Book F01 - Question Bank
Book F01 - Question Bank
KALPESH CLASSES
CA FINAL
VIDEO LECTURES
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C.A. Kalpesh Sanghavi Introduction - P a g e | F2 . 2
QUESTION BANK
C.A. FINAL
DIRECT TAXES
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C.A. Kalpesh Sanghavi Introduction - P a g e | F2 . 3
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C.A. Kalpesh Sanghavi Introduction - P a g e | F2 . 4
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C.A. Kalpesh Sanghavi Residential Status - P a g e | F3 . 1
RESIDENTIAL
STATUS
AND
INCIDENCE OF
TAX
Sub-Topics Sections
A Residential Status 6
B Incidence of tax 5,7,8,9
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C.A. Kalpesh Sanghavi Residential Status - P a g e | F3 . 2
RESIDENTIAL STATUS
INCIDENCE OF TAX
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C.A. Kalpesh Sanghavi Salary Income - P a g e | F4 . 1
HEADS
OF
INCOME
Sub-Topics Sections
A Salary Income 15 to 21
B House Property Income 22 to 27
C Business Income 28 to 44
D Assessment of entities
Corporate Taxation / MAT 115J to JB
Dividend Tax 115O to TC
Assessment of Firms 182 to 189
115JC to JF
Alternate Minimum Tax / Deductions / Individuals
80
Assessment of AOP 167B, 86
Private Trust 160 to 165
Public Trust 11 to 13
Co-Operative Society 80P
Political Parties / Electoral Trust 13A and 13B
HUF (Covered with capital Gains)
E Capital Gains 45 to 55
F Income from other sources 56 to 59
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C.A. Kalpesh Sanghavi Salary Income - P a g e | F4 . 2
SALARY INCOME
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C.A. Kalpesh Sanghavi House Property Income - P a g e | F5 . 1
HOUSE PROPERTY
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 1
BUSINESS INCOME
Problem 1 (Section 28, adventure in nature of trade) (Business ID 13) (Revision / Home work)
Mr. Kalpesh Sanghavi, purchased certain agricultural lands over period of 5 years. The lands were acquired
immediately thereafter by the State Government. The assessees received compensation/enhanced
compensation towards the acquisition of the lands. The Assessing Officer came to the conclusion that the
material placed on record indicated that the assessee did not have any intention to hold the lands and cultivate
it therefore it will be treated as capital gains. You are required to offer your comments.
Problem 2 (Section 28, pre-commencement incomes) (Business ID 14) (Revision / Home work)
The assessee company incorporated in October, 2010. Loans were obtained by it for purchase of capital
equipment and for setting up the business of the company, which was manufacturing cement. The company
had paid interest on all of its borrowings. Besides the loan, the company had also received application money
for the issue of share certificates and the application money so received was deposited with the bank as short-
term deposit besides part of the borrowings. On such deposit, the company earned interest of Rs. 2,58,089.
On the other hand, the amount of interest paid by the company on its borrowings was Rs. 14,32,072. The
Income-tax Officer held that the interest income earned by the assessee on the amounts deposited with the
bank had nothing to do with the construction activities and as such it was taxable income under the head
"Income from other sources". Since the borrowing by the company was for the purpose of construction and
had no relation with the earnings of interest on the deposit, the Income-tax Officer was of the view that the
interest paid could not be deducted from the interest received. However, a sum of Rs. 10,000 was allowed
which was considered as relatable to the earnings of the income of interest as there were certain
administrative expenses incurred by the company. The Tribunal, however, held that the interest was not
taxable under section 56 and that the interest received on short-term deposits with banks was to be reduced
from the interest payments, while capitalising the various expenditures to capital account. You are required
to discuss the correct tax treatment of interest.
Problem 3 (Section 28, pre-commencement incomes) (Business ID 15) (Revision / Home work)
The assessee was incorporated as a company on May 20, 2011, for the object, among others, of taking over
a tea estate as a going concern and it commenced business on June 23, 2011. In November 2011, the estate
was purchased by the assessee with effect from January 1, 2011, one of the terms of the sale deed being that
all income and profits from January 1, 2011, would belong to the assessee, and the assessee should pay all
tax, etc., from that date. The trading results of the assessee's accounting year, showed a loss of Rs. 1,05,593.
The Income-tax Officer held that the assessee was not entitled to claim the whole of this loss (which should
be treated as business loss) but only a portion to the period from which it commenced business, i.e., from
June 23, 2011, to year end.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 2
Problem 4 (Section 28, scope of head of income) (Business ID 22) (Revision / Home work)
Mr. kalpesh sanghavi, which was doing business with of buying and developing landed properties and
promoting and developing markets, purchased 10 bighas of land in the town of Calcutta and set up a market
therein. You are required to answer whether the income realised from the tenants of the shops and stalls was
liable to be taxed as "business income".
Problem 5 (Section 28, scope of head of income) (Business ID 16) (Revision / Home work)
Kalpesh Sanghavi , constructed a building on a certain plot of land, fitted it up with furniture and fixtures
and let it out on lease fully equipped and furnished for the purpose of running a hotel. The lease provided
for a monthly rent of Rs. 5,950 for the building and a hire of Rs. 5,000 for the furniture and fixtures You are
required to answer whether the income realised was liable to be taxed as "business income".
Problem 6 (Section 28, scope of head of income) (Business ID 17) (Revision / Home work)
Kalpesh Sanghavi entered into a contract with the Government for executing certain works. A dispute arose
between the assessee and the Government and the dispute was referred to arbitration. The arbitrator awarded
a certain amount by way of compensation for work done and also awarded interest. The question is whether
the interest awarded by the arbitrator was income assessable to tax.
Problem 7 (Section 28, scope of head of income) (Business ID 18) (Revision / Home work)
The assessee was a company which manufactured locomotives and locomotive boilers. For the purpose of
purchasing capital goods required for its manufacturing activities, the assessee appointed the Tata Inc., New
York, as its purchasing agent in the United State of America, and with the permission of the Reserve Bank
remitted $ 33,850 to the agent. As the selling agent for the Baldwin Locomotive Works of America the
assessee earned commission (on which the assessee paid tax on the accrual basis) and also spent in India
amounts to meet the expenses of their representative. With the permission of the Reserve Bank the
commission due from Baldwin Locomotive Works and the amounts by way of reimbursement of the
expenses of the representative were retained in the U.S.A., in the assessee's account with the purchasing
agent Tata Inc., solely for the purchase of capital goods. Out of the remittances from India the assessee had
spent $ 30,283 and the balance in its accounts with Tata Inc., stood at $ 48,572 on September 16, 1949. The
amount was composed of $ 3,567 being the balance of the remittances from India, $ 8,882 representing
amounts reimbursed by the Baldwin Locomotive Works and $ 36,123 representing commission received and
retained in America. On September 16, 1949, there was a devaluation in the pound sterling and in the rupee
and as a result American goods became more expensive than before. The Government of India also imposed
restrictions on the import of goods from the U.S.A. As further purchase of capital goods from America was
rendered impossible the assessee, with the permission of the Reserve Bank, repatriated to India the entire
balance in America. In the process of converting the balance into rupee currency the assessee gained a surplus
of Rs. 70,147. You are required to answer the tax treatment of forex gain Rs. 70,147.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 3
Problem 8 (Section 28, scope of head of income) (Business ID 25) (Revision / Home work)
The assessee an individual derived income from his profession as a photographer. In an all-India photography
contest the assessee won the first prize and received a cash award of Rs. 30,000. He claimed that the said
receipt did not bear the character of income and was, therefore, not taxable. You are required to answer
whether assessee is justified or not.
Problem 9 (Section 28, scope of head of income) (Business ID 73) (Revision / Home work)
Explain in brief, the treatment as to their taxability and or allowability, in the following cases-
1. A Ltd., an investment company receives dividend income of Rs. 1,00,000 on its investment in shares.
It incurs interest expenditure of Rs. 2,00,000 on the borrowed capital utilized in the investment of
shares.
2. B Ltd. is a company engaged in the business of financing and investment in shares. It suffers loss in
an amount of Rs. 3,00,000 on account of futures and options, a transaction in the form of derivatives
in which the underlying asset was shares.
3. C Ltd., which does not have any active business carried on by it, incurs capital expenditure on
scientific research amounting to Rs. 5,00,000 that relates to its subsidiary companies.
Problem 8 (Section 28, scope of head of income) (Business ID 80) (Revision / Home work)
A & Co. Ltd., a property developer and builder, disclosed unsold flats as stock in trade in its books of account
as well as in wealth tax return. it let out those flats and offered the same as income from house property by
claiming statutory deduction under section 24 of the Act. The Assessing Officer disallowed statutory
deduction and taxed the same as income from business, Decide the correctness of the action of the Assessing
Officer.
Problem 10 (Section 28, benefit out of business) (Business ID 19) (Revision / Home work)
Mr. Kalpesh Sanghavi a social reformer who established a movement for the up-liftment of the masses which
was joined by great numbers of followers. The Assessing Officer as well as the Commissioner (Appeals)
treated the gifts of Rs. 1,22,70,795 received by the assessee on his 80th birthday as his income from business
and profession. You are required to answer whether assessing officer and CIT (A) is justified in so assessing
the income.
Problem 11 (Section 28, Non compete fees) (Business ID 20) (Revision / Home work)
The assessee was engaged in computer software business. In December, 2010, IBS entered into a non-
competition agreement with the assessee restraining the assessee from carrying on similar business in India.
The agreement was not confined to any particular assessment year. The assessee received a consideration of
$ 2.4 million which was payable in 36 monthly instalments starting from January 1, 2011. IBS mentioned in
its accounts, that the amount payable by it to the assessee had been capitalised and amortised at 30 per cent
per year. IBS claimed depreciation allowance of 25 per cent. on the amount treating it as cost incurred for
acquiring commercial rights. The assessee argued before the assessing authority that the entire amount
payable under the non-competition agreement had accrued to it at the time of entering into the agreement for
the reason that the compensation was to be paid in instalments over a period of 36 months. You are required
to answer whether such compensation is taxable and if yes how ?
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 4
Problem 12 (Section 28, benefit out of business) (Business ID 26) (Revision / Home work)
The assessee a dealer in cloth received Rs. 50,000 as cash equivalent of value of an ambassador car as a gift
from a company under a gift scheme formulated in the company’s centenary year for having purchased
suiting worth more than Rs. 8 lakhs from the company. The assessee contended that the receipt was not
income, but was a gift, and that the receipt was of a casual and non-recurring nature. The assessee’s
contention was rejected by the Income-tax Officer. You are required to state the correct tax treatment of the
said gift.
Problem 13 (Section 28, benefit out of business) (Business ID 27) (Revision / Home work)
The assessee was a film actor as also a film distributor. During the previous year he had entered into an
agreement with producers of films and had received remuneration for acting in those films which were duly
accounted for by him as also by the producers. The assessee’s children had received gifts from those
producers. The Assessing Officer took the view that there was a pattern of the assessee’s children receiving
gifts from the producers. He treated the amounts gifted to the children as additional remuneration of the
assessee. The assessee is of the opinion that amounts gifted to the children by the producers were not to be
treated as the assessee’s income. You are required to discuss the correct position of law.
Problem 14 (Section 28, benefit out of business) (Business ID 28) (Revision / Home work)
The company X had let out a portion of its commercial premises in Bombay and Hyderabad to its sister
concern for which the assessee received non-interest bearing security deposit. The assessee also received
annual rent for both the properties from the concern. The Assessing Officer held that the arrangement was a
collusive arrangement between the two sister concerns and that the assessee had received lesser rent vis-a-
vis the market rent from the concern. Thus reasonable amount in opinion of the officer was chargeable to tax
by virtue of 28(iv). You are required to answer whether he is justified in so doing.
Problem 15 (Section 28, keymans insurance policy) (Business ID 21) (Revision / Home work)
M/S. XYZ is a firm with X, Y & Z as equal partners, Mr. X is looking after the entire operations of the firm
and Mr. Y & Mr. Z are sleeping partners. The firm proposes to undertake insurance policy for insuring the
firm against the losses due to any unprecedented eventuality to Mr. X under any Keyman Insurance Scheme.
The firm will be required to pay annual premium on such policy. Is such premium payable by the firm an
allowable expenditure ?
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 5
Mr. Kalpesh Sanghavi, a retail trader of Cochin gives the following Trading and Profit & Loss Account for
the Year ended 31st March, PY.
Additional Information:
1) It was found, some stocks were omitted to be included in both the Opening and Closing Stock: the
values of which were- Opening Stock – Rs. 9,000; Closing Stock – Rs. 18,000
2) salary includes Rs. 10,000/- paid to his brother, which is unreasonable to the extent of Rs. 2,000/-
3) The whole amount of printing and stationery was paid in cash.
4) The depreciation provided in the profit and loss account Rs. 1,05,000/- was based on the following
information,
The written down value of plant and machinery is Rs. 4,20,000/-. A new plant falling under the
same block of depreciation of 15% was bought on 01.07.PY for Rs. 70,000/- two old plants were
sold on 01.10.PY for Rs. 50,000/-
5) Rent and rates includes sales tax liability of Rs. 3,400/- paid on 07.04.AY.
6) Other business receipts include Rs. 2,200/- recovery of excess expense paid on account of printing
and stationery to shyam Stationey & co 12 years back.
7) Other general expenses included Rs. 2,000/- paid as donation to a public charitable trust.
8) Assessee has incurred expenditure relating to exempt income and the same was charged to personal
account and not debited to the P & L account.
9) He has plan to purchase one residential house at pune from Mr. Ram for Rupees 55 Lakhs.
10) There was an earthquake in Nepal, so local persons of his locality were collecting old household
items to be forwarded to Nepal to help the victims. In that regards one of his customer paid him Rs.
10,000 and requested him to buy kids garments and then forward it to Mr. Shyam who was in turn
providing honorary services to help victims of earthquake.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 6
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 7
Repairs on building includes Rs. 95,000 being cost of raising a compound wall for the own business
premises. Interest payments include interest payable outside India to a resident Indian on which TDS has not
been deducted of Rs. 12,000 and penalty for contravention of Central Sales Tax Act of Rs. 24,000. Assessee
has incurred expenditure relating to exempt income and the same was charged to personal account and not
debited to the P & L account.
During the course of the assessment assessing officer has demanded the ledger copy of “Repairs on
building”, bank book and bank statement, with the view to verify the correctness of the entries in books of
accounts. However assessee is not able to produce the same for the reason that books of accounts are seized
by GST authorities.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 8
Shri.Narayanasamy is a Chartered Accountant practicing at Manglore. The following is the analysis of his
receipts and payments for the year up to his date of death:
Compute Shri Narayanasamy’s gross total income after taking into account, the following:
1. Silver coin received from clients during the course of profession is worth Rs. 5,000/-
2. Allowable rate of depreciation on motor car is 15%;
3. Municipal value of the house property is Rs. 42,000. This house was self occupied for residence for
4 months during the year.
4. Assessee has incurred expenditure relating to exempt income and the same was charged to personal
account and not debited to the P&L account.
5. Kashmir tour with wife, 5 children and 2 servants would reasonably cost Rs. 50,000 in view of the
assessing officer.
6. Personal drawings is considered short by Rs. 50,000 by officer considering status and style of the
living of assessee.
7. Penalty is paid to customs authority for the non declaring of gold that he has brought from dubai. He
visited dubai for professional work but the foreign trip expenses are not recorded in books. Dubai
travelling expense considered reasonable is Rs. 65,000.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 9
8. Misc. Office expenses includes stationery expense, at the end of the year when he was taking the
inventory of his stationery the court fee stamp of Rs. 220 were found to be short / lost. Officer is of
the view that it should not be allowed as deduction since it is not used for professional purposes.
9. During the course of assessment officer observed that he had taken one loan from Mr. Ghotala which
is bogus. Mr. Ghotala has given statement to officer that he is a name lender and not a money lender.
Amount of loan appearing in books if Rs. 60,000 and interest provided in past is 6,000. Closing
balance is 66,000.
10. During the year he had constructed house in his village whose cost of construction is Rs. 350,000
assessing officer does not have any doubt about genuineness of the cost of construction.
Additional Information
Shri Narayanasamy has died on 21st of March. In his will he has appointed Mr. A (advocate) as executor of
the will, and all of his assets and liabilities are bequeathed to his Mr. S (Son of Shri Narayanasamy). After
his death arrears of professional fees Rupees 76,500 is received by Mr. A on 31st of March and it is distributed
100 % to Mr. S on 4th of April.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 10
K (age 26 years), a leading tax consultant, who maintains books of account on cash on basis furnishes the
following particulars of income and expenditure:
Rs. Rs.
Balance brought down 12,400 Purchase of a typewriter 6,000
Fees from clients: Car expenses 18,000
of 2010-11 7,30,500 Office expenses 40,000
of 2009-10 1,11,500 Salary of staff:
of 2012-13 1,13,000 of 2010-11 32,000
Presents from clients 24,000 of 2011-12 11,000
Expenses for let out property
Interest free loan in cash municipal tax: Rs. 2,000,
For Purchase of Car – 100,000 Repairs: Rs. 1,000,
For Medical Emergency – 38,000 1,38,000 Insurance: Rs. 3,000 6,000
Cash Received as Advance for the
sale of Residential house at Pune 1,00,000
Winnings from lottery 46,000 Car purchased on December 10, 2,40,000
Interest from UTI (received on
September 11,) 12,000 Repairs of office 12,000
Rent of a let out property 60,000 Interest on loan 10,000
Share of income from a firm 15,000 Income-tax payment 2,000
Life insurance premium 8,000
Balance credit down 2,77,400
13,62,400 13,62,400
Car is partly used for official purposes (40%) and partly for private purposes (60%).
During the course of the assessment officer came to know that he has got professional opportunity at Dubai
and he is planning to leave India. Assessing officer has issued him notice for the purpose of section 174.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 11
Depreciation
Problem 1 (Depreciation Basics) (Business ID 32) (Revision / Home work)
A Company paid the full consideration for building acquired for its administrative office and occupied the
same as the possession was taken. The registration could not take place before the end of the previous year
for some reason or other. Can the depreciation claim be made?
Company has two set of plant and machinery, and when one is idle and other is working.
Plant and Machinery was under maintenance and repairs for 20 days during the year.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 12
Compute the quantum of depreciation available under section 32 and any other benefit available in respect
of the following items of plant and machinery purchased by X Ltd , which is engaged in the manufacture of
textile fabrics
(Rs. In crore)
New machinery installed on May 1, 84
New windmill purchased and installed on June 18, 22
Items purchased after November 30, –
- Lorries for transporting goods and sales deposits 3
- Fork-lift-trucks, used inside factory 4
- Computers installed inside office premises 1
- Computers installed in factory 2
- New imported machinery (arrived at Chennai port on March 30, and was
installed after 1 week) 12
Except new imported machinery, all other items were installed during the year.
X Ltd has commenced operation during the year.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 13
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 14
He is offered a position of a trustee in a Sanghavi and Sons Trust, having a tax liability of 100,000. Sanghavi
and Sons Trust has already two other trustee Mr Patel and Mr Raj. He wants to know his tax obligations in
case he decides to take up the position of being a trustee in this trust.
Problem 12 (Depreciation Meaning of Actual cost) (Business ID 39) (Revision / Home work)
A Company was a lessee of an old building. Under an agreement with the Lessor, it demolished the old
building and built a new building on the same site at a cost of Rs.10 Lakhs and was permitted to reoccupy
the new building on the same site at a cost of Rs.10 Lakhs, and was permitted to reoccupy the new building
for a further period of 20 years at the old rent. It claimed the expenditure of Rs.20 Lakhs as revenue
expenditure. How will you deal with the above ?
Problem 13 (Depreciation Meaning of Actual cost) (Business ID 40) (Revision / Home work)
Certain members of the Thakkar family entered into a partnership to carry on business in the name of Ashwin
Vanaspati Industries. Later on the firm was dissolved and was incorporated with all the shareholders being
erstwhile partners, viz., belonging to the Thakkar group. Upon the transfer the assets were taken over at
price higher then the 20 % value of the assets and company claimed the depreciation at enhanced cost. You
are required to answer whether company is justified in so doing or not.
Assets Rs. W. D. V.
1. Plant and machinery 33,68,000 6,77,055
2. Factory building 3,50,000 82,523
3. Residential building 1,50,000 35,367
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 15
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 16
Problem 2 (Section 33AB Tea Development account) (Business ID 30) (Revision / Home work)
The business profit of T Ltd., a tea growing and manufacturing company, is 120 lacs (before deduction under
section 33AB) for the year. It deposits 50 lacs with NABARD for claiming deduction under section 33AB.
It wants to claim set – off of brought forward business loss of 40 lacs. Find out the taxable income of T Ltd..
Problem 3 (Section 33AB Tea Development account) (Business ID 54) (Revision / Home work)
X Ltd., is a company engaged in the business of growing , manufacturing and selling Tea. For the accounting
year, its composite business profits, before an adjustment under section 33AB were Rs. 60 lakh. In the year,
it deposited Rs. 25 lakh with NABARD.
