CA Final May 2026 Suggested Answers Paper 6 Integrated Business Solutions

FOR CA FINAL EXAM PREPARATION

CA Final 2026
Suggested Answers ·
Paper 6 Integrated
Business Solutions
EXAM YEAR TYPE

CA Final 2026 Suggested Answers
SUBJECT DATE

Paper 6 Integrated Business Solutions May 2026

Notes · Sample Papers · Previous Year Papers · Mock Tests

m
m .co
c. o

e m
em l a s
s a g

PAPER – 6: INTEGRATED BUSINESS
SOLUTIONS
m
m c. o
c. o s em
e mThe Question Paper comprises five case study questions. l a
l a s ag
ag
The candidates are required to answer any four case study questions out of
five.

CASE STUDY - 1

Heritage Tea Processing Limited (HTPL) is an unlisted company founded in 1980
under the visionary leadership of Shri Bal Krishnan. The company is
headquartered in Bengaluru, Karnataka. The Heritage Tea Group was founded on
the belief that tea has the power to dissolve differences, foster connection and
m
co
bring people together. Now 'Chai pe Charcha' has become a normal

.
phenomenon. The company owns several tea estates in West Bengal, Tamil Nadu

s em
and Karnataka. Initially focused solely on tea leaf production until 1990, as the

l a
popularity of the beverage grew, HTPL decided to broaden its business operations.
g
a
While maintaining its plantation activities, the company expanded into tea
blending, packaging and marketing to strengthen its market presence. Some
estates of the company initially operated on plucking cycles of up to 10 days,
instead of the ideal 5-6 days. This resulted in coarser leaves, lower out-turn ratios
and higher factory rejection rates. Additionally, logistical inefficiencies, such as
uncoordinated inter-estate dispatches and underutilized vehicles, led to increased
idle hours and higher operational costs. Following a comprehensive cost
rationalization and benchmarking exercise, the company standardized plucking

m
cycles by implementing weekly schedules. Today, over 80% of estates maintain

m
the optimal 5-6 days cycle. Logistic optimization measures, including clustered
.co
c. o routing and shared vehicle usage, have further reduced idle time and optimized

se
m
em a and packaging
fuel costs.

s g l
la operation, where at every stage, from tasting and qualityainspection to blending
Currently, the company operates a fully integrated tea blending

ag and final packing is meticulously managed to ensure purity and preserve its
aroma. HTPL's integrated tea manufacturing begins with sourcing high-quality
tea leaves, both from its own plantations and selected suppliers in Sri Lanka. Each

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 1 of 70

FINAL EXAMINATION: MAY 2026

estate owned by HTPL is overseen by a superintendent and organized into
divisions responsible for crop planting, manpower management and operations.
Tea plucking is primarily manual, scheduled according to leaf maturity, rainfall
and bush type. Harvested leaves are transported to the estate's CTC (Crush-Tear-
Curl) or modern processing facilities, where maintaining leaf quality is critical to
ensure consistent flavour and overall product quality. At the factory, tea leaves
undergo primary processing, including withering, rolling, oxidation or
fermentation, drying and grading, to produce tea with desired characteristics.
Processed tea is then blended and packaged in retail or bulk formats, often using
sustainable packaging solutions. The company distributes finished products via
internal channels, wholesalers, retailers, direct-to-consumer outlets and
international markets, offering pack sizes from 100 grams to 10 kilograms. Its
customers include supermarkets, hotels and restaurants. Marketing and sales
efforts, supported by feedback mechanisms, helps refine product quality and
service. Sustainability practices are integrated throughout, converting by-
products into compost, bio-energy, or secondary products, reducing
environmental impact and enhancing brand reputation. The company has
transitioned towards renewable energy by installing solar panels at its
manufacturing units, significantly reducing reliance on conventional power
sources and lowering its carbon footprint. These green energy initiatives generate
approximately 30 lakh units of solar power annually, offsetting nearly 2,000
metric tons of CO2 emissions. Demonstrating a long-term commitment to
sustainability, the company integrates modern technology with environmentally
responsible practices. Around 55-60% of finished products are packaged in
recycled bags, supporting resource efficiency. Additionally, tea dust and other
organic waste from processing are used as natural fertilisers, improving soil
health and minimizing landfill waste.
The entry of new suppliers into the tea business is a major cause of concern for
the company. These new players are intensifying competition, particularly on
pricing. However, the company holds a strong competitive advantage through its
superior product quality, state-of-the-art infrastructure and a robust research and
development team that continuously introduces innovative tea flavour. The
company offers personalized service to customers through dedicated order
support, while actively collecting customer feedback via surveys and quality
monitoring to refine its blends. Responding to changing consumer preferences
and growing health consciousness, the company has expanded its product line

2

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 2 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

since 2020 to include premium blends, organic teas and green tea, receiving a
positive market response.

m
c. o
The Company's Board reflects a strong commitment to diversity through a
m
co
balanced and independent composition. It includes an appropriate mix of

. em
s
Executive, Non-Executive and Independent Directors, each selected for their

e m l a
s
expertise and experience to enhance effective oversight and organizational

l a ag
performance. Mr. G. Krishnan has been serving as Chairman and Managing

ag
Director since 2010. With three manufacturing plants, one in Tamil Nadu and
two in Karnataka, the Company has a strong presence in both domestic and
international markets, offering over 180 Stock Keeping Units (SKUs) and enjoying
recognition in more than 50 countries worldwide. Total employee strength at all
the manufacturing facilities is 1,500. The company has state-of-the-art
machinery installed at each of its tea manufacturing and packing plants.
Mr. G. Krishnan attended an international business workshop in Mumbai, where
successful business founders and CEOs from around the world shared practical
m
co
insights on decision-making, business modelling and growth strategies. During

.
the workshop, he attended a lecture by a renowned strategic analyst on the

s em
Business Model Canvas, which illustrated how it helps businesses map, design and

l a
develop robust models while addressing critical areas for success. Upon returning
g
a
to the office, Mr. G. Krishnan shared his workshop experience at the Board
meeting, highlighting key insights, innovative strategies and actionable
recommendations and expressed his intention to develop the company's business
model canvas to further streamline operations and identify growth opportunities.
Unfortunately, a fire broke out at the Company's factory located in Kodagu,
Karnataka on 5th August 2025, resulting in damage to inventories, machinery and
equipment. Stock with a total cost of ` 1.20 crore was affected and damaged.
Company has claimed ITC of ` 9.60 lakh on damaged stock in GSTR 3B filed for
m
co
the month of July 2025. The damaged stock comprised raw materials, packing
m .
c. o
materials and finished goods, including bulk tea bags and retail cartons ready for
m
se
dispatch. Machinery and equipment (15% Block) purchased on 1st February 2022

s em la
for ` 1.77 crore (exclusive of 18% IGST), were completely destroyed in the fire. The
g
la a
company has in place a reinstatement insurance policy covering loss or damage

ag to its building, machinery and inventories due to fire. Against the loss of stock,
the Company received insurance compensation of 1.05 crore and against the loss
of machinery, it received ` 1.40 crore on 30th November 2025. In addition, the
Company received equipment from the insurance company with a market value

3

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 3 of 70

FINAL EXAMINATION: MAY 2026

of 0.10 crore as compensation for the equipment destroyed by the fire and the
same was put to use on 30th November 2025.
HTPL is maintaining a Tea Development Account with NABARD as per the scheme
approved by Tea Board. The Written Down Value (WDV) of the machinery and
equipment block (Rate of Depreciation: 15%) as per the Income-tax Act, 1961 is
` 120 crore as at 1st April 2025. Company placed an order for new machinery and
equipment (15% Block) costing ` 2.50 crore on 10th August 2025 by withdrawing
` 5 crore from the Tea Development Account. HTPL made payment of ` 2.50 crore
for the new machinery and equipment ordered on 10th August 2025, ` 0.05 crore
for freight and installation charges, ` 0.50 crore spent on office furnishing and
renovation (including computers for ` 0.25 crore installed in office) and ` 1.90
crore on installation of solar panels for use in the factory and plantation estates
and the balance amount was not used. The machinery and equipment were
installed and put to use on 15th November 2025. HTPL sold a parcel of land in
November 2025 for ` 3 crore. The land had originally been acquired in January
2023 for ` 1.50 crore using funds withdrawn from the Tea Development Account,
which were intended for the upgradation of the existing infrastructure of the
company's unit. However, the company utilized these funds to purchase the land
with the objective of constructing a warehouse, The proposed warehouse could
not be developed due to the failure to obtain the necessary approvals from the
local government authorities.
HTPL held 82% of the shares as at 1st April 2025 of ABC Valley Tea Limited, an
unlisted public company engaged in tea manufacturing and trading, with the
remaining 18% held by various minority shareholders, including individuals and
institutional investors. Over a period of six months, HTPL gradually increased its
stake, raising its holding to 91% of the total issued equity share capital by 30th
September 2025. In October 2025, HTPL notified ABC Valley Tea Limited of its
intention to acquire the remaining 9% of shares. Management of ABC Valley Tea
Limited appointed a registered valuer to determine the fair value, who determined
the price at ` 180 per share. However, the highest price paid by HTPL for any
shares acquired in the preceding 12 months was ` 170 per share. A notice was
sent to 30 minority shareholders. Out of these, 10 shareholders, collectively
holding 78% of the minority shareholding entered into separate negotiations with
HTPL, which agreed to acquire their shares at ` 190 per share, a price higher than
the initially determined amount. The remaining 20 shareholders, representing the
balance 22% of minority shares, were willing to sell at the original determined
price.
4

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 4 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

At present, all packing materials are sourced from external suppliers. In response
to the increasing demand for tea sachets and to ensure full control over their
quality, shape and size, the management has decided to manufacture sachets
m
m
in-house. Accordingly, an order was placed on 1st November 2025 for two
c. o
.co
customised tea sachet forming machines with CNC system and PLC controls (15%
s em
e m
Block) from XYZ GmbH situated in Germany at a FOB price of Euro 15,000 each
l a
a s
to be despatched in first week of February 2026. The contract includes a price
l ag
ag
variation clause, under which the price of the machine will increase by 50% of
the increase in material cost, if such increase of material cost exceeds 5%. Full
payment will be made on or before 31st January 2026 before the despatch of
machine.
The Finance Manager is considering various hedging strategies to mitigate
currency risk in the current volatile foreign exchange environment. As of
1st November 2025, the spot exchange rate stands at ` 102 per Euro, with the
three-month forward rate at ` 104 per Euro. Borrowing rates are 6% in Germany

m
and 10% in India, while deposit rates are 4% and 7%, respectively. Additionally,

. co
the German branch of an Indian bank has offered credit at 6% per annum against

em
the opening of an irrevocable letter of credit. Commission charges for issuance of

a s
letter of credit are at 2% per annum. The company currently utilizes cash credit
l
a g
and term loan facilities from its bank at an interest rate of 10% per annum.
Interest is compounded monthly for borrowings and quarterly for deposits. The
Finance Manager assigned CA. Arvind, newly appointed in the Finance
Department with expertise in foreign exchange risk management, to analyse the
exposure and recommend the most cost-effective hedging strategy. Based on his
analysis, the company implemented the recommended hedge to manage its
currency exchange risk.
Owing to a global rise in steel prices, XYZ GmbH increased the FOB price of the

m
tea sachet forming machine by 3% over the previously agreed price. The Finance

m
Manager received the email notification regarding the price revision on 25th
.co
c. o January 2026 and the payment was made on 31st January 2026 in Euros, which
se
m
em la
were purchased in accordance with the hedging option selected by him. Exchange

las rate prescribed by RBI as on 31st January 2026 was ` 107 per Euro and exchange
a g
g
rate notified by CBIC was ` 106 per Euro. XYZ GmbH dispatched the machine by
a ship on 2nd February 2026. The ship carrying the machine arrived at Cochin Port
on 6th March 2026 and the Bill of Entry was filed on 4th March 2026. Freight
charges from Germany to India totalled Euro 5,000 and insurance charges of
Euro 400 were paid on 31 January 2026. HTPL paid a commission of ` 1,61,300
5

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 5 of 70

FINAL EXAMINATION: MAY 2026

to the local agent in India of the XYZ GmbH. Freight charges of ` 1,05,850 were
paid to a local transport company for transporting the machine from Cochin Port
to the factory situated at Kodagu, Karnataka. The machine was installed and put
to use from 25th March 2026. The exchange rate notified by CBIC on the date of
the Bill of Entry (04.03.2026) was ` 109 per Euro, while on the date of the ship's
entry (06.03.2026) it was ` 108 per Euro. The Basic Customs Duty rate was 15%
on the date of the Bill of Entry but was reduced to 10% with effect from 5th March
2026. The Social Welfare Surcharge is levied at 10% and the Integrated Tax (IGST)
under the Customs Tariff Act, 1975 is 18%.
As part of its Corporate Social Responsibility obligations under the Companies
Act, 2013, the Company purchased and distributed 2,000 educational kits
comprising school bags, notebooks and stationery items to government schools
in a rural area. In addition, the Company donated 250 Tablets to students of
Government Aided Schools. The educational kits were procured in February 2026
from a local registered supplier for a total consideration of ` 12,90,000, inclusive
of GST amounting to ` 90,000. The Tablets were purchased from a local registered
supplier for ` 23,60,000, inclusive of GST amounting to ` 3,60,000. The Company
claimed the input tax credit (ITC) of the GST paid on these purchases in its GSTR-
3B return for the month of February 2026. The Chief Accountant of the Company,
not being well-versed in the provisions and technical intricacies of Income Tax,
GST and Customs law, engaged the services of CA. Abhinav, having vast
experience in tax matters, to determine the correct amount of customs duty
payable as well as correct admissibility or reversal of GST input tax credit (ITC)
for the year and the depreciation allowable in accordance the provisions of the
Income-tax Act, 1961.
CA. Anmol is the Engagement Partner for the statutory audit of the company for
the year 2025-26. During the pre-audit meeting, he discussed with the audit team
the use of statistical sampling techniques and external confirmation procedures
to obtain sufficient and appropriate audit evidence. He decided to apply the
stratified sampling method for selecting debtors and creditors. Accordingly, he
provided a list of 100 debtors and 80 creditors to the Chief Accountant for sending
positive balance confirmation requests, instructing that responses should be sent
directly to the auditor's official email ID. While reviewing the list submitted by
CA. Anmol, the Chief Accountant identified 6 creditors with zero balances and
suggested that confirmations either need not be sent to them or that negative
balance confirmations could be sent. However, CA. Anmol directed that
confirmation emails be sent to all selected parties as originally planned.
6

