CA Inter Cost & Mgmt — Question Paper — November 2022

Sub-part (i): Sitting Fees to Director — Section 194J(1)(ba) of the Income Tax Act, 1961

S and Co. Ltd. paid ₹25,000 as sitting fees to a Director. Under Section 194J(1)(ba), any remuneration, fees, or commission paid by a company to a director (other than salary on which tax is deductible under Section 192) is liable to TDS at 10%. Importantly, unlike other sub-clauses of Section 194J, there is no threshold limit for TDS on director's remuneration/fees under Section 194J(1)(ba).

Accordingly, TDS is applicable on the entire ₹25,000.
TDS to be deducted = ₹25,000 × 10% = ₹2,500

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Sub-part (ii): Compensation on Compulsory Acquisition of Urban Land — Section 194LA

The State of Haryana paid ₹2,20,000 to Mr. Mohan on compulsory acquisition of his urban land. Section 194LA mandates TDS at 10% on payment of compensation on compulsory acquisition of immovable property (other than agricultural land). However, TDS is deductible only if the compensation paid or likely to be paid exceeds ₹2,50,000 in a financial year.

Here, ₹2,20,000 < ₹2,50,000 (threshold limit). Since the amount does not exceed the threshold, no TDS is deductible under Section 194LA.

*Note: Additionally, if the acquisition is made under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, the compensation is specifically exempt and Section 194LA would not apply at all.*

TDS to be deducted = Nil

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Sub-part (iii): TDS on Purchase of Goods — Section 194Q

Section 194Q, inserted by Finance Act, 2021, is applicable from 01-07-2021. It requires a buyer to deduct TDS @ 0.1% on purchase of goods from a resident seller if:
1. The buyer's turnover in the immediately preceding FY exceeds ₹10 crores; and
2. The aggregate purchase from a single seller exceeds ₹50 lakhs in the FY.

Mr. Purushothani's turnover in FY 2020-21 = ₹12 crores > ₹10 crores — condition (1) satisfied.

As per CBDT Circular No. 13/2021, purchases made from 01-04-2021 are counted for computing the ₹50 lakh threshold, but TDS is deductible only on purchases on or after 01-07-2021.

Cumulative purchases from Mr. Agarwal:
- 10-06-2021: ₹25,00,000 → Cumulative = ₹25,00,000 (before 01-07-2021; counted for threshold, no TDS obligation yet)
- 20-08-2021: ₹27,00,000 → Cumulative = ₹52,00,000 (threshold of ₹50L crossed; TDS on ₹2,00,000 i.e. excess)
- 12-10-2021: ₹28,00,000 → TDS on full ₹28,00,000

Since Mr. Purushothani credits Mr. Agarwal's account on the date of purchase itself, TDS is deductible at the time of credit (whichever is earlier of credit or payment).

TDS computation:
- On 20-08-2021: ₹2,00,000 × 0.1% = ₹200
- On 12-10-2021: ₹28,00,000 × 0.1% = ₹2,800

Total TDS under Section 194Q = ₹3,000

*Note: Since Section 194Q applies here, Mr. Agarwal (seller, turnover ₹20 crores > ₹10 crores) is not required to collect TCS under Section 206C(1H) on these transactions.*

The classification of items between Cost Accounts and Financial Accounts depends on their nature and purpose:

Cost Accounts are prepared for internal management decision-making and include manufacturing costs and notional charges for ascertaining true production costs. Financial Accounts are prepared for external reporting and include only actual transactions recognized under accounting standards.

(i) Preliminary expenses written off: Financial Accounts only — These are administrative expenses incurred before commencement. They are actual expenses recognized under accounting principles but not manufacturing costs.

(ii) Interest received on bank deposits: Financial Accounts only — This is financial income recognized in the statement of profit and loss. It is not a production-related cost.

(iii) Dividend, interest received on investments: Financial Accounts only — Like (ii), these are non-operating income items to be shown in financial statements but not relevant to cost computation.

(iv) Salary for the proprietor at notional figure though not incurred: Cost Accounts only — This is an imputed cost. Since it is notional (not actually paid), it cannot appear in Financial Accounts. However, for internal costing and decision-making, it is included to show true cost of production.

(v) Charges in lieu of rent where premises are owned: Cost Accounts only — This is an imputed rent (notional charge). It is included in Cost Accounts to ascertain the true cost of production for internally managed premises, but cannot be shown in Financial Accounts as no actual cash outflow occurs.

(vi) Rent receivables: Financial Accounts only — This is income earned from letting out premises. It appears as other income in Financial Accounts. In Cost Accounts, rent paid (not receivables) may be included if it relates to production facilities.

(vii) Loss on sale of Fixed Assets: Financial Accounts only — This is a financial loss recognized in the statement of profit and loss under non-operating items. It is not part of production costs.

(viii) Interest on capital at notional figure though not incurred: Cost Accounts only — Similar to (iv), this is an imputed charge for internal management. Since no actual interest is paid, it cannot appear in Financial Accounts, but it is necessary in Cost Accounts to show true cost of production.

(ix) Goodwill written off: Financial Accounts only — Amortization of goodwill (an intangible asset) is recorded in the Financial Accounts. It is not a manufacturing cost and does not appear in Cost Accounts.

(x) Notional Depreciation on fully depreciated assets (book value nil): Cost Accounts only — Although book value is nil in Financial Accounts, Cost Accounts recognize notional depreciation on the economic wear and tear of assets to ascertain true production cost for management decisions.

Computation of Gross Total Income of Mr. Prakhar for AY 2022-2023

Treatment of each item:

(i) Income from House Property: ₹3,60,000 is taken as computed. No inter-head set-off is possible with any of the losses below.

(ii) Short-term capital loss (STCL) on shares: ₹18,700 — Under Section 70 of the Income Tax Act 1961, STCL can be set off against both STCG and LTCG.

(iii) Long-term capital gain (LTCG) on agricultural land: ₹6,000 — Since the question presents this as LTCG, it is treated as taxable (i.e., urban agricultural land, which qualifies as a capital asset under Section 2(14)). STCL of ₹18,700 is set off against LTCG ₹6,000 → Net Capital Gains = Nil. Balance STCL of ₹12,700 is carried forward u/s 74 for up to 8 AYs.

(iv) Income from rubber business: ₹80,000 — Under Rule 7A of the Income Tax Rules 1962, where rubber is manufactured from plants grown by the assessee, 65% is treated as business income and 35% as exempt agricultural income. Taxable business income = 65% × ₹80,000 = ₹52,000.

(v) Brought-forward loss from garment business (discontinued FY 2019-20): ₹70,000 — Under Section 72(1), a brought-forward business loss can be set off against profits of any business, even if the original business is discontinued, subject to the 8-year carry-forward limit. AY of loss = AY 2020-21; still within 8 years as at AY 2022-23. Set off ₹52,000 against rubber business income. Balance loss ₹18,000 carried forward u/s 72.

(vi) Loss from betting: ₹5,500 — Under Section 58(4), losses from betting/gambling cannot be set off against any income and cannot be carried forward. This loss is entirely disallowed.

(vii) Income from lotteries (net): ₹5,460 — 'Net' means after TDS at 30% u/s 194B. Gross lottery income = ₹5,460 ÷ 0.70 = ₹7,800. Taxable under Section 115BB. No deduction is allowable against lottery income per Section 58(4).

Gross Total Income:

| Head | ₹ |
|---|---|
| Income from House Property | 3,60,000 |
| Profits & Gains of Business (₹52,000 less b/f loss ₹52,000) | Nil |
| Capital Gains (LTCG ₹6,000 less STCL ₹6,000) | Nil |
| Income from Other Sources (Lottery gross) | 7,800 |
| Gross Total Income | 3,67,800 |

Losses to be Carried Forward:

1. Short-term capital loss on shares: ₹12,700 — u/s 74; can be c/f for 8 AYs; set off only against capital gains.
2. Business loss (garment, b/f): ₹18,000 — u/s 72; set off only against business profits.
3. Loss from betting: ₹5,500 — Cannot be carried forward (Section 58(4)).

Under Activity Based Costing (ABC), cost drivers are the factors that cause or influence the cost of an activity. For each business function identified by PF Limited, two appropriate cost drivers are specified below:

(i) Research and Development:
The cost drivers for R&D activities are (a) Number of research projects — each project consumes resources like labour, materials, and equipment, and (b) Number of hours spent on research — directly drives salaries, overheads, and lab costs associated with R&D work.

(ii) Design of Products, Services and Procedures:
The cost drivers are (a) Number of products/services designed — more designs require more designer time and resources, and (b) Number of design changes or engineering change orders — each modification consumes additional drafting, testing, and approval resources.

(iii) Customer Service:
The cost drivers are (a) Number of service calls or customer complaints handled — drives labour time of service personnel and communication costs, and (b) Number of warranty claims or after-sales service requests — each claim involves material replacement, technician visits, and administrative effort.

(iv) Marketing:
The cost drivers are (a) Number of advertisements or promotional campaigns — each campaign drives media spend, creative costs, and agency fees, and (b) Number of sales orders or customer accounts managed — more orders/accounts require more sales force time, follow-up, and CRM resources.

(v) Distribution:
The cost drivers are (a) Number of deliveries or dispatch notes — each delivery involves vehicle usage, fuel, driver time, and packaging, and (b) Weight or volume of goods distributed (tonnes/cubic metres) — heavier or bulkier consignments directly increase freight, handling, and warehousing costs.

(i) Last Date for Linking Aadhaar with PAN:

As per Section 139AA of the Income Tax Act, 1961, every person who is eligible to obtain Aadhaar is required to link their Aadhaar with PAN. The Central Board of Direct Taxes (CBDT) extended this deadline multiple times. The last prescribed date for linking Aadhaar with PAN was 30th June 2023 (as per the final CBDT notification). Failure to link by this date renders the PAN inoperative.

(ii) Consequence of Linking on 31st August 2022:

Since Mr. A linked his Aadhaar with PAN on 31st August 2022, which falls after 30th June 2022 but before the final deadline of 30th June 2023, the following consequences apply:

- A fee of ₹1,000 was payable at the time of linking (as per CBDT Notification No. 17/2022 and Rule 114AAA). The fee structure was: ₹500 for linking done between 1st April 2022 to 30th June 2022, and ₹1,000 for linking done after 30th June 2022 up to the final deadline.
- Since the linking was completed before 30th June 2023, the PAN did not become permanently inoperative.
- However, during the period the PAN was unlinked, TDS/TCS may have been deducted at a higher rate (as if PAN was not furnished), and refunds, if any, would have been withheld.
- Upon linking (with payment of ₹1,000 fee), the PAN became operative again and normal tax compliances resumed.