The company has a business loss of Rs. 10 lakh brought forward from the previous year.
The company withdrew in February, Rs. 20 lakh from the deposit account to buy a non-depreciable asset for
Rs. 18 lakh and could not use the balance before the end of the accounting year. The withdrawal and the
purchase were under a scheme appeared by the Tea Board.
The non-depreciable assets were sold next year for Rs. 29 lakh.
Indicate clearly the tax consequences of the above transactions and the total income for the relevant years.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 17
Laxmi Tea Limited is engaged in growing and manufacturing tea in Assam and West Bengal. The company’s
profit and loss account for the year shows a net profit of 550 lacs after debiting or crediting the following
amounts:
a. Depreciation 40 lacs.
b. Interest amounting to 2 lacs on term loan from a bank for purchase of machinery for one of its tea
factories.
c. Repairs to factory building amounting to 15 lacs for which a sum of 10 lacs was withdrawn from Tea
Deposit account maintained with National Bank for Agricultural and Rural Development
(NABARD) as per section 33AB of the Income-tax Act, 1961.
d. Profit from sale of green tea leaves plucked in own gardens 20 lacs.
e. 5 lacs on account of stamp duty and registration fees for the issue of bonus shares.
f. 10 lacs, being sales tax dues of earlier years determined during the year on disposal of appeals by the
appellate authority, for which (the company has furnished a bank guarantee to the Commercial Tax
Authority.
g. 5 lacs written of as bad in respect of a trade debt transferred from Saraswati Tea Limited 2 years back
pursuant to a scheme of amalgamation approved by the jurisdictional High Court.
h. 2 lacs contributed to Employees Welfare Trust.
i. Interest on inter-corporate deposit 1 lac and 1.50 lacs for February and March, for which tax deducted
at source was paid to the Central Government in June AY.
(I) Depreciation as per Tax Audit Report under section 44AB 55 lacs.
(II) One financial institution converted arrear interest of 10 lacs into a new loan 3 years back, which
is repayable in five annual instalments. The company has paid 2 lacs towards the instalment due
for the year.
(III) A sum of 250 lacs deposited in NABARD on 15th June, AY as per the provision of Section 33AB.
Compute total income of the company stating the reasons of each item. Ignore provision relating to Minimum
Alternate Tax.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 18
Rs.
Profit from business before depreciation 5,00,000
Written down value of block of assets 15% as on 1-4 10,00,000
The scientific research asset if used for business shall be eligible for depreciation @ 15%.
Compute the total income if the scientific research asset is sold for Rs. 25,00,000 assuming:
a) It is sold without using for business;
b) It is sold after using for business.
Rs.
Revenue expenditure on Scientific Research 2,60,000
Capital expenditure on Scientific Research 5,00,000
Including
1) Expenditure on construction of roads to scientific research building –
1,00,000
2) One of building to be used for scientific research is under construction –
2,00,000
Some of furniture is shifted from administrative office to scientific research wing
2,50,000
(WDV-1,60,000)
Compute the deduction available on account of Scientific Research assuming the company does not have
any other income.
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Amortisation of Expense
Problem 4 (Section 35D Amortisation of Expense) (Business ID 09)
a) Compute the deduction allowable under section 35D on the basis of the following information submitted
to you.
Preliminary expenses incurred 2,40,000
Cost of project 40,00,000
b) What will be your answer if the above preliminary expense have been incurred by R Ltd. & the capital
employed is Rs. 46,00,000.
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Telecom Rights
Problem 1 (Section 35ABB Telecom Rights) (Business ID 05)
R Ltd. obtained a licence to operate telecommunication services from Department of Telecommunication on
5-6-2010 for a period of 11 years i.e. till 4-6-2021 for a sum of Rs. 13,20,000. Calculate the amount of
deduction available to the company under section 35ABB for the various previous year assuming:-
a) The payment of the entire licence fee is made on the date of acquisition of the licence;
b) Rs. 4,00,000 was paid on the date of acquisition, Rs. 2,50,000 was paid on 15-10-2010 and balance
Rs. 6,60,000 will be paid in two equal installments of Rs. 3,30,000 each during previous year 2011-
12 and 2012-13.
Problem 2 (Section 35ABB Telecom Rights) (Business ID 06) (Revision / Home work)
How would you treat the following:
Licence acquired for Rs. 24 lakhs on 1-4-2008 for 12 years
WDV as on 1-4-2010 Rs. 20 lakh
Part of licence sold for Rs. 12 lakh
Problem 4 (Section 35ABB Telecom Rights) (Business ID 55) (Revision / Home work)
X Ltd. to provide telecom services in Mumbai, obtained a license on April 11, 2012 for a period of 10 years
ending on march 31, 2022 against a fee of Rs. 27 lakh to be paid in 3 installments of Rs. 10 lakh, 9 lakh and
8 lakh by April 2012, April 2013 and April 2014 respectively. Explain how the payment made for license
fee shall be dealt and work out the amount if any, deductible in this respect out of income chargeable to tax
for assessment year 2015-16 and subsequent years.
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Crores
Profit before taxation 100
Depreciation as per books 25
Depreciation admissible as per income-tax rule 40
Corporation tax disputed by the bank and not paid 10
Bad debts written off 45
Provision for non-performing assets as per prudential norms of Reserve Bank of India 250
Provision for standard assets as per 2 per cent of such advance as per the above norms 5
Net depreciation on investments under “held for trading” and “available for sale”
categories calculated on lower of cost price or market price basis as per guidelines of
Reserve Bank of India 30
Other information:
a. Two years back provision for doubtful debts allowed in assessment amounted to Rs. 35 crore only.
b. The assessment for preceding year resulted in a loss and unabsorbed depreciation amounting to Rs.
30 crore and Rs. 40 crore respectively and the bank was not allowed deduction on account of
provision for doubtful debts.
c. Unrealized interest income not recognized in the accounts in respect of non-performing assets as per
assets classification norms of RBI amounts to Rs. 65 crore.
d. The aggregate average rural advances calculated as per section 36(1)(viia) read with rule 6ABA
amounts to Rs. 30 crores.
From the above information compute total income of the bank.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 27
The assessee firm during derived Rs. 30,00,000 from the business of Civil Construction and the profit as per
the P& L a/c was Rs. 2,00,000. The assessee made the income computation as under:
Rs.
Profit as per section 44AD @ 8.5% 2,40,000
Less:
Deduction under section 43B on actual payment 15,000
2,45,000
The Assessing officer has disputed the computation thus M/s. ABC seeks the advice for the computation of
income of both the years.
OPTIMA Ltd. is engaged in the business of plying goods carriages. On 1st April, the company owns 10
trucks (6 out of which are ―heavy goods vehicles‖). On May 2, one of the heavy goods vehicles is sold by
OPTIMA Ltd. To purchase a light goods vehicle on May 6, which is put to use only from June 15,. Find out
the total income of OPTIMA Ltd. For the year taking into consideration the following data gathered from its
books:
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 28
X Ltd. is engaged in the business of civil construction. The profit and loss account of the company for the
year is as under:
Rs. Rs.
Opening stock building and Receipts from the business of civil
materials 40,000 construction contracts 37,60,000
Salary to workers and employees 4,10,000 Rent of godown 80,000
Purchase of building materials 24,00,000 Surplus from insurance
compensation received for loss of
plant and machinery by fire 2,00,000
Interest on loan 3,20,000 Interest on company deposits 25,000
Office administration expenses 2,60,000 Dividend from companies 50,000
Travelling expenses 1,40,000 Closing stock of building materials 25,000
Municipal taxes on godown 12,000
Insurance premium for godown 8,000
Directors’ remuneration 2,53,000
Depreciation on plant and
machinery 65000
Provision for tax:
Current tax 1,00,000
Deferred tax 43,000 1,43,000
Net profit 89,000
41,40,000 41,40,000
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Compute the total income of the company and given brief reasons for the treatment given to each of the
items.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 30
The net profit of ABC Ltd. for the year amounted to 7,22,000 after debiting/crediting following items:
I. Payment of interest on money borrowed from bank for purchase of land and building 222,000.
II. Commission 1,00,000 paid in the month of February and 1,25,000 paid in March,. Tax deducted at
source from the payments was deposited to the Government on 20.09.AY.
III. Travelling expenses of 90,000 on a foreign tour of a director for negotiating collaboration with a
foreign manufacturer for initiation of new line of business.
IV. Securities Transaction tax paid 10,000. Income from trading in shares already credited to profit and
loss account 3,82,000.
V. As part of the restructuring of its debt, the company has converted arrears of interest of 3,00,000 on
term loan into a new term loan with a revised repayment schedule. The company has paid 50,000
towards such funded interest during the year. Entire 3,00,000 has been debited to profit and loss
account. However, out of this, a further sum of 50,000 was paid before the due date of filing of return.
VI. 5,00,000, being contribution to S Ltd. (wholly owned subsidiary company) for construction to a
school for the benefit of its employees.
VII. Provision for gratuity based on actuarial valuation 6,00,000. Actual gratuity paid 1,50,000 was
debited to provision for gratuity account.
Other information:
1) Provision for bonus for the 2 year back paid on 15.11.PY 98,000. It is inclusive of payment by
bearer cheque of 34,000.
2) The company has purchased a commercial vehicle of 8,00,000 for the purpose of business on
21.03.PY and calculated depreciation@ 15% for the full year. Depreciation debited to the profit
and loss account is calculated on all other assets as per the rates prescribed in the Income-tax Act
1961.
3) The company collected 3,00,000 from its customers towards sales tax in the year 2007-08 and
remitted it to the State Government in due time. On the levy being challenged in the High Court,
the Court held the levy as illegal and the State Government refunded the amount to the company
in February PY. The company refunded 2,00,000 to the customers and the remaining amount of
1,00,000 was shown under the head current Iiabilities.
Compute the income chargeable to tax and work out the amount of tax payable on such income, ignoring the
provisions of section 115 JB.
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ILT Limited is engaged in manufacturing pipes and tubes. The profit and loss account of the company for
the year shows a net profit of 405 lacs. The following information and particulars are furnished to you. You
are required to compute total income of the company indicating reasons for treatment of each item.
I. A group free air ticket was provided by a supplier for reaching a certain volume of purchase.
The same is encashed by the company 10 lacs in April.
II. A regular supplier of raw material agreed for settlement of 8 lacs instead of 10 lacs for poor
quality of material supplied during the previous year which was not given effect in the running
account of the supplier.
III. Andhra Bank sanctioned and disbursed a term loan 4 years back for a sum of 50 lacs. Interest
of 8 lacs was in arrear. The bank has converted the arrear interest into a new loan repayable
in ten equal installments. During the year, the company has paid two installments and the
amount so paid has been reduced from Funded Interest in the Balance Sheet.
IV. The company remitted 5 lacs as interest to a company incorporated in USA on a loan taken
two years ago. Tax deducted under section 195 from such interest has been deposited by the
company on 15th July, AY. The said interest was debited to profit and loss account.
V. Liquidated damage of 3 lacs received from KS Limited for delay in supply of plant and
machinery has been shown under the head “Other Income” in Profit & Loss Account.
VI. Sandeep, a sales executive stationed at HO at Delhi, was on official tour in Bangalore from
31st May, to 18th June, and 28th September, to 15th October, for the business development.
The company has paid Sandeep’s salary in cash, from its local office at Bangalore for the
month of May, (payable on 1st June) and September (payable on 1st October), amounting to
25,000 and 27,000 respectively (net of TDS and other deduction), as Sandeep has no bank
account at Bangalore. These were included in the amount of “salary” debited to Profit and
Loss Account.
VII. The company has taken up initiative to restructure its debt and paid 20,000 to a finance
company, M/s ABC Ltd., towards are payment premium. As per the scheme, 50,000 loan
was waived against its loan and B Limited directly credited it to its reserve account,
considering loan waiver amount as capital receipt.
VIII. The company has contributed 50,000 to an electoral trust and the same stands included under
the head “General Expenses”.
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The Net Profit of “Simran Ltd.” for the year is 50 lacs after debit of the following :
a. Both the employees and employers contribution towards PF amounting to 2 lacs each for the month
of March, were deposited in 1.7.AY.
b. Provision for audit fees of 5 lacs made in the books of last year was paid to the auditors in September,
after deducting tax under section 194J and the tax so deducted was remitted by 7.10.
c. A contract who carried out repairing work in the office was paid in cash on 25.9. by two vouchers
No. 175 of 17,000 and No. 180 of 8,000.
d. TDS, out of payment of interest of 1 lac in February, and of 2 lacs in March, was remitted to the
Government in July AY.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 33
Trading Account
Opening stock 3,75,000 Sales 1,55,50,000
Purchases 1,25,75,000 Closing stock 4,50,000
Freight and cartage 1,26,000
Gross profit 29,24,000
1,60,00,000 1,60,00,000
On scrutiny of records the following further information and details were extracted/gathered-
1. There was a survey under section 133A on the business premises on March 31, in which it was
revealed that the value of opening stock was Rs. 8,75,000 and sales of Rs. 75,000 made on March
31, was not recorded in the books. The value of closing stock after considering these facts and on the
basis of inventory prepared in the department, worked out at Rs. 12,50,000, which was accepted to
be correct and not disputed.
2. Income-tax refund includes a sum of Rs. 4,570 of interest allowed thereon.
3. Bonus to staff includes a sum of Rs. 7,500 paid in the month of December, which was provided in
the books 2 years back.
4. Rent of premises includes an amount of Rs. 5,500 incurred on repairs. The assessee was under no
obligation to incur such expenses as per rent agreement.
5. Advertisement expenses include an amount of Rs. 2,500 paid for advertisement published in the
souvenir issued by a political party.
6. Miscellaneous expenses include:
a. Rs. 15,000 paid towards penalty for non-fulfillment of delivery conditions of a contract of sale
for the reason beyond control.
b. Rs. 1,00,000 spent on a notified scheme meant for the uplift of residents of Mid Himalayan
Region,
c. Rs. 1,00,000 paid to the wife of a director, who is working as junior lawyer for taking an opinion
on a disputed matter. The senior advocate of Supreme Court had charged only Rs. 25,000 for the
same opinion.
d. Rs. 1,00,000 paid to an Electoral Trust.
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7. Sales-tax demand paid includes an amount of Rs. 5,300 charged as penalty for delayed filing of
returns and Rs. 12,750 towards interest for delays in deposit of tax.
8. The company had made an investment of Rs. 25 lakh on the construction of a warehouse in rural area
for the purpose of storage of agricultural produce. This was made available for use from September
15, and the income from this activity is credited in the profit and loss account under the head of
warehousing charges.
9. Depreciation under the Income-tax Act works out Rs. 65,000.
10. Interest on loans includes an amount of Rs. 20,000 on which tax at source was not deducted.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 35
The profit and loss account for the year of Jolly Ltd., a company engaged in different types of business
activities, continuously incurring losses, disclosed a net loss of Rs. 1,50,000 arrived at after debiting /
crediting the following :
a. Profit of Rs.3,13,000 from a hedging contract entered into for meeting out the loss in
foreign currency payments towards an imported machinery of Rs.60 lacs installed and put
to use on 1-1-2010.
b. Amount in U.K. Pounds 1,660 equivalent to Rs. 1,11,200 paid to a travel agent, resident
of U.K. as commission for the booking of international tourists to India in one of the
hotels of the company, on which the tax at source was neither deducted nor paid.
c. Amount of Rs. 25,000 debited in commission account represents payments payment to a
party as secret commission duly approved by the board.
d. Amount of Rs. 4,23,000 recovered from the C & F agents towards the excess freight
charges collected upto financial year 2008-09 by them from the customers of the company
which was neither remitted to the company nor refunded back to customers.
e. Amount of Rs.5,00,000 of unpaid interest for the year 2008-2009 waived by SBI after
considering the financial health of the company.
f. Interest on the amount of advance of Rs.3,00,000 given to the subsidiary company at 10%
p.a. was not charged on the ground that the financial position of the subsidiary was not
satisfactory.
g. Rs. 50,000 representing the value of furniture found missing on physical verification and
debited to General Expenses.
h. Amount of salary of Rs.1,50,000 paid to the Managing Director for which the approval
of the Central Government was received.
i. Amount of Rs.3,30,000 received from the holding company in reimbursement of loss
sustained in a particular transaction.
j. Expenses of Rs.26,00,000 incurred on the dismantling of building and machinery and
transportation to the new site for refitting because of shifting of the location of one of its
unit.
k. Provision of Rs.75,000 of interest on the unpaid purchase price of an asset.
Compute income under the head “Profits and gains of business of profession” of Jolly Ltd. for the year
indicating brief reasons for treatment given to each of the items.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 36
XYZ Private Limited is engaged in manufacturing and selling ceramic tiles. The net profit of the company
as per its Profit & Loss Account for the year is 150 lakh after debiting or crediting the following items:
I. One- time license fee of 20 lakh paid to a foreign company for obtaining franchise on 1st June,
II. 29,000 paid to A & Co., a goods transport operator in cash on 31st January, for distribution of the
company’s products to its warehouse.
III. Rent of 6 lakh received from letting out a part of its office premises, Municipal tax in respect of
the said part of the building amounting to 15,000 remains unpaid.
IV. 2 lakh, being contribution to a University approved and notified under section 35(1)(ii).
V. 3 lakh, being loss due to destruction of a machinery caused by a fire due to short circuit. The
Insurance Company did not admit the claim of the company.
VI. 4 lakh and 1 lakh being amounts waived by a bank out of principal and arrear interest respectively
in an one time settlement. The loan was obtained for meeting working capital requirement four
years back.
VII. 1 lakh, being amount payable to a contractor (who does not have Permanent Account Number)
for repair work at the company’s factory. Tax of 2,000 was deducted and paid in time.
VIII. Dividend of 0.10 lakh from P. Limited on 1000 equity shares of 10 each purchased at 100 per
share on 10th October,. The rate of dividend declared is 100%, the record date being 1st
December,. The shares were sold on 1st March, at 80 per share. Loss of 0.20 lakh has been debited
to Profit & Loss Account.
IX. Depreciation on tangible assets 1 lakh.
Additional Information:
a) Depreciation on tangible fixed assets as per Income –tax Rules 1.75 lakh.
b) The company has obtained a loan of 2 lakh from ABC Private Limited in which it holds
16% voting rights. The accumulated profits of ABC Private Limited on the date of receipt
of loan was 0.50 lakh.
Compute total income of XYZ Private Limited indicating reasons for treatment of each item. Ignore the
provisions relating to minimum alternate tax.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 37
X Ltd. is engaged in the business of manufacturing, plastic bottle. Its profit and loss account shows a net
profit of Rs. 60 lakh for the year, after debiting/crediting the following items –
1. Rs 5 lakh, being expenses incurred on the travelling of the wife of managing director, who
accompanied him on tour to Beijing on invitation of Trade and Commerce Chamber, China.
2. Rs. 10,000 and Rs. 15,000 paid in cash on October 15, by two separate vouchers to a contractor who
carried out certain repair work in the office premises.
3. One time license fee of Rs. 10 lakh paid toa foreign company for obtaining a franchise on July 1,.
4. Rs. 5 lakh paid to S Ltd. towards feasibility study conducted for examining proposals for
technological advancement relating to existing business, where the project was abandoned without
creating a new asset.
5. Dividend of Rs. 3,50,000 received from a foreign company, in which X Ltd. holds 28 per cent
nominal value of equity share capital of the company. Rs. 25,000 spent on earning this income.
6. Depreciation on tangible fixed assets Rs. 1,50,000.
7. Rs. 5,00,000 and Rs. 1,50,000, being amounts waived by a bank out of principal and arrear interest,
respectively in one time settlement. The loan was obtained for meeting working capital requirements
two years back.
8. Provision for gratuity based on actuarial valuation is Rs. 5,00,000. Actual gratuity paid Rs. 1,50,000
was debited to provision for gratuity account.
9. The opening and closing stock of the year were Rs, 18,00,000 and 18,72,000 respectively and were
undervalued 10 per cent on cost.
Additional information –
- Provision for audit fee of Rs. 1,00,000 was made in the books of the last year , without deducting tax
at source. Such fee was paid to the auditors in September, after deducting tax under section 194J and
the tax so deducted was deposited on October 7 afte the due date of filing of return of income.
- During the year, the company purchased 5,000 shares of RK Private Ltd. at Rs. 20 per share. The fair
market value of such shares on the date of transaction was Rs. 40 per share.
- Depreciation on tangible fixed assets as per Income-tax rules : Rs. 1.75 lakh.
- A debt of Rs. 8 lakh was claimed as bad debt in the previous year 2013-14. But the assessing Officer
allowed only Rs. 4 lakh as bad debt in the previous year. Rs 3 lakh was recovered ultimately in respect
of the debt during year. The effect of recovery of bad debt was not given in the books of account.
