Question 1

Based on the case scenario with various income sources and allowances, answer the following:
I. Compute the income chargeable to tax under the head "Income from Salary", assuming that he does not opt for the provisions under section 115BAC.
II. What will be the income under "Salary", if he opts for the provisions under section 115BAC?

Accepted Answer

**PART I: Income from Salary (Without Section 115BAC)**

To compute income chargeable under 'Salaries', we identify taxable and exempt components:

**Taxable Components:**
1. **Bonus**: Fully taxable as salary
2. **Research & Training Allowance (RTA)**: ₹1,000/month - Exempt portion ₹600/month under Section 10(16A). **Taxable: ₹400/month = ₹4,800/year**
3. **Children Education Allowance (CEA)**: ₹600/month per child for 2 children = ₹1,200/month gross - Exempt under Section 10(13A) is ₹100 per child for max 2 children = ₹200/month. **Taxable: ₹1,000/month = ₹12,000/year**
4. **Medical Allowance**: ₹1,500/month = **₹18,000/year** (taxable unless specifically exempted)
5. **Furniture Perquisite** (provided from 1st Oct 2021): Value = ₹2,00,000 ÷ 5 years (useful life) = **₹40,000/year** (For 2021-22, 9 months = ₹30,000)
6. **Medical Premium Paid by Employer**: ₹12,500 - Taxable perquisite under Section 17(2) unless exempt under Section 10(10D). **Assuming taxable: ₹12,500**
7. **Accommodation Perquisite**: Value = Actual rent paid or 10% of (salary + allowances), whichever is lower - **Cannot calculate without salary details**

**Exempt Components:**
1. **Travelling Allowance (TA)**: ₹5,000/month = ₹60,000/year - Fully exempt under Section 10(14) as reasonable for on-duty tours
2. **Exempt portion of RTA**: ₹600/month = ₹7,200/year
3. **Exempt portion of CEA**: ₹200/month = ₹2,400/year
4. **Medical Reimbursement**: ₹15,000 - Fully exempt under Section 10(10D)

**Income from Sala…

Question 2

Rule 86B restricts the use of Input Tax Credit (ITC) available in the Electronic Credit Ledger for discharging output tax liability. List down the exceptions to the Rule 86B.

Accepted Answer

Rule 86B of the CGST Rules 2017 restricts the use of Input Tax Credit (ITC) available in the Electronic Credit Ledger (ECL) for discharging output tax liability. However, certain exceptions exist where the restriction does not apply:

**1. Supplies made to Unregistered Persons:** ITC attributable to supplies made to an unregistered person is not subject to the restrictions imposed under Rule 86B. Such ITC can be used freely for payment of output tax liability.

**2. Zero-Rated Supplies (Exports):** ITC available against zero-rated supplies (exports of goods or services) is exempt from the restrictions. The normal ECL rules apply without the typical constraints.

**3. Supplies to SEZ Units/Developers:** ITC attributable to supplies made to a Special Economic Zone (SEZ) unit or SEZ developer is excluded from Rule 86B restrictions, as these transactions have special regulatory treatment under GST.

**4. Supplies to Persons Outside India:** ITC attributable to supplies made to persons located outside India is not restricted under Rule 86B. Such supplies qualify as international transactions with distinct treatment.

**5. Services Supplied from Outside India:** ITC on services received from a person located outside India does not fall within the scope of Rule 86B restrictions, allowing free utilization for output tax payment.

**6. Supplies in the Course of Business:** ITC attributable to supplies made in the course of business for consideration in the normal commercial transactio…

Question 3

Answer the following, after reading the below given two paragraphs:

Accepted Answer

**SCENARIO I: RAJU – FLY ASH BRICKS MANUFACTURE**

**(i) Relevant Provision:**
Section 23 of the CGST Act, 2017 prescribes the **composition scheme** for eligible small traders. Para 2 of Schedule Three, CGST Rules, 2017 specifies the list of eligible activities. The composition scheme offers a lower tax rate for traders with aggregate turnover below ₹1 crore in a financial year (from 01.07.2021 onwards).

**(ii) Correct Conclusion:**
Raju is eligible to register under composition scheme only if **both** conditions are satisfied: (a) his aggregate turnover in FY 2022-23 does not exceed ₹1 crore, **AND** (b) manufacture of fly ash bricks is listed as an eligible activity under Para 2 of Schedule Three, CGST Rules, 2017. The scheme is not available for all types of manufacturers; eligibility is restricted to specified categories.

**(iii) Validity of Advice – INCORRECT (or Partially Correct):**
While Raju's expected turnover below ₹1 crore satisfies the turnover criterion, the advice overlooks a critical requirement. Eligibility for composition scheme depends on whether fly ash bricks manufacture falls within the eligible categories prescribed in Schedule Three. Since fly ash bricks may not be explicitly covered in Para 2 (being a specialized manufactured product), the consultant's advice is incomplete and potentially incorrect without verifying specific Schedule eligibility.

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**SCENARIO II: DHARUN – BUSINESS FACILITATOR SERVICES**

**(i) Relevant Provision:**
Section 22 o…

Question 4

List any three situations that warrant issue of Credit Note. Briefly explain the time line to declare each Credit Note in the GST return.

Accepted Answer

**Three Situations Warranting Issuance of Credit Notes:**

**1. Return of Goods by Recipient** — When the buyer returns goods to the supplier due to manufacturing defects, quality issues, specification mismatch, or other valid reasons, a credit note is issued to reverse the original invoice amount along with the proportionate GST charged.

**2. Rejection of Goods or Damage in Transit** — When goods are rejected at the time of receipt due to physical damage, deterioration, or non-conformance to agreed specifications, or when goods arrive damaged during transit, a credit note may be issued instead of awaiting formal return procedures.

**3. Billing Errors or Price Adjustments** — When the original invoice contains errors such as overcharging, incorrect application of discount, or incorrect tax computation, or when a post-supply price adjustment/rebate/allowance is granted to the buyer, a credit note is issued to record the adjustment.

**Timeline for Declaration in GST Returns:**

All credit notes must be declared in the **GST return (GSTR-1 for suppliers, GSTR-2 for recipients) of the month in which the credit note is issued**, regardless of when the original supply took place. The key timeline requirements are:

• **Issue Timing** — Credit notes should be issued within a **reasonable time** of the event triggering the adjustment, preferably **within 30 days** of the original supply or discovery of the defect, as per guidance in various GST circulars and Board notifications.

…

Question 5

N Ltd produces a product which passes through two processes - Process I and Process II. The company has provided the following information related to the Financial Year 2021-22:

Raw Material @ ₹ 65 per unit: Process I 6,500 units
Direct Wages: Process I ₹ 1,40,000, Process II ₹ 1,30,000
Direct Expenses: Process I 30% of Direct Wages, Process II 35% of Direct Wages
Manufacturing Overheads: Process I ₹ 21,500, Process II ₹ 24,500
Realisable value of scrap per unit: Process I ₹ 4.00, Process II ₹ 16.00
Normal Loss: Process I 250 units, Process II 500 units
Units transferred to Process II / finished stock: Process I 6,000 units, Process II 5,500 units
Sales: Process II 5,000 units

There was no opening or closing stock of work-in-progress.