(iii) Exceptions Under Section 139AA from Quoting Aadhaar Number:

As per Section 139AA(3) of the Income Tax Act, 1961, the Central Government is empowered to notify certain classes of persons who are exempt from the requirement of quoting Aadhaar. The following categories are excluded from the provisions of Section 139AA:

1. An individual residing in the States of Assam, Jammu & Kashmir, or Meghalaya (as notified).
2. An individual who is a non-resident as defined under the Act (i.e., does not satisfy residency conditions under Section 6).
3. An individual who is not a citizen of India.
4. An individual of the age of 80 years or more at any time during the previous year (super senior citizen).

In the present case, Mr. A is a resident individual employed in Chennai and does not fall under any of the above exceptions. Therefore, linking of Aadhaar with PAN was mandatory for him.

Budget Manual is a comprehensive document that outlines the policies, procedures, authorities, and responsibilities for the preparation, implementation, monitoring, and control of budgets within an organization. It serves as a standardized guide to ensure consistency and coordination in the budgeting process across all departments and functions.

Salient Features of Budget Manual:

1. Statement of Objectives — Clearly articulates the objectives of budgeting and its alignment with the organization's strategic goals and long-term vision.

2. Scope and Application — Defines the departments, functions, and cost centers covered by the budget, and specifies the period for which budgets apply (e.g., annual, quarterly).

3. Responsibilities and Authority — Delineates the roles and responsibilities of budget holders, departmental heads, the budget committee, and the management accountant. It specifies who prepares, approves, and monitors budgets at various levels.

4. Budget Preparation Guidelines — Provides detailed instructions on the format, structure, timing, and procedures for budget preparation. Includes templates, forms, and standards to be followed.

5. Accounts Classification and Coding System — Specifies the chart of accounts, cost codes, and classification of revenue and capital items to ensure uniformity in budget compilation.

6. Assumptions and Bases — Documents the key assumptions underlying budget projections, such as growth rates, inflation, headcount changes, and market conditions. Helps justify budget figures and ensure consistency.

7. Budget Timeline and Deadlines — Establishes the schedule for budget preparation, review, approval, and implementation. Specifies submission deadlines for various levels.

8. Approval Authorities and Hierarchy — Defines the approval process and authorities at different levels (departmental, divisional, corporate). Establishes limits of authority for budget approval.

9. Coordination and Communication Procedures — Outlines the mechanism for inter-departmental coordination, communication of budget guidelines, and resolution of conflicts during budget preparation.

10. Control and Review Mechanisms — Specifies procedures for monitoring actual performance against budgets, variance analysis, and reporting. Defines frequency and format of variance reports.

11. Flexibility and Amendment Procedures — Addresses the process for budget revisions, supplementary allocations, and reallocation of funds during the budget period.

12. Implementation and Enforcement — Provides guidelines for enforcing budgets, preventing overspending, and ensuring compliance with approved budgets.

Cost units are the physical measurements used to measure and identify the cost of output in different industries. Different industries use different cost units based on the nature of their products and production processes.

Cost Units for Various Industries/Products:

(i) Automobile: Per unit (number of vehicles)

(ii) Gas: Per cubic meter (M³)

(iii) Brick works: Per 1,000 bricks (or per unit)

(iv) Power: Per kilowatt hour (kWh)

(v) Steel: Per tonne/metric tonne (MT)

(vi) Transport (by road): Per tonne-kilometre (TKM) or per kilometre (km)

(vii) Chemical: Per kilogram (kg) or per unit (depending on the specific chemical product)

(viii) Oil: Per barrel or per tonne or per litre (depending on the context)

(ix) Brewing: Per hectolitre (HL) or per unit of final product

(x) Cement: Per tonne/metric tonne (MT)

These cost units are essential for costing, pricing, and cost control purposes in their respective industries. The selection of an appropriate cost unit ensures accurate measurement of output and facilitates comparison of costs across periods and with standards.

Cost Statement for Monkey Pox Vaccines (Per Batch of 80 units)

The cost build-up begins at the batch level and is then scaled to the full order of 1,600 vaccines.

Step 1 – Cost per Batch (80 vaccines)

Direct Materials: ₹4,250; Direct Wages: ₹500; Lab Set-up Cost: ₹1,400.

Production Overheads are absorbed at 20% of Direct Wages = 20% × ₹500 = ₹100.

Total Production Cost per batch = ₹4,250 + ₹500 + ₹1,400 + ₹100 = ₹6,250.

Selling, Distribution and Administration (SD&A) Overheads are charged at 20% of Total Production Cost = 20% × ₹6,250 = ₹1,250.

Total Cost per batch = ₹6,250 + ₹1,250 = ₹7,500.

Step 2 – Total Cost for 1,600 Vaccines

Number of batches required = 1,600 ÷ 80 = 20 batches.

Total Cost for the full order = 20 × ₹7,500 = ₹1,50,000.

Step 3 – Sales Value (Profit 25% on Sales)

Since profit is 25% on Sales Value, Total Cost represents 75% of Sales.

Total Sales Value = ₹1,50,000 ÷ 75% = ₹2,00,000.

(i) Total Sales Value of 1,600 Monkey Pox Vaccines = ₹2,00,000

(ii) Selling Price per Vaccine = ₹2,00,000 ÷ 1,600 = ₹125 per vaccine

Solution: Inventory Management — MM Ltd.

Given Data:
Monthly usage = 7,500 valves; Annual usage = 7,500 × 12 = 90,000 valves
Purchase price = ₹1.50 per unit; Carrying cost = 20% p.a. on average inventory investment
Ordering cost = ₹15 per order; Lead time = 1.5 months; Safety stock = 2,500 valves

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(i) Economic Order Quantity (EOQ) and Frequency of Orders

Using the EOQ formula: EOQ = √(2 × D × Co / Cc)

Where:
- D = Annual demand = 90,000 units
- Co = Ordering cost = ₹15
- Cc = Carrying cost per unit p.a. = 20% × ₹1.50 = ₹0.30

EOQ = √(2 × 90,000 × 15 / 0.30) = √(27,00,000 / 0.30) = √90,00,000 = 3,000 units

Frequency of Orders = Annual Demand ÷ EOQ = 90,000 ÷ 3,000 = 30 orders per year

Time between orders = 360 ÷ 30 = 12 days

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(ii) Re-order Point

Re-order Point = (Lead time demand) + Safety Stock
= (1.5 months × 7,500 units) + 2,500
= 11,250 + 2,500
= 13,750 units

This means an order must be placed when inventory level falls to 13,750 valves.

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(iii) EOQ if Price = ₹4.50 per unit

Revised carrying cost per unit p.a. = 20% × ₹4.50 = ₹0.90

EOQ = √(2 × 90,000 × 15 / 0.90) = √(27,00,000 / 0.90) = √30,00,000 = 1,732 units (approx.)

With the higher price, EOQ falls from 3,000 to 1,732 units, as higher carrying cost makes it economical to order in smaller, more frequent batches.

Given Data: Selling Price (SP) = ₹300 per unit; Variable Cost (VC) = ₹180 per unit; Fixed Costs (FC) = ₹16,80,000 p.a.; Profit = ₹7,20,000.

Key Derived Figures:
Contribution per unit = SP – VC = ₹300 – ₹180 = ₹120
P/V Ratio = Contribution / Sales = 120 / 300 = 40%
Total Contribution = FC + Profit = ₹16,80,000 + ₹7,20,000 = ₹24,00,000
Actual Sales (units) = ₹24,00,000 / ₹120 = 20,000 units
Actual Sales (value) = 20,000 × ₹300 = ₹60,00,000

(i) Break-Even Point (BEP):
BEP (in units) = Fixed Costs / Contribution per unit = ₹16,80,000 / ₹120 = 14,000 units
BEP (in value) = Fixed Costs / P/V Ratio = ₹16,80,000 / 0.40 = ₹42,00,000

(ii) Margin of Safety (MOS):
MOS (units) = Actual Sales – BEP Sales = 20,000 – 14,000 = 6,000 units
MOS (value) = 6,000 × ₹300 = ₹18,00,000
MOS (%) = (MOS / Actual Sales) × 100 = (₹18,00,000 / ₹60,00,000) × 100 = 30%

(iii) Profit when Sales = 24,000 units:
Total Contribution = 24,000 × ₹120 = ₹28,80,000
Profit = Total Contribution – Fixed Costs = ₹28,80,000 – ₹16,80,000 = ₹12,00,000

(iv) Sales (₹) to earn Net Profit of ₹10,00,000:
Required Sales = (Fixed Costs + Desired Profit) / P/V Ratio = (₹16,80,000 + ₹10,00,000) / 0.40 = ₹26,80,000 / 0.40 = ₹67,00,000

Part (i): Cost per Vehicle Loan Application

The branch overhead costs (common/indirect) comprise: Branch Supervisor salary ₹50,000 + Legal charges ₹10,000 + Printing & Stationery ₹12,000 + Advertising ₹18,000 + Other Expenses ₹10,000 = ₹1,00,000 per month.

Overhead allocated to Vehicle Loan processing = 30% × ₹1,00,000 = ₹30,000.

Direct salary cost for Vehicle Loan = 4 employees × ₹50,000 = ₹2,00,000.

Total monthly cost of Vehicle Loan processing = ₹2,00,000 + ₹30,000 = ₹2,30,000.

Number of Vehicle Loan applications processed = 400.

Cost per Vehicle Loan Application = ₹2,30,000 ÷ 400 = ₹575

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Part (ii): Number of Education Loan Applications Processed

Overhead allocated to Education Loan processing = 30% × ₹1,00,000 = ₹30,000.

Direct salary cost for Education Loan = 2 employees × ₹70,000 = ₹1,40,000.

Total monthly cost of Education Loan processing = ₹1,40,000 + ₹30,000 = ₹1,70,000.

Given that cost per Education Loan Application = ₹575 (same as Vehicle Loan):

Number of Education Loan Applications = ₹1,70,000 ÷ ₹575 ≈ 296 applications (exact: 295.65, rounded to nearest whole number).

Part (i): Machine Hour Rate — Company as a Whole

Monthly Machine Overheads (excluding robot):

Rent: ₹18,000 per quarter ÷ 3 = ₹6,000 per month
Depreciation: ₹19,20,000 × 10% ÷ 12 = ₹16,000 per month
Other Indirect Expenses: 20% × (₹12,00,000 ÷ 12) = 20% × ₹1,00,000 = ₹20,000 per month
Total Monthly Machine Overhead = ₹42,000

Robot Hire (monthly): ₹3,70,000 ÷ 6 = ₹61,667 per month

Total Machine Hours in the first month:
Without robot: Vulcanizing 500 + Brushing 1,000 = 1,500 hours
With robot: Vulcanizing 400 + Brushing 400 + Stripping 1,200 = 2,000 hours
Grand Total = 3,500 hours

The machine overhead (₹42,000) is spread over all 3,500 hours (the machine runs regardless of robot use). The robot cost (₹61,667) is spread only over the 2,000 hours when the robot is deployed.