Compute the total income, giving the reasons for treatment of each item. Ignore MAT provisions.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 38
X Ltd., engaged in the business of manufacturing, shows a net profit of Rs. 5 crore for the previous year after
debiting / crediting the following items –
1. On EPABX and mobile phones (exclusively used for the business purpose) purchased during the
year, on which depreciation amounting to Rs. 18 lakhs was claimed at higher rate of 60 per cent
treating them at par with computer.
2. Rs. 50 lakh paid to N Ltd., towards feasibility studies conducted for examining proposals for
technological advancement relating to the existing business, where the project was abandoned
without creating a new asset.
3. Rs. 35 lakh paid on higher studies of the director’s son abroad, with a stipulation that he would be
appointed as a trainee in the company under “apprentice training scheme” where there was no
evidence of existence of such scheme.
4. Payment of Rs. 29 lakh of purchase of software from a non-resident, meant for subsequent resale in
the Indian market (no tax deducted at source) was ultimately sold at a profit during year.
5. Dividend of Rs. 10 lakh received from a foreign company in which company holds 28 per cent in
nominal value of the equity share capital of the company Rs. 0.25 lakh expended on earning this
income.
6. A machine is used since past 7 financial years having WDV amounting to Rs. 1.50 lakh on April 1,.
The depreciation on the block 15 at per cent has been provided and charged to profit and loss account
for the year. The entire block is used for the purpose of business.
7. Rs. 45 lakh were paid on June 3, to a National Laboratory with a stipulation that the said contribution
shall be used for the purpose of an approved scientific research programme only.
8. Secret commission of Rs. 13 Lakh was paid and debited under commission account.
9. Purchased a brand new bus and donated to a school where the employees’ children were studying
and debited the same to the Workmen and Staff Welfare Account.
Additional Information –
10. A debt of Rs. 10 lakh was claimed as bad debt in the previous year 2013-14. However, the Assessing
Officer allowed only a sum of Rs. 5 lakh as bad debts. In the previous, a sum of Rs. 4 lakh is recovered
ultimately in respect of the debt.
Compute the total income of X Ltd. and work out the amount of tax payable on such income, indicating
reasons for treatment of each item.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6 . 39
The profit and loss account for the year of X Ltd. (A company engaged in different type of business activities
and continuously incurring losses) disclosed a net loss of Rs. 1,50,000 arrived at after debiting /crediting the
following –
1. Profit of Rs. 3,13,000 from a hedging contract entered into for meeting out the loss in foreign
currency payments towards an imported machinery of Rs. 60 lakh installed and put to use on January
1,.
2. Amount in UK Pounds 1,660 equivalent to Rs. 1,11,200 paid to a travel agent resident of UK as
commission for the booking of international tourists to India in one of the hotels of the company , on
which the tax at source was neither deducted not paid.
3. Amount of Rs. 25,000 debited in commission account represents payment to a party as secret
commission duly approved by the board.
4. Amount of Rs. 4,23,000 recovered from the C&F agents towards the excess freight charges collected
up to financial year 2013-14 by them from the customers of the company which was neither remitted
to the company nor refunded back to customers.
5. Amount of Rs. 5,00,000 of unpaid interest for the year 2013-14 waived by SBI after considering the
financial health of the company.
6. Interest on the amount of advance of Rs. 3,00,000 given to the subsidiary company at 1- per cent per
annum was not charged on the ground that the financial position of the subsidiary was not
satisfactory.
7. Rs. 50,000 representing the value of furniture found missing on physical verification and debited to
general expenses.
8. Amount of salary of Rs. 1,50,000 paid to the managing director of which the approval of the Central
Government was received on April 18, AY.
9. Amount of Rs. 3,30,000 received from the holding company in reimbursement of loss sustained in a
particular transaction.
10. Expenses of 26,00,000 incurred on the dismantling of building and machinery and transportation to
the new site for refitting because of shifting of the location of one of its units.
11. Provision of Rs. 75,000 of interest on the unpaid purchase price of an asset which was put to use in
August.
Compute the income under the head “Profits and gains of business and profession” of X Ltd.
Indicate brief reasons for treatment given to each of the items.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6-B . 1
EXTRA QUESTIONS
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6-C . 1
DEEMED INCOME
Question 1 (section 68,69 deemed incomes) (Revision / Home work) (ID 01)
Shares were floated by the company X and subscriptions were invited from the public through advertisement
in the newspapers and the whole paraphernalia of subscription for shares was undergone in accordance with
law. These subscriptions were dealt with through nationalised banks and were received by cheques. In the
proceedings, the company had disclosed the names and addresses of each of the subscribers. The Assessing
Officer had issued notice upon 37 subscribers on test basis. Out of these 37 persons, ten persons appeared
and produced satisfactory evidence regarding the genuineness about the persons and the sources of the funds
out of which the shares were subscribed. 14 persons though served did not respond. The assessing officer
came to the conclusion that deposits of 14 subscriber is from undisclosed source and thus intended to make
addition under section 68. Further assessee pleaded that to prove his case and to verify the matter officer
must co-operate with him and issue the summons under section 131 requiring the depositor to appear before
him and prove the case. The officer has declined to exercise his powers under section 131. You are required
to answer whether officer is justified in so doing or not.
Question 2 (section 68,69 deemed incomes) (Revision / Home work) (ID 02)
The assessee is in the business of leasing, financing, hire purchase, dealing in shares and other financial
activities. it acquired 1,00,000 equity shares of Rs. 10 each at par from the promoters’ quota out of total
capital consisting of 10,00,000 shares of ITC Agro-Tech Ltd. The said shares were sold at Rs. 18.90 per
share, resulting in a profit of Rs. 8,90,000. The assessee offered the whole of the profit to tax. The Assessing
Officer took the view that the assessee had suppressed income, that there was no reason for the assessee,
which was a trader, to sell the shares, when the procedure for listing was pending before the Calcutta Stock
Exchange, that, the shares obtained were from the promoters’ quota and they were listed on the Calcutta
Stock Exchange later on. Therefore, the Assessing Officer took the sale price at the rate of Rs. 54 per share
and made an addition of Rs. 35.10 lakhs. You are required to answer whether the action of the officer is
justified or not.
Question 3 (section 68,69 deemed incomes) (Revision / Home work) (ID 03)
Mr. X carried on the business of supply of bamboo had taken loans amounting to Rs. 4,35,000 and Rs. 5
lakhs during the previous year. The amounts were paid by cheques by the creditors to the assessee. The
creditors received the said amount by way of loans from their sub-creditors by means of cheques. The
Assessing Officer declined to treat the loan amount of Rs. 4,35,000 as genuine. As regards Rs. 5 lakhs he
declined to treat the loan amount to the extent of Rs. 4,25,000 as genuine. The Assessing Officer added the
two amounts to the total income of assessee as income from undisclosed sources. You are required to answer
whether the action of the officer is justified or not.
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C.A. Kalpesh Sanghavi Business and Profession Income - P a g e | F6-C . 2
DIVERSION OF INCOME
Question: 01 (ID 01) (Revision / Home work)
Under a decree of court, X has to make an annual payment of Rs. 60,000 for maintenance of his wife and
three sons. The annual payment is not charged on any of his property. X claims that Rs. 60,000 is deductible
while computing his taxable income, since it is diversion of income by overriding charge. Is he legally
justified ?
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MUTUAL CONCERN
Question: 01 (ID 01) (Revision / Home work) (concept of mutuality)
XY Club Ltd., a social and sports club, conducts horse races with amateur riders and charges fees for
admission into the enclosure of the club at the time of races. A resolution is passed at a general meeting of
the club for charging a surcharge, apart from regular admission fee, the proceeds of which are to go for local
charities. Every entrant is issued two tickets – one, an admission ticket, for admission to the enclosure of the
club and the other, a separate ticket in respect of surcharge for local charities. Discuss whether receipts on
account of surcharge is to be treated as assessee’s income.
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TONNAGE TAX
Question 1 (Tonnage Tax) (ID 02)
Tarun Shipping Co. Ltd., having its registered office in Mumbai, plies two ocean-going vessels which it
owns. The registered tonnage of the two vessels are 47,549 tonnes and 800 kgs and 25,759 tonnes and 400
kgs respectively. In the accounting year 2011-12, the first vessel was operated for 360 days and the second
for 200 days.
Compute the tax payable by the company, taking note of the provisions of the law relating to taxation of
income of shipping companies. Also indicate the specified conditions for the procedure.
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C.A. Kalpesh Sanghavi MAT and Dividend Tax - P a g e | F7-A . 1
ASSESSMENT
OF ENTITIES
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The accounts of a public company have been prepared in accordance with provisions of Parts II and III of
Schedule VI to the Companies Act and its Profit and Loss Account laid before the Annual General Meeting
for the previous year shows a net profit of Rs. 15 lakhs. The following information relevant for the purpose
of computing its assessable income has been extracted from a scrutiny of the Profit and Loss Account:
Depreciation admissible under the Income-tax Act and Rules for the previous year is Rs. 19,50,000. The
capital gain has been invested in specified assets under section 54EC. GST provided in the accounts has been
remitted before the due date. There is no loss or unabsorbed depreciation to be carried forward and adjusted
as per income-tax assessment. You are required to compute the total tax liability of the company.
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C.A. Kalpesh Sanghavi MAT and Dividend Tax - P a g e | F7-A . 9
You are required to examine the applicability of section 115JB of the Income-tax Act, 1961 and compute
book profit and the tax credit to be carried forward, assuming that the total income computed as per the
provisions of the Income-tax Act, 1961 is 25,00,000.
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C.A. Kalpesh Sanghavi MAT and Dividend Tax - P a g e | F7-A . 11
R Private Ltd., a closely held Indian company, is engaged in the business of manufacture of paints in India.
A profit or loss account for the year is given below: [Rs. (in lakhs)]
Compute the total income of the assessee and the tax liability.
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C.A. Kalpesh Sanghavi MAT and Dividend Tax - P a g e | F7-A . 12
The net profits of XYZ Ltd. for the year, after debiting / crediting the following items, were 9 Lacs :
a. The company had taken on lease an old building for the purpose of locating its business. Due to old
age of the building, it was demolished and a new building put up, which was used for purposes of
XYZ’s business from September PY, . The cost of the new building 10 Lacs was written off as
revenue expenditure. The lessor permitted the company to have an extension of the lease by another
twenty years.
b. 1 Lacs was paid as an annual fee for technical services to a foreign collaborator under an agreement
approved by the Government.
c. The company collected 3 Lacs from its customers by way of GST 3 years back and had remitted it to
the State Government in due time. On the levy being challenged in the High Court, the Court held
the collection as illegal and the State Government refunded the amount to the company.
d. Land development charges of 1.5 Lacs were paid to the State Industrial Development Corporation
on allotment of a commercial plot.
e. A criminal case was filed against a Director of the company, in his official capacity. The company
spent legal expenses of 50,000 defending him in the proceedings. The Director was acquitted of the
charges at the end.
f. The company issued in the year bonus shares to its shareholders and for that purpose fees of 1.5 Lacs
were paid to the Registrar of Companies. These have been written off in the accounts as revenue
expense.
g. The company paid Rs. 70,000 as interest on deposits to some of the non-resident buyers on advances
received from them. No tax at source was deducted on the payment.
h. Overdraft interest of Rs 40,000 was paid to the company’s bank to enable the company to pay its
income tax dues.
i. The opening and closing stocks of the year were 90,000 and 1,17,000 respectively and were
undervalued by 10% on cost.
j. Some investments were held by the company (not as stock in trade), which had to be depreciated by
4.8 Lacs due to a directive from the Government.
k. Sale price of land (held as stock in trade) Rs. 10,00,000. Agreement for sale of land is executed on
21st of March and stamp duty @ 5% is paid by buyer Rs. 60,000.
The balance on 1st April, to the Profit and Loss Account, shown separately in the Balance Sheet, was a debit
of 2 Lacs.
The company had the following claims brought forward from the prior years :
Business losses relating to
Assessment year 12 years back 8 Lacs
Assessment year 3 years back 4 Lacs
Long-term losses under the head capital gains-
Assessment year 2 years back 3 Lacs
Unabsorbed depreciation 12.50 Lacs
(Both as per income-tax records and books of accounts of the company)
You are required to :
Calculate the total income of XYZ ltd. [Your answer should clearly indicate the reasons for the treatment of
the individual items given above.] Examine the applicability of section 115JB.
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C.A. Kalpesh Sanghavi MAT and Dividend Tax - P a g e | F7-A . 13
XYZ Ltd is engaged in the business of manufacturing fertilizer. Its profit and loss account shows a net profit
of Rs. 500 lakh for the year after debiting and crediting the following items –
1. Depreciation provided in accounts as per straight line basis Rs. 30 lakh.
2. Normal depreciation allowable is Rs. 28 lakh. The company has made addition to machinery during
the year to the extent of Rs. 100 lakh, in June.
3. The company has made cash payments for purchases and expenditure as below –
o On June 4, Rs. 5 lakh (due to strike by bank staff)
o On June 5, Rs. 7 lakh (due to cash demanded by the supplier)
o On September 30, Rs. 10 lakh (half yearly closing for bank: a bank holiday)
o Payment made to transport operator for hiring of lorry as follows: May 7, Rs. 50,000; January
8, Rs. 75,000; March 2, Rs. 32,000.
4. Rs. 5 Lakh contributed to a University approved and notified under section 35(1)(ii).
5. GST of Rs. 1.45 lakh, pertaining to Last year was paid on December 10,.
6. Rent paid and professional charges to a consultant including service tax was Rs. 5,61,800 and Rs.
2,24,720 respectively. Tax was not deducted on the service tax portion for both the payments.
7. The company has imported 1000 kgs raw materials from a supplier in US at the rate $75 kg on March
29, 2014. The exchange rate was Rs. 59 per dollar when the imports were made. The payment to the
supplier was made on January20, when the exchange rate was Rs. 62 per dollar. The company had
not entered into a forward contract to hedge the risk.
8. The company has also purchased goods of Rs. 55 lakh from ABC Ltd. in which directors have
substantial interest. The market value of the goods is Rs. 54 lakh.
9. The company has incurred legal expenses for the following –
a. Issue of bonus shares Rs. 10 lakh.
b. Alteration of memorandum of association Rs. 2 lakh (in connection with increase of
authorized capital).
10. Donation paid to a political party is Rs. 25 lakh.
Compute he total income and tax payable by the company for the year, Ignore MAT provisions.
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C.A. Kalpesh Sanghavi MAT and Dividend Tax - P a g e | F7-A . 14
Profit and loss account of X (Pvt.) Ltd. for the year shows a profit of Rs. 75 lakh after debiting the following
items –
1. Rs. 2 lakh contributed to Employees’ Welfare Trust.
2. Rs. 12 lakh paid towards Course fee and hostel expenses for MBA course of a close relative of a
director. The relative is not in employment with the company.
3. Rs. 3.50 Lakh being expenses incurred on installation of a traffic signal, so as to facilitate its
employees coming to office to overcome traffic jam and save office time.
4. RS. 3 lakh spent of gift items distributed to various dealers under the company’s sales incentive
scheme.
5. Rs. 6 Lakh being expenses incurred on the travelling of the wife of MD, who accompanied him on
tour to Singapore on invitation of Trade and Commerce Chamber, Singapore.
6. Rs. 3 lakh being amount paid in March consequent upon change in currency rate due to exchange
fluctuation in excess of the amount due to the supplier of machinery.
7. Rs. 18,000 and Rs. 9,000 paid in cash on October 25, by two separate vouchers to a contractor who
carried out certain repair work in the office premises.
8. Interest of Rs. 2 lakh was paid in March to a company on a loan taken from the company. Tax
deducted at source from such interest was deposited in July of AY.
Additional information –
1. Provision for audit fee of Rs. 6 lakh was made in the books for the last year without deducting tax at
source. Such fee was paid to the auditors in September after deducting tax under section 194J and
the tax so deducted was deposited on October 7,.
2. During the year the company purchased 10,000 shares of VK Private Limited at Rs. 40 per share.
The fair market value of such shares on the date of transaction was Rs. 60 per share.
Compute total income of X (Pvt.) Ltd. for year and tax payable on such, income indicating reasons for
treatment of each item. Ignore the provisions relating to minimum alternate tax.
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The profit and loss account of Indian Branch of Bank of UK, a bank incorporated in United Kingdom, for
the year shows a net profit of Rs. 60 crore after debiting/crediting the following items –
Compute total income and tax payable by the Indian Branch of Bank of UK ignoring the applicability of the
provision relating to minimum alternate tax. Give explanation for treatment of each item.
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C.A. Kalpesh Sanghavi MAT and Dividend Tax - P a g e | F7-A . 16
The net profit of X Ltd. for the year amounts to Rs. 7,22,000 after debiting/crediting following items –
1. Payment of interest on money borrowed from bank for purchase of land and building :Rs. 2,22,000.
2. Commission Rs. 1,00,000 paid in the month of February and Rs. 1,25,000 Paid in the month of
March. Tax deducted at source from the payment was deposited to the Government on September 20
AY.
3. Travelling expenses of Rs. 90,000 on a foreign tour of a director for negotiating collaboration with a
foreign manufacturer for initiation of new line of business.
4. Security transaction tax paid Rs. 10,000. Income from trading in shares already credited to profit and
loss account Rs. 3,82,000.
5. As restructuring of its debt, the company has converted arrears of interest of Rs. 3,00,000 on term
loan into a new term loan with a revised repayment schedule. The company has paid Rs. 50,000
towards such funded interest during the year. Entire Rs. 3,00,000 is debited to profit and loss account.
However, out of this a further sum of Rs. 50,000 is paid before the due date of submission of return
of income.
6. Rs. 5,00,000, being contribution to S Ltd (wholly owned subsidiary company) for construction of a
school for the benefit of its employees.
7. Provision for gratuity based on actuarial valuation is Rs. 6,00,000. Actual payment of gratuity of Rs.
1,50,000 was debited to provision for gratuity account.
8. Payment of 200,000 to an agency for meeting corporate social responsibility obligation under the
company law.
9. Payment of Rs. 150,000 towards insurance policy of its key directors on account of key mans
insurance policy with life insurance corporation of India.
Other information
Provision for bonus for 2 years back paid on December 15, : Rs. 98,000. It is inclusive of payment by bearer
cheque of Rs. 34,000. As it pertains to an earlier year, it is not debited to current year’s P & L a/c.
Company has purchased a commercial vehicle of Rs. 8,00,000 for the purpose of business on March 21, and
calculated depreciation @ 15 per cent for the full year. Depreciation debited to the Profit and Loss account
is calculated on all other assets as per the rates prescribed in the Income-tax Act, considering the useful lives
of the assets.
The company collected Rs. 3,00,000 from its customers towards GST of few years back and remitted it to
the State Government in due time. On the levy being challenged in the High Court, the Court held the levy
as illegal and the State Government refunded the amount to the company in February PY. The company
refunded Rs. 2,00,000 to the Customers and the remaining amount of Rs. 1,00,000 was shown under the
head “current liabilities”.
Compute the income chargeable to tax and work out the amount of tax payable on such income, ignoring the
provisions of section 115JB.
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C.A. Kalpesh Sanghavi MAT and Dividend Tax - P a g e | F7-A . 17
Moon India Ltd. engaged in manufacturing activity furnishes the following details:
Net profit as per Profit and Loss Account 50,00,000.
i. The company took a loan of 12,00,000 in the financial year 2011-12 for the purpose of relocation of
its office premises. The lender waived 8,00,000 in the year and it is credited in the profit and loss
account.
ii. Depreciation charged to Profit and Loss Account is 16,00,000. Depreciation as per Income-tax Act,
1961 amounts to 28,00,000 which includes the following:
Depreciation rate meant for computers has been adopted for (i) accessories like printers and
scanners; and (ii) EPABX. The opening written down value of these is given below:
i. Printers and Scanners 50,000
ii. EPABX 2,00,000
Assume that there were no additions during the year.
iii. It incurred 2,50,000 as expenditure for public issue of shares. The public issue could not materialize
on account of non-clearance by SEBI. This amount is charged to Profit & Loss Account.
iv. It incurred expenditure of 2,00,000 towards issue of debentures. This amount has been capitalized in
the books.
v. The company paid 1,00,000 as compounding fee for violations in the pollution control regulations.
This has been charged as revenue expenditure.
vi. The company lost cash of 25,00,000 due to theft when it was withdrawn from bank and taken to
administrative office. It is not insured and hence, fully charged as revenue expenditure.
vii. 5,00,000 was spent during the year towards permitted CSR activities as per 135 of the Companies
Act, 2013. This is charged to Profit and Loss Account.
viii. It paid 2,00,000 to share broker for transacting shares listed in stock exchange and 1,00,000 to
commodity broker for commodity transactions at MCX. Both the amounts are debited to Profit and
Loss Account and no tax was deducted at source on these payments.
ix. It paid 50,000 to an electoral trust by cash and 1,00,000 by cheque to a registered political party. Both
these are debited to Profit and Loss Account.
Compute the total income of the company.
Give reasons in brief for treatment of each of the above items. Ignore MAT provisions.