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 6 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

Within seven days, confirmation responses were received from 90 debtors and 74
creditors. Out of these confirmations received, 5 debtors' confirmations and 4
creditors' confirmations were not received from the registered email IDs on record
m
m
and balance confirmations of 10 debtors and 6 creditors with zero balance were
c. o
.co
not obtained. Upon inquiry, the Chief Accountant informed CA. Anmol that
s em
e m
physical letters had already been obtained from those debtors and creditors.
l a
l a s
During this review, Dinesh, a member of the audit team, observed that in the case
ag
ag
of 4 creditors with zero balance, there were high volume transactions and nearly
15% of these transactions had been settled in cash.
Multiple Choice Questions
[Provide the correct or most appropriate option to the following questions]
1.1 What is the total amount of Customs duty and Integrated-tax (IGST) payable
under Custom law on import of machine from Germany?
(A) ` 4,52,980
m
(B) ` 5,34,516
. co
(C) ` 12,75,756
s em
(D) ` 8,22,780
g l a (2 Marks)
a
1.2 Which statements correctly explain how CA. Anmol should respond to issues
which have arisen during the balance confirmation process and how such
issues may impact his audit opinion and reporting in accordance with the
applicable Standards on Auditing?
(i) Investigate confirmations received from email addresses not on record,
reconcile balances with the accounting records and perform alternative
procedures such as reviewing subsequent receipts or payments to

m
co
validate the balances.

m .
c. o m
(ii) Reassess only the quantitative materiality in the light of unreliable

em
confirmations and unusual cash transactions and disclose findings as

l a se
s g
Key Audit Matters only if the monetary amounts are large.

gla (iii) Accept physical confirmations obtained by theaChief Accountant for
a debtors and creditors with zero balances as sufficient audit evidence and
document them as the primary evidence for audit conclusions as the risk
of material misstatement is low.

7

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 7 of 70

FINAL EXAMINATION: MAY 2026

(iv) Escalate any unresolved issues related to cash payments or non-
responses for confirmations to 'Those charged with governance' and if
sufficient appropriate audit evidence cannot be obtained, evaluate the
impact on the financial statements and consider issuing a qualified
opinion if limitation is material but not pervasive.
Options:
(A) (i) and (ii)
(B) (i) and (iv)
(C) (ii) and (iii)
(D) (i), (ii) and (iv) (2 Marks)
1.3 What are the tax implications of the amount withdrawn from the Tea
Development Account and the sale of land for Assessment Year 2026-27 in
accordance with the provisions of the Income-tax Act, 1961?
(A) ` 0.30 crore shall be taxable as business income and ` 1.50 crore shall
be taxable as long-term capital gain.
(B) ` 0.72 crore shall be taxable as business income and ` 0.60 crore shall
be taxable as long-term capital gain.
(C) ` 0.82 crore shall be taxable as business income and ` 0.60 crore shall
be taxable as long-term capital gain.
(D) ` 0.12 crore shall be taxable as business income and ` 1.50 crore shall
be taxable as long-term capital gain. (2 Marks)
1.4 What is the total amount of GST Input Tax Credit (ITC) required to be reversed
under the provisions of the CGST Act, 2017, as computed by CA Abhinav?
(A) ` 45,96,000
(B) ` 23,12,700
(C) ` 28,43,700
(D) ` 14,10,000 (2 Marks)
1.5 Which of the following statements are correct as per the relevant provisions
of Companies Act, 2013?
(i) Offer price for acquisition of shares of ABC Valley Tea Limited should be
the price determined by registered valuer based on fair price of shares of
8

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 8 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

the company and the highest price offered by HTPL for acquisition of
shares in last twelve months.

m
c. o
(ii) Payment to all the 30 shareholders will be made at a price of ` 190 per
m
co
share negotiated with 10 shareholders.

. em
m
(iii) Additional consideration received by 10 shareholders shall be shared
e l a s
l a s with 20 shareholders on a pro- rata basis.
(iv) An amount equal to the determined value of the shares shall bea
g
ag deposited in a separate bank account to be operated by ABC Valley Tea
Limited, for a minimum period of one year. This amount shall be
disbursed to the 30 shareholders within 60 days. If disbursement cannot
be completed within 60 days, it may be extended, but in no case it shall
exceed one year.
Options:
(A) (i), (iii)
m
(B) (ii), (iv)
. co
(C) (i), (ii), (iv)
s em
(D) (i), (iii), (iv)
g l a (2 Marks)
Descriptive Questions a
1.6 Based on Mr. G. Krishnan's insights from the international business workshop,
discuss the Business Model Canvas for HTPL with reference to the information
given in the case study and how the following elements of the model can
streamline operations and uncover growth opportunities:
1. Key Partners, activities and resources
2. Customer relationships
m
m .co
c. o
3. Customer segments
m
em
4. Cost structure
l a (5 Marks) se
las 5. Value proposition
a g
ag 1.7 Which hedging strategy is the most cost-effective for managing the
company's euro-denominated liability: a forward hedge, a money market
hedge, or a forward hedge under the LC option? (5 Marks)

9

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 9 of 70

FINAL EXAMINATION: MAY 2026

1.8 You are required to compute the correct amount of depreciation on plant and
machinery (Block: 15%) for the A.Y. 2026-27, including any additional
depreciation allowable under the provisions of the Income-tax Act, 1961.
Assume the company has not opted for new tax regime. (5 Marks)

ANSWER TO CASE STUDY 1

1.1 Option (C): ` 12,75,756
1.2 Option (B): (i) and (iv)
1.3 Option (D): ` 0.12 crore shall be taxable as business income and ` 1.50 crore
shall be taxable as long-term capital gain
1.4 Option (B): ` 23,12,700
1.5 Option (D): (i), (iii), (iv)
1.6 Business Model Canvas given by Osterwalder:
Key Partners: Key Partnerships include domestic and international tea leaf
suppliers to ensure flexible and reliable sourcing beyond owned estates;
sustainable and recycled packaging vendors to support environmental
commitments; external logistics providers to strengthen distribution
capacity; research institutes and consultants to advance flavor innovation,
soil health, and sustainable practices; and government that offer renewable
energy incentives and sustainability certifications.
These collaborations enhance sourcing ability, reduce operational
bottlenecks, strengthen sustainability performance, and improve brand
credibility among eco-conscious consumers.
Key Activities: It includes tea cultivation (plucking, crop planning,
workforce management, and leaf quality control) and processing
(withering, rolling, fermentation, drying, grading. blending, and packaging).
Operations are strengthened by efficient logistics and distribution through
coordinated dispatches and optimized routing. Ongoing R&D ensures new
flavor development, blend testing, and consistent quality, while
sustainability efforts focus on waste conversion, solar energy, and eco-
friendly packaging.

10

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 10 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

Standardized plucking cycles and efficient logistics reduce costs and
improve productivity, and ongoing R&D strengthens product
differentiation and competitive advantage.
m
m
Key Resources: It includes high-quality tea estates, efficient modern
c. o
.co
processing facilities, skilled human capital, sustainability infrastructure, and
s em
e m
strong brand assets with proprietary blends and certifications.
l a
l a s
Optimizing estate and factory operations reduces waste and rejection rates,
ag
ag while continued investment in R&D and sustainability strengthens brand
equity and global competitiveness.
Customer Relationships: It focuses on delivering personalized service to
customers responsive order support, while also engaging direct consumers
via loyalty programs that encourage repeat purchases. The company
leverages customer feedback through surveys and quality monitoring to
continuously refine its blends.

m
Strong relationships with B2B and retail partners improve demand

c. o
forecasting and inventory optimization, while feedback-driven R&D

em diverse customers through internal
minimizes product rejection rates and enhances overall quality.
Customer Segments: HTPL serves
l a s
a
international markets. Its g
channels, wholesalers, retailers,
clients
direct-to-consumer outlets, and
include domestic consumers, retail and
wholesale buyers, clients like hotels, export customers, and eco-conscious
consumers. The company focuses on high value and international segments
to boost margins and diversify revenue.
By segmenting its customers effectively, HTPL can tailor packaging sizes
ranging from 100 g to 10 kg. implement differentiated pricing strategies
and design targeted marketing campaigns. Furthermore, focusing on high-

m
value and international segments provides opportunities to expand profit

m c. o
margins and diversify revenue streams, supporting long-term operational

c. o growth.
s em channels,
s em Channels: The company reaches customers through multiple
g a
ldistributors
gla a
including company-owned retail stores, wholesalers and across

a urban and rural areas and partnerships with overseas retailers for exports.
Operationally, clustering distribution routes and sharing logistics help
reduce costs, while brand awareness enhances margins.

11

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 11 of 70

FINAL EXAMINATION: MAY 2026

Cost Structure: This includes variable costs such as labor for plucking and
factory operations, raw materials, packaging, logistics, and utilities,
alongside fixed costs like estate maintenance, factory depreciation, R&D,
marketing, and solar infrastructure. Sustainability investments cover solar
panels, waste management systems, recycled packaging, and energy
efficiency initiatives.
Operational efficiencies through estate benchmarking and optimized
logistics reduce idle hours and fuel expenses, enabling competitive pricing
against new market entrants without compromising quality.
Revenue Stream: The business generates revenue through multiple
streams, including retail sales of packaged tea (wholesale and B2B supply
to hotels, restaurants, and shops, as well as exports to international and
specialty markets. Additional income comes from value-added offerings
such as premium blends, organic teas, and eco-friendly packaging.
This diversified approach reduces reliance on any single market while
premium and export products provide higher-margin growth
opportunities.
Value Proposition: HTPL stands out by offering high-quality tea, carefully
sourced and processed for consistent purity, aroma, and flavour. Its
integrated operations from plantation to packaging ensure strict quality
control, while sustainability initiatives like solar-powered factories, recycled
packaging, and waste-to-compost programs appeal to eco-conscious
consumers. The company also emphasizes product variety and innovation
through unique blends developed via R&D, supported by reliable supply
through efficient logistics and standardized plucking cycles.
These strengths in quality, sustainability, and innovation enable
differentiation in a crowded market and create opportunities for premium
pricing.
ALTERNATIVE
The Business Model Canvas (BMC) helps a company understand how
different parts of the business work together to create value, improve
efficiency and identify growth opportunities. Based on the insights gained

12

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 12 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

by Mr. G. Krishnan during the international workshop, HTPL can use the
Business Model Canvas to strengthen its operations, improve customer
satisfaction and support long-term sustainable growth.
m
m c. o
co
1. Key Partners, Key Activities and Key Resources

. em
e m
Key Partners: HTPL’s important partners include tea leaf suppliers
l a s
l a s from Sri Lanka, wholesalers, retailers, supermarkets, hotels, restaurants,
ag
ag
logistics providers and sustainable packaging suppliers. The company
also works with renewable energy solution providers for solar power
generation. These partnerships help the company maintain quality
standards, ensure smooth supply chain operations and strengthen
market reach.
The decision to manufacture tea sachets in-house instead of
depending completely on external suppliers would further improve
control over quality, size and design of sachets. This can reduce

m
dependency on outside vendors and improve operational efficiency.

. co
Key Activities: The key activities of HTPL include tea cultivation,

em
manual tea plucking, tea processing, blending, quality testing,

l a s
packaging, distribution, marketing and customer feedback analysis.

a g
Sustainability activities such as solar power generation, use of recycled
packaging and converting tea waste into fertilisers are also important
operational activities.
The company has already streamlined operations by standardizing
plucking cycles and improving logistics through clustered routing and
shared vehicle usage. These measures have reduced idle time,
improved leaf quality and lowered operational costs.
Key Resources: HTPL’s major resources include its tea estates,
m
co
manufacturing plants, skilled workforce, research and development
m .
c. o m
team, strong brand reputation and global distribution network. The

em se
company’s renewable energy infrastructure is also valuable resource.

s g la
la
Its strong research and development capabilities help in introducing

g innovative tea flavours and premium products such as organic and a
a green tea, which support future growth opportunities.
2. Customer Relationships: HTPL focuses strongly on maintaining long-
term relationships with customers through dedicated order support

13

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 13 of 70

FINAL EXAMINATION: MAY 2026

and regular customer feedback systems. The company continuously
monitors customer preferences and uses surveys and quality checks to
improve its tea blends and services.
By offering consistent product quality, personalized support and
innovative tea products, HTPL builds customer trust and loyalty.
Expansion into premium tea, organic tea and health-focused products
also helps the company meet changing consumer preferences and
strengthen customer relationships.
The company’s sustainability initiatives and CSR activities further
improve brand image and customer goodwill, especially among
environmentally conscious consumers.
3. Customer Segments: HTPL serves multiple customer segments in both
domestic and international markets. These include:
• Retail customers purchasing packaged tea products
• Supermarkets and retail chains
• Hotels and restaurants
• International buyers across more than 50 countries
• Health-conscious consumers preferring organic and green tea
• Bulk buyers purchasing large packaging sizes
By offering in different pack sizes ranging from 100 grams to 10
kilograms, HTPL is able to cater to different customer needs and
preferences.
The growing demand for premium blends, herbal tea and health-
oriented tea products provides additional growth opportunities for the
company in both Indian and international markets.
4. Cost Structure: HTPL’s major costs include plantation expenses, labour
costs for manual plucking, manufacturing costs, packaging expenses,
transportation and logistics costs, research and development expenses
and marketing costs.
Earlier, the company faced higher operational costs due to longer
plucking cycles and inefficient transportation systems. However,

14

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 14 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

standardization of plucking schedules and logistics optimization have
helped reduce idle time, improve productivity and lower fuel costs.

