CA Inter Taxation — Question Paper — December 2021

Answer: NO, Dynamic QR Code is not applicable to suppliers who issue invoices to unregistered persons (B2C transactions).

Dynamic QR Code requirement applies only to B2B transactions (invoices issued by registered persons to other registered persons). The QR Code serves the purpose of invoice authentication and streamlining the Input Tax Credit mechanism at the recipient end, which is relevant only when both parties are registered under GST.

Suppliers to whom Dynamic QR Code is NOT applicable:

1. Suppliers issuing invoices to unregistered persons (consumers/B2C transactions)

2. Suppliers below the e-invoicing turnover threshold — Registered persons whose aggregate turnover in preceding financial year is below ₹20 crores (or as specified by CBIC)

3. Composition scheme suppliers — Being exempt from issuing tax invoices and maintaining detailed records, they are not required to generate e-invoices with Dynamic QR Code

4. Suppliers making exempt supplies — Invoices relating to supplies exempt from GST (e.g., educational services, healthcare, agricultural sales by farmers) do not require Dynamic QR Code

5. Supplies not attracting GST (non-taxable supplies) — Supplies outside the scope of GST do not require e-invoicing or Dynamic QR Code

6. Supply of pure commodities — As notified by CBIC in certain specified categories and states, these supplies may be exempt from e-invoicing requirement

7. Inter-State supplies to unregistered dealers (certain categories)

8. Supply of goods/services outside India — Exports and supplies made to SEZ units in specific circumstances

The Dynamic QR Code thus serves a dual function: invoice verification and facilitating ITC claims for registered recipients. Since unregistered persons cannot claim ITC, the QR Code requirement does not apply to B2C invoices.

Statement of Under-Absorption of Factory Overheads and Its Treatment

Step 1 – Absorbed Overheads

The predetermined overhead absorption rate is ₹20 per man-day. Man-days actually worked = 1,50,000 days.

Overheads Absorbed = 1,50,000 × ₹20 = ₹30,00,000

Step 2 – Actual Overheads (Segregation of Abnormal Items)

Total factory overheads incurred = ₹35,50,000. However, two items are excluded from normal overhead for the purpose of supplementary rate calculation:

(i) Strike period wages (₹2,00,000) — This is an abnormal cost not related to normal production activity. It should be transferred directly to the Costing Profit & Loss Account.

(ii) Previous year expenses booked in current year (₹1,00,000) — This is a prior period item and should not be charged to current year production. It should also be transferred to the Costing Profit & Loss Account.

Normal actual overheads = ₹35,50,000 − ₹2,00,000 − ₹1,00,000 = ₹32,50,000

Step 3 – Normal Under-Absorption

Normal actual overheads: ₹32,50,000
Absorbed overheads: ₹30,00,000
Under-absorption (normal) = ₹32,50,000 − ₹30,00,000 = ₹2,50,000

Step 4 – Treatment via Supplementary Overhead Rate

The normal under-absorption of ₹2,50,000 is spread over all output of the period using a supplementary overhead rate. Output is computed in equivalent units:

| Output Component | Units |
|---|---|
| Units sold | 50,000 |
| Closing finished goods stock | 12,000 |
| Closing WIP (20,000 × 65%) | 13,000 |
| Total equivalent units | 75,000 |

Supplementary rate = ₹2,50,000 ÷ 75,000 = ₹3.33 per equivalent unit

Distribution of Under-Absorption:

| Destination | Units | Rate (₹) | Amount (₹) |
|---|---|---|---|
| Cost of Sales | 50,000 | 3.33 | 1,66,667 |
| Closing Finished Goods Stock | 12,000 | 3.33 | 40,000 |
| Closing WIP | 13,000 | 3.33 | 43,333 |
| Total | 75,000 | | 2,50,000 |

Step 5 – Complete Reconciliation of Total Under-Absorption

Total under-absorption = ₹35,50,000 − ₹30,00,000 = ₹5,50,000

| Treatment | Amount (₹) |
|---|---|
| Distributed via supplementary rate | 2,50,000 |
| Strike wages → Costing P&L A/c | 2,00,000 |
| Prior period expenses → Costing P&L A/c | 1,00,000 |
| Total | 5,50,000 |

Conclusion: The total under-absorption of ₹5,50,000 is fully accounted for: ₹2,50,000 is spread over closing stock and cost of sales via a supplementary rate of ₹3.33 per equivalent unit, and ₹3,00,000 (abnormal and prior-period items) is written off to Costing Profit & Loss Account.

The threshold limit for mandatory e-invoicing has evolved through progressive reductions. As of the current rules, e-invoicing is mandatory for all registered persons making B2B (business-to-business) supplies without any turnover threshold (effective from October 1, 2023). This means every registered person, regardless of their aggregate annual turnover, must issue e-invoices for B2B supplies. For B2C (business-to-consumer) supplies, the threshold remains at ₹1 crore aggregate annual turnover (effective from January 1, 2023). Prior to October 2023, the applicable threshold for B2B supplies was ₹1 crore aggregate turnover. The removal of the turnover threshold for B2B supplies represents a significant expansion, making e-invoicing mandatory for all registered persons conducting inter-business transactions. Certain categories of supplies and suppliers may have exemptions as per GSTN specifications and administrative guidelines.

Generation of E-way Bill:

As per Rule 138 of the CGST Rules, 2017, an e-way bill must be generated before the commencement of movement of goods. The obligation to generate arises at the time movement begins, not when goods are handed over to the transporter.

In the given case, the consignor handed over goods to the transporter on Friday, but the transporter actually commences movement from the consignor's warehouse on Monday. Since the e-way bill is required to be generated before the movement starts, the e-way bill will be generated on Monday (i.e., on the date movement actually commences).

The mere handing over of goods on Friday does not trigger e-way bill generation; it is the commencement of movement that determines the relevant date.

Validity of E-way Bill:

As per Rule 138(10) of the CGST Rules, 2017, the validity period of an e-way bill for goods other than Over Dimensional Cargo (ODC) is as follows:

- For a distance of up to 200 km — 1 day
- For every additional 200 km or part thereof — 1 additional day

The distance between the consignor's warehouse and the depot is 600 km.

- First 200 km → 1 day
- Next 200 km (201–400 km) → 1 additional day
- Next 200 km (401–600 km) → 1 additional day
- Total validity = 3 days

The validity is counted from the date and time of generation of the e-way bill (i.e., from Monday). Each "day" constitutes a period of 24 hours.

Conclusion: The e-way bill will be generated on Monday (when movement commences), and it will be valid for 3 days from the time of its generation, expiring at midnight at the end of Wednesday.

Computation of Income from Business of Mr. Shivam for A.Y. 2021-22

Mr. Shivam is engaged in manufacture of motor parts and is subject to tax audit under Section 44AB of the Income Tax Act, 1961. His income shall be computed under the normal provisions as Section 44AB merely imposes an audit obligation and does not alter the method of income computation.

Treatment of Stock Undervaluation (Note i):
Both opening and closing stocks have been undervalued by 10% (i.e., the book values are 10% less than the correct values). The undervaluation amount is calculated on the shown/book value. Correction of opening stock (higher opening stock → higher cost of goods sold → lower profit → deduct) and correction of closing stock (higher closing stock → lower cost of goods sold → higher profit → add) are required.

Treatment of Lottery Income:
Winnings from lottery of ₹31,500 (net of TDS @ 30%) is credited in the P&L account. Lottery income is not a business income — it is chargeable under Section 56(2) of the IT Act 1961 as Income from Other Sources and taxable at a flat rate of 30% under Section 115BB. Accordingly, it must be deducted from net profit. The gross amount is ₹31,500 ÷ 0.70 = ₹45,000.

Treatment of Profit on Sale of Asset used for Scientific Research:
Under Section 41(3) of the IT Act 1961, where a capital asset used for scientific research is sold and a deduction had been claimed under Section 35, the lower of (a) deduction allowed or (b) sale consideration is deemed to be business income. Since the profit of ₹2,00,000 is already credited in the P&L and represents Section 41(3) deemed income, no adjustment is required — it remains in business income.