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C.A. Kalpesh Sanghavi MAT and Dividend Tax - P a g e | F7-B . 1
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C.A. Kalpesh Sanghavi MAT and Dividend Tax - P a g e | F7-B . 3
X Ltd is a manufacturing company located in India. Business income of the company for year under section
28 is Rs. 40 lakh. X Ltd holds shares in few companies. Amount of dividend received from these companies
and other related information are given below-
On September 1, X Ltd declares a dividend of Rs. 5 lakh for its own shareholders. Find out income-tax and
dividend tax liability of X ltd for the year on the assumption that India has ADT agreement with Country C
and as per agreement dividend income is taxable in India and not in Country C.
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C.A. Kalpesh Sanghavi Partnership Firms - P a g e | F8-A . 1
PARTNERSHIP FIRMS
Questions 7-12 mark types
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C.A. Kalpesh Sanghavi Partnership Firms - P a g e | F8-A . 4
HSP, a partnership firm engaged in the business of running a heritage hotel approved by the competent
authority provides the following information relating to the year
(a) Net profit as per P & L account of 200 lacs was arrived at after charge of the following:
I. Depreciation on hotel building having W.D.V. 500 lacs was charged by treating the same as
plant and machinery.
II. Expenses of 1,00,000 incurred for the purpose of promoting family planning among its
employees.
III. Payment of 50,000 for an advertisement published in the souvenir released on 15 August by
Bhartiya Janta Party.
IV. Compensation of 1,00,000 paid to the suppliers of automatic kitchen appliances because of
termination of the contract after receipt of 50% of appliances.
V. Wines and liquor imported in for 20 lacs and were available in the stock at cost of 5 lacs were
confiscated by the Govt. authority and therefore were written of.
VI. Expenses of 20 lacs incurred on replacement of carpets in the foyer, lounge and bar.
(b) Amount of 4 lacs equal to U.K. £ 5000 was remitted and paid to a travel agent resident of U.K. as
commission for the booking of international tourists in the hotel. Tax at source was not deducted out
of such payment.
(c) Amount of 40,000 each was paid in cash to the suppliers of vegetables, milk products and eggs on
05.09. because of suspension of banking operations due to strike of bank employees.
(d) Amount of 5 lacs written off 12 years back as irrecoverable from a travel agent; an amount of 2 lacs
was recovered and credited to a reserve account.
Compute the income chargeable to tax under the head business and profession and give reasons in brief for
treatment given to each of the items.
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C.A. Kalpesh Sanghavi Partnership Firms - P a g e | F8-A . 5
X,Y and Z are equal partners in a firm carrying on some business. Compute the total income of the firm. The
profit and the loss account of the firm is as follows. With the return of income computation of income with
account statements have been enclosed.
Selling and administrative expenses 87,000 Gross profit 3,00,000
(Rs. 30,000 paid in cash)
Baddebts 5,000 Miscellaneous receipts 10,000
Depreciation on assets 10,000
Interest to parties 3,000
Interest to partners @ 20 %
Y 20,000
Remuneration to partners
X 70,000
Y 70,000 1,40,000
Net profit 45,000
TOTAL 3,10,000 TOTAL 3,10,000
Following additional information is available
a) Depreciation includes Rs. 2,000 for the assets purchased on hire purchases basis.
b) Bad debts include Rs. 1050 as amount written off which was given as advance to supplier.
c) Bad debts include Rs. 300 as provision for bad debts as general practice of the firm.
d) Bad debts include Rs. 200 debt which represents receivable from Mr. A, this was taken over at time
of purchase of business some 12 years back. However during previous year no police complaint has
been filed or no suit has been initiated for the recovery of said amount from Mr. A.
e) Selling and administrative expense include fees paid to CA for preparation of return and audit Rs.
1,000.
f) During the year some loans of Rs. 6,000 were advances to b & co. in which there are common
partners. There is no interest charges from b & co. prevailing interest rate is 10 % per annum.
g) In the past assets of the firm was revalued and there was corresponding increase in capital of the
partner. The revaluation had doubled the capital of partners as appearing in previous balance sheet.
h) In the balance sheet of the firm loan from Mr. B Rs. 275 is being carried forward since last 15 years.
i) Miscellaneous receipts include sum of Rs. 245 as refund of Indirect Tax. However this refund is
under protest.
j) Miscellaneous receipts include sum of Rs. 260 (include interest of past Rs. 10) which is loan written
off. The loan was granted by b & co for the purpose of business needs.
k) Assessing officer observed introduction of capital from partner Mr. X Rs. 4,500 in his capital account.
This was in cash. However corresponding entry in personal books of Mr. X is not observed. Since
the account does not tally officer proposes to add it to the income of the firm.
You are required to compute the total income of the firm in the following situations.
1. The firm failed to comply with the provisions of section 184.
2. Suppose Mr. Z died on 1-12-PY.
3. Suppose Mr. Z retired on 1-12-PY.
4. Firm in the course of the assessment did not comply with notice of scrutiny and officer has resorted
to best judgement assessment.
5. Suppose Z was minor and was admitted to benefits of partnership had attained majority on 1-6-PY.
6. Suppose during the year Mr. A and B was admitted and Y and Z retired.
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C.A. Kalpesh Sanghavi Partnership Firms - P a g e | F8-A . 6
Patel & Co., is a partnership firm consisting of three partners, Mr. Patel, Mr. Malhotra and Mr. Anand,
sharing profit and losses in ratio of 3:2:3. The firm was doing business in manufacture of electrical
appliances. The Profit loss account of the firm was under:
Particulars Rs. Particulars Rs.
Purchases 7,50,000 Sales (excluding sales tax 16,70,000
collected
salary to staff 3,00,000 Rs. 30,000 under sales tax
deferrals
Interest to Partners: Scheme of Gujarat government.)
- Patel 30,000 Miscellaneous business receipts 4,000
- Malhotra 2,20,000 Interest on drawings 16,000
- Anand 70,000 3,20,000 (recovered from Mr. Patel)
Depreciation 1,80,000 Long-term capital gains 4,90,000
Remuneration to partners Debenture Interest 40,000
- Patel 1,02,000
- Malhotra 60,000
- Anand 72,000 2,34,000
Miscellaneous expenses 1,80,000
Net profit
- Patel 96,000
- Malhotra 64,000
- Anand 96,000 2,56,000
22,20,000 22,20,000
The following further details are furnished:
(1) The firm has completed all the formalities to be considered as a partnership assessed as such.
(2) The firm satisfies all the conditions of Sec. 80-IA but is not found to be eligible for deduction.
(3) The partnership deed was amended on 1st April, providing remuneration and interest to partners as
under:
Remuneration Interest on capital
Mr . Patel (Working partner) Rs. 8,500 p.m. 20% simple interest
Mr. Malhotra (Sleeping partner) Rs. 5,000 p.m. 24% simple interest
Mr. Anand (Working partner) Rs. 6,000 p.m. 20% simple interest
(4) Depreciation eligible under the Income-tax Act works to Rs. 96,000.
(5) Under Miscellaneous expense Rs. 82,000 are inadmissible expenses, out of which Rs. 60,000 were
donations given to an approved charitable trust.
(6) Two years back, the firm was assessed on a business loss of Rs. 40,000 and long term capital loss of
Rs. 10,000.
(7) Partnership deed contains clause for the allowance of partners remuneration and interest as per the
provisions of income tax act.
(8) The firm has borrowed monies on account of loan and it is outstanding at year end of Rs. 3,00,000
from Mr. M (Money Lender)
You are required to :
a) Compute the total income of the firm and the tax payable by it.
b) You are also required to answer if there was carried forward depreciation of Rs. 2,88,000.
c) Explain the tax obligations associated with outstanding loan.
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C.A. Kalpesh Sanghavi Partnership Firms - P a g e | F8-A . 7
M/s HIG, a firm, consisting of three partners namely H , I and G, carried on the business of purchase and
sale of television sets in wholesale and manufacture and sale of pens under a deed of partnership executed
on 1-4-2004. H, I and G were partners in their individual capacity. The deed of partnership provided for
payment of salary amounting to Rs 2,00,000 each to H and G who were the working partners. A new deed
of partnership was executed on 1-10-PY which, apart from providing for payment of simple interest @ 12%
p.a on the balance standing to the credit of the capital accounts of partners from 1-4-PY. The firm was
dissolved on 31-3-PY and the capital asset of the firm were distributed among the partners on 20-4-AY. The
net profit of the firm for the year after payments of salary to the working partners and debit /credit of the
following items to the profit and loss account was 1,50,000.
(i) Interest amounting to Rs 1,00,000 paid to the partners on the balances standing to the credit
of their capital accounts from 1-4-PY to 31-3-PY
(ii) Interest amounting to Rs 50,000 paid to the partners on the balance standing to the credit of
their accounts from 1-4-PY to 31-3-PY
(iii) Interest amounting to Rs 20,000 paid to the Hindu undivided family of partner H @18% p.a.
(iv) Payment of Rs 25,000 towards purchase of television sets made by crossed cheque on 1-11-
PY.
(v) Rs. 30,000 being the value of gold jewelry received as gift from a manufacturer for achieving
sales target.
(vi) Depreciation amounting to Rs 15,000 on motor car bought and used exclusively for business
purpose, but not registered in the name of the firm.
(vii) Depreciation under section 32(1) (ii) amounting to Rs 37,500 of new machinery bought and
installed for manufacture of pens on 1-11-PY at a cost of Rs 5,00,000. There was no increase
in the installed capacity as a result of the installation of the new machinery.
(viii) Interest amounting to Rs 25,000 received from bank on fixed deposits made out of surplus
funds.
(a) Closing stock –in-trade was valued at Rs 60,000 as per the method of lower of cost or market
rate consistently followed by it. The market value of the closing stock-in-trade was Rs 65,000.
(b) Brought forward business loss of 3 years back Rs 50,000.
(c) The fair market value of the capital assets as on 31-3-PY was Rs 20,00,000 and the cost of
their acquisition was Rs 15,00,000.
Compute the total income of M/s HIG. You are required to furnish explanations for treatment of the various
items given above.
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C.A. Kalpesh Sanghavi Partnership Firms - P a g e | F8-A . 8
X, Y and HUF of Z (represented by Z) are partners with equal shares in profits and losses of a firm, ABC,
which is engaged in the production of TV serials and tele-films. Two years back, one partner A retired, but
his dues have been settled in the previous year.
The earlier partnership deed did not authorize payment of remuneration or interest to partners. The
partnership deed was revised by the partners on June 1, to authorize payment of remuneration of Rs. 1 lakh
per month to each working partner and simple interest at 15 percent per annum to X and Y on their capital.
X, Y and Z are actively associated with the affairs of the firm. The profit and loss account of the firm for the
year ending March 31, shows a net profit of Rs. 10 lakh after debiting/crediting the following:
1. Interest amounting to Rs. 15 lakh paid to X and Y on the balances standing to their capital accounts
from April 1, to March 31,
2. Remuneration to the partners including partner in representative capacity Rs. 30 lakh.
3. Interest amounting to Rs. 2 lakh paid to Z on loan provided by him in his individual capacity at the
rate of 16 percent per annum.
4. Royalty of Rs. 5 lakh paid to partner X, who is a professional scriptwriter, for use of his scripts as
per an agreement between the firm and X.
5. Two separate payments of Rs. 18,000 and Rs. 15,000 made in cash on February 7, to P, a hair dresser
against his bill for services rendered in January, and two payments of Rs. 19,000 and Rs. 10,000
made in cash on February 7, and February 8, respectively to Q, assistant cameraman against her bill
for services provided in January.
6. Amount of Rs. 5 lakh provided in the books on March 31, as liability for remuneration to S, a film
artist and a non-resident. Tax deducted at source under section 195 from the amount so credited was
paid on June 3 AY.
7. Amount of Rs. 6 lakh provided as gratuity for the year on the basis of actuarial valuation. Gratuity
paid to retired employees in Rs. 1.50 lakh.
8. Interest of Rs. 1.20 lakh received on income tax refund under section 244(1A) in respect of two years
back.
9. Mrs. X, Mrs. Y and Mrs. Z are looking after some administrative work of the firm, they are paid
8,000 annually each. They do not possess any professional or technical qualification but in the course
of the assessment assessing officer considers the payment as reasonable.
The amount due to A, the former partner was Rs. 15 lakh. The dues were settled on September 30, by
transferring a plot of land purchased two years back having a book value of Rs. 10 lakh. The difference of
Rs. 5 lakh was credited to the partners’ capital accounts in their profit sharing ratio. The fair market value of
the plot on the date of transfer was Rs. 16 lakh.
Compute total income of the firm stating the reasons for treatment of each item.
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C.A. Kalpesh Sanghavi Partnership Firms - P a g e | F8-A . 9
HSP, a partnership firm engaged in a business of running a heritage hotel approved by the competent
authority provides the following information relating to the year:
1. Net profit as per P & L account of Rs. 200 lakh was arrived at after charge the following:
a. Depreciation on hotel building having opening W.D.V on April 1, of Rs. 500 lakh was charged
by treating the same as plant and machinery.
b. Expensed of Rs. 1,00,000 incurred for the purpose of promoting family planning among its
employees.
c. Payment of Rs. 50,000 for an advertisement published in the souvenir released on August 15 by
Bhartiya Janta Party.
d. Compensation of Rs. 1,00,000 paid to the suppliers of automatic kitchen appliances because of
termination of contract after receipt of 50% of appliances.
e. Wines and liquor imported last year for Rs. 20,00,000 and were available in the stock on April 1,
for Rs. 5 lakh were confiscated by the Government authority and therefore were written off.
f. Expenses of Rs. 20 lakh incurred on replacement of carpets in the foyer, lounge and bar.
2. Out of amount credited to the reserve created under section 80HHD(1), an amount of Rs. 15 lakh
could not be utilized for the purposes as per section 80HHD(4) till March 31, and time limit of
reserve is expired.
3. Amount of Rs. 4 lakh equal to U.K. £5000 was remitted and paid to a travel agent resident of U.K.
as commission for the booking of international tourists in the hotel. Tax at source was not deducted
out of such payment.
4. Amount of Rs. 40,000 each was paid in cash to the suppliers of vegetables, milk products and eggs
on February 11, because of suspension of banking operations due to strike of bank employees.
5. Amount of Rs. 5 lakh was written off in the financial year 2012-13 as irrecoverable from a travel
agent; an amount of Rs. 2 lakh out of it was recovered on March 13, and credited to a reserve account.
Compute the income chargeable to tax and give reasons in brief for treatment given to each of the items.
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C.A. Kalpesh Sanghavi Partnership Firms - P a g e | F8-A . 10
XYZ and Co., is a partnership firm consisting of three partners X, Y and Z. it is engaged in the business of
manufacturing and selling toys. Turnover of the business for the year ending March 31, amounts to Rs. 55
lakh. The following additional income is available –
Compute the income of the firm chargeable under the head, “profits and gains of business or profession”.
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C.A. Kalpesh Sanghavi Partnership Firms - P a g e | F8-A . 11
Compute the net income and tax liability of the firm and its partners on the assumption that the firm satisfies
all condition of section 184 and 40(b).
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C.A. Kalpesh Sanghavi Partnership Firms - P a g e | F8-A . 12
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C.A. Kalpesh Sanghavi Partnership Firms - P a g e | F8-A . 13
MNO Corporation LLP, is carrying on two businesses viz. Textile manufacture and Operation of cold chain
facility. It gives you the following information for the year:
Net profit as per Profit & Loss Account:
From Textile Manufacture - 10,25,000
From Operation of cold chain facility - 20,50,000
Other Information:
Eligible depreciation under section 32 for the year are
i. On Plant & Machineries of textile business 27 lakhs.
ii. On factory building relating to textile business 4 Iakhs.
The assessee set up and operating a cold chain facility last year. It incurred capital expenditure and income
towards construction of cold chain facility of last year:
1. Cost of land 30 lakhs.
2. Cost of construction of building and machineries installed, 75 lakhs.
3. Income from Textile manufacture 12 lakhs.
4. Income from cold chain facility 60 lakhs (before deduction under section 35AD)
5. The firm originally had 4 equal partners and one partner retired on 31-3.
The partnership agreement authorizes payment of salary and interest on capital which are debited to Profit
& Loss Account.
Note: Ignore Alternate Minimum Tax (AMT) under section 115 JC.
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C.A. Kalpesh Sanghavi Partnership Firms - P a g e | F8-B . 1
EXTRA QUESTIONS
Question 01 (ID 13) (Revision / Home work)
Vyay Agencies, a partnership firm constituted by three partners with equal shares was dissolved on 1.04.2011
after a search. The liability to tax finally decided against the firm outstanding to be paid was 15 Lacs. Out of
three partners, one was declared insolvent on 18-03-2012 by the Court. The Assessing Officer, for recovering
the demand, attached the Bank Accounts of other two partners and could recover an amount of 6 Lacs from
the Account of one such partner. You are asked by the partners of dissolved firm :
(i) About the liability of each of them to pay outstanding demand.
(ii) Whether the action of Assessing Officer to attach the Bank Account of partners against demand of
dissolved firm is justified ?
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C.A. Kalpesh Sanghavi Partnership Firms - P a g e | F8-B . 2
F08 – B
F08 – B
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C.A. Kalpesh Sanghavi Association of Persons - P a g e | F9-A . 1
X, Y, and Z are three members of B & Co. (an AOP). Profit and loss account of the firm for the year
ending is as follows:
Other information:
1. The AOP gives a donation of Rs.46,000 to a public charitable trust (not debited to P & L Account) which
is eligible for section 80G deduction.
2. Out of other expenses, Rs.26,000 is not deductible by virtue of section 43B.
Find out the tax liability of the AOP and members under the following situations:
Situation 1-
The profit sharing ratio of X, Y and Z is 2 : 3 : 5. Other incomes of members are given below:
Investment sections 80C
Amount Nature of income PPF contribution
and 80U
X 130,000 Bank interest Rs. 6,000 mediclaim 14,000
Y 206,000 Interest on Government ------ 16,000
securities
Z 25,000 Interest on company deposit Rs.3,000 mediclaim 28,000
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C.A. Kalpesh Sanghavi Association of Persons - P a g e | F9-A . 2
Situation 2 –
The profit sharing ratio of X, Y and Z is 3 : 2: 5. Other incomes of members are given below:
Amount of income Donation Paid PPF deposit
X 1,30,000 6,000 2,000
Y 1,06,000 26,000 36,000
Z 4,25,000 15,000 6,000
Situation 3 –
One of the members X is a closely – held foreign company and the profit- sharing ratio of X. Ltd. Y and Z
is 5 : 3 : 2. Other income of the members is as follows:
X. Ltd. (foreign company) Nil
Y 32,000
Z 40,000
Situation 4 –
From the available information, it is not possible to find out the profit-sharing ratio.
Other income of members is:
Amount Nature of income
X 40,000 Bank interest
Y 60,000 Rent (taxable)
Z 8,65,000 Interest on company deposit
Z 15,000 Being 60% share from D & Co.
(An AOP which has not paid tax because its taxable income is lower than
the basic amount not chargeable to tax.)
Situation 5 –
It is not possible to determine the profit-sharing ratio of members. One of the members, X is closely held
foreign company. Other income of members is as follows:
X Ltd. 1,17,000
Y 3,60,000
Z 9,30,000
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C.A. Kalpesh Sanghavi Association of Persons - P a g e | F9-A . 3
Two individuals A & B and one foreign company X Ltd. who are sharing profits and losses in the ratio of
2:2:1 are members of an AOP. The total income of AOP has been determined at Rs. 2,00,000. The separate
income of members of AOP was s under.
A 90,000
B 1,10,000
X Ltd. (a foreign company) Nil
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C.A. Kalpesh Sanghavi Association of Persons - P a g e | F9-A . 4
Prakash, a member in two AOPs, namely, “AOP & Co.” and “Prakash & Akash”, provides the following
details of his income:
(a) “AOP & Co”, assessed at normal rates of tax, had credited in his account, amount of Rs. 2,96,000
as salary and Rs. 20,000 as share of profit and 96,000 as interest.
(b) A house property located at Jaipur was purchased on 1.7.2001 with the borrowed capital in
“Prakash & Akash” jointly shared equally and occupied by both of them for self residential
purposes. Total interest paid for the year on the borrowed capital was Rs. 1,00,000.
Compute the income and the tax liability thereon and support your answer with brief reasons and the
provisions of the Act.
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C.A. Kalpesh Sanghavi Association of Persons - P a g e | F9-A . 5
Home work
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C.A. Kalpesh Sanghavi Association of Persons - P a g e | F9-B . 1
EXTRA QUESTIONS
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C.A. Kalpesh Sanghavi Association of Persons - P a g e | F9-C . 1
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C.A. Kalpesh Sanghavi Association of Persons - P a g e | F9-C . 2
F09 – C 01 AMT
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C.A. Kalpesh Sanghavi Private and Public Trust - P a g e | F10-A . 1
PRIVATE TRUST
Question 1 (ID 051) (Private Trust) (Revision / Home work)
Assessee trust was a 20% beneficiary of the main trust & its only source of income was 5% share in the
income of main trust. Trust claims that its share should be taxed at normal rate as none of the beneficiaries
was a beneficiary in any other trust & none of them had income exceeding maximum limit not liable to tax.