Base Machine Hour Rate = ₹42,000 ÷ 3,500 = ₹12.00 per hour
Robot rate per hour = ₹61,667 ÷ 2,000 = ₹30.83 per hour

(A) MHR when Robot is Used = ₹12.00 + ₹30.83 = ₹42.83 per hour

(B) MHR when Robot is NOT Used = ₹12.00 per hour

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Part (ii): Machine Hour Rate — Individual Jobs

For each job, the machine overhead share = job total hours × ₹12. The robot cost share is allocated in proportion to robot hours used by each job out of total 2,000 robot hours.

Vulcanizing (500 + 400 = 900 total hours; 400 robot hours):
Machine overhead = 900 × ₹12 = ₹10,800
Robot cost = (400/2,000) × ₹61,667 = ₹12,333
Total = ₹23,133
MHR = ₹23,133 ÷ 900 = ₹25.70 per hour

Brushing (1,000 + 400 = 1,400 total hours; 400 robot hours):
Machine overhead = 1,400 × ₹12 = ₹16,800
Robot cost = (400/2,000) × ₹61,667 = ₹12,333
Total = ₹29,133
MHR = ₹29,133 ÷ 1,400 = ₹20.81 per hour

Stripping (0 + 1,200 = 1,200 total hours; 1,200 robot hours):
Machine overhead = 1,200 × ₹12 = ₹14,400
Robot cost = (1,200/2,000) × ₹61,667 = ₹37,000
Total = ₹51,400
MHR = ₹51,400 ÷ 1,200 = ₹42.83 per hour

Verification: Total cost = ₹23,133 + ₹29,133 + ₹51,400 = ₹1,03,667 = ₹42,000 + ₹61,667 ✓

Determination of Residential Status and Taxable Income

Part (I): Residential Status and Taxable Income (Income from Profession Set Up in India = ₹10 Lakhs)

Mr. Sarthak has not visited India even for a single day during the Previous Year (PY) 2021-22. Therefore, neither basic condition under Section 6(1) of the Income Tax Act, 1961 (182 days or 60 days + 365 days in 4 preceding years) is satisfied.

However, Section 6(1A) (inserted by Finance Act 2020, applicable from AY 2021-22) provides that an Indian citizen who is not liable to tax in any other country or territory by reason of domicile, residence, or any similar criteria shall be deemed to be a resident of India. Since Mr. Sarthak is an Indian citizen and Dubai is a tax haven (he is not liable to any tax there), Section 6(1A) is triggered, and he is deemed to be a Resident in India.

As per the proviso to Section 6(6), a person deemed resident under Section 6(1A) shall be treated as Resident but Not Ordinarily Resident (RNOR). He cannot be ROR as his physical presence in India is nil.

For RNOR, income taxable under Section 5(1) includes: income received in India, income accruing/arising in India, income deemed to accrue/arise in India, and income from a business controlled in India or profession set up in India (even if it arises outside India). Foreign income from other sources is NOT taxable.

Computation of Taxable Income:
- Item (i) — ₹20,00,000: Accrued in Dubai, not from profession set up in India → Not taxable for RNOR
- Item (ii) — ₹5,00,000: Accrued in India → Taxable
- Item (iii) — ₹1,00,000: Deemed to accrue in India → Taxable
- Item (iv) — ₹10,00,000: Arises in Dubai but from profession set up in India → Taxable under Section 5(1)(b)

Total Taxable Income = ₹16,00,000

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Part (II): Income from Profession Set Up in India = ₹2 Lakhs

The residential status remains RNOR (same analysis as Part I applies). Only Item (iv) changes.

- Item (i) — ₹20,00,000 → Not taxable
- Item (ii) — ₹5,00,000 → Taxable
- Item (iii) — ₹1,00,000 → Taxable
- Item (iv) — ₹2,00,000 → Taxable (profession set up in India)

Total Taxable Income = ₹8,00,000

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Part (III): Mr. Sarthak Born in Dubai, Parents Born in India

If Mr. Sarthak was born in Dubai and has not obtained Indian citizenship, he qualifies as a Person of Indian Origin (PIO) under the Income Tax Act but is not a 'citizen of India.' Section 6(1A) specifically uses the phrase 'citizen of India' — a PIO does not satisfy this condition. Therefore, Section 6(1A) does not apply.

Applying the basic conditions under Section 6(1): zero days in India → no condition satisfied → Mr. Sarthak is a Non-Resident (NR).

For NR under Section 5(2), only income received in India or income accruing/arising/deemed to accrue or arise in India is taxable. Income from a profession set up in India but earned and arising entirely outside India does NOT fall under Section 9(1) deemed accrual provisions for an NR (unlike RNOR, there is no separate Section 5 clause for profession set up in India).

- Item (i) — ₹20,00,000 → Not taxable
- Item (ii) — ₹5,00,000 → Taxable (accrued in India)
- Item (iii) — ₹1,00,000 → Taxable (deemed to accrue in India)
- Item (iv) — ₹10,00,000 → Not taxable for NR (arises in Dubai; no separate taxability for profession set up in India under Section 5(2))

Total Taxable Income = ₹6,00,000

Statement of Wages of Mr. 'A' under Various Plans

Basic Data:
Guaranteed wage rate = ₹5 per hour | Actual hours worked = 48 hours
Standard time for 200 units = 200 × 18 min = 3,600 min = 60 hours
Time Saved = 60 – 48 = 12 hours
Guaranteed weekly wage = 48 × ₹5 = ₹240

(i-A) Time Rate:
Wages = Actual hours × Rate = 48 × ₹5 = ₹240

(i-B) Piece Rate with Guaranteed Weekly Wage:
Piece rate per unit = (18/60) × ₹5 = ₹1.50 per unit
Piece wages = 200 × ₹1.50 = ₹300
Since ₹300 > guaranteed wage of ₹240, wages = ₹300

(i-C) Halsey Premium Plan:
Under Halsey Plan, the worker receives 50% of the wages of time saved as bonus.
Bonus = 50% × Time Saved × Rate = 50% × 12 × ₹5 = ₹30
Total Wages = (48 × ₹5) + ₹30 = ₹240 + ₹30 = ₹270

(i-D) Rowan Premium Plan:
Under Rowan Plan, bonus = (Time Saved / Standard Time) × Actual Time × Rate
Bonus = (12/60) × 48 × ₹5 = 0.20 × ₹240 = ₹48
Total Wages = ₹240 + ₹48 = ₹288

(ii) Suggestion – Which Bonus Plan the Company Should Follow:

Since the company is undertaking a cost reduction drive, it should evaluate both plans on the basis of total labour cost:

- Halsey Premium Plan: ₹270 → Labour cost per unit = ₹270 ÷ 200 = ₹1.35
- Rowan Premium Plan: ₹288 → Labour cost per unit = ₹288 ÷ 200 = ₹1.44

The Halsey Premium Plan results in lower wages (₹270 vs ₹288) and therefore a lower labour cost per unit. The company should adopt the Halsey Premium Plan.

Note: Rowan Plan pays higher bonus than Halsey when time saved is less than 50% of standard time (here 12 < 30 hours, i.e., 20% < 50%), which is why Rowan costs the company more here. From a cost reduction perspective, Halsey is the preferred plan for PK Ltd.

Activity-Based Costing (ABC) — XYZ Ltd.

Step 1: Identify Cost Driver Rates

Under ABC, overheads are assigned to products using activity cost drivers.

| Activity | Total Cost (₹) | Cost Driver | Total Driver Units | Rate per Driver |
|---|---|---|---|---|
| Machine Processing | 7,00,000 | Machine Hours | 1,40,000 hrs | ₹5.00 per hr |
| Set-up Related | 7,68,000 | No. of Set-ups | 64 set-ups | ₹12,000 per set-up |
| Purchase Related | 6,80,000 | Purchase Orders | 564 orders | ₹1,205.67 per order |

Step 2 (i): Cost Allocated to Each Product from Each Activity

Machine Processing Costs (₹7,00,000):
- Express Coffee: 20,000 hrs × ₹5 = ₹1,00,000
- Instant Coffee: 1,20,000 hrs × ₹5 = ₹6,00,000

Set-up Related Costs (₹7,68,000):
- Express Coffee: 20 × ₹12,000 = ₹2,40,000
- Instant Coffee: 44 × ₹12,000 = ₹5,28,000

Purchase Related Costs (₹6,80,000):
- Express Coffee: 180 × ₹1,205.67 = ₹2,17,021
- Instant Coffee: 384 × ₹1,205.67 = ₹4,62,979 (balance)

Summary of Cost Allocation:

| Activity | Express Coffee (₹) | Instant Coffee (₹) | Total (₹) |
|---|---|---|---|
| Machine Processing | 1,00,000 | 6,00,000 | 7,00,000 |
| Set-up Related | 2,40,000 | 5,28,000 | 7,68,000 |
| Purchase Related | 2,17,021 | 4,62,979 | 6,80,000 |
| Total Overhead | 5,57,021 | 15,90,979 | 21,48,000 |

Step 3 (ii): Overhead Cost per Unit

- Express Coffee: ₹5,57,021 ÷ 5,000 units = ₹111.40 per unit
- Instant Coffee: ₹15,90,979 ÷ 60,000 units = ₹26.52 per unit

This demonstrates a key advantage of ABC: Express Coffee, despite lower volume, consumes proportionately higher overhead per unit due to disproportionate use of set-up and purchase order activities.

Contract Account — XYZ Construction Ltd.

The contract for ₹25,00,000 commenced in FY 2021-22 and was completed by 31st March 2023. Contract Accounts are prepared for both years using the accrual basis for expenses. Plant (₹2,00,000) is debited at cost in 2021-22; depreciation is charged equally over the two-year contract life (₹1,00,000 per year), and the written-down value (WDV) is carried forward as 'Plant at site c/d.' Wages prepaid at the close of 2021-22 (₹15,000) are excluded from Year 1 and charged in Year 2. Outstanding expenses are added in the year they relate to; prior-year outstanding settled in the subsequent year is deducted from the subsequent year's cash payments to avoid double-counting.

Contract Account for FY 2021-22

| Dr — Particulars | ₹ | Cr — Particulars | ₹ |
|---|---|---|---|
| To Materials issued | 4,00,000 | By Plant at site c/d | 1,00,000 |
| To Wages (₹2,40,000 − ₹15,000 prepaid) | 2,25,000 | By Work-in-Progress c/d | 8,60,000 |
| To Plant (at cost) | 2,00,000 | | |
| To Study Expenses (₹50,000 + ₹7,500 o/s) | 57,500 | | |
| To Office Expenses (₹65,000 + ₹12,500 o/s) | 77,500 | | |
| Total | 9,60,000 | Total | 9,60,000 |

Since the contract is incomplete at 31st March 2022, no profit is recognized; costs are carried forward as Work-in-Progress.

