Question 1

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

Accepted Answer

**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**

---

**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**

---

**Su…

Question 2

Indicate, for following items, whether to be shown in the Cost Accounts or Financial Accounts:

Accepted Answer

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 t…

Question 3

Compute the gross total income of Mr. Prakhar for AY 2022-2023 and the losses to be carried forward, from the information given below:

Accepted Answer

**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…

Question 4

PF Limited is in the process of implementation of Activity Based Costing System in the organisation. For this purpose, it has identified the following Business Functions in its organisation: (i) Research and Development (ii) Design of Products, Services and Procedures (iii) Customer Service (iv) Marketing (v) Distribution. You are required to specify two cost drivers for each Business Function identified above.

Accepted Answer

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 C…

Question 5

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

Accepted Answer

**(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**…

Question 6

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

Accepted Answer

**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, infla…

Question 7

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

Accepted Answer

**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.

Question 8

A (I) is a pharmaceutical company which produces vaccines for diseases like Monkey Pox, Covid-19 and Chickenpox. A distributor has given an order for 1,600 Monkey Pox Vaccines. The company can produce 80 vaccines at a time. To process a batch of 80 Monkey Pox Vaccines, the following costs would be incurred:

Direct Materials - ₹ 4,250
Direct wages - ₹ 500
Lab set-up cost - ₹ 1,400

The Production Overheads are absorbed at a rate of 20% of direct wages and 20% of total production cost is charged in each batch for Selling, distribution and administration Overheads. The company is willing to earn profit of 25% on sales value.

Accepted Answer

**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**

Question 9

MM Ltd. uses 7500 valves per month which it purchased at a price of ₹ 1.50 per unit. The carrying cost is estimated to be 20% of average inventory investment on an annual basis. The cost to place an order and get the delivery is ₹ 15. It takes a period of 1.5 months to receive a delivery from the date of placing an order and a safety stock of 2500 valves is desired.

You are required to determine:
(i) The Economic Order Quantity (EOQ) and the frequency of orders.
(ii) The re-order point.
(iii) The Economic Order Quantity (EOQ) if the valve costs ₹ 4.50 each instead of ₹ 1.50 each.

(Assume a year consists of 360 days)

Accepted Answer

**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

---

**(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**

---

**(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.

---

**(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**.

Question 10

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

You are required to calculate:
(i) BEP in value (₹) and units.
(ii) Margin of Safety
(iii) Profit made when sales are 24,000 units.
(iv) Sales in value (₹) to be made to earn a net profit of ₹10,00,000 for the year.

Accepted Answer

**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**

Question 11

ABC Bank is having a branch which is engaged in processing of 'Vehicle Loan' and 'Education Loan' applications in addition to other services to customers. 30% of the overhead costs of the branch are estimated to be applicable to the processing of 'Vehicle Loan' applications and 'Education Loan' applications each.

The branch is having four employees at a monthly salary of ₹ 50,000 each, exclusively for processing of Vehicle Loan applications and two employees at a monthly salary of ₹ 70,000 each, exclusively for processing of Education Loan applications.

In addition to above, following expenses are incurred by the Branch:
• Branch Supervisor who supervises all the activities of branch, is paid at ₹ 50,000 per month.
• Legal charges, Printing & stationery and Advertising Expenses are incur…

Accepted Answer

**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**

---

**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).

Question 12

USP Ltd. is the manufacturer of 'double grip motorcycle tyres'. In the manufacturing process, it undertakes three different jobs namely, Vulcanizing, Brushing and Stripping. All of these jobs require the use of a special machine and also the aid of a robot when necessary. The robot is hired from outside and the hire charges paid for every six months is ₹ 3,70,000. An estimate of overhead expense relating to the special machine is given below:

• Rent for a quarter is ₹ 18,000.
• The cost of the special machine is ₹ 19,20,000 and depreciation is charged @ 10% per annum on straight-line basis.
• Other indirect expenses are recovered at 20% of direct wages.

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

Accepted Answer

**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**

---

**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…

Question 13

Mr. Sarthak, an individual and Indian citizen living abroad (Dubai), has a tax haven, since year 2005 and never came to India for a single day since then, earned the following incomes during previous year 2021-22:

| Particulars | Amount (in ₹) |
|---|---|
| (i) Income accrued and arisen in Dubai not taxable in Dubai (being tax haven) | 20,00,000 |
| (ii) Income accrued and arised in India | 5,00,000 |
| (iii) Income deemed to accrue and arise in India | 1,00,000 |
| (iv) Income arising in Dubai from a profession set up in India | 10,00,000 |

Accepted Answer

**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…

Question 14

A skilled worker, in PK Ltd., is paid a guaranteed wage rate of ₹ 5.00 per hour in a 48-hour week. The standard time to produce a unit is 18 minutes. In the last week, Mr. 'A' has produced 200 units of the product. The company has taken a drive for cost reduction and wages to reduce in labour cost.