But A.O.'s view is that assessee was a chain trust created for avoiding tax, so income should be charged at
maximum marginal rate (MMR). What is your opinion ?
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C.A. Kalpesh Sanghavi Private and Public Trust - P a g e | F10-A . 2
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C.A. Kalpesh Sanghavi Private and Public Trust - P a g e | F10-B . 1
Question 4 (ID 031) (Trust with business income) (Revision / Home work)
A trust had main objects of educational, medical & relief to poor. It was authorized to establish, maintain &
run such institutions to carry out the objectives, for the benefit of general public. One clause of the trust deed
empowered the trustees to invest funds & carry on business. The trustees cached out the business of
purchasing & selling cotton yam. The trust claims exemption for this income contending it to be income
from property held for charitable purpose. A.O. denied it. Do you agree?
Question 5 (ID 032) (Trust with business income) (Revision / Home work)
Primary purpose of a company was provided specialized information in respect of circulation of newspapers
& periodicals through the process of independent audit. Can it be said that it is engaged in activity of general
public utility? Can it claim exemption u/s. 11? A.O. disallows the exemption for income from subscription,
application fees & entrance fees. Is it correct?
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C.A. Kalpesh Sanghavi Private and Public Trust - P a g e | F10-B . 2
Question 6 (ID 033) (Trust with business income) (Revision / Home work)
The Assessee, a charitable trust, received certain amount from an industry to be spent for agricultural
development and specially for organizing Kisan rally. According to A.O., the income is not for charitable
purpose and it should be considered as taxable. According to assessing Officer (A.O.) the receipt from the
donor was not towards the corpus. Do you agree?
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C.A. Kalpesh Sanghavi Private and Public Trust - P a g e | F10-B . 3
Varinder Charitable Trust, a charitable Trust registered u/s 12A of the Income Tax Act, 1961 has sold the
plot acquired two years back. The purchase price was Rs. 2,00,000. The sale consideration was Rs. 3,60,000.
A sum of Rs. 10,000 was incurred in connection with the sale. The Trust acquired English mortgage [worth
Rs. 3,10,000] of an Immovable property utilizing the sale proceeds. Is the Trust entitled to exemption u/s
11(1A)?
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C.A. Kalpesh Sanghavi Private and Public Trust - P a g e | F10-B . 4
The trust applied a sum of Rs.11.60 lakh towards charitable purposes during the year, which includes
repayment of loan taken for construction of orphan home Rs.3.60 lakh.
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C.A. Kalpesh Sanghavi Private and Public Trust - P a g e | F10-B . 5
Determine the tax liability, if any, of the trust and also state how the trust can mitigate such liability.
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C.A. Kalpesh Sanghavi Private and Public Trust - P a g e | F10-B . 6
An institution having its main object as advancement of general public utility received 30 lakhs in aggregate
during year from an activity in the nature of trade. The total receipts of the institution, including donations,
was 140 lakhs. It applied 85% of its total receipts from such activity during the same year for its main object
i.e. advancement of general public utility
1) What would be the tax consequence of such receipt and application thereof by the institution?
2) Would your answer be different if the institutions total receipts had been 150 lakhs (instead of 140 lakhs)
in aggregate
3) What would be your answer if the main object of the institution is ‘relief of the poor’ and the institution
receives 30 Iakhs from a trading activity, when its total receipts are 140 lakhs and applies 85% of the said
receipts for its main object’
A charitable trust derives its income from the business of providing mineral water to various companies
situated in Software Technology Perk in Hyderabad. A sum of 30 lacs has been derived as net income from
such business activity, which has been applied for the object of general public utility. The total receipts of
the trust during the year was 140 lacs. Examine the taxability of application of the income, if the income so
derived relates to the year. Would your answer be different if the trust runs a school in a backward district
end applies the profits from the business for such school’s activity?
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C.A. Kalpesh Sanghavi Private and Public Trust - P a g e | F10-B . 7
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C.A. Kalpesh Sanghavi Private and Public Trust - P a g e | F10-B . 9
PARTICULARS ( in
Lakh)
(i) Gross Receipts from students towards admission Fees, tuition fees, development 152.75
fees, laboratory fees, etc.
(ii) Dividend received on units of mutual funds specified in section 10(23D). 16
(iii) Donation received (including anonymous donation 2.50 lakh). 10.50
(iv) Grant from State Government. 7.25
(v) Amount applied for purpose of schools. 90.60
(vi) Purchase of computer and laboratory equipments. 21.40
(vii) Included in (v) above, a sum of 3.50 lakh, being the amount applied for the
benefit of the founder of the Institution.
(viii) The institution had accumulated 20 lakh under section 11(2) in the 3 years back
for a period of two years for acquiring and developing a plot of land for
construction of a new school. Land was purchased for 15 lakh and development
was made at a cost of 2 lakh.
(ix) Excess of expenditure over income of 2 years back. 35
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C.A. Kalpesh Sanghavi Private and Public Trust - P a g e | F10-B . 10
A public charitable trust registered under section 12AA runs a hospital and also a medical college. It
furnishes you the following information for the year:
Compute the total income of the trust in order to avail maximum benefits within the four corners of law.
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C.A. Kalpesh Sanghavi Private and Public Trust - P a g e | F10-B . 11
Mathi Charitable Trust registered under section 12AA, following cash system of accounting, furnishes you
the following Information:
You are required to compute the total income of the trust and its income-tax liability in such a manner that
it can avail the optimal benefit within the four comers of the Income- Tax Act, 1961.
Note: The trust does not want to seek accumulation of income by virtue of section 11(2) of the Act.
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C.A. Kalpesh Sanghavi Private and Public Trust - P a g e | F10-B . 12
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C.A. Kalpesh Sanghavi Political Parties and Electoral Trust - P a g e | F11 . 1
Question 2
Electoral Trust invests the donations received by it in say Bank FDR, then the interest from such investment
is exempt under section 13B and shall not be taxable, is the view of trust. You are required to offer your
comments for the same.
Donations received by Electoral Trust 10,00,00,000
Interest earned by Electoral Trust 40,00,000
You are required to answer the tax consequence if the trust distributes 9,50,00,000 or 9,00,00,000 to political
parties.
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C.A. Kalpesh Sanghavi Co Operative Society - P a g e | F12-A . 1
CO-OPERATIVE SOCIETY
Question 1 (co-operative society) (ID 01)
XYZ Consumer Co-operative Society furnishes the following particular of its income in respect of year. You
are required to work out the taxable income of the Co-operative Society:
Rs. Rs.
Income from business 2,50,000
Interest on deposits with bank 10,000
Dividend on investments:
-Investments in share of other Co-operative societies 4,000
-Other investments 4,000 8,000
Income from letting of godowns for storage of commodities 20,000
Give reason for your answer.
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C.A. Kalpesh Sanghavi Co Operative Society - P a g e | F12-A . 2
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C.A. Kalpesh Sanghavi Co Operative Society - P a g e | F12-B . 1
Producer Company
Company P a producer company as per 581A of the companies act, having turn over of 46 crore has the
following incomes. You are required to compute the tax liability of the company.
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C.A. Kalpesh Sanghavi HUF - P a g e | F13 . 1
HUF
Please refer the videos for discussion
Question are solved at respective places and see few questions under the heading of HUF and family
settlement commission of capital gains.
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C.A. Kalpesh Sanghavi Capital Gains - P a g e | F14-A . 1
CAPITAL GAINS
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C.A. Kalpesh Sanghavi Capital Gains - P a g e | F14-A . 2
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C.A. Kalpesh Sanghavi Capital Gains - P a g e | F14-A . 3
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C.A. Kalpesh Sanghavi Capital Gains - P a g e | F14-A . 4
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C.A. Kalpesh Sanghavi Capital Gains - P a g e | F14-A . 5
On 24.04.AY 6,15,000 was invested out of above sale proceeds and it was sold on 18.08.AY for value of
10,50,000.
Date TT BR TT SR
01-01-2005 38 40
28-12-PY 42 44
01-01-PY 39 41
24-04-AY 40 42
18-08-AY 41 43
X, a non-resident, remits US$ 60,000 to India on August 10, 1989. The amount is partly utilised on August
17, 1989 for purchasing 50,000 shares in Lotus Ltd., an Indian company at the rate of Rs. 6 per share.
These shares are sold for Rs. 28 per share on April 10, PY.
Find out the capital gains chargeable to tax on the assumption that telegraphic transfer buying and selling
rate of US dollars adopted by the State Bank of India is as follows:
Buying (1 US $) Selling (1 US $)
August 10, 1989 18.30 19.10
August 17, 1989 18.40 19.30
April 10, PY 45.90 46.40
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C.A. Kalpesh Sanghavi Capital Gains - P a g e | F14-A . 6
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C.A. Kalpesh Sanghavi Capital Gains - P a g e | F14-A . 7
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C.A. Kalpesh Sanghavi Capital Gains - P a g e | F14-A . 8
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C.A. Kalpesh Sanghavi Capital Gains - P a g e | F14-A . 9
Question 2 (specific computations, partnership firms) (Revision / Home work) (CG ID 04)
A firm consisting of four partners was dissolved consequent to the death of one of the partners. The remaining
partners reconstituted the firm immediately, without discontinuance of the business, and carried on the
business as before. The inventory of stocks on the date of dissolution was valued at cost, which was lower
than the market value and all other assets were valued at book value, for the purpose of transfer to the
reconstituted firm. The Assessing Officer, while arriving at the total income of the firm as constituted prior
to dissolution, valued the stocks as well as the other assets at market value. You are required to comment on
the correctness of the Assessing Officer’s action.
Question 3 (specific computations, partnership firms) (Revision / Home work) (CG ID 05)
A firm RGS had an immovable property purchased out of the firm’s funds for Rs. 6,00,000. On 31-3-2001,
the property was divided among the partners equally by making entries in the capital accounts of the partners.
The property was subsequently sold on 1-7-PY for Rs. 9,00,000. The Assessing Officer assessed the resultant
capital gain in the hands of the firm. Discuss the validity of the order of the Assessing Officer.
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C.A. Kalpesh Sanghavi Capital Gains - P a g e | F14-A . 10
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C.A. Kalpesh Sanghavi Capital Gains - P a g e | F14-A . 11
Question 6 (specific computations, partnership firms) (Revision / Home work) (CG ID 72)
X is a partner in a firm, A co., along with three other persons. On December 31, the firm is dissolved and X
takes over the following assets :
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C.A. Kalpesh Sanghavi Capital Gains - P a g e | F14-A . 12
Question 2 (specific computations, compulsory acquisition) (Revision / Home work) (CG ID 08)
A plot of land purchased 5 years back by Ram Janki trust was acquired by Government of India for
construction of an over-bridge in Mumbai. The compensation awarded by Revenue Authorities was at Rs.
5,00,000. The trust preferred an appeal against the order for increase in the compensation awarded to it. The
appellate authority increased the compensation by further Rs. 4 lakhs in August, 2009 but the amount was
actually received in April, 2010. You are required to compute the capital gains, if any, arising to the trust in
respect of additional compensation by it and state the year of its taxability.
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C.A. Kalpesh Sanghavi Capital Gains - P a g e | F14-A . 13
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Financial Assets
Question 1 (Taxation of 112, 111A) (CG ID 09)
R acquires 10,000 equity shares of R Ltd., listed in stock exchanges in India and abroad and a constituent of
BSE 500 on 15-3-2013 @ Rs. 2,250 per share. Fair market value of the shares on 31st January 2018 is 1600
per share. He transfers the shares at Rs. 5,000 per share on 31-12-PY. The brokerage and securities
transactions tax deducted were at 0.5% and 0.1% respectively. Examine the liability of R to income tax. Will
your answer be different, if instead of selling the shares in the market R privately transferred the shares to
his son at the same price ?
Will your answer be different if Fair market value of the shares on 31st January 2018 is 3600 per share or
may be even 6600 per share.
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Company in liquidation - 46
Question 1 (specific computations, company in liquidation) (CG ID 12)
R Private Ltd. went into liquidation on 1-6-PY. The company was seized and possessed of the following
funds prior to the distribution of assets to the shareholders:
Rs.
Share capital 5,00,000
Reserves prior to 1-6-PY 3,00,000
Excess realization in the course of liquidation 5,00,000
Total 13,00,000
There are 5 shareholders, each of whom received Rs. 2,60,000 from the liquidation in full settlement. You
are required to examine the various issues and advice the shareholders about their liability to income-tax.
Rs. Rs.
50,000 equity shares 12,00,000 10,000 debentures in Patel & Co. 30,00,000
Ltd. (Cost Rs. 10,00,000)
Accumulated profits 30,00,000 Cash in hand 12,00,000
Total 42,00,000 Total 42,00,000
On liquidation tax, the assets are distributed to the shareholders. In the process, R gets 1,000 debentures
(market value Rs. 3,00,000) and 50,000 cash during the year. He transfers the entire debentures on 10-3-PY
for Rs. 3,20,000. Indicate the tax consequences of these transactions.
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X holds 10 per cent of equity shares of ABC Ltd. (cost of acquisition on April 1, 1969 of 1,500 shares : Rs.
75,000; fair market value on April 1, 2001 : Rs. 80,000). ABC Ltd. goes into liquidation on December 31,.
Balance sheet of ABC Ltd. as on December 31, is given below. Determine the net income of (a) the company,
and (b) X.
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Rs. Rs.
Fixed assets 18,00,000
Current assets 10,00,000
28,00,000
Current liabilities 5,00,000
Loans 3,00,000 8,00,000
20,00,000
Finding himself unable to carry on business by himself and also to attract additional capital, he formed a
private limited company in April-PY with an authorized capital of Rs. 1 crore. At the time of formation of
the company, A and his wife had subscribed to 100 equity shares each-fully paid in cash on 10-6-PY. A
transfers his individual business in entirely, as going concern, to the private limited company for Rs. 40 lakhs
for issue of shares in the following manner:
Preference Shares:
Wholly to Mrs. A and her sister Mrs. G (in joint names) 1,50,000 Shares
Equity Shares:
Mr. A 1,30,000 Shares
Mr. C, major son of A 20,000 Shares
Mr. D, friend of A 30,000 Shares
Mrs. E, a married sister of A 20,000 Shares
Mr. F, husband of Mrs. E 50,000 Shares
The shares of the face value of Rs. 10 each are to be issued fully paid up. No other purchase consideration
for the transfer of the business to the company was due.
Required:
(i) Ascertain whether in A’s hands any tax liability will be due; if so, also indicate the assessment
year relevant for this.
(ii) If, on 10-5-AY, A sold 10,000 equity shares allotted to him, at Rs. 50 per share, to a friend, what
will be the consequences ?
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X is a member of DEL Stock Exchange. He purchased the membership ticket on March 2, 1956 for Rs.
5,000. The fair market value on April 1, 1981 is Rs. 6,000. The Stock Exchange is converted into a company
on November 1, 2014. Consequently, on November 1, 2014, X is allotted 1,000 shares in DEL Stock
Exchange Ltd. and a ticket to trade in DEL Stock Exchange Ltd. X transfers 1,000 shares in DEL Stock
Exchange Ltd. on December 1, 2014 for Rs. 2,00,000 and the ticket to trade in DEL Stock Exchange Ltd. on
April 10, 2015 for Rs. 45,000, find out the amount of capital gains chargeable to tax.
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These capital assets (no depreciation is claimed) are transferred by X Ltd. to its wholly-owned Indian
subsidiary company S Ltd. on April 1, 2013. On July 7, these assets are transferred by S Ltd. for
consideration of Rs. 10,50,000 (i.e., goodwill : Rs. 6,00,000, shares : Rs. 2,15,700, house property : Rs.
2,34,800). Compute the capital gain chargeable to tax in the case of S Ltd. for the year.
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Depreciable assets - 50
Problem 1 (depreciable assets) (CG ID 59)
Details regarding the opening WDV, additions the year and deletions during the year of 5 block of assets are
given below. You are required to compute depreciation or capital gain/ loss for the purpose of income-tax:-
In respect of Block D above the entire assets in that block is sold during the year and expenses on transfer is
Rs. 15,000. In respect of Block E above there are still some assets remaining in that block and expenses
incurred for transfer is Rs. 20,000/-
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Unit-1 Unit-II
Fixed Assets 112 158
Debtors 88 67
Inventories 60 23
Liabilities 33 45
Paid-up share capital Rs. 231 lacs
General Reserve Rs. 160 lacs
Share Premium Rs. 39 lacs
Revaluation Reserve Rs. 105 lacs
The company set up Unit-II on 1-4-2006. The written down value of the block of assets for tax purpose as
on 31-3-PY is Rs. 150 lacs of which Rs. 60 lacs are attributable of Unit-II. Determine what would be the
capital gains of Axel. Ltd. on account of Slump sale.
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The balance sheet of X Ltd. as on March 31, being the date on which software unit has been transferred, is
given hereunder -
1. The Software unit is in existence since May 2011. Fixed assets of software unit include land which
was purchased at Rs. 40 lakh in the year 2008 and revalued atRs. 60 lakh as on March 31, 2015.
2. Fixed assets of software unit mirrored at Rs. 140 lakh (Rs. 200 lakh minus land value Rs. 60 lakh) is
written down value of depreciable assets as per books of account. However, the written down value
of these assets under section 43(6) isRs. 90 lakh.
Ascertain the tax liability, which would arise from slump sale to S Ltd. What would be your advice as a tax
consultant to make the restructuring plan of the company more tax-savvy, without changing the amount of
sale consideration?
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Question 3 (specific computations, advance money) (Revision / Home work) (CG ID 89)
Mr. Ramesh purchased a plot of land in Chennai in June 2005 for 50 lakhs. He decided to sell the property
to Mr. Mahesh for 80 lakhs and received an advance of 2 lakhs in May, 2009. Mr. Mahesh was unable to
complete the agreement and hence, the entire advance was forfeited by Mr. Ramesh.
Again Mr. Ramesh entered into an agreement to sell the property to Mr. Rakesh for 95 lakhs and received
advance money of 2.50 lakhs in August. 2014. But again the transfer did not materialise due to which the
advance money was again forfeited.
On 4th January, 2015, the property was finally sold to Mr. Mukesh for 105 lakhs and the stamp duty value
on that date was 125 lakhs.
He acquired a new residential property for 130 lakhs by investing entire sale consideration and his business
income.
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On July 31 of assessment year i.e. on last date of filing return of income, he deposits Rs. 13,00,000 in a
bank account for purpose of availing exemption under section 54F (he owns one residential house).
Construction of a residential house at Bombay is completed on June next year of deposit, . Rs. 8,60,000,
being the amount of investment, is financed by withdrawing from the deposit account.
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To get the exemption under section 54, the following residential house property is purchased At Chennai
by X by withdrawing from the deposit account -
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During the previous year ending on March 31, X sells the following :
On July 31, (being the due date of furnishing return of income), X deposits Rs. 1,00,000 under section 54B
for claiming exemption in future by purchasing agriculture land. By withdrawing from the deposit account,
he purchases agriculture land for Rs. 70,000 till June 9 of year next after deposit.
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X Ltd. located within the corporation limits decided in December-PY to shift its industrial undertaking to
non-urban area. The company sold some of the assets and acquired new assets in the process of shifting. The
relevant details are as follows:
(Rs. In lakhs)
Particulars Land Bldg. P/M Fur.
(i) Sale proceeds (Sale effected in March,-PY) 8 18 16 3
(ii) Indexed cost acquisition 4 10 12 2
(iii) Cost of acquisition in terms of section 50 1 4 5 2
(iv) Cost of new assets purchased in July-PY for
the purpose of business in the new place 4 7 17 2
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C.A. Kalpesh Sanghavi Capital Gains - P a g e | F14-A . 36
The company utilises the sum of Rs. 80 lakh in the following manner:
1. Purchase of new machinery during April AY: Rs. 70 lakh (including Rs. 10 lakh for purchase of
cars).
2. Deposit in specified bank on September 25, AY : Rs. 10 lakh.
The due date for filing return of income for X for assessment year September 30,. Assume that he files the
return on September 28, on time. Compute the taxable capital gain.
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X, an individual, has income from salary and house property. Besides, he owns a business whose annual
turnover is not more than Rs. 25 lakh. On May 14, he transfers a residential house property (or a residential
plot of land) for Rs. 1,15,00,000 (expenses on transfer incurred by X : Rs. 3,00,000, indexed cost of
acquisition : Rs. 14,60,000, year of acquisition : 1992-93, indexed cost of improvement : Rs. 8,15,000).
Stamp duty value is Rs. 1,24,00,000 on which the purchaser pays stamp duty.
X Ltd. is incorporated on December 1, for manufacture or production of chemicals in Andhra Pradesh. There
are 10 shareholders in X Ltd. X is one of the shareholders. He holds 51 per cent shares (date of subscription
of shares in X Ltd: December 10, total investment by X in shares of X Ltd. : Rs.85,00,000). Out of
Rs.85,00,000, the company makes the following investments-
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The due date of filling return of income is July 31,. For claiming exemption under section 54 and 54EC, X
purchases the following asset-
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Indexation to be ignored.
