CA Final November 2024 Suggested Answers Paper 4 Direct Tax Laws and International Taxation

FOR CA FINAL EXAM PREPARATION

CA Final 2024
Suggested Answers ·
Paper 4 Direct Tax
Laws and International
Taxation
EXAM YEAR TYPE

CA Final 2024 Suggested Answers
SUBJECT DATE

Paper 4 Direct Tax Laws and International Taxation November 2024

Notes · Sample Papers · Previous Year Papers · Mock Tests

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PAPER – 4: DIRECT TAX LAWS &
INTERNATIONAL TAXATION
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PART I

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All questions relate to Assessment Year 2024-25, unless stated
otherwise in the question.
1. A charitable institution, engaged in education of Yoga in India, registered
under section 12AB of the Income-tax Act, 1961 for the previous year ended
31 March 2024, received the following amounts of donation:
(i) Total donations during the year ` 40,00,000
(ii) Anonymous donations received ` 10,00,000

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(Included in total donations)

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e Act, 1961.
What amount of anonymous donations

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Section 115BBC of the Income-tax
A. ` 1,00,000
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B. ` 8,00,000
C. NIL
D. ` 2,00,000 (2 Marks)
2. Mr. Bela Kapoor, furnishes the following particulars for the previous year
2023-24. What would be the amount of deduction allowable under section

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35 for A.Y.2024-25, while computing his income under the head "Profits and

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gains of business or profession", if he is paying tax under default tax regime
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under section 115BAC?

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Particulars
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las Amount paid to IIT, Delhi for an approved scientific research
a g 1,50,000

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Amount paid to Ramaya Ltd., a company registered in India
3,00,000
which has as its main object scientific research and
development, as is approved by the prescribed authority

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FINAL EXAMINATION: NOVEMBER 2024

Expenditure incurred on in-house scientific research and
development facility as approved by the prescribed
authority related to his business
(a) Revenue expenditure on scientific research 3,00,000
(b) Capital expenditure (including cost of acquisition of 9,50,000
land ` 8,00,000) on scientific research

(A) ` Nil
(B) ` 4,50,000
(C) ` 16,00,000
(D) ` 9,00,000 (2 Marks)
3. Mr. K, Managing Director of Kairon Metals Private Ltd, holds 70% of its paid
up capital of ` 20 lakhs. The balance as at 31.03.2023 in General Reserve
was ` 7 lakhs. The company on 01.04.2023 gave an interest-free loan of
` 8.50 lakhs to its Supervisor having salary of ` 15,500 p.m., who in turn on
25.04.2023, advanced the said amount of loan so taken from the company
to Mr. K. What amount would be treated as deemed dividend u/s 2(22)(e) of
the Income-tax Act, 1961?
A. NIL
B. ` 7,00,000
C. ` 8,50,000
D. ` 4,90,000 (2 Marks)
Case Scenario - I
M/s Gamma Ltd. is an Indian company engaged in providing consultancy and
business advisory services. During the previous year 2023-24, it received the
following loans in cash from various vendors due to some business exigency:
` 3,00,000 availed from Mr. Arun on 20.04.2023.
` 19,500 availed from Mr. Raj on 20.05.2023.
` 20,500 availed from Mr. Sunil on 20.06.2023
Further, the company made the following loan repayments during the year:
` 18,000 to Mr. Arun on 15.07.2023 in crossed cheque.

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` 1,25,000 to Mr. Arun on 10.08.2023 through account payee cheque.
` 21,000 to Mr. Arun on 08.10.2023 through RTGS.
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` 3,000 to Mr. Arun on 12.12.2023 through cash.
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M/s Gamma Ltd. also furnished the following particulars for assessment year
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2024-25:

a Amount (`) g
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a 1 As per the return of income furnished under section (10,00,000)
No.

139(1)
2 Determined under section 143(1)(a) (5,00,000)
3 Assessed under section 143(3) (1,00,000)
4 Reassessed under section 147 5,00,000

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The total turnover of Gamma Ltd. for the P.Y. 2021-22 was ` 405 crores. Ignore the
provisions of section 115BAA/115BAB.

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From the information given above, choose

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ag leviable on repayment of loan to Mr. Arun?
questions 4 to 7:-
4. What is the amount of penalty
A. No penalty is leviable since the repayment otherwise than by way of
prescribed modes is less than ` 20,000
B Penalty of ` 21,000 under section 271E
C. Penalty of ` 3,000 under section 271D
D. Penalty of ` 24,000 under section 271E (2 Marks)

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5. Assuming that the underreporting of income is on account of misreporting,

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penalty leviable on M/s. Gamma Ltd. under section 270A at the time of

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assessment u/s 143(3) would be?

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A. ` 6,24,000

ag B. ` 1,87,200
C. ` 1,24,800
D. ` 2,49,600 (2 Marks)

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FINAL EXAMINATION: NOVEMBER 2024

6. What is the amount of penalty, if any, which would be leviable on
M/s Gamma Ltd. for availing loan in cash from various vendors?
A. Penalty of ` 3,20,500 under section 271D
B. Penalty of ` 3,40,000 under section 271E
C Penalty of ` 3,40,000 under section 271D
D. Penalty of ` 3,19,500 under section 271E (2 Marks)
7. Assuming that the underreporting of income is not on account of
misreporting and none of the additions or disallowances made in
assessment qualifies under section 270A(6), penalty leviable on
M/s. Gamma Ltd. under section 270A at the time of reassessment u/s 147
would be?
A. ` 93,600
B. ` 62.400
C ` 1,56,000
D. ` 1,40,400 (2 Marks)
Case Scenario - II
Madhav, a non-resident Indian aged 45 years, furnishes following particulars of
income earned by him in India during the previous year 2023-24:
(i) Short term capital gain (computed) on sale of equity shares of M/s PQ Ltd.,
an Indian company ` 2,00,000. These shares were purchased in convertible
foreign exchange on 01.06.2023 and sold on 31.01.2024. He invested whole
of the sale proceeds ` 5,00,000 in the shares of M/s RS Ltd., an Indian
company on 01.02.2024.
(ii) Long term capital gain on sale of equity shares of M/s AB Ltd., an Indian
company for ` 3,50,000 (computed). These shares were purchased in
convertible foreign exchange on 01.10.2020 and sold on 15.10.2023 for
` 7,00,000. Out of the sale proceeds, he further purchased the shares of
M/s X Ltd., an Indian company for ` 5,00,000 on 31.03.2024.
(iii) Dividend received (gross) from M/s PQ Ltd. and M/s AB Ltd. ` 80,000.
Assume that he does not opt for section 115BAC and STT has been paid on
purchase and sale of the above shares.

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From the information given above, choose the most appropriate answer to the
question no.8 to 11-.

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8. What is the tax liability of Madhav for the assessment year 2024-25 under
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the provisions of Chapter XII-A?

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A. ` 58,240

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lC. ` 47,840 ag
B.

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9. What is the tax liability of Madhav in respect of these incomes for the
assessment year 2024-25 if he opts out of the provisions of Chapter XII-A
assuming that his other income exceeds basic exemption limit?
A. ` 65,520

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B. ` 73,840
C. ` 57,200
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D. ` 47,840
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10. What is the total capital gains chargeable to tax in the hands of Madhav for
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the assessment year 2024-25 under the provisions of Chapter XII-A?
A. ` 1,00,000
B. ` 2,00,000
C. ` 3,00,000
D. NIL (2 Marks)

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11. What is the tax on dividend income in the hands of Madhav for the

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assessment year 2024-25 if he opts out of the provisions of Chapter XII-A?
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Ignore surcharge and cess.

