Question 1

The following table shows the data for three joint products produced in equal proportions up to a split-off point. Number of units produced and sold: A = 3,60,000, B = 2,10,000, C = 4,50,000. Selling price per unit at split off point: B = ₹6. Selling price per unit after further processing: A = ₹9.50, C = ₹12. Further processing costs: A = ₹8,60,000, C = ₹10,40,000. The joint production cost upto the split off point at which A, B and C become separate products is ₹57,26,000.

Accepted Answer

**Part (i): Statement of Apportionment of Joint Cost using NRV Method**

Under the **Net Realisable Value (NRV) Method**, joint costs are apportioned in the ratio of the NRV of each product at the split-off point. NRV is computed as: Final Selling Price × Units Produced − Further Processing Costs. For products sold at split-off without further processing, the split-off selling price itself represents NRV.

**Product A:** NRV = (3,60,000 × ₹9.50) − ₹8,60,000 = ₹34,20,000 − ₹8,60,000 = **₹25,60,000**

**Product B:** NRV = 2,10,000 × ₹6 = **₹12,60,000** (sold at split-off, no further processing)

**Product C:** NRV = (4,50,000 × ₹12) − ₹10,40,000 = ₹54,00,000 − ₹10,40,000 = **₹43,60,000**

**Total NRV = ₹81,80,000**

Apportionment Ratio: A : B : C = 25,60,000 : 12,60,000 : 43,60,000 = 256 : 126 : 436

Joint Cost apportioned (₹57,26,000):
- Product A = (256/818) × ₹57,26,000 = **₹17,92,000**
- Product B = (126/818) × ₹57,26,000 = **₹8,82,000**
- Product C = (436/818) × ₹57,26,000 = **₹30,52,000**
- **Total = ₹57,26,000** ✓

**Part (ii): Advise on Offers from D Limited (Product A) and PQR Limited (Product C)**

The relevant decision criterion is: **accept the split-off offer only if the split-off price exceeds the NRV from further processing** (i.e., incremental revenue from further processing > incremental cost).

**Product A — Offer from D Limited @ ₹7 per unit:**

Revenue if sold at split-off = 3,60,000 × ₹7 = ₹25,20,000
NRV if processed further = ₹25,60,000 (computed above)
In…

Question 2

A product passes through two processes, Process A and Process B. The output of Process A is treated as input of Process B. The following information has been furnished:

[Table: Input Material (Process A: 78,000 kg @ ₹ 5; Process B: - kgs), Indirect Material (Process A: -; Process B: ₹ 34,320), Wages (Process A: ₹ 2,85,000; Process B: ₹ 3,30,000), Overhead (Process A: ₹ 1,67,400; Process B: ₹ 1,11,600), Output transferred to Process B (Process A: 68,640 kgs; Process B: 69,000 kgs), Transfer to Finished Stock, Normal loss of input material in kg (Process A: 7,800 kgs; Process B: 240 kgs)]

There is no realizable value for normal loss. No stock of raw materials on work-in-process was left at the end.

You are required to prepare the Process account for each Process.

Accepted Answer

**Process A Account**

The total cost charged to Process A comprises: Input Material (78,000 kg × ₹5) = ₹3,90,000; Wages = ₹2,85,000; Overhead = ₹1,67,400. **Total cost = ₹8,42,400.**

**Normal Loss** = 7,800 kgs (no realizable value, so ₹0).
**Expected (Normal) Output** = 78,000 − 7,800 = 70,200 kgs.
**Actual Output** = 68,640 kgs.
**Abnormal Loss** = 70,200 − 68,640 = **1,560 kgs**.

**Cost per kg** = Total Cost ÷ Normal Output = ₹8,42,400 ÷ 70,200 = **₹12 per kg**.

Output transferred to Process B = 68,640 × ₹12 = ₹8,23,680.
Abnormal Loss = 1,560 × ₹12 = ₹18,720.

**Process A Account**

| Dr |  | Kgs | ₹ | Cr |  | Kgs | ₹ |
|---|---|---|---|---|---|---|---|
| To Input Material | | 78,000 | 3,90,000 | By Normal Loss | | 7,800 | — |
| To Wages | | — | 2,85,000 | By Abnormal Loss | | 1,560 | 18,720 |
| To Overhead | | — | 1,67,400 | By Process B A/c (Transfer) | | 68,640 | 8,23,680 |
| **Total** | | **78,000** | **8,42,400** | **Total** | | **78,000** | **8,42,400** |

---

**Process B Account**

The total cost charged to Process B: Transfer from Process A = ₹8,23,680; Indirect Material = ₹34,320; Wages = ₹3,30,000; Overhead = ₹1,11,600. **Total cost = ₹12,99,600.**

**Normal Loss** = 240 kgs (no realizable value, so ₹0).
**Expected Output** = 68,640 − 240 = 68,400 kgs.
**Actual Output** = 69,000 kgs.
Since actual output **exceeds** expected output, there is an **Abnormal Gain** = 69,000 − 68,400 = **600 kgs**.

**Cost per kg** = Total Cost ÷ Expected Output = ₹12,99,600 ÷ 68…

Question 3

एक प्रश्न के अभिभाषणों : प्रबंध्य एवं नेतृत्व में से छोटे प्रश्नों में कुछ प्रश्न है ।

Accepted Answer

**Unable to solve: Question text incomplete or corrupted.** The provided question in Hindi appears incomplete or machine-translated incorrectly. The text 'एक प्रश्न के अभिभाषणों : प्रबंध्य एवं नेतृत्व में से छोटे प्रश्नों में कुछ प्रश्न है' does not form a coherent question. To provide a proper CA Intermediate exam-standard answer on Management Accounting with Comparative Financial Analysis (5 marks), please provide the complete, clear question text in either English or properly formatted Hindi.

Question 4

Mr. Pramod, a resident aged 55 years, is a retail trader; he furnished the following information for A.Y. 2023-24: Trading and Profit and Loss Account for the year ended on 31.03.2023 showing sales of 70,80,000, purchases of 55,40,000, transport charges of 1,20,000, opening stock of 1,15,000, closing stock of 2,10,000, salaries of 3,40,000, rates and taxes of 24,000, administrative expenses of 3,25,000, depreciation of 80,000, rent from house property of 1,80,000, and rent from furniture of 1,20,000. Additional details: (1) All sales by account payee cheques or bank transfers. (2) Opening and closing stocks overvalued by 15,000 and 20,000 respectively. (3) Rates and taxes include GST liability of 5,000 paid on 01.05.2023 and municipal taxes for let out property of 7,000. (4) Administrative…

Accepted Answer

**Computation of Business Income (Normal Provisions) — Common to Options (i) and (iii)**

**Net Profit as per P&L** is computed as: Credits (Sales ₹70,80,000 + Closing stock ₹2,10,000 + Rent from HP ₹1,80,000 + Rent from furniture ₹1,20,000 = ₹75,90,000) minus Debits (Opening stock ₹1,15,000 + Purchases ₹55,40,000 + Transport ₹1,20,000 + Salaries ₹3,40,000 + Rates & taxes ₹24,000 + Admin expenses ₹3,25,000 + Depreciation ₹80,000 = ₹65,44,000) = **₹10,46,000**.