Computation of Business Income:

Net Profit as per P&L account: ₹15,74,500
Add: Correction for undervaluation of closing stock (10% × ₹5,53,000): ₹55,300
Subtotal: ₹16,29,800
Less: Correction for undervaluation of opening stock (10% × ₹4,50,000): ₹45,000
Less: Lottery winnings credited in P&L (transferred to IFOS): ₹31,500
Income from Business: ₹15,53,300

Computation of Total Income:

Income from Business: ₹15,53,300
Income from Other Sources — Lottery winnings (gross) u/s 115BB: ₹45,000
Gross Total Income / Total Income: ₹15,98,300
(No Chapter VI-A deductions assumed unless specified.)

Computation of Tax Liability (A.Y. 2021-22):
Mr. Shivam is aged 61 years — Senior Citizen (basic exemption: ₹3,00,000).

Note: Lottery income of ₹45,000 is taxable separately at flat 30% u/s 115BB (no basic exemption benefit on this income). Normal income on which slab rates apply = ₹15,53,300.

Tax on normal income of ₹15,53,300:
- Up to ₹3,00,000: Nil
- ₹3,00,001 to ₹5,00,000 @ 5%: ₹10,000
- ₹5,00,001 to ₹10,00,000 @ 20%: ₹1,00,000
- ₹10,00,001 to ₹15,53,300 @ 30%: ₹1,65,990
Tax on normal income: ₹2,75,990

Tax on lottery income @ 30% u/s 115BB: ₹13,500
Total Income Tax: ₹2,89,490
Add: Health & Education Cess @ 4%: ₹11,580
Total Tax Liability: ₹3,01,070
Less: TDS on lottery winnings (already deducted): ₹13,500
Net Tax Payable: ₹2,87,570

Note: Rebate u/s 87A is not available as total income (₹15,98,300) exceeds ₹5,00,000. No surcharge applicable as income does not exceed ₹50,00,000.

Note: The question states (4×5=20) but the four specific sub-questions (a), (b), (c), (d) appear to have been omitted from the problem statement. Based on the data provided and standard CA Intermediate Cost Accounting examination patterns, the four sub-questions most commonly asked with this dataset are: (a) Material Consumed, (b) Average Stock, (c) Stock Turnover Ratio, and (d) Average Holding Period. The solution below addresses all four.

(a) Material Consumed

The material consumed is computed using the basic inventory formula:
Material Consumed = Opening Stock + Purchases – Closing Stock

For Material A: ₹30,000 + ₹90,000 – ₹20,000 = ₹1,00,000
For Material B: ₹32,000 + ₹51,000 – ₹14,000 = ₹69,000

Total material consumed during the year = ₹1,69,000.

(b) Average Stock

Average Stock (also called Average Inventory) is the simple mean of opening and closing stock, representing the typical level of inventory held during the period.

For Material A: (₹30,000 + ₹20,000) ÷ 2 = ₹25,000
For Material B: (₹32,000 + ₹14,000) ÷ 2 = ₹23,000

(c) Stock Turnover Ratio (Material Turnover Ratio)

Stock Turnover Ratio measures how efficiently raw material inventory is being consumed. It is calculated as:
Stock Turnover Ratio = Material Consumed ÷ Average Stock

For Material A: ₹1,00,000 ÷ ₹25,000 = 4 times
For Material B: ₹69,000 ÷ ₹23,000 = 3 times

Material A has a higher turnover ratio, indicating faster consumption and more efficient inventory management compared to Material B.

(d) Average Holding Period (Days of Inventory)

Average Holding Period indicates the average number of days for which stock is held before being consumed:
Average Holding Period = (Average Stock ÷ Material Consumed) × 365 days

For Material A: (₹25,000 ÷ ₹1,00,000) × 365 = 91.25 days ≈ 91 days
For Material B: (₹23,000 ÷ ₹69,000) × 365 = 121.74 days ≈ 122 days

XYZ Ltd holds Material A for approximately 91 days and Material B for approximately 122 days on average. The longer holding period for Material B suggests a relatively slower rate of consumption or possible over-stocking, warranting a review of procurement and storage policies.

Answer: Total Income of Mr. Ravi for Assessment Year 2021-22 is ₹21,57,000

Income from House Property Calculation:

Step 1: Determine Gross Annual Value (GAV)

GAV is the higher of Municipal Value, Standard Rent, and Market Rent:
- Municipal Value: ₹27,00,000
- Standard Rent: ₹29,80,000
- Market Rent: ₹30,00,000

GAV = ₹30,00,000

Step 2: Calculate Rent Received/Receivable

GAV is reduced by loss of rent due to vacancy:
- Loss of rent due to vacancy of one flat (3 months): ₹2,40,000 × (3/12) = ₹60,000
- Rent Received/Receivable = ₹30,00,000 − ₹60,000 = ₹29,40,000

Note: The amenities amount of ₹1,00,000 is included in the rental income and forms part of the GAV.

Step 3: Calculate Deductions under Section 24

Municipal Taxes:
- FY 2020-21: ₹4,00,000 − 10% rebate (₹40,000) = ₹3,60,000
- Arrears of FY 2019-20: ₹1,40,000, but this includes ₹25,000 interest on arrears. Interest on arrears is not deductible under Section 24. Deductible portion = ₹1,40,000 − ₹25,000 = ₹1,15,000
- Total deductible municipal taxes = ₹4,75,000

Lift Maintenance Expenses:
Total lift maintenance: ₹2,40,000 includes ₹30,000 paid in cash. Under Section 40A(4), no deduction is allowed for cash payments exceeding ₹10,000 in a single day. The amount exceeding ₹10,000 is disallowed: ₹30,000 − ₹10,000 = ₹20,000 is disallowed.
- Deductible lift maintenance = ₹2,40,000 − ₹20,000 = ₹2,20,000

Salary to Staff:
- This is a revenue expenditure for collection of rent and is deductible under Section 24.
- Deductible salary = ₹88,000

Total Deductions = ₹4,75,000 + ₹2,20,000 + ₹88,000 = ₹7,83,000

Step 4: Calculate Net Income from House Property

Net Income = Rent Received/Receivable − Total Deductions
Net Income = ₹29,40,000 − ₹7,83,000 = ₹21,57,000

Total Income = ₹21,57,000 (No other income mentioned and no rebate u/s 115BAC is claimed)

Examination of Tax Implications for Assessment Year 2021-22:

(i) Mr. Rahul - Ambassador's Salary: TAXABLE

The salary of ₹7,30,000 and allowances of ₹2,40,000 (total ₹9,70,000) received by Mr. Rahul are taxable in India. Although services were rendered outside India (Japan), Section 5(1) of the Income Tax Act, 1961 provides that a non-resident is chargeable to tax on income which accrues or arises in India OR is received in India. Since the income is received in India during PY 2020-21, it is taxable regardless of the geographical source of income. The receipt in India triggers tax liability for non-residents.

(ii) Mr. Johl - Export Operations: TAXABLE

The income of ₹2,50,000 is taxable in India. Although Mr. Johl is a non-resident, the operations are confined to purchasing goods in India for export, constituting business carried on in India. Under Section 9(1)(iii) of the Income Tax Act, 1961, business income accrues or arises in India if the business is carried on in India. The business activity of purchasing goods within Indian territory constitutes business in India, and therefore the entire income of ₹2,50,000 is taxable.

(iii) Mr. Naveen - Royalty Income: PARTIALLY TAXABLE

₹1,50,000 (50%) is taxable; ₹1,50,000 (50%) is NOT taxable.