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C.A. Kalpesh Sanghavi Capital Gains - P a g e | F14-B . 1
Extra Questions
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C.A. Kalpesh Sanghavi Capital Gains - P a g e | F14-B . 2
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C.A. Kalpesh Sanghavi Income from other sources - P a g e | F15 . 1
IFOS
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C.A. Kalpesh Sanghavi Advance tax Interest - P a g e | F16 . 1
INTEREST
AND
PENALTIES
Sub-Topics Sections
207 to 219
A Advance Tax and Interest 234A,to D
237 to 245
269SS, T
B Penalties
270 to 275
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C.A. Kalpesh Sanghavi 269SS - P a g e | F17 . 1
269SS / T
Question 01 (Reasonable Cause)
The assessee a subsidiary company of another purchase certain goods from the holding company. It could
not repay the price. The amount payable was converted into a loan of rupees 25,000 & the remaining odd
amount was paid by cheque. The A.O. wants to create this as contravention of the provisions of section
269SS & accordingly the joint commissioner wants to levy a penalty u/s 271 D. Is he justified?
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C.A. Kalpesh Sanghavi 269SS - P a g e | F17 . 2
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C.A. Kalpesh Sanghavi 269SS - P a g e | F17 . 3
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C.A. Kalpesh Sanghavi Penalties Under Reporting of Income - P a g e | F18 . 1
PENALTIES IMPOSABLE
Scope of Penalty
Question 1 (Scope of Penalty) (ID - 03)
Mr. X submitted following details, you are required to discuss penalty provisions for the same.
Return of loss submitted. (-) 2,00,000
Additions made by Assessing Officer.
(1) on account of question of law 1,20,000
(2) on account of question of facts 1,80,000
(3) intangible additions 60,000 3,60,000
Assessed income 1,60,000
Compute the under reported income.
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Penalty of 270A
Question 1 (Penalty) (ID - 01)
Mr. X submitted following details, you are required to determine under reported income.
Return of loss furnished (-) 7,00,000
Concealed income under section 143(3) 3,00,000
Assessed loss (-) 4,00,000
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C.A. Kalpesh Sanghavi Penalties Under Reporting of Income - P a g e | F18 . 4
Mr. Ram, a resident individual of the age of 55 years, has not furnished his return of income. However, the
total income assessed in respect of such year under section 143(3) is 12 lakh. is penalty under section 270A
attracted in this case, and if so, what is the quantum of penalty leviable?
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C.A. Kalpesh Sanghavi Collection and Recovery Measure -P a g e | F19 . 1
TAX
RECOVERY
MEASURE
Sub-Topics Sections
Certain Transfers to be void and Provisional
A 281, 281B
Attachment
B Tax recovery procedure 220 to 232
245A to
C Settlement of Cases
245M
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Question 02 (Certain transfer to be void and provisional attachment) (ID 02) (Revision / Home work)
One M/s. Simplex Enterprises had booked and was allotted shop No. 4 admeasuring 2403 sq. ft. (with 1437
sq. ft. of Mezzanine floor) in Virwani Plaza at Pune in June, 1988. The Mr. Kalpesh Sanghavi (defaulter)
paid the earnest money for procuring the said allotment. On January 23, 1997, an ITCP-1 was served for
recovery of the outstanding demand. In June, 1997, the Mr. Kalpesh Sanghavi paid the balance money to
the builder and obtained the possession of the said shop. In July, 1998, the Mr. Jayanti purchased rights,
title and interest of the Mr. Kalpesh Sanghavi in the said shop. Sale deed was executed between the builders
and the Mr. Jayantis for sale of the said shop in November, 1998, with the Mr. Kalpesh Sanghavi as a
confirming party. The Tax Recovery Officer at Pune under the certificate from Tax Recovery Officer,
attached the said shop on January 10, 2001 and declare the sale as void. You are required to give your
opinion whether the attachment is justified.
Question 03 (Certain transfer to be void and provisional attachment) (ID 03) (Revision / Home work)
N was liable to pay certain sums on account of income tax, penalty, interest and fine. He was also liable to
pay certain sums under the Wealth-tax Act. N was the owner of certain premises to the extent of 35 / 96th
shares and 1/6 of 61 / 96th shares. The Tax Recovery Officer issued an order restraining N from transferring
or charging the said premises and prohibited all persons from taking any benefit under such transfer or
charge. Notices under section 226(3), were issued and served upon the tenants asking the tenants to pay the
rent to the Income-tax Department. The writ petitioners, namely, the son of N and N’s wife filed a writ
petition challenging the notices. It was claimed in the writ petition that N had executed a deed of trust,
concerning his shares in the premises in question and appointed the petitioners the trustees thereof. The
Revenue filed an affidavit-in-opposition and declare the transaction as void under section 281 contending
that the deed of trust was created fraudulently and to defraud the creditors including the Revenue to whom
large sums of money were due. You are required to offer your comments for the same.
Question 04 (Certain transfer to be void and provisional attachment) (ID 04) (Revision / Home work)
Mr. X a stock broker is insolvent. His tax dues are Rs. 30 crore. He has his personal house worth 25 crore,
stock membership card (rights) worth 12 crore, motor cars 2 crores and bank balance 10 crores. Motor cars
are gifted to his friend just 30 days before his insolvency. Stock membership card is forfeited by stock
exchange. You are required to answer whether all the assets can be attached u/s 281 read with 281B. what
are the priority of the attachment.
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C.A. Kalpesh Sanghavi Settlement of cases - P a g e | F20 . 1
SETTLEMENT OF CASES
Question 1 (SLID 01) (Revision / Home work)
Write short notes on the Constitution of Settlement Commission.
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C.A. Kalpesh Sanghavi Liability in Special cases - P a g e | F21 . 1
LIABILITY IN
SPECIAL CASES
Sub-Topics Sections
A Liability in special Cases 159 to 181
B
C
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Accelerated assessment
Question 1 (Accelerated assessment) (ID – 01) (Revision / Home work)
An assessee has applied for tax clearance certificate. Can the AO. make an assessment U/s. 174?
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Question 2 (legal heirs and executors) (ID – 03) (Revision / Home work)
The assessee died leaving behind more than one legal representative. The assessing officer
served notice U/s 148 on one of them. How far the proceedings are valid?
Question 3 (legal heirs and executors) (ID – 04) (Revision / Home work)
While making an assessment on executor, as AOP U/s 168(1) (b) the assessing officer noticed that there
were some brought forward losses. Can these be allowed to be set off ?
Question 4 (legal heirs and executors) (ID – 05) (Revision / Home work)
One Mr. B having extensive business interests did not file returns. He died leaving behind ten legal
representatives. J, who was one of legal representatives, filed returns for the three assessment years
disclosing the income received by B. The returns were signed by J alone and not by the other legal
representatives. The Assessing Officer issued notices under sections 142(1) and 143(2) to him to appear and
produce documents, accounts and other material. He complied with the same without raising any objection
that in the said assessment proceedings notice must be given to the other legal representatives also. However,
assessment orders were made mentioning the names of all ten legal representatives against the column' Name
of the assessee'. On appeal, J contended for the first time that inasmuch as all the legal representatives of B
were not given notice of the assessment proceedings, the assessments made were illegal and void. The CIT
rejected the contention and held that completing the assessment without serving notices upon all the legal
representatives was only an irregularity in completing the assessment. Accordingly, he set aside the
assessment orders and remitted the matter to the Assessing Officer for making fresh assessments after notice
to all the legal representatives. The Tribunal affirmed the view of the CIT. On reference, the High Court held
that in the absence of service of notice on all the legal - representatives, the assessment made upon them was
a nullity and not a mere irregularity. It accordingly, set aside the direction of the CIT as affirmed by the
Tribunal. The revenue wants to challenge it Do you think it would be successful ?
You are also requested to advise assessing officer on making the assessment of the said income in correct
manner.
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C.A. Kalpesh Sanghavi Liability in Special cases - P a g e | F21 . 4
a) B and Co. owned rolling mills and other manufacturing units. It transferred the rolling milts to a newly
formed company.
b) A HUF carried on a money lending business. It was partitioned and the erstwhile co-parceners carried
on the same business in partnership.
c) A five member HUF carried on a money lending business. The HUF was partitioned. One of the members
was assigned a one fifth share of the assets of the business and separated. The other four carried on the
business at old premises in the manner in which it was carried on before partition.
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Companies in liquidation
Question 1 (Companies in liquidation) (ID – 10)
Imperial Chit Funds (P) Ltd. was under liquidation. On completion of assessment the official liquidator
informed the I.T.O. that tax dues determined constituted debt provable in the winding up proceedings. I.T.O.
however, issued a certificate to the T.R.O. and demanded the tax dues immediately and issued a demand
notice. Can the income tax department be treated as a secured creditor' and the amount set aside by official
liquidator U/s 178(3)(b) fall outside the area of winding up proceedings? Can the A.O. be entitled to payment
of tax demand otherwise than as U/s 530 of Companies Act ?
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C.A. Kalpesh Sanghavi Agricultural Income - P a g e | F22 . 1
AGRICULTURAL INCOME
Question 1 (ID 01)
X Ltd. grows sugarcane to manufacture sugar. Data is as follows
Rs.
Cost of cultivation of sugarcane 6
Market value of sugarcane when sugarcane is transferred to factory 9
Other manufacturing cost 6
Sales turnover of sugar 22
Salary of managing director who looks after agriculture as well as non-agricultural
2
operations of the company
You are required to find out the agricultural income of the company.
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C.A. Kalpesh Sanghavi Exemption - P a g e | F23 . 1
EXEMPTIONS 10AA
Question 1
R Ltd. furnishes the following particulars for the year.
Total sales of the above undertaking 50,00,000
Export sales 40,00,000
Domestic sales 10,00,000
Money brought to India in convertible foreign exchange upto 30-9-AY 36,00,000
Profit from the above undertaking 5,00,000
Compute the deduction available from the total income under section 10AA.
Question 2
R & Co., a partnership concern, has established in special economic zone in a free trade zone. It furnishes
the following particulars of its 2nd year of operations for the previous year:
Rs.
Total sales of business 1,00,00,000
Export sales 80,00,000
Profit of business 10,00,000
Out of the total export sales, realization of a sale of Rs. 5,00,000 is difficult because of insolvency of buyer.
Realisation of rest of the sales has been received in time. The plant and machinery used in the business has
been depreciated @ 15% on SLM basis and depreciation of Rs. 3,00,000 is charged in profit & loss account.
Compute the taxable income of R & Co.
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C.A. Kalpesh Sanghavi Exemption - P a g e | F23 . 2
X Ltd. is a manufacturing and trading company. It owns 3 units. Unit A manufactures goods in a special
economic zone for export purposes and qualified for exemption under section 10AA. Unit B is manufacturing
unit and goods are sold in domestic market. It is not qualified for any tax holiday. Unit C owns retail outlets
in different parts of country. From the information given below find out net income of X Ltd. for the year
X Ltd. has an undertaking (Unit X) in Special Economic Zone (SEZ) and another undertaking (Unit Y) in
Free Trade Zone (FTZ) for manufacturing of computer software. It furnishes the following particulars of its
2nd year of operations ending March 31, 2018 –
Rs. (in Lakh)
Unit X Unit Y
Total Sales 180 120
Export sales (inclusive of Rs. 10 lakh onsite development of computer software 120 10
outside India by Unit X)
Profit earned (after claim of bad debts under section 36(1)(vii) in Unit X) 63 36
Plant and machinery used in business has been depreciated at 15 percent on straight line method (SLM) basis
and depreciation of Rs. 9 lakh was charged to Profit and Loss Account in the proportion of sales during the
previous year. Rs. 100 lakh were realized out of export sales in time and balance of Rs. 20 lakh becomes
irrecoverable due to bankruptcy of one of the foreign buyers in Unit X.
Compute the deduction under section 10AA and taxable income of X Ltd. for the assessment year 2018-19.
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C.A. Kalpesh Sanghavi Exemption - P a g e | F23 . 3
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C.A. Kalpesh Sanghavi Deductions - P a g e | F24 . 1
DEDUCTIONS
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C.A. Kalpesh Sanghavi Deductions - P a g e | F24 . 1
SET OFF
AND
CLUBBING
Sub-Topics Sections
A Set off 70 to 80
B Clubbing 60 to 65
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C.A. Kalpesh Sanghavi Deductions - P a g e | F24 . 2
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C.A. Kalpesh Sanghavi Set off - P a g e | F25 . 1
Question 7 (Carry forward and set off) (SLID 007) (Revision / Home work)
Mr. Madhukant was carrying on proprietary business of speculation in shares, cotton and other commodities.
He died leaving behind his widow, a son and a daughter. Three heirs of Madhukant entered into a partnership
and executed a partnership deed wherein they agreed to carry on the said business of speculation. In the said
speculation business carried on in the name of the M/s MM a partnership firm, profits were earned and the
assessee sought to carry forward and set off the losses incurred by the deceased in his proprietary business
against the income from the speculation business of the partnership firm. Assessee M/s MM was of the
opinion that there was succession by inheritance and, therefore, the assessee is entitled to carry forward and
set off the deceased Shri Madhukant’s loss in business against the income.
OR
Smt. Bhanu succeeded to the business of her husband Sri. Bhavesh who died on 10 September. She carried
on the business as proprietrix. The business of Bhavesh up to the date of his death resulted in a loss. Smt.
Bhanu earned profit in business for the year. Bhanu wants to set off the loss of her husband for the period
ending 10 September against her income.
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C.A. Kalpesh Sanghavi Set off - P a g e | F25 . 2
Question 9 (Carry forward and set off) (SLID 013) (Revision / Home work)
X provides the following information:
Sales (retail trade in garments) (no books of accounts maintained) 32,00,000
Rent from house property at Chennai (computed) 120,000
Vacant site lease rent 12,000
X purchases 20,000 shares of A.Co. Ltd., declares 1 : 1 bonus on January 1, 2003.
X sells 1,000 bonus shares in September of previous year for Rs.1,20,000.
X gets Rs.50,000 on February 12, being amount due from Y relating to electronic goods supplied by X’s
father, which was written off as bad debt by his father 4 years back and allowed as deduction. X’s father
died 2 years back.
X’s father has brought business loss relating to discontinued automobile business of 3 years back :
Rs.2,00,000; brought forward depreciation relating to the same business : Rs.1,50,000.
Compute gross total income of X.
Question 10 (Carry forward and set off) (SLID 017) (Revision / Home work)
From the following data, you are required to work out the total income chargeable to tax and ascertain the
tax thereon of X Ltd., a domestic company.:
Business loss 50,00,000
Property income 45,00,000
Income from other sources 1,00,000
Capital gains:
Short-term 3,00,000
Long-term 10,00,000
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C.A. Kalpesh Sanghavi Set off - P a g e | F25 . 3
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C.A. Kalpesh Sanghavi Set off - P a g e | F25 . 4
For the year ending March 31, 2004: Rs.18,00,000 (before charging depreciation Rs.9,00,000)
For the year ending March 31, 2005: Rs.45,00,000 (before charging depreciation Rs.7,50,000)
Compute the taxable income for assessment year 2005-06. Workings must form part of your answer.
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C.A. Kalpesh Sanghavi Set off - P a g e | F25 . 5
Question 3 (Business ID 72) (computation of business income) (Special treatment for companies)
X,Y and Z carried on a business of running hotels in partnership firm. In order to increase its scale of
operation and meet its fund requirement, the firm decided to carry on its business through corporate route.
For that purpose, a company under the name and style XYZ Hospitality (P.) Ltd. Was formed 2 years back
and the business of the partnership firm as a whole was succeeded by the company. The company’s profit
and loss account for the year shows a net profit of Rs. 450 lakh after debit / credit of the following items
1. Interest of Rs. 3 lakh paid to Allahabad Bank on a term loan taken for the purpose of acquiring a land
a Bhubaneswar for a new hotel to be set up.
2. Depreciation charged: Rs. 40 lakh.
3. Rs. 2 lakh credited on account of waiver of dues obtained from a supplier of the erstwhile firm
against supply of certain materials.
4. Rs. 1.18 lakh being the aggregate of amounts paid in cash to D, a transport contractor, as follows-
Date of payment Rs. In lakh
June 5, 0.15
July 20, 0.21
September 20, 0.22
November 3, 0.26
November 5, 0.36
Tax was not deducted at source as D submitted a certificate under section 197(1), which he had
obtained from TDS circle of the Income-tax Department.
5. Rs. 50,000 being proportionate part of the cost of animals (purchased and kept for entertainment of
the guests of hotel), is debited in the profit and loss account as amortization of expenditure as per the
accounting policy of the company.
6. Rs. 10,000 is credited on account of sale proceeds of carcass of animal which died during the year.
7. Provision for bad and doubtful debts: Rs. 12 lakh
8. Payment of Rs. 25 lakh to some employees as compensation for voluntary retirement, as per scheme.
9. Foreign exchange fluctuation loss (net) amounting to Rs. 30 lakh arising from restatement of the year
end liabilities to foreign suppliers of provisions and beverages as per the requirement of AS-11 of
ICAI.
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C.A. Kalpesh Sanghavi Set off - P a g e | F25 . 6
Other information-
Compute total income of XYZ (P.) Ltd. indicating reason for treatment of each of the items.
Ignore the provisions relating to the minimum alternate tax.
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C.A. Kalpesh Sanghavi Set off - P a g e | F25 . 7
Problem 3 (Dividend and bonus stripping) (Revision / Home work) (ID 21)
X purchases on May 10, 1000 preference shares of Rs. 10 each in A Ltd. @ Rs. 55.55. On October 20, he
transfers 800 shares @ Rs. 37 per share and remaining 200 shares are transferred on December 20, @ Rs. 20
per share. A Ltd. Declares 50 per cent dividend (record date : August 3,). During previous year, he has
generated long term capital gain of Rs. 76,000 on sale of gold.
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C.A. Kalpesh Sanghavi Set off - P a g e | F25 . 8
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C.A. Kalpesh Sanghavi Clubbing - P a g e | F26 . 1
CLUBBING OF INCOME
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C.A. Kalpesh Sanghavi TDS TCS - P a g e | F27 . 1
TDS/TCS
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C.A. Kalpesh Sanghavi Tax Planning - P a g e | F28 . 1
TAX AVOIDANCE
V Tech Ltd is a company resident of country Cl. It enters into an agreement with Z Energy Ltd.. an Indian
company for setting up e power plant in India. It is a composite contract for an agreed pnce of US$ 100
million. The payment has been split in the following parts as per separate agreements
(i) US$ 10 million for design of power plant outside India (payment for which is taxable at 10% on gross
basis)
(ii) US$ 70 million for offshore supplies of equipment etc (not taxable as no role is played by any PE in
India. There are not subject to import duty)
(iii) US$ 20 million for local supplies and installation charges (taxable on net income basis)
It is found that the fair market value of offshore design is about USD 30 million; therefore is under invoiced.
On the other hand, offshore supplies were over invoiced. The arrangement resulted in significant tax benefit
to the taxpayer. Can GAAR be invoked in such a case ?
Under the provisions of a tax treaty between India and country F4. Any capital gains arising from the sale of
shares of lndco, an Indian company would be taxable only in F4 if the transferor is a resident of F4 except
where the transferor holds more than 10% interest in the capital stack of lndco. A company. A Ltd. being
resident in F4, makes an investment in indco through two wholly owned subsidiaries (K Ltd. and L Ltd.)
located in F4. Each subsidiary holds 9.95% shareholding in the Indian Company, the total adding to 19.9%
of equity of lndco. The subsidiaries sell the shares of Indco and claim exemption as each is holding less than
10% equity shares in the Indian company. Can GAAR be invoked to deny treaty benefit ?
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C.A. Kalpesh Sanghavi Tax Planning - P a g e | F28 . 2
An Indian company, A Ltd. makes an investment of 1 crore in shares of a listed company on l January. After
a year, the prices go up and fair market value of shares becomes 11 crore. if A Ltd sells these shares, the
long term capitel gains of 10 crore would be exempt but it would be liable to tax under MAT@ the applicable
rate. A Ltd. forms partnership firm with another person with nominal partnership. It transfers its shares in
the firm at a cost price. No capital gain arises as per section 45 of the Act. After a year, the firm sells these
shares and realises the gains of 10 crore which is exempt from taxation and no MAT is payable.
Subsequently. The firm is dissolved and share of A Ltd In the partnership firm is transferred back along with
profits, which is exempt from tax under the Act. Can GAAR be invoked in this case ?
lndco incorporates a Subco in a NTJ (Low Tax Jurisdiction) with equity of US $100. Subco gives a loan of
US $ 100 to another Indian company (X Ltd) at the rate of 10% p.a. X Ltd. claims deduction of interest
payable to Subco from the profit of business. There is no other activity in Subco. Can GAAR be invoked in
such a case ?