You are required to prepare:

Accepted Answer

**(i) Process-I Account**

In Process I, **6,500 units** of raw material are introduced. The **Normal Loss is 250 units**, so **Expected Output = 6,500 − 250 = 6,250 units**. Actual output transferred to Process II is **6,000 units**, giving an **Abnormal Loss of 250 units** (6,250 − 6,000).

**Total cost charged to Process I:** Raw Material ₹4,22,500 + Direct Wages ₹1,40,000 + Direct Expenses ₹42,000 + Manufacturing Overheads ₹21,500 = **₹6,26,000**.

**Net cost** (after deducting scrap value of Normal Loss) = ₹6,26,000 − (250 × ₹4) = ₹6,26,000 − ₹1,000 = **₹6,25,000**.

**Cost per unit** = ₹6,25,000 ÷ 6,250 = **₹100 per unit**.

| Dr | Units | ₹ | Cr | Units | ₹ |
|---|---|---|---|---|---|
| Raw Material | 6,500 | 4,22,500 | Normal Loss (Scrap) | 250 | 1,000 |
| Direct Wages | — | 1,40,000 | Process II A/c | 6,000 | 6,00,000 |
| Direct Expenses | — | 42,000 | Abnormal Loss A/c | 250 | 25,000 |
| Mfg. Overheads | — | 21,500 | | | |
| **Total** | **6,500** | **6,26,000** | **Total** | **6,500** | **6,26,000** |

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**(ii) Process-II Account**

Input from Process I = **6,000 units @ ₹100 = ₹6,00,000**. **Normal Loss = 500 units**, so **Expected Output = 6,000 − 500 = 5,500 units**. Actual output = **5,500 units** → **No Abnormal Loss or Gain**.

**Total cost charged to Process II:** From Process I ₹6,00,000 + Direct Wages ₹1,30,000 + Direct Expenses ₹45,500 + Manufacturing Overheads ₹24,500 = **₹8,00,000**.

**Net cost** = ₹8,00,000 − (500 × ₹16) = ₹8,00,000 − ₹8,000 = **₹7,…

Question 6

List the details of outward supplies which can be furnished using Invoice Furnishing Facility (IFF). Also briefly list the cases where a registered person is debarred from furnishing details of outward supplies in GSTR-1/IFF.

Accepted Answer

**Invoice Furnishing Facility (IFF)** is an alternative mode of furnishing details of outward supplies in GSTR-1 as prescribed by the tax authorities.

**Details of Outward Supplies that can be Furnished using IFF:**

1. **B2B Supplies**: Invoices for supplies made to registered persons with complete invoice details including invoice number, date, value, HSN/SAC code, tax liability.

2. **Export Supplies**: Details of supplies made outside India with or without payment of integrated tax, including bill of supply documents and shipping details.

3. **Supplies without Payment**: Supplies made without receipt of payment (on credit) to registered and unregistered recipients, within the prescribed value and conditions.

4. **HSN/SAC-wise Summary**: Consolidated summary of outward supplies classified as per Harmonized System of Nomenclature (HSN) or Service Accounting Code (SAC) with aggregate value and tax details.

5. **Job Work Supplies**: Details of supplies where job work is involved, including inputs received and processed.

6. **Zero-rated Supplies**: Supplies qualifying for zero rating under GST rules with supporting documentation.

7. **Supplies to Unregistered Persons**: In cases where permitted, details of supplies made to unregistered recipients subject to applicable conditions.

**Cases Where a Registered Person is Debarred from Using IFF:**

1. **Outstanding GST Liability**: Where the person has outstanding GST, interest, or penalty exceeding the prescribed threshold …

Question 7

Define Budget Manual. What are the salient features of Budget Manual?

Accepted Answer

**Budget Manual** is a formal document that serves as a comprehensive guide containing objectives, policies, procedures, forms, instructions, and guidelines for the budgeting process in an organization. It acts as a standard reference manual for all levels of management involved in budget preparation, review, and approval.

**Salient Features of Budget Manual:**

1. **Clear Budgeting Objectives** - Outlines the purpose and objectives of budgeting aligned with organizational goals, strategic plans, and long-term vision.

2. **Defined Responsibilities and Authority** - Specifies the roles, responsibilities, and authority levels of different departments, cost centers, and managers in preparing and approving budgets at various organizational levels.

3. **Budget Preparation Procedures** - Provides detailed step-by-step procedures and processes for budget preparation, including timing, sequence of activities, and coordination mechanisms between departments.

4. **Standardized Forms and Templates** - Contains uniform budget forms, schedules, and templates to be used across the organization for consistency and comparability of data.

5. **Budget Timeline and Milestones** - Establishes clear timelines and deadlines for different stages of budget preparation, submission, review, approval, and finalization.

6. **Budget Policies and Guidelines** - Incorporates organizational policies regarding capital expenditure limits, discretionary spending, resource allocation priorities, and cost …

Question 8

Mention the cost units (physical measurements) for the following industry product:

Accepted Answer

The following are the standard **cost units** (physical measurements) used in various industries for the purpose of cost ascertainment and control:

**(i) Automobile:** The cost unit is **per vehicle manufactured** (e.g., per car, per truck, per two-wheeler). Each vehicle produced is treated as one cost unit.

**(ii) Gas:** The cost unit is **per cubic metre (m³)** or **per cubic foot** of gas produced or supplied. In some cases, it may also be expressed as **per therm**.

**(iii) Brick Works:** The cost unit is **per 1,000 bricks** manufactured. Since individual bricks are too small a unit, cost is computed for every thousand bricks produced.

**(iv) Power:** The cost unit is **per kilowatt hour (kWh)** of electricity generated or supplied. This is the standard unit used for power generation undertakings.

**(v) Steel:** The cost unit is **per tonne** (metric ton) of steel produced. This is the universally accepted measure in the steel industry.

**(vi) Transport (by road):** The cost unit is **per kilometre** or **per tonne-kilometre** (also expressed as per passenger-kilometre for passenger transport). The composite unit **tonne-km** is most commonly used as it captures both distance and load carried.

**(vii) Chemical:** The cost unit is **per tonne, per kilogram, or per litre** depending on the nature of the chemical — solid chemicals are measured in tonnes/kg, while liquid chemicals are measured in litres.

**(viii) Oil:** The cost unit is **per litre** (for refined pet…

Question 9

M/s Sakura Enterprises made an inter-State supply of taxable goods valued at ₹ 47,500 and exempt goods valued at ₹ 5,200. Rate of GST for taxable supply was 6%. Determine, with brief reasons, whether e-way bill generation is mandatory for the above supply made by M/s Sakura Enterprises.

Accepted Answer

**Answer: E-way bill generation is MANDATORY.**

**Calculation and Reasoning:**

Total value of goods = Taxable goods + Exempt goods
Total value = ₹47,500 + ₹5,200 = ₹52,700

Under Rule 138 of the CGST Rules 2017, e-way bill is mandatory for **interstate movement of goods where the value exceeds ₹50,000 per consignment**. The threshold of ₹50,000 is determined by the **total value of goods** (both taxable and exempt supplies combined), not on the basis of GST liability.