Under Section 9(1)(vi) of the Income Tax Act, 1961, royalty is deemed to accrue or arise in India if the patent or right is made available for use in India. Mr. Rakesh has utilized the patent for product development in India; however, the facts specify that 50% of royalty is received in India (relating to Indian use) and 50% outside India (relating to non-Indian use). Accordingly, only the portion relating to Indian use (₹1,50,000) is deemed to accrue in India and is taxable under Section 5(1). The remaining 50% (₹1,50,000) accrues outside India and does not satisfy the taxability condition for non-residents; it is therefore not taxable in India.

Cost Sheet of G Ltd for the month of September 2021

Before preparing the cost sheet, the following key figures are derived:

Number of bags produced: Leather consumed = 2,000 m ÷ 2 m/bag = 1,000 bags. Cotton check: 1,000 m ÷ 1 m/bag = 1,000 bags ✓ (No opening/closing stock of inputs, so purchased = consumed.)

Bags sold: 1,000 produced − 100 closing stock = 900 bags

Machine Depreciation (monthly): Total cost ₹22,00,000; Scrap value = 10% = ₹2,20,000; Depreciable value = ₹19,80,000; Annual SLM depreciation = ₹19,80,000 ÷ 10 = ₹1,98,000; Monthly = ₹1,98,000 ÷ 12 = ₹16,500

Rent Allocation: Rate = ₹1,20,000 ÷ 2,400 sq. ft = ₹50/sq. ft
- Factory/Works area = 2,400 − 240 − 200 = 1,960 sq. ft → ₹98,000
- Admin office = 240 sq. ft → ₹12,000
- Sales office = 200 sq. ft → ₹10,000

Scrap: 35 kg × ₹150 = ₹5,250 (deducted from Works Cost as it arises during manufacturing)

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(i) Cost of Raw Material Consumed:
Leather sheets: ₹3,20,000 + Cotton cloths: ₹15,000 = ₹3,35,000

(ii) Prime Cost:
Raw Material ₹3,35,000 + Direct Labour (2,000 hrs × ₹80) ₹1,60,000 + Other Direct Costs (2,000 hrs × ₹10) ₹20,000 = ₹5,15,000

(iii) Works/Factory Cost:
Prime Cost ₹5,15,000 + Machine Depreciation ₹16,500 + Factory Rent ₹98,000 − Scrap Sales ₹5,250 = ₹6,24,250

(iv) Cost of Production (1,000 bags):
Works Cost ₹6,24,250 + Admin Staff ₹45,000 + Admin Rent ₹12,000 = ₹6,81,250
Cost per bag = ₹6,81,250 ÷ 1,000 = ₹681.25 per bag

(v) Cost of Goods Sold (900 bags):
Cost of Production ₹6,81,250 − Closing Stock (100 × ₹681.25) ₹68,125 = ₹6,13,125

(vi) Cost of Sales:
Cost of Goods Sold ₹6,13,125 + Sales Staff ₹12,000 + Sales Office Rent ₹10,000 = ₹6,35,125

Given Information:
Budgeted production = 2,00,000 units; Variable cost per unit = ₹16; Fixed cost per unit = ₹4 (at budgeted level); Total Fixed Cost = ₹4 × 2,00,000 = ₹8,00,000; Total cost per unit = ₹16 + ₹4 = ₹20; Selling Price = ₹20 + 20% of ₹20 = ₹20 + ₹4 = ₹24 per unit

(i) Present Break-Even Sales

Contribution per unit = Selling Price − Variable Cost = ₹24 − ₹16 = ₹8 per unit

Break-Even Point (Quantity) = Fixed Cost ÷ Contribution per unit = ₹8,00,000 ÷ ₹8 = 1,00,000 units

Break-Even Sales (₹) = BEP units × Selling Price = 1,00,000 × ₹24 = ₹24,00,000

(ii) Present Profit-Volume (P/V) Ratio

P/V Ratio = (Contribution ÷ Sales) × 100 = (₹8 ÷ ₹24) × 100 = 33.33% (i.e., 1/3)

(iii) Revised Break-Even Sales and Revised P/V Ratio (Selling Price Reduced by 10%)

Revised Selling Price = ₹24 − 10% of ₹24 = ₹24 − ₹2.40 = ₹21.60 per unit

Variable cost and Fixed Cost remain unchanged.

Revised Contribution per unit = ₹21.60 − ₹16 = ₹5.60 per unit

Revised P/V Ratio = (₹5.60 ÷ ₹21.60) × 100 = 25.93% (i.e., 7/27)

Revised Break-Even Sales (₹) = Fixed Cost ÷ Revised P/V Ratio = ₹8,00,000 ÷ (7/27) = ₹8,00,000 × 27/7 = ₹30,85,714 (approx.)

(iv) Revised Sales Quantity and Amount for 20% More Profit (at Revised Selling Price)

Budgeted Profit = 2,00,000 units × ₹4 (profit per unit) = ₹8,00,000

Desired Profit = ₹8,00,000 + 20% of ₹8,00,000 = ₹8,00,000 + ₹1,60,000 = ₹9,60,000

Required Sales (units) = (Fixed Cost + Desired Profit) ÷ Revised Contribution per unit = (₹8,00,000 + ₹9,60,000) ÷ ₹5.60 = ₹17,60,000 ÷ ₹5.60 = 3,14,286 units (approx.)

Revised Sales Amount = 3,14,286 units × ₹21.60 = ₹67,88,571 (approx.)

Alternatively: (₹8,00,000 + ₹9,60,000) ÷ 25.93% = ₹17,60,000 ÷ (7/27) = ₹67,88,571

Part (i): Statement of Annual Operating Expenses for a Single Mini Bus

The cost statement is prepared by allocating fleet-wide costs to each bus and computing annual figures for all expense heads.

Working Notes for Diesel (Fuel): The bus operates 2 shifts per day. Each shift involves a to-and-fro journey of 30 kms (one-way) = 60 kms per shift. For 2 shifts: 2 × 60 = 120 kms per day. Annual kms = 120 × 20 days × 12 months = 28,800 kms per bus per year. Litres consumed = 28,800 ÷ 8 = 3,600 litres. Cost = 3,600 × ₹80 = ₹2,88,000.

Depreciation (Straight Line Method): = (₹15,00,000 − ₹3,00,000) ÷ 8 years = ₹1,50,000 per year.

| Particulars | Basis | Annual Amount (₹) |
|---|---|---|
| Driver's salary | ₹20,000 × 12 | 2,40,000 |
| Lady attendant's salary | ₹10,000 × 12 | 1,20,000 |
| Cleaner's salary | (₹15,000 ÷ 2) × 12 | 90,000 |
| Diesel / Fuel | 3,600 litres × ₹80 | 2,88,000 |
| Insurance | 2% × ₹15,00,000 | 30,000 |
| License fees & taxes | ₹5,080 × 12 | 60,960 |
| Garage rent | (₹24,000 ÷ 8) × 12 | 36,000 |
| Repair & maintenance | ₹2,850 × 12 | 34,200 |
| Depreciation | (₹15,00,000 − ₹3,00,000) ÷ 8 | 1,50,000 |
| Total Annual Cost per Bus | | 10,49,160 |

Part (ii): Average Cost per Employee per Month

Step 1 – Monthly cost per bus: ₹10,49,160 ÷ 12 = ₹87,430 per month.

Step 2 – Effective passengers per trip: Seating capacity = 30 persons. Occupancy = 80%. Actual passengers = 30 × 80% = 24 persons per trip.

Step 3 – Categorise passengers: 50% from ≤15 kms = 12 persons (fare = f). 50% from >15 kms = 12 persons (fare = 2f).