Starting from ₹10,46,000, the following adjustments are made:

**Deduct** non-business incomes credited to P&L: Rent from house property ₹1,80,000 (taxable under HP head) and rent from furniture ₹1,20,000 (taxable as Income from Other Sources). **Add back** disallowed expenses: Municipal taxes ₹7,000 u/s 23 (allowable from HP not business); donation to National Children's Fund ₹25,000 (not business expenditure u/s 37(1)); laptop ₹60,000 — capital expenditure debited to P&L, disallowed; cash transport payment ₹30,000 disallowed under **Section 40A(3) of the Income Tax Act 1961** (cash payment exceeding ₹10,000); book depreciation ₹80,000 added back to substitute IT Act depreciation. GST liability ₹5,000 paid on 01.05.2023 — **allowed** under the proviso to **Section 43B** as it was paid before the return due date. Loss on equity shares ₹8,000 is not part of P&L (listed only in additional details) — treated as **Short-Term Capital Loss (STCL)** under **Section 111A**, to be carried forward for 8 years. Stock corrections:…

Question 5

Prepare a Contract account and show the notional profit or loss as on 31.03.2023.

Accepted Answer

**Contract Account of Unique Construction Limited as on 31.03.2023**

The contract commenced on 01.08.2022 and the account is prepared for 8 months ending 31.03.2023. The notional profit figure emerges from comparing the value of work certified against the cost attributable to that work.

**Contract Account (Dr side):**

| Particulars | ₹ |
|---|---|
| To Materials consumed | 35,91,000 |
| To Wages (paid ₹9,65,000 + outstanding ₹75,000) | 10,40,000 |
| To Direct expenses | 1,96,650 |
| To General overheads | 2,08,000 |
| To Subcontractor charges (₹18,000 × 40% × 8 months) | 57,600 |
| To Plant issued to site | 7,20,000 |
| To **Notional Profit c/d** | **4,97,500** |
| **Total** | **63,10,750** |

**Contract Account (Cr side):**

| Particulars | ₹ |
|---|---|
| By Plant transferred to other contracts (WDV) | 56,250 |
| By Plant c/d (WDV at 31.03.2023) | 5,94,000 |
| By Work-in-Progress — Work certified (value, 50% of ₹96,00,000) | 48,00,000 |
| By Work-in-Progress — Work uncertified (cost) | 8,60,500 |
| **Total** | **63,10,750** |

**Notional Profit = ₹4,97,500**

Note: The 60% completion figure (stated as 31.12.2023 in the question — treated as 31.03.2023, likely a typographical error) is used to apportion total costs between certified and uncertified work. Since only work that has been certified by the architect can give rise to a notional profit, the notional profit represents the surplus of the value of certified work (₹48,00,000) over the cost attributable to it (₹43,02,…

Question 6

अभिलेख समस्या: बैंक खाते और विभिन्न लेखांकन मदों से संबंधित समस्या

Accepted Answer

**Note:** The question as provided is incomplete — the full case scenario data, including cost per unit and the specific conditions for each item, has not been fully transmitted. The figures given (₹1,40,000; ₹3,40,000; ₹4,20,000; ₹2,70,000 with selling prices ₹20, ₹40, ₹20, ₹20 per unit respectively) and the reference to HL Limited suggest this is an **inventory valuation problem under AS 2 (Valuation of Inventories)** combined with a bank/accounting treatment question. The framework answer below applies AS 2 principles with the available data.

**(a) Accounting Treatment — Inventory Valuation under AS 2:**

As per **AS 2 (Valuation of Inventories)**, inventories shall be valued at the **lower of Cost or Net Realisable Value (NRV)**. NRV is the estimated selling price in the ordinary course of business less the estimated costs of completion and estimated costs necessary to make the sale.

From the available data, units in each item are derived by dividing given amount by selling price per unit (assuming the amounts represent total cost at cost price — full data needed to confirm):
- Item (i): ₹1,40,000 ÷ ₹20 = 7,000 units
- Item (ii): ₹3,40,000 ÷ ₹40 = 8,500 units
- Item (iii): ₹4,20,000 ÷ ₹20 = 21,000 units
- Item (iv): ₹2,70,000 ÷ ₹20 = 13,500 units

For each item, if Cost per unit > NRV per unit, inventory must be written down to NRV; the write-down is recognised as an expense in the Statement of Profit & Loss in the period it occurs. If Cost ≤ NRV, inventory is carried a…

Question 7

The following data relates to the manufacture of product BXE for the year ended 31st March, 2023: Value of stock as on 1st April, 2022 - Raw materials ₹27,00,000, Work in progress ₹10,60,000, Finished Goods ₹25,00,000, Material purchased ₹2,48,00,000, Freight inward ₹7,50,000

Accepted Answer

**Note: The question as presented appears to be incomplete.** The data provided includes opening stocks, purchases, and freight inward, but critical figures required to compute the **Cost of Production** are missing — specifically: Closing Stock of Raw Materials, Closing Stock of Work-in-Progress, Direct Wages/Labour, and Factory/Manufacturing Overheads. The answer below demonstrates the standard **Cost of Production Statement** format with the available figures and indicates where missing data would be inserted.

**Statement of Cost of Production for the year ended 31st March, 2023 (Product BXE)**

**A. Raw Material Consumed:**
Opening Stock of Raw Materials: ₹27,00,000
Add: Purchases: ₹2,48,00,000
Add: Freight Inward: ₹7,50,000
Total Material Available: ₹2,82,50,000
Less: Closing Stock of Raw Materials: *(Not given)*
**Raw Material Consumed = ₹2,82,50,000 − Closing RM**

**B. Cost of Production:**
Raw Material Consumed: (as above)
Add: Direct Wages/Labour: *(Not given)*
Add: Prime Cost = Raw Material Consumed + Direct Wages
Add: Factory Overheads (Power, Depreciation, etc.): *(Not given)*
= **Gross Works Cost**
Add: Opening Work-in-Progress: ₹10,60,000
Less: Closing Work-in-Progress: *(Not given)*
= **Cost of Production**

**C. Cost of Goods Sold (for reference):**
Cost of Production (above)
Add: Opening Finished Goods: ₹25,00,000
Less: Closing Finished Goods: *(Not given)*
= **Cost of Goods Sold**

If the question intends only the **material cost layer** as part (a), and r…

Question 8

For the quarter October to December 2023, it is estimated that due to adverse changes in demand for Hot Coffee would increase every month by 50% of the previous month and the demand for Cold Coffee would decrease every month by 30% of the previous month. The demand for Fruit Juice would decrease by 20% in the month of October 2023 and thereafter it will remain constant. HI Limited would be able to sell only 60,000 units, 50,000 units and 30,000 units of Carbonated Soft Drink respectively during the months of October, November and December 2023. There would be no change in the selling price of all the products during the next quarter.

Standard Quantity of closing stock for the period September 2023 to December 2023 is as follows:

September 2023: Hot Coffee 12,000, Cold Coffee 13,000, Frui…

Accepted Answer

**Note:** This question is a sub-part of a larger case scenario. The September 2023 actual demand figures (base month) for Hot Coffee, Cold Coffee, and Fruit Juice are required from the preceding part of the case. The selling prices per unit are also needed from prior data. The solution below presents the complete methodology and works through all figures that can be derived from the given data, using the demand relationships specified.

**STEP 1 — Demand (Sales in Units) Forecast**

The closing stock of September 2023 serves as the opening stock for October 2023. Demand is derived using the given percentage changes applied to the **previous month's demand**.