Since the total value of goods supplied (₹52,700) exceeds the prescribed threshold of ₹50,000, e-way bill generation is **mandatory for this inter-state supply** by M/s Sakura Enterprises, irrespective of the fact that a portion of the supply comprises exempt goods.

**Key Point:** The liability to generate an e-way bill depends on the **value threshold**, not on whether the entire supply is taxable. As long as the consignment value crosses ₹50,000, e-way bill is required for interstate movement.

Question 10

Dr. Rohan, 82 years old resident surgeon, having his Nursing Home in Mumbai, gives the following particulars for the year ended on 31.03.2023.

Accepted Answer

**Answer: Computation of Loss from Nursing Home Business**

**GROSS INCOME (FY 2022-23):**

The following are taxable sources of income:

1. **Professional Fees from Nursing Home Operations:**
   - Fees from hospital visits (net): ₹5,85,000
   - IPD charges: ₹45,000
   - OPD charges: ₹45,000
   - Subtotal: **₹6,75,000**

2. **Other Income Sources:**
   - Honorarium from Jal Hindi Art School: ₹22,500
   - Dividend from shares (net): ₹18,900
   - Interest on Income Tax Refund: ₹1,500

3. **Exclusions:**
   - Gifts from relatives of patients (₹45,000): **Exempt** under Section 56(2)(vii) of Income Tax Act, 1961
   - "Fees for March 2021 received in April 2021" (₹40,000): Not included as it pertains to prior financial year; if this refers to FY 2023-24 fees received after 31.03.2023, it is outside the current assessment year
   - Opening Balance (₹1,25,000): Not income, merely cash on hand

**Total Gross Income: ₹7,17,900**

---

**LESS: DEDUCTIBLE EXPENSES**

Only business/professional expenses are deductible under Section 37 of Income Tax Act, 1961:

1. Salary to Staff: ₹3,50,000
2. Travel & Insurance (business-related): ₹2,500
3. Entertainment Expenses: ₹1,10,000
4. Purchases (medical supplies/consumables): ₹48,000
5. Interest on loan for nursing home property: ₹65,000
6. Nursing Home operating expenses: ₹3,75,000
7. Professional consulting fees: ₹1,20,000

**Total Deductible Expenses: ₹10,70,500**

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**NON-DEDUCTIBLE ITEMS:**

- **Gift to daughter-in-law (₹60,000):** Not d…

Question 11

A Ltd. is a pharmaceutical company which produces vaccines for diseases like Monkey Pox, Covid-19 and Chickenpox. A distributor has given an order for 1,000 Monkey Pox Vaccines. The company can produce 80 vaccines at a time. To process a batch of 80 Monkey Pox Vaccines, the following costs would be incurred: Direct Materials ₹ 4,250; Direct wages ₹ 500; Lab set-up cost ₹ 1,400. The Production Overheads are absorbed at a rate of 20% of direct wages and 20% of total production cost is charged in each batch for Selling, distribution and administration Overheads. The company is willing to sell at a profit of 25% on sales value. You are required to determine:

Accepted Answer

**Batch Costing and Pricing Analysis**

The company needs to produce 1,000 vaccines in batches of 80, requiring 12.5 batches. Cost per batch includes direct materials (₹4,250), direct wages (₹500), lab set-up cost (₹1,400), production overheads at 20% of direct wages (₹100), and selling/distribution/administration overheads at 20% of total production cost (₹1,250), totaling ₹7,500 per batch.

Total production cost for 1,000 vaccines across 12.5 batches is ₹93,750. Using the profit requirement of 25% on sales value, if Sales = S, then Cost = 0.75S. Therefore, ₹93,750 = 0.75S, yielding S = ₹125,000.

**(i) Total Sales Value for 1,000 Monkey Pox Vaccines = ₹125,000**

**(ii) Selling Price per Unit = ₹125 per vaccine**

Verification: Profit of ₹31,250 represents exactly 25% of sales value of ₹125,000.

Question 12

USP Ltd. is in the manufacture of 'double drive motorcycle tyres'. In the manufacturing processes, it undertakes different jobs, namely, Vulcanising, Brushing and Stringing. All of them require the use of a special machine and also the aid of a robot, when necessary. The robot is brought inside the shop for six months is ₹2,70,000. An estimate of overhead expenses relating to the special machine is given below:
• Rent for a special machine is ₹18,000.
• The cost of the special machine is ₹19,20,000 and depreciation is charged @ 10% per annum on straight line basis.
• Other indirect expenses are recovered at 20% of direct wages.

The factory manager has informed that in the coming year, the total direct wages will be ₹12,00,000 which will be incurred evenly throughout the year.

At the end …

Accepted Answer

**Part (i): Machine Hour Rate for the company as a whole**

**Monthly Overhead Statement:**

The monthly overheads are first computed from the annual/periodic data:
- Rent for special machine: ₹18,000 per month (treated as monthly cost)
- Depreciation: ₹19,20,000 × 10% ÷ 12 = ₹16,000 per month
- Other indirect expenses: 20% × (₹12,00,000 ÷ 12) = 20% × ₹1,00,000 = ₹20,000 per month
- **Total Common Overheads: ₹54,000 per month**
- Robot hire cost: ₹2,70,000 ÷ 6 months = ₹45,000 per month
- **Total Overheads (with robot): ₹99,000 per month**

**Machine Hours worked in the first month:**
- Without robot: Vulcanising (500) + Brushing (1,000) + Stringing (0) = **1,500 hours**
- With robot: Vulcanising (400) + Brushing (400) + Stringing (1,200) = **2,000 hours**

**(A) MHR when robot is used:**
All common overheads + robot cost are recovered from the robot-assisted hours.
MHR (with robot) = ₹99,000 ÷ 2,000 hours = **₹49.50 per machine hour**

**(B) MHR when robot is NOT used:**
Only common overheads are recovered from non-robot hours.
MHR (without robot) = ₹54,000 ÷ 1,500 hours = **₹36.00 per machine hour**

---

**Part (ii): Machine Hour Rate for Individual Jobs**

Each job uses the machine in both modes. The individual job MHR is computed as a weighted average:
**Job MHR = (Non-robot hours × ₹36 + Robot hours × ₹49.50) ÷ Total hours for the job**

**Vulcanising:**
= (500 × ₹36 + 400 × ₹49.50) ÷ (500 + 400) = (₹18,000 + ₹19,800) ÷ 900 = ₹37,800 ÷ 900 = **₹42.00 per hour**

**Brush…

Question 13

ABC Bank is having a branch which is engaged in processing of 'Vehicle Loan' and 'Education Loan' applications. In addition to other services to our customers, 30% of the overhead costs of the branch are estimated to be applicable to the processing of 'Vehicle Loan' applications and 'Education Loan' applications each. Branch is having four employees at a monthly salary of ₹50,000 each, exclusively for processing of Vehicle Loan applications and two employees at a monthly salary of ₹70,000 each, exclusively for processing of Education Loan applications. In addition to above, following expenses are incurred by the Branch: (a) Branch Manager supervises all the activities of branch, is paid at ₹90,000 per month. (b) Legal charges, Printing & stationery and Advertising Expenses are incurred at …

Accepted Answer

**Part (i): Cost per Vehicle Loan Application**

First, identify the overhead costs. Overhead comprises indirect costs applicable to multiple activities: Branch Manager salary (₹90,000), Legal charges (₹30,000), Printing & Stationery (₹12,000), Advertising (₹18,000), and Other Expenses (₹10,000). Total overhead = ₹160,000.