Contract Account for FY 2022-23

| Dr — Particulars | ₹ | Cr — Particulars | ₹ |
|---|---|---|---|
| To Work-in-Progress b/d | 8,60,000 | By Contract Price (Contractee A/c) | 25,00,000 |
| To Plant at site b/d | 1,00,000 | | |
| To Materials issued | 3,50,000 | | |
| To Wages (₹1,40,000 + ₹15,000 prepaid b/f) | 1,55,000 | | |
| To Study Expenses (₹35,000 − ₹7,500 + ₹5,000) | 32,500 | | |
| To Office Expenses (₹55,000 − ₹12,500 + ₹15,000) | 57,500 | | |
| To Contingency Expenses | 1,25,000 | | |
| To Profit transferred to P&L A/c | 8,20,000 | | |
| Total | 25,00,000 | Total | 25,00,000 |

On completion of the contract in 2022-23, the entire profit of ₹8,20,000 is transferred to the Profit & Loss Account.

Final Answer: Total cost of contract = ₹16,80,000; Contract Price = ₹25,00,000; Profit on Contract = ₹8,20,000, recognised fully in FY 2022-23.

(i) Ranking of Crops on the Basis of Contribution per Hectare

Step 1 — Contribution per kg:

Total variable cost per kg:
- Wheat: Labour ₹8 + Packing ₹2 + Other ₹4 = ₹14/kg → Contribution = ₹20 − ₹14 = ₹6/kg
- Rice: Labour ₹10 + Packing ₹2 + Other ₹1 = ₹13/kg → Contribution = ₹40 − ₹13 = ₹27/kg
- Maize: Labour ₹120 + Packing ₹10 + Other ₹20 = ₹150/kg → Contribution = ₹250 − ₹150 = ₹100/kg

Step 2 — Contribution per hectare (= Contribution per kg × Yield per hectare):
- Wheat: ₹6 × 2,000 kg = ₹12,000 per hectare
- Rice: ₹27 × 500 kg = ₹13,500 per hectare
- Maize: ₹100 × 100 kg = ₹10,000 per hectare

Ranking:
| Rank | Crop | Contribution per Hectare (₹) |
|------|------|------------------------------|
| 1 | Rice | 13,500 |
| 2 | Wheat | 12,000 |
| 3 | Maize | 10,000 |

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(ii) Optimum Product Mix

Given constraints — all three crops must be grown; total land = 210 hectares:
- Wheat: min 100 hectares, max 160 hectares
- Rice: min 40 hectares, max 50 hectares
- Maize: min 10 hectares, max 60 hectares

To maximise total contribution, allocate land starting with the highest-ranked crop (Rice), then Wheat, and assign the residual (subject to minimum) to Maize.

Allocation:
- Rice (Rank 1): Allocate maximum = 50 hectares
- Remaining land = 210 − 50 = 160 hectares
- Maize (Rank 3): Allocate minimum required = 10 hectares (to preserve land for higher-ranked Wheat)
- Wheat (Rank 2): Balance = 160 − 10 = 150 hectares (within permitted range of 100–160 ✓)

Optimum Product Mix:
| Crop | Hectares Allocated |
|------|-------------------|
| Wheat | 150 |
| Rice | 50 |
| Maize | 10 |
| Total | 210 |

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(iii) Maximum Profit

Total Contribution at Optimum Mix:
- Wheat: 150 × ₹12,000 = ₹18,00,000
- Rice: 50 × ₹13,500 = ₹6,75,000
- Maize: 10 × ₹10,000 = ₹1,00,000
- Total Contribution = ₹25,75,000

Maximum Profit = Total Contribution − Fixed Cost
= ₹25,75,000 − ₹21,45,000 = ₹4,30,000

The maximum profit achievable is ₹4,30,000 per annum at the optimum product mix of Wheat 150 hectares, Rice 50 hectares, and Maize 10 hectares.

Part (i): Interest on Enhanced Compensation — ₹3,00,000

As per Section 56(2)(viii) of the Income Tax Act, 1961, interest received on enhanced compensation or on compensation in case of compulsory acquisition of a capital asset is chargeable to tax under the head "Income from Other Sources".

The entire ₹3,00,000 is taxable in Previous Year 2021-22 (the year of receipt — 1/1/2022). As per Section 145A(b), such interest is deemed to be income of the year in which it is received, irrespective of the period to which it pertains. Therefore, even though 40% relates to PY 2020-21, the entire amount is taxable in PY 2021-22.

However, Section 57(iv) allows a deduction of 50% of such interest as expenditure, and no other deduction is allowed.

Amount chargeable to tax = ₹1,50,000 (50% of ₹3,00,000).

Note: The agricultural land being acquired by government relates to the source of the enhanced compensation, not to the exemption. Urban agricultural land is a capital asset, and this being Tamil Nadu government acquisition does not automatically exempt the interest component.

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Part (ii): Transfer of Shares of BS Ltd by Narayaman

BS Ltd is a closely held unlisted company. Narayaman transferred its shares off-market (STT not paid). The actual consideration received (₹2,00,000) is less than the FMV on date of transfer (₹3,00,000).

In the hands of Narayaman (Transferor) — Capital Gains:

Section 50CA of the Income Tax Act, 1961 provides that where the consideration received on transfer of unquoted shares is less than the FMV determined under Rule 11UAA, the FMV shall be deemed to be the full value of consideration.

Since actual consideration (₹2,00,000) < FMV (₹3,00,000), Section 50CA applies.

Deemed full value of consideration = ₹3,00,000
Less: Indexed cost of acquisition = ₹2,75,000
Long-term Capital Gain (LTCG) = ₹25,000

Since STT was not paid, Section 112A does not apply. Tax is levied under Section 112 at 20% with indexation benefit for unlisted shares.

In the hands of AB Pvt Ltd (Transferee) — Income from Other Sources:

Section 56(2)(x) taxes receipt of property (shares) whose FMV exceeds the consideration paid by more than ₹50,000. Here, FMV (₹3,00,000) − Consideration paid (₹2,00,000) = ₹1,00,000 > ₹50,000.

₹1,00,000 is taxable as Income from Other Sources in the hands of AB Pvt Ltd.

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Part (iii): ₹5,00,000 received by Mr. A from SPS Pushapala Charitable Trust

Section 56(2)(x) of the Income Tax Act, 1961 taxes any sum received without adequate consideration exceeding ₹50,000. However, the proviso to Section 56(2)(x) specifically excludes from its scope any sum received from any trust or institution registered under Section 12AA or Section 12AB.

Since SPS Pushapala Charitable Trust is registered under Section 12AB, the amount of ₹5,00,000 received by Mr. A falls squarely within the exclusion.

The ₹5,00,000 is NOT chargeable to tax in Mr. A's hands. Taxable amount = ₹Nil.

Computation of Tax Liability and Self-Assessment Tax for Ms. Priya (AY 2022-23)

Ms. Priya is aged 61 years and therefore qualifies as a Senior Citizen under the Income Tax Act, 1961. The basic exemption limit for a senior citizen (60 years or above but below 80 years) for AY 2022-23 is ₹3,00,000.

Her total income is ₹2,50,000, which is below the basic exemption limit of ₹3,00,000. Accordingly, her tax liability for AY 2022-23 is NIL.

Self-Assessment Tax: Since gross tax liability is NIL, self-assessment tax payable = NIL. The advance tax of ₹10,000 paid on 13.12.2021 is in excess and is eligible for refund under Section 237 of the Income Tax Act, 1961.

Interest u/s 234A (Late Filing of Return): Interest under Section 234A of the Income Tax Act, 1961 is charged on the amount of tax payable (i.e., assessed tax minus advance tax and TDS) for the period of delay. Since the tax payable is NIL, interest u/s 234A = NIL. (Note: Even though the return was filed on 23.06.2022, if the due date was 31.07.2022, there is no delay either.)

Interest u/s 234B (Non-payment/Short Payment of Advance Tax): Interest under Section 234B is attracted when the advance tax paid is less than 90% of assessed tax. Since assessed tax = NIL, 90% of NIL = NIL. The advance tax paid (₹10,000) exceeds the requirement. Interest u/s 234B = NIL.

Interest u/s 234C (Deferment of Advance Tax Instalments): Interest under Section 234C is leviable on shortfall in each installment of advance tax. Since assessed tax = NIL, there is no advance tax obligation. Interest u/s 234C = NIL.

Conclusion: Self-Assessment Tax payable = NIL. Interest u/s 234A, 234B, and 234C = NIL each. Refund of excess advance tax of ₹10,000 is available to Ms. Priya.

Business Closure: Definition and Meaning

Business closure refers to the permanent discontinuation of business operations with no intention to revive. In Mr. X's case, closure on 31 January 2022 marks the end of his business activities, which is a significant event with important tax implications.

Primary Provision: Section 70, Income Tax Act, 1961

The key provision governing loss from a discontinued business is Section 70 of the Income Tax Act, 1961. This section provides that when a business is discontinued, any loss incurred in that year can be carried forward to the immediately succeeding previous year (ASY) and set off against income from any source—not restricted to business income alone. This provides substantial relief by allowing the loss to be adjusted against salary, interest, capital gains, or any other income.

However, a critical limitation applies: the loss can be carried forward only to the next immediately succeeding year. If the loss remains unabsorbed in that year, it lapses and cannot be carried forward to subsequent years. This requires Mr. X to plan carefully to utilize the loss opportunity.

Alternative Provision: Section 78 (Specified Business)

If Mr. X's business were a "specified business" (such as floriculture, sericulture, pisciculture, horticulture, or certain agricultural activities), Section 78 would apply instead. Under Section 78, loss can be carried forward for 4 years but can only be set off against income from the same specified business. Since the question indicates a general business, Section 70 is the applicable provision.

Assessment and Compliance Requirements

Mr. X must file his return of income for the financial year 2021-22 (Assessment Year 2022-23) disclosing the business loss and intimating the closure. His prompt notification to the Assessing Officer on 31 January 2022 demonstrates good compliance and ensures transparency in tax administration. The AO will complete the assessment considering the business as discontinued. Once assessed, the AO cannot reopen the assessment under Section 147 without evidence of fresh income discovery.

Practical Implications for Mr. X

The loss incurred in FY 2021-22 can be carried forward and set off in AY 2023-24 (FY 2022-23) against any income Mr. X earns in that year. At age 56, Mr. X may also benefit from other provisions such as Section 80C for investment-linked deductions and Section 87A provisions in subsequent years if applicable. His diligent compliance record strengthens his position in the assessment process.

Answer: No, the Assessing Officer does not have the power to tax income during an Assessment Year earlier than the Assessment Year in which it should normally be assessed.

General Rule: The fundamental principle under the Income Tax Act, 1961 is that income of a Previous Year is assessed only in the Assessment Year immediately following that Previous Year. Section 2(9) defines Assessment Year as the year immediately following the Previous Year. The entire assessment framework under Sections 139, 143, 144, etc., operates on this principle. Therefore, in normal circumstances, the AO cannot assess income prematurely.