Say, lndia- LTJ tax treaty provides that interest payment to LTJ banking company is not taxable in lndia
Can this be examined under GAAR ?
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C.A. Kalpesh Sanghavi Tax Planning - P a g e | F28 . 3
A Ltd. is incorporated in country F1 as a wholly owned subsidiary of company Y Ltd. which is not a resident
of F1 or of India. The India-Fl tax treaty provides for non-taxation of capital gains in India (the source
country) and country F1 charges no capital gains tax in its domestic law. Some shares of X Ltd., an Indian
company are acquired by A Ltd in the year after date of coming into force of GAAR provisions. The entire
funding for investment by A Ltd. in X Ltd. was done by Y Ltd. These shares are subsequently disposed of
by A Ltd after 5 years. This results in capital gains which A Ltd. claims as not being taxable in India by
virtue of the India-F1 tax treaty. A Ltd. has not made any other transaction during this period. Can GAAR
be invoked ?
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C.A. Kalpesh Sanghavi Tax Planning - P a g e | F28 . 4
Specify with reason, whether the following acts can be considered as (i) Tax planning; or (ii) Tax
management: or (iii) Tax evasion
(i) Mr P deposits 1,00,000 in PPF account so as to reduce his total income from 3,40,000 to 2,40,000.
(ii) SQL Ltd. maintains register of tax deduction at source effected by it to enable timely compliance.
(iii) An individual tax payer making tax saver deposit of 1,00,000 in a nationalised bank
(iv) A partnership firm obtaining declaration from lenders and depositors in Form NO. 15G/15H and
forwarding the same to income-tax authorities.
(v) A company installed an air-conditioner costing 75,000 at the residence of a director as per terms of his
appointment but treats it as fitted in quality control section in the factory. This is with the objective to treat
it as plant for the puipose of computing depreciation.
(vi) RR Ltd. issued a credit note for 80,000 as brokerage payable to Mr. Ramana who is the son of the
managing director of the company. The purpose is to increase the total income of Mr. Ramana from 4,00,000
to 4,80,000 and reduce the income of RR Ltd. correspondingly.
(vii) A company remitted provident fund contribution of both its own contribution and employees
contribution on monthly basis before due date.
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C.A. Kalpesh Sanghavi Tax Planning - P a g e | F28 . 5
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C.A. Kalpesh Sanghavi Powers of ITA - P a g e | F31 . 1
POWERS
AND
PROCEDURE
Sub-Topics Sections
A Survey, Search and Powers 117 to 138
B Returns of Income 139 to 141
C Intimation and Orders 143 to 146
D Re-assessment 147 to 152
E Rectification of Mistakes 154, 155
F Powers of CIT 263 and 264
G Appeals to CIT and ITAT 246 to 269
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C.A. Kalpesh Sanghavi Powers of ITA - P a g e | F31 . 2
The assessment of B, an individual, for the year was made under section 143(3) of the Income-tax Act, 1961
on 18.3. and the penalty was initiated. The assessment has become final and is not the subject-matter of an
appeal or revision. The Assessing Officer issued a show cause notice for levy of penalty to B on 25.3. B
furnished a reply to the said notice on 30.3. There was a change in incumbent and the Assessing Officer,
who made the assessment and issued the show cause notice, was succeeded by another. The successor-
Assessing Officer, suo moto, issued a notice under section 129 to B on 20.9. B did not respond to the said
notice. The successor-Assessing Officer passed an order on 24.10 levying penalty. Examine the validity of
the order of penalty passed with reference to the aspect of limitation.
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C.A. Kalpesh Sanghavi Powers of ITA - P a g e | F31 . 3
Question 2 (power to call for documents, summons etc.) (SLID 08) (Revision / Home work)
The assessee was carried on the business of purchase and sale of silver ornaments, utensils, etc. A search
was conducted by the Income-tax Department on the residential and business premises of the assessee.
During the search silver ornaments and utensils were seized and were found to be in excess of the accounts
as per books of account. After the assessment proceeding silver ornaments amounting to 125.44 kilograms
were held by the Income-tax Officer unexplained and he made an addition of Rs. 3,49,225 for the purpose
of computation under the Act. The assessee had explained that the said silver had been purchased from R.
The assessee had filed correspondences made between him and R regarding the payment of the amount.
After the statement of R was recorded he moved an application stating that his statement was recorded under
coercion and he retracted the statements confirming the transaction entered between him and the assessee.
The Assessing Officer accepted all the entries recorded in the amanat book except the entries pertaining to
R. The affidavit of R and the bank transaction made by him were ignored. The Assessing Officer on the basis
of the statement made an addition of Rs. 3,49,225 against the bill amount of Rs. 1,77,117. The assessee made
a prayer under section 131 of the Act to summon R for cross-examination. The prayer was not acceded to
and the assessment order was passed. The officer was of view that the statement of R was fairly
communicated to the assessee and that apart it was not the case of the assessee that he did not know what R
had stated. You are required to state whether the action of officer is justified.
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C.A. Kalpesh Sanghavi Powers of ITA - P a g e | F31 . 8
The business premises of Ram Bharose Ltd. and the residence of two of its directors at Delhi were searched
under section 132 of the Act by the DDI, Delhi. The search was concluded on 9-8-PY and following were
also seized besides other papers and records:
I. Papers found in drawer of an accountant relating to Shri Krishna Ltd., Mumbai indicating details of
various business transactions. However, Ram Bharose Ltd. is not having any direct or indirect
connection of any nature with these transactions and Shri Krishna Ltd., Mumbai and its directors.
II. Jewellery worth Rs. 5,00,000 from the bedroom of one of the director, which was claimed by him to
be of his married daughter.
III. Papers recording certain transactions of income and expenses having direct nexus with the business
of the company for the period from 16-4-2011 to date of search. It was admitted by the director that
the transactions recorded in such papers have not been incorporated in the books.
You are required to answer on the basis of the aforesaid and the provisions of Act, following questions:
a) What action the DDI shall be taking in respect of the seized papers relating to Shri Krishna Ltd., Mumbai
?
b) Whether the contention raised by the director as to jewellery found from his bedroom will be acceptable
?
c) What presumption shall be drawn in respect of the papers which indicate transactions not recorded in the
books ?
d) Proceedings for how many years shall now be taken up and within which time limit the assessment
thereof be completed by the Assessing Officer ?
e) Can the company move an application for settlement of case as per chapter XIX-A of the Act ?
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C.A. Kalpesh Sanghavi Powers of ITA - P a g e | F31 . 9
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C.A. Kalpesh Sanghavi Powers of ITA - P a g e | F31 . 10
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C.A. Kalpesh Sanghavi Powers of ITA - P a g e | F31 . 11
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C.A. Kalpesh Sanghavi Types of Return of Income - P a g e | F32 . 1
RETURN OF INCOME
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C.A. Kalpesh Sanghavi Intimation and orders - P a g e | F33 . 1
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C.A. Kalpesh Sanghavi Intimation and orders - P a g e | F33 . 2
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C.A. Kalpesh Sanghavi Intimation and orders - P a g e | F33 . 3
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C.A. Kalpesh Sanghavi Re-assessment Procedure - P a g e | F34 . 1
RE-ASSESSMENT
Question 1 (ID 01) (Revision / Home work)
X Ltd. has leased out a house property owned by it to the customs authorities at a monthly rent of Rs. 40,000.
The lease expired on December 31, 1989. X Ltd. gave notice for vacating the premises or alternatively for
an increase in the rent of Rs. 60,000 per month with effect from January 1, 1990. The customs authorities
continued to occupy the premises and did not agree to increase the rent. The dispute as to the fixation of rent
was referred to arbitration in November 1990. The arbitration proceeding continued for about 2 years and
finally an award was delivered in January 1993 fixing the rent at Rs. 60,000 per month with retrospective
effect from January 1, 1990. The customs authorities disputed the award in the Delhi High Court and
ultimately a decree was passed by the Delhi High Court in July 1993 in terms of the award. Thereupon, the
customs authorities paid in August 1993 the additional arrear rent of Rs. 20,000 per month for the year 1992-
93. In their income-tax returns in respect of the assessment years 1991-92, 1992-93 and 1993-94 X Ltd. had
continued to declare its rental income at the old rate of Rs. 40,000 per month and had also indicated by a
footnote the fact that its claim for increase in rent from Rs. 40,000 to Rs. 60,000 with effect from January 1,
1990 was disputed by the tenant and the matter was pending before the arbitrator/High Court. The Income-
tax Officer on consideration of the aforesaid note completed the assessment of X Ltd., in respect of the
assessment years 1991-92 and 1992-93 on November 30, 1993 under section 143(3) on the basis of the old
rent of Rs. 40,000 per month as was being received “under protest” by X Ltd. In December 1993, the Income-
tax Officer became aware of the decree passed by the Delhi High Court in terms of the award fixing the rent
of Rs. 60,000 per month with effect from January 1, 1990.
Advise whether the income-tax Officer should take action for assessing the additional rent of Rs. 20,000 per
month now paid in August 1993;
a. by resort to the reassessment proceeding under section 147;
b. by resort to the rectification proceedings under section 154;
c. by initiating proceedings for revision under section 263; or
d. by assessing the entire arrear rent as income for the assessment year 1994-95 on the basis of
receipt, as the company follows cash system of accounting.
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C.A. Kalpesh Sanghavi Re-assessment Procedure - P a g e | F34 . 2
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C.A. Kalpesh Sanghavi Re-assessment Procedure - P a g e | F34 . 3
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C.A. Kalpesh Sanghavi Re-assessment Procedure - P a g e | F34 . 4
She has been served in July 2015 with the notices issued under section 148 for assessment years 2003-04 to
2014-15. She wants to challenge the action of the Assessing Officer for issuing notices under section 148 for
multiple years, seeks your opinion. Advise her suitably.
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C.A. Kalpesh Sanghavi Rectification of Mistakes - P a g e | F35 . 1
RECTIFICATION OF MISTAKES
Question 1 (ID 02)
(a) In an order of assessment, the assessee noticed a mistake for which application u/s 154 was moved and
the order was rectified. Subsequently, the assessee moved further application for rectification u/s 154
which was rejected by the Assessing Officer on the ground that the order once rectified cannot be
rectified again. Is the contention of the Assessing Officer correct ?
(b) The return for was filed on time as per Section 139(1). The assessee during the course of assessment
proceedings u/s 143(2), noticed certain omissions and therefore filed a revised return on 18.10.AY. The
Assessing Officer ignoring the revised return so filed framed the order. Is the action of Assessing Officer
correct ?
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C.A. Kalpesh Sanghavi Powers of CIT - P a g e | F36 . 1
POWERS OF CIT
Question 1 (ID 01) (Revision / Home work)
Case A : In the assessment made on a firm, the Assessing Officer made two specific additions, namely (i)
Unexplained Cash Credit of Rs. 1 Lakh and (ii) Disallowance u/s 43B. The assessee filed an appeal
before the CIT (Appeals) contesting the addition of cash credit and being unsuccessful, filed a
further appeal before the Appellate Tribunal. In respect of the disallowance u/s 43B, it did not file
any appeal, but made a revision petition u/s 264, to the CIT who dismissed it on the ground that
the assessment was not subject matter of an appeal to the Appellate Tribunal. The assessee relied
on a Board’s circular under which the CIT was empowered to accept such a petition. Discuss the
correctness of the view taken by the CIT.
Case B : The Commissioner of Income Tax can revise an order during the pendency of an appeal before the
First Appellate Authority.
Case C : An assessee is aggrieved by the order of the Assessing Officer and requests you to contest the same
by filing an appeal before the Commissioner of Income-tax (Appeals) as well as by filing a
revision petition before the Commissioner u/s 264 of the Act. Can the assessee invoke both the
remedies against the order of the Assessing Officer simultaneously?
Case D : An appeal was preferred by the assessee to the CIT (Appeals) against the order of assessment made
by the Assessing Officer. The appeal was allowed by the CIT (Appeals). The assessee later found
that he was entitled to a certain deduction, which was neither claimed by him nor allowed by the
Assessing Officer in the course of assessment. The issue of deduction was not raised by the
assessee in the appeal before the CIT (Appeals) and was not considered by the CIT (Appeals).
Examine the power of the CIT to revise under section 264 the order of assessment in order to
allow such deduction on an application by the assessee.
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C.A. Kalpesh Sanghavi Powers of CIT - P a g e | F36 . 2
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C.A. Kalpesh Sanghavi Powers of CIT - P a g e | F36 . 4
(d) A search was initiated in the premises of an assessee on 11th November, and it was concluded on 14th
November. What is the period of limitation for issue of notice for making assessment of preceding six
assessment years ? In case assessment under Section 143(3) for one year back and appeal before CIT(A)
for assessment year 4 years back are pending on 11th November, what would be the fate of such pending
assessment and appeal ?
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C.A. Kalpesh Sanghavi Powers of CIT - P a g e | F36 . 5
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C.A. Kalpesh Sanghavi Powers of CIT - P a g e | F36 . 6
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C.A. Kalpesh Sanghavi Appeals to CIT - P a g e | F37 . 1
APPEALS TO CIT
Appeals to CIT
Question 01 (ID 01) (Appeals to CIT) (Revision / Home work)
Is Commissioner (Appeals) empowered to consider an appeal filed by an assessee challenging the order of
assessment in respect of which the proceedings before the Settlement Commission abates ?
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C.A. Kalpesh Sanghavi Appeals to CIT - P a g e | F37 . 2
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C.A. Kalpesh Sanghavi Appeals to ITAT - P a g e | F38 . 1
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C.A. Kalpesh Sanghavi Appeals to ITAT - P a g e | F38 . 2
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C.A. Kalpesh Sanghavi Appeals to ITAT - P a g e | F38 . 3
F38 12 MOCO
F38 21 Power to stay V.Imp
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C.A. Kalpesh Sanghavi deemed to accrue or arise - P a g e | F51-A1 . 1
INTERNATIONAL
TAXATION
30 MARKS
(NEW SYLLABUS)
Sub-Topics Sections
A Non – Residents (provisions for specific business.) 110 to 115
B DTAA 90 to 91
C Transfer Pricing 92 to 94A
D Authority of advance ruling 245N to V
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C.A. Kalpesh Sanghavi deemed to accrue or arise - P a g e | F51-A1 . 2
NON RESIDENTS
Part – A1
Deemed to accrue or arise in India
Question 1 (ID 026) (Revision / Home work)
The assessee, which was a part of the Department of Space in the Government of India, had the objective of
developing satellite technology and application of space technology for socio-economic development and
space research. It entered into a contract with Inmarsat Global of the U. K. for leasing of the Inmarsat
navigation transponder capacity for its GAGAN TDS project, under which it had taken on lease the space
segment capacity of L1 and L5 transponder centered on an Inmarsat 4th generation satellite, making an orbit
at 36,000 km altitude above the earth’s atmosphere. The capacity was utilized through data commands sent
from a ground station set up by the applicant to that transponder out of many which was for navigation
purposes which dispatched signals in space on two specified frequencies. The corrected or augmented data
sent from the satellite and transmitted by the transponder were used for better navigational accuracies. The
applicant paid a fixed annual charge regardless of the actual use of transponder capacity. On these you are
required to answer (i) whether the payment to Inmarsat Global of the U. K. for leasing of transponder was
not royalty; and (ii) whether the applicant had to deduct tax at source under section 195 of the Income-tax
Act, 1961, in respect of the lease amount.
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C.A. Kalpesh Sanghavi Other Topics for NR - P a g e | F51-A2 . 1
Part - A2
Non Residents special computation – 48 Prov 1
Question 1 (specific computations, Non resident) (CG ID 46)
Mr. N (non resident) purchased shares of Reliance industries on 01-01-2009 by remitting US $. The
following data is given.
Cost of acquisition : 5,85,000 (Dated : 1.1. 2009)
Sale price : 9,00,000 (Dated : 1.1. PY)
Expense on transfer : 6,600 (Dated : 28.12. PY)
On 24.04.AY 6,15,000 was invested out of above sale proceeds and it was sold on 18.08.AY for value of
10,50,000.
Date TT BR TT SR
01-01-2009 38 40
28-12-PY 42 44
01-01-PY 39 41
24-04-AY 40 42
18-08-AY 41 43
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C.A. Kalpesh Sanghavi Other Topics for NR - P a g e | F51-A2 . 2
X, a non-resident, remits US$ 60,000 to India on August 10, 2009. The amount is partly utilised on August
17, 2009 for purchasing 50,000 shares in Lotus Ltd., an Indian company at the rate of Rs. 6 per share. These
shares are sold for Rs. 28 per share on April 10.
Find out the capital gains chargeable to tax for the year on the assumption that telegraphic transfer buying
and selling rate of US dollars adopted by the State Bank of India is as follows:
Buying (1 US $) Selling (1 US $)
August 10, 2009 18.30 19.10
August 17, 2009 18.40 19.30
April 10, 45.90 46.40
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C.A. Kalpesh Sanghavi Other Topics for NR - P a g e | F51-B . 1
Part B
Calculation of Tax Liability
Question (Tax Liability) (ID 51)
Rosy and Mary are sisters, born and brought up at Mumbai. Rosy got married in 1982 and settled at Canada
since 1982. Mary got married and settled in Mumbai Both of them are below 60 years. The following are the
details of their income for the previous year.
Rosy Mary
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C.A. Kalpesh Sanghavi Other Topics for NR - P a g e | F51-B . 2
Mr.A (age 45) Mrs.B (age 62) Mr C (age 81) Mr.D (age 82)
from sale of
listed shares from sale of
from sale of (STT paid on agricultural
vacant site sale and land in rural
purchase of area
shares)
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Mr. Mithun purchased 100 shares of Good money Co. Ltd. on 01-04-2005 at rate of 1,000 per share (FMV
as on 31-01-2018 is 600 per share) in public issue of the company by paying securities transaction tax.
Company allotted bonus shares in the ratio of 1:1 on 4 years back. He has also received dividend of 10 per
share on 01.05.PY. He has sold all the shares on 01.10.PY at the rate of 4,000 per share through a recognized
stock exchange and paid brokerage of 1% and securities transaction tax of 0.02% to celebrate his birthday.
The Gross Total Income of Mr. C a resident in India aged 65 years, was 8,18,240 which includes long-term
capital gain of 2,45,000 and Short-term capital gain of 58,000. The Gross Total Income also includes interest
income of 10,000 from savings bank deposits with banks, Mr C has invested in PPF 1,40,000 and also paid
a medical insurance premium 30,000. Mr. C also contributed 50,000 to Public Charitable Trust eligible for
deduction under section 80G by way of an account payee cheque.
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C.A. Kalpesh Sanghavi Representative assessee - P a g e | F52 . 1
REPRESENTATIVE ASSESSEE
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C.A. Kalpesh Sanghavi Representative assessee - P a g e | F52 . 2
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C.A. Kalpesh Sanghavi NR / Special Rates of Taxes - P a g e | F53-A . 1
Massy incorporated in Switzerland, a foreign company furnishes the following data for the previous year.
Massy does not have any branch offices in India.
Question A
Determine the total income of the foreign company and the tax payable by it.
Question B
What would be the total income and the tax payable, if the donation was Rs. 4,00,000 instead of Rs. 6,00,000
Question C
What would be the total income and the tax payable, if the donation was Rs. 4,00,000 instead of Rs. 6,00,000
and DTAA between India and Switzerland provides for tax rate on royalty as 5 % and Interest income as 25
%.
Question D
What would be total income and tax payable if the donation is 100,000 instead of 600,000 and Massy have
branch office in India for providing to services to Indian concern in form of royalty.
Question E
Determine the total income of the foreign company and the tax payable by it in question D above if the place
of effective management of the company is in India.
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C.A. Kalpesh Sanghavi NR / Special Rates of Taxes - P a g e | F53-A . 2
Brian Lara, a well know cricketer, as a member of the West Indian touring team, received a sum of Rs. 5
lakhs for participation in matches in India. He also received a sum of Rs. 1 lakh for an advertisement of a
product on TV. He contributed articles in a newspaper for which he received Rs. 10,000. During the tour of
India, he attended horse racing in Bombay and won a prize of Rs. 10,000.
1. What will be his tax liability, if he as come to India for the first time on 15-Feb of PY?
2. What will be the TDS obligation of the cricket council while making payment of 5 lakhs to Brian
Lara?
3. What will be TDS liability if the payment made Rs. 5 lakhs is net of taxes as per the terms of contract?
4. Whether he is required to file return of income India, advice.
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C.A. Kalpesh Sanghavi NR / Special Rates of Taxes - P a g e | F53-B . 1
1. Ximc Private Limited has entered in to contract with Alpha Limited 2 years for providing continuous
supply of chemical H2SO4. In the month of July there was modification on terms of contract and as
result Ximc Limited has received 2 Lakhs compensation.
2. Ximc Private Limited has loss on Agriculture commodities derivatives transaction to the tune of 3
lakhs. No CTT have been paid on such transactions.
