CA Inter Taxation — Question Paper — May 2022

DEALING WITH DEFECTIVE RETURNS UNDER SECTION 139(9)

(i) How the Assessing Officer Would Deal with the Issue:

When the Assessing Officer identifies that a return is defective due to inconsistent or insufficient information, the procedure is as follows:

The AO shall issue a notice under Section 139(9) to the assessee clearly specifying the defects found in the return. This notice must identify each defect precisely so the assessee understands what correction is required. The AO is mandated to allow a minimum period of 30 days (or more, as specified in the notice) to the assessee to furnish a corrected or amended return rectifying the identified defects. During this period, the AO cannot proceed with assessment and must await the assessee's response.

(ii) Consequences if Defect is Not Rectified Within the Allowed Period:

If the assessee fails to furnish a corrected return within the prescribed period, or if the corrected return is also found to be defective, the return shall be deemed to be not furnished under Section 139(1). Once deemed not furnished, the original return loses its legal validity. Consequently, the AO shall proceed to conduct a normal assessment under Section 142 by issuing a notice requiring the assessee to furnish relevant information and documents. This triggers the standard assessment procedure, and the AO may assess income based on available information, leading to a higher assessed income and potential additional tax demand. The assessee loses the benefit of a self-assessed return.

(iii) Remedies Available if Not Rectified Within Time:

The assessee has several remedies even after failing to rectify the defects:

First, the assessee may file a Revised Return under Section 139(5) disclosing a higher income or correcting the defects, though this depends on the timing and availability of the revised return option.

Second, the assessee can file an appeal against the AO's decision declaring the return as defective, contending that the return was not actually defective or that the AO acted in violation of procedure.

Third, if the AO's order contains an error in computing the income or in applying law, the assessee can seek rectification under Section 154 to correct such errors.

Fourth, the assessee can approach the Commissioner of Income-Tax for relief under Section 144 if the AO's action is considered discriminatory or unjust.

(i) Computation of Depreciation Allowable under Section 32 of the Income Tax Act, 1961

Preliminary: Impact of Subsidy on Actual Cost [Section 43(1) Explanation 10]

As per sub-part (ii), a subsidy of 20% was received under the Technology Upgradation Fund Scheme from the Central Government on the new machinery purchased for ₹7,25,000. Under Section 43(1) Explanation 10 of the Income Tax Act, 1961, where any portion of the cost of an asset is met by way of a Government subsidy or grant, the actual cost shall be reduced by the subsidy amount.

Subsidy received = 20% × ₹7,25,000 = ₹1,45,000

Actual cost of new machinery for depreciation purposes = ₹7,25,000 − ₹1,45,000 = ₹5,80,000

Period of Use of New Machinery:

New machinery was purchased on 03-07-2021. Period from 03-07-2021 to 31-03-2022 = 272 days, which is more than 180 days. Therefore, full rate of depreciation (not the restricted 50%) is applicable for both normal and additional depreciation.

Payment validity: Payment was made by account payee cheque; no disallowance under Section 40A(3) or reduction under Section 43(1) Explanation 3.

Computation of WDV of Block of Assets — Plant & Machinery (Rate: 15%)

Opening WDV on 01-04-2021: ₹4,75,000. Add actual cost of new machinery: ₹5,80,000. Less sale proceeds of old machine (10-03-2022): ₹75,000. WDV before depreciation: ₹9,80,000. Since the block is not extinguished (WDV remains positive), no short-term capital gain or terminal depreciation arises on the sale.

Normal Depreciation under Section 32(1)(i) @ 15% on ₹9,80,000 = ₹1,47,000.

Additional Depreciation under Section 32(1)(iia): Mrs. Nisha is engaged in manufacturing of textile fabrics, which is an eligible business. The new plant and machinery was not second-hand and is not an office appliance, furniture, or conveyance. It was used for more than 180 days in the year of acquisition. Accordingly, additional depreciation @ 20% on actual cost of new machinery = 20% × ₹5,80,000 = ₹1,16,000.

Total Depreciation Allowable = ₹1,47,000 + ₹1,16,000 = ₹2,63,000

Closing WDV of block as on 31-03-2022 = ₹9,80,000 − ₹2,63,000 = ₹7,17,000.

(ii) Tax Treatment of Government Subsidy

The subsidy of ₹1,45,000 received from the Central Government under the Technology Upgradation Fund Scheme is a capital subsidy received for the purpose of purchasing a capital asset (new machinery). As per Section 43(1) Explanation 10 of the Income Tax Act, 1961, such Government subsidy is not taxable as business income or as a capital receipt; instead, it reduces the actual cost of the asset. Accordingly, the subsidy amount of ₹1,45,000 is not to be credited to the Profit & Loss account as income. It is simply deducted from the cost of machinery, reducing it from ₹7,25,000 to ₹5,80,000. This lower cost base reduces future depreciation benefits, which is how the tax effect is captured.

Partial Computation of Income from Business for A.Y. 2022-23

Net profit as per P&L account: ₹5,61,000. Add back: Book depreciation debited to P&L (actual amount not provided in the visible portion of the question — to be substituted once available). Less: Depreciation allowable under Section 32 (as computed): ₹2,63,000. Other adjustments (from sub-parts not visible) would also be made. The final taxable income would be determined after all adjustments. Note: Mrs. Nisha's turnover of ₹6 crores in PY 2021-22 exceeds the Section 44AB threshold; Section 44AD is also inapplicable due to the turnover limit of ₹2 crores under that section.

Computation of Total Income of Mrs. Nisha for Assessment Year 2022-23 (Previous Year 2021-22)

Note: Facts (i) and (ii) are not reproduced in this extract; the adjustments below apply to the business income figure derived from those facts.

I. Profits and Gains from Business or Profession

Business income as per items (i) and (ii): ₹ [given]

(iii) Job Charges ₹90,000 — TDS Default: Payment to job worker of ₹90,000 attracts TDS under Section 194C of the Income Tax Act 1961. Since TDS was not deducted, 30% of ₹90,000 = ₹27,000 is disallowed under Section 40(a)(ia). The balance ₹63,000 is deductible.

(iv) Commission ₹50,000 already allowed earlier: Since this commission was allowed as a deduction in an earlier assessment year (accrual basis), no further deduction is permissible in AY 2022-23. The payment in the current year is merely settlement of a previously accrued liability.