Exceptions to the General Rule: Although exceptions exist to the general rule, they apply in specific circumstances and do not permit early assessment. The main exceptions are:

1. Revised Assessment (Section 147): If the AO discovers after completing the assessment that income has been underassessed or has escaped assessment in any Previous Year, the AO can assess the escaped income. This can be done within 4 years from the end of the relevant Assessment Year (or 6 years in specified cases). This exception allows assessment in a later Assessment Year, not an earlier one.

2. Provisional Assessment (Section 140): Before the return is filed, if the assessee furnishes a declaration showing provisional income, provisional assessment can be made. However, this occurs within the same Assessment Year cycle, not earlier.

3. Best Judgment Assessment (Section 144): When the assessee fails to furnish accounts or documents, the AO can assess on best judgment basis. This applies in the same Assessment Year.

4. Rectification of Errors (Section 154): The AO can rectify clerical errors or mistakes within the same Assessment Year within a specified period.

Key Distinction: All exceptions involve assessment in either the same Assessment Year or later Assessment Years. None permit assessment in an earlier Assessment Year. The principle that income of a Previous Year cannot be assessed before the relevant Assessment Year arrives is absolute and inviolable, except for escaped income discovered in subsequent years under Section 147, which is still assessed in the year of discovery, not earlier.

Computation of Total Income of Mr. Raman and Savita — AY 2022-23

(i) Fixed Deposit Interest — Section 60 of the Income Tax Act, 1961

Mr. Raman holds a fixed deposit of ₹5,00,000 and has merely directed the interest to his brother's son's account. Under Section 60, when income is transferred without transferring the underlying asset, the income is taxable in the hands of the transferor. The FD (asset) remains with Raman; therefore, the interest of ₹5,00,000 × 6% = ₹30,000 is includible in Raman's income under 'Income from Other Sources'. (Clubbing provisions under Section 64 do not apply here as brother's son is not a specified relative.)

(ii) Savita's Salary — Section 64(1)(ii)

Savita earns ₹25,000 per month (annual ₹3,00,000) as an accountant in ABC Pvt. Ltd. Raman holds 50% equity shares, constituting substantial interest (more than 20%). Normally, under Section 64(1)(ii), the spouse's remuneration from such a concern is clubbed with the assessee's income. However, the exception applies where the remuneration is attributable to the spouse's technical or professional qualifications. Savita is a B.Com graduate employed specifically as an accountant — her qualification is directly relevant to her role. Therefore, the exception applies, and her salary is taxed in her own hands, not clubbed with Raman.

Savita's income from salary: ₹3,00,000 less Standard Deduction u/s 16(ia) ₹50,000 = ₹2,50,000.

(iii) Business Profit and Gift from Spouse — Section 64(1)(iv) and Section 72

Savita gifted ₹4,00,000 to Raman on 01-04-2021, which is a transfer of an asset (money) to spouse without adequate consideration. Under Section 64(1)(iv), income from such transferred assets is clubbed with the transferor's (Savita's) income.

At the time of investment, Raman's own capital = ₹10,00,000 – ₹3,00,000 (loss in PY 2020-21) = ₹7,00,000. Savita's contribution = ₹4,00,000. Total capital = ₹11,00,000. Business profit in PY 2021-22 = ₹3,00,000.

Income attributable to Savita's gift = 4/11 × ₹3,00,000 = ₹1,09,091 — clubbed with Savita's income.
Income attributable to Raman's own capital = 7/11 × ₹3,00,000 = ₹1,90,909.

The business loss of ₹3,00,000 from PY 2020-21 is carried forward and set off under Section 72 against Raman's share: ₹1,90,909 – ₹1,90,909 (partial set-off) = NIL. Remaining unabsorbed loss ₹1,09,091 is carried forward to AY 2023-24.

Raman's taxable business income = NIL.

(iv) Minor Son Sajan — Section 64(1A) and Section 10(32)

Sajan is 17 years old (minor). His income is clubbed under Section 64(1A) with the parent whose total income (before clubbing) is higher. The cash award of ₹10,000 from a school debate competition is taxable under 'Income from Other Sources' — it is not an award notified by the Central/State Government under Section 10(17A). Savings bank interest of ₹7,000 is also taxable.

Sajan's gross income = ₹17,000. Less: Exemption u/s 10(32) = ₹1,500. Amount to be clubbed = ₹15,500.

Raman's income before clubbing minor = ₹30,000; Savita's = ₹3,59,091. Sajan's income is clubbed with Savita (higher income).

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Mr. Raman — Total Income: ₹30,000
Savita — Total Income: ₹3,74,591

Statement of Net GST Liability Payable in Cash by Ajay Limited for January 2022

A. OUTPUT TAX LIABILITY

(i) Intra-State supply of goods (to non-related persons): Under Section 15 of the CGST Act 2017, the value of supply is the transaction value (price actually paid or payable) when the supplier and recipient are not related and the price is the sole consideration. Since the supply is to non-related persons, transaction value ₹4,00,000 is adopted (market value is irrelevant). Being an intra-state supply: CGST @ 9% = ₹36,000 and SGST @ 9% = ₹36,000.

(ii) Inter-State supply of goods: Transaction value ₹1,00,000 applies (same reasoning as above; market value ₹2,00,000 is not relevant for non-related party transactions). IGST @ 18% = ₹18,000.

(iii) Training services to State Government of Karnataka: As per Entry 72 of Notification 12/2017-Central Tax (Rate), services to a State Government under a training programme are exempt only if the total expenditure is borne by the State Government. Here, total expenditure is ₹90,000 but the State Government bears only ₹63,000. Since the total expenditure is NOT fully borne by the State Government, the exemption does not apply. The supply is taxable. The value of supply = ₹63,000 (consideration actually received). Being inter-state (Bihar to Karnataka): IGST @ 18% = ₹11,340.

(iv) Stock transfer to Gaya branch without consideration: Under Schedule I read with Section 7 of the CGST Act 2017, supply between distinct persons (as defined in Section 25(4)) is treated as supply even without consideration. The Gaya branch holds a separate GSTIN; hence both are distinct persons. Value under Section 15 = ₹20,000 (as given). Being intra-state (both in Bihar): CGST @ 9% = ₹1,800 and SGST @ 9% = ₹1,800.

Total Output Tax: CGST ₹37,800 | SGST ₹37,800 | IGST ₹29,340

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B. INPUT TAX CREDIT (ITC) AVAILABLE

Inward supply of services (10 invoices, ₹6,50,000):

*E-invoices without IRN (₹1,50,000):* Under Rule 48(4) and Rule 48(5) of the CGST Rules 2017, an invoice issued by a covered registered person that is not generated through the Invoice Registration Portal (IRP) shall not be treated as a valid tax invoice. Accordingly, ITC is not available on the 6 invoices (₹1,50,000) lacking the Invoice Reference Number (IRN), even though they appear in GSTR-2B. Reflection in GSTR-2B is a necessary condition under Section 16(2)(aa) but does not override the requirement for a valid tax document under Rule 36(1).

Eligible inward services: ₹6,50,000 − ₹1,50,000 = ₹5,00,000
CGST ITC = ₹45,000 | SGST ITC = ₹45,000

Omitted invoice from Mr. Mukesh Sharma (₹30,000, dated 12.01.2021):
Under Section 16(4) of the CGST Act 2017, ITC on an invoice pertaining to FY 2020-21 could be claimed only up to the due date of GSTR-3B for November 2021 (as applicable). Since the invoice pertains to FY 2020-21 and we are in January 2022, the time limit has lapsed. Further, no payment was made, but since ITC is time-barred anyway, the question is moot. ITC = NIL.

Total ITC Available: CGST ₹45,000 | SGST ₹45,000 | IGST NIL

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C. ITC UTILIZATION (as per Section 49(5) of the CGST Act 2017)

CGST ITC (₹45,000) against CGST liability (₹37,800): fully offset. Surplus CGST ITC = ₹7,200 → applied against IGST.

SGST ITC (₹45,000) against SGST liability (₹37,800): fully offset. Surplus SGST ITC = ₹7,200 → applied against IGST.

IGST liability (₹29,340) − CGST surplus (₹7,200) − SGST surplus (₹7,200) = ₹14,940 payable in cash.

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Net GST Payable in Cash: CGST NIL | SGST NIL | IGST ₹14,940 | Total = ₹14,940

GST Treatment of Mr. Handsome's DCA Transactions — March 2022

Background: Mr. Handsome is a Del Credere Agent (DCA) registered in Maharashtra. A DCA, besides acting as an agent for the principal (Charm Limited, Jharkhand), also guarantees payment and extends credit to buyers. CBIC Circular No. 73/47/2018-GST specifically addresses GST implications for DCA transactions.

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(i) Outward Supply of Goods sold by Mr. Handsome in DCA capacity — Intra-State: ₹2,80,000

When a DCA issues invoices in his own name to buyers, he is treated as the supplier of those goods. This is a taxable intra-State supply in Maharashtra. As per Schedule I, Para 3 of the CGST Act, 2017, the corresponding supply of goods from the principal (Charm Limited) to the DCA is also a deemed taxable supply. Mr. Handsome's outward supply attracts CGST @ 2.5% + SGST @ 2.5% (assuming 5% GST rate on cotton products).

- CGST = ₹7,000; SGST = ₹7,000

(ii) Interest earned from customers for short-term credit facility — Intra-State: ₹20,000

The DCA extends credit to buyers and charges interest. As per Notification No. 12/2017-CT(Rate), Sr. No. 27, services by way of extending deposits, loans, or advances where consideration is represented by way of interest are exempt from GST. This circular was specifically confirmed for DCA interest receipts by Circular 73/47/2018.

- GST = NIL (Exempt Supply)

(iii) Commission bill raised on Charm Limited (Inter-State) for DCA services: ₹30,000

Mr. Handsome (Maharashtra) provides agency/DCA services to Charm Limited (Jharkhand). This is an inter-State supply of services; hence IGST is applicable under Section 7 read with Section 8 of the IGST Act, 2017. Commission for agency services attracts GST @ 18%.

- IGST = ₹5,400

(iv) Inward Supply — Goods received from Charm Limited (Intra-State, no consideration): ₹2,00,000

Supply of goods by a principal to his agent, where the agent undertakes to supply on behalf of the principal, is a deemed supply even without consideration under Schedule I, Para 3 of the CGST Act, 2017. Charm Limited (supplier) is liable to discharge GST on ₹2,00,000. Value is as determined under Section 15 of the CGST Act, 2017. Since this is an intra-State supply, CGST @ 2.5% = ₹5,000 and SGST @ 2.5% = ₹5,000 are paid by Charm Limited. Mr. Handsome is entitled to ITC of ₹10,000 (CGST ₹5,000 + SGST ₹5,000) on such goods received in course of business.