Accepted Answer

**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 hi…

Question 15

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

Express Coffee: Actual Output 5,000 units, Total Machine hours 20,000, Total Number of Purchase orders 180, Number of set ups 20
Instant Coffee: Actual Output 60,000 units, Total Machine hours 1,20,000, Total Number of Purchase orders 384, Number of set ups 44

The annual overheads are as under:
Machine Processing costs: ₹ 7,00,000
Set up related costs: ₹ 7,68,000
Purchase related costs: ₹ 6,80,000

Accepted Answer

**Activity-Based Costing (ABC) — 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:** ₹15,90,9…

Question 16

XYZ Construction Ltd. has obtained a contract of ₹ 25,00,000 in the Financial Year 2021-22. The work on the contract commenced immediately and it is expected that the contract will be completed by 31st March, 2023. Chief accountant of the company has provided the following information related to the Contract:

Material issued: 2021-22 ₹ 4,00,000, 2022-23 ₹ 3,50,000
Wages - Paid: 2021-22 ₹ 2,40,000, 2022-23 ₹ 1,40,000
Wages - Prepaid at end of year: 2021-22 ₹ 15,000, 2022-23 -
Plant: 2021-22 ₹ 2,00,000, 2022-23 -
Study Expenses - Paid: 2021-22 ₹ 50,000, 2022-23 ₹ 35,000
Study Expenses - Outstanding: 2021-22 ₹ 7,500, 2022-23 ₹ 5,000
Office Expenses - Paid: 2021-22 ₹ 65,000, 2022-23 ₹ 55,000
Office Expenses - Outstanding: 2021-22 ₹ 12,500, 2022-23 ₹ 15,000
Contingency Expenses: 2021-22 -, 202…

Accepted Answer

**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 (C…

Question 17

An agriculture based company having 210 hectares of land is engaged in growing three different cereals namely, wheat, rice and maize annually. You are required to: (i) Rank the crops on the basis of contribution per hectare. (ii) Determine the optimum product mix considering that all the three cereals are to be produced. (iii) Calculate the maximum profit which can be achieved if the total fixed cost per annum is ₹21,45,000.

Accepted Answer

**(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 |

---

**(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): Balanc…

Question 18

Examine whether the following are chargeable to tax and the amount liable to tax:
(i) Interest on enhanced compensation ₹3,00,000 received on 1/1/2022 from government of Tamil Nadu for agricultural land acquired by it; 40% of enhanced compensation interest pertains to previous year 2020-21.
(ii) Narayaman transferred 1000 shares of BS Ltd to AB Pvt Ltd on 01-02-2022. Fair market value was ₹2,00,000. The fair market value of the same as on transaction date was ₹3,00,000. The indexed cost of acquisition of shares by Narayaman was ₹2,75,000. The transfer was effected off-market on which substantial transaction tax was not paid. BS Ltd is a closely held unlisted unit.
(iii) Mr. A received ₹5,00,000 on 1st March 2022 from SPS Pushapala Charitable Trust for meeting his medical expenses. The trus…

Accepted Answer

**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.

---

**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…

Question 19

Ms. Priya aged 61 years, has total income of ₹2,50,000, including income from profession. For AY 2022-2023, and has paid advance tax of ₹10,000 on 13.12.2021. She has filed her return of income on 23.6.2022. Calculate the self-assessment tax payable and the interest thereon u/s 234A, 234B and 234C, if any by Ms. Priya.

Accepted Answer

**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 shor…

Question 20

Mr. X, a resident, aged 56 years, till recently was a successful businessman filing his return of income regularly and promptly. His business suffered severely and he incurred huge losses. He was not able to continue his business and finally on 31 January, 2022 he decided to wind-up his business which he also promptly intimated to the jurisdictional assessing officer about the closure of his business.

Accepted Answer

**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 again…

Question 21

The Assessing officer sent him a notice to tax the income of AY 2022-23 during the AY 2021-22 itself. Does the assessing officer have the power to do so? Are there any exceptions to the general rule 'Income of the previous year is assessed in the assessment year following the previous year'?