m
c. o
The installation of solar panels has reduced electricity expenses and
m
co
dependence on conventional energy sources. Similarly, use of recycled

. em
s
packaging materials and conversion of tea waste into fertilisers reduce
m
eThe decision to manufacture sachets internally may initially require g l a
s
waste management costs and support cost efficiency.

g a
l investment in machinery and setup costs, but in the long run it cana
a reduce procurement costs and improve quality control.
5. Value Proposition: HTPL’s main value proposition lies in providing
high-quality tea products with consistent taste, purity and aroma. The
company differentiates itself through premium quality tea leaves,
modern processing facilities, innovative tea blends and sustainable
business practices.

m
co
Its strong focus on quality control at every stage from tea plucking to

.
blending and packaging helps maintain customer trust and brand

em
reputation. The company also creates value through personalized

l a s
customer service, environmentally responsible operations and

a g
continuous product innovation.
The introduction of premium blends, organic tea and green tea allows
HTPL to meet changing customer preferences and growing health
consciousness. Sustainability initiatives such as renewable energy
usage, recycled packaging and waste recycling further strengthen the
company’s value proposition and enhance its image as an
environmentally responsible brand.
Overall, by developing a clear Business Model Canvas, HTPL can better
m
co
understand its strengths, improve operational coordination, reduce
m .
c. o m
inefficiencies and identify future growth opportunities in both domestic

em se
and global tea markets.

s g l a
la
1.7 Forward Hedge

g a
a Forward Rate
Amount required to be paid after 3-months
` 104/€
€ 30,000
(€ 15000 x 2)
Amt. payable in ` as per applicable Forward Rate ` 31,20,000

15

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 15 of 70

FINAL EXAMINATION: MAY 2026

Money Market Hedge

Amount to be deposited in € [€ 30000/(1+0.04/4)] € 29,702.97
Spot Rate ` 102/€
Amt. need to be borrowed in ` 30,29,706

 0.10 
3 ` 76,376
Add: Interest payable @ 10% for 3 months 1+ 
 12 
Amt. payable after 3-months ` 31,06,079

Forward Hedge under LC Option

Cost of letter of credit
At 1.5% on € 30000 at 1 € = ` 102 ` 45,900
 0.10 
3
` 1,157
Add: Interest for 1 Quarter 1+ 
 12 
(A) ` 47,057
Payment at the end of 90 days:
Cost € 30,000
Commission at 2% p.a. [€ 30000 × 2/100 × 1/4] € 150
€ 30,150
Conversion at ` 104 (B) ` 31,35,600
Total Cost: (A) + (B) ` 31,82,657

Since cash outflow is least in Money Market hedge it should be opted
for.
1.8 Computation of depreciation on plant and machinery (Block 15%)
for the A.Y. 2026-27

Particulars Amount
(in crore)
WDV as on 1.4.2025 120
Add: Cost of new machinery and equipment acquired on 2.55
10.8.2025 including freight and installation charges

16

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 16 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

Add: Cost of imported tea sachet forming machinery put to 0.45
use 25.3.2026 [ Refer Note Below]

m
c. o
Less: Insurance receipts for loss of machinery in fire 1.40

o m m
c
Add: Cost of equipment provided by insurance company Nil
WDV as. on 31.3.2026 e
em @15% x 50% on ` 3 cr (` 2.55 cr. + ` 0.45 cr.)
121.60
l a s
s
a the asset put to use for less than 180 days
lsince
Depreciation 0.225
ag
g
a Depreciation @15% on ` 118.60 crores 17.79
Additional depreciation @20% x 50% on ` 3 crores 0.30
Total depreciation for P.Y. 2025-26 18.315

Note: Computation of actual cost of imported tea sachet forming
machinery

om
Particulars Amount (`)
Purchase Price
. c 31,06,079

e m
s the following:
[Computed in Q 1.7, being the cost-effective strategy]
Add: Cost would be increasedawith
Increase in FOB price by a
3%
l
g i.e., Euro 900 x 107
96,300

Total Purchase Price 32,02,079
Freight [Euro 5,000 x 107] 5,35,000
Insurance [ Euro 400 x 107] 42,800
Commission paid to local agent 1,61,300
Freight Charges paid to local transport 1,05,850

m
c. o
Basic Custom Duty @10% computed on assessable value of 4,52,980
m
c. o m
` 41,18,000 plus Social Welfare surcharge @10% of
` 4,11,800 [Refer MCQ 1 for this purpose]
s e
s em l a
ag
Integrated GST [Not to be added since ITC can be claimed Nil

gla in respect of it]
a Actual Cost 45,00,309

17

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 17 of 70

FINAL EXAMINATION: MAY 2026

CASE STUDY - 2

Heritage Organic Limited (Heritage) has been founded by Mr. Sumit Joshi in the
State of Uttarakhand. The Company has built its reputation on traditional
methods and unbending quality products. The Company is an esteemed name in
the food and beverage industry, with its product ranging from aged balsamic
vinegars, freshly fermented sauces and premium craft spirits. The flagship product
of the company, the "Joshi Farm Fresh Balsamic Vinegar", is renowned for its
composite flavour profile. The product is the result of being aged for over 25 years
in a series of gradually handcrafted smaller wooden barrels.
Over the past few years, under the leadership of Sumit's grandson, Roshan Joshi,
Heritage Organic has gone for a rapid expansion. The company has expanded its
product line and distribution network and has also appointed new dealers. The
company's products are now available for online sale on all popular e-commerce
sites. However, this growth has come at a cost. The once-pristine manufacturing
process, rooted in manual craftsmanship, under one-roof has now been strained
by a series of hasty and at times, unplanned expansions. The company's
operations are now spread across three separate facilities located at three
different industrial parks, spread over the entire state.
Roshan has divided the entire process into three stages and has dedicated each
facility for each stage. The first facility has been fermentation and aging of the
product using the same traditional method. The second facility is used for bottling
and packaging of the finished product in wooden barrels and the last facility is
used for storage, distribution and e-marketing. This multi-facility setup has led to
challenges in coordination and logistics.
Roshan has formed a team of experts to conduct an internal audit of the entire
process. This team in its report has revealed a number of operational
inefficiencies. The audit team has emphasized on the following inefficiencies:
1. The process of moving partially-aged products from the fermentation facility
to the ageing facility, involves an outdated labour-intensive process which
consumes substantial time.
2. The Company's flagship product, balsamic vinegar barrels are often left
unattended in a staging area, as the forklift operators are often engaged with
other unproductive tasks.

18

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 18 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

3. The finished bottled spirits, once they leave the bottling line, are moved to a
temporary holding bay where they are waiting for quality control checks,
which can sometimes be delayed due to shortage of inspectors. This waiting
m
m
time is a major bottleneck.
c. o
4.
.co
The quality control procedure involves a thorough inspection of 10% of the
s em
e m l a
s
total produce, consumes significant time and human resource.

l a ag
ag
5. The company's storage facility is completely disorganised, with finished
goods often spending long periods in warehouse before being dispatched to
the distributors.
6. The production line for different products is also in a haphazard state due to
unscheduled machine maintenance. This often leads to production delay.
While highlighting these issues, the internal audit report has not quantified the
actual financial impact on overall performance of the company. As the report got
published, Roshan, who is a firm believer in the company's traditions, has come

m
co
under tremendous pressure from the other Board members. The Board members

.
believe that the traditional artisanal process is no longer relevant as it is not only

em
squeezing the margins of the company but also affecting the market share which

l a
the company has previously enjoyed.s
agshares
Heritage Organic's finances have
consisted of 1.50 crore equity
been strong. The company's capital structure
with capital and reserves and surplus of
` 300 crore and a net debt of ` 400 crore, thus, maintaining a healthy debt-equity
ratio. The company has also reported the Profit Before Interest and Tax (PBIT) of
` 120 crore for the preceding financial year. The average tax rate is 30%. The cost
of equity is projected to be 14% and while the pre-tax cost of debt is 10%. In a
bid to have a global footprint, Heritage Organic, entered into a strategic
partnership with a German distributor. As part of this arrangement, the German

m
co
distributor will pay a certain percentage of the sales revenue as a "Brand Royalty

m .
c. o
Fee" to Heritage Organic. This royalty fee is subject to Indian tax laws. However,
m
se
the tax law regarding the classification of this income is unclear and there is a

em la
potential for a prolonged dispute with the income-tax authorities. In order to

las a g
avoid future tax litigations, the company's legal and tax advisors have suggested

ag to the Board to seek an opinion from the Income-tax Department. The Company's
management is also equally concerned about the potential tax liability and the
uncertainty it could create for the long-term partnership with the German firm.
So, as advised by the legal team and the Board, Roshan decided to file an

19

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 19 of 70

FINAL EXAMINATION: MAY 2026

application to the Board for Advance Rulings. Roshan wants a definitive ruling
that will provide a legal shield and remove all uncertainty for their international
transaction with the German company.
During the financial year 2025-26, the Heritage has sponsored a sports event for
farmers conducted by a Farmers Friendly Club in Nainital. The said club was
established in the year 2024 for protecting and promoting the rights of farmers.
The company paid ` 25 lakhs for sponsoring the event.
Roshan has received a proposal for strategic partnership from Ms. Geeta Sharma
of Shrey Industries Private Limited which is a rapidly growing company with a
diverse portfolio which includes organic textiles, sustainable agriculture and
eco-friendly packaging, all covered under one roof. Ms. Sharma sees an
opportunity in premium food and beverage market as the next edge for
expansion. In order to diversify its product line and increase the company's market
share, Ms. Sharma does not see Heritage Organic as a competitor, but as a
strategic partner that aligns perfectly with Shrey Industries' brand philosophy of
long-term growth and sustainable legacy. Ms. Sharma has approached Roshan
with a comprehensive acquisition offer. The offer is for strategic partnership
wherein Roshan would retain a significant stake in the company and continue to
lead the Board. To arrive at a fair price, Ms. Sharma appointed a team to conduct
a meticulous valuation of the target company.
As per the advisors of Shrey Industries, the industry's average P/E Ratio is 15.
Heritage Organic's future maintainable profit after taxes is estimated to be ` 98
crores, while the future maintainable earnings per share (EPS) is estimated at
` 6.50. However, since Heritage Organic is an unlisted company, the analysts
believe a downward adjustment of 20% is necessary to account for the additional
risk of non-listing.
The Board of Heritage Organic has made a detailed plan on how Shrey Industries'
expertise in supply chain management and their team will help in eliminating the
non-value-added activities in its operations, which would significantly increase
its future cash flows.
During a GST audit for the financial year 2023-24 conducted by the GST
Department in February 2026 at the premises of Shrey Industries Private Limited,
the GST officer has identified three instances where input tax credit (ITC) was
either incorrectly claimed or not admissible: first, an IGST ITC claim of ` 150 lakh
was made in the March 2024 GSTR-3B filed on 18th April 2024 based on invoices

20

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 20 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

dated 30th March 2024 and reflected in GSTR-2B, but transport documents
showed that the goods were physically received at the warehouse only on 4th April
2024, leading the Superintendent to allege that the credit was claimed
m
m
prematurely as the goods were not received during the March 2024 tax period;
c. o
.co
second, ITC of ` 2.70 lakh was claimed in November 2023 on outdoor catering
s em
e m
services availed for a marketing event organized for existing and prospective
l a
a s
dealers and third, in October 2023, the company gifted home appliances worth
l ag
ag
` 15,000 each to its 200 employees and ` 5,000 each to 500 workers, with a total
market value of ` 55 lakh (excluding GST) and subject to GST at 18% (9% CGST
and 9% SGST), prompting the Superintendent to issue a demand for tax, interest
and penalties. To address the dispute, the Chief Accountant seeks advice from
CA. Gaurav, an indirect tax specialist, who upon reviewing the company's
Electronic Credit Ledger observed that even after filing the March 2024 GSTR-3B,
the company had a remaining ITC balance of ` 120 lakh, comprising ` 60 lakh in
CGST and ` 60 lakh in SGST.

m
The management of Heritage is also planning to enter into a new venture of

. co
manufacturing electric motors for EV two-wheelers as they feel that with the

em
improved roads, the demand for EV two-wheelers is increasing day-by-day. To

a s
assess the financial feasibility of the venture, the Board tasked the Costing
l
a g
department with collecting and analysing relevant data on market prices and
production costs. Based on market research, the department found that the
expected selling price per unit would be ` 7,500, with a direct material cost of
` 6,200 per unit, direct labour cost of ` 240 per hour and variable overheads of
` 160 per hour. Labour efficiency is projected to improve as production increases
due to a 90% learning curve effect (learning index = -0.1520). The first batch of
100 units is estimated to require 250 labour hours, with the learning effect
expected to continue until 1,000 units (10 batches) have been produced. Beyond
this level, the learning effect will plateau and each subsequent batch will require
m
co
same labour time as the 10th batch. The batch size will remain constant at 100
m .
c. o m
units. The company is in negotiation with EV two-wheeler manufacturer and is

se
assured of order for 5,000 units at a price of ` 7,200 per unit for the year

s em l a
2026-27. It is anticipated that 5,000 electric motors will be produced and sold
g
gla a company would buy
during this period. (Note 10-0.1520 = 0.705 and 9-0.1520 = 0.716)

a Heritage Organic is proposing buy-back of its shares. The
10 lakh equity shares for ` 150 per share. All the shares were issued at face value
of ` 10 each about 16 years ago. For making this offer, the company wants to