Step 4 – Fare equation (monthly recovery):
Total monthly fare = 12f + 12(2f) = 36f
36f = ₹87,430
f = ₹87,430 ÷ 36 = ₹2,428.61

(a) Average cost per employee per month for employees up to 15 kms from office = ₹2,428.61

(b) Average cost per employee per month for employees beyond 15 kms from office = 2 × ₹2,428.61 = ₹4,857.22

Computation of Total Income and Tax Liability of Mr. Shivansh — AY 2021-22 (PY 2020-21)

A. TREATMENT OF SALARY & WAGES ITEMS

(i) Employer's Contribution to NPS [Section 36(1)(iva) of the Income Tax Act, 1961]:
Basic salary of Mr. Ganesh = ₹1,10,000. DA = 40% × 1,10,000 = ₹44,000. Since 50% of DA forms part of salary, salary for Section 36(1)(iva) = 1,10,000 + 22,000 = ₹1,32,000. Contribution made = 20% of basic = ₹22,000. Maximum allowable = 10% × 1,32,000 = ₹13,200. Disallowed: ₹8,800 (added back to business income).

(ii) Voluntary Retirement Scheme Payment [Section 35DDA]:
Sum paid = ₹2,40,000 on 1st January 2021. Under Section 35DDA, deduction is spread equally over 5 years. Allowable this year = 1/5 × 2,40,000 = ₹48,000. Disallowed: ₹1,92,000 (balance to be claimed in next 4 AYs).

B. INTEREST ON LOAN FOR ELECTRIC CAR:
Loan of ₹12,00,000 @ 15% p.a. from SBI from 01.05.2020 for electric car used for personal purpose. Interest for PY 2020-21 (11 months) = 15% × 12,00,000 × 11/12 = ₹1,65,000. Since car is for personal use, no deduction under Section 37(1). However, under Section 80EEB, an individual can claim deduction for interest on loan from a financial institution for purchase of electric vehicle (loan sanctioned between 01.04.2019–31.03.2023). Maximum deduction = ₹1,50,000.

C. DEPRECIATION:
Depreciation already computed = ₹4,20,000. Additionally, motor car purchased on 25.08.2020 for ₹3,00,000 for supply of goods (business use) was omitted. Period from 25.08.2020 to 31.03.2021 = 218 days (>180 days), so full depreciation applies. Additional depreciation = 15% × 3,00,000 = ₹45,000. Total allowable depreciation = ₹4,65,000.

D. INCOME FROM BUSINESS/PROFESSION — Section 41(3):
Asset purchased on 17.11.2019 for ₹6,00,000 for scientific research; entire cost deducted under Section 35. Sold on 05.09.2020 for ₹8,00,000. Under Section 41(3), business income = lower of (sale consideration, deduction claimed) = lower of ₹8,00,000 and ₹6,00,000 = ₹6,00,000.

E. CAPITAL GAINS:

(i) STCG on scientific research asset:
Period of holding: 17.11.2019 to 05.09.2020 ≈ 10 months → Short-Term Capital Asset. STCG = Sale consideration (₹8,00,000) − Original cost (₹6,00,000) = ₹2,00,000 (taxable at slab rates; Section 111A does not apply as this is not equity/units).

(ii) LTCG on compulsory acquisition of industrial land [Section 45(5)]:
Capital gain arises in the year compensation is first received = 27.02.2021 → PY 2020-21 → AY 2021-22. Acquired on 08.08.2005 (held >24 months) → Long-Term Capital Asset. Indexed cost = 2,00,000 × 301/117 = ₹5,14,530. LTCG before exemption = 12,00,000 − 5,14,530 = ₹6,85,470. New industrial land purchased for ₹6,00,000 qualifies for Section 54D exemption (compulsory acquisition + new industrial land within 3 years). Exemption = lower of (LTCG ₹6,85,470) or (new asset ₹6,00,000) = ₹6,00,000. Net LTCG = ₹85,470.

F. INCOME FROM OTHER SOURCES — Interest on Compensation [Section 56(2)(viii)]:
Government paid ₹54,000 as interest on compensation on 28.03.2021. Taxable in year of receipt. Under Section 57(iv), 50% deduction is allowed. Net taxable = 54,000 × 50% = ₹27,000.

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COMPUTATION OF TOTAL INCOME:

| Head | Amount (₹) |
|---|---|
| Income from Business/Profession [Section 41(3)] | 6,00,000 |
| Short-Term Capital Gains | 2,00,000 |
| Long-Term Capital Gains (net of Section 54D) | 85,470 |
| Income from Other Sources | 27,000 |
| Gross Total Income | 9,12,470 |
| Less: Deduction u/s 80EEB (interest on EV loan) | (1,50,000) |
| Total Income | 7,62,470 |

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TAX LIABILITY:

Normal income (Total income − LTCG) = 7,62,470 − 85,470 = ₹6,77,000

Tax on ₹6,77,000 at slab rates:
- ₹0–₹2,50,000: Nil
- ₹2,50,001–₹5,00,000: 5% × 2,50,000 = ₹12,500
- ₹5,00,001–₹6,77,000: 20% × 1,77,000 = ₹35,400
- Tax on normal income = ₹47,900

Tax on LTCG @ 20% u/s 112 = 85,470 × 20% = ₹17,094

Total tax before cess = ₹64,994
Add: Health & Education Cess @ 4% = ₹2,600

Total Tax Liability = ₹67,594

*(Note: Total income ₹7,62,470 exceeds ₹5,00,000, hence rebate under Section 87A is not available. Basic exemption of ₹2,50,000 is fully absorbed against normal income.)*

Computation of Gross Total Income for Assessment Year 2021-22

For Mr. R:

Mr. R's GTI comprises the following income sources:

1. Salary from AMG Limited: ₹3,20,000 - As an employee, salary is taxable income under salary head.

2. Capital Gains from RSB Ltd shares: ₹5,20,000 - Mr. R received 5,000 shares as a gift from Mrs. R on 17.09.2013. Under Section 49(2)(vi), the cost of acquisition of shares received as a gift is the fair market value on the date of receipt. The Company issued 3,000 bonus shares in 2016; cost of bonus shares is nil under Section 49(2)(vi). On 04.03.2021, Mr. R sold all 8,000 shares and earned capital gains of ₹5,20,000, which forms part of GTI.

3. Commission Income: ₹4,00,000 - This is business/professional income.

Exclusion: The ₹30,000 earned by the HUF from the property transferred by Mr. R is not included in Mr. R's GTI. As per general HUF taxation principles, HUF is a separate legal entity distinct from its members. Income earned by HUF is taxed in its own hands, not in the hands of individual members. Section 64(2) applies to transfers to spouses, not to transfers to HUF.

Total GTI of Mr. R = ₹3,20,000 + ₹5,20,000 + ₹4,00,000 = ₹12,40,000

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For Mrs. R:

Mrs. R's GTI comprises the following income sources:

1. Salary from AMG Limited: ₹2,30,000 - As an employee, this is taxable salary income.

2. Interest on Loan to Mr. Girish: ₹3,50,000 × 11% per annum = ₹38,500 - Mrs. R had given a loan to Mr. Girish on which she earned interest in earlier years. The principal amount of ₹3,50,000 earned interest at 11% per annum during the previous year 2020-21. This interest income is taxable.

3. Other Interest Income: ₹3,30,000 - Interest income from other sources.

Exclusion: The ₹4,00,000 gift received from Mr. R on 01.04.2006 is not income and hence not included in GTI. Gifts are generally not taxable in the hands of the recipient. Though Section 56(2)(vi) applies to gifts of property above specified amounts, the receipt itself is not 'income' in the ordinary sense for GTI computation.

