CA Inter Cost & Mgmt — Question Paper — July 2021

Computation of Input Tax Credit (ITC) available to A Ltd. for December 2020

The eligibility of ITC is governed by Section 16 read with Section 17(5) of the Central Goods and Services Tax Act, 2017 (CGST Act). Section 17(5) lists specific categories where ITC is blocked (ineligible). Each item is analysed below:

(1) Goods used in constructing an additional floor of the building – ₹15,435
As per Section 17(5)(d) of the CGST Act, 2017, ITC is blocked on goods received for construction of an immovable property on own account, even if used in the course of business. Construction of an additional floor of a building constitutes construction of immovable property. ITC is NOT available.

(2) Goods given as free sample to prospective customers – ₹15,000
As per Section 17(5)(h) of the CGST Act, 2017, ITC is blocked on goods disposed of by way of gifts or free samples. Free samples given to prospective customers fall squarely under this block. ITC is NOT available.

(3) Trucks used for transportation of inputs in the factory – ₹11,000
As per Section 17(5)(a) of the CGST Act, 2017, ITC on motor vehicles is blocked only for transportation of persons (seating capacity ≤ 13). However, the block expressly does not apply when motor vehicles are used for transportation of goods. Trucks used to transport inputs within the factory fall under transportation of goods. ITC IS available.

(4) Inputs used in trial runs – ₹9,850
Inputs used in trial runs are used in the course or furtherance of business (production testing). There is no specific block under Section 17(5) for such inputs. All conditions under Section 16(1) of the CGST Act, 2017 are assumed to be met. ITC IS available.

(5) Confectionery items for consumption of employees – ₹3,250
As per Section 17(5)(b)(i) of the CGST Act, 2017, ITC is blocked on food and beverages unless the inward and outward supply are of the same category or it is obligatory under any law for the employer to provide the same. Confectionery items are food and beverages. Neither exception applies here. ITC is NOT available.

(6) Cement used for foundation and structural support to plant and machinery – ₹8,050
Section 17(5)(d) blocks ITC on goods used for construction of immovable property (other than plant and machinery). The Explanation to Section 17(5) defines 'plant and machinery' to include the foundation and structural support of such machinery. Therefore, cement used for making foundation/structural support of plant and machinery is treated as part of plant and machinery — the block under Section 17(5)(d) does not apply. ITC IS available.

Total ITC available to A Ltd. for December 2020 = ₹28,900

Gross Total Income: ₹3,05,400

Step 1: Income from Each Head

*Income from Salary:* ₹2,22,000 (as computed).

*Income from House Property:* House in Chennai yields ₹22,000. The loss of ₹2,60,000 on the self-occupied house in Mumbai is not allowed under Section 23(1) (no loss can be claimed on owner-occupied properties). Income from house property = ₹22,000.

*Income from Business/Profession:* Must be separated into speculative and non-speculative:
- Non-speculative: Textile business ₹18,000 + Cosmetics business loss ₹22,000 = Loss of ₹4,000
- Speculative: Speculative business-1 loss ₹74,000 + Speculative business-2 gain ₹46,000 = Loss of ₹28,000

Under Section 70, losses from one source within the business head can be set off against income from another source, but under Section 73, speculative business losses cannot be set off against non-speculative business income. Therefore: Non-speculative business yields a loss of ₹4,000 (eligible for set-off); speculative business yields a loss of ₹28,000 (cannot be set off against other income, must be carried forward).

*Capital Gains:* Short-term capital loss ₹16,000 and long-term capital gain ₹15,400. Under Section 73(2), short-term capital loss can be set off against long-term capital gain: ₹15,400 − ₹16,000 = Remaining STCL of ₹600 (carried forward).

*Income from Other Sources:* Betting ₹34,000 + Card games ₹46,000 − Loss from race horses ₹14,600 = ₹65,400.

Step 2: Set-off of Losses

Non-speculative business loss of ₹4,000 can be set off against any other income under Section 71(2). Set off against salary: ₹2,22,000 − ₹4,000 = ₹2,18,000.

Capital loss of ₹600 cannot be set off against income from other heads (restricted by Section 73 and 74) and is carried forward.

Gross Total Income = ₹2,18,000 + ₹22,000 + ₹65,400 = ₹3,05,400

Losses Carried Forward:
1. Speculative business loss: ₹28,000 — Carried forward for 4 years under Section 73(3).
2. Short-term capital loss: ₹600 — Carried forward for 8 years under Section 74(2).

Cases where loss return MUST be filed by the due date specified in Section 139(1) for carry forward of losses:

1. Loss from house property (Section 73) – Loss from house property can be carried forward for 8 consecutive years following the year in which it is incurred. Filing of return claiming such loss is mandatory by the due date specified in Section 139(1).

2. Loss from business or profession (Section 74) – Loss from business or profession can be carried forward for 8 years. However, the return must be filed by the statutory due date to claim the benefit of carry forward.

3. Loss from speculation business (Section 72) – Loss from speculation business can be carried forward for only 4 years, but the return must be filed by the due date to avail the benefit of carry forward.

4. Loss from long-term capital assets (Section 74A) – Loss from long-term capital assets can be carried forward for 8 years, contingent upon filing the return claiming the loss by the due date specified in Section 139(1).

Cases where losses can be carried forward even though the return of loss has NOT been filed by the due date:

1. Losses determined/allowed in assessment proceedings – Where the assessing officer, during assessment proceedings initiated under Section 143(1) or reassessment under Section 147, determines that losses exist and are allowable (whether claimed in the return or not, or even where no return was filed), such losses can be carried forward on the basis of the assessment order itself.

2. Losses arising where return filing was not mandatory – Where an assessee has no income or income below the exemption limit (and thus was not required to file a return) but has incurred losses in business or other sources, these losses can be carried forward based on the assessment order or notice compliance, even if the assessee did not file a return by the due date.

3. Losses determined in rectification proceedings (Section 154) – Losses corrected or determined in rectification proceedings under Section 154 can be carried forward even if the original return was not filed by the due date, based on the rectification order.

4. Losses carried forward in assessed returns filed during assessment – Where a return is filed during assessment proceedings (after the due date but forming part of the assessment record), and losses are determined therein, they can be carried forward on the authority of the assessment order.

Return Filing Requirements under Section 139(1) of the Income Tax Act, 1961 — A.Y. 2021-22

Even when total income does not exceed the basic exemption limit, certain specific provisos to Section 139(1) make filing of return of income mandatory. Each situation is examined below.

(i) Manish & Sons (HUF) — LTCG of ₹12 Lakhs invested in Section 54EC Bonds

Yes, Manish & Sons (HUF) is still required to file the return of income.

Under Section 139(1) of the Income Tax Act, 1961, the total income for determining whether filing is compulsory is computed without giving effect to the exemption available under Section 54EC (and similarly under sections 54, 54B, 54D, 54F, 54G, 54GA). Accordingly, the long-term capital gain of ₹12 lakhs is to be included in total income for this purpose, even though after investing in Section 54EC bonds, no LTCG is actually chargeable to tax.

Since ₹12 lakhs exceeds the basic exemption limit of ₹2,50,000 applicable to an HUF, Manish & Sons is legally required to file its return for A.Y. 2021-22. Practically, the return must also be filed to claim and evidence the Section 54EC exemption itself.

(ii) Mrs. Archana — Resident and Ordinarily Resident (ROR) owning property in Germany

Yes, Mrs. Archana is required to file the return of income.

The third proviso to Section 139(1) mandates that every person who is a Resident and Ordinarily Resident (ROR) in India within the meaning of Section 6(6) and who, at any time during the previous year, holds any asset (including immovable property) located outside India, must furnish a return of income — irrespective of whether total income exceeds the basic exemption limit.

Mrs. Archana is categorised as ROR under Section 6(6) and she owns a property (flat) in Germany, which is clearly an asset located outside India. The fact that the property is used for personal purposes and generates no income in India is irrelevant for this provision. The obligation to file arises solely from the holding of a foreign asset. Hence, she must file her return for A.Y. 2021-22 and disclose foreign assets in Schedule FA of the ITR.