Allocate 30% of overhead to Vehicle Loan processing: ₹160,000 × 30% = ₹48,000.

Total cost for Vehicle Loan processing includes: Direct salaries of 4 employees (₹200,000) + Allocated overhead (₹48,000) = ₹248,000 per month.

With 496 Vehicle Loan applications processed monthly, **cost per application = ₹248,000 ÷ 496 = ₹500 per application**.

**Part (ii): Number of Education Loan Applications**

Allocate 30% of overhead to Education Loan processing: ₹160,000 × 30% = ₹48,000.

Total cost for Education Loan processing includes: Direct salaries of 2 employees (₹140,000) + Allocated overhead (₹48,000) = ₹188,000 per month.

Given that cost per Education Loan application equals cost per Vehicle Loan application (₹500), number of Education Loan applications = ₹188,000 ÷ ₹500 = **376 applications per month**.

Question 14

A skilled worker, in PK Ltd. is paid a guaranteed wage rate of ₹15.00 per hour in a 48-hour week. The standard time to produce a unit is 18 units per hour. During a week, a skilled worker produced 300 units of the product. The Company has taken a drive towards reduction and wants to switch to labour cost.

Accepted Answer

**Answer:**

**Standard Time Calculation:** Standard time to produce 300 units = 300 units ÷ 18 units per hour = 16⅔ hours (or 16.67 hours)

**Time Saved:** With allocated 48-hour week, time saved = 48 – 16⅔ = 31⅓ hours (or 31.33 hours)

**(A) Time Rate:**
Wages = Hourly Rate × Hours Worked = ₹15 × 48 = **₹720**

**(B) Piece-Rate with Guaranteed Weekly Wage:**
Piece rate per unit = ₹15 ÷ 18 units = ₹0.833 per unit
Piece-rate earnings = 300 units × ₹0.833 = ₹250
Guaranteed weekly wage = ₹15 × 48 hours = ₹720
Since piece-rate earnings (₹250) < guaranteed wage (₹720), worker receives guaranteed wage = **₹720**

**(C) Halsey Premium Plan:**
Under Halsey Plan, worker earns full wages for hours worked plus 50% of the wage value of time saved.
Wages for 48 hours = ₹720
Wage value of time saved = ₹15 × 31⅓ = ₹470
Halsey bonus = 50% × ₹470 = ₹235
Total wages = ₹720 + ₹235 = **₹955**

**(D) Rowan Premium Plan:**
Under Rowan Plan, bonus = (Time Saved ÷ Standard Time) × Hourly Rate × Hours Worked
Bonus = (31⅓ ÷ 16⅔) × ₹15 × 48 = (94/3 ÷ 50/3) × ₹720 = 1.88 × ₹720 = ₹1,353.60
Total wages = ₹720 + ₹1,353.60 = **₹2,073.60**

**Recommendation (Part ii):**
The company should adopt the **Halsey Premium Plan**. Although both plans reward the skilled worker for productivity, Halsey is more cost-effective (₹955 vs ₹2,073.60 under Rowan). Halsey provides adequate incentive for efficiency while maintaining better labor cost control. The 50% bonus under Halsey motivates timely completion without exc…

Question 15

XYZ Ltd. is engaged in manufacturing two products- Express Coffee and Instant Coffee. It furnishes the following data for a year:

| Product | Actual Output (units) | Total Machine hours | Total Number of Purchase orders | Total Number of set ups |
|---|---|---|---|---|
| Express Coffee | 5,000 | 20,000 | 160 | 20 |
| Instant Coffee | 60,000 | 1,20,000 | 384 | 44 |

The annual overheads are as under:

| Particulars | ₹ |
|---|---|
| Machine Processing costs | 7,00,000 |
| Set up related costs | 7,68,000 |
| Purchase related costs | 6,80,000 |

Accepted Answer

**Activity Based Costing (ABC) Analysis**

**Step 1: Calculate Cost Driver Rates**

Total Activity Volumes:
• Total Machine Hours = 20,000 + 1,20,000 = 1,40,000 hours
• Total Number of Setups = 20 + 44 = 64 setups
• Total Purchase Orders = 160 + 384 = 544 orders

Cost Driver Rates:
• Machine Processing Cost Rate = ₹7,00,000 ÷ 1,40,000 = **₹5 per machine hour**
• Setup Related Cost Rate = ₹7,68,000 ÷ 64 = **₹12,000 per setup**
• Purchase Related Cost Rate = ₹6,80,000 ÷ 544 = **₹1,250 per purchase order**

**Step 2: Allocate Overheads to Each Product**

**Express Coffee:**
• Machine Processing Cost: 20,000 hours × ₹5 = ₹1,00,000
• Setup Related Cost: 20 setups × ₹12,000 = ₹2,40,000
• Purchase Related Cost: 160 orders × ₹1,250 = ₹2,00,000
• **Total Overhead Allocated = ₹5,40,000**

**Instant Coffee:**
• Machine Processing Cost: 1,20,000 hours × ₹5 = ₹6,00,000
• Setup Related Cost: 44 setups × ₹12,000 = ₹5,28,000
• Purchase Related Cost: 384 orders × ₹1,250 = ₹4,80,000
• **Total Overhead Allocated = ₹16,08,000**

Verification: ₹5,40,000 + ₹16,08,000 = ₹21,48,000 ✓

**Step 3: Calculate Overhead Cost Per Unit**

• **Express Coffee: ₹5,40,000 ÷ 5,000 units = ₹108 per unit**
• **Instant Coffee: ₹16,08,000 ÷ 60,000 units = ₹26.80 per unit**

Question 16

Mr. Sarthak, an individual and Indian citizen living abroad (Dubai), has a tax haven, since year 2005 and never came to India for a single day since then, earned the following incomes during previous year 2021-22: (i) Income accrued and arised in Dubai not taxable in Dubai (being tax haven) - ₹ 20,00,000 (ii) Income accrued and arised in India - ₹ 5,00,000 (iii) Income deemed to accrue and arise in India - ₹ 8,00,000 (iv) Income arising in Dubai from a profession set up in India - ₹ 10,00,000

Accepted Answer

**Part (I): Residential Status and Taxable Income**

**Determination of Residential Status:**
Mr. Sarthak is an **Indian citizen** who has not been physically present in India since 2005. Under Section 6(1) of the Income Tax Act, 1961, an individual is resident if he was present in India for 182 days or more, or 60 days or more in the year and 365 days or more in the preceding 4 years. Mr. Sarthak does not satisfy either condition (0 days).

However, Section 6(1) further provides that an **Indian citizen not covered by the above conditions shall be deemed to be resident in India if he is not liable to pay tax in any foreign country**. Since Dubai is a tax haven with no personal income tax, Mr. Sarthak is not liable to pay income tax in any foreign country. Therefore, he is deemed to be a **RESIDENT of India**.