Total GTI of Mrs. R = ₹2,30,000 + ₹38,500 + ₹3,30,000 = ₹6,98,500

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Summary: Gross Total Income
- Mr. R: ₹12,40,000
- Mrs. R: ₹6,98,500

Contract Account for the Year Ended 31st March, 2021

The Contract Account is prepared under AS 7 (Construction Contracts) using the percentage of completion method.

| Dr. Side | ₹ | Cr. Side | ₹ |
|---|---|---|---|
| WIP b/d – Work Uncertified | 10,000 | Outstanding Plant Hire b/d | 20,000 |
| Materials at Site b/d | 35,000 | Materials Returned to Stores | 35,000 |
| Materials Purchased | 2,00,000 | Materials Returned to Suppliers | 50,000 |
| Materials Issued from Stores | 8,00,000 | Sale Proceeds of Materials | 20,000 |
| Wages Paid | 1,50,000 | Materials at Site c/d | 25,000 |
| Outstanding Wages c/d | 22,000 | Work Uncertified c/d | 15,000 |
| Plant Supervisor Salary (1/3rd) | 80,000 | Work Certified (during the year) | 18,50,000 |
| Drawings and Maps | 50,000 | | |
| Sundry Expenses | 30,000 | | |
| Electricity Charges | 40,000 | | |
| Plant Hire Expenses Paid | 75,000 | | |
| Outstanding Plant Hire c/d | 15,000 | | |
| Sub-contract Cost | 40,000 | | |
| Depreciation on Additional Plant | 90,000 | | |
| Notional Profit c/d | 3,78,000 | | |
| Total | 20,15,000 | Total | 20,15,000 |

Notional Profit as on 31st March, 2021 = ₹ 3,78,000

Key Notes on Adjustments:

(1) Plant Supervisor Salary: Only 1/3rd = ₹ 80,000 is charged to the contract; the balance relates to other contracts/work.

(2) Depreciation on Additional Plant: Calculated on SLM basis for 270 days = ₹ 90,000. The plant cost (₹ 5,00,000) and residual value (₹ 20,000) are not passed through the contract account directly — only the depreciation charge is debited.

(3) Materials Sold at Loss: Material costing ₹ 40,000 is already included in materials purchased/issued (debited). Only the sale proceeds of ₹ 20,000 are credited, giving a net loss of ₹ 20,000 absorbed in the contract.

(4) Plant Hire Charges: Opening outstanding (₹ 20,000) was last year's charge — credited as b/d. Current year's cost = ₹ 75,000 paid + ₹ 15,000 accrued − ₹ 20,000 opening = ₹ 70,000.

(5) Work Certified: Cumulative as on 31-03-2021 = 70% × ₹ 30,00,000 = ₹ 21,00,000. Previous year certified = ₹ 2,50,000. Hence, current year certified = ₹ 18,50,000.

(6) The contract is 80% complete but only 70% certified. The notional profit of ₹ 3,78,000 is based on certified work. Profit recognition for P&L transfer (not asked) would apply the proportion: 2/3 × (Work Certified ÷ Contract Price) × Notional Profit, under the conservative approach.

**Note: The question appears to be incomplete as provided — the 'additional information' table or list following the colon has not been included in the question text. The output GST liability figures given (CGST ₹3,00,000 | SGST ₹2,50,000 | IGST ₹3,00,000) represent the liability *after* ITC adjustment already done in the books. Without the additional ITC details (such as wrong ITC claimed, ITC reversal required, blocked credits under Section 17(5) of the CGST Act 2017, or interest/late fee adjustments), the final corrected liability cannot be computed.

Framework for solving this type of question (once data is available):

Step 1 — Identify additional ITC to be reversed: Under Section 17(5) of the CGST Act 2017, certain credits are blocked (e.g., motor vehicles for personal use, food & beverages, club memberships). Any such ITC already claimed must be reversed, increasing net liability.

Step 2 — Apply ITC cross-utilisation rules under Section 49 of the CGST Act 2017 read with Rule 88A of the CGST Rules 2017:
- IGST credit is utilised first against IGST liability, then against CGST liability, then against SGST liability (in that order).
- CGST credit can be used only against CGST and then IGST liability (NOT against SGST).
- SGST credit can be used only against SGST and then IGST liability (NOT against CGST).
- CGST and SGST credits cannot be cross-utilised against each other.

Step 3 — Compute net cash payable: After proper utilisation of available ITC balances in the electronic credit ledger, the balance payable in cash is determined head-wise (CGST / SGST / IGST separately).

Step 4 — Interest under Section 50 of the CGST Act 2017: If any liability has been underpaid due to incorrect ITC, interest @18% p.a. is applicable from the due date of return to the date of actual payment.

Please provide the missing 'additional information' table so the complete numerical solution can be worked out.**

Part (i): Liability for GST Registration

Q Ltd must determine its liability for GST registration based on aggregate turnover and inter-state supplies, as prescribed under Section 22 of the CGST Act, 2017.

The registration threshold is ₹40 lakhs for general taxable persons. For special category states (North-East states, J&K, Himachal Pradesh), the threshold is ₹20 lakhs.

Q Ltd's inter-state supplies in May 2021 are:
- Madhya Pradesh: ₹5,00,000
- Gujarat: ₹14,00,000
- Tripura: ₹12,00,000
- Total inter-state supplies: ₹31,00,000

Since Tripura is a special category state, we analyze separately:
- Supplies from Tripura: ₹12,00,000 (below ₹20 lakh threshold for special category states)
- Supplies from other states (MP + Gujarat): ₹19,00,000 (below ₹40 lakh threshold)

Alternatively, aggregate inter-state supplies = ₹31,00,000, which is below the ₹40 lakh threshold for inter-state supplies.

Conclusion: Q Ltd is not liable for GST registration under the turnover threshold as provided in Section 22 of CGST Act, 2017, since the inter-state supplies fall short of the applicable threshold limit.

Part (ii): Supply of Petrol & Diesel

If Q Ltd supplies only petrol and diesel from Tripura instead of other taxable goods, the answer would not be different.

Reasoning: The GST registration threshold is based on aggregate turnover, not the nature of goods. Petrol and diesel are taxable goods under GST at 5% (as notified). They are not exempt goods. The registration requirement applies uniformly to all taxable goods.

Since the supplies from Tripura would still be ₹12,00,000 (below both the ₹20 lakh special category state threshold and the ₹40 lakh general threshold), Q Ltd would remain not liable for registration.

Note: The fact that petrol and diesel are also subject to excise duty and petroleum cess (outside GST) does not alter the GST registration requirement.

Part (i): Interest on Late Payment of Shortfall

Under Section 50 of the CGST Act, 2017, interest is payable on any tax that remains unpaid after the due date at the rate of 18% per annum.

Timeline Analysis:
Due date for August 2020 tax: 20.09.2020 (GSTR-3B filing and payment deadline)
Payment of shortfall: 20.11.2020
Period of non-payment: 21.09.2020 to 20.11.2020 = 61 days

The shortfall of ₹10,000 remained unpaid from the due date (20.09.2020) until its payment on 20.11.2020. Interest accrues on this amount at 18% p.a. for 61 days.

Interest Calculation:
Using the formula: Interest = (Principal × Rate × Period in days) / 365
Interest = (10,000 × 18 × 61) / (100 × 365)
Interest = ₹300.82 (or ₹301 rounded)

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Part (ii): Interest if Return and Payment Were Both Late

If the GSTR-3B for August 2020 had been filed belatedly on 20.11.2020 and tax of ₹10,000 paid simultaneously:

The interest payable remains the same at ₹301.

This is because interest under Section 50 is calculated from the statutory due date (20.09.2020) to the date of actual payment (20.11.2020), regardless of when the return is filed. The period of 61 days remains constant.

Key Distinction: While the interest is identical to part (i), late filing of GSTR-3B also attracts a late fee under Section 47 of the CGST Act, 2017 (₹100 per day for 61 days, capped at ₹5,000). However, this is a separate liability from interest and was not the focus of the question.

Time of Supply: 15th September, 2021

According to Section 12(2) of the CGST Act, 2017, the time of supply of goods is the earlier of the following two dates: (a) the date of issue of invoice by the supplier, or (b) the date of receipt of payment by the supplier.

Application to Given Facts:

The relevant dates in the given scenario are:
- Date of issue of invoice: 15th September, 2021
- Date of receipt of payment: 30th September, 2021

Since the invoice was issued on 15th September, 2021 and payment was received on 30th September, 2021, the earlier of these two dates is 15th September, 2021.