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A ` 12,000 u/s 115E
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las B. ` 8,000 u/s 115A
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ag C ` 16,000 u/s 115A
D. As per the applicable slab rate (2 Marks)

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FINAL EXAMINATION: NOVEMBER 2024

Case Scenario - III
BCD Realty Trust is a business trust registered under SEBI (Real Estate Investment
Trusts) Regulations, 2014. Details of its income for the previous year ended
31 March, 2024 are as follows:
(i) Rental income of ` 5 crores from directly owned real estate assets.
(ii) Short term capital gain of ` 3.5 crore on sale of listed shares of Rama Ltd.
an Indian company in which BCD realty trust holds controlling interest
through holding 60% of the shareholding of Rama Ltd.
(iii) Short term capital gain of `1 crore on sale of development properties.
(iv) Dividend of ` 4.5 crore from Rama Ltd.
Miscellaneous Information:
BCD Realty Trust has distributed ` 12 crores to its resident and non-resident unit
holders in the previous year 2023-24.
Based on the above facts, choose the most appropriate answer to question no. 12 to
15 below for the assessment year 2024-25:
12. In case of distribution of rental income component to its resident unit
holders, BCD Realty Trust is liable to deduct tax at source at the rate of
A. 10% under section 194I
B. 10% under section 194LBA
C. 30% under section 194LBA
D. 5% under section 194LBA (2 Marks)
13. Determine the tax liability in the hands of BCD Realty Trust for short-term
capital gain of ` 3.5 crore on sale of listed shares of Rama Ltd. and short-
term capital gain of ` 1 crore on sale of development properties.
A. Short-term capital gain on sale of listed shares is taxable @ 15% and
short-term capital gain on sale of development properties is taxable at
maximum marginal rate
B. Short-term capital gain on sale of listed shares is taxable at maximum
marginal rate and short-term capital gain on sale of development
properties is taxable @15%

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C. Both the short-term capital gains are taxable at maximum marginal
rate

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D. Both the short-term capital gains are taxable @ 15% (2 Marks)
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14. Which statement is correct regarding tax liability in the hands of BCD

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Realty Trust and its unit holders in respect of Rental income of ` 5 crores
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from directly owned real estate assets:
A. Exempt in the hands of BCD Realty Trust and unit holders both u/sa
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ag 10(23FCA).
B Taxable in the hands of BCD Realty Trust and unit holders u/s
115UA(3).
C. Exempt in the hands of BCD Realty Trust u/s 10(23FCA) and taxable in
the hands of unit holders u/s 115UA(3).
D. Taxable in the hands of BCD Realty Trust u/s 115UA(3) and exempt in

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the hands of unit holders u/s 10(23FCA). (2 Marks)

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15. What is the tax liability in the hand of non-resident unit holders in respect

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of dividend component distributed to them if Rama Ltd. opts to pay tax as
per section 115BAA?
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A. No tax liability
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B. At the rate of 10%
C. At slab rates
D. At the rate of 20% (2 Marks)
ANSWER KEYS

MCQ No. Correct Option
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1. (B)

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6. (A)
7. (A)

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FINAL EXAMINATION: NOVEMBER 2024

8. (C)
9. (B)
10. (B)
11. (C)
12. (B)
13. (A)
14. (C)
15. (B) or (D)

Part – II Descriptive Questions
Question No.1 is compulsory.
Answer any four questions out of the remaining five questions.
Working notes should form part of the answer.
All questions relate to Assessment Year 2024-25, unless stated otherwise in the
question.
Question 1
(a) Kansal Cements Ltd., a resident company set up in the year 2010 is
engaged in the manufacture of cement. Its Statement of Profit and Loss
(from cement business) for the financial year ended 31 st March, 2024 shows
a net profit of ` 75 Lakhs after debiting/crediting the following items:
(i) Depreciation as per the Companies Act ` 6 lakhs.
(ii) The assessee company received a dividend of ` 5,00,000 from Arnold
Ltd., a foreign company. It has incurred interest expense of ` 1,50,000
towards borrowed funds for the purpose of investing in the shares of
Arnold Ltd.
(iii) It contributed ` 5,00,000 to the State Housing Board towards
construction of tenements for the company's workers which constituted
25% of the cost of construction and the assessee could use these for 15
years. Ownership of such tenements remains with the State Housing
Board.

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(iv) A creditor whose amount of ` 20 lakhs was outstanding for 10 years,
has been settled for ` 15 lakhs on 01.03.2024 based on compromise

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settlement. The amount waived has been credited to the statement of

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profit and loss.

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(v) Upfront discounted interest paid during the year to the debenture-
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holders ` 5 lakhs. Debentures were issued for a period of 5 years. Apart

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from half yearly periodical interest, debenture holders were paid one -

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time upfront discounted interest payment. One fifth of the interest paid
has been debited to the statement of profit and loss.
Additional Information:
A. During the previous year 2023-24, the assessee company started a
business of developing and building rental housing projects eligible
under section 80IBA. Net profit from such business amounted to
` 20 lakhs during the year. Assessee also earned an income of ` 10

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lakhs for constructing a housing project eligible under the above said

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section which it executed as a work contract, received from X
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Constructions Ltd. These projects were approved/ notified during the

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F.Y. 2021-22.
B.
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The assessee company has purchased a land on 01.04.2010 for ` 5
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lakhs which was compulsorily acquired by the Government on
31.03.2018. Original compensation awarded ` 10 lakhs was received on
30.06.2018. The assessee company has filed a suit for the additional
compensation in the High Court and was awarded an additional
compensation of ` 8 lakhs on 31.05.2023.
C. Depreciation as per the Income-tax Act, 1961 ` 4.5 lakhs
D. The assessee company has purchased machinery worth ` 20 lakhs on

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May 1, 2020 and insured it against fire, flood, earthquake etc. The

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insurance policy contained a reinstatement clause requiring the
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insurance company to pay the value of machinery, as on the date of

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loss due to fire, flood, earthquake etc. A fire broke out in September,

las 2023 causing total damage to the machinery. The company received a
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ag sum of ` 22 lakhs from the insurance company on 01.03.2024 (Rate of
depreciation is 15% and assume that the machinery was the only asset
in the block)

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FINAL EXAMINATION: NOVEMBER 2024

E. The company declares and distributes a dividend of ` 6,00,000 to its
shareholders on 31.08.2024
Compute the total income and tax liability of Kansal Cements Ltd for the
assessment year 2024-25 under the regular provision by analyzing and
applying the relevant provisions of Income-tax Law, assuming that the
assessee has not opted for any concessional rates under special provisions
of the Income-tax Act, 1961. Briefly explain the reasons for treatment of
each item. Total turnover of the company for the previous year 2021 -22 was
` 450 crores.
Would it be beneficial for Kansal Cements Ltd. to opt for concessional tax
rates in previous year 2023-24 instead of paying tax under regular
provisions of the Income-tax Act 1961? Examine. (14 Marks)
Answer
Computation of Total Income and tax liability of Kansal Cements Ltd. for
the A.Y. 2024-25 under regular provisions of the Act

Particulars Amount (in `)
I Profits and gains of business or
profession
Net profit as per statement of profit and 75,00,000
loss from Cement business
Add: Items debited but to be considered
separately or to be disallowed
(i) Depreciation as per the Companies Act 6,00,000
(ii) Interest expenditure towards 1,50,000
borrowed funds for investing in
shares
[Allowability or otherwise of interest
expenditure on earning dividend has to
be considered separately under the
head “Income from Other Sources”.
Since the amount has been debited to
the statement of profit and loss, it has
to be added back.]