(iii) Rodhkar — Electricity Expenditure of ₹1,20,000

Yes, Rodhkar is required to file the return of income.

The seventh proviso to Section 139(1), inserted by the Finance Act 2019 (effective from A.Y. 2020-21), provides that a person must file return if, during the previous year, he has incurred expenditure of an amount exceeding ₹1,00,000 towards consumption of electricity. This obligation exists even if total income is below the basic exemption limit.

Rodhkar has incurred electricity expenditure of ₹1,20,000, which exceeds the threshold of ₹1,00,000. The fact that payment was made through banking channels does not dilute this obligation; the trigger is the amount of expenditure incurred. Accordingly, Rodhkar must file a return of income for A.Y. 2021-22.

Part (1): Cost Indifference Point

The Cost Indifference Point is the level of output at which the total cost of both methods is equal. It helps management decide which method is more economical at different levels of output.

Let Q = number of units at the cost indifference point.

Total Cost — Method 1 (Semi-Automatic): ₹1,00,000 + ₹15Q
Total Cost — Method 2 (Fully-Automatic): ₹3,00,000 + ₹10Q

Setting them equal:
1,00,000 + 15Q = 3,00,000 + 10Q
5Q = 2,00,000
Q = 40,000 units

Interpretation:
- At 40,000 units, both methods incur equal total cost (₹7,00,000 each).
- Below 40,000 units: Method 1 (Semi-Automatic) is more economical due to lower fixed costs.
- Above 40,000 units: Method 2 (Fully-Automatic) is more economical due to lower variable cost per unit.
- Since maximum output is 50,000 units, Method 2 is preferable only in the narrow band of 40,001–50,000 units. Management should choose based on expected production volume.

Part (2): Break-Even Point (BEP)

BEP (units) = Fixed Costs ÷ Contribution per unit, where Contribution = Selling Price − Variable Cost per unit.

Method 1 (Semi-Automatic):
Contribution per unit = ₹25 − ₹15 = ₹10
BEP = ₹1,00,000 ÷ ₹10 = 10,000 units

Method 2 (Fully-Automatic):
Contribution per unit = ₹25 − ₹10 = ₹15
BEP = ₹3,00,000 ÷ ₹15 = 20,000 units

Conclusion: Method 1 breaks even earlier (10,000 units) and carries lower financial risk. Method 2 has a higher break-even point (20,000 units) but becomes cost-advantageous beyond 40,000 units due to its superior contribution margin from lower variable costs.

COMPUTATION OF TOTAL INCOME OF MR. ASHISH FOR AY 2021-22 (FY 2020-21)

A. INCOME FROM PROFESSION

Net Profit as per Income & Expenditure Account: ₹39,43,000

Add: Inadmissible / Disallowed Expenditures

1. Book Depreciation ₹90,000 — Added back and replaced by tax depreciation computed below.

2. Purchase of Furniture ₹48,000 — Capital Expenditure, not deductible as revenue expense. Added back; depreciation allowed separately.

3. Medical Expenses ₹80,000 — Expenditure is for personal treatment of Mr. Ashish's father, having no nexus with the profession. Disallowed and added back. (Note: Deduction available under Section 80DDB of the Income Tax Act, 1961 while computing Total Income — see below.)

4. Excess Salary to Sister-in-Law ₹60,000 — Under Section 40A(2)(b), payments to relatives exceeding fair market value are disallowed. Sister-in-law is a specified relative. Salary paid = ₹25,000 × 12 = ₹3,00,000; Reasonable salary = ₹20,000 × 12 = ₹2,40,000. Disallowance = ₹60,000.

5. Commission Paid Without TDS — 30% Disallowance under Section 40(a)(ia) — ₹23,000 commission paid to Ms. Agarwal on 3rd January 2021 without deducting TDS. Under Section 194H, TDS is required on commission exceeding ₹15,000 (threshold revised to ₹15,000 w.e.f. 1.6.2020 by Finance Act 2020). Since TDS was not deducted, 30% of ₹23,000 = ₹6,900 is disallowed under Section 40(a)(ia).

6. Employees' Contribution to EPF — Deposited After Due Date ₹10,000 — Under Section 36(1)(va), employees' contribution received by employer must be deposited by the due date under the relevant Act (15th March 2021 for February 2021 under EPF Act). Finance Act 2021 (applicable from AY 2021-22) removed the benefit of depositing before ITR due date for employees' contribution. Since deposited after the EPF due date, ₹10,000 is fully disallowed.

7. Family Planning Expenditure ₹20,000 — Section 36(1)(ix) of the Income Tax Act 1961, which allows family planning expenditure (including capital expenditure in 5 equal instalments), applies only to companies. Mr. Ashish is an individual. However, since the expenditure is revenue in nature, incurred for employees, and paid via account payee cheque, it is deductible under Section 37(1) as it is wholly and exclusively incurred for the purpose of the profession. No disallowance; allowed as deduction.

Total Add-backs = ₹2,94,900

Less: Non-Professional Income Included in I&E / Eligible Tax Deductions

8. Interest on PPF Account ₹60,000 — Exempt under Section 10(11). Excluded from professional income (and not taxable anywhere).

9. Interest on Savings Bank Account ₹20,000 — Taxable under "Income from Other Sources". Excluded from professional income.

10. Interest on NSC VIII Issue — 3rd Year ₹21,000 — Accrued interest is taxable under "Income from Other Sources" on accrual basis. Excluded from professional income.

11. Tax Depreciation ₹64,800 — Computed below as per Section 32 and Income Tax Rules, 1962.

Total Deductions = ₹1,65,800

Income from Profession = ₹39,43,000 + ₹2,94,900 − ₹1,65,800 = ₹40,72,100

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B. INCOME FROM OTHER SOURCES

Interest on Savings Bank Account: ₹20,000
Interest on NSC VIII Issue (3rd year accrual): ₹21,000
Total = ₹41,000

*(Interest on PPF Account ₹60,000 is exempt u/s 10(11) and not included anywhere.)*

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GROSS TOTAL INCOME = ₹40,72,100 + ₹41,000 = ₹41,13,100

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C. DEDUCTIONS UNDER CHAPTER VI-A

Section 80C — NSC VIII Issue interest (3rd year) of ₹21,000 is deemed reinvested and qualifies as a fresh purchase of NSC. Deduction = ₹21,000 (subject to overall limit of ₹1,50,000).

Section 80DDB — Medical treatment of father (age 75, a senior citizen, not covered by health insurance). For a senior citizen dependent, the maximum deduction is ₹1,00,000. Actual expenditure = ₹80,000 < ₹1,00,000; no insurance reimbursement. Deduction = ₹80,000.

Section 80TTA — Mr. Ashish is 43 years (not a senior citizen). Deduction on interest from savings bank account, limited to ₹10,000. SB interest = ₹20,000. Deduction = ₹10,000.

Total Chapter VI-A Deductions = ₹1,11,000

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TOTAL INCOME = ₹41,13,100 − ₹1,11,000 = ₹40,02,100

*Note: TDS of ₹17,000 deducted on public deposit interest (if any) will be available as a credit against tax liability under Section 199.*

Computation of Total Income and Tax Liability of Mr. Ashish — A.Y. 2021-22 (P.Y. 2020-21)

Note: The case scenario provides items (vi), (vii), and (ix). The treatment and computations for these specific items are addressed in full below. Complete total income computation would require all other items from the case scenario.

INCOME FROM PROFESSION — Treatment of Key Items

(vi)(a) Car converted from personal to professional use:

The car was purchased on 02/04/2019 for personal use at ₹3,35,000 and brought into professional use on 30/04/2020. Under the proviso to Section 43(1) of the Income Tax Act, 1961, when a personal asset is converted to business/professional use, the deemed actual cost is the lower of:
(a) Actual cost of acquisition = ₹3,35,000
(b) Fair Market Value on date of first professional use (30/04/2020) = ₹2,50,000
Deemed Actual Cost = ₹2,50,000

The car was used for more than 180 days in P.Y. 2020-21 (30/04/2020 to 31/03/2021 ≈ 336 days). Hence, full depreciation is allowable @ 15% = ₹37,500.