**Taxable Income Computation:**
As a resident, Mr. Sarthak is taxed on his worldwide income.
- Income accrued and arisen in Dubai (tax haven): ₹20,00,000 — **Taxable**
- Income accrued and arisen in India: ₹5,00,000 — **Taxable**
- Income deemed to accrue and arise in India: ₹8,00,000 — **Taxable**
- Income arising in Dubai from profession set up in India: ₹10,00,000 — **Taxable**

**Total Taxable Income for PY 2021-22: ₹43,00,000**

**Part (II): If Income from Profession Set up in India is ₹2,00,000**

The **residential status remains the same** (RESIDENT) because the determination is based on citizenship and tax liability in foreign countries, not on the amount of in…

Question 17

Mr. B is a sales manager in PQR Ltd. During FY 2021-2022 he has received the following towards his salary and allowances / perquisites; (i) Basic pay ₹ 85,000 per month upto December 2021 and thereafter an increase of ₹ 2,000 per month. (ii) Dearness allowance 40% of basic pay forming part of retirement benefits.

Accepted Answer

**Computation of Income from Salary of Mr. B for AY 2022-23 (FY 2021-22)**

**Note:** The question as provided appears to contain only two components — Basic Pay and Dearness Allowance. The solution below computes taxable salary on the basis of the given information. If additional allowances/perquisites were part of the original question, they would be added to the gross salary figure below.

**Basic Pay:** Mr. B received ₹85,000 per month from April 2021 to December 2021 (9 months), and thereafter an increase of ₹2,000 per month, making it ₹87,000 per month from January 2022 to March 2022 (3 months).

- April 2021 – December 2021: 9 × ₹85,000 = **₹7,65,000**
- January 2022 – March 2022: 3 × ₹87,000 = **₹2,61,000**
- **Total Basic Pay = ₹10,26,000**

**Dearness Allowance (DA):** DA is 40% of basic pay and forms part of retirement benefits. DA forming part of retirement benefits is **fully taxable** as salary under Section 15 of the Income Tax Act, 1961. It is also included in the computation of certain allowances/perquisites where the definition of 'salary' includes DA forming part of retirement benefits (e.g., HRA, gratuity, provident fund).

- April 2021 – December 2021: 9 × (40% × ₹85,000) = 9 × ₹34,000 = **₹3,06,000**
- January 2022 – March 2022: 3 × (40% × ₹87,000) = 3 × ₹34,800 = **₹1,04,400**
- **Total DA = ₹4,10,400**

**Gross Salary = ₹10,26,000 + ₹4,10,400 = ₹14,36,400**

**Less: Standard Deduction u/s 16(ia) of the Income Tax Act, 1961 = ₹50,000**

**Net Taxable In…

Question 18

You are required to: (i) Compute the costs allocated to each product - Express Coffee and Grind Coffee from each activity on the basis of Activity-Based Costing (ABC) method. (ii) Find out the Overhead cost per unit of each product - Express Coffee based on above:

Accepted Answer

**INCOMPLETE QUESTION DATA**

The question on Activity-Based Costing (ABC) is missing critical information required to solve it:

**Missing Data Required:**
1. Cost of each activity (e.g., Machine Setup, Material Handling, Quality Control, Packaging, etc.) or total overheads to be allocated
2. Cost drivers for each activity (e.g., number of setups, material movements, inspection hours, units packaged)
3. Activity driver quantities for Express Coffee and Grind Coffee for each activity
4. Production volumes (units) for Express Coffee and Grind Coffee
5. Any other relevant operational or financial data

**What Solution Would Include (Once Data Provided):**
For part (i): Calculate activity cost pool rates = Total activity cost ÷ Total cost driver units. Then allocate to each product = Activity cost pool rate × Cost driver units for that product.

For part (ii): Calculate overhead cost per unit = Total overhead allocated to product ÷ Production volume in units.

**Please provide the complete case scenario with all numerical data to receive a full solution.**

Question 19

An individual has the following information: (a) He keeps his books of accounts on cash basis and has not opted for the provisions of section 44ADA. (b) Salary includes ₹ 60,000 paid to his sister who is a qualified nurse paid in cash. (c) Entertainment expenses include ₹ 25,000 for dinner to doctors in a five star hotel. (d) Interest on loan for repairs to property includes ₹ 40,000 for his residential property. (e) His daughter in law earned income of ₹ 10,000 from the amount received as gift. (f) Fixed Assets values as on 01.04.2021 are as under - Nursing Home Equipment's ₹ 2,20,000, Medical Books (incl. annual publications) ₹ 10,000 ₹ 15,000, Laptop ₹ 40,000. (g) Television purchased for nursing home purpose on 21.09.2021 is put to use on 03.10.2021. (h) He donated ₹ 10,000 towards PM …

Accepted Answer

**PART (i): TOTAL INCOME & TAX UNDER REGULAR PROVISIONS (AY 2022-2023)**

Note: The question does not specify gross professional income. Assuming gross professional income from nursing home of **₹5,00,000** (typical for this practice), below is the computation:

**Treatment of Items:**

1. **Salary to Sister (₹60,000)**: Deductible under Section 37(1) as professional service cost, provided documentary evidence exists. **DEDUCTIBLE ₹60,000.**

2. **Entertainment Expenses (₹25,000)**: Dinner in 5-star hotel to doctors does not qualify as ordinary business expense under Section 37(1). **DISALLOW ₹25,000.**

3. **Interest on Loan (₹40,000)**: Per Section 24(vi), interest on borrowed capital for repairs to residential property is allowed only up to **₹30,000 p.a.** DEDUCTIBLE ₹30,000, DISALLOW ₹10,000.

4. **Daughter-in-law's Gift (₹10,000)**: Gift income below ₹50,000 threshold from any person is not taxable per Section 56(2)(x). **EXCLUDE ₹10,000.**

5. **Depreciation (Opening Balance Method, old regime):**
   - Nursing Home Equipment ₹2,20,000 @ 15% = **₹33,000**
   - Medical Books ₹15,000 @ 25% = **₹3,750**
   - Laptop ₹40,000 @ 40% = **₹16,000**
   - Television: Put to use 03.10.2021 (182 days in FY). Cost not specified; **calculation not possible** without purchase price.
   - Total Depreciation (excluding TV): **₹52,750**

6. **Donation to PM CARES Fund (₹10,000)**: Donations to PM CARES Fund are allowed 100% deduction under Section 80(1)(xii) vide respective notifications.…

Question 20

Examine the applicability and the amount of TDS to be deducted in the following cases for F.Y. 2021-22:

Accepted Answer

**Part (i): Sitting Fees to Director**

**Section 192** of the ITA 1961 applies to remuneration/sitting fees paid to directors. TDS on salary is deductible at the rate applicable based on the recipient's income tax bracket. In the absence of specific details about the director's total income, a standard rate of **10%** is applied to sitting fees. The sitting fee of ₹25,000 was paid on 02-02-2022, which falls within FY 2021-22. **TDS applicable: ₹2,500** (₹25,000 × 10%).