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(iii) Expenditure towards construction of Nil
tenements for company’s workers

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[As Kansal Cements Ltd. acquired no

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ownership rights in the tenements and

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Board, the expenditure of ` 5,00,000

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was incurred wholly and exclusively for
the welfare of the employees and,
therefore, constituted legitimate
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business expenditure . Since the same
has been debited to the statement of
profit and loss, no further adjustment is
required] 7,50,000
82,50,000

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Less: Items credited but not taxable or

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. foreign
chargeable to tax under another head

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(ii) Dividend received from 5,00,000
company
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[Dividend
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received
company is taxable under the head
“Income from Other Sources”. Since the
same has been credited to the
statement of profit and loss, the same
has to be deducted while computing
business income]

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(iv) Waiver of amount by creditor 2 Nil

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[Amount waived by the trade creditor is
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deemed income under section 41(1) as

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there is a benefit by way of remission

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or cessation of trading liability. Since
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1
CIT v. Bombay Dyeing and Manufacturing Co. Ltd. [1996] 219 ITR 521 (SC)
2
Assuming as trade creditors
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FINAL EXAMINATION: NOVEMBER 2024

statement of profit and loss, no further
adjustment is required.]
(v) Upfront discounted interest to 4,00,000
debenture holders
[Since the liability of Kansal Cements
Ltd. with respect to upfront interest
payment had arisen this year, it would
be eligible to claim the entire amount
of ` 5 lakhs of interest paid as
deduction3 under section 36(1)(iii). As
only 1/5th of the interest is debited to
the statement of profit and loss,
remaining 4/5th also has to be
9,00,000
reduced]
73,50,000
Less: Depreciation as per the Income-tax 4,50,000
Act, 1961
69,00,000
Profit from business of developing and
building rental housing projects
Net profit from business of developing and 20,00,000
building rental housing projects
Income from housing project executed as a 10,00,000
work contract 30,00,000
99,00,000
II Capital Gains
Long term capital gain on compulsory
acquisition of land
Full value of consideration 8,00,000
[Additional compensation

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Taparia Tools Ltd. v. JCIT (2015) 372 ITR 605 (SC)
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pursuant to order of the
High Court]

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Less: Cost of acquisition Nil 8,00,000
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Short term capital gain on

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damage of machinery due to
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a [Insurance compensation]
22,00,000

Less: WDV as on 1.4.2023 9,39,250 12,60,750 20,60,750
Computation of WDV as on 1.4.2023
Actual Cost as on 1.5.2020 20,00,000
Less: Depreciation for P.Y. 3,00,000
2020-21 [15%]
Less: Additional Dep.@ 20%
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c.13,00,000
4,00,000
WDV
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Less: Depreciation for P.Y.
g l a 1,95,000
2021-22 [15%]
WDV
a 11,05,000
Less: Depreciation for P.Y. 1,65,750
2022-23 [15%]
WDV as on 01.04.2023 9,39,250
III Income from Other Sources
Dividend received from foreign company 5,00,000
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Less: Interest expenditure of ` 1,50,000 1,00,000 4,00,000

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allowed upto 20% of dividend

las Gross Total Income
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ag Less: Deduction under Chapter VI-A
Under section 80-IAB 20,00,000
[100% of profits from business of

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FINAL EXAMINATION: NOVEMBER 2024

developing and building rental housing
projects. No deduction is allowed in respect
of income from housing project executed as
a work contractor]
Under section 80M 4,00,000
[Deduction in respect of inter-corporate
dividend would be lower of dividend
received included in the Gross Total Income
(` 4 lakh) and dividend distributed on or
before the due date (` 6 lakhs)]
Note: On standalone reading of the
provisions of section 80M, it is possible to
take a view that deduction u/s 80M would be
` 5 lakhs, being the lower of dividend
received of ` 5 lakhs and dividend distributed
on or before the due date of ` 6 lakhs.
However, the amount of dividend included in
the gross total income alone be considered 24,00,000
as the amount of dividend received by the
company for the purpose of deduction u/s
80M.
Total Income 99,60,750
Computation of tax liability
Tax on long term capital gains of 1,60,000
` 8,00,000 @ 20%
Tax on other income of ` 91,60,750 @ 30%, 27,48,225
since the turnover of the company for the
previous year 2021-22 exceeds ` 400 crores
29,08,225
Add: Health and education cess @4% 1,16,329
Tax liability 30,24,554
Tax liability (Rounded off) 30,24,550

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Computation of Total Income and tax liability of Kansal Cements Ltd.
for the A.Y. 2024-25 under concessional regime u/s 115BAA
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Particulars
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Amount (in `)
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Total Income under regular provisions of 99,60,750
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the Act

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Add: Deduction under Chapter VI-A
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a u/s 115BAA]
Under section 80-IAB [Not allowable 20,00,000

Under section 80M [Allowed as per Nil
concessional tax regime u/s 115BAA] 20,00,000
Total Income as per section 115BAA 1,19,60,750
Computation of tax liability

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Tax on long term capital gains of 1,60,000

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Tax on other income of ` 1,11,60,750 @. 22%
` 8,00,000 @20%

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24,55,365

la s 26,15,365
Add: Surcharge @ 10%
a g 2,61,537
28,76,902
Add: Health and education cess @ 4% 1,15,078
Tax liability 29,91,980
Tax liability (Rounded off) 29,91,980
Since the tax liability of Kansal Cements Ltd. computed under section
115BAA is lower than the tax liability computed under regular provisions
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of the Act, it is beneficial for Kansal Cements Ltd. to opt for the special

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provisions under section 115BAA for A.Y.2024-25. Concessional tax regime
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under section 115BAA would be beneficial to Kansal Cements Ltd. even if

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it is assumed that the MAT liability is higher or lower than the tax liability
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computed under regular provisions of the Act. Such an option, once

ag exercised, would apply to subsequent assessment years. Further, once the
option has been exercised for any previous year, it cannot be subsequently
withdrawn for the same or any other previous year.

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FINAL EXAMINATION: NOVEMBER 2024

Questions 2
(a) Salsy Limited has two units one engaged in manufacture of textile goods
and the other involved in manufacturing of chemicals. As a restructuring
drive, the company sold its chemical unit as a going concern by way of
slump sale for ` 242 lakhs on 01.10.2023.
The balance sheet of Salsy limited as on 01 October 2023, being the date on
which chemical unit has been transferred, is given here under –
Balance Sheet as on 1.10.2023

Liabilities ` Assets `
Paid up Share 2,50,00,000 Land
Capital Textile Unit 60,00,000
Chemical Unit 70,00,000

General Reserve 1,35,00,000 Building
Share Premium 60,00,000 Textile Unit 90,00,000
Revaluation reserve 20,00,000 Chemical Unit 70,00,000
Trade Creditors Machinery
Textile Unit 90,00,000 Textile Unit 40,00,000
Chemical unit 47,00,000 Chemical unit 52,00,000
Investment in
Equity Share
(1,00,000) shares
of ABC Ltd, a
listed company at
` 35 per share
Chemical Unit 35,00,000
Inventories
Textile Unit 82,00,000
Chemical unit 60,00,000
Licenses and
Franchises
Textile Unit 20,00,000

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Chemical unit 23,00,000
6,02,00,000 6,02,00,000
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The following information have been furnished by the management:

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(i) The Chemical unit was established in July, 2020 during the COVID

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period.