Important Clarifications:

(1) The date when the order was placed (18th August, 2021) and the date when the order was accepted (4th September, 2021) are not relevant for determining the Time of Supply. These dates relate to when the contractual obligation arose, but ToS is determined only by invoice issuance or payment receipt.

(2) The invoice being issued "after completion of the order" indicates that the goods were delivered or made available to the recipient on or before 15th September, 2021. However, even if delivery occurred earlier, the ToS is determined by the invoice issuance date (not the delivery date) unless the invoice is issued more than 30 days after delivery, in which case ToS would be the delivery date.

(3) Section 12(3) provides that if an invoice is not issued within 30 days from the date of delivery of goods (or making available to the recipient), then the time of supply shall be the date of delivery or making available. In this case, the invoice was issued on 15th September, which appears to be within 30 days of completion/delivery, so this exception does not apply.

Conclusion: The Time of Supply for payment under the CGST Act, 2017 is 15th September, 2021 (the date of invoice issuance).

The time of supply of the transporter's service is 20th June 2021, the date on which the invoice was received (issued).

Relevant Provisions: Section 12(2) of the Central Goods and Services Tax Act, 2017 provides that in the case of supply of services, the time of supply shall be the earlier of (a) the date of issue of the invoice, or (b) the date on which payment is received, if received before the date of invoice.

Application to Facts: In the given case:
- Service engagement date: 20th May 2021 (date of contract/order placement)
- Service performed/completed: 20th July 2021 (when consignment was actually sent)
- Date of invoice: 20th June 2021 (when invoice was issued by transporter)
- Date of payment: 25th August 2021 (when payment was made)

Analysis: Under GST law, the time of supply is determined by invoice issuance or payment receipt—not by the date the service was actually performed or when it was ordered. The strike at the factory and the resulting delay in performing the service are commercially relevant facts but legally immaterial for GST purposes. The critical dates are the invoice date and the payment date. Since the invoice was issued on 20th June 2021 and payment was made on 25th August 2021, the invoice date (20th June 2021) is earlier. Therefore, the time of supply is the earlier of these two dates: 20th June 2021.

Conclusion: HM Industries Ltd. must account for GST on the transporter's service effective 20th June 2021 (the date of invoice), regardless of when the service was actually performed. This is the time of supply for GST purposes.

Part (i): CTP Registration Provisions and Mr. Q's Liability

A Casual Taxable Person (CTP) under Section 24 of the CGST Act, 2017, is a non-registered person who occasionally makes inter-state supplies of taxable goods or services. Rule 8 of the CGST Rules, 2017 prescribes the registration procedure.

Key Provisions for CTP Registration:

1. Mandatory Registration: A CTP must register in every state to which he makes inter-state supplies of taxable goods. There is no minimum turnover threshold for CTP registration—even a single transaction triggers the obligation.

2. Exemption Available: Registration is not required only if the CTP supplies goods or services specifically notified as exempt under Schedule I or Schedule II of the GST Act.

3. Timeline: Registration must be completed within 5 days of commencing supply; failure attracts penalties.

Application to Mr. Q:

Mr. Q is liable for CTP registration because: (a) He is making inter-state supplies to three states (Maharashtra, Rajasthan, and Andhra Pradesh), (b) The goods are described as taxable notified handicraft goods—the term "taxable" indicates they are not exempt from GST despite being notified, (c) No turnover threshold applies to CTP; the ₹18 lakhs monthly turnover is irrelevant for this registration requirement, (d) As an occasional trader (not a permanent resident supplier in those states), he must register in each destination state.

Conclusion: Mr. Q is liable to register as CTP in Maharashtra, Rajasthan, and Andhra Pradesh.

Part (ii): Impact of Manufacturing Process (75% Machine, 25% Hand)

To qualify as handicraft goods under GST, a minimum threshold of 50% of production value or manufacturing cost must be created through manual labor. Goods manufactured with 75% machine work and 25% hand work fall short of this threshold.

Effect on Classification:

With this manufacturing composition, the goods would be reclassified as ordinary manufactured goods, no longer qualifying as handicraft. They would lose the "handicraft" designation and any concessional tax treatment associated with handicraft status.

Effect on Registration Liability:

Since the question specifies these are "taxable" handicraft goods, the reclassified goods would remain taxable (they would not become exempt merely by losing handicraft status). Mr. Q would still be making inter-state supplies of taxable goods. Therefore, Mr. Q remains liable to register as CTP—the change in product classification does not alter his registration obligation for taxable inter-state supplies.

Conclusion: The answer remains the same; Mr. Q must register as CTP regardless of whether the goods qualify as handicraft, provided they remain taxable goods.

(i)(a) Traditional Costing — Support Costs Allocated in Ratio of COGS

Total Support Costs = Drug Licence ₹5,00,000 + Ordering ₹8,30,000 + Delivery ₹18,20,000 + Shelf Stocking ₹32,40,000 + Customer Support ₹28,20,000 = ₹92,10,000

Total COGS = ₹41,42,500 + ₹68,16,750 + ₹1,26,63,750 = ₹2,36,23,000

Allocation ratio — Drug A: Drug B: Drug C = 41,42,500 : 68,16,750 : 1,26,63,750 (i.e., 17.54% : 28.86% : 53.60%)

Statement of Operating Income — Traditional Costing (₹)

| Particulars | Drug A | Drug B | Drug C |
|---|---|---|---|
| Revenue | 74,50,000 | 1,11,25,000 | 1,36,25,000 |
| Less: COGS | 41,42,500 | 68,16,750 | 1,26,63,750 |
| Gross Margin | 33,07,500 | 43,08,250 | 9,61,250 |
| Less: Support Costs | 16,15,036 | 26,57,646 | 49,37,318 |
| Operating Income | 16,92,464 | 16,50,604 | (39,76,068) |
| Operating Income % of Revenue | 22.72% | 14.84% | (29.19%) |

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(i)(b) Activity-Based Costing — Support Costs via Cost Drivers

Activity Rates: Ordering = ₹8,30,000 ÷ 2,000 orders = ₹415/order | Delivery = ₹18,20,000 ÷ 2,800 = ₹650/delivery | Shelf Stocking = ₹32,40,000 ÷ 4,500 hrs = ₹720/hr | Customer Support = ₹28,20,000 ÷ 4,70,000 units = ₹6/unit

Note: Shelf stocking hours (960+1,250+2,150 = 4,360) and units sold (1,75,200+1,20,300+1,44,500 = 4,40,000) are less than the denominator used for rate computation; the difference of ₹2,80,800 represents cost of idle/unused capacity and is not charged to any product line.

Statement of Operating Income — ABC (₹)

| Particulars | Drug A | Drug B | Drug C |
|---|---|---|---|
| Revenue | 74,50,000 | 1,11,25,000 | 1,36,25,000 |
| Less: COGS | 41,42,500 | 68,16,750 | 1,26,63,750 |
| Gross Margin | 33,07,500 | 43,08,250 | 9,61,250 |
| Drug Licence Fee (2:3:5) | 1,00,000 | 1,50,000 | 2,50,000 |
| Ordering Cost | 2,32,400 | 3,36,150 | 2,61,450 |
| Delivery Cost | 6,17,500 | 6,50,000 | 5,52,500 |
| Shelf Stocking Cost | 6,91,200 | 9,00,000 | 15,48,000 |
| Customer Support Cost | 10,51,200 | 7,21,800 | 8,67,000 |
| Total Support Costs | 26,92,300 | 27,57,950 | 34,78,950 |
| Operating Income | 6,15,200 | 15,50,300 | (25,17,700) |
| Operating Income % of Revenue | 8.26% | 13.94% | (18.48%) |

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(ii) Opinion — Choice of Product Line

Under Traditional Costing, Drug A appears most profitable at 22.72%, followed by Drug B at 14.84%, while Drug C runs at a loss of 29.19%. Based purely on traditional costing, Drug A would be chosen.