3. The Company owns a flat at Chennai for re-sale. It has entered in to agreement to sale it on 10th June
when the stamp duty guidance value was 100 lakhs. At time of entering in to agreement in June
advance was received Rs. 10 Lakhs by means of account payee cheque. The Registration of sale was
done on 12th Feb when the stamp duty paid was @ 5 % Rs. 5.5 Lakhs. Actual consideration received
as result of sale is 98 Lakhs. The sale price was credited to Flat account in balance sheet.
4. The Company is operating 2 heavy goods vehicle for its transport division. Un-laden weight of
vehicle is 13 tons and 16 tons. The company has gross receipt from operation of both the trucks 2.5
lakhs and expense to operate the same is 1 lakh.
5. Profit on sale of listed shares listed on NSE is 6 lakhs. STT have been duly paid.
6. The Company is entitled to export incentive. Company has made claim of 200,000 with the
appropriate authorities with all the supporting documents and evidences in January. However the
claim is received after 15 days of the end of the financial year.
7. The Company has also been dealing in to interest swaps, and marked to market loss accounted is 1.5
lakhs.
8. The Company is providing BPO services. It has entered in to contract with Sihan Limited to provide
services from 1st of March for 60 days. As per the terms of contract entire contract value is to be paid
after 7 days of completion of services. Value of services contract is 6 lakhs for 60 days. Expense
incurred to provide the services is 2 lakhs during the year.
9. The Company has borrowed from Anonymous Lender 10 lakhs. Name and address of the lender is
not available. The amount is credited to liability account in balance sheet. The foreign travelling
expense for travel of one of the directors for business purpose is 10,000 however officer has
considered reasonable air fare and hotel stay for 10 days at 2,10,000. The assessing officer is of the
view that it is bogus transactions and requires additions to income.
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Additional Information
The Company acquired for 25 lakhs one flat at Baroda, Gujarat for the purpose of Re-sale. However company
has decided to give it to one of its directors Mr. Bhardwaj to stay and now it does not have any intention to
sale it. Company has converted it in to capital asset on 15th March. FMV of the flat on 15th March is 35 lakhs.
However Broker in Baroda has indicated that its Market value on 31st of March is 36 Lakhs.
The company advanced loan of Rs. 28 lakhs to one of its director Mr. Amit Shah on 12 October (holding 25
% shares in company). The accumulated profits on that date is 16 lakhs. The company has not declared any
dividends during the year. The loan to the tune of 25 Lakhs have been paid off up to 15 Feb.
The company is habitually executing contract on behalf of Foreign company DIER Inc. The company is duly
authorised by DIER Inc for such execution of contract. The income of DIER Inc is Rs. 200,000 out of the
execution of such contract through the company.
Question A
You are required to compute (ignore the provision of MAT)
1. Tax Liability of Ximc Limited.
2. Tax liability of Mr. Amit Assuming that he has dividend income of 15,00,000 from other Indian
companies.
Question B
Assuming that pursuant to resolution plan approved under the Insolvency and Bankruptcy Code, 2016 and
considering following additional information you are also required to compute the tax liability of the
company. One of the shareholder Mr. Nimish holding 60 % shares in the company has sold his shares to Mr.
Jain during the year.
Brought forward loss – as per books of accounts 4 lakhs
Brought forward depreciation – as per books of accounts 3 lakhs
Brought forward business loss from 2 years back – as per income tax act – 60 lakhs
Question C
Assuming company has declared dividend of Rs. 2 each on equity shares on 15 Feb and accumulated profits
are 250 lakhs. You are required to calculate dividend tax liability. The company has adjusted the dividend
of Rs. 2 payable to Mr. Amit against the loan remain unpaid on 15 Feb.
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Arnold Ltd. (incorporated in UK) has a branch office (PE) in India. The Net profit of the Branch as per the
statement of profit and loss for the year was Rs. 83 lakhs. It includes the following:
(1) Dividend from Indian companies (listed) Rs. 8,00,000.
(2) Dividend from Indian companies (unlisted) Rs. 4,00,000.
(3) Interest received from MMS Ltd. of Mumbai Rs. 7,00,000. The amount was received by the
Indian company MMS Ltd. in foreign currency as per loan agreement dated 01.04.2014
(section 194LC applicable).
(4) Fee for technical services received from Barun Co. Ltd., Kolkata Rs. 25,00,000. The
agreement was made on 10.08.2007 and was approved by Central Government Expenditure
incurred for providing technical service amount to Rs. 6,00,000.
(5) Income out of trading in market at its prevailing market price of Carbon Credit Rs. 700,000.
(6) Royalty income out of patents registered in India 12,00,000.
(7) Arnold Ltd is member of an AOP M/s Flingo an in India. Arnold Ltd has 60% share. Total
Income of AOP is 10,00,000 Rupees.
Additional Information :
Total income chargeable to tax as per regular provisions of the Income-tax Act, 1961 (Act) is Rs. 20,00,000
(without considering the items (1) to (7) above). You are required to compute the book profit tax under
section 115JB of the Act and also the total income-tax liability of the assessee.
Your working should be supported by notes.
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C.A. Kalpesh Sanghavi NR / Special Rates of Taxes - P a g e | F53-B . 4
SDK Ltd. is engaged in the manufacture of textile since 01-04-2010. The company has issued 20,00,000
shares of face value 10 each fully paid up at premium of 20 each. One of the shareholder Mr. Rajesh is
holding 500,000 shares in the company. New Pension System Trust covered by 10(44) is holding 100,000
shares in SDK Ltd. Accumulated Reserves of the company is 250 Lakhs. Its Statement of profit and loss for
the previous year ended 31st March, shows a profit of Rs. 600 lakhs after debiting or crediting the following
items:
(1) Depreciation charged on the basis of useful life of assets as per Companies Act is Rs. 62 lakhs.
(2) Industrial power tariff concession of Rs. 3.5 lakhs, received from State Government was credited
to P & L Account.
(3) The company had provided Rs. 25 lakhs being sum fairly estimated as payable with reasonable
certainty, to workers on agreement to be entered with the workers union towards periodical wage
revision once in every three years.
(4) Dividend received details are as under
a. From Zahir Inc Incorporated in Singapore in which SDK Ltd is holding 35 % shares 7
lakhs.
b. From Moxizm Inc Incorporated in Cayman Islands in which SDK ltd is holding 60 %
shares 3 lakhs.
c. From Atul Ltd, Domestic company 21 lakhs.
d. From RIMS Ltd, domestic company in which SDK ltd is holding 70 % shares 1 Lakh.
(5) Loss Rs. 25 lakhs, due to destruction of a machine worth Rs. 30 lakhs by fire due to short circuit
and Rs. 5 lakhs received as scrap value. The insurance company did not admit the claim of the
company on charge of gross negligence.
(6) Provision for gratuity based on actuarial valuation was Rs.400 lakhs. Actual gratuity paid debited
to gratuity provision account was Rs. 275 lakhs.
(7) The company has purchased 500 tons of industrial paper as packing material at a price of Rs.
30,000 per ton from M/S. Shiv Bramha, a firm in which majority of the directors of SDK Ltd. are
partners. The firm’s normal selling price of the same material in market is Rs. 28,000 per ton.
(8) Advertisement charges Rs. 1.5 lakhs, paid by cheque for advertisement published in the souvenir
of a political party registered with the Election Commission of India.
(9) Long term capital gain Rs. 4.5 lakhs on sale of equity shares on which Securities Transaction Tax
(STT) was paid at the time of acquisition and sale.
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Additional information:
Briefly explain the reasons for treatment of each item. Ignore the provisions relating to Minimum Alternate
Tax.
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BG (P) Ltd. is engaged in multiple businesses. The Net Profit as per the statement of profit and loss was Rs.
52 lakhs for the year. Company total issued share capital is 9,00,000 shares at face value of Rs. 10 Each as
on 01st April. New Pension system trust covered by 10(44) is holding 150,000 shares in the company. Miss
Radha is one of the directors of the company holding 250,000 shares.
A scrutiny of the statement of profit and loss revealed the following items which were debited / credited
therein:
1. Share income @ 25% from a partnership firm ABC & Co. of Pune Rs. 9,50,000.
2. The company paid Rs. 1 lakh as service charges to a call centre for attending the calls of customers
and suppliers. Tax was deducted at source on such payment @ 2%.
3. Expenditure incurred Rs. 8 lakhs for digging of wells near the factory for use by public under
Corporate Social Responsibility Scheme as per the Companies Act,2013.
4. Grant received from State Government for acquisition of generator Rs. 10 lakhs. The generator was
acquired on 01.06. for Rs. 35 lakhs. A sum of Rs. 5 lakhs was paid as advance by cash to the supplier
of generator. The grant amount received is credited to statement of profit and loss. Depreciation
charged on Rs. 35 lakhs@15%.
Note : Assume that the company is not eligible for additional depreciation.
5. During the year, the company bought textile goods from local suppliers. Cash payment was made
exceeding Rs. 10,000 but below Rs. 20,000 in a day to 15 suppliers aggregating to Rs. 2,00,000.
6. Depreciation debited to statement of profit and loss Rs. 10 lakhs (it includes Rs. 8 lakhs being
depreciation on assets revalued).
7. Provision for deferred tax debited to statement of profit and loss Rs. 6,50,000.
8. Trade creditors Rs.5,00,000 were outstanding for more than 5 years and there is no business
relationship with them. The amount was unilaterally transferred to credit of statement of profit and
loss.
9. Royalty income in respect of patents chargeable under section 115BBF Rs.12,00,000.
10. Depreciation eligible under section 32 (before considering adjustment of any of the items described
above) Rs.12,25,000.
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Additional Information :
(a) The assessee executed only one civil construction contract of the value of Rs. 15 lakhs. The contractee
withheld 20% of the contract amount which would be released only after 2 years. The amount
withheld has not been credited to statement of profit and loss.
(b) On 15 May 1,00,000 equity shares of Rs.10 each was issued for Rs. 25 per share. The fair market
value of the shares as per rule 11UA of the Income-tax Rules. 1962 was determined @ Rs. 17 per
share.
(c) During the year, the company advanced Rs. 15,50,000 on 12 November to one of the partnership
firm M/s RFG in which Miss Radha is having 30 % share. The Loan is repaid to the extent of
14,00,000 up to 15 Jan. The company has accumulated profit of Rs. 250 lakhs.
(d) Miss Radha has visited London for personal trip with her friends for 20 days. The expense debited
in her books of accounts is 50,000 which is shown as her personal drawings. However assessing
officer has ascertained that Fair amount of Air ticket is 50,000 and 20 days stay is reasonably 500,000.
You are required to compute the total income, tax liability and dividend tax liability for the year stating
clearly the reasons for treatment for each of the items given above. The company has declared Rs. 1 per
share dividend on 15 Jan. Ignore the provisions of minimum alternate tax.
You are also required to compute the tax liability of Miss Radha.
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C.A. Kalpesh Sanghavi NR / Special Rates of Taxes - P a g e | F53-C . 1
Ritesh, a Non-Resident Indian remitted USD 75,000 to India in 31.1.1992, part of which is utilized for
acquiring 5,000 Shares of Akash Ltd. and Indian Company at Rs. 210 on 15.2.1992. These shares are sold
for Rs. 1,760 per share on 28.3.PY. Ritesh deposited Rs. 50 Lakhs with an Indian Public Company on
1.8.AY (one day after due date of filing return of income).
Compute Capital Gains chargeable to tax on the basis of the following TT Rates (as per State Bank of India)
If the above shares were sold through a Recognized Stock Exchange, what will be tax incidence?
What will be the tax payable by him on the above income under Chapter XII or Chapter XII-A of the Income-
tax Act? Long term capital gains on foreign exchange assets after the application of Prov 1 to 48 shall be
assumed as 20,000.
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The property was acquired partly out of a loan from HDFC. The repayment of loan made during the year
amounted to Rs. 20,000. The assessee also claims deduction of Rs. 10,000 by way of donation to the Prime
Minister’s Relief Fund and of Rs. 50,000 towards repayment of loan taken for higher education in India
before his migration. It shall be assumed that capital gains in (3) above after the exchange fluctuation of Prov
1 to 48 is 82,000.
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C.A. Kalpesh Sanghavi DTAA - P a g e | F54 . 1
DTAA
Questions 3-6 mark types
According to the ADT agreement, Rs. 2,16,000 is taxable in India. However, it can also be taxed in the
foreign country @ 17.5 per cent which can be set off against Indian tax liability.
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C.A. Kalpesh Sanghavi DTAA - P a g e | F54 . 3
Arif, a resident both in India and Malaysia in previous year, owns immovable properties (including
residential house) at Malaysia and India. He has earned income of Rs. 50 lakhs from rubber estates in
Malaysia during the financial year. He also sold some property in Malaysia resulting in short-term capital
gain of Rs. 10 lakhs during the year. Arif has no permanent establishment of business in India. However, he
has derived rental income of Rs. 6 lakhs from property let out in India and he has a house in Lucknow where
he stays during his visit to India. The Article 4 of the double taxation avoidance agreement between India
and Malaysia provides that where an individual is a resident of both the Contracting States, then he shall be
deemed to be resident of the Contracting State in which he has permanent home available to him. If he has
permanent home in both the Contracting States, he shall be deemed to be a resident of the Contracting State
with which his personal and economic relations are closer (centre of vital interests).
You are required to state with reasons whether the business income of Arif arising in Malaysia and the capital
gains in respect of sale of the property situated in Malaysia can be taxed in India. Also explain the relevant
provisions of law.
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C.A. Kalpesh Sanghavi Transfer Pricing - P a g e | F55 . 1
TRANSFER PRICING
Questions 3-6 mark types
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C.A. Kalpesh Sanghavi Advance Ruling - P a g e | F56 . 1
ADVANCE RULING
Question 1 (ID 03) (Revision / Home work)
Designated Authority can determine any issue under the Income-tax Act, 1961 by giving `Advance Ruling'.
Elaborate the meaning assigned to `Advance Ruling' under the aforesaid Act.
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C.A. Kalpesh Sanghavi Advance Ruling - P a g e | F56 . 2
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C.A. Kalpesh Sanghavi NR Shipping and Air Craft - P a g e | F57 . 1
Question 2 (ID 022) (Revision / Home work) (Non Resident Shipping / air crafts 172, 44B, 44BBA)
The assessee was non-resident shippers. During the relevant years, assessments were made under section
172(4) in respect of the fright earnings. On regular assessment under section 172(2) as claimed by the
assessee the Assessing Officer, found that the total income assessed was far less than the earlier assessed
under section 172(4). So he held that assessee’s were entitled to refunds of the excess amount paid by them.
After refunds the assessee’s claimed interest on excess amount which was turned down by the revenue on
the ground that assessment under section 172(4) could not be said to be payment of advance income-tax.
What is your opinion ?
Question 3 (ID 031) (Non Resident Shipping / air crafts 172, 44B, 44BBA)
X (45 years), a non resident, is engaged in the business of shipping. During the previous year, one of the
ships owned by X collects freight as follows:
a) On August 6, a sum of Rs. 40 lakh for shipping goods from Cochin Port (it includes demurrage of Rs.
10,000 and handling charges of Rs. 60,000); and
b) On January 10, a sum of Rs. 25 lakh for shipping goods from Bombay (it is paid to X in New York).
Besides, X collects Rs. 22,70,000 in India on March 31, for shipping goods from Karachi to California.
Barring the cases noted above, X does not have any other income in India. X incurs an expenditure of Rs.
2,40,000 in India (out of which Rs. 65,000 is paid in cash). X has brought forward loss of Rs. 5,000 from a
trading business in India which has discontinued 3 years back. Compute the tax liability of X.
Question 4 (ID 032) (Revision / Home work) (Non Resident Shipping / air crafts 172, 44B, 44BBA)
Discuss the following
X, a non-resident, operates an aircraft between Singapore and Chennai. He received the following amounts
in the course of the business of operation of aircraft during the year.
a) Rs. 2 crore in India on account of carriage of passengers from Chennai.
b) Rs. 1 crore in India on account of carriage of goods from Chennai.
c) Rs. 3 crore in India on account of carriage of passengers from Singapore.
d) Rs. 1 crore in Singapore on account of carriage of passengers from Chennai.
The total expenditure incurred by X for the purposes of the business was Rs. 675 crore.
Compute the income of X chargeable to tax in India under the head “Profits and gains of business or
profession” for the assessment.
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C.A. Kalpesh Sanghavi NR Shipping and Air Craft - P a g e | F57 . 2
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C.A. Kalpesh Sanghavi NR Oil Exploration Business - P a g e | F58 . 1
NR OIL EXPLORATION
Question (ID 033) (Oil Exploration 44BB)
ONGC has agreements (approved by the Government) with the following three foreign companies which
provide services and facilities to ONGC in connection with prospecting for (or extraction / production of)
mineral oils in India-
Find out the taxable income and tax liability of the foreign companies. Discuss whether tax liability borne
by ONGC would be perquisite arising to B Inc. and C Inc. under section 28(iv) and would be taxable
separately in addition to income computed under section 44BB. You are also required to ascertain amount
of taxes to be paid by ONGC for C Inc and offer your comments.
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C.A. Kalpesh Sanghavi Withholding Tax - P a g e | F59 . 1
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C.A. Kalpesh Sanghavi Equilisation Levy - P a g e | F60-A . 1
Equilisation Levy
ABC Ltd. Indian company is carrying on the business of manufacture and sale of teakwood furniture under
the brand name PUREWOOD In order to expand its overseas sales/exports. It launched a massive
advertisement campaign of its products. For the purpose of online advertisement, it utilized the services of
PQR Inc., A London based company During the previous year, ABC Ltd. paid 5 lakhs to PQR Inc. for such
services. Discuss the tax implications of such payment and receipt in the hands of ABC Ltd. and PQR lnc,
respectively, if
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C.A. Kalpesh Sanghavi Black Money Act - P a g e | F60-B . 1
Mr. Ram Resident in India aged 35 years has following foreign assets which have not been disclosed for the
purspose of income tax act. He owns a building in Cayman Islands purchased in 1992 for 65 million US
dollars (exchange rate at time of acquisition $ = Rs 32) and brokerage was paid at time of acquisition @ 2
% to a Irish Broking company. Mr. Ram has one Russian Girlfriend Mrs. Dubari apart from his wife Sita in
India. Mrs. Dubari oftenly comes to cayman islands and spends time with Mr. Ram however Mrs. Dubari
did not like the interior of the Building and thus on her request Mr. Ram Spend 1 million Dollar (exchange
rate at that time $ = 38) on interior of building in 2001. Assessing officer has come to notice of the asset
during the July of previous year. Market value of the Building on 1st April of PY (exchange rate is $=64) is
105 million US dollars and 108 million US dollar on 31st March of PY (exchange rate is $=65). You are
required to discuss the tax treatment of same from BM act point of view.
Mr. Jyotinder resident Aged 42 years is a partrner in a firm registered in British Virgin Islands. Mr. Jyotinder
and Mr. Juntao of China are partners and sharing profit and losses in ratio of 60:40. Mr. Jyotinder has not
disclosed this interest in firm to income tax authorities in India. The balancesheet of firm on 31st March of
PY in Euro Millions is given below. You are required to ascertain tax liablity to be paid by Jyotinder under
BM act.
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C.A. Kalpesh Sanghavi Black Money Act - P a g e | F60-B . 2
Mr. Rajest Aged 42 Resident in India acquired house property at British Virgin Islands located outside India
in 1997 for twenty million USD. It was sold in 2001 for twenty five million USD which were deposited in a
foreign bank account (BA). In 2002 another house property at Caymans Island was bought for thirty million
USD. The investment in property at Caymans Island was made through withdrawal from HSBC bank account
(BA) in Singapore. House at cayman’s islands has not been transferred before the valuation date and its value
on the valuation date is 62 million USD. Assuming that the value of BA as computed under Rule 3(1)(e) is
seventy million USD, find out the fair market value (FMV) of the assets. Exchange rate on 01/04/PY is 70
and on 31/03/PY is 71.
A house property located outside India was acquired by Mr. Thoprani a resident in India during the previous
year 2009-10 for fifty million USD. Out of the investment of fifty million USD, twenty million USD was
assessed to tax in the total income of the previous year 2009-10 and earlier years. Such undisclosed asset
comes to the notice of the Assessing Officer in the previous year. If the value of the asset in the previous
year is 200 million USD, find out the amount chargeable to tax. Exchange rate on 01/04/PY is 70 and on
31/03/PY is 71.
Mr. Imran a Heart Surgeon Resident in India. In the year 2010, he operated on a foreign patient in India. The
NR patient directly deposits Rs. 10 lakhs to the credit of the doctor in a Swiss bank. In the year 2014, Dr.
went abroad and spent away entire amount.You are required to give your answer in light of BM act.
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C.A. Kalpesh Sanghavi Black Money Act - P a g e | F60-B . 3
Mr. Ritesh a resident in India is found to be operating a foreign bank account and following are the details
of his bank account right from it opening it. The bank account has come to the notice of the assessing officer
on 13th July of previous year. The amount represent USD thousands.
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C.A. Kalpesh Sanghavi Black Money Act - P a g e | F60-B . 4
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