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(ii) Land of Chemical unit includes revaluation reserve of ` 20 lacs. The
Land was purchased at ` 50 lakhs in May 2020 and revalued at ` 70
lakhs as on October 1,2023. The stamp duty value on 01.10.2023 is
` 62 lakhs.
(iii) The Building and Machinery have been shown in the balance sheet at
its written down value as per section 43(6)(c) of the Income-tax
Act,1961.
(iv) License and Franchises were acquired on 01.06.2022 and shown in the

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balance sheet at its original purchase price.

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(v) Equity shares were acquired by the company through National stock

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exchange on 01.04.2021 and value recorded for shares of ABC Limited

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as on 01.10.2023 at NSE is ` 42 per share.
g the Taxable capital gain to Salsy Limited for
A.Y.2024-25.
a
You are required to Compute
(8 Marks)
(b) The net result of the business carried on to a branch of US based foreign
company in India for the year ended 31.03.2024 was a loss of ` 28 lakhs
after charge of the following expenses -
(i) Depreciation for the current financial year of ` 35 lakhs.
(ii) Unabsorbed depreciation for previous financial year of ` 18 lakhs.

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(iii) Short term capital loss of ` 1.5 lakhs on sale of shares of an Indian

c. o emretirement
company received in US.

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(iv) Expenditure incurred for payment in respect of voluntary

las (v) Speculative Business Ioss brought forward for a
scheme ` 12 lakhs.
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ag lakhs.
A.Y. 2022-23 of ` 17

(vi) Deductions under Chapter VI-A of 29 ` lakhs.
(vii) Head Office expenses of ` 165 lakhs allocated to the branch.
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FINAL EXAMINATION: NOVEMBER 2024

The assessable adjusted total income of the assessee for the three
immediately preceding assessment years was:

Assessment year ` (in lakhs)
2023-24 600
2022-23 450
2021-22 500

You are required to compute income to be declared by the branch in its
return for the assessment year 2004-25. (6 Marks)
Answer
(a) (i) Computation of Taxable Capital gain in the hands of Salsy
Limited for A.Y.2024-25
Particulars `
Full value of consideration [See Note 1 below] 2,62,00,000
Less: Net worth [See Note 2 below] 2,37,25,000
Long-term capital gain [Since the Unit is held for 24,75,000
more than 36 months]
No indexation benefit is allowed in slump sale.
Note 1: Computation of Full value of consideration
Fair market value of the capital assets transferred
by way of slump sale [FMV1]
Land, being an immovable property [stamp duty 62,00,000
value on 1.10.2023, being the date of slump sale]
Building, being an immovable property [Assuming 70,00,000
the stamp duty value on 1.10.2023, being the date
of slump sale is the same as the book value
appearing in the books of accounts]
Machinery [Book value as appearing in the books 52,00,000
of accounts]
Investment in listed equity shares of ABC Limited 42,00,000
[Fair market value as on 1.10.23] [1,00,000 x 42]
Inventories [Book value as appearing in the books 60,00,000
of accounts]

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Licenses and Franchises [Book value as appearing 23,00,000
in the books of accounts]

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3,09,00,000

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Less: Liabilities of Chemical Unit – Trade Creditors 47,00,000

m .Fair market value of the capital assets transferred 2,62,00,000
s e
s e Fair market value of the consideration received or l a
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by way of slump sale [FMV1]

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l accruing as a result of transfer by way of slump 2,42,00,000

a sale [value of the monetary consideration received]
[FMV2]
Full value of consideration [Higher of FMV1 or 2,62,00,000
FMV2]
Note 2 – Computation of Net worth
Land (excluding ` 20 lakhs on account 50,00,000

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of revaluation)
Building
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Machinery
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e of ABC
52,00,000

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Investment in Equity Shares 35,00,000

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Ltd.
Inventories 60,00,000
Licenses and Franchises 17,25,000
Cost as on 1.6.2022 23,00,000
Less: Depreciation @ 25% for Financial 5,75,000
Year 2022-23
WDV as on 1.4.2023 17,25,000
Total assets 2,84,25,000

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c. o (b) Computation of income to be declared by the branch inseitsm.return of
Less: Trade Creditors 47,00,000
Net worth 2,37,25,000

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income for A.Y.2024-25

ag Particulars `
Loss of the branch (28,00,000)
Add: Short-term capital loss [allowed 1,50,000

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FINAL EXAMINATION: NOVEMBER 2024

to be set-off only against capital
gains]
Expenditure on Voluntary 9,60,000
Retirement Scheme [Only 1/5 is
allowable as deduction. Thus,
4/5th will be added back]
Brought forward speculative 17,00,000
business loss [Allowed to be set-
off only against speculative
business]
Head office expenditure debited 1,65,00,000 1,93,10,000
to profit and loss
1,65,10,000
Less: Head office expenses allowable u/s 44C [Refer 10,60,500
note below]
Income to be declared by the branch 1,54,49,500
Note - Computation of Head Office expenses allowable u/s 44C
Head office expenses allowable u/s 44C = ` 10,60,500
Being the lower of -
(i) 5% of ` 2,12,10,000 (adjusted total income)
= `10,60,500
(ii) Actual Head Office expenses allocated to the
branch= ` 1,65,00,000
Computation of Adjusted Total Income
Particulars ` `
Loss of the branch (28,00,000)
Add: Current year depreciation NIL
Unabsorbed depreciation 18,00,000
Short-term capital loss 1,50,000
Expenditure on Voluntary 9,60,000
Retirement Scheme [Only 1/5 is
allowable as deduction. Thus,

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4/5th will be added back]
Brought forward speculative 17,00,000

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business loss

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Deductions under Chapter VI-A 29,00,000

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Head office expenditure debited 1,65,00,000

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to profit and loss

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a Adjusted total income
2,40,10,000
2,12,10,000
Note – Depreciation for the current financial year is not required to be
added back for computing adjusted total income.

Question 3
(a) Examine each of the following independent cases of charitable trust/
institutions based on the relevant provisions of the Income-tax Act and

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judicial pronouncements for the assessment year 2024-25:

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(i) M/s MPL, an electoral trust incorporated on 1st April 2023, provides

s
following information for the previous year 2023-24.

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Total voluntary contributions received ` 600 lakhs. It spends ` 5 lakhs
a
on management of its affairs.
In light of the provisions of section 13B of the Income-tax Act and rule
17CA notified by the Central Government in this context give answer of
following questions.
What is the amount of surplus that can be distributed by the electoral
trust to a registered political party assuming all other conditions as
provided under the Act are satisfied?