Accepted Answer

**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…

Question 22

From the following transactions compute the total income of Mr Raman and his wife Savita for the Assessment year 2022-23:
(i) Mr. Raman had a fixed deposit of ₹5,00,000 in the bank. He instructed the bank to credit the interest on deposits @ 6% from 01-04-2021 to 31-03-2022 to the savings account of his brother's son, who was in education.
(ii) Savita is a B.com graduate and working in the ABC Private Limited as an accountant with a monthly salary of ₹25,000. Raman holds 50% equity shares of the ABC Private Limited.
(iii) Raman started proprietary business on 01-04-2020 with a capital of ₹10,00,000. He incurred a loss of ₹3,00,000 during the previous year 2020-21. To overcome the financial position, Savita gifted a sum of ₹4,00,000 to him on 01-04-2021 which was immediately invested in the…

Accepted Answer

**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 …

Question 23

You are required to calculate the amount of net GST liability payable in cash by Ajay Limited for the month of January 2022. Brief notes for treatment given for each item should form part of your answer.

Accepted Answer

**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**…

Question 24

Charm Limited, registered under GST in the State of Jharkhand, manufactures cotton products and appointed Mr. Handsome of Mumbai, who is registered under GST in the State of Maharashtra, as their dedicated agent (DCA) to sell their products. However, for realization of payments from customers to Charm Limited, it has extended credit term loans to them and charges interest for the short-term transaction based loans. Mr. Handsome provides the following details of transactions carried out during the month of March 2022:

Accepted Answer

**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.

---

**(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) fo…

Question 25

You are required to calculate the gross GST liability and eligible Input Tax Credit for the month of March 2022 of Mr. Handsome. Applicable rate of tax on both inward and outward supplies is 9% each for CGST and SGST and 18% for IGST. Brief notes should form part of your answer for treatment of items in Sl. No. (i) to (v).

Accepted Answer

**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:**
…

Question 26

Answer the following, after reading the below given two paragraphs: (i) Briefly discuss the relevant provision, (ii) Decide the correct conclusion, and (iii) Determine the validity of the given advice (Correct / Incorrect)

Accepted Answer

**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 Ra…

Question 27

Following additional information is also available: A part of plant costing ₹12,000 was scrapped and written-off in the F.Y. 2021-22. The value of Plant-at-Site on 31st March, 2022 was ₹18,000. Company would have to spend an additional sum of ₹80,000 on the plant in F.Y. 2022-23 and the residual value of the plant on the completion of contract would be ₹10,000. A part of material costing ₹36,000 was scrapped and sold for ₹20,000 in F.Y. 2021-22. The value of Material-at-Site on 31st March, 2022 was ₹17,000. Cash received on account till 31st March, 2022 was ₹1,20,000 representing 90% of the work certified. The cost of work uncertified on 31st March, 2022 was valued at 20% of work certified.

Accepted Answer

**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 (C…

Question 28

Nesannani started his business activities in the month of February 2022 in the State of Orissa. He provided the following details:

| Particulars | Amount in ₹ |
|---|---|
| (I) Outward supply of Petrol (Intra-State) | 4,00,000 |
| (II) Transfer of exempt goods to his branch in Rajasthan (Intra-State) | 2,00,000 |
| (III) Outward supply of taxable goods by his branch in Uttar Pradesh (Intra-State) | 5,00,000 |
| (IV) Outward supply of services on which tax is payable under RCM by the recipient of services (Intra-State) | 6,00,000 |
| (V) Inward supply of services on which tax is payable under RCM (Intra-State) | 2,00,000 |

From the information given above, compute the aggregate turnover of Nesannani and also decide whether he is required to get registration under GST. Assume that the amou…

Accepted Answer

**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 exclu…

Question 29

Pramesh has deposited a sum of ₹ 5,000 under the head of 'Fee' column of Cess and ₹ 4,000 was lying unutilized under the head of Penalty column of JOST. Both the deposits were made wrongly instead of depositing under the head of 'Fee' column under SGST.

In the light of the provisions of section 49(1) & 49(11) of the CGST Act, 2017, briefly explain the relevant provisions as how can Pramesh rectify these errors?

Accepted Answer

**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 ha…

Question 30

M/s Sakura Enterprises made an inter-State supply of taxable goods valued at ₹ 47,500 and exempt goods valued at ₹ 2,000. The rate of GST for taxable supply was 0%. Determine, with brief reasons, whether e-way bill generation is mandatory for the above supply made by M/s Sakura Enterprises.

Accepted Answer

**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.

CA Inter Cost & Mgmt

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