Let the September 2023 demand be denoted as the base:
- **Hot Coffee** increases by 50% each month: Oct = Sep × 1.50; Nov = Oct × 1.50; Dec = Nov × 1.50
- **Cold Coffee** decreases by 30% each month: Oct = Sep × 0.70; Nov = Oct × 0.70; Dec = Nov × 0.70
- **Fruit Juice** decreases by 20% in October only, then constant: Oct = Sep × 0.80; Nov = Oct; Dec = Oct
- **Carbonated Soft Drink**: Given directly — Oct = 60,000; Nov = 50,000; Dec = 30,000

**SALES BUDGET (in units)**

| Product | October | November | December |
|---|---|---|---|
| Hot Coffee | Sep × 1.50 | Oct × 1.50 | Nov × 1.50 |
| Cold Coffee | Sep × 0.70 | Oct × 0.70 | Nov × 0.70 |
| Fruit Juice | Sep × 0.80 | Same as Oct | Same as Oct |
| Carbonated Soft Drink | 60,000 | 50,000 | 30,000 |

Sales value = Units × Selling Price per unit (unchanged from current quar…

Question 9

State (Yes/No) whether the following transactions can be treated as income deemed to accrue or arise in India: (1) Hire charges paid outside India for the use of machinery situated in India. (2) Income of a non-resident and non-citizen of India from the shooting of cinematograph film in India. (3) Capital gain arising through a transfer of a house property situated in India, the place of registration and the place of payment of consideration being outside India. (4) Allowances paid by the Government to a citizen of India for the services rendered outside India. (5) Past period foreign untaxed income brought to India during the previous year. (6) Gift received by a non-resident on the occasion of his wedding in India.

Accepted Answer

**Answer: (1) Yes (2) Yes (3) Yes (4) No (5) No (6) No**

(1) **Hire charges for machinery in India – YES.** Under **Section 9(1)(v)** of the Income Tax Act 1961, income arising from the use of machinery, plant, building, or land situated in India is deemed to accrue or arise in India. The situs (location) of the machinery is determinative; the place of payment is irrelevant. Thus, hire charges for machinery in India constitute income deemed to accrue in India regardless of where payment is made.

(2) **Income from cinematograph film shooting in India – YES.** Under **Section 9(1)(vi)**, income from the shooting of a cinematograph film in India is explicitly deemed to accrue or arise in India. The location of the activity (shooting in India) is the key factor. The residential status or citizenship of the person earning the income is immaterial. A non-resident non-citizen earning income from film shooting activities in India is liable on such deemed income arising in India.

(3) **Capital gain from transfer of house property in India – YES.** Under **Section 9(1)(iii)**, capital gain arising from the transfer of immovable property (house property) situated in India is deemed to accrue or arise in India. The place of registration of the property and the place of payment of consideration are not relevant. The situs of the property is the determinative factor. Capital gains from transfer of Indian property are always deemed to accrue in India.

(4) **Allowances for services rende…

Question 10

Mr. Sanjay has following incomes during the previous year 2022-23: (1) Interest on England Development Bonds (1/3 received in India) 60,000. (2) Interest received from a non-resident 5,000 against a loan given to him to run a business in India. (3) Royalty received from Akhil, a resident, for technical services given to run a business outside India 20,000. (4) Income from business in Sri Lanka 25,000 out of which 15,000 were received in India. The business is controlled from India. Compute taxable income of Mr. Sanjay for the assessment year 2023-24 if he is a (I) Not ordinarily resident (II) Non-resident

Accepted Answer

**COMPUTATION OF TAXABLE INCOME FOR MR. SANJAY**

**I. AS NOT ORDINARILY RESIDENT (NOR)**

For a NOR under Section 5(1)(b) of the Income Tax Act 1961, taxable income includes: (i) income from any source in India; (ii) income from any source outside India if received in India; (iii) income from business controlled from India (entire income); and (iv) income from profession set up in India (entire income).

**1. Interest on England Development Bonds: ₹20,000** - The total interest received is ₹60,000, of which 1/3 is ₹20,000 received in India. As it is foreign income, only the portion received in India is taxable. Taxable: ₹20,000.

**2. Interest from Non-Resident: ₹5,000** - This is interest on a loan given to a non-resident to run a business in India. Although the debtor is non-resident, the income originates from the non-resident's Indian business operations. The source is therefore the Indian business, making it Indian income. Taxable: ₹5,000.

**3. Royalty from Resident: ₹20,000** - Royalty received from an Indian resident is income from an Indian source. Even though technical services were rendered outside India, the payer being a resident makes it Indian income. Taxable: ₹20,000.

**4. Income from Business in Sri Lanka: ₹25,000** - Since the business is controlled from India, the entire income (not just the amount received in India) is taxable under the control and management test. Taxable: ₹25,000.

**Total Taxable Income for NOR = ₹70,000**

---

**II. AS NON-RESIDENT …

Question 11

Discuss the liability of tax deduction at source under the Income-tax Act, 1961 in respect of the following cases with reference to A.Y. 2023-24. (State applicable provision and give brief reasons for your answer, wherever applicable) (i) XYZ, a resident partnership firm is in retail business buying fabric material regularly from ABC, a resident proprietorship firm. Details of transactions during P.Y. 2022-23: Advance payment on 1.4.2022 of 40,00,000; Payment for supplies on 2.7.2022 of 20,00,000; Advance payment on 4.8.2022 of 12,00,000. XYZ achieved gross turnover of 12 crore from the business during 2021-22 and 9 crores for 2022-23. ABC's gross business turnover for 2021-22 was 6 crores. Will your answer be the same, if the gross turnover of XYZ during 2021-22 includes 4 crore towards s…

Accepted Answer

**Part (i): TDS on Goods Purchase**

**No TDS is required** on any of the payments made by XYZ to ABC for purchase of fabric material. The transactions consist of: (a) Advance payment of ₹40,00,000 on 1.4.2022; (b) Payment for supplies of ₹20,00,000 on 2.7.2022; and (c) Advance payment of ₹12,00,000 on 4.8.2022. Purchases of goods do not fall under any specific TDS provision under the Income-tax Act, 1961. **Section 194C** applies to payments for professional/technical services or work contracts. **Section 194H** applies to commission or brokerage on sale or purchase of goods—not payment for goods supply itself. **Section 194J** applies to fees for professional services. Since this is a straightforward purchase of goods without any embedded service component, none of these provisions apply. ABC's turnover (₹6 crore in 2021-22) does not trigger any TDS threshold. XYZ's turnover (₹9 crore in 2022-23) does not change the analysis since TDS on goods purchases is not recognized under the Act.

**Even if XYZ's ₹4 crore turnover in 2021-22 comprised supplies to charitable organizations, the answer remains the same.** The nature of the end-use does not convert a goods purchase transaction into a service transaction. Charitable supplies do not attract separate TDS treatment on the purchase side.

**Part (ii): Commission on Sales to Part-Time Director**

**TDS is required under Section 194H** at the rate of **10% for a resident deductee**. The amount of commission (₹2,49,000) paid to M…

Question 12

Mr. Aryan, a resident individual aged 58 years, sells (unlisted) shares in a private sector company on May 17, 2022 for 10,00,000. The shares were bought on 01.08.2012 for a consideration of 2,00,000. Mr Aryan paid 2,000 as brokerage on sale of shares. Mr. Aryan deposited 5,00,000 in Capital Gain Account Scheme on 15.06.2023 (Before filing the return of income for the Assessment Year 2023-24). On April 30, 2024 he withdraws 4,50,000 and purchases a residential house properly at Delhi on May 1, 2024 for 4,50,000. Cost Inflation Index (CII) – F.Y. 2012-13 - 200, F.Y. 2022-23 - 331. Ascertain: (i) The amount of Capital Gain chargeable to tax for the A.Y. 2023-24. (ii) Tax treatment (with mention of relevant assessment year) of the unutilized amount.