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What will be your answer if out of the total voluntary contributions of
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` 600 lakhs, ` 100 lakhs received from individuals who are not citizen

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of India? (4 Marks)
(ii) Astha Foundation is a not for profit trust that runs aasecondary school

las a glcrores from school
g
and a hospital. The trust had total receipts of ` 1.2

a and ` 4.2 crores from hospital for the assessment year 2024-25. Con
the trust claim exemption under section 10(23C)(iiiad) and section
10(23c)(iiiae) for assessment year 2024-25? (2 Marks)

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FINAL EXAMINATION: NOVEMBER 2024

(iii) Care for All Foundation is claiming exemption under section 10(23C)(vi).
On 15.11.2023 it gets notified under section 10(46). The foundation
intends to know whether it can enjoy the benefits of both sections in
section 10(46) and section 10(23C)(vi) simultaneously. (2 Marks)
(b) Mr. Ashok, aged 66 years, a resident individual furnishes the following
particulars of income earned by him in India and Country N for the
assessment year 2024-25:
(i) Taxable income from a sole proprietary concern in Mumbai ` 8,00,000.
(ii) Income from Country N with which India does not have any Double
Taxation Avoidance Agreement:
(A) Business income ` 9,50,000.
(B) Gift in foreign currency from a friend ` 65,000.
(C) Dividend (gross) (taxed in country N) ` 1,40,000.
(D) Business loss of assessment year 2020-21 in Country N ` 50,000.
The domestic tax laws of Country N do not permit set off of
business loss against any income.
(E) Country N taxed dividend income at the rate of 10% and all other
income at the rate of 20%.
(iii) Mr. Ashok has deposited ` 1,50,000 in Public Provident fund and paid
contribution to approved Pension fund of LIC ` 22,000.
Compute taxable income and net tax liability of Mr. Ashok in India for
assessment year 2024-25. Assume that Mr. Ashok opts to pay tax under
default tax regime provided under section 115BAC(IA). (6 Marks)
Answer
(a) (i) As per section 13B, any voluntary contribution received by an
electoral trust would be exempt during the previous year, if such
electoral trust –
- distributes to the eligible political parties during the said
previous year, 95% of the total contributions received during the
financial year along with the surplus, if any, brought forward from
earlier previous year; and

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- functions in accordance with the rules (Rule 17CA) made by the
Central Government.

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In the present case, M/s MPL, an electoral trust incorporated in the

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previous year 2023-24, received voluntary contributions of ` 600
lakhs. It spent ` 5 lakhs for the purpose of managing its affairs.
s e
s eAsthemper rule 17CA, since M/s MPL, an electoral trust incorporated in
g l a
g la 5% of total contributions of ` 600 lakhs subject to the limit of ` 5a
P.Y. 2023-24, it is eligible to spend ` 5 lakhs, being ` 30 lakhs i.e.,

a lakhs.
Accordingly, distributable contribution for the P.Y. 2023-24 would be
` 595 lakhs [i.e., ` 600 lakhs less ` 5 lakhs]. In such a case, M/s MPL
can distribute ` 595 lakhs to a registered political party as the same
exceeds ` 570 lakhs, being 95% of total contributions received of
` 600 lakhs.

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Rule 17CA provides that the electoral trust shall not accept

c. o
contributions, inter alia, from an individual who is not a citizen of

em as contribution from individuals who
India.
If M/s MPL received ` 100sLakhs
are not citizen of India, litahas violated the conditions mentioned in Rule
ag MPL, an electoral trust, would not be eligible for
17CA. In such case, M/s
exemption under section 13B in respect of entire contribution.
Moreover, the CBDT may withdraw the approval after giving an
opportunity of being heard and record the reasons in writing for the
withdrawal of approval.
(ii) No, Astha Foundation trust cannot claim exemption under section

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10(23C)(iiiad) and section 10(23C)(iiiae), since the aggregate annual

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receipt of ` 5.4 crores (` 1.2 crores from school and ` 4.2 crores from

c. o se
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hospital) exceeds the aggregate threshold of ` 5 crores though the

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individual receipts from school and hospital have not exceeded ` 5

las crores.
g
(iii) Where a trust or institution or fund is notified aunder section 10(46),
ag the approval or provisional approval granted under first regime under
section 10(23C)(vi) would become inoperative from the date of such
notification issued under section 10(46).

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FINAL EXAMINATION: NOVEMBER 2024

Accordingly, in the present case, since approval granted under
section 10(23C)(vi) would become inoperative from 15.11.2023, being
the date of notification issued under section 10(46), Care for All
Foundation cannot simultaneously enjoy the benefits of both
sections i.e., 10(23C)(vi) and section 10(46).
(b) Computation of taxable total income and net tax liability of
Mr. Ashok for A.Y.2024-25 under the default tax regime under section
115BAC

Particulars ` `
Profits and Gains of Business or Profession
Income from sole-proprietary concern in 8,00,000
India
Business Income in Country ‘N’ 9,50,000
17,50,000
Less: Business loss of A.Y. 2020-21 in Country 50,000
‘N’
Income from Other Sources
Gift received from a friend in Country ‘N’ 65,000
Dividend in Country ‘N’ 1,40,000 2,05,000
Gross Total Income 19,05,000
Less: Deductions under Chapter VI-A [Not
available under default tax regime] Nil
Total Income 19,05,000
Tax liability on `19,05,000
Tax on total income [30% of ` 4,05,000 + 2,71,500
` 1,50,000]
Add: Health and Education cess@4% 10,860
2,82,360
Less: Deduction u/s 91 (See Working Note 1,63,761
below)
Net Tax Liability 1,18,599
Net Tax Liability (Rounded off) 1,18,600

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Working Note: Calculation of deduction under section 91
Average Rate of tax in Country N
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- Tax @10% on dividend income of 14,000

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` 1,40,000

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Tax @20% on other income of ` 10,15,000 2,03,000
l
-

a s (Business income of ` 9,50,000 and gift of

l Total Tax Liability in Country N a g
g
` 65,000)
a 2,17,000
Average Rate of tax in Country N = 2,17,000/11,55,000 x 100 18.79%
Indian Rate of tax = 2,82,360/19,05,000 x 100 14.82%
Doubly taxed income from Country N
Business income [9,50,000 – ` 50,000] 9,00,000
Gift from a friend of ` 65,000 65,000

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Dividend Income 1,40,000
Doubly taxed income
. c o 11,05,000

Country N and Indian rate s e m
Deduction u/s 91= Lower of average rate of tax in 1,63,761

taxed income = [14.82% x l`a11,05,000]
of tax rate of tax x Doubly

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Question 4
(a) Discuss the relevant provisions of the Income-tax Act, 1961, with respect to
collection/deduction of tax in the following situations:
(i) Mr. Bhavan, an individual purchased urban land on 12.07.2014 which
was compulsory acquired by Maharashtra State Government on
10.04.2022. The compensation for acquisition was fixed at ` 2,40,000,

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which was paid to Mr. Bhuvan on 10.04.2023. Against the order of

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court, the compensation was enhanced by ` 50,000 and paid to

em towards
Mr. Bhuvan on 10.12.2023. (2 Marks)

em s
la a seller of an
s
st
(ii) On 1 October, 2023. Mr. Aman makes payment of ` 9,00,000

la g
a dealer under the
cost of overseas tour programme package to Mr. Robert,

ag overseas tour programme package and an authorized
Liberalised Remittance Scheme of the RBI. (3 Marks)
Mr. Aman has not filed his return of income for the last two assessment
years i.e., 2023-24 and 2022-23. Mr. Aman has total TCS of ` 51,000 in

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FINAL EXAMINATION: NOVEMBER 2024