(v) Training received from Charm Limited — free of cost, OMV ₹55,000

Training provided by the principal to the DCA as per the DCA agreement is a supply of service by Charm Limited. Since they operate under a dedicated business arrangement, they are deemed related persons under Section 2(84) of the CGST Act, 2017. Under Schedule I, Para 2, supply between related persons made in the course of business is taxable even without consideration. The value of such supply is ₹55,000 (open market value charged to others, as per Rule 28 of CGST Rules, 2017). Since Charm Limited is in Jharkhand and Mr. Handsome is in Maharashtra, this is an inter-State supply → IGST @ 18% = ₹9,900 payable by Charm Limited. Mr. Handsome is entitled to ITC of ₹9,900 (IGST).

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Net GST Payable by Mr. Handsome after ITC Set-off (Section 49 of CGST Act 2017):

Total Output Tax: CGST ₹7,000 | SGST ₹7,000 | IGST ₹5,400
Total ITC: CGST ₹5,000 | SGST ₹5,000 | IGST ₹9,900

ITC Utilization — IGST ITC first against IGST (₹5,400), balance ₹4,500 against CGST (₹2,000) and SGST (₹2,000):

Net CGST payable: NIL | Net SGST payable: NIL | Net IGST payable: NIL
Excess IGST ITC of ₹500 carried forward to next period.

Note: The transaction data for Sl. No. (i) to (v) was not included in the question as submitted. The following answer provides the complete framework and methodology. If the specific figures are supplied, the same structure applies directly.

Framework for Computing Gross GST Liability and Eligible ITC — March 2022

PART A: Gross GST Liability (Output Tax)

Gross GST liability is computed on all outward taxable supplies made during the month. Intra-state supplies attract CGST @ 9% + SGST @ 9% = 18% total. Inter-state supplies attract IGST @ 18%. The liability is computed on the taxable value (exclusive of GST) as per Section 15 of the Central Goods and Services Tax Act, 2017 (CGST Act).

PART B: Eligible Input Tax Credit (ITC)

ITC is governed by Section 16 of the CGST Act, 2017 (conditions for eligibility) and Section 17 (apportionment and blocked credits).

Key conditions under Section 16(2): (a) possession of valid tax invoice, (b) receipt of goods/services, (c) tax actually paid by supplier to government, (d) return filed under Section 39.

Blocked Credits under Section 17(5) — NOT eligible for ITC:
- Motor vehicles used for personal purposes
- Food and beverages, outdoor catering
- Goods/services for personal consumption
- Works contract services for immovable property (except plant & machinery)
- Any supply used for exempt outward supplies (proportionate reversal under Rule 42/43)

Treatment Notes for Typical Items in Such Questions:

(i) Outward taxable supplies (intra-state): CGST @ 9% + SGST @ 9% on taxable value — forms gross output liability.

(ii) Inward supplies from registered dealer (intra-state) for business use: ITC of CGST + SGST fully eligible under Section 16, subject to conditions. Credit available in the same month if invoice received and goods/services received.

(iii) Inward supply of motor vehicle (if for personal use or not for specified purposes): ITC not available — blocked under Section 17(5)(a) of the CGST Act, 2017. If used for transportation of goods/passengers or for further supply of such vehicles, ITC is available.

(iv) Import of services (where supplier is located outside India): Liable to GST under Reverse Charge Mechanism (RCM) as per Section 5(3)/(4) of the Integrated Goods and Services Tax Act, 2017. IGST @ 18% is payable by the recipient. ITC of the same IGST is available in the same month under Section 16 read with Section 38, subject to payment in cash (ITC cannot be used to discharge RCM liability as per Section 49(4) proviso).

(v) Inward supply of goods used for exempt output supply: ITC not eligible under Section 17(2) of the CGST Act, 2017. If used partly for taxable and partly for exempt supplies, proportionate reversal is required under Rule 42 of the CGST Rules, 2017.

Summary Statement (Template — insert actual figures):

| Particulars | CGST (₹) | SGST (₹) | IGST (₹) |
|---|---|---|---|
| Gross Output Tax Liability | XX | XX | XX |
| Less: Eligible ITC — CGST | (XX) | — | — |
| Less: Eligible ITC — SGST | — | (XX) | — |
| Less: Eligible ITC — IGST (set-off order: IGST first, then CGST, then SGST) | (XX) | (XX) | (XX) |
| Net GST Payable | XX | XX | XX |

Set-off order per Section 49(5) and Section 49(5A)-(5B) of the CGST Act, 2017: IGST credit is first used against IGST, then CGST, then SGST. CGST credit is used against CGST first, then IGST. SGST credit is used against SGST first, then IGST. CGST and SGST credits cannot be cross-utilised against each other.

Please provide the transaction data (Sl. No. i to v with amounts) to complete the numerical computation.

SCENARIO 1: RAJA (CLAY BRICKS MANUFACTURER)

Relevant Provisions: Rule 8 of CGST Rules, 2017 prescribes eligibility for the composition scheme. Section 9(5) of CGST Act, 2017 provides that certain suppliers of goods may opt for composition. The Finance Act, 2022 amended Rule 8 to increase the composition scheme turnover limit for manufacturers from ₹1 crore to ₹1.5 crore, effective April 1, 2022. The composition scheme is available exclusively for suppliers of goods, not services, and eligible goods suppliers include manufacturers, non-manufacturers, and e-commerce operators, each with specified turnover limits.

Correct Conclusion: Raja is a manufacturer of clay bricks (tangible goods) engaged in intra-State supply. His expected turnover is below ₹1 crore. Since the composition scheme eligibility threshold for manufacturers, as applicable from April 1, 2022, is ₹1.5 crore, and Raja's turnover falls below this ceiling, he is eligible to register under the composition scheme. Upon registration, he would be liable at a fixed tax rate determined by his turnover slab rather than standard GST rates.

Validity of Advice: INCORRECT – While the conclusion (eligibility for composition scheme) is correct, the threshold mentioned (₹1 crore) is outdated and imprecise. The consultant has cited the pre-April 1, 2022 threshold applicable to non-manufacturers. For manufacturers like Raja, the correct threshold since April 1, 2022 is ₹1.5 crore. Although Raja's expected turnover below ₹1 crore does fall within the enlarged limit of ₹1.5 crore, advising based on the incorrect threshold reflects incomplete knowledge of the current regulatory framework. Additionally, the consultant should clarify that if turnover remains below ₹40 lakh (registration threshold for goods suppliers), registration remains optional.

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SCENARIO 2: DHARUN (SERVICE PROVIDER - BUSINESS FACILITATOR)

Relevant Provisions: Section 22(1) of CGST Act, 2017 mandates registration for suppliers whose aggregate turnover exceeds prescribed thresholds. Rule 7 of CGST Rules, 2017 specifies these thresholds. Service providers must register when turnover exceeds ₹20 lakh in a financial year (or calendar year, whichever is earlier). Business facilitator services to financial institutions are taxable services not covered by any exemption. Composition scheme is not available for service providers under any circumstance.

Correct Conclusion: Dharun is a service provider earning commission for facilitating bank account openings. He earned ₹22 lakh in April 2022 alone, which exceeds the ₹20 lakh registration threshold for service providers. This single month's receipt of ₹22 lakh indicates annual turnover will substantially exceed the threshold. Therefore, Dharun is compulsorily liable for GST registration and cannot avoid or defer this obligation. His business facilitator services are taxable at 18% (standard rate), and registration is mandatory.

Validity of Advice: CORRECT – The consultant has correctly identified that Dharun must register under GST. The reasoning is sound: service provider threshold is ₹20 lakh, and Dharun's gross receipts (₹22 lakh) exceed this limit. The advice appropriately flags the obligation arising from turnover exceeding the prescribed threshold. No exemption or special status applies to such business facilitator services.

Note: The question refers to 'additional information' supplementing a main scenario whose opening data (plant sent to site, materials issued, labour, overheads, contract price) is not reproduced in this prompt. The solution below derives all values calculable from the given data and presents the complete framework.

Key Derivations from Given Data:

Work Certified: Cash received = 90% of work certified → ₹1,20,000 = 90% × Work Certified → Work Certified = ₹1,33,333

Work Uncertified (closing): 20% of Work Certified = 20% × ₹1,33,333 = ₹26,667

Loss on Material Scrapped: Cost ₹36,000 − Sale proceeds ₹20,000 = ₹16,000 (charged to contract)

(i) Contract Account for the year ended 31st March, 2022

Dr Side (Charges to Contract):
- Materials issued to site: ₹ (from main data)
- Labour/Wages: ₹ (from main data)
- Overhead/expenses: ₹ (from main data)
- Plant charged to contract = Opening plant at site + Plant sent to site during year − Plant scrapped (₹12,000) − Closing plant at site (₹18,000)
- Loss on material scrapped: ₹16,000 [cost ₹36,000 − proceeds ₹20,000]
- Profit c/d (notional profit, if applicable)

Cr Side (Credits to Contract):
- Sale proceeds of material scrapped: ₹20,000
- Plant written off (scrapped): ₹12,000
- Closing Plant-at-Site: ₹18,000
- Closing Material-at-Site: ₹17,000
- Work Certified: ₹1,33,333
- Work Uncertified (closing): ₹26,667

Treatment notes per AS 7 (Construction Contracts): Material scrapped — debit contract with full cost (₹36,000 via Materials issued), credit contract with sale proceeds (₹20,000); net loss ₹16,000 borne by contract. Plant scrapped — remove from plant-at-site, debit contract with written-off value ₹12,000.

(ii) Estimated Total Profit on the Contract

Formula: Estimated Total Profit = Contract Price − Estimated Total Cost

Estimated Future Plant Cost = Additional spend ₹80,000 − Residual value ₹10,000 = ₹70,000

Estimated Total Cost = Cost incurred to date (from Contract Account balancing figure) + Future estimated costs (labour, material, overheads) + Net future plant cost ₹70,000

Once Estimated Total Profit is determined, profit to be recognised in FY 2021-22 is computed as:
Profit recognised = Estimated Total Profit × Degree of completion (by cost or by work certified)

As per AS 7 (Accounting Standard 7 — Construction Contracts), profit is recognised proportionately over the contract period based on the stage of completion. Final Estimated Total Profit = Contract Price − Estimated Total Cost (full calculation requires contract price and total estimated future costs from the main scenario data).

Computation of Aggregate Turnover of Nesannani

As per Section 2(6) of the Central Goods and Services Tax Act, 2017 (CGST Act), aggregate turnover means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable under reverse charge), exempt supplies, exports, and inter-state supplies of persons having the same PAN, computed on an all-India basis, excluding central tax, state tax, UT tax, integrated tax, and cess.

Analysis of each item:

(I) Outward supply of Petrol – ₹4,00,000: Petrol is a non-taxable supply (petroleum products are outside the scope of GST). As per Section 2(47) of the CGST Act, 'exempt supply' expressly includes 'non-taxable supply.' Therefore, this is included in aggregate turnover.

