CS Professional December 2025 Question Paper Advanced Direct Tax Laws and Practice

FOR CS PROFESSIONAL EXAM PREPARATION

CS Professional 2025
Question Paper ·
Advanced Direct Tax
Laws and Practice
EXAM YEAR TYPE

CS Professional 2025 Question Paper
SUBJECT DATE

Advanced Direct Tax Laws and Practice December 2025

Notes · Sample Papers · Previous Year Papers · Mock Tests

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Roll No. ..................................... :1: OPEN BOOK EXAMINATION

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Time allowed : 3 hours
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Maximum marks : 100
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Total number of questions : 6 Total number of printed pages

NOTE : (1) Answer ALL Questions.

(2) All the references of the question paper relate to the Income-tax Act. 1961 and

relevant Assessment Year 2025-26 unless stated otherwise.

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(3) Wherever necessary, suitable assumption can be made and the same to be stated

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clearly in the answer.

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(4) Working notes should form part of the answer.

1. a
Frency and Falak Tyres Limited, an Indian Company engaged in the manufacture of Tyres

in Gujrat, has adopted Ind AS from 1-4-2020. The following particulars are provided for

the year ended 31-3-2025 :

Net profit as per statement of profit and loss is ` l8 crores after considering the following items :

Items Debited :
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. amount provided
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Depreciation ` l5 crores. Included in depreciation is ` 2 crores, being
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on revalued assets.

g a crores.
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(ii) Provision for the loss of subsidiary company ` 5.4

(iii) Provision for gratuity based on actuarial valuation ` 30 lakhs.

(iv) Provision for income-tax ` 72 lakhs. It includes ` 3 lakhs of interest payable on

income-tax.
2/2025/ADTLP/OBE P.T.O.

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(v) Interest charged for delay in remittance of tax deducted at source ` 20 lakhs.
(vi) Amount debited to the Statement of Profit and Loss towards interest to a public
financial institution is ` 7 lakhs. Out of this, ` 3 lakhs were paid on l2-11-2025.
Items Credited :
(i) Share of income from Association of Persons in which the company is a member
` 62 lakhs. (The AOP is charged to tax at Maximum Marginal Rate)
(ii) Profit from unit established in Special Economic Zone ` 12.5 lakhs.
(iii) Amount of ` 4 crores withdrawn from revaluation reserves on account of revaluation
of assets.
(iv) Dividend from Indian companies (listed) ` 1.6 crores.
(v) Short term capital gains on Sale of Listed Equity Share ` 1.3 crores.
Other Information :
(1) The application of a financial creditor for corporate insolvency resolution process has
been admitted by the Hyderabad Bench of the National Company Law Tribunal under
section 7 of the Insolvency and Bankruptcy Code, 2016
(2) Brought forward business loss and unabsorbed depreciation of Company :
Assessment Year Business Loss Depreciation
2021-22 ` 2 crores ` 3 crores
2022-23 ` 5 crores ` 2 crores
(3) Items credited to other comprehensive income which will not be reclassified to profit
or loss :
(i) Re-measurement of defined employee retirement benefits plan ` 30 lakhs.
(ii) Revaluation surplus of property, plant and equipment ` 1 crore.

2/2025/ADTLP/OBE Contd. ........

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(4) The transition amount as on convergence date 1-4-2020 stood at ` 5 crores including

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capital reserve of ` 50 lakhs (credit balance).

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(5)
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Tax payable under the regular provisions of the Income Tax Act, 1961 is ` 1.75
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crores.

a on the information provided :
Based

(a) Compute the Book Profit u/s 1l5JB of the Income Tax Act, l961 for the company

for the Assessment Year 2025-26.

(15 marks)

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(b) Compute the Minimum Alternate Tax (MAT) payable by the company for the Assessment

Year 2025-26.
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(5 marks)

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(c) Compute the amount of eligible MAT Credit u/s 115JAA of the Income Tax Act,

1961 to be carried forward by the company. Also explain the time limit for carry

forward of such MAT Credit.

(5 marks)

2. Mr. Balwant, a resident individual, engaged in retail trade, reports a turnover of ` 2,97,50,000

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for financial year 2024-25. The amount received in cash during the PY 2024-25 is ` 13,50,000
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c. o and balance through prescribed electronic modes on or before s31st e m October 2025.