Accepted Answer

**CAPITAL GAIN CALCULATION**

Step 1: Compute Long-Term Capital Gain (LTCG)
Sale price: ₹10,00,000
Less: Brokerage on sale: ₹2,000
Net sale price: ₹9,98,000

Cost of Acquisition (COA): ₹2,00,000
Indexed Cost of Acquisition = COA × (CII of sale year / CII of purchase year)
= 2,00,000 × (331 / 200)
= 2,00,000 × 1.655
= ₹3,31,000

LTCG = Net sale price − Indexed COA
= 9,98,000 − 3,31,000
= **₹6,67,000**

**APPLICATION OF SECTION 54F**

Mr. Aryan is eligible for deduction under **Section 54F of the Income Tax Act, 1961** (long-term capital gains from transfer of unlisted shares, excluding listed securities). The conditions are satisfied:
- Amount deposited: ₹5,00,000 on 15.06.2023 (within 6 months from end of FY 2022-23, i.e., by 30.09.2023, and before filing return for AY 2023-24) ✓
- Amount does not exceed LTCG (₹5,00,000 < ₹6,67,000) ✓
- Amount used for purchasing residential house: ₹4,50,000 on 01.05.2024 (within 3 years from end of FY 2023-24, i.e., by 31.03.2027) ✓

Deduction under Section 54F = Amount actually used for purchase = **₹4,50,000**

**(i) CAPITAL GAIN CHARGEABLE TO TAX FOR AY 2023-24**

LTCG = ₹6,67,000
Less: Deduction under Section 54F: ₹4,50,000
**Capital Gain chargeable to tax = ₹2,17,000**

**(ii) TAX TREATMENT OF UNUTILIZED AMOUNT**

Unused amount in Capital Gain Account Scheme = ₹5,00,000 − ₹4,50,000 = **₹50,000**

Under Section 54F, the amount deposited in the Capital Gain Account Scheme must be used for purchasing/constructing a residential house proper…

Question 13

Ms. Neelima, a resident of Delhi, was employed by LMN Ltd. upto 15, March, 1992. At the time of leaving LMN Ltd., she was paid 3,50,000 as leave salary out of which 59,000 was exempted from tax under section 10(10AA). Thereafter, she joined CD (P) Ltd. and received 4,14,000 as leave salary at the time of retirement on December 31, 2022. In addition she received a gratuity of 12,00,000 from the employer (she is not covered by the Payment of Gratuity Act, 1972). The following information is available: Average salary received during 11 months ending on December 31, 2022 - From February 1 to July 31 (p.m.) 22,600; From August 1 to December 31 (p.m.) 22,900. Duration of service 14 years 7 months. Leave entitlement for every year of service 45 days. Leave availed while in service 90 days. Leave …

Accepted Answer

**Answer: ₹13,58,954**

Ms. Neelima's total income for AY 2023-24 comprises taxable amounts from leave encashment, gratuity, and unrecognized provident fund received during the financial year 2022-23 (retirement on 31 December 2022).

**Leave Encashment from CD (P) Ltd.:** Under Section 10(10AA), leave encashment is exempt to the extent of salary for leave at the employee's credit at the time of retirement. The average monthly salary is calculated from the 11-month period immediately preceding retirement. The amount received (₹4,14,000) exceeds the exempt amount by ₹4,745, which is taxable.

**Gratuity from CD (P) Ltd.:** Since Ms. Neelima is not covered by the Payment of Gratuity Act, 1972, the exemption under Section 10(10)(vi) is calculated using the formula (1/2) × Last drawn salary × Years of service, which yields ₹1,65,791. The balance of ₹10,34,209 is taxable.

**Unrecognized Provident Fund:** From the withdrawal of ₹5,20,000, only the employer's contribution (₹2,10,000) and interest earned on both contributions (₹60,000 + ₹50,000 = ₹1,10,000) are taxable. The employee's own contribution (₹2,00,000) is not taxable as it represents a return of capital. Total taxable amount is ₹3,20,000.

**Historical amount from LMN Ltd. (1992):** The leave salary received in 1992 is not included in AY 2023-24 assessment as it pertains to a prior assessment year.

Question 14

From the following calculate the taxable amount under the proper head of income for the Financial Year 2022-23 of Mr L, who is resident and 56 years old. The reasons should form part of your answer: (i) Dividend of 50,000 received in April 2022. The dividend was declared by the company - LMN Limited at its annual general meeting held in October 2021. (ii) Advance forfeited amounting to 1,00,000 on 01.05.2022 as the negotiation for transfer of capital asset did not result in transfer of Capital Asset. (iii) Cash Gift received from non-relative on the occasion of marriage of son 51,000. (iv) During the Financial Year 2022-23, he received 99,000 as pension from employer of deceased wife.

Accepted Answer

**Taxable Income for FY 2022-23: ₹2,50,000** under the head **Income from Other Sources**.

**Item (i) – Dividend ₹50,000**: Dividends from Indian companies are taxable in the year of **receipt**, not declaration. Since received in April 2022, it is taxable in FY 2022-23. Post abolition of Dividend Distribution Tax (w.e.f. April 1, 2020), dividends are taxable at the assessee's applicable tax slab rate as income from other sources. **Taxable amount: ₹50,000** under Section 56.

**Item (ii) – Forfeited Advance ₹1,00,000**: Earnest money received for a proposed capital asset transfer and forfeited when the deal fell through. Under **Section 56(2)(x)**, any amount received without consideration or for inadequate consideration is taxable in the hands of the recipient. Since the advance was forfeited and retained without the promised transfer of capital asset occurring, it is taxable as income without consideration. **Taxable amount: ₹1,00,000** under Section 56(2)(x).

**Item (iii) – Cash Gift ₹51,000**: Under **Section 56(2)(viia)**, cash gifts received in a financial year exceeding ₹50,000 are taxable to the extent of excess over ₹50,000. The exemption of ₹50,000 applies irrespective of whether the gift is from a relative or non-relative. Taxable amount = ₹51,000 − ₹50,000 = **₹1,000** under Section 56(2)(viia).

**Item (iv) – Family Pension ₹99,000**: Pension received from the employer of deceased wife (family pension/death benefit pension). Unless specifically exempted under …

Question 15

JI Plastics Limited manufactures three products S, M and L. To date, simple traditional absorption costing system has been used to allocate overheads to products. Total production overheads are allocated on the basis of machine hours. The machine hour rate for allocating production overheads is ₹240 per machine hour under the traditional absorption costing system. Selling prices are calculated by adding a mark up of 40% of the product cost. Information related to products for the most recent year is under -

Accepted Answer

**Note:** The question as presented does not include the product data table referenced by the phrase 'Information related to products for the most recent year is under –'. The answer below explains the complete methodology for the traditional absorption costing system as applicable to JI Plastics Limited. If the data table is available, the same framework should be applied step-by-step.

**Traditional Absorption Costing System – Methodology**

Under the **traditional absorption costing (TAC) system**, all production overheads are pooled together into a single cost centre and then absorbed into product costs using a **single predetermined overhead absorption rate (OAR)**, based on a volume-related basis. For JI Plastics Limited, the chosen basis is **machine hours**, giving an OAR of **₹240 per machine hour**.

**Step 1 – Compute Production Overhead Absorbed per Unit**

For each product, the overhead absorbed per unit is computed as:

Overhead per unit = Machine Hours per unit × ₹240

So, if Product S requires 2 machine hours per unit, Product M requires 3 machine hours per unit, and Product L requires 1 machine hour per unit (illustrative), then:
- Product S: 2 × ₹240 = ₹480 per unit
- Product M: 3 × ₹240 = ₹720 per unit
- Product L: 1 × ₹240 = ₹240 per unit

**Step 2 – Compute Total Product Cost per Unit**

The **total product cost per unit** under TAC comprises:

Total Product Cost = Direct Material Cost + Direct Labour Cost + Production Overhead Absorbed

This is applied i…

Question 16

Mr. Jai, a resident individual, furnishes the following particulars of his income and other details for the previous year 2022-23: Income from the activity of owning and maintaining race horses 40,000; Income from crossword puzzle solving 30,000; Income from Agricultural land in Haryana 25,000; Dividend Income from domestic company (gross) 15,000 with expenditure incurred in collecting the aforesaid dividend of 2,500; Income from cycling business 1,50,000; Loss from warehousing facility for storage of edible oils 1,00,000; Share of loss form PR associates, a firm (having 4 equal partners) in which he is a partner 23,000. The following items have been brought forward from the assessment year 2020-21: Brought forward loss form house property 1,00,000; Loss from the activity of owning and mai…

Accepted Answer

**Answer: Gross Total Income of Mr. Jai = ₹60,000**

Income classification and loss set-off must follow the rules under Sections 70-73, 81, and 192 of the Income Tax Act, 1961.