(v) Cash Payment to Creditor ₹25,000: Cash payment to a single person exceeding ₹10,000 is wholly disallowed under Section 40A(3). The entire ₹25,000 is disallowed.

(viii) Interest from M/s Ranji Textiles @ 15% p.a.: Interest received by Mrs. Nisha as a partner on her capital is taxable as business income in her hands (not exempt under Section 10(2A), which covers only share of profit). Note: The firm may deduct interest only up to 12% p.a. under Section 40(b); the excess 3% is disallowed to the firm but the full amount received remains taxable for Mrs. Nisha.

II. Capital Gains

(vii) Gold Bracelet for Personal Use: Jewellery is a capital asset even if used for personal purposes, as it is specifically excluded from the personal effects exemption under Section 2(14) of the Income Tax Act 1961. No transaction reported; no tax consequence in AY 2022-23.

(ix) Gold Jewellery Sold: Sale price ₹3,00,000 (assumed sold in FY 2021-22 given AY 2022-23 context). Acquired 01-03-2005 (FY 2004-05); diamond improved 01-05-2007 (FY 2007-08). Holding period exceeds 36 months — Long-Term Capital Asset.

Indexed Cost of Acquisition = ₹40,000 × (317/113) = ₹1,12,212
Indexed Cost of Improvement = ₹50,000 × (317/129) = ₹1,22,868
Total Indexed Cost = ₹2,35,080
LTCG = ₹3,00,000 − ₹2,35,080 = ₹64,920

(xi) Long-Term Capital Loss on Holding Company Shares ₹75,000: LTCL can be set off only against LTCG under Section 74. Set off ₹64,920 of LTCL against LTCG of ₹64,920 → Net LTCG = Nil. Balance LTCL of ₹10,080 to be carried forward for up to 8 assessment years (set off only against future LTCG).

III. Income from Other Sources

(vi) Interest Received on Unsecured Loan ₹2,00,000: Taxable under Section 56(1) as income from other sources. (The reference to Section 80C in the facts appears to relate to separate investment items (xii) and (xiii), not to this interest income.)

(x) Gold Coin (Bullion) ₹55,000 from Cousin: Bullion is included in the definition of 'property' under Section 56(2)(x). A cousin does not fall within the definition of 'relative' under the Explanation to Section 56(2)(x). Since aggregate value ₹55,000 > ₹50,000 threshold, the entire ₹55,000 is taxable as income from other sources.

IV. Deductions under Chapter VI-A

(xii) & (xiii) Section 80C Deduction:
- LIC Premium paid ₹50,000 — eligible under Section 80C(1)(i)
- Stamp duty on residential house ₹1,50,000 — eligible under Section 80C(1)(xviii)
- Total eligible: ₹2,00,000; Restricted to maximum of ₹1,50,000 under Section 80C(3A).

Tax Computation (Framework for AY 2022-23 — Old Regime):

Total Income (after 80C) = Business income (net of disallowances) + ₹2,55,000 (IFOS) + Nil LTCG − ₹1,50,000 (80C) = ₹[computed figure]

Tax on normal income: slab rates (5% / 20% / 30%)
Add: Health & Education Cess @ 4% on tax and surcharge
Add: Surcharge if total income exceeds ₹50 lakhs

Final total income = Business Income ± disallowances + ₹2,55,000 (IFOS) − ₹1,50,000 (80C). LTCL ₹10,080 c/f to next 8 AYs.

Part (i): E-commerce Transactions (X-Y Partnership)

The liability to deduct TDS in respect of e-commerce transactions is governed by Section 194O of the Income Tax Act, 1961. This provision applies to payments made by e-commerce operators to sellers for goods sold through the platform.

Amount of ₹4,00,000 (Credited 28.02.2022): This amount exceeds the monthly threshold of ₹50,000 per seller and falls squarely within Section 194O's scope.

TDS Liability and Calculation:
- Deductor: AB Ltd (e-commerce operator)
- Deductee: X-Y Partnership
- Rate: 1%
- TDS: ₹4,00,000 × 1% = ₹4,000
- Deduction must be made before crediting amount to X-Y

Direct Payment of ₹60,000: The payment made directly by Mr. Raj to X-Y on 21.02.2022 is NOT subject to TDS by AB Ltd because it does not flow through the e-commerce platform. Section 194O applies only to amounts transacted through the e-commerce operator. This direct transaction falls outside AB Ltd's deduction obligation.

---

Part (ii): Natural Gas Supply

The liability to deduct TDS on purchase of goods is governed by Section 194H of the Income Tax Act, 1961. This provision requires purchasers to deduct TDS when acquiring goods exceeding ₹50,000 per day.

Transaction Details:
- Natural gas value: ₹26,20,000
- Freight charges: ₹1,70,000 (segregated in invoice)
- Total consideration: ₹27,90,000

TDS Liability and Rate:
- Deductor: M/s Deep Co. (purchaser)
- Deductee: ABC Ltd (natural gas producer)
- Rate: 0.5%
- Threshold clearly exceeded

Treatment of Freight: The segregation of freight in the invoice requires careful analysis. Freight charges for transportation of goods are integral to the supply transaction and form part of the "value of goods purchased" under Section 194H. Therefore, TDS applies to the total value of ₹27,90,000.

TDS Calculation:
- ₹27,90,000 × 0.5% = ₹13,950

If freight were treated as a separate service supply (less likely given the segregation is within a single invoice for goods supply), TDS would be ₹26,20,000 × 0.5% = ₹13,100 on the natural gas alone.

Liability: M/s Deep Co. is liable to deduct ₹13,950 from the payment to ABC Ltd and remit it to the authorities before the due date specified under the Act.

Computation of Total Income of Mr. Harsh for A.Y. 2022-23

Classification of Income:

Salary received from partnership firm (where it was allowed as deduction) is taxable as income from Profits and Gains of Business or Profession (PGBP) under Section 28(v) of the Income Tax Act, 1961: ₹50,000.

Income on sale of listed equity shares held for 18 months with STT paid is a Long Term Capital Gain taxable under Section 112A: ₹6,00,000. (Holding period exceeds 12 months; STT paid qualifies it under Section 112A.)

Long Term Capital Gain on sale of land taxable under Section 112: ₹5,00,000.

Income from betting is taxable as Income from Other Sources under Section 56: ₹90,000. Note: Loss from card games ₹35,000 cannot be set off against any income including betting income, and cannot be carried forward, as Section 58(4) bars any deduction in computing income from games of chance/gambling.