21

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 21 of 70

FINAL EXAMINATION: MAY 2026

seek the opinion of its tax counsel about the taxability of buy back for
shareholders and the obligations of the company.
Multiple Choice Questions
[Provide the correct or most appropriate option to the following questions]
2.1 Shrey Industries analysts are calculating the value of Heritage Organic using
the capitalisation of earnings method. Given the capitalization rate of 14%,
what would be the value of the business?
(A) ` 700 crore
(B) ` 980 crore
(C) ` 560 crore
(D) ` 630 crore (2 Marks)
2.2 In the context of the advance ruling sought by Heritage Organic, with the
Board for Advance Rulings, which of the following statements is incorrect?
(A) The transaction value of Heritage Organic must exceed ` 100 crore for
seeking a ruling.
(B) The Board has to pronounce its ruling within six month of the receipt of
the application.
(C) The applicant Heritage Organic cannot appeal against the ruling.
(D) The Board can call for record before pronouncing its ruling. (2 Marks)
2.3 Which of the following statement is correct in respect of the sponsorship of
the event organised for farmers by the Farmers Friendly Club in Nainital?
(A) GST is payable by the Heritage, being the recipient of the sponsorship
service, under the reverse charge mechanism.
(B) GST is payable by the Club, being the supplier of the sponsorship service.
(C) GST is exempt in respect of sponsorship services for farmers.
(D) GST is exempt in respect of sponsorship of sports event. (2 Marks)
2.4 What is the expected total variable cost of producing 5,000 electric motors in
2026-27?
(A) ` 345.80 lakh

22

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 22 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

(B) ` 340.30 lakh
(C) ` 341.29 lakh
m
m
(D) ` 345.25 lakh (2 Marks)
c. o
.co
2.5 Based on the provisions of non-value-added activities, which of the following
s em
em
is the most accurate classification of the delays experienced by Heritage
l a
a s
l(A) Storing
Organic's bottled spirits waiting for quality control checks?
ag
g
a (B) Moving
(C) Waiting
(D) Inspecting (2 Marks)
Descriptive Questions
2.6 Roshan Joshi believes that the operational inefficiencies in Heritage Organic

m
co
are a necessary part of the artisanal process. However, Geeta Sharma plans

.
to eliminate them. Based on the information in the given scenario, explain

em
which of the identified 'Non-Value-Added' activities can be eliminated and
s
l a
what will be its strategic implication?

g prepare a brief note of the Income-tax
(5 Marks)

a
2.7 As tax counsel of Heritage,
consequence of the buy-back of shares in the hands of the shareholders and
company and its obligations. (4 Marks)
2.8 In light of the issues raised by the GST officer, what advice should CA. Gaurav
give to the company, with reference to the relevant provisions of the CGST
Act, 2017, regarding tax liability, admissibility of input tax credit and the
implications relating to interest and penalties? (6 Marks)

m
co
ANSWER TO CASE STUDY 2
m .
c. o 2.1 Option (A): ` 700 crore OR se
m
s em Option (C): ` 560 crore
g l a
gla a must exceed must
a
2.2 Option (A): The transaction value of Heritage Organic
exceed ` 100 crore for seeking a ruling OR
Option (C): The applicant Heritage Organic cannot appeal against the ruling

23

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 23 of 70

FINAL EXAMINATION: MAY 2026

2.3 Option (A): GST is payable by the Heritage, being the recipient of the
sponsorship service, under the reverse charge mechanism.
2.4 Option (C): ` 341.29 lakh
2.5 Option (C): Waiting
2.6 Several activities in Heritage Organic's operations can be classified as 'Non-
Value-Added (NVA) activities. An NVA activity is defined as work that is not
valued by the customer, does not improve the quality or function of a
product or service, creates waste, and adds costs for which the customer is
not willing to pay.
The identified NVA activities in Heritage Organic are:
Moving: The manual process of moving partially aged products from the
fermentation facility to the aging facility is a "Moving" activity. The scenario
defines this as an activity that uses time and resources to move materials
and work-in-process from one department to another. Customers do not
value this movement; they only care about the final quality and timely
delivery of the product.
Waiting: The delays of finished bottled spirits in the temporary holding
bay waiting for quality control checks is a "Waiting" activity. The scenario
defines this as an activity where materials or work-in-process use time and
resources by waiting for the next process. This delay adds no value to the
final product.
Inspecting: The comprehensive inspection of every tenth bottle is an
"Inspecting" activity. The scenario states that inspecting is a wasteful
activity if the product was produced correctly the first time. While it ensures
quality, the ideal state is to have a process so robust that inspection
becomes unnecessary.
Storing: The long periods that finished goods spend in the storage facility
before dispatch is a "Storing" activity. The scenario defines this as using
time and resources while a good or material is held in inventory. This is
generally considered wasteful unless, like in the example of the wine
manufacturer, the storage time itself adds to the product's quality. Since
the balsamic vinegar and spirits are aged in a separate process, and the
storage of finished goods is causing delays, it is a non-value-added activity.

24

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 24 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

Scheduling: The haphazard scheduling of production runs is a
"Scheduling" activity. The scenario states that this is not necessary if the
company knows how to produce on demand. This inefficiency leads to poor
m
m
resource utilization and increased costs.
c. o
.co
The strategic implication of eliminating these NVA activities is to reduce
s em
e m l a
s
waste, optimize resource utilization, and lower operational costs. By

l a ag
focusing on cross-functional processes and identifying these wasteful

ag
activities, Geeta can enhance the company's performance, which in turn will
positively impact the company's valuation through increased future cash
flows.
ALTERNATIVE
The internal audit report of Heritage Organic Limited highlights several
activities that do not add value to the product and can therefore be
classified as non-value-added activities. These activities consume time,

m
labour and resources but do not improve the taste, quality or uniqueness

. co
of the company’s products. Customers are willing to pay for the traditional

em
ageing process and artisanal quality of the balsamic vinegar, but they are

l a s
not willing to pay for delays, unnecessary movement of goods, idle time or

g
inefficient processes. Hence, such activities should be reduced or
a
eliminated without affecting the traditional identity of the company.
One major non-value-added activity is the labour-intensive movement
of partially aged products between facilities. The transportation of
products from one location to another does not improve the quality of
the vinegar and only increases handling time and logistics cost.
Way Out -> The company can reduce this inefficiency through better
layout planning, automated material handling systems and improved

m
c. o
coordination between facilities. This would reduce transportation cost, save

m
c. o
time and improve operational efficiency.

em is the
em s
Another non-value-added activity identified in the process

s
unnecessary waiting time arising when barrels remain
l a
g in other non-
unattended in

gla a
the staging area due to forklift operators being engaged

a essential activities. This idle time does not enhance the quality or value
of the product; instead, it disrupts the smooth flow of operations,
increases handling delays and reduces overall operational efficiency.

25

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 25 of 70

FINAL EXAMINATION: MAY 2026

Way Out -> The company can address this inefficiency through proper
scheduling of material handling activities, deployment of dedicated forklift
operators and better coordination between production and warehouse
teams. Use of real-time tracking and workflow planning systems can further
streamline movement of barrels across facilities. Eliminating such delays
would ensure uninterrupted workflow, faster processing and better
utilisation of manpower and equipment.
The delay in quality control checks is also a major bottleneck. Finished
bottled spirits remain in temporary holding areas waiting for
inspection due to shortage of inspectors. Although quality inspection
is important, excessive waiting does not add value for customers.
Way Out -> The company can improve this process by increasing
inspection capacity, using automated quality testing methods and
introducing quality checks during the production process itself. This would
reduce delays and improve delivery speed.
Similarly, the inspection of 10% of total production consumes
significant time and human resources. Excessive inspection is
considered a non-value-added activity because quality should ideally
be built into the production process rather than checked after
production.
Way Out -> The company can adopt practices such as Total Quality
Management (TQM), employee self-check systems and process control
techniques to reduce dependence on large-scale inspections. This would
lower inspection cost and improve process reliability.
The storage facility of the company is also highly disorganised,
resulting in finished goods remaining in warehouses for long periods
before dispatch. Excess inventory and prolonged storage do not create
any value for customers and only increase storage and carrying costs.
Way Out -> Better inventory management, warehouse organisation and
demand forecasting can help reduce unnecessary storage time. This would
improve inventory turnover and cash flow position.
Further, production delays caused by unscheduled machine
maintenance are also non-value-added activities. Machine
breakdowns interrupt production and create delays without
contributing to product quality.

26

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 26 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

Way Out -> The company can introduce preventive and predictive
maintenance systems to reduce unexpected breakdowns. This would
improve production continuity and machine utilisation. The company can
m
m
also adopt Total Productive Maintenance (TPM) practices, where both
c. o
.co
maintenance staff and machine operators collectively work towards
s em
e m
improving equipment effectiveness and reducing breakdowns. Further, the
l a
l a s
company may use Overall Equipment Effectiveness (OEE) as a performance
ag
ag
measurement tool to monitor machine availability, operational efficiency
and quality output.
Strategic implication
The strategic implication of eliminating these non-value-added activities is
highly significant for Heritage Organic Limited. The company can reduce
operational costs, improve efficiency and respond faster to market demand
while still preserving its traditional artisanal methods. The traditional
fermentation and ageing process, which forms the core identity of the
m
co
brand, can continue unchanged. However, operational inefficiencies such

.
as waiting time, unnecessary movement, excessive storage and production

s em
delays should be removed because they do not contribute to customer
value.
l a
Therefore, the company gshould focus on maintaining the traditional
a
craftsmanship that differentiates its products in the market while
modernising inefficient operational processes. This balanced approach
would help Heritage Organic improve profitability, protect market share
and achieve long-term sustainable growth without losing its heritage value.
2.7

Particulars
m
c. o
(i) Consequences of buy back of shares in the hands of
m
c. o m sum of
shareholder and its obligation
In case of buyback of shares by Heritage Organic,ethe
em l s
a shares would
las g
` 150 per share paid by it for purchase of its own
be treated as dividend and taxable undera the head “Income
ag from Other Sources” in the hands of shareholders. No deduction
for expenses would be available against such dividend income.

27

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 27 of 70

FINAL EXAMINATION: MAY 2026

The consideration received on buy-back of shares will be taken
as nil and the entire cost of acquisition of shares would be either
long term or short-term capital loss based on period of holding
of respective shareholder. The said long term or short- term
capital loss is eligible for set-off and carry forward as per
provisions of the Income Tax Act, 1961.
(ii) Consequences of buy back of shares in the hands of
company and its obligation
There would be no tax implications in the hands of Heritage
Organic on buy back of its shares.
The company is required to deduct tax at source @10% under
section 194. However, tax is not required to be deducted at
source where shareholder is an individual, the dividend is paid
by any mode other than cash and amount of deemed dividend
does not exceed ` 10,000.

2.8

CA Gaurav should give following advice to the company:
An activity or transaction is considered as supply
only when it is supply of goods or services or
both for consideration in course or furtherance of
business. However, Schedule I of the CGST Act,
2017 specifies exceptions where an activity or
transaction is deemed to be a supply even
Tax liability without consideration. One such exception is
gifts exceeding ` 50,000 in value in a financial
year by an employer to an employee.
Since in the given case, amount of gift does not
exceed ` 50,000 per employee, gifting of home
appliances to employees and workers 1 does not
amount to supply.
ITC admissibility Following ITC availed is inadmissible:

1
It has been assumed that workers are also on company’s payroll.
28

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 28 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

(i) ITC of ` 150 Lakh is not admissible in the
month of March 2024, since goods have not
been received in said month.
m
m (ii) ITC of ` 2.70 lakh is not admissible in
c. o
.co November 2023 since ITC on outdoor
s em
e m catering is blocked if the same is not used for
l a
l a s making an outward supply of outdoor
ag
ag
catering or as an element of a taxable
composite/mixed supply.
(iii) ITC on gifts to employees is inadmissible
since ITC on goods disposed of by way of gift
is blocked under section 17(5).
Therefore, above credit will be reversed.
Interest and Interest under section 50 is payable on amount
penalty of utilized ITC from the date of utilisation of such

m
co
wrongly availed ITC (i.e.18th April, 2024, earlier of

.
GSTR-3B due date or filing date) till the date of

em
reversal of such credit or payment of tax in
s
l a
respect of such amount @ 15% per annum.
g
a
The wrongly availed ITC is deemed to be utilised
to the extent the Electronic Credit Ledger balance
falls below such ITC. Thus, interest is payable on
ITC utilised, i.e. ` 42.60 lakh [(150 Lakh + ` 2.70
lakh+ 9.90 lakh) - ` 120 lakh]
Penalty as per the provisions of section 74A, will
be applicable.

CASE STUDY - 3
o m
m c
. the best
c. o Harcharan m
e and Floor
Ceramics Limited (HCL) enjoys the reputation of being one of
companies in South India to offer end to end lifestyle solutions tosWall
em l a for different
las g
a than six decades of
Tiles, Sanitaryware & Bath Fittings, Engineered Marble and Quartz

ag Residential, Commercial and Industrial Spaces. With more
pioneering innovations and expertise, HCL offers a wide array of products for
diversified application and usages. HCL operates from Mysore and has its

29

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 29 of 70

FINAL EXAMINATION: MAY 2026

manufacturing plants throughout Karnataka. It has a couple of wholly owned
subsidiaries in its corporate portfolio.
Very often, HCL is engaged in strategic acquisitions to expand its business
portfolio. As part of its growth strategy, on 1st January 2025, HCL acquired entire
share capital of Savreen Ceramics Limited (SCL) for 1,500 lakhs. The book values
and the fair values of the identifiable assets and liabilities of SCL on the date of
acquisition are set out below, together with their tax bases. Any goodwill arising
on the acquisitions is not deductible for tax purposes. The tax rate is 30%.