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per the provisions of chapter IV-D ‘‘Profits and Gains from Business or Profession’’ of the

Income Tax Act, 1961. Retail trade is the only source of income for Mr. Balwant. Assessment

year 2024-25 was the first year for which he declared his business income in accordance

with the provisions of presumptive taxation u/s 44AD.

2/2025/ADTLP/OBE P.T.O.

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In this background, you are requested to answer the following :

(i) Is Mr. Balwant eligible to opt for presumptive taxation for A.Y. 2025-26 ? For whom

the presumptive taxation scheme of section 44AD is designed ?

(ii) Are there any businesses which are not covered under the presumptive taxation scheme

of section 44AD ?

(iii) Is presumptive income computed as per the prescribed rate is the final income ?

Any further expenses will be allowed or not ?

(iv) Determine the income of Balwant from retail trade as per the applicable presumptive

provisions.

(v) What are the consequences if Balwant opts out from the presumptive taxation scheme

of section 44AD ?

(3 marks each)

3. (a) Shanti (P) Ltd. is in the business of manufacturing electronic goods. For the assessment

year 2025-26, it paid tax @15% on its book profit computed under section 115JB

(MAT Provisions). The Assessing Officer though satisfied that it is liable to pay book

profit tax under section 115JB.

Shanti (P) Ltd. has not paid any installment of advance tax during the previous year

2024-25 and therefore, assessing officer wants to charge interest under sections 234B

and 234C. The company seeks your opinion on the proposed levy of interest.

(5 marks)

(b) Ajay a resident individual aged 32 years, sold a plot of land on 17th March 2025.

LTCG on such sale amounted to 5,00,000. Since he had no other income during

PY 2024-25, he did not pay any advance tax instalment.
2/2025/ADTLP/OBE Contd. ........

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You are required to calculate the amount of advance tax payable by Ajay, if any

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assuming that he has followed old tax regime (OTR). Base your answer on the relevant
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.corelating to the payment of advance tax on income from capital gain ands e m
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provisions

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advise
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(c)a
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Varsha (P) Ltd., Bhopal has 2 centres viz. Unit A at Jabalpur and Unit B at Indore.
Unit A is eligible for deduction under section 80-IB of the Income-tax Act. During
the financial year 2023-24, the company earned a net profit of ` 83,00,000 from
Unit A and suffered a loss of ` 31,00,000 from Unit B. The assessee claimed 100%
of the profits from Unit A (amounting to ` 83,00,000) as a deduction under section

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80-IB. However, the Assessing Officer applied section 80AB and allowed deduction
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only to the extent of income under the head ‘Profits and gains of business and profession’.
i.e., ` 52 lakhs.
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Explain whether the action
(5 marks)
Attempt all parts of either Q. No. 4 or Q. No. 4A

4. (a) M/s Joshi Ranga & Sons, a partnership firm consisting of two partners, reports a
net profit of ` 12,25,000 for the financial year 2024-25, before deduction of the

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following items :

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. partners of the
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— Salary of ` 32,000 each per month payable to two working

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gla Depreciation on plant and machinery underasection 32 is ` 1,75,000
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—

— Interest on capital @ l5% per annum (as per the deed of partnership). The
amount of capital eligible for interest is ` 6,00,000 each for both partners.

— Carry forward of business loss of P.Y. 2023-24 – ` 85,000.
2/2025/ADTLP/OBE P.T.O.

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In this background, you are requested to answer the following :
(i) Compute the Book-profit of the firm under section 40(b) of the Income Tax
Act, l96l for Assessment Year 2025-26.
(ii) Compute the amount of allowed salary that can be paid to working partners
as per section 40(b) of the Income Tax Act, 1961.
(5 marks)
(b) Ankita Arora aged 63 years and a resident in India, has a total income of ` 1,20,00,000
comprising :
– Income from trading in crypto currency ` 22,00,000 on 1st January, 2025
taxable under section 115BBH.
– Short-term capital gain on sale of listed equity shares on 15th December, 2024
taxable under section 111A of ` 35,00,000 and
– Business income during the financial year 2024-25 was ` 63,00,000.
Compute her tax liability for A.Y. 2025-26. Assume that she has opted for the default
provisions of new tax regime under section 115BAC.