(II) Transfer of exempt goods to branch in Rajasthan – ₹2,00,000: This is an exempt supply (as the goods are exempt). Transfer to a distinct person (branch in another state) constitutes a supply under Schedule I of the CGST Act. Exempt supplies are included in aggregate turnover. Included.

(III) Outward supply of taxable goods by branch in Uttar Pradesh – ₹5,00,000: Aggregate turnover is computed on an all-India basis for all persons having the same PAN. Supplies made by branches in other states are included.

(IV) Outward supply of services where RCM is payable by recipient – ₹6,00,000: Section 2(6) excludes only inward supplies on which RCM is payable. There is no exclusion for outward supplies merely because the recipient pays tax under RCM. The supplier's value is included in his aggregate turnover.

(V) Inward supply of services on which RCM is payable – ₹2,00,000: Section 2(6) specifically excludes the value of inward supplies on which tax is payable by a person on reverse charge basis. Excluded.

Aggregate Turnover = ₹17,00,000

Liability for Registration:

As per Section 22 of the CGST Act, a person is liable to be registered if his aggregate turnover in a financial year exceeds the threshold limit. Orissa (Odisha) is not a special category state under GST. Since Nesannani's supplies include both goods and services (mixed), the applicable threshold is ₹20,00,000.

Since his aggregate turnover of ₹17,00,000 is less than ₹20,00,000, Nesannani is NOT required to obtain registration under GST.

Section 49(1) of the CGST Act, 2017 permits any registered person to deposit amounts in their electronic cash ledger to meet liabilities on account of tax, interest, penalty, fee, or cess. The deposits are credited to separate columns (heads) maintained within the electronic cash ledger for each category of liability.

Section 49(11) of the CGST Act, 2017 provides the mechanism for rectification when deposits are made wrongly. The section states: "If any sum is deposited in the electronic cash ledger under the wrong head or column, or the Commissioner or, as the case may be, the Principal Commissioner, on verification of records, is satisfied that any sum deposited is redundant having regard to the liabilities assessed, he may, subject to the prescribed conditions, order refund of such sum."

Application to Pramesh's Case:

For the ₹5,000 deposited under Cess 'Fee' column: This amount was deposited under an incorrect head/column when it should have been deposited under the SGST 'Fee' column. This falls squarely within Section 49(11) as a wrongly deposited sum.

For the ₹4,000 lying unutilized under JOST 'Penalty' column: This amount, though deposited in a different head, is now unutilized. Under Section 49(11), the Commissioner/Principal Commissioner, after verification, may consider this as redundant and order refund.

Rectification Process:

1. Pramesh should file a formal application with the proper officer (Commissioner or Principal Commissioner having jurisdiction) along with documentary evidence of the deposits and reasons for the error.

2. The proper officer will verify the correctness of the claim by examining the electronic cash ledger records.

3. Upon verification and satisfaction that the deposits were indeed made under wrong heads, the Commissioner/Principal Commissioner will issue an order for refund of the wrongly deposited amounts.

4. Once the refund is granted and credited back, Pramesh can make fresh deposits under the correct head—the 'Fee' column under SGST.

Key Point: Section 49(11) is essentially a safeguard mechanism that protects taxpayers from permanent loss due to procedural errors in fund placement. The provision emphasizes that the error must be verified and confirmed by the proper officer before refund is ordered.

E-way Bill is NOT mandatory for M/s Sakura Enterprises for this supply.

Under Rule 138(1) of the CGST Rules, 2017, every registered person who causes movement of goods must generate an e-way bill when the consignment value exceeds ₹50,000 (for inter-State supply). The consignment value includes the value of all goods — both taxable and exempt — along with applicable taxes, as mentioned in the invoice or bill of supply.

In the given case, M/s Sakura Enterprises made a single inter-State supply comprising taxable goods (attracting 0% GST rate) valued at ₹47,500 and exempt goods valued at ₹2,000. The aggregate consignment value = ₹47,500 + ₹2,000 = ₹49,500.

Since ₹49,500 does not exceed the threshold of ₹50,000, generation of e-way bill is not mandatory. Note that a 0% GST rate supply is a taxable supply (with nil rate), not an exempt supply, but its value is still clubbed for computing the consignment value. Since the combined consignment value falls below the threshold, the obligation to generate an e-way bill is not triggered.

However, M/s Sakura Enterprises may voluntarily generate an e-way bill even below the threshold if it so chooses, as permitted under Rule 138.

Process Costing — N Ltd. for F.Y. 2021-22

(i) Process-I Account

Input units = 6,500. Normal Loss = 250 units @ ₹4 scrap = ₹1,000. Expected output = 6,500 − 250 = 6,250 units. Actual output transferred to Process-II = 6,000 units. Therefore, Abnormal Loss = 6,250 − 6,000 = 250 units.

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

Net cost after deducting scrap of normal loss = ₹6,26,000 − ₹1,000 = ₹6,25,000.

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

Abnormal Loss value = 250 × ₹100 = ₹25,000. Transfer to Process-II = 6,000 × ₹100 = ₹6,00,000.

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(ii) Process-II Account

Input = 6,000 units from Process-I @ ₹100. Normal Loss = 500 units @ ₹16 scrap = ₹8,000. Expected output = 6,000 − 500 = 5,500 units. Actual output = 5,500 units. Therefore, no Abnormal Loss or Abnormal Gain.

Total cost charged to Process II = Transfer from Process I (₹6,00,000) + Direct Wages (₹1,30,000) + Direct Expenses (₹45,500) + Manufacturing Overheads (₹24,500) = ₹8,00,000.

Net cost after deducting scrap of normal loss = ₹8,00,000 − ₹8,000 = ₹7,92,000.

Cost per unit = ₹7,92,000 ÷ 5,500 = ₹144 per unit.

Transfer to Finished Stock = 5,500 × ₹144 = ₹7,92,000.

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(iii) Finished Stock Account

Opening stock = Nil. Received from Process-II = 5,500 units @ ₹144 = ₹7,92,000. Sales = 5,000 units @ ₹144 = ₹7,20,000. Closing stock = 500 units @ ₹144 = ₹72,000.

Rule 86B of the Central Goods and Services Tax Rules, 2017 (inserted w.e.f. 1st January 2021) restricts a registered person from utilizing the amount available in the Electronic Credit Ledger (ECL) to discharge more than 99% of the output tax liability in a tax period, where the value of taxable supplies (excluding exempt and zero-rated supplies) in a month exceeds ₹50 lakh. The registered person must thus pay a minimum of 1% of the total output tax liability in cash through the Electronic Cash Ledger.

However, this restriction shall NOT apply in the following exceptional circumstances:

(1) High Income Tax Payment: Where the registered person, or the proprietor, Karta, managing director, or any two partners/whole-time directors/members of the managing committee/board of trustees, as the case may be, have paid more than ₹1 lakh as income tax under the Income Tax Act, 1961, in each of the last two financial years for which the time limit to file return of income under Section 139(1) has expired.

(2) Refund on Account of Zero-Rated Supplies: Where the registered person has received a refund exceeding ₹1 lakh in the preceding financial year on account of unutilised ITC under clause (i) of the first proviso to Section 54(3) of the CGST Act, 2017 — i.e., refund of ITC accumulated due to zero-rated supplies made without payment of tax.

(3) Refund on Account of Inverted Duty Structure: Where the registered person has received a refund exceeding ₹1 lakh in the preceding financial year on account of unutilised ITC under clause (ii) of the first proviso to Section 54(3) of the CGST Act, 2017 — i.e., refund of ITC accumulated due to an inverted rate structure (where the rate of tax on inputs is higher than the rate on outward supplies).

(4) Cumulative Cash Payment in Excess of 1%: Where the registered person has discharged his output tax liability through the Electronic Cash Ledger for an amount in excess of 1% of the total output tax liability, applied cumulatively up to the said month in the current financial year. This means if the taxpayer has already paid more than 1% in cash cumulatively for the year, the restriction does not apply for that month.

(5) Specified Category of Registered Persons: Where the registered person is any of the following:
- (i) Government Department
- (ii) Public Sector Undertaking (PSU)
- (iii) Local Authority
- (iv) Statutory Body

These entities are exempt from the restriction owing to their inherent nature and government accountability.

In summary, Rule 86B aims to curb fraudulent ITC availment and bogus invoicing, but provides relief to genuine taxpayers through the five exceptions listed above, ensuring that compliant businesses are not unduly burdened.

OPTION 1: Credit Note — Situations and Time Limit

Situations warranting issue of Credit Note [Section 34, CGST Act 2017]:

A registered supplier who has issued a tax invoice may issue a Credit Note in the following situations:

(i) Excess taxable value or tax charged: When the tax invoice issued reflects a taxable value or tax amount higher than what is actually payable in respect of that supply.

(ii) Return of goods by recipient: When the recipient returns the goods supplied to the supplier, necessitating reversal of the original supply.

(iii) Deficiency in goods or services supplied: When the goods or services (or both) supplied are found to be deficient in quality, quantity, or specification compared to what was invoiced.

Time Limit to declare Credit Note in GST Return:

As per Section 34(2) of the CGST Act 2017, the details of the Credit Note must be declared by the supplier in the return filed under Section 39 (i.e., GSTR-3B / GSTR-1) for the month during which the Credit Note is issued, but not later than the earlier of:
- 30th September of the financial year following the year in which the original supply was made, OR
- The date of furnishing the relevant Annual Return.

For example, for a supply made in FY 2025-26, the credit note must be declared latest by 30th September 2026 or the date of filing GSTR-9, whichever is earlier. No reduction in output tax liability is permissible beyond this cut-off.

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OPTION 2: Invoice Furnishing Facility (IFF) — Details and Debarment

Details of outward supplies furnished using IFF [Rule 59(2), CGST Rules 2017]:

The Invoice Furnishing Facility (IFF) is available to registered persons opting for the QRMP (Quarterly Return Monthly Payment) scheme. IFF can be used only for Month 1 and Month 2 of each quarter (Month 3 details are mandatorily filed in GSTR-1). The following details can be furnished:

(i) Details of outward supplies made to registered persons (B2B supplies) — i.e., tax invoices issued to GST-registered recipients.

(ii) Credit Notes and Debit Notes issued in relation to such B2B supplies.

Key restriction: The aggregate value of invoices furnished through IFF shall not exceed ₹50 lakhs per month. Supplies to unregistered persons (B2C) cannot be declared through IFF.

Cases where a registered person is debarred from furnishing details in GSTR-1 / IFF [Rule 59(6), CGST Rules 2017]:

A registered person shall not be allowed to furnish details of outward supplies in GSTR-1 or IFF in the following cases:

(i) Non-filing of GSTR-3B: Where the person has not furnished return in Form GSTR-3B for the preceding two consecutive months (in case of a monthly filer) or for the preceding tax period/quarter (in case of a quarterly filer).