(vi)(b) New Furniture:

The total capitalized cost of new furniture = ₹19,000 (balance cost by account payee cheque) + ₹1,000 (freight to transporter, paid in cash) = ₹20,000.

The cash payment of ₹1,000 to the transporter is examined under Section 40A(3) of the Income Tax Act, 1961. As per the proviso to Section 40A(3) read with Rule 6DD(m), cash payments to persons engaged in plying/hiring goods carriages up to ₹35,000 per day are exempt from disallowance. Since ₹1,000 is well below ₹35,000, no disallowance arises. The freight is capitalised as part of the cost of furniture. The furniture was acquired and put to use around August-September 2020 (> 180 days before 31/03/2021); full depreciation applies @ 10% on ₹20,000 = ₹2,000.

Total Depreciation allowable in P.Y. 2020-21 from items in (vi): ₹37,500 + ₹2,000 = ₹39,500

(vii) PPF Contribution — Section 80C Deduction:

Mr. Ashish contributed ₹1,00,000 to his PPF account on 31/01/2021. This qualifies as a deduction under Section 80C of the Income Tax Act, 1961. The maximum permissible deduction under Section 80C is ₹1,50,000. Since ₹1,00,000 is within this limit, ₹1,00,000 is fully deductible. Since Mr. Ashish has not opted for Section 115BAC, Chapter VI-A deductions are fully available.

(ix) Gross Professional Receipts for P.Y. 2019-20 = ₹5,20,000:

Since gross receipts for P.Y. 2019-20 were ₹5,20,000 (below the ₹50 lakh threshold), Mr. Ashish was eligible for presumptive taxation under Section 44ADA of the Income Tax Act, 1961 for P.Y. 2019-20, at 50% of gross receipts = ₹2,60,000. If he had opted for Section 44ADA in P.Y. 2019-20 and declares income below 50% in any subsequent year, Section 44ADA(4) requires him to maintain books and obtain tax audit under Section 44AB for the subsequent 5 AYs (if income exceeds basic exemption). Receipts of ₹5,20,000 are also below the ₹50 lakh limit under Section 44AB(b), so no compulsory tax audit was required for P.Y. 2019-20.

Tax Liability (Old Regime — Section 115BAC not opted), A.Y. 2021-22:

Individual tax slabs applicable (age assumed below 60 unless stated otherwise):
Up to ₹2,50,000 — Nil; ₹2,50,001–₹5,00,000 — 5%; ₹5,00,001–₹10,00,000 — 20%; Above ₹10,00,000 — 30%.
Add: Health and Education Cess @ 4% on income tax.
Rebate under Section 87A: If total income ≤ ₹5,00,000, rebate equal to 100% of tax or ₹12,500, whichever is lower, is available.

The final total income and tax liability figures require all remaining items of the case scenario (gross professional receipts for P.Y. 2020-21 and other income/expense items not reproduced above).

Cost Sheet for the Month of March 2021

(i) Cost of Raw Material Consumed

Opening Stock of Raw Material is ₹80,000. To this, Purchases of ₹2,00,000 and Carriage Inwards of ₹8,000 are added. Return of Raw Material of ₹40,000 is deducted, but Carriage on Return of ₹6,000 is added back (as this freight is borne by the company, it is a cost incurred). Total materials available = ₹2,54,000. Deducting Closing Stock of ₹30,000, Cost of Raw Material Consumed = ₹2,24,000.

(ii) Prime Cost

Prime Cost = Direct Material + Direct Labour + Direct Expenses. Cost of special drawing (₹30,000) is a direct expense specific to the product. Hire charges for plant (₹24,000) are classified as factory overhead, not direct expense. Prime Cost = ₹2,24,000 + ₹1,20,000 + ₹30,000 = ₹3,74,000.

(iii) Work Cost

To Prime Cost, factory-related overheads are added: Store Overheads (10% of RM consumed = ₹22,400), Factory Overheads (20% of Prime Cost = ₹74,800), and Hire Charges for Plant (₹24,000). Opening WIP (₹50,000) is added and Closing WIP (₹24,000) is deducted. Scrap realised from rejected output (₹5,000) is deducted. Rectification cost for defective units (₹2,160, computed in working notes) is added. Work Cost = ₹5,18,360.

(iv) Cost of Production

Administration overheads are added to Work Cost: Legal charges (₹2,500), Salary to office staff (₹25,000), and Maintenance of office building (₹2,000) = ₹29,500 total. Cost of Production = ₹5,18,360 + ₹29,500 = ₹5,47,860 (for 7,200 good units produced).

(v) Cost of Sales

Selling and Distribution overheads are added: Exhibition expenses (₹8,000), Depreciation on Delivery Van (₹6,000), and Warehousing charges (₹1,500) = ₹15,500. No opening or closing stock of finished goods is given, so all 7,200 units are assumed sold. Cost of Sales = ₹5,47,860 + ₹15,500 = ₹5,63,360.

Items Excluded: Carriage on Return is treated as a cost addition (company bears the freight). All expenses are correctly classified — exhibition and van depreciation as selling overhead, office salaries and maintenance as administration overhead.

Residential Status of Mrs. Rohini for P.Y. 2020-21 (A.Y. 2021-22)

As per Section 6(1) of the Income Tax Act, 1961, an individual is resident in India if he/she satisfies at least one of the following basic conditions:
(a) Present in India for 182 days or more during the P.Y., OR
(b) Present in India for 60 days or more during the P.Y. AND 365 days or more during the 4 preceding P.Ys.

However, the proviso to Section 6(1) provides that in the case of an Indian citizen or person of Indian origin who is outside India and comes on a visit to India, the threshold of 60 days in condition (b) is replaced by 182 days.

Mrs. Rohini is an Indian citizen settled in Russia who visits India for 60 days every year. Applying the proviso:
- Condition (a): 60 days < 182 days — Not satisfied
- Condition (b) as modified: 60 days < 182 days — Not satisfied

Further, under the Finance Act 2020 amendment to Section 6(1), an Indian citizen visiting India for more than 120 days (but less than 182 days) with total India income exceeding ₹15 lakhs would become RNOR — not applicable as she visits only 60 days. Section 6(1A) (deemed residency) also does not apply as her India-sourced income (₹4,50,000) is below the ₹15 lakh threshold.

Mrs. Rohini is a NON-RESIDENT for A.Y. 2021-22.

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Scope of Taxable Income (Non-Resident)

For a non-resident, only income that accrues/arises in India or is received/deemed to be received in India is chargeable to tax [Section 5(2)].

- Pension from Russian Government ₹65,000 — Accrues and received outside India. NOT taxable in India.
- LTCG on sale of land in New Delhi ₹3,00,000 — Land situated in India; capital gain accrues in India. Taxable under Section 112 @ 20%.
- STCG on sale of listed shares ₹60,000 — STT paid at acquisition and sale; shares of Indian companies. Taxable under Section 111A @ 15%.
- Premium paid to Russian LIC ₹75,000 — Not eligible for deduction under Section 80C; Russian LIC is not registered with IRDAI and does not qualify as an 'insurer' for the purpose of Section 80C(2)(a).
- Rent from house property in New Delhi ₹90,000 (equal to Annual Value) — Property situated in India. Taxable under Income from House Property [Section 22].

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Computation of Total Income

*Income from House Property:*
Net Annual Value = ₹90,000
Less: Standard deduction u/s 24(a) @ 30% = ₹27,000
Income from House Property = ₹63,000

*Capital Gains:*
LTCG u/s 112 (land in New Delhi) = ₹3,00,000
STCG u/s 111A (listed shares, STT paid) = ₹60,000

Total Income = ₹4,23,000

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Computation of Tax Liability

For non-residents, the basic exemption limit is ₹2,50,000 (enhanced limits for senior citizens do not apply to non-residents).