Net Assets Acquired Book Values Tax Base Fair Values
Land and Buildings 600 500 700
Property, Plant and Equipment 250 200 270
Inventory 100 100 80
Accounts Receivable 150 150 150
Cash and Cash Equivalents 130 130 130
Total Assets 1,230 1,080 1,330
Accounts Payable (160) (160) (160)
Retirement Benefit Obligations (100) - (100)
Net Assets before Deferred Tax 970 920 1,070
Liability
Deferred Tax Liability on (15)
differences between Book Values
and Tax Bases (` 50@ 30%)
Net Assets at Acquisition 995 920 1,070
Harnam Singh Ceramic Tiles Limited (HSCTL) is one of the subsidiaries of
Harcharan Ceramics Limited (HCL). All the three directors of HCL are also the
directors of HSCTL. However, the three directors have been disqualified under the
Companies Act, 2013 as HSCTL has defaulted in filing its financial statements for
three financial years. Hariharan Singh, the Promoter of HCL wants to have the
directors' vacancy filled up so that the Company's operations could go on without
hindrance.
Another subsidiary of HCL namely Harkaran Innovative Tiles Limited (HITL) wants
to pay remuneration to its Managing Director and CEO namely, Mr. Nanak Dev
Singh in excess of the limits specified in Schedule V of the Companies Act, 2013
as the Company does not have adequate profits. The Company has defaulted in
30

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 30 of 70

m
m .co
c. o

e m
em l a s
s ag
INTEGRATED BUSINESS SOLUTIONS

payment of dues to Banks as well as to Non-Convertible debenture holders. It
may be noted that the term of office of Mr. Nanak Dev Singh expires by April 10th,
2026. CA. Amanpreet Singh has been appointed as the Statutory Auditor of HITL
m
m
for a period of five years at the AGM of the Company held on 29th September
c. o
.co
2025. While drafting audit letter communicating the key points of audit to 'Those
s em
e m
Charged with Governance' and Audit Committee, CA. Amanpreet Singh is
l a
a s
contemplating whether he needs to generate a Unique Document Identification
l ag
ag
Number (UDIN). Mr. Ronnie Coleman is a European, having vast experience of
more than three decades in all gamut of Marble, Granite and Tiles Manufacturing
and Sales throughout Europe. Having heard of the reputation and cost effective
quality products of HCL in India, he wanted to have business dealings with HCL
in India for his latest, innovative, digital 3D Wall and Floor Tiles. In this regard,
he is desirous of knowing the conveyance, clearance and warehousing procedures
under the Indian Customs Law from the point of import of goods into India.
HCL has purchased certain state-of-the art new machines on 23rd November 2024

m
for US$ 1,00,000 when the exchange rate per US dollar was ` 84. As on 31st March

c. o
2025, the exchange rate was ` 86 per US $. HCL made the payment on 5th June

em which involves creation of a plant with
2025 when the exchange rate was ` 86.50 per US$.

a s
an annual output of 1 million units.l The entire production will be exported at a selling
HCL has proposed a new foreign investment
g
price of USD 10 per unit. Atathe current rate of exchange, dollar cost of local
production equals to USD 6 per unit. Dollar is expected to decline by 10% or 15%.
The change in local cost of production and probability from the expected current
level will be as follows:

Decline in value of USD Reduction in local cost of Probability
(%) production (UDS/ unit)
0 -
o m 0.40

m .c
c. o m
10 0.30 0.40

m s e 0.20
a of USD 1 million
15 0.15 Additional Reduction

s e g l
la a
The plant at the current rate of exchange will have a depreciation

ag annually. Assume local tax rate as 30%.
HCL has preferred an appeal against certain additions relating to Assessment
Year 2023-24 before Commissioner of Income-tax (Appeals) and has not
contested a few other additions made to the returned income in the assessment
31

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 31 of 70

FINAL EXAMINATION: MAY 2026

made in regular assessment of the Income-tax Act, 1961. When the appeal was
pending disposal, the Commissioner of Income-tax invoked its revisionary powers
in respect of other issues which have not been dealt with in the assessment order.
The tax counsel has opined that the doctrine of total merger would apply and
therefore, the revision proposed is bad in law. For the Assessment Year 2024-25,
the Assessing Officer made an addition of ` 150 lakhs on account of excess
depreciation and ` 120 lakhs by way of disallowance under Section 40A (2) of the
Act. HCL filed an appeal before the CIT(A) against the denial of depreciation and
on being unsuccessful, filed a further appeal before the Appellate Tribunal. In
respect of the disallowance under Section 40A (2) of the Act, it did not file any
appeal but filed a revision petition before the Commissioner of Income-tax who
dismissed it on the ground that the assessment is a subject matter of appeal
before the Appellate Tribunal. The tax counsel opined that the action of the
Commissioner is not tenable in law.
Multiple Choice Questions
[Provide the correct or most appropriate option to the following questions]
3.1 In the absence of any director available in HCL, can Hariharan Singh, as the
Promoter of HCL, proceed with the appointment of required number of fresh
directors? Choose the incorrect option(s) from the following:
(i) Hariharan Singh cannot proceed with the appointment of fresh directors.
(ii) Hariharan Singh as Promoter of the Company can proceed with the
appointment of required number of fresh directors.
(iii) Hariharan Singh can proceed with the appointments of fresh directors
after getting the prior consent of the three directors who have been
disqualified.
(iv) Hariharan Singh can proceed with the appointments of fresh directors
after getting the prior consent of any two directors out of three directors
who have been disqualified.
Options:
(A) (i) and (ii)
(B) (iii) and (iv)
(C) (i), (iii) and (iv)
(D) (ii) (2 Marks)

32

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 32 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

3.2 Harkaran Innovative Tiles Limited (HITL) wants to pay remuneration to its
Managing Director, namely Mr. Nanak Dev Singh in excess of the limits
specified in the Companies Act, 2013. In view of the facts given in the case
m
m
study, which is the correct legal position from the following?
c. o
.co
(A) Prior approval of the concerned banks and the non-convertible
s em
e m l a
s
debenture-holders before placing the special resolution, before the

l a shareholders at the general meeting.
a g
ag (B) Prior approval of the concerned banks and the non-convertible
debenture-holders before placing the ordinary resolution, before the
shareholders at the general meeting.
(C) Prior approval of the Central Government, the concerned banks and the
non-convertible debenture-holders before placing the special resolution,
before the shareholders at the general meeting.
(D) Prior approval of the Central Government, the concerned banks and the

m
c. o
non-convertible debenture-holders before placing the ordinary
resolution, before the shareholders at the general meeting. (2 Marks)

s em Committee,
3.3 While drafting audit letter communicating the key points of audit to "Those
Charged with Governance' and
l a Audit CA. Amanpreet Singh was

ag a Unique Document Identification Number
thinking if he needs to generate
(UDIN). Choose the incorrect statement(s) from the following:
(i) One Single UDIN can be generated for the whole year for one
engagement which may include various communications by the Auditor
to Management and those charged with Governance.
(ii) Separate UDIN's are to be generated for the Statutory Audit Report and
Letter to those charged with Governance.

m
c. o
(iii) Separate generation of UDIN is required for certificates, audit reports
m
c. o
and reports in respect of all other Audit, Assurance and Attest functions

em
s
and not for any letters etc., for making communications.

s em (iv) One single UDIN can be generated for all documents ofaone client. UDINs
l
gla agwise.
are to be generated client wise instead of document
a Options:
(A) (i) and (ii)

33

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 33 of 70

FINAL EXAMINATION: MAY 2026

(B) (i) and (iv)
(C) (i), (ii) and (iv)
(D) (ii) and (iv) (2 Marks)
3.4 Mr. Ronnie Coleman is desirous of knowing the conveyance, clearance and
warehousing procedures under the Indian Customs law from the point of
import of goods into India. Outline the sequence of procedure for import of
goods into India from the following:
(i) Grant of Entry Inwards to Vessel
(ii) Filing of import General Manifest
(iii) Uploading of Goods
(iv) Assessment of Goods

(v) Filing of Bill of Entry
(vi) Payment of Duty.
Options:

(A) (i), (ii), (iii), (iv), (v) and (vi).
(B) (ii), (iii), (i), (iv), (v) and (vi).
(C) (iii), (ii), (i), (vi), (v) and (iv).
(D) (ii), (i), (iii), (v), (iv) and (vi). (2 Marks)
3.5 In respect of the state of the art new machines purchased by HCL in foreign
currency, how much will be the foreign exchange loss/gain for the financial
year 2024-25 and financial year 2025-26 as per the relevant Ind AS?
(A) F.Y. 2024-25 - Loss of ` 2,00,000 and F.Y. 2025-26 Loss of ` 50,000.
(B) F.Y. 2024-25- Gain of ` 2,00,000 and F.Y. 2025-26 - Gain of ` 50,000.

(C) F.Y. 2024-25- Gain of ` 2,00,000 and F.Y. 2025-26 Loss of ` 50,000.
(D) F.Y. 2024-25 - Loss of ` 2,00,000 and F.Y. 2025-26 Gain of ` 50,000.
(2 Marks)

34

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 34 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

Descriptive Questions
3.6 HCL requires you to calculate "Deferred tax" arising on acquisition of SCL
m
c. o
and the goodwill arising thereon. (4 Marks)
m
.co m
3.7 HCL has proposed a new foreign investment which involves creation of a

m s e
a
plant with an annual output of 1 million units. Taking into consideration the

s e
other inputs given in the case study above, you are requested to find out:
g l
l a
(i) Annual Cash Flow after Tax (CFAT) under all the different scenarios ofa
ag exchange rate.
(ii) Expected value of CFAT assuming no repatriation of profits.
(iii) Viability of the investment proposal on the basis of CFAT arrived under
option (ii) assuming an initial investment of USD 25 million on plant and
working capital with a required rate of return of 11% on investment. The
CFAT will grow @ 3% per annum in perpetuity. (6 Marks)

m
3.8 Decide the correctness of the views of the Tax Counsel and suggest the course

. co
of action to be pursued by the Company in respect of the Income-tax appeals

em
preferred by HCL before the CIT(A) for the A.Y. 2023-24 and an appeal for

a s
the Assessment Year 2024-25 before the Appellate Tribunal.
l
(5 Marks)

ag TO CASE STUDY 3
ANSWER

3.1 Option (C): (i), (iii), and (iv)
3.2 Option (A): Prior approval of the concerned banks and the non-convertible
debenture-holders before placing the special resolution, before the
shareholders at the general meeting.
3.3 Option (C): (i), (ii) and (iv)

o m
c
3.4 Option: No Correct Option
m 3.5 Option (A): F.Y. 2024-25 – Loss of ` 2,00,000 and F.Y. 2025-26 .– Loss of
c. o s em
m a (` in lakhs)
` 50,000.

s e g l
la a
3.6 Computation of Net Deferred Tax Liability

ag Particulars Fair Tax Temporary Tax Effect
Value Base Difference @ 30%
Land and Buildings 700 500 200 (Taxable) 60

35

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 35 of 70

FINAL EXAMINATION: MAY 2026

Property, Plant and 270 200 70 (Taxable) 21
Equipment
Inventory 80 100 (20) (Deductible) (6)
Retirement Benefit (100) Nil 100 (Deductible) (30)
Obligations
Net Deferred Tax Liability 45

Computation of Fair Value of Net Identifiable Assets

Fair Value of Net Identifiable Assets before DTL 1,070
Less: Net Deferred Tax Liability (45)
Fair Value of Net Identifiable Assets after DTL 1,025
Computation of Goodwill on Acquisition
Goodwill = Purchase Consideration Transferred – Fair value of Net
Identifiable Assets
= 1,500 - 1,025 = ` 475 lakhs
3.7 (i) Calculation of Annual CFAT
Scenario 1 Scenario 2 Scenario 3
Annual Sales (in units) (A) 10,00,000 10,00,000 10,00,000
US $ US $ US $
Selling price p.u. 10.00 10.00 10.00
Cost p.u. 6.00 5.70 5.55
Profit p.u. (B) 4.00 4.30 4.45
Total Profit (A x B) 40,00,000 43,00,000 44,50,000
Less: Depreciation 10,00,000 9,00,000 8,50,000
PBT 30,00,000 34,00,000 36,00,000
Less: Tax @30% 9,00,000 10,20,000 10,80,000
PAT 21,00,000 23,80,000 25,20,000
Add: Depreciation 10,00,000 9,00,000 8,50,000
Expected CFAT (US$) 31,00,000 32,80,000 33,70,000

36

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 36 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

(ii) Expected Value of CFAT
= US$ 31,00,000 x 0.4 + US$ 32,80,000 x 0.4 + US$ 33,70,000 x 0.2
m
m
= US$ 32,26,000
c. o
c. o
(iii) Viability of proposal:
s em
m CFAT a
se ag
l
Expected = US $ 32,26,000

g la Expected Growth Rate = 3%
a Expected Value of inflow in perpetuity = US$ 32,26,000 (1.03)
0.11 - 0.03
33,22,780
= = US$ 4,15,34,750
0.08

US $
Value of Inflows 4,15,34,750

m
c. o
Less: Initial Outlay 2,50,00,000

emis viable.
NPV of project 1,65,34,750

la s
Since NPV is positive, project
3.8 (i) In respect of appealgpreferred by HCL before the CIT (A) for A.Y.
2023-24
a
HCL has filed an appeal against the order of the Assessing Officer
against certain additions. While appeal was pending disposal, the CIT
invoked its revisionary power u/s 263 in respect of other issues which
have not been dealt with in the assessment order.
The doctrine of partial merger holds good for section 263. Where

m
the order passed by the A.O. has been the subject matter of any appeal,

m c. o
the powers of the Commissioner u/s 263 shall extend to such matters

c. o as had not been considered and decided in such appeal.
s em power
s em a dealt with in
lbeen
In this case, the commissioner can invoke its revisionary
g
la a of appeal, it has not
u/s 263 in respect of other issues which have not

ag the assessment order. Even for the subject matter
been yet considered and decided in the CIT(A).

37

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 37 of 70

FINAL EXAMINATION: MAY 2026

Accordingly, the view of tax counsel that the doctrine of total merger
would apply in this case and the revision proposed is bad in law is not
correct.
(ii) In respect of appeal preferred by HCL before the Appellate
Tribunal for A.Y. 2024-25
HCL has filed an appeal against the order of the CIT(A) against the
denial of depreciation. For disallowance u/s 40A(2), it did not file the
appeal but filed a revision petition before commissioner u/s 264.
The concept of total merger would apply in case of section 264.
The Commissioner of Income-tax has no power to revise any order
under section 264, if the order has been made subject to an appeal to
the Appellate Tribunal, even if the relief claimed in the revision is
different from the relief claimed in the appeal and irrespective of the
fact whether the appeal is by the assessee or by the Department.
Accordingly, the view of tax counsel that the action of the
commissioner is not tenable in law is not correct.