Step 1 — Current Year Inter-Head Set-off of House Property Loss:

As per Section 71(3A), loss from house property can be set off against income from any other head, but the set-off is capped at ₹2,00,000 per assessment year.

HP loss set off:
- Against PGBP income: ₹50,000 → PGBP = NIL
- Against Other Sources (betting): ₹90,000 → Other Sources = NIL
- Against LTCG on land: ₹60,000 → LTCG (land) = ₹5,00,000 − ₹60,000 = ₹4,40,000
- Total HP loss set off = ₹2,00,000 (cap exhausted)
- HP loss to carry forward = ₹50,000 (under Section 71B, carry forward for 8 assessment years)

Step 2 — Section 35AD Specified Business Loss:

As per Section 73A, loss from specified business under Section 35AD can only be set off against income from another specified business. Since there is no such income, the loss of ₹3,50,000 is not set off. It is carried forward indefinitely (no time limit under Section 73A).

Step 3 — Brought Forward Business Loss of A.Y. 2014-15:

Under Section 72, a brought-forward business loss can be set off only against PGBP income and can be carried forward for 8 consecutive assessment years. A.Y. 2022-23 is the 8th and final year for this loss (A.Y. 2014-15 + 8 = A.Y. 2022-23). PGBP income is NIL after current-year HP loss set-off, so this loss cannot be set off. Being the last year, ₹6,00,000 lapses entirely and cannot be carried forward.

Total Income:

| Head | Amount (₹) |
|---|---|
| PGBP | NIL |
| LTCG — Listed Shares (Section 112A) | 6,00,000 |
| LTCG — Land (Section 112) | 4,40,000 |
| Other Sources | NIL |
| Total Income | 10,40,000 |

Items Eligible for Carry Forward:

1. Loss from House Property: ₹50,000 — Carry forward for 8 assessment years under Section 71B (up to A.Y. 2030-31).
2. Loss from Specified Business (Section 35AD): ₹3,50,000 — Carry forward indefinitely under Section 73A.
3. BF Business Loss A.Y. 2014-15: NIL — Lapses; A.Y. 2022-23 was the last permissible year.
4. Card Game Loss ₹35,000: NIL — Cannot be set off or carried forward (Section 58(4)).

Transfer of Property to HUF without Consideration: When Mr. Sarthak transfers the house property to HUF without consideration, it constitutes a gift. Under Section 56(2)(vii) of the Income Tax Act, 1961, gifts are not taxable. Therefore, no tax is incurred on the gift itself, and there is no capital gains tax under Section 47(xii) (partition of HUF is not regarded as transfer).

Income from House Property—Till Partition (01-04-2021 to 01-10-2021): During this period, the property belongs to the HUF. The annual value for the entire PY 2021-22 is ₹1,00,000. Since the property was in HUF for 6 months (01-04-2021 to 01-10-2021), the proportionate annual value = ₹1,00,000 × 6/12 = ₹50,000 is taxable income of the HUF for PY 2021-22. This is assessed under Sections 22-26 (Income from House Property) and is included in the HUF's total income.

Partition of HUF (01-10-2021): The partition is not a transfer for capital gains purposes under Section 47(xii). The property is divided equally among the four members: Mr. Sarthak, Jshi, Arjun, and Aditi. Each member receives a 1/4 share of the property.

Income from House Property—Post-Partition (01-10-2021 to 31-03-2022): From the partition date onwards, the property is owned by individual members. For the remaining 6 months of PY 2021-22, the annual value = ₹1,00,000 × 6/12 = ₹50,000, which is divided equally among the four members, resulting in ₹12,500 for each member. Each member includes their respective share (₹12,500) in their individual income for the assessment year 2022-23 under Sections 22-26.

Tax Treatment of Minor Daughter (Aditi): Aditi's income of ₹12,500 is taxable in her own hands. Since this income arises from property received as partition (not as a direct gift from parents), the income is not clubbed under Section 64(1)(ii) with her parents' income, except to the extent that the property's source traces directly to a parental gift (which it does not in this case).

Summary of Tax Implications:
1. No tax on the gift of property to HUF (Section 56(2)(vii))
2. HUF's taxable income for PY 2021-22: ₹50,000
3. Each member's taxable income post-partition: ₹12,500 (for AY 2022-23)
4. Partition is exempt from capital gains tax (Section 47(xii))
5. No transfer pricing adjustment required as the transfer is without consideration

Taxability of Gifts received by Mr. Lalit — Previous Year 2021-22

Gifts received by an individual are governed by Section 56(2)(x) of the Income Tax Act, 1961. Under this provision, gifts received from non-relatives are taxable as "Income from Other Sources" if the aggregate value exceeds ₹50,000 in a financial year. The exemption for gifts received "on the occasion of marriage" applies only to the marriage of the assessee himself/herself — not to a marriage anniversary.

(i) Motor Car of ₹5,00,000 received from friend Sunil on marriage anniversary:

A motor car is a movable property as per Section 56(2)(x). Sunil is a friend and does not fall within the definition of "relative" under the Explanation to Section 56(2)(x) (which covers spouse, siblings, parents, lineal ascendants/descendants, and their spouses). The gift is received on the occasion of a marriage anniversary, which is NOT the same as "marriage" — accordingly, the exemption available for gifts received on the occasion of marriage of the individual does NOT apply here. The Fair Market Value (FMV) of ₹5,00,000 exceeds ₹50,000, so the entire FMV of ₹5,00,000 is taxable under Section 56(2)(x).

(ii) Cash gifts of ₹21,000 each from four friends = ₹84,000:

Cash gifts are covered under the "sum of money" limb of Section 56(2)(x). All four donors are friends (non-relatives). No exemption is applicable (not received from relative, not on occasion of own marriage, not under will, etc.). The aggregate cash received = 4 × ₹21,000 = ₹84,000, which exceeds ₹50,000. Accordingly, the entire ₹84,000 is taxable as income from other sources.