Normal income (House Property) = ₹63,000, which is below ₹2,50,000. Shortfall = ₹1,87,000. As per the proviso to Section 111A, this shortfall is first set off against STCG:

STCG ₹60,000 − ₹60,000 (absorbed) = ₹NIL; Residual shortfall = ₹1,87,000 − ₹60,000 = ₹1,27,000.

As per the proviso to Section 112, residual shortfall is set off against LTCG:
Taxable LTCG = ₹3,00,000 − ₹1,27,000 = ₹1,73,000

Tax on LTCG @ 20% = ₹34,600
Add: Health and Education Cess @ 4% = ₹1,384

Total Tax Liability = ₹35,984

Note: The specific cases referred to in this question appear to have been omitted from the prompt. The answer below provides a comprehensive framework of major Tax Deduction at Source (TDS) provisions under the Income Tax Act, 1961, covering the sections and rates most commonly examined at the CA Intermediate level for payments made to residents. This is structured to serve as a complete reference answer for a 14-mark question.

Section 192 – Salaries: TDS is attracted on any salary paid by an employer to an employee. The tax is to be deducted at the average rate of income tax computed on the estimated income of the employee for the financial year. No threshold exemption applies at the deduction stage beyond the basic exemption limit of the employee.

Section 193 – Interest on Securities: TDS is attracted on payment of interest on debentures or any other security issued by a company, local authority, or the Government. Rate: 10%. Threshold: ₹5,000 in case of listed debentures.

Section 194 – Dividend: TDS at 10% is applicable on payment of dividend (other than deemed dividend u/s 2(22)(e)) by a domestic company. Threshold: ₹5,000 per annum.

Section 194A – Interest Other Than Interest on Securities: TDS at 10% on interest paid by banks/post offices if aggregate interest exceeds ₹50,000 p.a. (₹40,000 for non-senior citizens). For others (non-banking), threshold is ₹5,000. Rate: 10%.

Section 194B – Winnings from Lottery/Crossword Puzzle: TDS at 30% on winnings exceeding ₹10,000 from any lottery, crossword puzzle, card game, or other game. TDS is deducted at source before payment.

Section 194BB – Winnings from Horse Race: TDS at 30% if winnings from a single horse race exceed ₹10,000.

Section 194C – Payments to Contractors: TDS is deducted on payments to contractors/sub-contractors. Rate: 1% if payee is an Individual or HUF; 2% if payee is any other person. Single payment threshold: ₹30,000; aggregate annual threshold: ₹1,00,000.

Section 194D – Insurance Commission: TDS at 5% on commission paid to insurance agents. Threshold: ₹15,000 per annum.

Section 194H – Commission or Brokerage: TDS at 5% on payment of commission or brokerage (excluding insurance commission). Threshold: ₹15,000 per annum.

Section 194I – Rent: TDS on rent paid to residents. Rate: 2% for hire of plant, machinery, or equipment; 10% for hire of land, building, furniture, or fittings. Threshold: ₹2,40,000 per annum.

Section 194IA – Transfer of Immovable Property: TDS at 1% on consideration for transfer of any immovable property (other than agricultural land) if consideration ≥ ₹50 lakhs. Deducted by the buyer.

Section 194J – Fees for Professional or Technical Services: Rate: 2% for fees for technical services (not being professional services), royalty for sale/distribution/exhibition of films; 10% for fees for professional services and royalty (other than above). Threshold: ₹30,000 per annum for each category.

Section 194Q – Purchase of Goods: TDS at 0.1% on purchase of goods exceeding ₹50 lakhs in aggregate from a resident seller during the financial year (applicable when buyer's turnover exceeds ₹10 crore in the preceding year).

Section 194LA – Compensation on Compulsory Acquisition: TDS at 10% on payment of compensation (or enhanced compensation) for compulsory acquisition of any immovable property (other than agricultural land). Threshold: ₹2,50,000.

Section 194M – Payment by Individual/HUF to Contractor or Professional: TDS at 5% if aggregate payment by an Individual or HUF (not subject to audit) exceeds ₹50 lakhs in a year to contractors or professionals. This plugs the gap where Section 194C and 194J do not apply to individuals/HUFs below audit threshold.

General Rule on PAN Non-Furnishing: Where the payee does not furnish PAN, TDS is to be deducted at the higher of the applicable rate, 20%, or the rate in force (Section 206AA of the Income Tax Act, 1961).

In summary, TDS provisions are attracted across a wide range of payments. The deductor must deposit TDS to the Government, file TDS returns (Form 26Q/24Q), and issue TDS certificates (Form 16/16A) within prescribed timelines.

Part (i): Cost Sheet of ABC Ltd. for the year ended 31st March, 2021

Computation of Overhead Absorption Rates (based on Normal Capacity of 20,000 units):
- Factory Overhead rate = ₹2,60,000 ÷ 20,000 = ₹13 per unit
- Administrative Overhead rate = ₹1,05,000 ÷ 20,000 = ₹5.25 per unit
- Selling Overhead rate = ₹85,000 ÷ 20,000 = ₹4.25 per unit

Overheads Absorbed (for 15,000 units actually produced/sold):
- Factory OH: 15,000 × ₹13 = ₹1,95,000 (Under-absorbed: ₹65,000)
- Admin OH: 15,000 × ₹5.25 = ₹78,750 (Under-absorbed: ₹26,250)
- Selling OH: 15,000 × ₹4.25 = ₹63,750 (Under-absorbed: ₹21,250)

Cost Sheet (for 15,000 units):

| Particulars | Total (₹) | Per Unit (₹) |
|---|---|---|
| Direct Material | 6,50,000 | 43.33 |
| Direct Wages | 3,50,000 | 23.33 |
| Prime Cost | 10,00,000 | 66.67 |
| Add: Factory Overheads (absorbed) | 1,95,000 | 13.00 |
| Add: Notional Rent (own premises) | 12,000 | 0.80 |
| Works Cost | 12,07,000 | 80.47 |
| Add: Admin Overheads (absorbed) | 78,750 | 5.25 |
| Cost of Production | 12,85,750 | 85.72 |
| Add: Selling Overheads (absorbed) | 63,750 | 4.25 |
| Cost of Sales (Total Cost) | 13,49,500 | 89.97 |
| Sales (15,000 units) | 15,00,000 | 100.00 |
| Profit as per Cost Records | 1,50,500 | 10.03 |

Part (ii): Reconciliation Statement — Profit as per Financial Records with Profit as per Cost Records

The difference between the two profits arises due to: (a) items appearing only in financial accounts (pure financial income/expenditure), (b) under/over absorption of overheads, and (c) notional charges in cost accounts.

| Particulars | ₹ | ₹ |
|---|---|---|
| Profit as per Financial Accounts | | 57,000 |
| Add: Expenses in FA but not in CA: | | |
| Loss on sale of investments | 2,000 | |
| Add: Under-absorption of overheads: | | |
| Factory Overheads (₹2,60,000 − ₹1,95,000) | 65,000 | |
| Admin Overheads (₹1,05,000 − ₹78,750) | 26,250 | |
| Selling Overheads (₹85,000 − ₹63,750) | 21,250 | 1,14,500 |
| | | 1,71,500 |
| Less: Income in FA but not in CA: | | |
| Dividend received | 9,000 | |
| Less: Notional charges in CA but not in FA: | | |
| Notional Rent on own premises | 12,000 | (21,000) |
| Profit as per Cost Records | | 1,50,500 |

Conclusion: The Profit as per Cost Records is ₹1,50,500, reconciled from the Financial Profit of ₹57,000. The large difference is primarily due to under-absorption of overheads resulting from actual production (15,000 units) being significantly below normal capacity (20,000 units).

Applicable Provisions: Under Section 64(1A) of the Income Tax Act, 1961, income of a minor child is clubbed with the income of that parent whose total income (before such clubbing) is greater. However, two key exceptions apply: (a) income of a minor suffering from disability specified in Section 80U is NOT clubbed — it is assessed in the minor's own hands; and (b) income derived by a minor from activity involving application of his/her skill, talent or specialised knowledge is NOT clubbed.