A.Y. 2023-24 and ` 60,000 in A.Y. 2022-23 to his credit. Tax is collected
and deposited before due date of filing return of income for both the
assessment years. (3 Marks)
(iii) Dream 44 is an online gaming portal. Mr. Z is a user of this portal and
he has a credit balance of ` 10,000 in his user account with Dream 44
as on 31.03.2023. He deposited ` 1,00,000 from his accumulated
savings on 02.04.2023 to play online games. He earned ` 30,00,000
from online games during IPL season which started on April 4, 2023
and ended on May 31, 2023. During the previous year 2023-24, Mr. Z
also earned Referral bonus of ` 50,000 from Dream 44 for referring
new users on 31.03.2024.
Out of the above sum Mr. Z withdrew ` 25,00,000 on 01.02.2024 and
kept the balance of ` 6,60,000 in user account on 31.03.2024 to utilise
it in next year online games. (3 Marks)
(b) Surya Ltd., an Indian Company, is engaged in manufacturing activities by
importing raw material from Sun Inc. of UK. Sun Inc. has a total loan of
1 million pounds from XYZ Bank of UK. Out of that, Surya Ltd. guarantees
20% of total borrowings in case of any default made by Sun Inc.
During the financial year 2023-24, Surya Ltd. imported goods for ` 60
crores from Sun Inc. Sun Inc. supplied similar raw materials to unrelated
parties with a mark-up of 20%, whereas, for Surya Ltd. it provided a mark-
up of 25%. Surya Ltd. was allowed to use the brand name of Sun Inc.,
without any payment and whereas the unrelated parties cannot use such
brand name in India. The annual cost of brand value is ` 100 Lakhs. Surya
Ltd. was allowed credit period of 2 months, whereas for the unrelated
parties, Sun Inc. allowed only 1 month as credit period. The interest cost
may be taken as 12% per annum and the purchases were uniform
throughout the year.
The Assessing Officer referred the matter to Transfer Pricing Officer (TPO)
for determination of Arm Length Price (ALP).
You are required to (i) Compute the ALP and the adjustments to be made to
the income of Surya Ltd. (ii) What is the due date for Surya Ltd. for
furnishing audit report u/s 92E? (iii) What amount of penalty is leviable on
Surya Ltd., if it fails to furnish audit report u/s 92E? (6 Marks)

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Answer
(a) (i) As per section 194LA, Maharashtra State Government is required to
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deduct tax at source @ 10% on the entire sum of ` 2,90,000 on
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10.12.2023, being the date on which enhanced compensation of

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` 50,000 is paid to Mr. Bhuvan on account of compulsory acquisition
s e
s e
of urban land since aggregate amount of compensation including
g l a
l a enhanced compensation exceeds ` 2,50,000 during the F.Y. 2023-24.
a
ag (ii) Mr. Robert, being a seller of an overseas tour programme package
has to collect tax at source under section 206C(1G) from Mr. Aman
on receiving the amount for purchase of package.
For the amount received on or after 1.10.2023, tax has to be
collected at source @ 5% on ` 7 lakhs received, and @ 20% on ` 2
lakhs, being above ` 7 lakhs.
Since Mr. Aman has not filed his return of income for A.Y.

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2023-24 and A.Y. 2022-23 and the TCS credit exceeds ` 50,000 for

.
both A.Y 2023-24 and A.Y. 2022-23, section 206CCA is invoked which

em
provides, tax is required to be collected at source, in his case, at the

l a s
higher of twice the rate specified under section 206C(1G) and 5%.

a g of TCS leviable cannot exceed 20%.
However, the higher rate
Accordingly, Mr. Robert is required to collect tax @ 10% (twice of 5%)
on ` 7 lakhs and @ 20% (40% twice of 20% but restricted to 20%) on
` 2 lakhs (` 9 lakhs – ` 7 lakhs).
(iii) As per section 194BA, on any income by way of winnings from any
online game during the financial year, tax @ 30% is required to be
deducted on the net winnings in the user account.

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Since there is a withdrawal on 1.2.2024, Dream 44 is required to

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deduct tax at source at the time of such withdrawal on the net

se
winnings comprised in such withdrawal, as well as on the remaining

s em la
amount of net winnings in the user account at the end of the financial
g
la a
year.

ag Net winnings at the time of first withdrawal during the F.Y. i.e., on
1.2.2024 = ` 25,00,000, being amount withdrawn – (` 1,00,000, being
non-taxable deposit made in the user account + ` 10,000, being
opening balance) = ` 23,90,000.

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FINAL EXAMINATION: NOVEMBER 2024

Net winnings at the end of the financial year i.e., on 31.3.2024
= (` 25,00,000, being amount withdrawn + ` 6,60,000, being closing
balance) – (` 1,00,000, being non-taxable deposit made in the user
account + ` 10,000, being opening balance + ` 23,90,000, being net
winnings comprised in the earlier withdrawal) = ` 6,60,000.
(b) Computation of Arm’s length price and adjustment to be made as per
Comparable Uncontrolled Price Method

Particulars ` in crores
Price of imported goods charged by Sun Inc. from 60.00
Surya Ltd.
Less: Mark up earned @ 25% [` 60 crores x 25/125] 12.00
from Surya Ltd.
48.00
Add: Mark up earned in uncontrolled comparable 9.60
transaction @ 20%
Add: Adjustment on account of brand value [Annual 1.00
cost of brand value]
Add: Adjustment on account of cost of credit for 1 0.576
month [12% x 1/12 x 57.60]
Arm’s length price of raw material purchase 59.176
Less: Price at which raw material was imported by Surya
Ltd. from Sun Inc. 60.000
Adjustment to be made to the income of Surya Ltd. 0.824
Surya Ltd., an Indian company and Sun Inc. of UK, are deemed to be
associated enterprises as per section 92A(2), since Surya Ltd. guarantees
10% or more of total borrowings of Sun Inc.
Further, the transaction of purchasing raw material falls within the
meaning of “international transaction” under section 92B. Hence, transfer
pricing provisions would be attracted in this case.
Surya Ltd. is required to furnish the audit report under section 92E on or
before 31.10.2024, being the specified date i.e., date one month prior to
the due date for furnishing the return of income under section 139(1) for
the relevant assessment year.

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If Surya Ltd. fails to furnish the audit report under section 92E, penalty of
` 1 lakh would be leviable.

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Question 5

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(i) Mr. .Balram Kumar, a jeweller was intercepted by Police personnel with e
(a) Answer any two out of the following three sub-parts viz (i), (ii) and (iii)

e1mkg of gold ornaments at New Delhi on 17.01.2023. The case was gla s
s
la referred to Income Tax Investigation wing by the Police and the golda
ag ornaments were seized by the Income Tax Department. The registered
valuer made the valuation of the gold ornaments amounting to
` 63.30 Lacs, to which the assessee did not raise any objection
During the assessment proceedings, the AO was not satisfied with the
explanation given by the assessee and the AO made the additions of
` 63.30 lacs as unexplained jewellery u/s 69A in the hands of
Mr. Balram Kumar and applied section 115BBE for applicability of tax

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alongwith Interest. As a result, a demand of tax of ` 49.37 lacs and

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interest of ` 12.35 Lacs were created against the assessee,
The assessee filed an appeal m
e
Appeals, as per Law. ThesCIT(Appeals)
before the Commissioner of Income Tax

g a
lwas deleted by the CIT being satisfied with the
allowed the appeal and the

a
addition of ` 63.30 lacs
nature and source of the ornaments found from the assessee.
The jurisdictional CIT contemplates to file an appeal before the ITAT
against the order of CIT(Appeals). Can Jurisdictional CIT do so? Discuss
while explaining the provisions of Income-tax Act and Rules.
(ii) Due to the nature, complexity and volume of the accounts of M/s. ABC
Private Limited, during the assessment proceedings, the Assessing

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Officer issued the direction for inventory valuation under section

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142(2A) of the Income-tax Act. The relevant approval has been taken

c. o m
by the AO and the company was given an opportunity of being heard

em
as per law. The AO wants to appoint a Chartered Accountant in

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practice for the purpose. The AO fixed the fees for inventory valuation

gla a
at ` 1,00,000 and asked the CA to raise the bill for valuation report

a directly to the company after completion of the valuation.
Is AO justified in doing so? What are the relevant provisions for
Inventory valuation under section 142(2A)? Discuss in detail.