(iii) Land at Jaipur received as gift from friend Kabra (Stamp Duty Value ₹6,00,000):

Land is immovable property. Under Section 56(2)(x), when immovable property is received without consideration, the stamp duty value is taken as the taxable amount if it exceeds ₹50,000. Mr. Kabra is a friend and not a relative. The stamp duty value of ₹6,00,000 clearly exceeds ₹50,000. The cost of acquisition to Mr. Kabra (₹2,00,000) is irrelevant for Mr. Lalit's taxability under Section 56(2)(x). The entire stamp duty value of ₹6,00,000 is taxable as income from other sources in Mr. Lalit's hands. [Note: As per Section 49(4), when Mr. Lalit eventually sells this land, the cost of acquisition for capital gains purposes shall be deemed to be ₹6,00,000 — the amount already taxed under Section 56(2)(x).]

Total Income taxable under "Income from Other Sources" = ₹11,84,000

Income Computation of Mr. Suresh for AY 2022-23

Part (a): Long-Term Capital Gain from Land

The land was acquired on 05.08.1996 for ₹3,40,000 with registration expenses of ₹15,000 (total cost ₹3,55,000). Being held for more than 2 years, it qualifies as a long-term capital asset. The sale consideration is the higher of actual sale price (₹15 lakhs) and SDV (₹19 lakhs). Under Section 50C of the Income Tax Act 1961, when Stamp Duty Value exceeds actual consideration, SDV is deemed as full value of consideration.

Sale consideration = ₹19,00,000

For cost of acquisition: Since the asset was acquired before 01.04.2001, the assessee can elect to use Fair Market Value as on 01.04.2001 (₹6,00,000) as base cost and apply indexation from 2001-02 onwards. This method yields a higher indexed cost, thereby reducing the gain.

Indexed Cost = ₹6,00,000 × (CII for 2021-22 / CII for 2001-02) = ₹6,00,000 × (331/531) = ₹3,74,009

Long-Term Capital Gain = ₹19,00,000 − ₹3,74,009 = ₹15,25,991

(Note: CII for 2021-22 is 331 per standard tables; not provided in question)

Part (b): Income from SEZ Industrial Undertaking

The undertaking commenced in FY 2019-20, making PY 2021-22 its 3rd year of operations. Under Section 10AA of the Income Tax Act 1961, SEZ undertakings receive 100% exemption on profits for the first 5 years from commencement of operations. Since the undertaking is in its 3rd year (within the first 5-year period) and fulfils all conditions of Section 10AA, the entire profit qualifies for exemption.

Income under Section 10AA = ₹Nil (Entire profit of ₹30 lakhs is exempt)

Part (c): Other Sources of Income

Crossword puzzles: ₹10,000
Bank Fixed Deposit Interest (gross): ₹15,000
Total from other sources = ₹25,000

Part (d): Deduction under Section 80C

Tuition fees of ₹36,000 for three children (₹12,000 per child p.a.) paid to a school are deductible under Section 80C of the Income Tax Act 1961 for education of dependent children. The amount is within applicable limits.

Deductible amount = ₹36,000

Total Income Calculation

Gross Income Components:
• LTCG from land: ₹15,25,991
• SEZ undertaking profit (Section 10AA exempt): ₹0
• Other sources: ₹25,000
• Gross Income: ₹15,50,991

Less: Deduction under Section 80C (tuition fees): ₹36,000

Total Income = ₹15,14,991

Tax Payable Calculation (Not opting for Section 115BAC)

Using normal tax slabs for AY 2022-23 (Age 53, eligible for basic slab):

• Up to ₹2,50,000: ₹0
• ₹2,50,001 to ₹5,00,000 (₹2,50,000 @ 5%): ₹12,500
• ₹5,00,001 to ₹10,00,000 (₹5,00,000 @ 20%): ₹1,00,000
• ₹10,00,001 to ₹15,14,991 (₹5,14,991 @ 30%): ₹1,54,497

Total Income Tax = ₹2,66,997

Health and Education Cess @ 4% on tax = ₹2,66,997 × 4% = ₹10,680

Total Tax Payable = ₹2,77,677

Net GST Payable in Cash by Zeon Ltd. for September 2021

Step 1 – Output Tax Liability

Zeon Ltd. manufactures Washing Machines & Mixer Grinders. The applicable GST rate is 9% (CGST 4.5% + SGST 4.5% for intra-state; IGST 9% for inter-state).

- Intra-state supply (within Jharkhand) ₹24,00,000 → CGST @ 4.5% = ₹1,08,000; SGST @ 4.5% = ₹1,08,000
- Inter-state supply (outside Jharkhand) ₹5,00,000 → IGST @ 9% = ₹45,000

Step 2 – Input Tax Credit (ITC) Available

*Raw Materials (Intra-state, ₹7,00,000):* Out of ₹7,00,000, ₹2,00,000 is purchased from Mr. Krishna, a composition scheme dealer. As per Section 10(4) of the CGST Act, 2017, a composition dealer is not permitted to collect GST from his buyer. Hence, no ITC is admissible on ₹2,00,000 worth of purchases from Mr. Krishna. Eligible raw material purchase = ₹5,00,000.
- CGST @ 3% on ₹5,00,000 = ₹15,000; SGST @ 3% = ₹15,000

*Bus (Intra-state from Tatanagar, Jharkhand, ₹12,00,000):* A bus has an approved seating capacity exceeding 13 persons. Hence, the restriction under Section 17(5)(a) of the CGST Act, 2017 (which blocks ITC on motor vehicles for transportation of persons with ≤13 seats) does not apply. ITC is fully available.
- CGST @ 7% on ₹12,00,000 = ₹84,000; SGST @ 7% = ₹84,000

*Opening ITC Balance:* CGST ₹20,000 | SGST ₹5,000 | IGST ₹95,000

Total ITC Available: CGST = ₹1,19,000 | SGST = ₹1,04,000 | IGST = ₹95,000

Step 3 – ITC Utilisation (as per Section 49 of the CGST Act, 2017)

Order of set-off: IGST ITC is first utilised against IGST liability, then against CGST, then SGST. CGST ITC is used only against CGST. SGST ITC is used only against SGST.

- IGST ITC ₹95,000 → Set off against IGST liability ₹45,000 → IGST fully paid. Surplus IGST ITC = ₹50,000 → Set off against CGST liability.
- CGST liability after IGST surplus: ₹1,08,000 – ₹50,000 = ₹58,000. CGST ITC ₹1,19,000 → Set off ₹58,000 → CGST fully paid. Surplus CGST ITC = ₹61,000 (to be carried forward; cannot be used against SGST).
- SGST liability ₹1,08,000 – SGST ITC ₹1,04,000 = ₹4,000 payable in cash.