Treatment of Each Item:

Minor Son 'A' (disability u/s 80U) — ₹3,08,000: Since Son A suffers from a disability specified in Section 80U, his income of ₹3,08,000 is expressly excluded from clubbing under the proviso to Section 64(1A). It is assessed in Son A's own hands. Neither parent includes this income.

Minor Daughter 'C' — Script Writing Income — ₹1,86,000: Script writing for television serials involves application of skill and talent. Therefore, under the exception in Section 64(1A), this income is NOT clubbed with either parent. It is assessed in Daughter C's own hands.

Cash Gift to Minor Daughter 'C' — ₹45,000: The gift is received from a friend of Mrs. Anandi, who is not a 'relative' of Daughter C as defined under Section 56(2)(x) of the Act. However, since the aggregate gift amount (₹45,000) does not exceed ₹50,000, no income arises under Section 56(2)(x). Therefore, nothing is taxable or clubbable.

Minor Son 'B' — Scholarship — ₹1,00,000: Scholarship received to meet the cost of education is exempt under Section 10(16). This income is not clubbed.

Minor Son 'B' — FD Interest — ₹5,000: Interest earned on a Fixed Deposit (even if the deposit was funded from exempt scholarship income) is taxable income and does not fall under any exception. It must be clubbed with the parent having higher total income. Mr. Dharmesh's income (₹17,50,000) exceeds Mrs. Anandi's income (₹9,60,000), so ₹5,000 is clubbed with Mr. Dharmesh. An exemption of ₹1,500 per minor is available under Section 10(32) once the clubbing is done.

Determination of Total Incomes:

Mr. Dharmesh: Business income of ₹17,50,000 plus clubbed FD interest of Son B ₹5,000, less exemption u/s 10(32) of ₹1,500 = ₹17,53,500.

Mrs. Anandi: Salary income (computed) = ₹9,60,000. No income of any minor is clubbed with her as Mr. Dharmesh has higher income.

Final Answer: Total Income of Mr. Dharmesh = ₹17,53,500 and Total Income of Mrs. Anandi = ₹9,60,000 for Assessment Year 2021-22.

Part (i) — Finding Wastage % in Process Y

Overheads at 150% of direct wages per process: X = ₹6,000; Y = ₹5,250; Z = ₹4,500.

Process X output: Input 15,000 units; normal loss = 6% × 15,000 = 900 units; output = 14,100 units. Total cost = ₹30,000 + ₹2,600 + ₹4,000 + ₹6,000 = ₹42,600. Less scrap: 900 × ₹1.10 = ₹990. Net cost = ₹41,610. Cost per unit ≈ ₹2.95.

Let n = units wasted in Process Y. Total cost in Y = ₹41,610 + ₹3,250 + ₹3,500 + ₹5,250 − 2n = ₹53,610 − 2n. Output = (14,100 − n) units transferred at ₹4/unit.

Setting cost per unit = ₹4:
(53,610 − 2n) = 4 × (14,100 − n)
53,610 − 2n = 56,400 − 4n
2n = 2,790 → n = 1,395 units

Wastage % in Process Y = 1,395 ÷ 14,100 × 100 = 9.89%
Output from Y = 14,100 − 1,395 = 12,705 units at ₹4 = ₹50,820

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Part (ii) — Process X Account

| Dr | Units | ₹ | Cr | Units | ₹ |
|---|---|---|---|---|---|
| Raw material (15,000 × ₹2) | 15,000 | 30,000 | Normal loss (900 × ₹1.10) | 900 | 990 |
| Materials consumed | — | 2,600 | Transfer to Process Y | 14,100 | 41,610 |
| Direct wages | — | 4,000 | | | |
| Production overhead | — | 6,000 | | | |
| Total | 15,000 | 42,600 | Total | 15,000 | 42,600 |

Process Y Account

| Dr | Units | ₹ | Cr | Units | ₹ |
|---|---|---|---|---|---|
| From Process X | 14,100 | 41,610 | Normal loss (1,395 × ₹2) | 1,395 | 2,790 |
| Materials consumed | — | 3,250 | Transfer to Process Z (@ ₹4) | 12,705 | 50,820 |
| Direct wages | — | 3,500 | | | |
| Production overhead | — | 5,250 | | | |
| Total | 14,100 | 53,610 | Total | 14,100 | 53,610 |

Verification: ₹50,820 ÷ 12,705 = ₹4.00 ✓

Process Z Account

Normal loss = 5% × 12,705 = 635 units @ ₹1 = ₹635. Expected output = 12,070 units. Actual = 12,000 units. Abnormal loss = 70 units. Net cost = ₹58,320 − ₹635 = ₹57,685. Cost per unit = ₹57,685 ÷ 12,070 = ₹4.78 (approx.).

| Dr | Units | ₹ | Cr | Units | ₹ |
|---|---|---|---|---|---|
| From Process Y (12,705 × ₹4) | 12,705 | 50,820 | Normal loss (635 × ₹1) | 635 | 635 |
| Direct wages | — | 3,000 | Abnormal loss (70 × ₹4.78) | 70 | 335 |
| Production overhead | — | 4,500 | Finished Stock (12,000 × ₹4.78) | 12,000 | 57,350 |
| Total | 12,705 | 58,320 | Total | 12,705 | 58,320 |

Final Answer: Wastage in Process Y = 9.89% (1,395 units out of 14,100). Finished goods transferred from Process Z = 12,000 units at ₹4.78/unit = ₹57,350.

Part (a): Labour Cost Variances

Note: The specific labour data required to compute the variances (standard gang composition, actual gang composition, standard wage rates, actual wage rates, hours worked, idle time, and actual output vs. standard output) has not been provided in the question as stated. The formulas and methodology are given below for examination reference:

Formulae:

(i) Total Labour Cost Variance (LCV) = Standard Labour Cost of Actual Output − Actual Labour Cost = (Std Hours for Actual Output × Std Rate) − (Actual Hours Paid × Actual Rate)

(ii) Total Labour Rate Variance (LRV) = (Standard Rate − Actual Rate) × Actual Hours Paid

(iii) Total Labour Gang Variance = (Revised Standard Hours − Actual Hours Worked) × Standard Rate per hour. Revised Standard Hours = Actual total hours worked, re-distributed in standard gang proportion.

(iv) Total Labour Yield Variance = (Actual Output − Standard Output for Actual Input) × Standard Labour Cost per unit of output

(v) Total Labour Idle Time Variance = Idle Hours × Standard Rate per hour

Relationship: LCV = LRV + Labour Efficiency Variance; Labour Efficiency Variance = Gang Variance + Yield Variance + Idle Time Variance

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Part (b): Budget Preparation — November 2020 to March 2021

(i) Sales Budget (in ₹):
November 2020: 30,000 × ₹3 = ₹90,000; December 2020: 35,000 × ₹12 = ₹4,20,000; January 2021: 38,000 × ₹11 = ₹4,18,000; February 2021: 25,000 × ₹15 = ₹3,75,000; March 2021: 40,000 × ₹20 = ₹8,00,000. Total Sales = ₹20,03,000

(ii) Production Budget (in units):
Formula: Production = Sales + Closing Stock − Opening Stock. The closing stock of each month = opening stock of the next month.
November 2020: 30,000 + 3,000 − 7,500 = 25,500 units; December 2020: 35,000 + 9,000 − 3,000 = 41,000 units; January 2021: 38,000 + 8,000 − 9,000 = 37,000 units; February 2021: 25,000 + 6,000 − 8,000 = 23,000 units; March 2021: 40,000 + 10,000 − 6,000 = 44,000 units. Total Production = 1,70,500 units

(iii) Raw Material Budget:
Each unit requires 2 kg of A and 3 kg of B. Material required = Production units × kg per unit.

Raw Material A (in kg): Nov: 51,000; Dec: 82,000; Jan: 74,000; Feb: 46,000; Mar: 88,000. Total A = 3,41,000 kg

Raw Material B (in kg): Nov: 76,500; Dec: 1,23,000; Jan: 1,11,000; Feb: 69,000; Mar: 1,32,000. Total B = 5,11,500 kg

Scenario (ii): Capital Gains Computation for Mr. A — A.Y. 2021-22

Nature of Capital Asset: The residential house was purchased on 1st September 2016 and sold on 4th September 2020. Period of holding = 4 years, which exceeds 24 months. Hence, it is a Long Term Capital Asset.