CASE STUDY - 4

Vinod Heavy Industries Ltd. (VHIL) is a listed, esteemed conglomerate, having its
head office in an industrial town of Gujarat. Inspired by "Make in India", an
initiative of the Government of India, the company engaged itself in
manufacturing components for large-scale infrastructure projects like mining,
heavy industrial machinery and sea-link building equipment for companies all
across the globe. VHIL has an extensive manufacturing complex, an in-house
dedicated R&D division and a robust client portfolio (both national and
international) which includes government projects, mining corporations and
heavy construction firms. Despite working in a duopoly market, VHIL operated on
narrow profit margin, which is the basic characteristic of an infra company. Being
in a highly capital-intensive infrastructure sector, the company requires
continuous investment in advanced machinery and other equipments and
therefore, the company is regularly tapping the capital markets by issuing bonds
and debentures to meet its working capital needs.
VHIL also aimed to expand its operations while adopting the Triple Bottom Line
(TBL) approach. The company wants to balance its goals in sustainable

38

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 38 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

technologies and has approved an initial investment of ` 50 crore. The company
plans to enhance its image by recruiting 200 people from the local community.
The company also wants to reduce its carbon footprint by 20% in the next 2 years.
m
m
This development is being keenly watched by company's stakeholders, employees
c. o
c. o
and local communities.
s e m
In order tom
s e achieve its goal, an independent advisor has given two options to the
g l a
l a
company's Board:
g a
afocusing on economic growth and environmental sustainability.
Option A: The Company can invest in advanced recycling technologies thus,

Option B: The Company can develop a community-based waste management
program which prioritises social impact and environmental benefits.
VHIL also required a short-term credit facility of ` 100 crore for a period of 3
months. Anticipating a temporary spike in interest rates, VHIL entered into a 6x9
Forward Rate Agreement (FRA) with Easy Infra Credit Limited (EICL). The actual
m
co
MIBOR on the date of contract (1st October 2025) was 8.10% per annum. However,
.
em
since the company was a regular client of EICL, they mutually decided to agree

s
upon a Forward Rate (FR) of 7.80% per annum.

g l a
Meanwhile, VHIL's management wanted to diversify the company's business
a
beyond manufacturing. The company was facing regular delays in transporting
its products to its domestic as well as international clients due to lack of adequate
heavy trucks, shipping containers and other logistic support. So, the company
decided to take over VCL Logistics Ltd. (VLL), a prominent logistic and cargo
handling company based in the port city of Kandla, Gujarat, VLL, though
possessing a valuable inland network and fleet, has been facing with significant
financial distress due to inexperienced management, complicated regulatory

m
compliances related to international shipping, unstable fuel prices and intense

m
competition both nationally and internationally. VHIL planned to integrate VLL's
.co
c. o logistics abilities to restructure its supply chain for transporting its assembled

se
m
em aproduces various
products to the end users.

s g l
la a information is
The company is having a unit named 'Metal Cast Division' which

ag components required for infrastructure machinery. The following
being provided:

39

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 39 of 70

FINAL EXAMINATION: MAY 2026

RAW MATERIAL

Closing Stock 1,400 units
Cost Price ` 70 per unit
Replacement Cost ` 40 per unit

FINISHED PRODUCT PRODUCT 1 PRODUCT 2
Production 6,000 units 3,200 units
Closing Stock 500 units 300 units

Material Consumed ` 6,40,000
Direct Labour ` 3,20,000
Direct Expenses ` 1,56,000
Fixed Overheads ` 1,90,000 (including godown rent of ` 30,000.
Godown is used for storing finished products).

Besides 2 Main Products, 1,000 units of a By-product also emerged in the
production process which was sold at ` 24 per unit after meeting an expenditure
of ` 5,000. Further, ` 9,600 was realized from sale of scrap. The average market
price of Finished Product 1 is ` 320 per unit and for Finished Product 2 is ` 200
per unit.
A scheme of arrangement was proposed by VHIL for the amalgamation of VLL
into VHIL as per the Companies Act, 2013. Promoters of both the Companies
entered into a binding agreement. The acquisition was to be made through issue
of equity shares to the shareholders of the said target company, as per the valuer's
report and SEBI regulations. The scheme was presented to the National Company
Law Tribunal (NCLT). As part of the process, VHIL made all necessary disclosures
and submitted its latest financial position along with auditor's report and other
annexures to the appropriate authority. The scheme also included an option for
the conversion of VLL's outstanding preference shares into equity shares of VHIL,
as per the valuer's report. The preference shareholders also had an option to
receive arrears of dividend either in cash or equivalent equity shares of VHIL.
VHIL approached the NCLT for necessary directions and approvals. The NCLT
appointed an observer and directed VHIL to call for an extraordinary general

40

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 40 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

meeting of VLL's shareholders and creditors. As directed, an EGM was convened
on 15th March 2025, under the guidance of the observer, as appointed by the
Tribunal. VLL had 50,00,000 equity shares, aggregating to a paid-up capital of
m
m
` 5,00,00,000. The total number of shareholders on the record date was 1,200.
c. o
.co
Out of total, 800 shareholders holding 35,00,000 equity shares of the company
s em
e m
attended this meeting. The voting data revealed that, out of these 800
l a
a s
shareholders, 650 shareholders holding 28,00,000 shares voted in favour of the
l ag
ag
scheme. While 100 shareholders holding 4,00,000 shares voted against it. The
remaining shareholders abstained.
A group of VLL's equity shareholders, holding 8% of the total equity share capital,
voted against the resolution. As over 90% of the shareholders of VLL have already
voted for the resolution proposed by VHIL, the acquirer company issued notice
dated 10th April 2025, to all the dissenting shareholders, expressing its intention
to acquire their equity shares as per the provisions of the Companies Act, 2013.
However, these dissenting shareholders filed an application with the NCLAT on

m
co
5th May 2025, seeking an immediate stay on the proposed amalgamation. The

.
NCLAT, after giving due opportunity to both the parties to present their cases,

em
dismissed the application filed by the dissenting shareholders, on 20th June 2025.

l a s
VHIL, thus, on receipt of the final order from the NCLAT. acquired 75% of the

a g
shares held by these dissenting shareholders. R & Co. LLP, a reputed audit firm,
are the statutory auditors of VHIL. After auditing the financial statements of VHIL,
the auditors have found material misstatement related to the valuation of certain
long-term investments made by the company as on 31st March 2025. So, after
due deliberation with the management of the company, the auditors issued a
qualified audit report dated 1st June 2025.
In order to further expand its business and meet the working capital requirements,
in July 2025, VHIL approached a consortium of public sector banks for a new
m
co
credit facility. The consortium demanded from VHIL, an audited specific element
m .
c. o
of the financial statement related to "Trade Receivables from Government
m
se
Contracts" for the same period and the report was to be prepared by the

s em company's auditors in accordance with a special purpose framework tailored to
g la
gla the loan agreement. VHIL also requested R & Co. LLP to prepare a summary
a
a financial statement for the year ended 31st March 2025. The report was to be
dated 15th July 2025. The company required the said report for public distribution.
The statement for "Trade Receivables from Government Contracts," was prepared
by the finance department of VHIL. The company was of the opinion that the

41

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 41 of 70

FINAL EXAMINATION: MAY 2026

summary financial statements could be presented without making all the general
disclosures, as the same was being accompanied by full audit report.
VHIL's intrusion into automated tunnelling machinery is quantum leap in market
expansion besides product diversification. The tunnelling machinery is a product
of latest technology which is much sought after even on lease basis in many mega
infrastructure products. The marketing team explored a new potential market in
Africa and obtained market research report from various sources. While the
Company wants to launch its tunnelling machine with a huge fanfare, there is
another view to allow lease of machines by incorporating a subsidiary company
in the new market. 2 market research firms gave a report that there is no similar
high end product. However, contrary reports were received such as customers are
conservative, there are already strong players hence, it would be a Me-too product
or it is a evolutionary product. The management of VHIL wants you to prepare a
comprehensive pricing strategy including the impact of entering into joint venture
with a local player. Though, the NCLT's dismissal of the dissenting shareholders'
application on 20th June 2025 has given control to VHIL over VLL, yet the company
still has some minority shareholders which are required to be managed. This
partial acquisition made by the company increased the compliance burden and
highlighted the complexities of corporate amalgamation and the subtle balance
between majority control and minority shareholder rights and interference in
quick decision-making process.
Multiple Choice Questions
[Provide the correct or most appropriate option to the following questions]
4.1 VHIL entered into a 6 x 9 Forward Rate Agreement (FRA) with EICL.
Calculate the settlement amount (profit/loss) for VHIL. (Assume 360 days in
a year and 30 days in a month).
(A) ` 7,35,114 (Profit)
(B) ` 7,50,827 (Profit)
(C) ` 7,35,114 (Loss)
(D) ` 7,50,827 (Loss) (2 Marks)
4.2 In the amalgamation scheme of VLL into VHIL, was the scheme approved by
the requisite majority as per the provisions of the Companies Act, 2013?

42

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 42 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

(A) Yes, because the number of members voting in favour is more than 400
and the value of shares voting in favour is more than 22,00,000.

m
c. o
(B) Yes, because the number of members voting in favour is more than 600

o m
and the value of shares voting in favour is more than 26,25,000.
m
c
(C) Yes,.because the number of members voting in favour is more than 375
s e
m the value of shares voting in favour is more than 24,00,000.
eand l a
s
a Yes, because the number of members voting in favour is more than 375a
l(D) g
g
a and the value of shares voting in favour is more than 25,00,000.
(2 Marks)
4.3 R & Co. LLP issued a qualified opinion on VHIL's complete financial
statements for FY 2024-25 due to a material misstatement in long-term
investments. Subsequently, VHIL requested R & Co. LLP to audit "Trade
Receivables from Government Contracts" for the same period, which

m
constitutes a significant but not major portion of VHIL's total assets. This

. co
specific audit is for a new credit facility and is prepared under a special

em
purpose framework. Which of the following statements is most accurate

l a s
regarding R & Co. LLP's ability to express an unmodified opinion on "Trade

g
Receivables from Government Contracts"?
a
(A) R & Co. LLP cannot express an unmodified opinion on "Trade Receivables
from Government Contracts" because they issued a qualified opinion on
the complete set of financial statements.
(B) R & Co. LLP can express an unmodified opinion on "Trade Receivables
from Government Contracts" only if the report is not published together
with the qualified opinion on the complete set of financial statements.
(C) R & Co. LLP can express an unmodified opinion on "Trade Receivables
m
co
from Government Contracts" provided it does not constitute a major
m .
c. o m
portion of the entity's complete set of financial statements and the report

em se
is not published together with the qualified opinion.

s g la
la
(D) R & Co. LLP can express an unmodified opinion on "Trade Receivables

g a
from Government Contracts" regardless of its proportion to total assets
a or publishing together with the qualified opinion, as it's a separate
engagement. (2 Marks)

43

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 43 of 70

FINAL EXAMINATION: MAY 2026

4.4 In the amalgamation scheme, VHIL has acquired more than 90% of the
shares of the company VLL. VHIL has further acquired shares of the dissenting
shareholders of VLL after dismissal of their application by NCLT and there
still remains dissenting shareholders who continues to hold. What action
VHIL should take to overcome dissenting shareholders?
(A) No action is required because VHIL has acquired a substantial majority
of shares in VLL.
(B) Yes, action is required because once the NCLT dismisses the dissenting
shareholders' application, VHIL is bound to acquire all the remaining
shares of the dissenting shareholders at the rate as determined by the
registered valuer as per rules.
(C) No action is required because the Companies Act, 2013 allows for partial
acquisition of dissenting shares at the transferee company's discretion.
(D) No action is required because the dissenting shareholders should have
been given an exit option before the NCLT dismissal. (2 Marks)
4.5 R & Co. LLP was the statutory auditor for VHIL's Full Financial Statements for
FY 2024-25, issuing a qualified opinion dated 1st June 2025. They were also
engaged to audit Summary Financial Statements for the same period, with a
report dated 15th July 2025. What additional reporting responsibility does R
& Co. LLP have in their report on the Summary Financial Statements due to
the difference in report dates and the qualified opinion on the Full Financial
Statements?
(A) R & Co. LLP must state that the summary financial statements do not
reflect events subsequent to July 15th, 2025 and also describe the basis
for the qualified opinion on the audited financial statements.
(B) R & Co. LLP must state that the Summary Financial Statements do not
reflect events subsequent to 1st June 2025 and also describe the basis for
the qualified opinion on the audited financial statements.
(C) R & Co. LLP must re-audit the full financial statements up to 15 June
2025, before issuing the summary report.
(D) R & Co. LLP must re-audit the full financial statements up to 15th July
2025, before issuing the summary report. (2 Marks)

44

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 44 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

Descriptive Questions
4.6 With reference to the inputs given for one of the operating segments of VHIL
m
c. o
namely 'Metal Cast Division', calculate the value of closing stock as per
m
co
relevant Ind AS on 'Inventories'? (5 Marks)

. em
m
4.7 R & Co. LLP is the statutory auditor for VHIL's full financial statements. VHIL
e l a s
l s
has requested R & Co. LLP to audit a specific element, "Trade Receivables
a ag
ag
from Government Contracts", for the same period, prepared under a special
purpose framework. Discuss the key considerations R & Co. LLP must bear in
mind regarding the acceptance, planning and performance of this
engagement, especially given their existing role as statutory auditor for the
full financial statements. (5 Marks)
4.8 Prepare a pricing strategy to be followed by VHIL based on various
contradictory reports received as regards gaining foothold in an African
Country. (5 Marks)

m
co
ANSWER TO CASE STUDY 4
.
4.1 Option (A): `7,35,114 (Profit)
s em
g l a
4.2 Option (C): Yes, because the number of members voting in favour is more
a
than 375 and the value of shares voting in favour is more than 24,00,000.
4.3 Option (D): R & Co. LLP can express an unmodified opinion on “Trade
Receivables from Government Contracts” regardless of its portion to total
assets or publishing together with the qualified opinion, as it’s a separate
engagement.
4.4 Option (B): Yes, action is required because one the NCLT dismisses the
dissenting shareholders’ application, VHIL is bound to acquire all the

o m
remaining shares of the dissenting shareholders at the rate as determined by

m c
m. do
c. o 4.5 Option (B): R & Co. LLP must sate that the Summary FinancialseStatements
the registered valuer as per rules.