Net GST Payable in Cash: SGST ₹4,000 | CGST NIL | IGST NIL

Notes: (1) No ITC on supplies from composition dealer (Section 10(4), CGST Act). (2) ITC on bus is available as seating capacity exceeds 13 persons (Section 17(5)(a) restriction inapplicable). (3) Cross-utilisation between CGST and SGST ITC is not permitted. (4) Surplus CGST ITC of ₹61,000 is carried forward to the next tax period.

Income arising from the activities for Assessment Year 2022-23:

1. Agricultural Income (Growing Coffee):
Expenses incurred in growing coffee are ₹3,10,000. This activity constitutes agricultural income under Section 10(1) of the Income Tax Act, 1961, and is exempt from income tax. The loss of ₹3,10,000 incurred in this activity is not allowable as a deduction against other income due to the agricultural income exemption.

2. Non-Agricultural Business Income (Curing Operations):
The curing of coffee is a processing/manufacturing operation, classified as non-agricultural business and subject to income tax.

Calculation of Income:
- Sale value of cured coffee: ₹2,20,000
- Less: Expenses of curing: ₹3,00,000
- Loss before depreciation: ₹80,000
- Less: Depreciation on machinery: ₹2,25,000 (calculated below)
- Net Loss: ₹3,05,000

Depreciation on Machinery:
Machinery falls under Block A with a depreciation rate of 15% per annum under the written down value method.
- Opening WDV (01-04-2021): ₹15,00,000
- Depreciation for PY 2021-22: ₹15,00,000 × 15% = ₹2,25,000

Summary of Income:
The taxable loss from non-agricultural business (curing) is ₹3,05,000. The agricultural loss of ₹3,10,000 remains exempt and cannot be offset against business income.

Written Down Values as on 01-04-2022:

Car (used for agricultural operations):
Assets used exclusively for agricultural operations do not attract depreciation under the Income Tax Act, 1961. Therefore:
- Opening WDV: ₹3,00,000
- Depreciation allowed: Nil
- WDV as on 01-04-2022: ₹3,00,000

Machinery (used for curing business):
- Opening WDV (01-04-2021): ₹15,00,000
- Depreciation for PY 2021-22: ₹2,25,000
- WDV as on 31-03-2022: ₹15,00,000 − ₹2,25,000 = ₹12,75,000
- WDV as on 01-04-2022: ₹12,75,000

Section 139(5) of the Income-tax Act, 1961 permits revision of returns filed under Sections 139(1), 139(3), and 139(4), subject to specified conditions and timelines.

(i) Related return filed under Section 139(4): YES

A return of income can be revised under Section 139(5). Section 139(5) explicitly covers returns filed under Section 139(4) (related returns filed by persons not issued notice under Section 139(1)). Such returns are eligible for revision provided the revised return is filed on or before the due date for filing the return for the relevant assessment year, OR within 4 months from the end of the assessment year, whichever is earlier. The revising taxpayer must deliver the revised return to the Assessing Officer within the prescribed time limit.

(ii) Return already revised twice under Section 139(5): NO

A return that has already been revised cannot be revised again. Section 139(5) permits only one revised return to be filed. The law does not allow multiple successive revisions of the same return. Once a revised return has been filed and the prescribed time limit has expired, no further revision is permissible. This restriction ensures finality and prevents endless amendments to the returned income.

(iii) Return of loss filed under Section 139(3): YES

A return of income can be revised under Section 139(5). Section 139(5) explicitly permits revision of returns filed under Section 139(3) (returns filed by any person whose income is below taxable limit or who has suffered a loss). Such revision must be made within the time prescribed under Section 139(5)—on or before the due date for filing the return for the relevant assessment year or within 4 months from the end of the assessment year, whichever is earlier.

Under Section 15 of the CGST Act 2017, the value of supply is the transaction value (price paid or payable) plus any taxes (except GST) and charges related to the supply, minus eligible discounts.

Components of Value:

Inclusions:

List price (exclusive of taxes): ₹50,000 is the base consideration.

Tax levied by Municipal Authority: ₹6,000 must be added. Per Section 15(1)(a), any taxes levied by a local authority in relation to the supply of goods are included in the value.

Packing charges: ₹2,500 must be added. These are charges in addition to the price and form part of the value per Section 15(1).

Exclusions:

Subsidy from NGO: ₹3,000 must be deducted. Per Section 15(3), any subsidy, grant, or incentive directly linked to the price is excluded from the value. Although included in the list price, it must be removed.

Turnover discount: ₹1,000 (2% of ₹50,000) is NOT deducted. Per Section 15(2), discounts are allowable only if known at the time of supply. Since this discount was ascertained after the supply (after reviewing performance), it does not qualify for deduction.

Vendor's charges: ₹2,000 is NOT part of this supply. This amount was paid by ABC (the buyer) directly to a vendor for services to XYZ (the seller). It is a separate transaction and has no bearing on the supply from XYZ to ABC.

Interest on delayed payment: ₹5,000 (including 18% GST) is NOT included. GST value is calculated at the time of supply. Interest charged for delayed payment arises subsequently and is not part of the supply value. Further, the interest is already separately charged with GST at 18%, indicating it is treated as a separate supply or charge, not as part of the goods supply value.

Final Calculation:

Value of taxable supply = ₹50,000 + ₹6,000 + ₹2,500 − ₹3,000 = ₹55,500

Examination of whether the activity constitutes a "supply":

Relevant Law:

Section 2(47) of the Central Goods and Service Tax Act, 2017 defines "supply" to include all forms of supply of goods or services made for a consideration. The term "consideration" is broadly interpreted to include any valuable return or benefit.

Facts Analysis:

In this case:
- Glory Ltd. is providing ₹2 lakh as consideration
- In return, Seva Trust must display the heading and product pictures of Glory Ltd. at its premises
- This creates a clear quid pro quo arrangement where Glory Ltd. receives advertising/promotional benefit

Application of Law:

The conditional donation with a quid pro quo element transforms the transaction from a pure gift into a commercial arrangement. The display of Glory Ltd.'s products at Seva Trust's premises constitutes a service — specifically, an advertising or promotional service. Key principles:

1. Substance over form: Even though framed as a donation, the condition attached makes it a supply.
2. Elements of supply present: (i) provision of a service (display of promotional material), and (ii) consideration (₹2 lakh). Both are present.
3. Loss of donation character: When a donor receives a tangible benefit (advertising) in return for payment, it ceases to be a charitable donation and becomes a commercial transaction.