Full Value of Consideration under Section 50C of the Income Tax Act, 1961: Where the actual sale consideration is less than the stamp duty valuation, the stamp duty value is deemed to be the full value of consideration, provided the stamp duty value exceeds 110% of actual consideration.

110% of ₹19,00,000 = ₹20,90,000. Since stamp duty value (₹45,00,000) > ₹20,90,000, the full value of consideration = ₹45,00,000.

Indexed Cost of Acquisition (ICoA): = ₹9,00,000 × (301 ÷ 264) = ₹10,26,136

Long Term Capital Gain (LTCG):

Full value of consideration (Section 50C): ₹45,00,000
Less: Indexed Cost of Acquisition: ₹10,26,136
LTCG before exemption: ₹34,73,864

Exemption under Section 54EC: Section 54EC requires investment in specified bonds (NHAI/REC) within 6 months from the date of transfer. Date of transfer = 4th September 2020. Six months expire on 4th March 2021. Mr. A invested on 21st March 2021, which is beyond the 6-month window. Hence, no exemption is available.

Taxable LTCG for Mr. A = ₹34,73,864

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Scenario (c): Capital Gains Computation for Mr. Patel — A.Y. 2021-22 (Slump Sale u/s 50B)

Mr. Patel transferred his shop (business) by way of lease to his son-in-law for a lump sum of ₹40,00,000. Since (i) the entire undertaking is transferred, (ii) no individual value is assigned to any asset in the transfer deed, this qualifies as a Slump Sale under Section 50B of the Income Tax Act, 1961.

The business has been held since 2004 (> 36 months), hence it is a Long Term Capital Asset. Under Section 50B, no indexation benefit is available.

Net Worth Computation (Cost of Acquisition):

Total Assets at book value (WDV for depreciable assets as per IT Act):
- Building: ₹3,00,000
- Furniture: ₹5,00,000 (no depreciation charged as per given info)
- Debtors: ₹2,00,000
- Other Assets (incl. trademark ₹2,00,000): ₹8,00,000
Total Assets = ₹18,00,000

External Liabilities:
- Bank Loan: ₹5,00,000
- Trade Creditors: ₹2,50,000
- Unsecured Loan: ₹2,00,000 − ₹50,000 (waived by wife, hence no longer a liability) = ₹1,50,000
Total Liabilities = ₹9,00,000

Net Worth = ₹18,00,000 − ₹9,00,000 = ₹9,00,000

LTCG from Slump Sale:

Full value of consideration: ₹40,00,000
Less: Transfer expenses (professional fees & brokerage): ₹80,000
Net Sale Consideration: ₹39,20,000
Less: Net Worth (deemed cost u/s 50B): ₹9,00,000
Taxable LTCG for Mr. Patel = ₹30,20,000

Step 1 — Determine Standard Wage Rate using given LEV

The department of 100 workers has a standard output of 25 units per hour (department rate). This implies:

Standard man-hours per unit = 100 workers ÷ 25 units per hour = 4 man-hours per unit

Standard hours for actual output (900 units) = 900 × 4 = 3,600 man-hours

Actual hours paid = 100 workers × 40 hours = 4,000 man-hours

Abnormal idle hours = 5% × 4,000 = 200 man-hours

Actual hours worked = 4,000 − 200 = 3,800 man-hours

Using the Labour Efficiency Variance formula:

LEV = (Standard Hours − Actual Hours Worked) × Standard Rate

₹240(A) = (3,600 − 3,800) × SR

₹240 = 200 × SR → Standard Wage Rate = ₹1.20 per hour

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Step 2 — Actual Labour Cost

Group A (10 workers): 10 × 40 × ₹6.20 = ₹2,480
Group B (30 workers): 30 × 40 × ₹6.30 = ₹7,560
Group C (60 workers): 60 × 40 × ₹6.40 = ₹15,360
Total Actual Cost = ₹25,400

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Step 3 — Standard Cost for Actual Output

= 900 units × 4 man-hours × ₹1.20 = ₹4,320

---

Step 4 — Labour Cost Variance (LCV)

LCV = Standard Cost − Actual Cost = ₹4,320 − ₹25,400 = ₹21,080 (Adverse)

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Step 5 — Labour Rate Variance (LRV)

LRV = (SR − AR) × Actual Hours Paid (for each group)

Group A: (₹1.20 − ₹6.20) × 400 hrs = −₹2,000
Group B: (₹1.20 − ₹6.30) × 1,200 hrs = −₹6,120
Group C: (₹1.20 − ₹6.40) × 2,400 hrs = −₹12,480

LRV = ₹20,600 (Adverse)

---

Step 6 — Labour Idle Time Variance (LITV)

LITV = Idle Hours × Standard Rate = 200 × ₹1.20 = ₹240 (Adverse)

---

Step 7 — Labour Efficiency Variance (LEV)

LEV = (3,600 − 3,800) × ₹1.20 = ₹240 (Adverse) ✓ [confirmed with given]

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Reconciliation Check:

LCV = LRV + LITV + LEV
₹21,080(A) = ₹20,600(A) + ₹240(A) + ₹240(A) = ₹21,080(A) ✓

Final Answers:
- Standard Wage Rate = ₹1.20 per hour
- Labour Cost Variance = ₹21,080 (Adverse)
- Labour Rate Variance = ₹20,600 (Adverse)
- Labour Idle Time Variance = ₹240 (Adverse)
- Labour Efficiency Variance = ₹240 (Adverse) [given, verified]

Further Processing Decision — QFR Ltd.

The decision to process a joint product beyond the split-off point must be based solely on the incremental (differential) analysis — comparing the incremental revenue (additional sales value gained by further processing) with the incremental cost (further processing cost). The joint cost of ₹40,000 is irrelevant to this decision as it is a sunk cost, already incurred regardless of the decision taken.

Product S (→ RM): Incremental revenue = ₹1,20,000 − ₹20,000 = ₹1,00,000. Further processing cost = ₹80,000. Net gain = ₹20,000. Since incremental revenue exceeds incremental cost, Product S should be further processed into RM.

Product P (→ PN): Incremental revenue = ₹40,000 − ₹12,000 = ₹28,000. Further processing cost = ₹32,000. Net loss = ₹4,000. Since further processing results in a net loss, Product P should be sold at split-off point.

Product N (→ NL): Incremental revenue = ₹48,000 − ₹28,000 = ₹20,000. Further processing cost = ₹36,000. Net loss = ₹16,000. Since further processing results in a net loss, Product N should be sold at split-off point.

Product A: No further processing option is available. It must be sold at split-off for ₹20,000.

Suggestion: To maximise profits, QFR Ltd. should further process only Product S into RM and sell Products P, N, and A at the split-off point. Under this optimal strategy, the total net profit = ₹1,80,000 (total revenue) − ₹1,20,000 (total costs) = ₹60,000, compared to a profit of only ₹40,000 if all products capable of further processing were processed further.

Part (i): Employee Turnover Rates

Separation Method measures turnover based only on the number of employees who left (separated) during the period.

Formula: Employee Turnover Rate (Separation Method) = (Number of Separations / Average Number of Workers) × 100

= (25 / 500) × 100 = 5%

Flux Method measures turnover by considering both separations and new accessions (replacements/new joinings) during the period.

Formula: Employee Turnover Rate (Flux Method) = [(Number of Separations + Number of Accessions) / Average Number of Workers] × 100

= [(25 + 50) / 500] × 100 = (75 / 500) × 100 = 15%

Part (ii): Equivalent Annual Employee Turnover Rates

Since the organisation was set up on 31st January, 2021 and the period ends on 31st March, 2021, the actual operating period is 2 months (February and March 2021).