**Business/Profession Income:**
Race horse activity (current year ₹40,000 less brought forward loss ₹37,000) = ₹3,000; Cycling business = ₹1,50,000; Warehousing facility loss = (₹1,00,000); PR Associates partnership loss share = (₹23,000); Subtotal = ₹30,000. Unabsorbed depreciation of ₹15,000 is set off against business income per Section 72A, resulting in net business income of ₹15,000.

**Income from Other Sources:**
Crossword puzzle solving = ₹30,000. Dividend income (gross) = ₹15,000; per Section 57, expenditure of ₹2,500 incurred in collecting dividend cannot be deducted as a special provision applies to dividend income. Total other sources = ₹45,000.

**Treatment of Brought Forward Losses:**
BF loss from house property (₹1,00,000) cannot be set off per Section 71 except against house property income; no such income is available. BF loss from gambling (₹10,000) is non-deductible per Section 72(2). Speculation loss (₹20,000) can only be set off against speculation income per Section 73; no such income exists. These are carried forward.

**Agricultural Income:**
Income from agricultural land in Haryana (₹25,000) is exempt under Section 10(1) and excluded from GTI.

**Wife's Salary Note:**
Mrs. Jai's salary of ₹1,20,000 from the firm is her individual income; it does not form part of Mr. Jai's GTI.…

Question 17

Mr. Suraj, an Indian citizen, gives the following details of his income and expenses during the year 2022-23: Income from profession 11,70,000; Winning from lottery 70,000; Contribution to ULIP 1971 plan for spouse 70,000; Cheque donation to National Defence Fund 60,000; Cheque donation to Government for promoting family planning 35,000; Cheque the deduction to approved public charitable institute 1,20,000. Compute the deduction under section 80G allowable to him for the assessment year 2023-24.

Accepted Answer

**Answer: ₹2,15,000**

To determine the deduction under Section 80G, first identify eligible donations and calculate the adjusted gross income (AGI).

**Step 1: Calculate Gross Total Income (GTI)**
GTI = Income from profession + Lottery winning = ₹11,70,000 + ₹70,000 = ₹12,40,000

**Step 2: Identify Items Outside Section 80G Scope**
Contribution to ULIP 1971 plan (₹70,000) falls under **Section 80C** (life insurance/investment deduction), not Section 80G. This is excluded from Section 80G but deductible separately under 80C.

**Step 3: Calculate Adjusted Gross Income for Section 80G**
AGI = GTI − Section 80C deduction = ₹12,40,000 − ₹70,000 = ₹11,70,000

**Step 4: Identify and Classify Donations Eligible Under Section 80G**

(a) Cheque donation to **National Defence Fund**: ₹60,000 → **100% relief** (listed in Section 80G(2)(vi))

(b) Cheque donation to **Government for promoting family planning**: ₹35,000 → **100% relief** (listed in Section 80G(2) with specific relief)

(c) Cheque donation to **approved public charitable institute**: ₹1,20,000 → Subject to **50% of AGI limitation** (per Section 80G(5) for donations to charitable institutions via cheque/digital mode)

**Step 5: Calculate Permissible Deduction for Charitable Institute Donation**
Deduction = Lesser of:
- Actual donation: ₹1,20,000, OR
- 50% of AGI: 50% × ₹11,70,000 = ₹5,85,000

Permissible deduction = ₹1,20,000 (lower amount)

**Step 6: Total Section 80G Deduction**
Total = ₹60,000 + ₹35,000 + ₹1,20,000 = **₹2…

Question 18

Explain the provisions of tax collection at source for overseas remittance by an authorized dealer. Also enumerate the rate of tax to be collected and the amount on which no tax is to be collected. OR In the context of Tax Return Preparer Scheme, 2006, explain the following: (i) Eligible Persons; (ii) Educational Qualifications of Tax Return Preparer; (iii) Persons not entitled to act as return preparer.

Accepted Answer

**PART 1: TCS ON OVERSEAS REMITTANCE**

**Provisions of Tax Collection at Source (TCS)** under **Section 194O of the Income Tax Act, 1961** apply to remittances made outside India by authorized dealers (banks). Authorized dealers are required to collect tax at source when a resident remits money outside India, ensuring documentation and compliance of outward remittances.

**Rate of TCS**: **5%** of the remittance amount

**Threshold for TCS Collection**: TCS is collected on remittances exceeding **₹7 lakhs in a financial year** per remitter. The first ₹7 lakhs per financial year is fully exempt.

**Amounts on which NO TCS is Collected**: (1) First **₹7 lakhs per financial year** is exempt; (2) Remittances for purposes covered under the **Liberalized Remittance Scheme (LRS)**, subject to prescribed limits; (3) Remittances for education abroad, medical treatment outside India, scholarships, gifts to relatives, and donations to specified charitable institutions; (4) Remittances in other categories exempted by the Board through notifications; (5) Business-related remittances where covered by applicable policies.

**Procedure**: Authorized dealers collect TCS at the time of remittance, deposit it with the government, and issue TCS certificates to remitters for claiming credit.

---

**PART 2: TAX RETURN PREPARER SCHEME, 2006**

**(i) Eligible Persons**: Persons eligible to act as tax return preparer include: (1) **Chartered Accountants** holding valid membership from the Institute…

Question 19

Miss Nitya, proprietor of M/s. Honest Enterprise, a registered supplier of taxable goods and services in the state of West Bengal, pays GST under regular scheme. It is not eligible for any threshold exemption. It provided the following information for the month of December 2022: OUTWARD SUPPLY: (i) Intra-state supply of goods to M/s. Natural & Sons 7,00,000; (ii) Intra-state transfer of goods to its branch office in the state of West Bengal. Both places are under the same GSTIN 1,00,000; (iii) Provided inter-state supply of sponsorship services to XYZ Ltd of Chennai 80,000; (iv) Advance received for future supply of management consultancy service to Mr. Sharad (Intra-state supply) 40,000. INWARD SUPPLY: (Intra-state) (i) Purchase of taxable goods from registered suppliers 8,00,000; (ii) Av…

Accepted Answer

**Computation of Net Minimum GST Payable in Cash by M/s. Honest Enterprise for December 2022**

**Treatment of Outward Supplies:**

**(i) Intra-state supply of goods to M/s. Natural & Sons — ₹7,00,000:** Taxable at CGST 2.5% + SGST 2.5%. CGST = ₹17,500; SGST = ₹17,500.

**(ii) Intra-state transfer to branch office (same GSTIN) — ₹1,00,000:** Since both the principal place and the branch operate under the **same GSTIN**, they are NOT treated as **distinct persons** under Section 25 of the CGST Act 2017. Therefore, this transfer does NOT constitute a supply under Schedule I and **no GST is payable**.

**(iii) Inter-state sponsorship services to XYZ Ltd, Chennai — ₹80,000:** Under **Notification No. 13/2017-CT(Rate)** read with Section 9(3) of the CGST Act 2017 / Section 5(3) of the IGST Act 2017, where sponsorship services are provided to a **body corporate or partnership firm**, the recipient is liable to pay GST under **Reverse Charge Mechanism (RCM)**. Since XYZ Ltd (a body corporate) is the recipient, GST liability falls on XYZ Ltd. **Miss Nitya is not liable to pay GST on this supply.**

**(iv) Advance for management consultancy service from Mr. Sharad — ₹40,000:** GST is payable on advances received for **services** as per Section 13 of the CGST Act 2017 (time of supply rules for services). Intra-state service: CGST @ 9% = ₹3,600; SGST @ 9% = ₹3,600.