Conclusion:

Yes, this activity constitutes a "supply" under GST law. Seva Trust is supplying advertising/promotional services to Glory Ltd. in consideration of ₹2 lakh. Despite one party being a charitable organisation, the transaction is commercial in nature and the service would be liable to GST unless specifically exempted under the Act.

Answer: YES, this activity amounts to 'supply' under GST law.

All elements of supply under Section 7 of CGST Act 2017 are satisfied:

Examination of Supply Elements: A supply requires (i) a person, (ii) providing goods or services, (iii) for consideration, (iv) in the course of furtherance of business. Here: (i) ABC Bank is a person through Mr. Swamy; (ii) consultancy service for property purchase is being provided; (iii) consideration of 200 UK Pounds is received; (iv) the activity is in the course of ABC Bank's business operations.

Classification as Export of Service: This transaction constitutes an export of service from India to a person located outside India (London). Section 16 of CGST Act 2017 specifically states that supply of services to a person not located in India shall be treated as a supply in the course of interstate trade or commerce. Such supplies are zero-rated supplies as per Section 16(1)(a), attracting 0% GST rate with refund entitlement of input tax credit.

Conclusion: The activity amounts to a valid 'supply' under GST law. Although GST is levied at 0%, Mr. Swamy/ABC Bank must issue a tax invoice, maintain proper records, and can claim refund of input credits. The supply is liable to GST framework despite nil tax liability, confirming its status as a recognized supply.

Computation of Income of Mr. Lalit for A.Y. 2022-23

I. INCOME FROM OTHER SOURCES

1. Purchase of 1,000 Shares of ABC Ltd. at below FMV [Section 56(2)(x) of the Income Tax Act, 1961]:
Mr. Lalit purchased 1,000 shares from his friend Mr. Abishek (a dealer in shares) at ₹400 per share when the fair market value was ₹600 per share. Since the shortfall (₹2,00,000) exceeds ₹50,000, the entire difference is chargeable as Income from Other Sources. The fact that Mr. Abishek is a dealer and the transaction is at arm's length price does not exempt it from Section 56(2)(x) as Mr. Abishek is not a 'relative' as defined. Note: Mr. Lalit subsequently sold these shares in the course of his business on 23.06.2021; that sale is assessable as Business Income (not Capital Gains) and is outside this computation for lack of sale price data.
Amount taxable = (₹600 − ₹400) × 1,000 = ₹2,00,000

2. Receipt of Residential House at below Stamp Duty Value [Section 56(2)(x)]:
Mr. Lalit took possession of his residential house on 01.11.2021. He had paid ₹1,00,000 by account payee cheque on the date of booking (agreement). Since part consideration was paid by account payee cheque at the time of the agreement, the proviso to Section 56(2)(x) mandates that the stamp duty value (SDV) on the date of agreement/booking (₹24,00,000) shall be adopted, not the SDV on the date of possession (₹32,00,000). The tolerance limit of 10% is checked: 110% of actual consideration = ₹22,00,000, which is less than SDV of ₹24,00,000; hence, the difference is taxable.
Amount taxable = ₹24,00,000 − ₹20,00,000 = ₹4,00,000

3. Deemed Dividend on Liquidation of ABC (P) Ltd. [Section 2(22)(c)]:
On liquidation of ABC (P) Ltd., Mr. Lalit received a shop (FMV ₹1,50,000) and cash (₹50,000). The balance in general reserve (accumulated profits) attributable to his share capital is ₹1,25,000. Under Section 2(22)(c), distribution of accumulated profits during liquidation is treated as deemed dividend and is taxable as Income from Other Sources (dividend is taxable in hands of shareholders w.e.f. A.Y. 2021-22 per the amended Section 8).
Deemed dividend = ₹1,25,000

Total Income from Other Sources = ₹2,00,000 + ₹4,00,000 + ₹1,25,000 = ₹7,25,000

---

II. CAPITAL GAINS

1. Liquidation of ABC (P) Ltd. [Section 46(2)]:
Under Section 46(2), when a shareholder receives money or assets on liquidation, the excess of money/FMV of assets over deemed dividend is treated as full value of consideration for capital gains computation.
Full value of consideration = ₹50,000 + ₹1,50,000 = ₹2,00,000
Less: Deemed dividend [Section 2(22)(c)] = ₹1,25,000
Net consideration = ₹75,000
Less: Cost of acquisition of shares in ABC (P) Ltd. (not provided in the question; assumed NIL)
Capital Gain = ₹75,000 (nature — STCG or LTCG — depends on holding period of shares, not stated)

2. Sale of Plot of Land at Jaipur [Long-Term Capital Gains]:
The plot was sold on 01.03.2022 for ₹8,00,000. Since CII for 2001-02 (base year = 100) and 2021-22 (= 317) are provided, the plot is treated as a long-term capital asset held since the base year 2001-02. Indexed cost is computed using Section 48 with CII.
[Note: The original cost of the plot is assumed to be ₹1,00,000 as of P.Y. 2001-02, as the question provides CII for base year 2001-02 implying the asset was acquired in that year.]
Indexed Cost of Acquisition = ₹1,00,000 × (317/100) = ₹3,17,000
LTCG = ₹8,00,000 − ₹3,17,000 = ₹4,83,000

Total Capital Gains = ₹75,000 + ₹4,83,000 = ₹5,58,000

GST Invoicing Provisions for Sale-or-Return Transactions

Under Section 31 of the CGST Act, 2017, a tax invoice must be issued before or at the time of supply. For sale-or-return transactions, Rule 46 of the CGST Rules, 2017 specifically addresses invoicing requirements.

The key principle is that a supply is not deemed to occur when goods are merely sent on sale-or-return basis. Instead, supply is deemed to occur on the earliest of: (i) when goods are actually sold/delivered; (ii) when goods are retained beyond the agreed return period; or (iii) when goods are retained beyond 6 months from the date of supply (if no return period is specified).

Application to M/s. Xing Trans:

(a) 20/05/2021 – 500 units sent on sale-or-return:
No tax invoice is required on this date. The goods are merely consigned to the customer; no supply has occurred. The status is one of custody, not ownership transfer.