To compute the equivalent annual rate, the period rates are annualised:

Formula: Equivalent Annual Rate = Computed Rate × (12 / Number of months in the period)

Equivalent Annual Rate — Separation Method:
= 5% × (12 / 2) = 5% × 6 = 30% per annum

Equivalent Annual Rate — Flux Method:
= 15% × (12 / 2) = 15% × 6 = 90% per annum

The high annualised rates reflect the short operating period of only 2 months; they indicate the projected rate if the same turnover trend continued for the full year.

Meaning of Aggregate Turnover under Section 2(6) of the CGST Act, 2017:

'Aggregate turnover' means the aggregate value of:
(i) all taxable supplies (excluding the value of inward supplies on which tax is payable on reverse charge basis),
(ii) exempt supplies,
(iii) exports of goods or services or both, and
(iv) inter-State supplies of persons having the same Permanent Account Number,

computed on all India basis but excludes Central tax, State tax, Union territory tax, Integrated tax and Cess.

Computation of Aggregate Turnover of P Ltd. for October 2020:

| Particulars | Amount (₹) | Reason |
|---|---|---|
| Intrastate outward supply | 8,00,000 | Taxable supply — INCLUDED |
| Interstate exempt outward supply | 4,00,000 | Exempt supply — INCLUDED |
| Turnover of exported goods | 20,00,000 | Export — INCLUDED |
| Payment of IGST | 1,20,000 | Tax amount — EXCLUDED |
| Payment of CGST & SGST (₹45,000 each) | 90,000 | Tax amount — EXCLUDED |
| Payment of custom duty on export | 40,000 | Not a supply; duty paid to customs — EXCLUDED |
| Payment for GTA services (RCM) | 3,00,000 | Inward supply on RCM basis — specifically EXCLUDED by Section 2(6) |

Aggregate Turnover of P Ltd. for October 2020 = ₹32,00,000

Activity-Based Costing — PQR Ltd.

Step 1: Computation of Activity Cost Rates (based on Capacity)

Activity Cost Rate = Total Activity Cost ÷ Cost Driver Capacity

- Direct Labour Hours: ₹3,00,000 ÷ 30,000 hrs = ₹10 per DL hour
- Production Runs: ₹1,80,000 ÷ 600 runs = ₹300 per run
- Quality Inspections: ₹2,40,000 ÷ 8,000 inspections = ₹30 per inspection

*(Note: The product-wise consumption table (P, Q, R) was not reproduced in the question text. The following solution uses illustrative data consistent with ICAI-style questions for this format. If the actual table differs, substitute those values using the same methodology.)*

Assumed Consumption Data:

| Activity | Product P | Product Q | Product R | Total Actual Used |
|---|---|---|---|---|
| DL Hours | 15,000 | 9,000 | 3,000 | 27,000 |
| Production Runs | 240 | 180 | 120 | 540 |
| Quality Inspections | 3,200 | 2,800 | 1,200 | 7,200 |

(i) Cost Allocated to Each Product from Each Activity:

Product P:
- DL Hours: 15,000 × ₹10 = ₹1,50,000
- Production Runs: 240 × ₹300 = ₹72,000
- Quality Inspections: 3,200 × ₹30 = ₹96,000
- Total = ₹3,18,000

Product Q:
- DL Hours: 9,000 × ₹10 = ₹90,000
- Production Runs: 180 × ₹300 = ₹54,000
- Quality Inspections: 2,800 × ₹30 = ₹84,000
- Total = ₹2,28,000

Product R:
- DL Hours: 3,000 × ₹10 = ₹30,000
- Production Runs: 120 × ₹300 = ₹36,000
- Quality Inspections: 1,200 × ₹30 = ₹36,000
- Total = ₹1,02,000

Total cost allocated = ₹3,18,000 + ₹2,28,000 + ₹1,02,000 = ₹6,48,000

(ii) Cost of Unused Capacity for Each Activity:

Unused capacity = (Budgeted Capacity − Actual Usage) × Activity Cost Rate

- DL Hours: (30,000 − 27,000) = 3,000 hrs × ₹10 = ₹30,000
- Production Runs: (600 − 540) = 60 runs × ₹300 = ₹18,000
- Quality Inspections: (8,000 − 7,200) = 800 × ₹30 = ₹24,000
- Total Unused Capacity Cost = ₹72,000

*Verification: ₹6,48,000 (allocated) + ₹72,000 (unused) = ₹7,20,000 = ₹3,00,000 + ₹1,80,000 + ₹2,40,000* ✓

(iii) Cost Sheet for Product 'S' (per quarter) — ABC Method:

Product S: 12,000 units delivered in 8 quarters of 1,500 units each. Design cost ₹30,000 amortised over 8 quarters = ₹3,750 per quarter.

| Particulars | Basis | Amount (₹) |
|---|---|---|
| Direct Costs: | | |
| Direct Material | Given | 18,000 |
| Direct Labour | 1,500 hrs × ₹10/hr | 15,000 |
| Total Direct Cost (A) | | 33,000 |
| Indirect Costs (ABC): | | |
| Production Runs | 15 runs × ₹300 | 4,500 |
| Quality Inspections | 250 × ₹30 | 7,500 |
| Design Cost (amortised) | ₹30,000 ÷ 8 quarters | 3,750 |
| Total Indirect Cost (B) | | 15,750 |
| Total Cost per Quarter (A+B) | | 48,750 |
| Add: Markup @ 20% on cost | 20% × ₹48,750 | 9,750 |
| Sales Value per Quarter | | ₹58,500 |

Conclusion: Under ABC, the Sales Value to be quoted per quarter for Product S is ₹58,500 (for 1,500 units), implying a selling price of ₹39 per unit.

Final Return under Section 45 of the Central Goods and Services Tax Act, 2017

Who is required to furnish Final Return:

Every registered person whose registration has been cancelled or surrendered is required to furnish a final return. This includes persons who:
(i) apply voluntarily for cancellation of their GST registration, or
(ii) whose registration has been cancelled by the proper officer (suo motu cancellation).

The final return is filed in Form GSTR-10. It covers details of inputs and capital goods held in stock or semi-finished/finished goods on the effective date of cancellation, and the tax payable on such stock (reversal of input tax credit taken on such goods).

Note: Persons paying tax under the composition scheme (Section 10 of CGST Act 2017) are not covered under Section 45, as their return obligations fall under Section 39(2).

Time Limit for Filing Final Return:

The final return must be furnished within three months from:
- the date of cancellation, or
- the date of order of cancellation,

whichever is later.

For example, if the effective date of cancellation is 1st January and the cancellation order is received on 1st February, the final return must be filed by 1st May (3 months from the later date, i.e., 1st February).

Penalty for Delay in Filing Final Return:

As per Section 47 of the CGST Act 2017, if the registered person fails to furnish the final return within the prescribed time limit, a late fee is payable as follows:

- ₹200 per day of delay (₹100 per day under CGST + ₹100 per day under SGST/UTGST)
- Subject to a maximum of ₹10,000 in total (₹5,000 under CGST + ₹5,000 under SGST/UTGST)

The late fee is paid before the final return is filed. The liability to pay late fee does not extinguish the obligation to file the return; the return must still be filed even after payment of the late fee.

In conclusion, the final return mechanism ensures that all tax liabilities are settled and ITC reversal is effected upon cancellation, bringing the registered person's GST obligations to a formal close.

Activity-Based Costing — MRSL Healthcare Ltd. (COVID-19 Insurance Policy)

(i) Segregation of Total Cost into Four Main Activities

The costs are classified into the four activity pools as follows:

(a) Marketing and Sales Support:
This pool comprises costs directly related to promoting and selling the policy — Cost of marketing of the policy (₹55 Lakhs) and Sales support expenses (₹10 Lakhs). Total = ₹65 Lakhs.

(b) Operations:
This pool covers all policy execution and processing activities — Claims management (₹145 Lakhs), Postage and logistics (₹35 Lakhs), Policy issuance cost (₹25 Lakhs), and Policy servicing cost (₹30 Lakhs). Total = ₹235 Lakhs.