em l a
s
not reflect events subsequent to 1 June 2025 and also describe the basis for
g
st

l a a
the qualified opinion on the audited financial statements.

ag 4.6 Per Ind AS 2 ‘Inventories’, most by-products as well as scrap or waste
materials, by their nature, are immaterial. They are often measured at net
realisable value and this value is deducted from the cost of the main
product.
45

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 45 of 70

FINAL EXAMINATION: MAY 2026

Calculation of value of stocks:
(1) Calculation of NRV of By-product

Selling price of by-product 1,000 units 24,000
Less: Separate processing charges of by- x 24/unit (5,000)
product
Net realisable value of by-product 19,000

(2) Calculation of cost of conversion for allocation between joint
products Main Product 1 (MP1) and Main Product 2 (MP2)

Raw material 6,40,000
Direct Labour 3,20,000
Direct Expenses 1,56,000
Fixed overhead 1,60,000
Less: NRV of by-product (See calculation 1) 19,000
Sale value of scrap 9,600 (28,600)
Joint cost to be allocated between MP1 and 12,47,400
MP2

(3) Determination of “basis for allocation” and allocation of joint cost
to MP1 and MP2

MP I MP 2
Output in units (a) 6,000 3,200
Sales price per unit (b) 320 200
Sales value (a x b) 19,20,000 6,40,000
Ratio of allocation 3 1
Joint cost of ` 12,47,400 allocated in the 9,35,550 3,11,850
ratio of 3:1 (c)
Cost per unit [c/a] 155.925 97.453125

(4) Determination of value of closing stock of MP1 and MP2

Particulars MP I MP 2
Closing stock in units 500 units 300 units
Cost per unit 155.925 97.453125
Value of closing stock 77,962.50 29,235.9375

46

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 46 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

Total closing stock of finished goods = 77,962.50 + 29,235.94
= 1,07,198.44

m
c. o
Closing stock of raw material
m
.co m
Since selling price of both finished goods are more than their cost

m s e
a
price, it is implied that NRV of Finished Goods would be more than the

s e
cost. Hence, raw materials will be valued at cost.
g l
l a a
ag Total closing stock of finished goods = ` 77,962.50 + ` 29,235.94
Closing stock of raw material = 1,400 units x ` 70 = ` 98,000

= ` 1,07,198.44
Total closing stock of raw material =` 98,000.00
Grand total of all closing stock ` 2,05,198.44
4.7 Considerations When Accepting Such Engagement: As per SA 805, a

m
single financial statement or a specific element of a financial statement may

. co
be prepared in accordance with an applicable financial reporting

em
framework that is based on a financial reporting framework established by

a s
an authorised or recognised standards setting organisation for the
l
g
preparation of a complete set of financial statements [e.g., Financial
a
Reporting Framework]. If this is the case, determination of the acceptability
of the applicable framework may involve considering whether that
framework includes all the requirements of the framework on which it is
based that are relevant to the presentation of a single financial statement
or of a specific element of a financial statement that provides adequate
disclosures.
SA 800 states that in case of special purpose financial statements, the

m
financial information needs of the intended users are a key factor in

m
determining the acceptability of the financial reporting framework applied
.co
c. o m
in the preparation of the financial statements. The applicable financial

em
reporting framework may encompass the financial reporting standards
la se
las established by an organisation that is authorised or recognised to
a g
g
promulgate standards for special purpose financial statements.
a The applicable financial reporting framework may encompass the financial
reporting provisions of a contract or sources other than those described in
the preceding paras. In that case, the acceptability of the financial reporting

47

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 47 of 70

FINAL EXAMINATION: MAY 2026

framework in the circumstances of the engagement is determined by
considering whether the framework exhibits attributes normally exhibited
by acceptable financial reporting frameworks in accordance with the
requirements of SA 210.
Considerations When Planning and Performing Such Audit: SA 200
requires the auditor to comply with (a) relevant ethical requirements,
including those pertaining to independence, relating to financial statement
audit engagements, and (b) all SAs relevant to the audit.
It also requires the auditor to comply with each requirement of an SA
unless, in the circumstances of the audit, the entire SA is not relevant, or
the requirement is not relevant because it is conditional and the condition
does not exist. In exceptional circumstances, the auditor may judge it
necessary to depart from a relevant requirement in an SA by performing
alternative audit procedures to achieve the aim of that requirement.
Application of some of the requirements of the SAs in an audit of special
purpose financial statements may require special consideration by the
auditor.
In planning and performing the audit of a single financial statement or of
a specific element of a financial statement, the auditor shall adapt all SAs
relevant to the audit as necessary in the circumstances of the engagement.
The relevance of each of the SAs requires careful consideration. Even when
only a specific element of a financial statement is the subject of the audit,
SAs such as SA 240, SA 550 and SA 570(Revised) are, in principle,
relevant. This is because the element could be misstated as a result of
fraud, the effect of related party transactions, or the incorrect
application of the going concern basis of accounting under the
applicable financial reporting framework.
SA 260(Revised) requires the auditor to determine the appropriate
person(s) within the entity’s governance structure with whom to
communicate.
When auditing a single financial statement or a specific element of a
financial statement in conjunction with the audit of the entity’s complete
set of financial statements, the auditor may be able to use audit evidence
obtained as part of the audit of the entity’s complete set of financial
statements in the audit of the financial statement or the element. SAs,

48

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 48 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

however, require the auditor to plan and perform the audit of the financial
statement or element to obtain sufficient appropriate audit evidence on
which to base the opinion on the financial statement or on the element.
m
m c. o
co
The individual financial statements that comprise a complete set of

. em
s
financial statements, and many of the elements of those financial

e m l a
s
statements, including their related notes, are interrelated. Accordingly,

l a ag
when auditing a single financial statement or a specific element of a

ag
financial statement, the auditor may not be able to consider the financial
statement or the element in isolation. Consequently, the auditor may need
to perform procedures in relation to the interrelated items to meet the
objective of the audit.
Therefore, while accepting and performing the engagement, R & Co. LLP
should comply with SA 800 (Revised) and SA 805 (Revised) and adapt all
relevant SAs to the circumstances of the engagement. Although the firm is
already statutory auditor of VHIL’s complete financial statements and may
m
co
use evidence obtained therein, it must independently plan and perform

.
procedures to obtain sufficient appropriate audit evidence regarding the

s em
specific element. The auditor should also consider governance

l a
communication requirements, interrelationship of financial statement
g
a
items, applicability of fraud/related party/going concern considerations,
and separate materiality determination for the specific element under
audit.
4.8 Pricing strategy for automated tunnelling machinery in the African Market:
1. It is stated by two market research firms that this product is a unique
product and has no such competitor in the African market. This
would mean that VHIL has abundant scope for making the product

m
prominent besides earning huge profit margin. If the market report is

m c. o
correct, the product is first of its nature, the 'skimming pricing' would

c. o emmaking the
be the most appropriate pricing strategy.
2. If the product has to gain foothold in the marketsby
s em public or the users to be aware of its availability, it lisaan evolutionary

gla ag demand can be
a
product and by means of mega advertisement
generated and market hold could be achieved. The price can be
determined by taking cost-benefit, competitor and demand for the
product into account.

49

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 49 of 70

FINAL EXAMINATION: MAY 2026

3. If the market already has players or potential entry of other
machinery manufacturer, the company has to adopt either a cost
based pricing or mark up pricing to play cautiously in the market.
4. If the market information is that the tunnelling machinery is a Me-too
product, the company has to resort to penetration pricing to gain
foothold in the market as in this case market price is determined by
competitive forces for a successful product.
5. All the above strategies could be pursued either by incorporating a
subsidiary company or by means of joint venture with a local player
subject to due diligence.
ALTERNATIVE
VHIL should adopt a flexible and carefully planned pricing strategy
while entering the African market because the market research reports
provide mixed opinions.
Some reports suggest that there is no similar high-end tunnelling machine
available in the market, while other reports indicate that customers are
conservative and strong competitors already exist. Therefore, the company
should not depend on only one pricing method and should design its
strategy according to market conditions and customer acceptance.
Since automated tunnelling machinery is a highly advanced and expensive
product used in large infrastructure projects, customers may hesitate to
make huge upfront investments. Therefore, instead of only selling the
machinery, VHIL can also offer the machines on lease through a
subsidiary company. Leasing would reduce the financial burden on
customers and help the company generate regular long-term income. It
would also help the company attract customers who may not be willing to
purchase the machinery immediately.
In the initial stage, VHIL may adopt a penetration strategy by offering
the machinery at comparatively attractive prices or with flexible
payment terms to gain entry into the market and build customer
confidence. This would help the company establish its presence and
increase acceptance of the product. However, the company should avoid
very low pricing because the machinery represents advanced technology

50

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 50 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

and premium quality. Extremely low pricing may negatively affect the
premium image of the product.

m
c. o
Once the product gains market acceptance, VHIL can gradually shift
m
co
towards value-based pricing. Under this approach, the company would

. em
s
charge prices based on the benefits provided by the machinery such as

e m l a
s
faster project completion, better efficiency, lower labour requirement and

l a ag
advanced technology. Infrastructure companies usually focus more on

ag
long-term cost savings and project efficiency rather than only the initial
purchase price.
If the product is viewed as a “Me-too” product because of existing
competitors, VHIL may adopt competitive pricing by keeping prices
comparable with market players while differentiating itself through
better after-sales service, maintenance support, spare parts
availability and operator training. Such additional support services can
improve customer satisfaction and create competitive advantage.
m
. co
The company should also follow geographical pricing depending upon

em
local conditions in different African countries. Pricing may vary based on

l a s
transportation cost, import duties, economic conditions and infrastructure

g
development of each region.
a
Entering into a joint venture with a local player can further strengthen
VHIL’s pricing strategy. A local partner would have better knowledge
of customer preferences, government procedures and local business
practices. This would help VHIL reduce market entry risk and operational
costs. Due to lower setup and marketing costs, the company may be able
to offer more competitive pricing. A local partner would also improve
customer trust and acceptance, especially in conservative markets.

m
co
The joint venture can also help VHIL share costs relating to marketing,

m .
c. o
servicing and distribution. This would reduce the financial burden on the
m
se
company and provide greater pricing flexibility. Further, local partners

em la
may help in obtaining government projects and local business

las opportunities more easily.
a g
ag Considering the contradictory market reports, VHIL should initially enter
the market gradually through pilot projects, selective leasing arrangements
and strategic partnerships instead of making large aggressive investments

51

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 51 of 70

FINAL EXAMINATION: MAY 2026

immediately. Based on customer response and market acceptance, the
company can later modify its pricing strategy.
Overall, VHIL should adopt a combination of penetration pricing,
value-based pricing, competitive pricing and leasing-based pricing
along with a joint venture approach to successfully establish its
presence in the African market.

CASE STUDY - 5

India's aviation industry has witnessed significant expansion, emerging as the
world's third-largest aviation market by 2025. After a severe downturn in
FY 2020-21 due to the pandemic, the sector rebounded strongly by FY 2024-25,
supported by affordable fares, a rising middle class and improved connectivity
across metros as well as tier-2 and tier-3 cities. Airlines are expanding fleets,
airports are scaling up infrastructure and passenger demand both domestic and
international continues to grow. In FY 2024-25, total passenger traffic reached
220 million, surpassing pre-COVID levels by 25%. Despite this recovery, several
airlines ceased operations between 2021 and 2024 due to financial stress caused
by high aviation turbine fuel prices, depreciation of the Indian rupee against the
US dollar, supply chain disruptions and intense competition. Industry profitability
remained under pressure, with many carriers experiencing an average profit
decline of around 14%. Amid these challenges, Avigo Airlines (Avigo), a business
unit of Avigo Global Limited headquartered in New Delhi, stood out as one of the
few consistently profitable carriers. The airline reported a net profit of ` 6,780
crore in FY2024-25, compared to ` 7,250 crore in FY2023-24. Although profits
declined due to higher fuel costs, foreign exchange losses, increased airport
charges and rising non-fuel operating expenses, the drop was considerably lower
than the industry average. Avigo maintains a dominant 60% domestic market
share.
The Board of Directors of Avigo Global Limited comprises 12 members and is led
by its Chairman, Mr. Karanveer, along with the Managing Director, Mr. Anirudh.
The Board includes five Independent Directors and five Non-Independent
Directors (including one woman director) and is recognized for its strong
corporate governance practices. Founded in 2010 as a low-cost carrier, Avigo
steadily expanded from serving a limited number of Indian cities to operating
approximately 1,900 daily flights across 125 domestic and international

52

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 52 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

destinations. Its fleet primarily consists of Airbus A320 family aircraft, enabling
operational efficiency and cost optimization. Avigo's ultra-low-cost carrier model
is built on aggressive cost control, high aircraft utilization, a point-to-point route
m
m
network and lean staffing structures. Historically achieving on-time performance
c. o
.co
above 75-85%, the airline has strengthened its reputation for reliability and
s em
e m
efficiency. Strategic initiatives such as sale-and-leaseback arrangements,
l a
a s
operating a single aircraft type, maintaining a single-class configuration on
l ag
ag
domestic routes and securing manufacturer-backed maintenance agreements
have further enhanced cost efficiency and productivity. While Avigo initially
operated an all-economy configuration to minimize overhead and interior costs,
it later introduced a dual-class setup on international routes to remain
competitive. Avigo operates on a no-frills model while maintaining a strong focus
on punctuality, safety, cleanliness, seamless transfers and efficient baggage
handling. Consistent branding such as logos on headrest covers and in-flight
magazines further strengthens Avigo's recognition and presence in the market.
Avigo has successfully increased its revenue per available seat kilometer and

o m
c
consolidated its leadership position in India's rapidly growing aviation sector.