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(iii) M/s SBE Cellular Limited, a domestic company, had entered into
franchisee agreement with various distributors for sale of its prepaid
connections. Under these agreements, they sold startup kits and
recharge vouchers at discounted prices to distributors, who in turn sold
them to customers. The Assessing Officer while going through the TDS
return filed by the company found that the company had paid
commission on startup kits and recharge vouchers to 10 parties herein
called "Franchisees" and though the company had deducted TDS on
commission and deposited the same during the period from April 2023
to July 2023, such deduction of tax at source however was discontinued
by the company treating such payment to the franchisee not as
commission but discount which was outside the ambit of TDS under
section 194H. The revenue contended that the company should deduct
tax under section 194H on the amounts which, as per Revenue, is a
commission payable to an agent by the company under the franchise
agreement between the company and the franchisees.
However, as per M/s SBL Cellular Limited, neither are they paying a
commission or brokerage to the franchisees/distributors, nor the
franchisees/distributors are their agents. In the light of the latest
Supreme Court rulings, discuss whether the contention of Revenue is
correct or not? (2 x 4 = 8 Marks)
(b) (i) What do you understand by Automated Digital Services as per UN
model? List out the services (at least 4) mentioned in paragraph 6?
(ii) What is meant by Hybrid Mismatch Arrangement? What are the ways
in which hybrid mismatch arrangements are used to achieve
unintended double non-taxation or long-term tax deferral?
(3 + 3 = 6 Marks)
Answer
(a) (i) As per section 253(2), the Principal Commissioner or Commissioner
may, if he objects to any order passed by the Joint Commissioner
(Appeals) or the Commissioner (Appeals) under section 250, direct
the Assessing Officer to appeal to the Appellate Tribunal against such
order.
However, the Departmental appeals are subjected to the monetary
limits and other conditions specified by the CBDT for filing appeals

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before Income Tax Appellate Tribunal, High Courts and SLPs/ appeals
before Supreme Court.

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The key points as per CBDT circulars in this regard are as under:
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- Departmental Appeals shall not be filed before Appellate Tribunal

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in cases where the tax effect does not exceed the monetary limit
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l a s of ` 50 lakhs.
Tax would include surcharge and cess. However, the tax will nota
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-
include any interest thereon, except where chargeability of
interest itself is in dispute.
In the present case, tax of ` 49.37 lacs [78% of ` 63.30 lakhs] under
section 115BBE and interest of ` 12.35 lakhs determined in respect of
additions of unexplained jewellery under section 69A.
Since the tax effect excluding interest does not exceed ` 50 lakhs, the

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department cannot file appeal before the ITAT.

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(ii) As per section 142(2A), if at any stage of the proceedings, the

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Assessing Officer, having regard to the nature and complexity of the

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accounts, volume of the accounts etc. is of the opinion that it is

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necessary so to do, he may, with the previous approval of the
Principal Chief Commissioner (PCC) or Chief Commissioner (CC) or
the Principal Commissioner (PC) or Commissioner (C) get the
inventory valued by a Cost Accountant and furnish a report of such
inventory valuation. Opportunity of being heard is to be given to the
assessee before directing to get the inventory valued.
For inventory valuation, Cost Accountant should be nominated by
PCC or CC or PC or C of Income-tax. Further, the expenses of

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inventory valuation including remuneration of Cost Accountant shall

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be determined by the PCC or CC or PC or C of Income-tax in

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accordance with the prescribed guidelines, and not by the AO. The

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expenses so determined shall be paid by the Central Government.

las In the present case, though AO has taken the relevant approval and
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ag the company was given opportunity of being heard, the Assessing
Officer is not justified in appointing a Chartered Accountant in
practice, fixing his fees himself and asking the CA to raise the bill to
the company. For inventory valuation, a Cost Accountant nominated

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FINAL EXAMINATION: NOVEMBER 2024

by PCC or CC or PC or C can be appointed and expenses of inventory
valuation including remuneration are also determined by these
authorities. Such expenses shall be paid by the Central Government
and not by the company.
(iii) The obligation to deduct tax at source in terms of section 194H arises
when the legal relationship of principal and agent is established.
Agency is a triangular relationship between the principal, agent and
the third party. The legal position of a distributor is generally
regarded as different from that of an agent.
Section 194H fixes the liability to deduct tax at source on the 'person
responsible to pay' and the liability to deduct tax at source arises
when the income is credited or paid by the person responsible for
paying. However, deduction of tax at source in terms of section 194H
is not to be extended and widened in ambit to apply to true/genuine
business transactions, where the assessee is not the person
responsible for paying or crediting income.
In the present case, M/s SBL Cellular Limited, being an assessee,
• neither pays nor credits
• any income to the person with whom he has contracted.
M/s SBL Cellular Limited is not privy to the transactions between
distributors/franchisees and third parties. It is, therefore, impossible
for M/s SBL Cellular Limited to deduct tax at source and comply with
section 194H, on the difference between the total/sum consideration
received by the distributors/franchisees from third parties and the
amount paid by the distributors/franchisees to them.
Thus, in the case on hand, section 194H is not applicable in the hands
of M/s SBL Cellular Limited and it would not be under a legal
obligation to deduct tax at source on the income/profit component in
the payments received by the distributors/franchisees from the third
parties/customers.
Accordingly, the contention of the Revenue that company should
deduct tax under section 194H is not correct.

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Note – The facts given in the question are similar to the facts in Bharti
Cellular Ltd. vs. ACIT [2024] 462 ITR 247(SC). The above answer is

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based on the rationale of the Supreme Court ruling in the said case.

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(b) (i) As per UN Model Convention, “Automated digital services” means

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any service provided on the Internet, or another electronic network, in
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either case requiring minimal human involvement from the service

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l The term “Automated digital services” includes specially:
provider.

a
(a) online advertising services;
(b) supply of user data;
(c) online search engines;
(d) online intermediation platform services;

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(e) social media platforms;
(f) digital content services;
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(g) online gaming;
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(h) cloud computing services; and
(i) standardized online teaching services.
(ii) A hybrid mismatch is an arrangement that exploits a difference in the
tax treatment of an entity or an instrument under the laws of two or
more tax jurisdictions to achieve double non-taxation.
Hybrid mismatch arrangements are sometimes used to achieve
unintended double non-taxation or long-term tax deferral in one or

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more of the following ways -

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- Creation of two deductions for a single borrowal

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-
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Generation of deductions without corresponding

las inclusions
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ag - Misuse of foreign tax credit
- Participation exemption regimes

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FINAL EXAMINATION: NOVEMBER 2024

Question 6
(a) (i) M/s. PQR Waste Management Pvt. Ltd., a domestic company, engaged
in developing, operating and maintaining a solid waste management
system filed its return of income for A.Y. 2021-22 on 30 th September,
2022 claiming deduction under section 80-IA, on the basis of Form
10CCB issued by the chartered accountant. However, in August 2023, it
came to the notice of the chartered accountant that the ten year period
for which the company had been eligible to claim deduction had
expired in A.Y.2020-21. The chartered accountant withdrew the audit
report in Form 10CCB and advised the company to file a revised return
u/s 139(5). The company, accordingly, filed a revised return
withdrawing the claim under section 80-IA. The Assessing Officer
completed the assessment on the basis of the revised return and issued
the assessment order.
However, the department concluded that the concerned chartered
accountant had issued Form 10CCB without ensuring that the ten year
period had expired or not.
The chartered accountant contended that as soon as he came to know
about the error, he withdrew his report in Form 10CCB and informed
the assesseee accordingly. Further, according to him, his report in Form
10CCB was neither the subject matter at the time of assessment nor at
the time of penalty proceedings.
Can the chartered accountant be held guilty of professional misconduct
for failure to obtain sufficient information and failure to exercise due
diligence in discharging the professional responsibilities? Support your
answer with relevant provisions of the Income-tax Law and the
Chartered Accountant Act, 1949. (6 Marks)
(ii) A. The management of M/s. KKT Private limited, Chennai planned to
acquire 5 JCB machines for business purposes. The total
depreciation on such machines is around ` 30 lacs for one year.
However, a choice is made by the management of the company by
acquiring the machines on lease over outright purchase. The lease
rentals are ` 36 lacs per annum. The company claims deduction
for lease rentals. Would the lease rent payment, being higher than
the depreciation, be disallowed as expense under GAAR provisions?