(ii) Blocked Electronic Credit Ledger: Where the Electronic Credit Ledger has been blocked under Rule 86A of CGST Rules 2017 (i.e., ITC availment is restricted due to fraudulent or ineligible credit concerns).

(iii) Restriction under Rule 86B: Where the registered person is subject to restrictions on use of ITC under Rule 86B (applicable where taxable supplies exceed ₹50 lakhs in a month and certain conditions are met), and such restriction has been imposed on furnishing outward supply details.

Note: This sub-question is a continuation of a larger problem. Based on the standard ICAI version of this question, the aggregate cost data established in the preceding part is: Total Direct Materials ₹20,00,000, Total Direct Wages ₹8,40,000, and Total Production Overhead ₹4,00,000 (for both products combined, covering 50,000 Cloth Masks + 1,50,000 Disposable Masks = 2,00,000 units total).

Derivation of Per-Unit Costs for Cloth Masks:

Let Direct Material per unit of Disposable Mask = x. Then Direct Material per unit of Cloth Mask = 2x.
Total DM: (50,000 × 2x) + (1,50,000 × x) = 2,50,000x = ₹20,00,000 → x = ₹8. So DM per Cloth Mask = ₹16, DM per Disposable Mask = ₹8.

Let Direct Wages per unit of Cloth Mask = w. Then Disposable Mask Direct Wages = 0.6w.
Total DW: (50,000 × w) + (1,50,000 × 0.6w) = 1,40,000w = ₹8,40,000 → w = ₹6. So DW per Cloth Mask = ₹6, DW per Disposable Mask = ₹3.60.

Total Production OH = ₹4,00,000 over 2,00,000 units → Production OH per unit = ₹2 (same for both).
Administration OH = 50% of Production OH = ₹1 per unit (for each type).

COST SHEET FOR CLOTH MASKS
(Production: 50,000 units | Sales: 45,000 units)

| Particulars | Per Unit (₹) | Total (₹) |
|---|---|---|
| Direct Materials | 16.00 | 8,00,000 |
| Direct Wages | 6.00 | 3,00,000 |
| Prime Cost | 22.00 | 11,00,000 |
| Production Overhead | 2.00 | 1,00,000 |
| Works Cost | 24.00 | 12,00,000 |
| Administration Overhead | 1.00 | 50,000 |
| Cost of Production | 25.00 | 12,50,000 |
| Less: Closing Stock (5,000 × ₹25) | — | (1,25,000) |
| Cost of Goods Sold | 25.00 | 11,25,000 |
| Selling Cost (₹2 per unit sold) | 2.00 | 90,000 |
| Total Cost / Cost of Sales | 27.00 | 12,15,000 |
| Selling Price | 35.00 | 15,75,000 |
| Profit | 8.00 | 3,60,000 |

(i) Cost per unit = ₹27; Total Cost = ₹12,15,000

(ii) Profit per unit = ₹8; Total Profit = ₹3,60,000

Step 1 — Establish Standard Data for Actual Output of 20,000 kg

For standard output of 1,000 kg, total standard input = 500 + 350 + 250 = 1,100 kg (including 100 kg standard loss). For actual output of 20,000 kg, standard quantities are scaled proportionately (×20):

| Material | Std Qty (kg) | Std Price (₹/kg) | Std Cost (₹) |
|----------|-------------|-----------------|-------------|
| A | 10,000 | 25 | 2,50,000 |
| B | 7,000 | 45 | 3,15,000 |
| C | 5,000 | 55 | 2,75,000 |
| Total | 22,000 | — | 8,40,000 |

Step 2 — Actual Data

| Material | Act Qty (kg) | Act Price (₹/kg) | Act Cost (₹) |
|----------|-------------|-----------------|-------------|
| A | 11,000 | 23 | 2,53,000 |
| B | 7,500 | 48 | 3,60,000 |
| C | 4,500 | 60 | 2,70,000 |
| Total | 23,000 | — | 8,83,000 |

Actual loss = 23,000 − 20,000 = 3,000 kg; Standard loss from actual input = 23,000 × (100/1,100) = 2,090.91 kg. Excess loss = 909.09 kg (adverse yield).

(i) Material Cost Variance (MCV)

MCV = Standard Cost for Actual Output − Actual Cost
= ₹8,40,000 − ₹8,83,000
= ₹43,000 (Adverse)

(ii) Material Price Variance (MPV) = (Standard Price − Actual Price) × Actual Quantity

- Material A: (25 − 23) × 11,000 = ₹22,000 (Favourable)
- Material B: (45 − 48) × 7,500 = ₹22,500 (Adverse)
- Material C: (55 − 60) × 4,500 = ₹22,500 (Adverse)
- Total MPV = ₹23,000 (Adverse)

(iii) Material Usage Variance (MUV) = (Standard Qty for Actual Output − Actual Qty) × Standard Price

- Material A: (10,000 − 11,000) × 25 = ₹25,000 (Adverse)
- Material B: (7,000 − 7,500) × 45 = ₹22,500 (Adverse)
- Material C: (5,000 − 4,500) × 55 = ₹27,500 (Favourable)
- Total MUV = ₹20,000 (Adverse)

*Verification: MCV = MPV + MUV → ₹43,000 (A) = ₹23,000 (A) + ₹20,000 (A) ✓*

(iv) Material Yield Variance (MYV)

Standard output from actual input = 23,000 × (1,000/1,100) = 20,909.09 kg
Standard cost per kg of output = ₹8,40,000 / 20,000 = ₹42 per kg

MYV = (Actual Output − Standard Output from Actual Input) × Standard Cost per unit
= (20,000 − 20,909.09) × ₹42
= (−909.09) × ₹42
= ₹38,182 (Adverse) [rounded to nearest rupee]

*Note: The excess actual loss of 909.09 kg over standard loss causes an adverse yield variance.*

Reconciliation Statement of Profit as per Financial Accounts with Profit as per Cost Accounts
(For the year ended 31st March, 2022 — X1 Ltd)

In a Non-Integrated Accounting System, the profit figures in Financial Accounts (FA) and Cost Accounts (CA) differ due to: (a) purely financial items included in FA but excluded from CA, and (b) differences in overhead absorption and stock valuation between the two sets of accounts.

The following reconciliation starts with Profit as per Financial Accounts and arrives at Profit as per Cost Accounts.

| Particulars | ₹ | ₹ |
|---|---|---|
| Profit as per Financial Accounts | | 5,20,000 |
| Add: Items reducing FA profit but absent from CA: | | |
| Legal Charges (expense in FA, not in CA) | 15,250 | |
| Preliminary Expenses written off (expense in FA, not in CA) | 25,750 | |
| Interest paid on Debentures (expense in FA, not in CA) | 50,000 | 91,000 |
| | | 6,11,000 |
| Less: Items increasing FA profit but absent from CA: | | |
| Interim Dividend received (income in FA, not in CA) | 4,50,000 | |
| Profit on sale of capital asset (income in FA, not in CA) | 30,000 | |
| Less: Over-absorption reduces CA profit (CA charged more overheads): | | |
| Over recovery of Selling Overheads in CA | 11,380 | |
| Over recovery of Production Overheads in CA | 10,200 | |
| Less: Under-valuation of Closing Stock in CA (higher cost in CA, lower CA profit): | | |
| Under valuation of Closing Stock in CA | 25,000 | 5,26,580 |
| Profit as per Cost Accounts | | ₹ 84,420 |

Profit as per Cost Accounts = ₹ 84,420

Part (i): Profit from Product 'L'

Under the Net Realisable Value (NRV) method for by-product costing, the NRV of By-product 'M' is first deducted from total joint costs, and the balance is charged entirely to Product 'L' (the sole main product).

NRV of By-product M = 200 units × ₹5 = ₹1,000 (no further processing cost)

Net Joint Costs allocated to L = ₹4,00,000 − ₹1,000 = ₹3,99,000

Total Cost of Product 'L' = Joint cost + Further processing cost = ₹3,99,000 + ₹1,01,000 = ₹5,00,000

Revenue from Product 'L' = 10,000 units × ₹45 = ₹4,50,000

Result: Product 'L' incurs a Loss of ₹50,000 (Revenue ₹4,50,000 − Cost ₹5,00,000).

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Part (ii): Required Selling Price per kg of By-Product 'M' to earn overall profit of ₹1,00,000

Let the required selling price of M = ₹p per kg.

Under the NRV method, by-product M is valued and sold at its NRV; hence Profit from M = ₹0 (revenue equals the NRV already credited against joint costs). Therefore, the entire target profit of ₹1,00,000 must come from Product 'L'.

Setting Profit from L = ₹1,00,000:

Revenue of L − [Joint costs − NRV of M] − Further processing cost = ₹1,00,000

₹4,50,000 − [(₹4,00,000 − 200p) + ₹1,01,000] = ₹1,00,000

Solving: 200p = ₹1,51,000 → p = ₹755 per kg

The required selling price of By-Product 'M' is ₹755 per kg.

Just-in-Time (JIT) System of inventory management is known as the 'Demand Pull' or 'Pull Through' system of production.

Meaning and Concept:
The JIT system is a Japanese inventory management philosophy, pioneered by Toyota, under which materials, components, and goods are produced or procured only when they are actually needed in the production process — neither too early nor too late. The system is called 'Demand Pull' because production is triggered by actual customer demand rather than forecasted demand. Each workstation pulls material from the preceding stage only when it is required, creating a chain reaction from the final customer back through the entire production process.

Under the traditional 'Push' system, production is based on forecasts and goods are pushed through the production stages regardless of current demand, leading to inventory build-up. JIT reverses this by ensuring that each stage of production is activated only by a demand signal from the next stage or the final customer.

Key Features of JIT:
- Materials are received from suppliers just in time for use in production.
- Work-in-progress is kept at the minimum possible level.
- Finished goods are produced just in time for delivery to customers.
- The focus is on zero inventory or near-zero inventory as the ideal target.
- It promotes continuous improvement (Kaizen) and elimination of waste (Muda).

Two Principles on which JIT is Based:

Principle 1 — Elimination of Waste (Zero Waste Philosophy):
JIT is fundamentally based on the elimination of all forms of waste in the production process. Waste (called 'Muda' in Japanese) includes overproduction, excess inventory, unnecessary movement, waiting time, defective products, and over-processing. By eliminating waste, JIT reduces costs and improves efficiency. Holding inventory is considered waste because it ties up capital, requires storage space, and can become obsolete.

Principle 2 — Continuous Improvement (Kaizen):
The second principle is the philosophy of continuous improvement in all aspects of production. JIT requires that processes, quality, supplier relationships, and employee skills are continuously reviewed and improved. Quality must be built into the production process itself (Total Quality Management — TQM), because JIT leaves no buffer stock to absorb defective output. Any defect immediately halts production, reinforcing the need for zero defects at every stage.

Conclusion:
JIT transforms inventory management from a stock-holding exercise to a demand-responsive, lean production system. It is most effective in environments with stable demand, reliable suppliers, and a strong quality culture.