However, Traditional Costing uses a single blanket allocation basis (COGS ratio) for all overheads, which distorts profitability — it over-allocates costs to high-COGS products (Drug C) and under-allocates to low-COGS products.

Under Activity-Based Costing, Drug B is the most profitable at 13.94%, Drug A drops significantly to 8.26%, and Drug C remains loss-making at -18.48%. ABC reveals that Drug A's profitability was overstated under traditional costing because Drug A places heavy demand on Customer Support (1,75,200 units) while Drug B places relatively lower demands on all activities.

Recommendation: Since ABC provides a more accurate and cause-effect based cost allocation, the drug store should choose Drug B. Drug C should be eliminated under both approaches as it consistently generates losses. The decision based solely on traditional costing would have been misleading.

Answer: Total Income for AY 2021-22: ₹2,52,000

Income Computation:

Mr. X's salary comprises Basic Salary of ₹3,80,000 and Dearness Allowance of ₹1,20,000 (100% taxable). The fact that 40% of DA forms part of pay for retirement benefits is relevant only for pension/gratuity calculations, not for income tax. Total Salary Income: ₹5,00,000.

The gift of ₹70,000 received by Mr. X's minor son from a friend is not taxable under Section 56(2)(vii). Gifts are taxable only when received from specified relations (parents, siblings, spouse). Gifts from friends, whether to minors or adults, are excluded from income.

Mrs. X's business loss of ₹1,30,000 is her own loss and does not affect Mr. X's taxable income. They are separate legal entities; spousal losses cannot reduce the other's income.

Gross Total Income: ₹5,00,000

Deductions under Section 80:

Section 80C: Sukanya Samridhi Account deposit (₹70,000) and LIC Annuity Plan under Section 80CCC (₹40,000) = ₹1,10,000. Both fall within the ₹1,50,000 annual ceiling of Section 80C.

Section 80CCD(1): Mr. X's employee contribution is 20% of ₹3,80,000 = ₹76,000. However, the deduction limit is the lower of (i) 10% of Gross Total Income or (ii) ₹50,000. Since 10% of ₹5,00,000 = ₹50,000 and the prescribed limit is ₹50,000, the deductible amount is capped at ₹50,000.

Section 80CCD(2): Government's (employer's) contribution is 20% of ₹3,80,000 = ₹76,000. Employer contributions under Section 80CCD(2) have no limit and are fully deductible: ₹76,000.

Section 80E: Interest paid on educational loan is ₹15,000, of which ₹3,000 pertains to FY 2019-20. Only interest paid in FY 2020-21 is deductible: ₹15,000 – ₹3,000 = ₹12,000. No limit applies to Section 80E deductions.

Total Deductions: ₹1,10,000 + ₹50,000 + ₹76,000 + ₹12,000 = ₹2,48,000

Total Income = ₹5,00,000 – ₹2,48,000 = ₹2,52,000

Consequences for Mr. Kailash for non-filing return within due date under Section 139(1):

1. Penalty under Section 234F
A penalty is imposed for delay in furnishing return of income:
- ₹1,000 if the total income does not exceed ₹5 lakhs
- ₹10,000 if the total income exceeds ₹5 lakhs
This penalty will be added to the tax liability in addition to the tax due.

2. Loss of Carry Forward of Losses
If the return is not filed within the prescribed period specified in Section 139(4):
- Capital losses cannot be carried forward to subsequent assessment years
- Business losses cannot be carried forward to subsequent years
- The taxpayer will lose the benefit of adjusting these losses against future income
This is a critical consequence as the losses are completely forfeited and cannot be recovered in any manner.

3. Deemed Assessment under Section 139(9)
If the return is not filed by the extended deadline specified in Section 139(4):
- The Assessing Officer can proceed with assessment based on information available or best judgment
- The assessment will be made without ensuring adequate consideration of the taxpayer's claims and reliefs
- This can result in a higher assessment of income and corresponding tax demand.

4. Interest on Unpaid Tax
If any tax is found due on assessment:
- Interest will be charged at the prescribed rate (currently 8% per annum for individuals)
- Interest accrues from the due date of the original return until payment is made
- This substantially increases the total tax liability of the taxpayer.

5. Criminal Penalties and Prosecution
For serious violations and repeated non-compliance:
- Criminal prosecution can be initiated under relevant provisions of the Act
- This can result in imprisonment and/or fine
- The severity of punishment depends on the nature and extent of non-compliance.

6. Extended Assessment Period
- The period within which the Assessing Officer can make assessment is extended by 2 years from the date of filing the return
- This gives the AO a longer period to examine, verify, and complete assessment proceedings
- The taxpayer faces prolonged scrutiny and uncertainty regarding final tax liability.

Understanding Section 36 Deductions and Disclosure Requirements

Section 36 of the Income Tax Act, 1961 permits deductions from business income for various expenses and charges. When filing a Return of Income (ROI), Mr. Sitaram must furnish detailed particulars of deductions claimed under Section 36. Given his turnover of ₹10 crores, he is mandatorily required to obtain an Audit Report under Section 44AB and the auditor must report on these particulars in Form 3CD (Audit Report - Continuation Sheet).

Mandatory Particulars to be Furnished:

1. Interest on Borrowed Capital (Section 36(1)(c)): If Mr. Sitaram has claimed deductions for interest on borrowed capital, he must furnish the name and address of the lender(s), amount of capital borrowed, rate of interest charged, tenure of the loan, and the amount of interest paid or payable during the financial year.

2. Details of Borrowed Capital: Particulars of all loans and borrowings (both short-term and long-term) including the purpose of borrowing, whether it is for business or other purposes. This is essential because interest is deductible only on capital borrowed for business purposes.

3. Repairs and Renewals: Itemized details of repairs and renewals expenses claimed under Section 36(1)(vii), including nature, date, amount, and whether the expenditure is for maintaining the existing asset or amounts to capital expenditure (which would not be deductible).

4. Insurance Premiums: Details of all insurance policies maintained (building, machinery, stock, liability insurance, etc.), their annual premiums, and the portion thereof deductible in the current year.

5. Depreciation Schedule: Although depreciation is covered under Section 32, the auditor must report on the depreciation claimed and the asset register particulars.

6. Bad Debts: If any bad debts have been written off, complete details including debtors' names, amounts, reasons for becoming irrecoverable, and steps taken for recovery.

7. Amounts for Use of Borrowed Capital: Under Section 36(1)(c), particulars of any commission or remuneration paid for the use of borrowed capital.

Additional Form Requirements:

Mr. Sitaram must attach the Auditor's Report (Form 12BA and 3CD) with his ROI. The auditor's certificate in Form 3CD specifically covers computations relating to deductions under Section 36, providing an authoritative confirmation of the deductions claimed and the particulars thereof.

Conclusion: All particulars must be supported by proper documentary evidence (invoices, loan agreements, insurance certificates, bank statements) and presented in accordance with the format prescribed by the Central Board of Direct Taxes (CBDT). Non-disclosure or inadequate disclosure of these particulars may result in disallowance of the deductions claimed.

Reconciliation of Cost Profit to Financial Profit

For the year ended 31st March, 2021

Net Profit as per Cost Accounts: ₹3,60,740

Add: Rent received credited in financial accounts: ₹5,450

Less:
Cost recovery of selling overheads (not treated as product cost in financial accounts): ₹10,250
Over-valuation of closing stock in cost accounts: ₹7,300
Bad debts provision in financial accounts: ₹3,250
Income tax provision in financial accounts: ₹15,900
Loss on sale of capital asset in financial accounts: ₹5,800
Under-recovery of administration overheads (unabsorbed overhead): ₹3,600

Net Profit as per Financial Accounts: ₹3,20,090

The reconciliation adjusts for differences in treatment between cost and financial accounting. Selling overheads recovery in cost accounts increases product cost but is excluded in financial accounting. The over-valued closing stock is written down to actual value. Financial account items like rent received, bad debts provision, income tax, capital losses, and unabsorbed administration overheads do not feature in cost accounts and must be adjusted. The over-valuation of stock artificially increased cost profit and is corrected downward.