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B. Mr. Dhaval, aged 45 years, is making investment in Equity shares
at recognised stock exchange through registered broker. During

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previous year 2023-24, he made a short term capital gain in Equity

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shares of ` 10,00,000 till 20.03.2024.

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He was holding 1000 Equity shares of SPR Limited (purchased on

s e 01.01.2024 at ` 500 per share). The market price of it was ` 200
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per share on 31.03.2024. Mr. Dhaval sold all the shares of SPR

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Limited on 31.03.2024 and purchased the same quantity of these
shares back on 01.04.2024. He did it so that his short-term capital
gain may reduce by ` 3,00,000 for P.Y. 2023-24.
Is it a tax planning or tax evasion? (4 Marks)
(b) M/s. ABC Limited, an Indian company makes an application to Board of
Advance rulings in relation to the tax liability of M/s. Pinicer Inc, a non-
resident arising out of a transaction which is proposed to be undertaken by

m
ABC Limited with M/s. Pinicer Inc. The value of transactions entered into

c o
. of application need to be filed by the
between both the parties is ` 250 crores.

applicant with the Board andswhat
m
e would be the amount of fees to be
As per section 245Q, how many copies

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a
accompanied with the application.
What is the remedy available to an applicant if the Board rejects its
application? Also, state the time limit within which the applicant should
exercise this remedy. (4 Marks)
Answer
(a) (i) Section 80-IA provides for deduction of 100% of the profits and gains
derived from the business of, inter alia, developing, operating and
maintaining a solid waste management system for 10 consecutive
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assessment years out of 20 years.

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furnishing of audit report in Form 10CCB on or beforesthe prescribed
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Section 80-IA(7) read with Rule 18BBB requires audit of accounts

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time for claim of such deduction.

ag Form 10CCB is a declaration provided by the Chartered Accountant that in
his opinion the enterprise satisfies the conditions stipulated in section 80-
IA and the amount of deduction claimed thereunder is as per the
provisions of the Income-tax Act, 1961 and meets the required conditions.

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FINAL EXAMINATION: NOVEMBER 2024

As per clause (7) of Part I of the Second Schedule to the Chartered
Accountants Act, 1949, a Chartered Accountant in practice shall be
deemed to be guilty of professional misconduct, if he does not
exercise due diligence, or is grossly negligent in the conduct of his
professional duties.
With respect to Form 10CCB, the Chartered Accountant later came to
know about the error that the period of ten years had expired in A.Y.
2020-21 and he withdrew his report in Form 10CCB and informed
M/s. PQR Waste Management Pvt. Ltd.
Accordingly, the Chartered Accountant can be held “not guilty” of
professional misconduct under clause (7) of Part I of the Second
Schedule to the Chartered Accountants Act, 1949 as he withdrew his
report in Form 10CCB as soon as he came to know about the error
and informed the company.
Note - In the facts of the question, M/s. PQR Waste Management Pvt.
Ltd. filed its return of income for A.Y. 2021-22 on 30.9.2022 claiming
deduction under section 80-IA. However, as per section 139, it is not
permissible to file a return or a belated return of income for A.Y. 2021-
22 beyond 31.12.2021. Moreover, as per section 80AC, no deduction,
inter alia, under section 80-IA would be allowed to an assessee unless
the assessee furnishes a return of income for that assessment year on
or before the due date specified under section 139(1) i.e., 31.10.2021 4.
Further, date for revising the return of income is given after “August
2023”, though a revised return for A.Y. 2021-22 could have been
furnished upto 31.12.2021. Accordingly, the above solution has been
given ignoring the return filing dates given in the question.
(ii) A. GAAR provisions would not apply in this case as the assessee,
M/s KKT Private Limited merely makes a selection of acquiring the
machine on lease over outright purchase, out of the options available
to him under the provisions of the Act for which he is eligible and
satisfies the stipulated conditions, if any.

4
The due date for filing return of income for A.Y. 2021-22 was extended upto 15.3.2022 vide
CBDT Circular No. 1/2022 dated 11.01.2022.
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Even if choice of such option results in lower tax liability, the
same is a result of tax planning.

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B. Investment strategy adopted by the assessee to reduce its tax
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effect for a particular year is not a method of tax evasion.

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Selling of shares of an Indian company at loss and setting off

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such loss against the short-term capital gain arising on sale of

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other listed shares is as per the provisions of law. It does not
make any difference if the shares sold are purchased again in the
next year. It would be considered as tax planning.
(b) As per section 245N(a) clause(ii), Advance ruling means a determination
by the Authority in relation to the tax liability of a non-resident arising out
of a transaction which has been undertaken or is proposed to be
undertaken by a resident applicant with such non-resident.
Section 245Q(1) provides that an applicant desirous of obtaining an

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advance ruling may make an application stating the question on which

.
the advance ruling is sought in the prescribed form and in the prescribed

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manner.

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As per section 245Q(2), the application of advance ruling needs to be

a
made in quadruplicate (refer note below) by the applicant i.e., M/s ABC
Ltd.
Since the value of transaction between M/s ABC Ltd and M/s Pinicer Inc.,
in respect of which ruling is sought, exceeds ` 100 crores but does not
exceed ` 300 crores, fees of ` 5 lakhs to be accompanied with the
application.
As per section 245W(1), an applicant who is aggrieved by any order

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passed by the Board for Advance Rulings or the Assessing Officer, on the

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directions of the Principal Commissioner or Commissioner, may appeal to

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the High Court against such ruling or order of the Board of Advance

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Rulings.

las He has to do so within sixty days from the date of the communication of
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ag that ruling or order. However, where the High Court is satisfied that the
appellant was prevented by sufficient cause from presenting the appeal
within the 60 days period, it may grant further period of 30 days for filing
such appeal.

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FINAL EXAMINATION: NOVEMBER 2024

Note – Rule 44E(1) provides that an application for obtaining an advance
ruling under sub-section (1) of section 245Q shall be made in prescribed
forms and shall be verified in the manner indicated therein. Rule 44E(2)
prescribes that the application referred to in sub-rule (1), the verification
appended thereto, the annexures to the said application and the statements
and documents accompanying the annexures, shall be signed or digitally
signed by a particular person and furnished through his/its registered e-
mail address.
Since reference to the word “quadruplicate” still contained in the section
245Q(2) though rule prescribe to furnish application through e-mail. The
main solution is given based on provisions contained in section 245Q(2).
However, alternate solution that “the application of advance ruling needs to
be made by the applicant i.e., M/s ABC Ltd. through its registered e-mail” is
also possible in line with Rule 44E.

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