(5 marks)

(c) Renoll Food and Disposal Ltd. wants to sell one of its Food units (unit first) out of
two units on 30th March, 2025, which was set up in June, 2017. Total consideration
for sale of Food unit as a going concern by way of Slump Sale is ` 47,80,000. The
summarized financial position of Food unit as on 30th March. 2025 is as under :

Capital and Liabilities Amount (`) Assets Amount (`)

Paid up capital 18,00,000 Fixed assets 19,00,000

General Reserve 12,20,000 Debtors 15,00,000

Revaluation Reserve 10,50,000 Inventories 13,00,000

Current liabilities 6,30,000

47,00,000 47,00,000

2/2025/ADTLP/OBE Contd. ........

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Following additional informations are provided by company as under :

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(1) Fixed assets include Land purchased at ` 12,50,000 in October, 2020 revalued

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s e For the remaining fixed assets, their written down value as per the Income-
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(2)
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a tax Act, 1961 is ` 3,50,000.

(3) Cost index number for F.Y. 2024-25 is 363: F.Y. 2016-17 is 264: F.Y. 2017-
18 is 272; and F.Y. 2020-21 is 301.

Compute the Capital Gain arising on sale of Food unit of Renoll Food and Disposal
Ltd. for the assessment year 2025-26.
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(5 marks)

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OR (Alternate Question to Q. No. 4)
4A. (i) a
ABC Ltd., Chennai is a part of a large multi-national group. It is engaged in the
manufacturing of kids’ high-quality toys. During the financial year 2024-25, it sold
goods to its foreign associated enterprise, Micky Inc. of UK as well as to some
unrelated parties in India and the U.K.

During the course of the assessment, the Transfer Pricing Officer computed arm’s length

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price and the Assessing Officer (AO) applied it on all the transactions, with associated
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enterprises as well as with unrelated parties.

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ABC Ltd. aggrieved with the adjustment made by AO, seeks
the action of the Assessing Officer is valid or nota?
your opinion whether

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(5 marks)

(ii) Mohit Ltd. filed its return of income under section 139(l) on 14th September, 2023
for A.Y. 2023-24. The return was found to be defective, and an intimation was issued
2/2025/ADTLP/OBE P.T.O.

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on 11th May, 2024, directing the assessee to rectify the defects within l5 days. The
defects were rectified on 20th May, 2024. The return was processed, and intimation
was sent on l6th July, 2024. Subsequently, the Assessing Officer issued a notice under
section 143(2) on 23rd June, 2025.

Company Secretary of Mohit Ltd. contended that the notice was barred by limitation
since it was issued beyond the permissible time limit. Examine the validity of the notice
issued under section 143(2) by the Assessing Officer.

(5 marks)

(iii) Greenwood Trust, registered under section 10(23C) (iv) as a charitable educational
trust, is undergoing assessment under section 143(3). The Assessing Officer discovers
that the trust has diverted a significant portion of its income for purposes other than
charitable activities, violating the conditions for exemption under section 10(23C) (iv).
Greenwood Trust argues that it has rectified the diversion and should still be eligible
for the exemption.

Does the Assessing Officer have the authority to deny the exemption claimed by
Greenwood Trust under section l0(23C) (iv) ? Analyse.

(5 marks)

5. Mrs. Radha Chandra, aged 65 years a Resident and ordinary resident in India during the
financial year 2024-25. She is Indian classical singer and composer who performs concerts
in India and Country P. She visits Country P every year during the music season in December
to participate in the Mega music concert held there on the occasion of Christmas. For the
rest of the year, she performs concerts in India. She provides the following information relating
to financial year 2024-25 :

(i) Income from concerts held — In India - ` l5 lakhs.

2/2025/ADTLP/OBE Contd. ........

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(ii) Income from concerts held — In Country P - GBP 7,000 (Tax deducted in Country

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P in December, 2024 in respect of income earned by her in that country was 2,000
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GBP).

s e received dividend from an Indian Company – ` 45,000 (after deducting the
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(iii)
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She
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(iv) She also earns Agricultural income of JPY 13,09,000 from Country Q on 25th March,
2025. The expenses incurred by Mrs. Radha Chandra relating to such agricultural
income is JPY 1,53,000. The rate of Income Tax in Country Q is 18%.