Bill of Material (BOM) is a comprehensive list of raw materials, components, sub-assemblies, and quantities required to manufacture a finished product. It serves as a detailed specification document that itemizes all inputs needed for production, including material codes, descriptions, quantities, units, and sometimes costs. It is essentially a recipe for manufacturing, representing the composition of the final product.

Uses in Purchases Department: The BOM enables the purchasing department to determine the exact quantities and types of materials to be procured. It facilitates accurate purchase requisition preparation, helps in supplier selection by enabling quotation comparisons for bulk quantities specified in the BOM, and assists in inventory planning to ensure timely availability of materials. The BOM helps in standardizing purchases and achieving economies of scale through consolidated procurement of materials across production batches.

Uses in Production Department: The BOM guides the production planning and scheduling process by specifying the exact materials and components needed for each unit of output. It helps in determining production lead times, sequencing of operations, and resource allocation. The production department uses BOM to issue material requisitions, schedule manufacturing activities, and coordinate with other departments. It also helps in maintaining quality standards by ensuring only approved materials are used as per specification.

Uses in Stores Department: The BOM assists in inventory management by providing information about expected material usage patterns and consumption rates. It helps in setting appropriate stock levels and reorder points for different materials. The stores department uses BOM data for material identification, classification, and location assignment in the warehouse. It facilitates stock verification, prevents obsolescence through better inventory control, and enables efficient material issuing against production requirements.

Uses in Cost/Accounting Department: The BOM is fundamental for cost accounting and product costing. It provides the basis for calculating standard material costs per unit by specifying exact quantities of each material required. The accounting department uses BOM for budgeting purposes, cost variance analysis (comparing actual consumption with standard quantities specified in BOM), and inventory valuation. It enables preparation of detailed cost sheets, facilitates job costing and process costing, and supports financial reporting by providing accurate product cost information.

In essence, the BOM acts as a critical link between design specifications and operational execution, ensuring coordination across all departments while maintaining standardization and enabling accurate cost determination.

Note: The question does not provide the underlying data (budgeted hours, actual hours, standard rates, actual output, actual overheads, working days, etc.) required for numerical computation. The solution below presents the complete framework, all six variance formulas with definitions, and a worked template — so that if the data is substituted, the answer can be derived instantly. This is the standard approach taught for CA Intermediate Cost and Management Accounting (Paper 3) under the ICAI syllabus.

Overhead Variance Framework

All overhead variances are computed by comparing Absorbed (Standard) Overhead with Budgeted Overhead and Actual Overhead.

Key notations used:
- SR(F) = Standard Fixed Overhead Rate per hour = Budgeted Fixed OH ÷ Budgeted Hours
- SR(V) = Standard Variable Overhead Rate per hour = Budgeted Variable OH ÷ Budgeted Hours
- SH(AO) = Standard Hours for Actual Output
- BH = Budgeted Hours
- AH = Actual Hours Worked
- RBOH = Revised Budgeted Hours = (Budgeted Hours ÷ Budgeted Days) × Actual Days

(i) Overhead Cost Variance (OCV)
= Absorbed Overhead − Actual Overhead
= [SR(F) + SR(V)] × SH(AO) − [Actual Fixed OH + Actual Variable OH]
Favourable if absorbed > actual; Adverse if absorbed < actual.

(ii) Fixed Overhead Cost Variance (FOCV)
= Absorbed Fixed OH − Actual Fixed OH
= SR(F) × SH(AO) − Actual Fixed OH
This measures total under/over-absorption of fixed overhead.

(iii) Variable Overhead Cost Variance (VOCV)
= Absorbed Variable OH − Actual Variable OH
= SR(V) × SH(AO) − Actual Variable OH
Note: Variable OH Cost Variance = Variable OH Expenditure Variance + Variable OH Efficiency Variance (sub-analysis not asked here).

(iv) Fixed Overhead Volume Variance (FOVV)
= Absorbed Fixed OH − Budgeted Fixed OH
= SR(F) × SH(AO) − SR(F) × BH
= SR(F) × [SH(AO) − BH]
This variance arises purely because actual output (in standard hours) differs from budgeted output. It can be sub-divided into Efficiency Variance, Capacity Variance, and Calendar Variance.

(v) Fixed Overhead Expenditure Variance (also called Budget Variance)
= Budgeted Fixed OH − Actual Fixed OH
= SR(F) × BH − Actual Fixed OH
This measures whether fixed costs were controlled within budget. It is independent of output.

(vi) Calendar Variance
= SR(F) × (Revised Budgeted Hours − Budgeted Hours)
= SR(F) × [(BH ÷ Budgeted Days) × Actual Days − BH]
Alternatively: SR(F) × (Actual Days − Budgeted Days) × Daily Standard Hours
This isolates the impact of working more or fewer days than budgeted.

Interrelationship Check:
OCV = FOCV + VOCV
FOCV = FOVV + Fixed OH Expenditure Variance
FOVV = Efficiency Variance + Capacity Variance + Calendar Variance

To obtain numerical answers: Substitute the budgeted and actual data given in the original question into the formulas above following the working notes template.

Note: The question references preceding data (budgeted overheads, actual overheads, budgeted/actual output or hours) that has not been provided in the extracted text. The solution below presents the standard methodology and accounting treatment applicable to any such question, including the framework for Part (i) and the complete treatment for Part (ii).

Part (i): Calculation of Unabsorbed Overheads

Unabsorbed (Under-absorbed) Overhead = Actual Overhead Incurred − Overhead Absorbed

Overhead Absorbed = Actual Output (or Actual Hours) × Pre-determined Overhead Absorption Rate

Pre-determined Rate = Budgeted Overheads ÷ Budgeted Output (or Budgeted Hours)

Once the total unabsorbed overhead is determined:
- 40% is attributable to factory inefficiency (abnormal cause)
- 60% is attributable to increase in cost of indirect materials and indirect labour (normal cause — price variance)

Part (ii): Accounting Treatment of Unabsorbed Overheads

The treatment depends on the cause of under-absorption, as per ICAI Cost Accounting guidelines:

Treatment of 40% (Factory Inefficiency — Abnormal Cause): This portion arises due to avoidable inefficiency. It should NOT be loaded onto the cost of production, as doing so would distort product costs. This amount is transferred directly to the Costing Profit & Loss Account and treated as a loss for the period.

Treatment of 60% (Increase in Cost of Indirect Materials/Labour — Normal Cause): This portion arises due to genuine increase in input prices, which is a recurring/normal factor. It should be absorbed into costs using a Supplementary Overhead Absorption Rate. The supplementary rate is applied to units in WIP, Finished Goods, and Cost of Goods Sold so that product costs reflect actual costs.

Supplementary Rate = Unabsorbed Amount (Normal Portion) ÷ Actual Output (or Actual Hours)

This supplementary charge is spread over:
1. Closing WIP (proportion of units)
2. Closing Finished Goods Stock
3. Cost of Goods Sold (units already sold)

Journal Entries in Cost Accounts:

Entry 1 — For abnormal portion (40%):
Dr. Costing Profit & Loss Account .............. ₹ XXX
Cr. Factory Overhead Control Account ........... ₹ XXX
*(Being under-absorbed overhead due to factory inefficiency written off to Costing P&L)*

Entry 2 — For normal portion (60%) via supplementary rate:
Dr. Work-in-Progress Control Account ........... ₹ XX
Dr. Finished Goods Control Account ............. ₹ XX
Dr. Cost of Goods Sold Account ................. ₹ XX
Cr. Factory Overhead Control Account ........... ₹ XXX
*(Being under-absorbed overhead due to price increase absorbed via supplementary rate over WIP, Finished Goods, and COGS)*

After these two entries, the Factory Overhead Control Account is fully closed with nil balance, confirming complete accounting of all overheads.