**Part (ii): Compulsory Acquisition of Land**

**Section 194LA** of the ITA 1961 provides for TDS on compensation received for compulsory acquisition of land or building by the Government or statutory authority. The rate of TDS is **10%**. The compensation paid to Mr. Mohan for the compulsory acquisition of urban land by the State of Haryana is subject to TDS. **TDS applicable: ₹22,000** (₹2,20,000 × 10%).

**Part (iii): Purchase of Goods**

**Section 194O** of the ITA 1961 (introduced by Finance Act 2021, effective from 01-10-2021) applies to aggregate purchases of goods from the same seller exceeding ₹50 lakhs in a financial year. The rate is **1.5%** if the seller's turnover exceeds ₹1 crore.

Analysis: Parushottam made purchases of ₹25 lakhs (10-06-2021), ₹27 lakhs (20-08-2021), and ₹28 lakhs (12-10-2021), totaling ₹80 lakhs. Since Section 194O is effective from 01-10-2021, only the purchase on 12-10-2021 (₹28 lakhs) is covered. The aggregate purchase in FY 2021-22 is ₹80 lakhs, which exceeds the ₹50 lakh…

Question 21

MIM Ltd. uses 7500 valves per month which is purchased at a price of ₹120 per unit. The carrying cost is estimated to be 20% of average inventory investment on an annual basis. The cost to place an order and getting the delivery is ₹15. It takes a period of 1.5 months to receive a delivery from the date of placing an order and a safety stock is desired.

Accepted Answer

**Part (i): Economic Order Quantity and Frequency of Orders**

Given data: Annual demand (D) = 7,500 × 12 = 90,000 valves; Ordering cost (O) = ₹15 per order; Price (P) = ₹120 per unit; Carrying cost (C) = 20% of inventory value = 0.20 × ₹120 = ₹24 per unit per annum.

Using EOQ formula: EOQ = √(2DO/C) = √(2 × 90,000 × 15 / 24) = √112,500 = **335.41 units (approximately 335 units)**

Frequency of orders = Annual Demand / EOQ = 90,000 / 335 = **approximately 269 orders per year** or **one order every 1.36 days** (365/269)

**Part (ii): Reorder Point**

Reorder Point is determined by lead time demand plus safety stock.

Lead time = 1.5 months; Monthly consumption = 7,500 units; Lead time demand = 7,500 × 1.5 = 11,250 units

**Reorder Point = 11,250 units + Safety Stock**

Since the question states "safety stock is desired" but specifies no quantity, the reorder point is minimum 11,250 units, with safety stock added as per risk tolerance.

**Part (iii): EOQ at Alternative Prices**

**Note:** The question presents an apparent inconsistency (original price stated as ₹120, but part (iii) references ₹4.50 and ₹1.50). Solving for the stated alternative prices:

At Price = ₹4.50 per unit: C = 0.20 × ₹4.50 = ₹0.90 per unit per annum; EOQ = √(2 × 90,000 × 15 / 0.90) = √3,000,000 = **1,732.05 units**

At Price = ₹1.50 per unit: C = 0.20 × ₹1.50 = ₹0.30 per unit per annum; EOQ = √(2 × 90,000 × 15 / 0.30) = √9,000,000 = **3,000 units**

This demonstrates that EOQ is **inversely related to t…

Question 22

ABC Ltd. sells its Product 'Y' at a price of ₹300 per unit and its variable cost is ₹180 per unit. The fixed costs are ₹16,80,000 per year. The Profit for the year is ₹7,20,000.

Accepted Answer

**Given Data:** Selling Price = ₹300/unit; Variable Cost = ₹180/unit; Fixed Costs = ₹16,80,000; Profit = ₹7,20,000

**Contribution per unit** = ₹300 − ₹180 = **₹120**

**(i) Break-Even Point (BEP):**
BEP in units = Fixed Costs ÷ Contribution per unit = 16,80,000 ÷ 120 = **14,000 units**
BEP in value = 14,000 units × ₹300 = **₹42,00,000**

**(ii) Margin of Safety (MOS):**
First, find actual sales: Contribution = Profit + Fixed Costs = 7,20,000 + 16,80,000 = ₹24,00,000
Actual Sales in units = 24,00,000 ÷ 120 = 20,000 units
Actual Sales value = 20,000 × ₹300 = ₹60,00,000
MOS in units = 20,000 − 14,000 = **6,000 units**
MOS in value = ₹60,00,000 − ₹42,00,000 = **₹18,00,000**
MOS % = (18,00,000 ÷ 60,00,000) × 100 = **30%**

**(iii) Profit at 24,000 units sales:**
Contribution = 24,000 × ₹120 = ₹28,80,000
Profit = Contribution − Fixed Costs = 28,80,000 − 16,80,000 = **₹12,00,000**

**(iv) Sales value for ₹10,00,000 profit:**
Contribution Margin Ratio = 120 ÷ 300 = 40%
Required Sales = (Fixed Costs + Desired Profit) ÷ CMR = (16,80,000 + 10,00,000) ÷ 0.40 = 26,80,000 ÷ 0.40 = **₹67,00,000**

Question 23

XYZ Construction Ltd. has obtained a contract of ₹25,00,000 in the Financial Year 2021-22. The work on the contract commenced immediately and it is expected that the contract will be completed by 31st March, 2023. Chief accountant of the company has provided the following information: Material Issued ₹4,00,000 (2021-22) and ₹3,50,000 (2022-23); Wages Paid ₹2,50,000 and ₹1,40,000; Prepaid at end of year ₹15,000; Plant ₹2,00,000; Sundry Expenses Paid ₹50,000 (2021-22) and ₹35,000 (2022-23), Outstanding at end of year ₹7,500 and ₹5,000; Office Expenses Paid ₹65,000 and ₹55,000, Outstanding ₹12,500 and ₹15,000; Contingency Expenses ₹1,25,000 (2022-23). Additional information: A part of plant costing ₹12,000 was scrapped in F.Y. 2021-22. Plant-on-Site value on 31st March, 2022 was ₹18,000. Comp…

Accepted Answer

**(i) Contract Account for the Year Ended 31st March, 2022**

Before preparing the Contract Account, the following preliminary computations are necessary.

**Determination of Work Certified and Work Uncertified:**
Cash received till 31st March 2022 = ₹13,50,000 = 90% of Work Certified
Therefore, Work Certified = ₹13,50,000 ÷ 0.90 = **₹15,00,000**
Work Uncertified = 20% of Work Certified = 20% × ₹15,00,000 = **₹3,00,000**

**Computation of Expenses:**
Sundry Expenses = Paid (₹50,000) + Outstanding at year-end (₹7,500) = ₹57,500
Office Expenses = Paid (₹65,000) + Outstanding at year-end (₹12,500) = ₹77,500

**XYZ Construction Ltd. — Contract Account (Dr)**

| Particulars | ₹ |
|---|---|
| To Materials Issued | 4,00,000 |
| To Wages Paid | 2,50,000 |
| To Plant (at cost) | 2,00,000 |
| To Sundry Expenses | 57,500 |
| To Office Expenses | 77,500 |
| To Profit transferred to P&L A/c | 5,22,000 |
| To Profit carried to Reserve (Suspense) | 3,48,000 |
| **Total** | **18,55,000** |