**Treatment of Inward Supplies (ITC):**

**(i) Purchase of taxable goods from registered suppliers — ₹8,00,000:** ITC avai…

Question 20

Construct journal entries in the following situations assuming that cost and financial transactions are integrated:
(i) Purchase of raw material - ₹ 4,40,000
(ii) Direct Material issued to production - ₹ 3,60,000
(iii) Wages charged to production - ₹ 80,000
(iv) Manufacturing overheads charged to production - ₹ 1,32,000

Accepted Answer

**Journal Entries in Integrated (Integral) Cost and Financial Accounting System**

In an **integrated accounting system**, cost accounts and financial accounts are maintained in a single set of books. There is no need for separate Cost Ledger Control Account or Financial Ledger Control Account. The entries flow directly through control accounts.

---

**(i) Purchase of Raw Material — ₹4,40,000**

| Particulars | Dr. (₹) | Cr. (₹) |
|---|---|---|
| Raw Material Control A/c &emsp;&emsp;&emsp;&emsp; Dr. | 4,40,000 | |
| &emsp;To Creditors A/c | | 4,40,000 |

*(Being raw material purchased on credit)*

The **Raw Material Control A/c** (also called Stores Ledger Control A/c) is debited as inventory is received. In an integrated system, the creditor is credited directly in the same books without any intermediary control account.

---

**(ii) Direct Material Issued to Production — ₹3,60,000**

| Particulars | Dr. (₹) | Cr. (₹) |
|---|---|---|
| Work-in-Progress Control A/c &emsp;&emsp; Dr. | 3,60,000 | |
| &emsp;To Raw Material Control A/c | | 3,60,000 |

*(Being direct material issued to production as per material requisition notes)*

When materials are issued to the factory floor for production, **Work-in-Progress Control A/c** is debited to accumulate production costs, and Raw Material Control A/c is credited to reduce inventory.

---

**(iii) Wages Charged to Production — ₹80,000**

| Particulars | Dr. (₹) | Cr. (₹) |
|---|---|---|
| Work-in-Progress Control A/c &emsp;&emsp; Dr.…

Question 21

PQR Alloys Ltd. uses a standard costing system.

Budgeted information for the year:
Budgeted output: 84,000 units
Variable Factory Overhead per unit: ₹ 16
Standard time for one unit of output: 0.80 machine hours
Fixed factory overheads: ₹ 6,72,000

Actual results for the year:
Actual output: 87,600 units
Variable Overhead efficiency variance: ₹ 67,200 (A)
Actual Fixed factory overheads: ₹ 7,03,000
Actual variable factory overheads: ₹ 14,37,000

Required: Calculate the following variances clearly indicating Adverse(A) or Favourable(F):
(i) Variable factory overhead expenditure variance.
(ii) Fixed factory overhead expenditure variance.
(iii) Fixed factory overhead efficiency variance.
(iv) Fixed factory overhead capacity variance.

Accepted Answer

**Standard Costing — Factory Overhead Variances for PQR Alloys Ltd.**

**Preliminary Calculations (Standard Rates & Actual Hours):**

**Variable OH rate per machine hour** = ₹16 ÷ 0.80 hrs = **₹20 per machine hour**

**Fixed OH rate per unit** = ₹6,72,000 ÷ 84,000 units = **₹8 per unit**

**Fixed OH rate per machine hour** = ₹8 ÷ 0.80 hrs = **₹10 per machine hour**

**Budgeted machine hours** = 84,000 × 0.80 = **67,200 hours**

**Standard hours for actual output** = 87,600 × 0.80 = **70,080 hours**

**Deriving Actual Machine Hours** using the Variable OH Efficiency Variance formula:
Variable OH Efficiency Variance = (Standard hours for actual output − Actual hours) × Standard rate per hour
−₹67,200 = (70,080 − Actual hours) × ₹20
Actual hours = 70,080 + 3,360 = **73,440 hours**

---

**(i) Variable Factory Overhead Expenditure Variance:**
This variance measures the difference between what the actual hours worked should have cost and what they actually cost.
= (Actual hours × Standard variable OH rate) − Actual variable OH
= (73,440 × ₹20) − ₹14,37,000
= ₹14,68,800 − ₹14,37,000
= **₹31,800 (Favourable)**

**(ii) Fixed Factory Overhead Expenditure Variance:**
This is the difference between budgeted and actual fixed overheads.
= Budgeted Fixed OH − Actual Fixed OH
= ₹6,72,000 − ₹7,03,000
= **₹31,000 (Adverse)**

**(iii) Fixed Factory Overhead Efficiency Variance:**
This variance arises due to the difference between standard hours for actual output and actual hours worked.
= (Sta…

Question 22

The following data relate to the manufacture of a product 'VD-100' during the month of October 2023:
Good units produced: 12,600
Units Sold: 11,800
Direct wages: ₹ 8,82,000
Administrative Overheads: ₹ 4,72,000
Selling price per unit: ₹ 416

Material required 2 kg. of material 'Z'. Cost of material 'Z' is ₹ 72 per kg. 10% of the production has been scrapped as bad and fetches ₹ 45 per unit. Factory overheads are 80% of the cost of direct wages and distribution overheads are ₹ 54 per unit sold. There is no opening or closing stock of material and work in progress.

You are required to find out total cost of sales and profit for the month of October 2023.

Accepted Answer

**Step 1: Determine Total Production Units**
Good units produced = 12,600, which represents 90% of total production (since 10% is scrap). Therefore, Total production = 12,600 ÷ 0.9 = 14,000 units. Scrap units = 14,000 × 10% = 1,400 units.

**Step 2: Calculate Manufacturing Cost**
Material cost: 14,000 units × 2 kg × ₹72/kg = ₹20,16,000
Direct wages: ₹8,82,000 (given)
Factory overheads: 80% of direct wages = 0.80 × ₹8,82,000 = ₹7,05,600
Less: Scrap recovery value: 1,400 units × ₹45/unit = ₹63,000
Total manufacturing cost = ₹20,16,000 + ₹8,82,000 + ₹7,05,600 − ₹63,000 = **₹35,40,600**

**Step 3: Calculate Cost Per Good Unit**
Cost per good unit = ₹35,40,600 ÷ 12,600 = **₹281 per unit**

**Step 4: Calculate Cost of Goods Sold (COGS)**
Cost of goods sold = 11,800 units sold × ₹281 = **₹33,15,800**

**Step 5: Calculate Total Cost of Sales**
Distribution overheads = 11,800 units × ₹54/unit = ₹6,37,200
Total cost of sales = COGS + Distribution overheads = ₹33,15,800 + ₹6,37,200 = **₹39,53,000**

**Step 6: Calculate Profit**
Sales revenue = 11,800 units × ₹416/unit = ₹49,08,800
Profit = Sales − Total cost of sales − Administrative overheads
Profit = ₹49,08,800 − ₹39,53,000 − ₹4,72,000 = **₹4,83,800**

**Final Answers:**
Total cost of sales = **₹39,53,000**
Profit = **₹4,83,800**

Question 23

Mr. Dhanwan, an individual registered supplier of Ahmedabad (Gujarat), received the following amount towards rendering of the intra-state supply of various services in the month of January 2023: (I) Consideration received from security and housekeeping services provided to "Holy Foundation", an educational institution providing services by way of pre-school education, outside the school premises on its annual day function 60,000; (II) Amount received as an honorarium for participation as guest anchor on "Apna TV" in relation to a debate 2,25,000; (III) Sum received as hiring charges for provision of non-air conditioned contract carriage for transportation of employees to and from the work to M/s. Siddhi Pvt. Ltd, a registered person under the GST. Such hiring is for 3 months. Use of the co…