(b) 28/07/2021 – 300 units sold at exhibition:
A tax invoice must be issued on or before 28/07/2021 for these 300 units. Supply is deemed to have occurred when the goods were actually sold/delivered to the buyer. The invoice should reflect the date of actual supply (28/07/2021) or such other date as per GST rules.

(c) 25/11/2021 – 150 units returned to Kolkata:
No tax invoice is required for these 150 units. Since they were never sold and are being returned, they do not constitute a supply. The goods are simply returned to M/s. Xing Trans without any consideration changing hands. These units remain outside the invoicing framework.

(d) 50 units – Neither sold nor returned:
A tax invoice must be issued on or before 20/11/2021 for these 50 units. Since no specific return period is mentioned in the question, the default 6-month period applies. Supply is deemed to have occurred after 6 months from 20/05/2021, which is 20/11/2021. Therefore, the invoice must be issued on or before this date, treating the retention beyond 6 months as deemed supply.

Summary of Invoice Dates: (i) 28/07/2021 for 300 units; (ii) no invoice for 150 units; (iii) 20/11/2021 for 50 units.

The statement is VALID but subject to specific conditions as prescribed under GST law. One consolidated e-way bill can be generated for multiple invoices, provided the following conditions are satisfied:

Conditions for Consolidation:

1. Same Consignor - All invoices must have the same seller or supplier.

2. Same Consignee - All invoices must be addressed to the same buyer or recipient.

3. Same Invoice Date - All invoices being consolidated must be of the same date; invoices dated on different days cannot be clubbed.

4. Same Place of Supply - The destination or place of delivery must be identical for all invoices under the consolidated e-way bill.

Regulatory Framework:

Rule 138 of CGST Rules, 2017 (and corresponding SGST Rules) govern the requirement and generation of e-way bills. The system design of the common e-way bill portal (available on GST portal) automatically enforces these consolidation rules and allows generation of a single e-way bill only when these conditions are met.

Practical Significance:

This provision serves to reduce administrative burden on sellers who issue multiple invoices to the same buyer on the same date (e.g., for different batches or item categories of the same order). Rather than generating separate e-way bills for each invoice, a consolidated bill improves operational efficiency.

Important Limitation:

If any of these four conditions differs across invoices—such as different dates or different consignees—separate e-way bills become mandatory. The consolidation facility is not discretionary but is contingent upon strict compliance with these conditions.

The statement is partly valid but substantially incomplete and misleading.

GSTR-1 is indeed the return of outward supplies filed after the conclusion of the tax period (month) in which supplies are made. However, the statement requires critical qualifications on two fronts.

First, "all taxpayers" is inaccurate. Composition scheme taxpayers (Rule 54, CGST Rules 2017) are not required to file GSTR-1; instead, they file GSTR-4 on a quarterly basis. Additionally, Input Service Distributors have modified filing obligations under Rule 37(4). Therefore, GSTR-1 is not applicable to all registered taxpayers.

Second, the phrase "only after the end of the current tax period" lacks necessary specificity. Rule 37 of the CGST Rules 2017 mandates that regular taxpayers file GSTR-1 by the 10th of the month following the tax period, not merely "after" it ends. This is a strict statutory deadline. For instance, supplies made in April must be reported in GSTR-1 by May 10th. Non-compliance attracts late fee under Section 47 of the CGST Act 2017, demonstrating the mandatory nature of the timeline.

Conclusion: The statement is substantially invalid in its absolute form. The accurate position is: Regular registered taxpayers must file GSTR-1 by the 10th of the month immediately following the tax period, with specific exceptions for composition dealers, ISDs, and certain other categories. The statement conflates timing ("after") with the actual statutory deadline (10th of next month) and incorrectly suggests universal applicability.

Residential Status Determination for AY 2022-23 (PY 2021-22):

Under Section 6 of the Income Tax Act, 1961, an individual is a resident if:
1. In India for 182 days or more in the previous year, OR
2. In India for 60 days or more in the previous year AND in India for 365 days or more during the 4 preceding previous years.

Condition 1 Analysis: Mrs. Shruti was in India for 157 days in PY 2021-22. Since 157 < 182 days, Condition 1 is NOT satisfied.

Condition 2 Analysis: Days in PY 2021-22 = 157 days (≥ 60 days) ✓. Total days in 4 preceding years: PY 2017-18 (200) + PY 2018-19 (100) + PY 2019-20 (76) + PY 2020-21 (45) = 421 days (≥ 365 days) ✓. Both parts of Condition 2 are satisfied.

Conclusion: Mrs. Shruti is a RESIDENT for AY 2022-23 (PY 2021-22).

Ordinarily Resident Status: For ordinarily resident classification, a resident must have been resident for at least 2 consecutive previous years immediately preceding the current year. In PY 2020-21, Mrs. Shruti was in India for only 45 days (< 60 days), so she was NOT a resident. Therefore, she fails the 2-consecutive-year test and is NOT ordinarily resident.

Result: RESIDENT but NOT ordinarily resident.

Income Taxability: For a resident (not ordinarily resident), taxable income includes only: (i) income accruing or arising in India, and (ii) income received in India.

Taxable income components:
- Salary from UAE: Not taxable (earned and received outside India)
- UAE house property income: Not taxable (source outside India, not received in India)
- Income deemed to accrue in India: ₹5,00,000 - Taxable
- Retail business income: Not taxable (accrued and received outside India, even though controlled from India)
- Income accruing in India: ₹3,00,000 - Taxable

Gross Taxable Income = ₹8,00,000. Less deduction under Section 80C for life insurance premium (₹1,50,000), Net Taxable Income = ₹6,50,000.

Issue Identification: The assessee holds gold with a market value of ₹50,00,000 but has recorded an expenditure of only ₹10,00,000 in its acquisition, creating a difference of ₹40,00,000.

Assessment Approach by the Assessing Officer:

The AO will adopt the following approach:

First: Examine the nature of the gold asset. If it is held as a capital investment/personal asset, the recorded cost of ₹10,00,000 represents the cost base. The appreciation from ₹10,00,000 to ₹50,00,000 is merely unrealized gain and is ordinarily not taxable until the asset is sold or alienated (except in cases of gift, where the market value is considered).

Second: Scrutinize the source and documentation of the ₹10,00,000 expenditure. If the assessee can satisfactorily explain the source of funds used to acquire the gold through credible documentary evidence (bank statements, invoices, purchase deeds, etc.), the cost of ₹10,00,000 will be accepted. The appreciation will then remain untaxed until realization.