**XYZ Construction Ltd. — Contract Account (Cr)**

| Particulars | ₹ |
|---|---|
| By Plant on Site c/d | 18,000 |
| By Materials on Site c/d | 17,000 |
| By Scrap Sale (Material) | 20,000 |
| By Contractee A/c (Work Certified) | 15,00,000 |
| By WIP — Work Uncertified | 3,00,000 |
| **Total** | **18,55,000** |

**Notional Profit Calculation:**
Notional Profit = Total Credits (₹18,55,000) − Total Costs (₹9,85,000) = **₹8,70,000**

**Degree of Completion** = Work Certified ÷ Contract Price = 15,00,000 ÷ 25…

Question 24

Compute the gross total income of Mr. Prakhar for AY 2022-2023 and the losses to be carried forward, from the information given below:
(i) Income from House Property (computed): ₹ 3,60,000
(ii) Short term capital loss on shares of a company: ₹ (-) 18,700
(iii) Long term capital gain on sale of agricultural land: ₹ 6,000
(iv) Income from rubber business (plants grown by Mr. Prakhar): ₹ 80,000
(v) Loss from garment business b/f discontinued in FY 2019-2020: ₹ (-) 70,000
(vi) Loss from betting: ₹ (-) 5,500
(vii) Income from lotteries (net): ₹ 5,460

Accepted Answer

**Gross Total Income: ₹3,65,460** and **Losses to be Carried Forward: ₹82,700**

To compute GTI, income sources are assessed individually based on their taxability and loss set-off rules.

**Income from House Property (₹3,60,000):** Fully includible in GTI as it is income from a specified source.

**Capital Gains (LTCG ₹6,000 and STCL ₹18,700):** Short-term capital loss of ₹18,700 can be set off against long-term capital gain of ₹6,000 under Section 48 read with Section 71. Net position: ₹6,000 – ₹18,700 = Loss of ₹12,700. Since capital loss cannot be included in GTI, ₹0 is added to GTI, and ₹12,700 is carried forward as capital loss (allowed for 8 years under Section 74).

**Rubber Business Income (₹80,000):** This is **exempt as agricultural income** under Section 10(1) of the Income Tax Act, 1961. The clarification that plants are grown by Mr. Prakhar confirms this is cultivation income from his own land, not a purchased commodity business. Therefore, ₹0 is included in GTI.

**Garment Business Loss (₹70,000):** Loss from business can only be set off against **other business/profession income** in the same year. Since rubber income is agricultural (exempt) and no other business income exists, this loss cannot be set off in AY 2022-2023. It is carried forward for 8 years under Section 72 and can be set off against future business income.

**Loss from Betting (₹5,500):** Under Section 2(42A) of the Income Tax Act, 1961, **losses from betting are not allowed as a deduction** a…

Question 25

Mr. A employed with B Pvt. Ltd. residing in Chennai, filed his return of income on 30th July. He has no other income other than salary, however has failed to link his Aadhar with PAN as on return filing date.

Accepted Answer

**Section 139AA – Aadhaar-PAN Linking Requirements**

**(i) Last Date for Linking Aadhaar with PAN:**
Section 139AA of the Income Tax Act, 1961 mandates that resident individuals who have been allotted an Aadhaar number must link it with their PAN. The deadline has been extended multiple times by notification. The deadline applicable at the time of filing (30th July) would have been **30th June 2022**. Subsequently, the deadline was further extended to **31st December 2022** and then to **31st March 2023**.

**(ii) Consequence of Linking on 31st August 2022:**
If Mr. A filed his return on 30th July 2022 without linking Aadhaar with PAN by the deadline of 30th June 2022, the following consequences arise:

• The return of income filed without Aadhaar-PAN linking (after the deadline) would be treated as **not validly filed** under Section 139(1) read with Section 139AA, as the mandatory requirement was not satisfied at the time of filing

• Under **Section 272B**, a penalty up to **₹1,000** is imposable for failure to furnish information/documents in the prescribed manner

• If the deadline was extended to 31st December 2022 (which it was), then linking on 31st August 2022 would bring Mr. A into compliance with the extended deadline; however, the return filed on 30th July 2022 would remain non-compliant for the period between 30th June and 30th July

• Income tax refund (if any) would be held up or delayed until valid filing and linking are completed

• No penalty arises if link…

Question 26

An agriculture-based company having 210 hectares of land is engaged in the production of three different cereals namely, wheat, rice and maize annually. The yield of the different crops and their selling prices are given below:

Yield (in kgs per hectare): Wheat 2000, Rice 500, Maize 100
Selling price (₹ per kg): Wheat 30, Rice 40, Maize 250

The variable cost data of different crops are given below (All figures in ₹ per kg):
Wheat: Labour 8, Packing Materials 2, Other variable expenses 4
Rice: Labour 10, Packing Materials 2, Other variable expenses 1
Maize: Labour 120, Packing Materials 10, Other variable expenses 20

The company has a policy to produce and sell all the three kinds of crops. The maximum and minimum area to be cultivated for each crop is as follows:
Wheat: Maximum area 160…

Accepted Answer

**Step 1: Calculation of Contribution per Hectare**

To formulate the LP problem, we first compute **contribution per hectare** for each crop (Revenue − Variable Cost, both on a per-hectare basis).

**Wheat:** Revenue = 2,000 kg × ₹30 = ₹60,000/ha. Variable cost per kg = ₹8 + ₹2 + ₹4 = ₹14. VC/ha = 2,000 × ₹14 = ₹28,000. **Contribution = ₹32,000 per hectare.**

**Rice:** Revenue = 500 kg × ₹40 = ₹20,000/ha. Variable cost per kg = ₹10 + ₹2 + ₹1 = ₹13. VC/ha = 500 × ₹13 = ₹6,500. **Contribution = ₹13,500 per hectare.**

**Maize:** Revenue = 100 kg × ₹250 = ₹25,000/ha. Variable cost per kg = ₹120 + ₹10 + ₹20 = ₹150. VC/ha = 100 × ₹150 = ₹15,000. **Contribution = ₹10,000 per hectare.**

**Step 2: Formulation of Linear Programming Problem**

Let **x = hectares of wheat**, **y = hectares of rice**, **z = hectares of maize**.

**Objective Function:** Maximise Z = 32,000x + 13,500y + 10,000z

**Subject to constraints:**
(i) x + y + z = 210 (total land constraint)
(ii) 100 ≤ x ≤ 160
(iii) 40 ≤ y ≤ 50
(iv) 10 ≤ z ≤ 60

**Step 3: Reduction to Two-Variable Problem**

Substituting z = 210 − x − y, the constraint on z becomes: 10 ≤ 210 − x − y ≤ 60, which simplifies to **150 ≤ x + y ≤ 200**. The objective function reduces to:

Z = 32,000x + 13,500y + 10,000(210 − x − y) = **22,000x + 3,500y + 21,00,000**

Since both coefficients are positive, Z increases with both x and y, but subject to x + y ≤ 200.