Accepted Answer

**Answer: Value of taxable supply = ₹5,25,000**

**Item (I) – Security and Housekeeping Services (₹60,000):**
Services of security and housekeeping provided to an educational institution are **support/ancillary services**, not teaching, training, or educational materials. Under Schedule III, Notification 12/2017-Central Tax (Rate), the exemption extends only to supplies by way of teaching or training and supply of educational materials to an educational institution. The location (outside premises on annual day) does not alter the character of the service. **Status: TAXABLE at ₹60,000**

**Item (II) – Honorarium as Guest Anchor (₹2,25,000):**
Participation as a guest anchor on television is an **entertainment service** supplied in relation to media/broadcasting. This falls under taxable service supply with no exemption applicable. **Status: TAXABLE at ₹2,25,000**

**Item (III) – Contract Carriage for Employee Transportation (₹1,50,000):**
Hiring of non-air conditioned contract carriage (motor vehicle) for employee transportation is a **goods transport/logistics service**. This is a taxable supply under the CGST Act, 2017. The exemption for passenger transport applies only under specific conditions not met here (inter-state passenger transport in certain categories). **Status: TAXABLE at ₹1,50,000**

**Item (IV) – Training in Recreation Activities (Music) (₹90,000):**
Provision of training in music as a recreational activity by an individual service provider does not qualify fo…

Question 24

Based on the following ledger data for the year ended 31st March, 2023: Direct wages ₹ 42,00,000; Power & Fuel ₹ 18,75,000; Cost of special drawings ₹ 3,60,000; Trade Discount ₹ 4,50,000; Insurance on material procured ₹ 15,000; Rent of Factory Building ₹ 7,00,000 (19% used for office purpose); Depreciation on machinery ₹ 6,25,000; Depreciation on Delivery Vans ₹ 1,20,000; Consumable stores and indirect wages ₹ 15,20,000; Quality Control cost ₹ 9,00,000; Primary packing cost ₹ 12,00,000; General/Administrative overheads (excluding rent) ₹ 17,50,000; Salary paid to Marketing Staff ₹ 9,60,000; Packing cost for transportation ₹ 1,84,000; Stock as on 31st March, 2023: Raw materials ₹ 32,60,000; Work in progress ₹ 11,80,000; Finished Goods ₹ 28,38,000. Additional Information: (i) Defective fini…

Accepted Answer

**Cost Sheet for the Year Ended 31st March 2023**

**Note on Raw Materials:** The stock figure of ₹32,60,000 for raw materials is treated as raw materials consumed during the year (opening stock assumed nil, with no separate purchases figure given). WIP and Finished Goods figures are treated as closing stocks, with opening stocks at nil.

**Classification Notes:**
- Insurance on material procured (₹15,000) → part of direct material cost (landed cost of RM)
- Cost of special drawings (₹3,60,000) → direct expense (job-specific, charged directly)
- Rent of Factory Building (₹7,00,000) → split: 81% factory overhead (₹5,67,000), 19% admin overhead (₹1,33,000)
- Quality Control cost and Primary packing cost → factory overheads (integral to production/manufacturing process)
- Defective product rectification (₹33,600) → factory overhead (additional manufacturing cost)
- Scrap realization (₹1,20,600) → deducted from factory overheads
- Trade Discount, Marketing Staff Salary, Depreciation on Delivery Vans, Packing for transportation → Selling & Distribution overheads

| **Particulars** | **₹** | **₹** |
|---|---|---|
| **A. DIRECT / PRIME COST** | | |
| Raw Materials Consumed | 32,60,000 | |
| Add: Insurance on material procured | 15,000 | |
| **Total Direct Material** | | 32,75,000 |
| Direct Wages | | 42,00,000 |
| Direct Expenses — Cost of Special Drawings | | 3,60,000 |
| **(i) PRIME COST** | | **78,35,000** |
| | | |
| **B. FACTORY / WORKS OVERHEADS** | | |
| Power & Fuel | 18,75,…

Question 25

Examine whether the following activities would be treated as supply under GST law: (i) Mr. Sonu from Chandigarh purchased a water cooler from Malhotra Bros. of Hoshiarpur for 25,000 to donate it to a temple situated in Hoshiarpur. Mr. Sonu directed Malhotra Bros. to engrave the words on the water cooler- "Donated by Mr. Sonu from Chandigarh" and dispatch the water cooler directly to the temple. (ii) Wesco Ltd, a registered person in Ahmedabad (Gujarat) having head office located in Singapore, received management consultancy services free of cost from its head office.

Accepted Answer

**Scenario (i): Mr. Sonu's Water Cooler Purchase and Donation**

**Answer: YES, this constitutes a supply under GST law.**

Under Section 2(47) of the CGST Act, 2017, **supply** means provision of goods or services in any form, for **consideration**, by a person in the course or furtherance of business. The transaction between Malhotra Bros. (seller) and Mr. Sonu (buyer) is a clear supply because: (1) Goods (water cooler) are provided for consideration of ₹25,000; (2) The transaction is in the course of business by Malhotra Bros.; and (3) The essential element of **consideration** is satisfied. The fact that Mr. Sonu subsequently donates the water cooler to a temple does not negate the supply transaction that has already occurred between the buyer and seller. Additionally, the **engraving service** provided by Malhotra Bros. on the water cooler constitutes a separate supply of services. However, the **donation of the water cooler to the temple** by Mr. Sonu is **not a supply** because it involves transfer of goods without any consideration—it is a charitable gift and lacks the essential element of consideration required under Section 2(47). The supply liability arises for Malhotra Bros. at the point of sale to Mr. Sonu, not at the donation stage.

**Scenario (ii): Wesco Ltd Receiving Free Management Consultancy Services**

**Answer: NO, this does not constitute a supply under GST law (basic definition), though GST implications may arise through reverse charge provisions.**

U…

Question 26

Mr. Venaram proprietor of M/s. Lalit Kirana Stores is registered as a composition dealer in the Jodhpur district of Rajasthan. He has not furnished the statement for payment of self-assessment tax in the form GST CMP-08 for two consecutive quarters. He placed an order for purchase of taxable goods worth 5,50,000 with M/s. Bob & Sons (a partnership firm), a registered dealer in the Bikaner district of Rajasthan. M/s. Bob & Sons has been regularly filing its GST returns. M/s. Bob & Sons wants to generate E-way bill with respect to intra-state supply to be made to M/s. Lalit Kirana Stores. Whether M/s. Bob & Sons is allowed to generate E-way bill as per the provisions of CGST Act, 2017? Answer with proper reasoning.

Accepted Answer

**Answer: No, M/s. Bob & Sons is NOT allowed to generate the E-way bill.**

**Reasoning:**

**Requirement for E-way Bill Generation:** According to the E-way Bill Rules, 2017, an e-way bill can be generated only when the recipient is a valid registered person under the CGST Act, 2017. The transaction value of ₹5,50,000 exceeds the ₹50,000 threshold for intra-state transactions, making an e-way bill mandatory for the movement.

**Non-compliance by M/s. Lalit Kirana Stores:** M/s. Lalit Kirana Stores, registered as a composition dealer, is statutorily required to furnish the statement for payment of self-assessment tax in Form GST CMP-08 within the prescribed period for each quarter. The non-filing for two consecutive quarters constitutes a serious breach of statutory obligations under the CGST Act, 2017.

**Suspension of Registration:** Under **Section 29(5) of the CGST Act, 2017**, the GST Officer is empowered to suspend the registration of any registered person who fails to furnish any required return, statement, or information within the prescribed period, after providing notice and an opportunity to be heard. Non-filing of GST CMP-08 for two consecutive quarters is a clear ground for invoking suspension proceedings against M/s. Lalit Kirana Stores' registration.

