonment for 12 months with fine

(d) none of the above

19.9
Answer:

1. (a) ₹ 25,000 and ₹ 25,000 respectively

2. (a) ₹ 10,000 and ₹ 10,000 respectively

3. (a) 200% of tax payable on misreported income

4. (d) equivalent of the amount of tax failed to pay

5. (a) 271D

6. (a) once in lifetime

7. (a) Joint Commissioner

8. (a) rigorous imprisonment for 3 months with fine

19.10
 DISPUTE RESOLUTION COMMITTEE
QUESTION-1

What is the need for constitution of Dispute Resolution Committee (DRC)? Can an assessee
make an application before DRC against an order which is based on information received
under an agreement referred to in section 90 or section 90A?
Solution:
In order to provide early tax certainty to small and medium taxpayers, with effect from 1st
April, 2021, new scheme of Dispute Resolution has been formulated for constitution of one or
more Dispute Resolution Committee(s) (DRC).
Specified order inter alia does not include an order which is based on information received
under an agreement referred to in section 90 or section 90A. Thus, an assessee can not opt
for dispute resolution before DRC in respect of an order which is based on information
received under an agreement referred to in section 90 or section 90A.

QUESTION-2
Can an assessee opt for dispute resolution before DRC if prosecution for any offence
punishable under the provisions of the Indian Penal Code has been instituted against him and
he has been convicted in respect of the same under the said Act?
Solution:

Dispute Resolution Committee would resolve dispute in the case of such persons or class of
persons, as may be specified by the Board, who may opt for dispute resolution under this
Chapter in respect of dispute arising from any variation in the specified order in his case and
who fulfils the specified conditions.
Specified conditions in relation to a person means a person who inter alia is not a person in
respect of whom prosecution for any offence punishable under the provisions of the Indian
Penal Code has been instituted and he has been convicted of any offence punishable under the
said Act.
Thus, a person in respect of whom any prosecution has been instituted and who is convicted
of any offence punishable under the Indian Penal Code, cannot opt for resolution of dispute in
respect of specified order before DRC.

20.1