m . a net profit of ` 1,575 crore in Q1
e in the second quarter was driven by
In the financial year 2025-26, Avigo reported

a s
and ` 862 crore in Q2. The sharp decrease
l
a g
the depreciation of Indian currency
lease obligations. The operational
and the revaluation of dollar-denominated
crisis in Avigo erupted in November 2025 and
escalated rapidly over the subsequent 20 days marking one of the most
catastrophic days in Indian aviation history. During this disruption period, total
5,000 flights of Avigo Airlines were cancelled over a period of 20 days with peak
daily cancellation of 700 flights, more than 6,00,000 passengers affected and on
time performance decreased to 20%. The primary catalyst emerged from revised
Flight Duty Time Limitations (FDTL) framework, introduced by DGCA in January
2024 to align with international standards. Key changes included mandatory
m
co
weekly rest increased from 30 to 48 consecutive hours, stricter limits on night
m .
c. o m
flying and maximum daily duty hours reduced to prevent fatigue accumulation.

se
These modifications effectively reduced available pilot flying hours by 25%,

s em necessitating proportional staff increase that Avigo failed to implement.
g la
gla a
Passengers faced unprecedented disruptions, including airport waits exceeding

a 12 hours with little support. International travellers were stranded due to single-
entry visa issues, unclaimed baggage piled up at major airports and alternative
carriers tripled fares on key routes, further worsening the crisis. The crisis costs
company ` 600 crore due to compensation paid to passengers, fines imposed by

53

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 53 of 70

FINAL EXAMINATION: MAY 2026

the Government in meeting deadlines. Company reported 60% decline in the
December Quarter net profit at ` 345 crore. The primary causes of Avigo's
operational failure stemmed from an over extended lean operating model that
lacked adequate structural support. Key issues included ineffective workforce
planning, out dated or insufficient rostering technology and cost-cutting culture
that prioritized aggressive optimization over investment in infrastructure and
operational resilience. Early warning signals from FDTL concerns were reportedly
overlooked, compounding crew availability challenges. Additionally, the airline's
dominant market position may have fostered complacency, further delaying
critical investments in systems, staffing depth and contingency planning. The
Board established a Crisis Management Group (CMG), chaired by Karanveer Singh
and supported by three Independent Directors, to oversee the November 2025
operational breakdown caused by crew shortages, software issues and network
planning challenges. The CMG met daily to restore operational integrity.
Avigo implemented immediate stabilisation measures and long-term reforms,
including a temporary 7% flight reduction, improved crew rostering and
coordination with the aviation regulator for flexible duty rules. To rebuild
passenger confidence, the airline offered refunds and compensation and launched
a recruitment drive to hire over 750 pilots and other administrative staff, to
prevent future staff shortages.
During a Board Meeting held on 15th December 2025, the Board members
reviewed the root causes of recent operational crisis in detail and discussed
appropriate measures to prevent its recurrence. It was unanimously decided to
commit 3% of annual revenue to IT infrastructure modernisation and to
implement Al driven predictive rostering and disruptive management systems to
strengthen operational reliance. Mr. Neeraj, an Independent Director holding a
Master's degree in Business Administration from the Indian Institute of
Management, Pune, recommended adopting the McKinsey 7S Model to ensure
that the planned initiatives are implemented effectively and sustained over the
long term. In view of the increased responsibilities of the directors compared to
the previous year, the Board of Directors have decided, by way of altering the
Articles of Association through a special resolution, to revise the sitting fees for
Board meetings from ` 50,000 per meeting to ` 60,000 per meeting for all
directors other than independent directors and women director and to ` 75,000
per meeting for all independent directors and women director.

54

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 54 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

In March 2026, anticipating a decline in market interest rates, the Chief Financial
Officer (CFO) is considering the call of ` 500 crore of 10-year bonds with a face
value of ` 1,000 each, issued five years ago with a callable feature at a coupon
m
m
rate of 13%. The bonds were issued at a premium of ` 50 per bond, generating
c. o
.co
total proceeds of ` 525 crore and incurred an initial flotation cost of ` 1.20 crore.
s em
me
They are currently callable at ` 1,100 per bond. To refinance the existing debt,
l a
a s
the company plans to issue ` 500 crore of new 11%, 10 year bonds at par value
g
l per bond), with an estimated floatation cost of ` 1.50 crore. The after-a
ataxg cost of debt is 8% and floatation cost is written off for tax purpose in five
(` 1,000

years. The CFO has instructed CA Ankit, Finance Manager, to assess the viability
and financial implications of retiring the bonds by the end of March 2026. The
company tax rate is 25%.
Avigo Global Limited had entered into a lease arrangement on 1st April 2021 for
office space measuring ` 6,000 sq. ft. for a period of 10 years. As per the terms of
the agreement, lease payments of ` 6,00,000 per annum were payable in advance
m
co
at the beginning of each year. The agreement also provided an option to extend

.
the lease for an additional period of 5 years at an annual rent of ` 8,00,000. It is

s em
the company's policy to depreciate RoU asset on straight line basis. However, the

l a
Company had not shown any intention to exercise the extension option at the
g
a
time of lease agreement. The Company had incurred initial direct costs
amounting to ` 3,00,000 in connection with the lease. The incremental borrowing
rate at the commencement date, i.e., 1st April 2021 was 11% per annum. In March
2026, due to space constraints arising from the recruitment of additional staff in
the next year, the Company decided to take on lease an additional 3,000 sq. ft. in
the same building. It is decided to enter into a separate lease agreement for
additional space for a period of 9 years and the additional space will be available
for use from March 2027. The incremental borrowing rate as of 31st March 2026

m
is 12% per annum. The company also decided to exercise the extension option

m team of four officers from Income-tax Department descendedm.upon thec o
relating to the original 6,000 sq. ft. lease at the end of the year 2025-26.

c. o Acompany's s e TDS survey
em l aformalities, they
Head Office at New Delhi on 15 February 2026 to conduct
s
th

la g
a 2024-25 and three
under Income-tax Act, 1961. After completing the necessary

ag asked for the TDS returns filed during the financial year
quarters of 2025-26. After perusing the company's accounts, bills and TDS
returns, the team summarised following points in the matter of TDS deduction
and incidental issues:

55

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 55 of 70

FINAL EXAMINATION: MAY 2026

(i) Company has made payment of lease rent of ` 24 crore to PQR Fleet Services
IFSC Limited located in Gujarat International Finance Tec-City for lease of an
aircraft which commenced in June 2025. Neither tax has been deducted on
lease rent paid during the year nor these payments have been reported in
TDS returns filed by the company.
(ii) Company has paid landing and parking charges of ` 12 crore to Airport
Authority of India and 8 crore to private airport operators. The company has
deducted tax @ 2% instead of 10% as the payments are in the nature of rent
paid for use of space.
(iii) Company has taken an engine on lease in financial year 2025-26 under an
arrangement with a foreign company, a tax resident of Germany. Company
deducted tax at source @ 10% on lease rental paid as per the provisions
contained under DTAA between India and Germany. Chief Accountant
informed that foreign company has no permanent establishment in India.
However, revenue officers contended that in the absence of furnishing of
PAN, TDS is to be deducted at a higher rate of 20% as per the relevant
provisions of Income-tax Act, 1961.
(iv) The Company allowed exemptions and deductions to its employees during
financial year 2024-25 relevant to Assessment Year 2025-26 on account of
House Rent Allowance (HRA), Leave Travel Concession (LTC) and deductions
under Chapter VI-A of the Income-tax Act, 1961. In cases, where the monthly
rent exceeded ` 10,000, the Company accepted cash rent receipts containing
only the address of the property as supporting evidence. Further, exemption
in respect of Leave Travel Concession was allowed on self-declaration
submitted by employees who had exercised the option to opt out of the new
tax regime under Section 115BAC. During verification conducted in financial
year 2025-26, it was observed that in 10 cases the rent receipts furnished by
employees were not found to be genuine. It was further noticed that in 20
cases, employees ultimately filed their returns of income under the new tax
regime and discharged the tax liability accordingly at the time of filing their
returns. Before leaving, the income-tax officer issued show cause notice in
respect of above issues.
In the financial year 2025-26, Avigo enhanced the passenger experience by
offering complimentary high-speed WiFi for economy class travellers and
meals on board, with the value of these meals included in the fare. The
company partnered with Royal Caterers Pvt. Ltd., an outdoor catering service,

56

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 56 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

to provide these meals. In February 2026, Avigo collected a total of ` 2,000
crore (excluding GST) from both domestic and international flights. Of this,
` 1,600 crore was generated from economy class passengers, which includes
m
m
` 60 crore as Passenger Service Fee (PSF) and ` 50 crore as User Development
c. o
.co
Fee (UDF). Additionally, ` 400 crore was collected from business class
s em
e m
passengers, which includes ` 12 crore as PSF and ` 8 crore as UDF. Royal
l a
l a s
Caterers Pvt. Ltd. submitted a tax invoice for ` 5.90 crore (including IGST
ag
ag
18%). Total ITC available in GSTR 2B for the month of February 2026 is
` 26.50 crore. The applicable GST rates are 5% on economy class fares, 18%
on business class fares and 18% on PSF and UDF payable by airline operator.
Multiple Choice Questions
Provide the correct or most appropriate option to the following questions
5.1 Match the following attributes of the Kano Model to the corresponding
services offered by Avigo to its customers:

m
c. o
Attribute Services

emBaggage handing
a. Basic 1. Free Hingh- Speed Wi-fi

s
la on headrest covers and in-flight magazines
b. Performance 2. Efficient
c. Delighter
a g
3. Logos
d. Indifferent 4. Seamless Transfers

Options:
(A) a-3, b-1, c-2, d-4
(B) a-2, b-4, c-1, d-3
(C) a-1, b-3, c-4, d-2
(D) a-4, b-2, c-3, d-1
o m (2 Marks)
c
m 5.2 What is the financial impact i.e. NPV of retiring the bonds? (PVIFAm8%,
. 106.71
c. o s e
m a
and PVIFA 8%, 5=3.99)

s e g l
la a
(A) NPV of redeeming bonds is ` 10.82 crore

ag (B) NPV of redeeming bonds is ` 25.84 crore
(C) NPV of redeeming bonds is ` 36.63 crore
(D) NPV of redeeming bonds is ` 24.13 crore (2 Marks)

57

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 57 of 70

FINAL EXAMINATION: MAY 2026

5.3 Which of the following statement(s) is/are incorrect in regard to deduction of
tax at source from salary in view of the information given in the case study
as per the relevant provisions of Income-tax Act, 1961?
(i) Company cannot be treated as assessee in default because it has
correctly deducted TDS on the basis of evidences submitted by the
employees and employees have already filed income tax returns.
(ii) Company will be subject to interest and it is payable even where the
company is not deemed to be an assessee in default.
(iii) Company will be subject to penalty under Section 221 and not Section
271C, once short deduction under Section 192 is established.
(iv) Receipt of intimation from employees automatically relieves the
employer from verifying the admissibility or correctness of HRA, LTC, or
other deductions.
Options:
(A) (ii) only
(B) (ii) and (iv)
(C) (i) (iii), (iv)
(D) (i), (ii) (iii), (iv) (2 Marks)
5.4 Which of the following statements is fully correct as per the relevant
provisions of CGST Act, 2017?
(A) Meals supplied on board constitute a mixed supply and ITC in respect of
outdoor catering is available as the same is used to making outward
taxable supply as an element of taxable supply. The total GST (net of
ITC) payable by Avigo is ` 125.5 crore, PSF and UDF form part of airfare
value taxable at 18% for economy and business class.
(B) Meals supplied on board constitute a composite supply with air
transportation as principal supply but ITC on outdoor catering services
is blocked. The total GST (net of ITC) payable by Avigo is ` 117.30 crore
and PSF and UDF form part of airfare value taxable at 18% for economy
and business class and it will take ITC of GST on PSF & UDF paid to
airport operators.

58

For more Question Papers, Sample Papers, Notes & Syllabus visit Page 58 of 70

m
m .co
c. o

e m
em l a s
s a g
INTEGRATED BUSINESS SOLUTIONS

(C) Meals supplied on board constitute a composite supply with air
transportation as principal supply and ITC in respect of outdoor catering
is available as the same is used to making outward taxable supply as an
m
m
element of a taxable composite supply. The total GST (net of ITC) payable
c. o
.co
by Avigo is ` 116.40 crore, PSF & UDF are statutory levies collected as
s em
e m
agent of airport operator and excluded from taxable value of airfare.
l a
l a s
(D) Meals supplied on board constitute a composite supply with air
ag
ag
transportation as principal supply and ITC in respect of outdoor catering
is available as the same is used to making outward taxable supply as an
element of a taxable composite supply. The total GST (net of ITC) payable
by Avigo is ` 116.40 crore and it will take ITC of GST on PSF & UDF paid
to airport operators. (2 Marks)
5.5 Which of the following statement is correct as regards the proposed
enhancement of sitting fees as per the provisions of the Companies Act,
2013?
m
. co
(A) The proposal to increase the sitting fee to ` 75,000 for Independent

em
Directors and Women Director cannot be accepted, as all directors are

l a s
required to receive equal sitting fees per meeting.

a g
(B) The proposal to increase the sitting fee to ` 75,000 only for women
director can be accepted, as all other directors must receive equal sitting
fees per meeting.
(C) The proposal to increase the sitting fee to ` 60,000 per meeting for all
directors other than Independent Directors and Women Directors and to
` 75,000 per meeting for Independent Directors and Women Director,
can be accepted, as the sitting fee is within the maximum permissible
limit.

m
co
(D) The proposal to increase the sitting fee to ` 60,000 per meeting for all
m .
c. o m
directors other than Independent Directors and Women Directors and to

em se
` 75,000 per meeting for Independent Directors and Women Director,

s g
can be accepted provided it is approved by the shareholders in a general
la
gla meeting.
a
(2 Marks)

a Descriptive Questions
5.6 How can Avigo Global Limited align and integrate all seven elements of the
McKinsey's 7S framework to strengthen operational robustness, enhance

59

m .
.co s e m
e m l a
l a s a g
ag For more Question Papers, Sample Papers, Notes & Syllabus visit Page 59 of 70