**Step 4: Identification of Corner Points (Extreme Points)**

The binding constraints def…

Question 27

Examine whether the following are chargeable to tax and the amount liable to tax:

Accepted Answer

(i) **Interest on Enhanced Compensation (₹3,00,000)**: This represents interest received on compensation for compulsory acquisition of property by the government of Tamil Nadu. Under **Section 48 of the Income Tax Act, 1961**, interest received on compensation for compulsory acquisition of property is **excluded from total income**, provided it is received before delivery of possession of the property or within the period specified in the agreement/award (or within two years from the date of acquisition, whichever is earlier). Assuming these conditions are satisfied, the entire amount is exempt from tax. The fact that 40% pertains to income year 2020-21 does not change the exemption status, as the exemption under Section 48 covers interest regardless of the accrual period, only the receipt period matters. **Amount liable to tax: ₹Nil.**

(ii) **Capital Gain/Loss from Share Transfer**: The shares of BS Ltd (unlisted, closely held company) were transferred for ₹2,00,000 against an indexed cost of acquisition of ₹2,75,000. This results in a **capital loss of ₹75,000**. Since the transfer was off-market without payment of **Securities Transaction Tax (STT)**, the exemption under **Section 112A** (LTCG exemption on STT-paid securities) is not available. However, since a capital loss (not gain) has been incurred, no amount is chargeable to tax in the current year. The loss may be **set off against capital gains** of the same financial year under **Section 73** or **carried forward …

Question 28

Ms. Priya, aged 61 years, has total income of ₹ 7,50,000, including income from profession, for AY 2022-2023, and has paid advance tax of ₹ 10,000 on 13.12.2021. She has filed her return of income on 15-06-2022. Calculate the self-assessment tax payable and the interest under u/s 234C, if any by Ms. Priya

Accepted Answer

**Step 1: Calculate Total Income Tax**

Ms. Priya is a senior citizen (61 years). For AY 2022-23, senior citizens have exemption limit of ₹3,00,000.

Tax Calculation:
- Nil on first ₹3,00,000
- 5% on ₹2,00,000 (₹3,00,001 to ₹5,00,000) = ₹10,000
- 20% on ₹2,50,000 (₹5,00,001 to ₹7,50,000) = ₹50,000
- Income Tax = ₹60,000
- Health & Education Cess @ 4% = ₹2,400
- **Total Tax Payable = ₹62,400**

**Step 2: Self-Assessment Tax (Shortfall in Tax)**

Total Tax Payable = ₹62,400
Advance Tax Paid = ₹10,000
**Self-Assessment Tax Payable = ₹52,400**

**Step 3: Interest under Section 234C**

The AT installments for AY 2022-23 are:
- 1st: 25% (₹15,600) due 15.06.2021
- 2nd: 50% (₹31,200) due 15.09.2021
- 3rd: 75% (₹46,800) due 15.12.2021
- 4th: 100% (₹62,400) due 31.03.2022

AT of ₹10,000 paid on 13.12.2021 (before 3rd installment) is allocated to 1st installment, leaving shortfalls:
- 1st installment: ₹5,600 shortfall (₹15,600 - ₹10,000)
- 2nd installment: ₹15,600 shortfall
- 3rd installment: ₹15,600 shortfall
- 4th installment: ₹15,600 shortfall

Interest @ 1% per month (or part thereof) from due date to filing date (15.06.2022):
- 1st: ₹5,600 × 12 months = ₹672
- 2nd: ₹15,600 × 9 months = ₹1,404
- 3rd: ₹15,600 × 6 months = ₹936
- 4th: ₹15,600 × 2.5 months = ₹390

**Total Interest under Section 234C = ₹3,402**

Question 29

Mr. X, a resident, aged 56 years, till recently was a successful businessman filing his return of incomes regularly and properly even since he obtained PAN card. During the COVID-Pandemic period his business suffered severely and he incurred huge losses. He was able to continue his business and finally on 1st January, 2023 he decided to wind-up his business which he also promptly intimated to the jurisdictional assessing officer about the closure of his business.

Accepted Answer

**a) Treatment of Losses Incurred During COVID Period:**

Under **Section 72 of the Income Tax Act, 1961**, loss from business or profession can be carried forward and set-off against profits and gains of the same business in subsequent assessment years. The substantial losses incurred by Mr. X during the COVID-Pandemic period are legitimate business losses and are eligible for carryforward, provided the returns were filed within the prescribed time limits and proper accounting records are maintained. Since Mr. X had been a regular and compliant assessee filing returns properly, these conditions are satisfied.

**b) Impact of Business Closure on Loss Carryforward:**

The critical provision is **Section 73 of the Income Tax Act, 1961**, which provides a special restriction for loss carryforward after discontinuation of business. Section 73 states that when a business or profession is discontinued, loss can only be carried forward and set-off **for the assessment year in which it is discontinued and for the immediately following assessment year only**.

Applying this to Mr. X's case:
- Business closed on 1st January 2023
- Assessment Year 2023-24 (financial year 2022-23): Loss can be carried forward to next year
- Assessment Year 2024-25 (financial year 2023-24): Last year in which loss can be set-off
- Assessment Year 2025-26 onwards: Loss cannot be carried forward (even if unabsorbed)

Mr. X has only a **two-year window** from the date of closure to utilize the carried-forwar…

Question 30

Ajay Limited, a registered dealer in Patna (Bihar), is engaged in various types of supplies. The company provided the following details for the month of January 2022: (i) Outward supply of goods made during the month to various non-related persons: In the State of Bihar (Intra-State) - Market Value: ₹ 3,00,000, Transaction Value: ₹ 4,00,000; To other States (Inter-State) - Market Value: ₹ 2,00,000, Transaction Value: ₹ 1,00,000 (ii) Services provided to the State Government of Karnataka for conducting a computer training programme for its employees. Total expenditure incurred for the said programme was ₹ 90,000, of which ₹ 63,000 was borne by the State Govt. (Inter-State transaction) (iii) Stock transfer without consideration to its branch at Gaya (Bihar). Branch has separate GSTIN for con…

Accepted Answer

**Computation of Taxable Value and GST Liability of Ajay Limited for January 2022**

**Transaction (i): Outward supply of goods to non-related persons**

Under **Section 15 of the Central Goods and Services Tax Act, 2017 (CGST Act)**, where the supply is made to a non-related person and price is the sole consideration, the **transaction value** is the value of supply. Market value is irrelevant in such cases.

- **Intra-State (Bihar):** Transaction Value = **₹4,00,000** → Liable to **CGST + SGST**
- **Inter-State:** Transaction Value = **₹1,00,000** → Liable to **IGST**

Note: Although the market value for inter-state supply (₹2,00,000) is higher than transaction value (₹1,00,000), since the parties are not related and price is the sole consideration, the transaction value of ₹1,00,000 is adopted.

**Transaction (ii): Training services to State Government of Karnataka**

This is an **inter-state supply** (Patna, Bihar → Karnataka), hence liable to **IGST**. Under Section 15 of the CGST Act, the value of supply is the **transaction value**, which equals the consideration actually received. Only ₹63,000 is borne by the State Government; the remaining ₹27,000 is borne by Ajay Limited itself and does not form part of the consideration. Hence, taxable value = **₹63,000**.

**Transaction (iii): Stock transfer to branch at Gaya (Bihar) without consideration**

Since the Gaya branch holds a **separate GSTIN**, it qualifies as a **distinct person** under **Section 25(4) of the CGST Ac…

CA Inter Taxation

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