Third: If the assessee fails to satisfactorily explain the source of the ₹10,00,000 spent on acquiring the gold, the AO can invoke Section 68 of the Income Tax Act, 1961. Under this section, if any person is found to be the owner of valuable articles (including gold) and cannot satisfactorily explain the source thereof, the amount or value of such valuable articles shall be deemed to be income of that person of the previous year in which the investment was found.

Fourth: In cases where partial explanation is provided, the AO may apply Section 69 (Unexplained Expenditure) to assess whether the difference between market value and claimed cost represents unreported income or concealed expenditure.

Likely Outcome: If documentation is complete and source is properly explained, the cost of ₹10,00,000 will be accepted and ₹40,00,000 appreciation remains untaxed. If source is not explained, the AO may assess the entire ₹50,00,000 as deemed income or, in exercise of best judgment, assess a portion or the full difference as income of the year in which the gold was acquired.

The statement that 'taxes on taxable services supplied by Central Government or State Government to a business entity in India are payable by recipient of services' is the general rule under GST law. However, the following are the exceptions where this rule does not apply:

1. Exempted Supplies: Services specifically listed in Schedule III of the CGST Act, 2017 are exempt from GST. These include services supplied by the Government in its non-commercial capacity for public purpose, such as certain water supply, sewerage services, health services provided by government hospitals, and education services by government institutions. As these are exempt supplies, GST is not applicable and the recipient is not liable to pay tax.

2. Non-Commercial Government Activities: Services supplied by Central or State Government while exercising its sovereign or governmental functions (non-commercial activities) do not constitute a 'supply' as defined under the GST law. Activities like law and order, defence, and administrative functions are not taxable services, hence no GST is payable by the recipient.

3. Services Not Constituting Supply: Certain government activities may not qualify as a 'supply' for GST purposes. A supply requires an element of consideration or voluntary transfer. Some government activities are statutory impositions or mandatory social functions that fall outside the definition of supply.

4. Zero-Rated Supplies: Services supplied by the Government to persons outside India or to exporters for their export-related activities are zero-rated under the GST law. While these are taxable services, the tax rate is zero, so effectively no tax is payable.

5. Supplies Below Registration Threshold: Services supplied by the Government below the prescribed registration threshold (currently ₹20 lakhs) are exempt from GST registration and GST liability, provided the aggregate turnover remains below the threshold.

6. Specific Exemptions Granted to Government Entities: Certain government departments or entities may be granted specific exemptions for particular services through notifications or rules issued by the Government.

Input Tax Credit (ITC) Utilisation under GST Law

Definition and Scope: Input Tax Credit represents the credit of tax paid on inputs, input services, and capital goods that a registered supplier can claim against their output tax liability. The utilisation of ITC is governed by Section 49 of the CGST Act, 2017 and Rule 87 of the CGST Rules, 2017.

Manner of Utilisation - Priority Order:

1. Utilisation Against Output Tax Liability: ITC can only be utilised to reduce the tax liability on taxable supplies. The credit cannot be used against tax on exempt supplies. According to Section 49(2) CGST Act, 2017, ITC must be utilised in the following sequence:

(a) Utilisation of IGST Credit: ITC of IGST (Integrated Goods and Services Tax) has the highest flexibility. It can be utilised against output tax in the following order:
- First, against output IGST liability
- Thereafter, against output CGST and SGST liability combined

(b) Utilisation of CGST and SGST Credit: ITC of CGST (Central GST) and SGST (State GST) should be utilised in the following manner:
- ITC of CGST should first be utilised against output CGST liability
- ITC of SGST should first be utilised against output SGST liability
- Only when such credits are insufficient, they can be utilised against output IGST

2. Conditions for Utilisation:

According to Rule 87 CGST Rules, 2017, ITC can only be utilised if:
- The supplier is a registered person under GST
- The ITC relates to taxable supplies
- The supplier has filed the return in which the ITC is being claimed
- The supplier is not an inverted duty structure taxpayer (except where specifically permitted)
- The goods/services are used for business purposes

3. Excess Credit Utilisation:

When ITC exceeds the output tax liability in a tax period:
- The excess credit can be carried forward to subsequent periods
- The taxpayer cannot claim refund unless specifically eligible (e.g., export of goods)
- The carry-forward credit is to be utilised in the order prescribed above

4. Restrictions on ITC Utilisation:

ITC cannot be utilised for:
- Tax on goods/services used for making exempt supplies
- Tax on motor vehicles (except specified cases)
- Tax on personal consumption items
- When a claim is made for refund of excess ITC

5. Monthly/Quarterly Utilisation Cycle:

As per Section 49(3) CGST Act, the payment of tax and utilisation of credit follows the return cycle:
- Credits are claimed in the GSTR-3B (monthly/quarterly return)
- Utilisation happens in the same return period
- Unutilised credit is automatically carried forward

Practical Application: For a registered supplier, the optimal approach is to first exhaust IGST credits (as they are most flexible), then utilise CGST and SGST credits against their respective tax liabilities, and finally carry forward any excess for subsequent periods. This ensures maximum cash flow benefits while maintaining compliance with statutory provisions.

Under Section 29(2) of the CGST Act, 2017, the proper officer can cancel registration on his own motion (suo moto) in the following five circumstances:

1. Non-existence of Registered Person (Ghost Entity): When the proper officer has reason to believe that the registered person is non-existent or is a shell/paper company with no genuine business operations. This applies when the person exists only on paper without conducting actual business activities.

2. Abandonment or Cessation of Business: When the registered person abandons his business or ceases to carry on business entirely. If the person is no longer engaged in any business activity after registration, the registration can be cancelled without waiting for a formal application from the registered person.

3. Fraudulent Claim of Input Tax Credit (ITC): When the registered person is found to be engaged in fraudulent claim of input tax credit or availing credit without genuine supply of goods or services. This is aimed at preventing misuse of the ITC mechanism.

4. Tax Evasion: When the registered person is found to be engaged in evasion of tax under the Act. This includes deliberate non-compliance, concealment of taxable supplies, or any fraudulent practice to reduce tax liability.

5. Suppression of Material Facts or Misrepresentation: When the registration was obtained by way of suppression of material facts or by misrepresentation of information. This covers cases where false or misleading information was provided during registration or subsequently discovered.