**Impact on E-way Bill Validity:** The E-way Bill system is designed to operate only between valid, active registered persons. Once a registration is suspended under Section 29(5), the person loses the status of a…

Question 27

Dream World Pvt. Ltd is registered under GST in the State of Haryana. During the Financial Year 2022-23, its annual aggregate turnover was 12 crore. In the month of April 2023, it supplied goods worth 12 lakh to Nightmare Ltd (a registered taxable person). (i) You are required to ascertain whether issue of e-invoice is mandatory in respect of this transaction? (ii) What would be your answer if Nightmare Ltd is a SEZ (Special Economic Zone) unit?

Accepted Answer

**Part (i): E-invoice Requirement for B2B Supply to Nightmare Ltd**

E-invoice is **MANDATORY** for this transaction. Under **Rule 48 of the CGST Rules 2017**, e-invoice is required for **all B2B supplies** (supplies to registered taxable persons) made by persons whose aggregate turnover exceeds **₹1 crore**. Dream World's annual aggregate turnover for FY 2022-23 is ₹12 crore, which significantly exceeds the ₹1 crore threshold. The transaction involves a supply of ₹12 lakh to Nightmare Ltd, a registered taxable person, constituting a B2B supply. Both conditions are satisfied: (a) the supplier's turnover exceeds ₹1 crore, and (b) the supply is B2B. Therefore, **issuance of e-invoice is mandatory** under Rule 48 of CGST Rules 2017.

**Part (ii): Supply to SEZ Unit**

If Nightmare Ltd is a **Special Economic Zone (SEZ) unit**, the position **changes significantly**. Supplies to SEZ units are treated as **zero-rated supplies** under **Section 16 of the CGST Act 2017** (supplies of goods or services outside India). SEZ units are deemed to be located outside Indian territory for GST purposes. Supplies to SEZ units, being **export supplies**, are treated as supplies outside India and attract **zero GST rate**. For such zero-rated/export supplies, **e-invoice is NOT mandatory**. The e-invoice requirement under Rule 48 applies to B2B domestic supplies subject to the turnover threshold. Since supplies to SEZ units are treated as supplies outside India and are zero-rated, they fall outs…

Question 28

Mr. Atul of Chennai is a registered dealer under GST. He has an opening balance of input tax credit of 1,20,000 (IGST) lying in the electronic credit ledger relating to the month of November,2022. During the month, a legal proceeding has been initiated under the GST law which resulted in a tax liability of 80,000 (IGST, other than RCM liability). Mr. Atul agrees with the tax liability and wants to use the balance lying in the electronic credit ledger towards payment of same. He seeks your opinion with regard to the provisions of GST laws as to whether he is allowed to use the amount lying in the electronic credit ledger for making the payment of tax liability, payable as a consequence of the proceeding?

Accepted Answer

Yes, Mr. Atul is allowed to use the balance lying in the electronic credit ledger towards payment of the tax liability arising from the legal proceeding, subject to certain conditions under the GST law.

**Provisions Governing Electronic Credit Ledger:**

Under **Rule 49 of the CGST Rules, 2017**, every registered person is required to maintain an electronic credit ledger. Rule 49(3) and Rule 49(4) provide that the credit balance can be utilized for payment of any tax liability (CGST, SGST, IGST, or CESS) that is due by the registered person.

**Restrictions on Use of Credit:**

However, **Rule 49(5) of the CGST Rules, 2017** imposes specific restrictions. The electronic credit cannot be used for:

(a) **Payment of Penalty** — Any penalty levied under GST law cannot be discharged using ITC.

(b) **Payment of Interest** — Interest payable on any tax liability cannot be paid from the credit ledger.

(c) **Where Credit is Not Admissible** — If the credit itself is not admissible under **Section 16 of the CGST Act, 2017**, it cannot be used for payment of any liability.

(d) **Tax Liability Prior to 1st July 2017** — Credit cannot be used for demands relating to the pre-GST regime.

**Application to Mr. Atul's Situation:**

Analyzing the conditions in Mr. Atul's case:

1. The liability is for **tax only** (IGST of ₹80,000). The question expressly states "other than RCM liability," confirming this is a direct tax liability arising from the proceeding, not a penalty or interest com…

Question 29

Briefly explain the provisions relating to reversal of input tax credit in case of non-payment of tax by the supplier and re-availment thereof? OR Explain the procedure for revocation of cancellation of registration where the registration of a person is cancelled suo-motu by the proper officer as per the provisions of CGST Act, 2017.

Accepted Answer

This question presents two alternative provisions; both are addressed below:

**PART (1): REVERSAL OF ITC IN CASE OF NON-PAYMENT BY SUPPLIER AND RE-AVAILMENT**

**Principle of ITC Eligibility:** Section 16(1) of the CGST Act, 2017 permits a registered person to take ITC on inward supplies of goods or services only when the supplier has paid the tax to the Government. ITC is a credit on tax actually paid, not claimed.

**Reversal Requirement:** When a supplier fails to pay the tax (due to insolvency, business closure, or default), the recipient must reverse the ITC previously claimed on those supplies. Rule 43 of CGST Rules, 2017 mandates this reversal in cases where:
- The supplier has not paid the tax to the Government within the prescribed time;
- The supplier's registration is cancelled;
- The supply is subsequently found to be fraudulent or irregular.

**Procedure for Reversal:** The recipient must (a) identify the affected inward supplies; (b) reverse the corresponding input credit in the returns; (c) pay back the reversed amount; (d) pay applicable interest on the reversed amount if not paid within the due date.

**Re-Availment Provision:** Once the supplier pays the unpaid tax to the Government, the recipient is permitted to re-avail the ITC on those supplies. The re-availment can be done in the subsequent tax period when proof of supplier's payment is received, provided the goods/services are used for taxable supplies and all eligibility conditions are met.

**PART (2…

Question 30

Mr. Sameer, a registered person under GST, is unable to file GSTR-1 on the reason being shown that tax payable under GSTR-1 which has been filed in respect of last tax period exceeds the tax payable under GSTR-3B which has been filed for the corresponding tax period. Explain the procedure to be followed by the department and Mr. Sameer for the same as per the provisions of Rule 88C of the CGST Rules 2017.

Accepted Answer

**Rule 88C of the CGST Rules 2017** provides a specific procedure when a registered person cannot file GSTR-1 because the tax payable as declared in GSTR-1 exceeds the tax payable as declared in GSTR-3B for the corresponding tax period. This provision ensures reconciliation between outward supply declarations and tax liabilities.

**Understanding the Issue**: In Mr. Sameer's case, the tax liability shown in GSTR-1 (based on outward supplies) is higher than the tax liability shown in GSTR-3B (containing amended figures, input tax credit adjustments, and other corrections). The GST system prevents filing of GSTR-1 in such situations to maintain integrity of tax records.

**Procedure for Mr. Sameer (Registered Person):**

1. **File GSTR-3B First**: Mr. Sameer must ensure that GSTR-3B for the relevant tax period has been filed. If not already filed, he must file it immediately with correct details, including any amendments, ITC adjustments, and tax payable calculations.

2. **Calculate the Difference**: After filing GSTR-3B, calculate the shortfall: Difference = Tax payable in GSTR-1 minus Tax payable in GSTR-3B. If GSTR-3B has already been filed and the difference still exists, this amount represents additional tax liability.

3. **Pay the Difference Amount**: Mr. Sameer must pay the difference amount through the appropriate tax payment mechanism (ITNS 04 or applicable payment gateway) before attempting to file GSTR-1. This payment should be made as tax liability for that period…

CA Inter Taxation

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