(c) I.T. Cost:
Technology infrastructure costs are grouped separately — I.T. Cost = ₹10 Lakhs.

(d) Support Functions:
Overhead and administrative costs — Office administration (₹75 Lakhs), Employees cost (₹210 Lakhs), Facilities cost (₹90 Lakhs), and Policy development cost (₹15 Lakhs). Total = ₹390 Lakhs.

Grand Total Cost = ₹700 Lakhs (₹7 Crores)

Verification: Total insured value × Cost per ₹ of insured value = ₹3,500 Crores × ₹0.002 = ₹7 Crores = ₹700 Lakhs ✓

(ii) Cost Per Policy

Cost per policy = Total Cost ÷ Number of Policies sold = ₹700 Lakhs ÷ 2,800 = ₹25,000 per policy

Relevant Law: Section 22 (threshold-based registration) and Section 24 (compulsory registration) of the Central Goods and Services Tax Act, 2017, read with Notification No. 10/2019-Central Tax dated 7.3.2019.

General Rule: A supplier of goods is liable to register if aggregate turnover (computed on all-India PAN basis) exceeds the prescribed threshold limit in a financial year. Aggregate turnover includes taxable supplies, exempt supplies, exports, and inter-state supplies of the same PAN across all states.

Threshold limits for exclusive suppliers of goods:
- ₹40 lakh — States that opted for enhanced threshold (e.g., Himachal Pradesh, Uttar Pradesh, Telangana does NOT qualify — see below)
- ₹20 lakh — States that did NOT opt for ₹40 lakh threshold (e.g., Manipur, Sikkim, Telangana)
- ₹20 lakh — Even in normal states, for certain specified goods: ice cream, pan masala, tobacco products, and aerated waters

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(i) Krishna (Himachal Pradesh) — Readymade Suits:

Krishna operates in three states: Himachal Pradesh (HP), Manipur, and Sikkim. Under GST, each state is a separate registration, but the aggregate turnover is computed on an all-India basis.

Aggregate Turnover = ₹25 lakh (HP) + ₹15 lakh (Manipur) + ₹15 lakh (Sikkim) = ₹55 lakh.

Applicable thresholds: HP — ₹40 lakh (HP opted for enhanced threshold); Manipur — ₹20 lakh; Sikkim — ₹20 lakh.

Since aggregate turnover of ₹55 lakh exceeds ₹40 lakh (HP threshold), ₹20 lakh (Manipur threshold), and ₹20 lakh (Sikkim threshold), Krishna is liable to obtain separate GST registration in all three states under Section 22(1) of the CGST Act, 2017.

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(ii) Ankit (Telangana) — Footwears (Inter-State Supply):

Ankit is exclusively engaged in inter-state taxable supply. Under Section 24(i) of the CGST Act, 2017, every person who makes inter-state taxable supply is compulsorily required to register, irrespective of aggregate turnover. The threshold exemption under Section 22 does not apply.

Additionally, Telangana did not opt for the enhanced ₹40 lakh threshold; its threshold for goods remains ₹20 lakh. Ankit's aggregate turnover of ₹25 lakh exceeds ₹20 lakh as well.

Conclusion: Ankit is liable to get registered compulsorily under Section 24(i) of the CGST Act, 2017, without any threshold protection.

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(iii) Ankush (Uttar Pradesh) — Pan Masala:

Although Uttar Pradesh is a normal state with an otherwise applicable ₹40 lakh threshold, pan masala is a specifically excluded commodity under Notification No. 10/2019-Central Tax dated 7.3.2019. Suppliers of pan masala are NOT eligible for the enhanced ₹40 lakh threshold; the threshold for such suppliers remains ₹20 lakh even in normal states.

Ankush's aggregate turnover is ₹30 lakh, which exceeds ₹20 lakh.

Conclusion: Ankush is liable to get registered under Section 22(1) of the CGST Act, 2017, as his aggregate turnover (₹30 lakh) exceeds the applicable threshold of ₹20 lakh for pan masala suppliers.

Registration as GST Practitioners under Section 48 of the CGST Act, 2017

Section 48 of the Central Goods and Services Tax Act, 2017 empowers the Commissioner to permit a registered person to authorise an approved GST Practitioner to furnish details of outward and inward supplies, file returns, make payments, and perform other prescribed functions on their behalf. The eligibility conditions are detailed in Rule 83 of the CGST Rules, 2017.

Basic Conditions (applicable to all applicants):
Every applicant must satisfy all of the following:
1. He/she must be a citizen of India.
2. He/she must be a person of sound mind.
3. He/she must not have been adjudicated as insolvent.
4. He/she must not have been convicted by a competent court of an offence with a sentence of imprisonment for two years or more.

Qualification Conditions (must satisfy at least one):
In addition to the basic conditions, the applicant must fall under any one of the following categories:

(a) Retired Government Officer: A retired officer of the Commercial Tax Department of any State Government or Union Territory, or of the Central Board of Indirect Taxes and Customs (CBIC), who during his service worked in a post not lower than Group-B Gazetted Officer for a period of not less than two years.

(b) Former Practitioner under Existing Law: A person who was enrolled as a Sales Tax Practitioner or Tax Return Preparer under any earlier indirect tax law for a period of not less than five years.

(c) Qualified Degree Holder: A person who has passed any of the following:
- A graduate or postgraduate degree (or equivalent) in Commerce, Law, Banking (including Higher Auditing), Business Administration, or Business Management from any Indian University established by law;
- An equivalent degree from a Foreign University recognised by an Indian University;
- Any other examination notified by the Government on the recommendation of the GST Council;
- The Final Examination of the Institute of Chartered Accountants of India (ICAI);
- The Final Examination of the Institute of Cost Accountants of India (ICMAI); or
- The Final Examination of the Institute of Company Secretaries of India (ICSI).

Examination Requirement: Every eligible person (except retired government officers and former practitioners under existing law who may be exempted by notification) must also pass the GST Practitioner Examination conducted by the National Academy of Customs, Indirect Taxes and Narcotics (NACIN) as notified.

Enrolment Process: An eligible person must apply in Form GST PCT-01 on the GST portal. Upon verification, the proper officer enrolls the person and issues a certificate in Form GST PCT-02, granting them the status of a GST Practitioner.

In summary, to be registered as a GST Practitioner, a person must be an Indian citizen of sound mind with no disqualifications, possess the required qualification (retired officer, prior enrolment, or relevant degree/professional qualification), and clear the prescribed NACIN examination wherever applicable.

Value of Work Certified:

The retention money retained by the contractor is ₹1,30,000, which represents 20% of the value of work certified by the architect. Therefore, the Value of Work Certified = ₹1,30,000 ÷ 20% = ₹6,50,000.

Cash Received for Certified Work:

Since the contractor retains 20% as retention money and pays the balance 80%, the cash received = ₹6,50,000 × 80% = ₹5,20,000. Alternatively, Cash Received = ₹6,50,000 − ₹1,30,000 = ₹5,20,000.

Notional Profit of the Contract:

Notional Profit is computed as the excess of Value of Work Certified over the Cost of Certified Work (i.e., total cost to date less cost of uncertified work).

Total expenditure incurred (materials, wages, other expenses) = ₹5,10,000. From this, materials lying unused on site (₹30,000) are deducted as they have not been consumed. The special plant was purchased for ₹40,000 and is valued at ₹25,000 at year-end; hence plant depreciation = ₹15,000 is charged to the contract.

Cost of work done to date = ₹5,10,000 − ₹30,000 (unused materials) + ₹15,000 (depreciation) = ₹4,95,000.

Out of this, cost of work done subsequent to the architect's certificate (uncertified work) = ₹30,000.

Therefore, Cost of Certified Work = ₹4,95,000 − ₹30,000 = ₹4,65,000.

Notional Profit = Value of Work Certified − Cost of Certified Work = ₹6,50,000 − ₹4,65,000 = ₹1,85,000.

This computation is in accordance with AS 7 (Accounting Standard 7 — Construction Contracts) issued by the ICAI, which requires recognition of contract revenue and costs by reference to the stage of completion.