(v) In India, she has Interest income of ` 2 lakhs from IDBI Bank fixed deposits in

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her name and ` 15,000 from IDBI savings bank account.

m . of ` 22,000 to insure her health and ` 32,000
(vi)
s e a resident aged 66 years.
She pays medical insurance permium
to insure the health of herahusband,
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(vii) She deposits ` 1.50 lakhs in public provident fund and ` 3 lakhs in five-year fixed
deposit in SBI Bank on 31-03-2025.

The conversion rates may be taken as follows :

Country Rate

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Country P 1 GBP = ` 120

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Country Q 1 ` = 1.70 JPY

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India has no double taxation avoidance agreement with Country P and Country Q.

ag Compute the total income and net tax liability (after taking the relief under section
91) of Mrs. Radha Chandra for A.Y. 2025-26, if she has opted out from the default
tax regime u/s 115BAC.

(15 marks)
2/2025/ADTLP/OBE P.T.O.

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Attempt all parts of either Q. No. 6 or Q. No. 6A

6. (a) Comment on the following independent situations, whether Jack Ltd. and Jill Inc. constitute
associated enterprises under the provisions of Section 92A of the Income Tax Act,
1961 :

(i) Jill Inc. has advanced a loan of ` 30 crores to Jack Ltd. on 12-1-2025.
The total book value of assets of Jack Ltd. is ` 50 crores. The market
value of the assets, however, is ` 65 crores. Jack Ltd. repaid 10 crores
before 31-3-2025.

(ii) Jack Ltd. is engaged in trading of furniture. During the previous year 2024-
25 it purchases furniture of ` 90 lakhs from Jill Inc. Total purchases of Jack
Ltd. during the year 2024-25 is ` 95 lakhs.

(iii) Jill Inc. has the power to appoint 3 of the directors of Jack Ltd., whose
total number of directors in the Board is 6.

(iv) Jack Ltd. holds whole of equity share capital of Rita Ltd. Rita Ltd. holds
30% equity shares of Jill Inc. Jack Ltd. also holds 60% of preference share
capital of Jill Inc.

(v) Jack Ltd. borrowed 50 crores from HSBC Bank for which 100% guarantee
was given by Jill Inc. The total borrowings of Jack Ltd. 800 crores.

(b) On l5th August 2024, Smt. Vandana, maternal aunt of Suresh, transferred ` 65 lakhs
in his account. In this case, additions were made by the Assessing Officer, under
section 68 of Income Tax Act, 1961 on the grounds that assessee had failed to
show why, without any occasion, ` 65 lakhs had been gifted by the maternal aunt
without any consideration.

Comment, whether the action of assessing officer for unexplained addition under section
68 is tenable ?

(c) Discuss the role of technology in enhancing direct tax compliance in India. What are
the key benefits of technological Innovations in Tax Compliance ?

(5 marks each)
2/2025/ADTLP/OBE Contd. ........

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OR (Alternate Question to Q. No. 6)

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6A. (i) Explain the cases where provision of GAAR is not applicable under Rule 10U of

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em LLP has an income of ` 90,00,000 under the head profits andglgains s
the Income

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(ii) CAMBAY

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of profits under section 80-IB. The profit from such business included in the business
income is ` 70,00,000.

Compute the tax payable by the CAMBAY LLP for the A.Y. 2025-26, assuming
that it has no other income during the previous year 2024-25 and AMT rate is 18.50%.

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. following information of certain entities and
(iii) Simi Techno Ltd. (STL) is an Indian company, having its head office in Mumbai.

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e these companies :
For the P.Y. 2024-25, it furnished the

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the transactions undertaken with

a foreign subsidiary in USA of STL. It is currently paying
Johns Inc. is a wholly owned
royalty of USD 4 million per annum to STL for supply of know-how. For similar
supply of know-how to Byte LLC., a wholly owned Government Company in USA,
STL receives annual royalty of USD 5 million. (1 USD = ` 83).

STL supplies goods to Perfect Work Ltd. (PWL), in Singapore. The paid-up capital

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tune of ` 26 crores in PWL. The voting power in the company is .directly proportional
of PWL in foreign currency equivalent is ` 108 crores. STL holds shares to the

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s em to the number of shares held.
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You are required to examine the above-mentioned transactions entered into by STL
and determine the applicability of transfer pricing provisions for each transaction.

(5 marks each)

————— o —————
2/2025/ADTLP/OBE P.T.O.

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