Case Scenario I (b) Tax is deductible at source u/s 195 by Nice Ltd.

and
hence, interest is payable for non-deduction of TDS
Trio Inc., a company incorporated in Country T, is engaged in
manufacturing of computer hardware parts. It also owns an online (c) Equalization levy of ` 33,000 is deductible by Nice Ltd.
social networking site, Attire. Nice Ltd., an Indian Company, and penalty of `1,000 per day is attracted for non-
imports computer hardware parts from Trio Inc. During the deduction
previous year 2023-24, Nice Ltd. did not import any computer
(d) Equalization levy of ` 33,000 is deductible by Nice Ltd.
hardware parts from Trio Inc. but paid ` 5,50,000 on 24th July,
and penalty of ` 33,000 is attracted for non-deduction
2023 to Trio Inc. for advertising its business on the platform of
Attire. However, Nice Ltd. neither deducted tax at source nor 2. Are Nice Ltd. and Trio Inc. associated enterprises? If so, why?
equalisation levy on such payment. (a) Yes, since loan advanced by Nice Ltd. to Xylo Inc. is
On 1-4-2023, Nice Ltd. advanced a loan of ` 2.5 crores to Xylo not less than 51% of the book value of total assets of
Inc., an Australian company. As on the date of loan, the book Xylo Inc.
value of total assets in the books of Xylo Inc. was ` 4.52 crores. (b) Yes, since not less than 50% of the directors of Xylo Inc.
Out of the ten directors of Xylo Inc., five are appointed by Nice are appointed by Nice Ltd.
Ltd. Xylo Inc. repaid the entire loan along with interest thereon on
31st March, 2024. (c) Yes, due to either (a) or (b) above.

On 9.11.2023, Trio Inc. sold 3,500 equity shares held by it in an (d) No, Nice Ltd. and Xylo Inc. are not associated enterprises,
Indian Company, XYZ Ltd. for ` 102 per share. These shares were since the loan has been repaid before the end of the
bought by Trio Inc. on 15th April, 2011 for ` 36.40 per share. Both previous year i.e., before 31.3.2024.
the purchase and sale of shares were effected through a 3. Compute the amount of long-term capital gains arising to Trio
recognized stock exchange in India and STT is paid on purchase Inc. on transfer of listed shares of XYZ Ltd. What would be the
and sale. Fair Market Value of these shares on 31-01-2018 was tax treatment of such capital gains under the Income-tax Act,
` 90 per share. 1961?
CII for F.Y.2011-12 – 182; F.Y.2023-24 – 348. (a) ` 42,000. The same would be taxable@10% u/s 112A
Nice Ltd. received the draft order from the Assessing Officer as (b) ` 42,000. However, the said amount would not be
per section 144C of the Income-tax Act, 1961 due to variations subject to any tax.
determined by the Transfer Pricing Officer in the arm’s length
price for the A.Y. 2023 -24. However, Nice Ltd. does not prefer to (c) No capital gain would arise, since cost of acquisition
file the objection against the draft order before the Dispute would be
Resolution Panel; Instead, it wants to file an appeal before the ` 102.
CIT (Appeals) under section 246A against the final order received (d) ` 1,13,400; The same would be taxable@20% u/s 112,
from the Assessing Officer. since benefit of concessional rate @10% u/s 112A will not
From the information given above, choose the most appropriate be available to a foreign company
answer of MCQs 1 to 4: 4. Which of the following statements are correct, in relation to
1. In respect of payment made by Nice Ltd. for advertising the remedies available to Nice Ltd. under the Income-tax
services provided by Trio Inc., which of the following Act, 1961, if it is not satisfied with the draft order passed by
statements are correct? the Assessing Officer?

(a) Equalisation levy is not attracted and no penalty (a) It can file an objection before the Dispute Resolution
leviable for non- deduction Panel against the draft assessment order
 (b) It can file an appeal before CIT (Appeals) after getting 6. Is there any tax required to be deducted in respect of order
the final assessment order placed by Mr. Sarthak. If yes, by whom and what amount of
tax needs to be deducted?
(c) Either (a) or (b)
(a) Yes, tax of ` 3,325 is required to be deducted by ONDC
(d) Both (a) and (b)
(b) Yes, tax of ` 3,275 is required to be deducted by ABC
Case Scenario II Marketplace Ltd.
Mr. Bhuvan places bulk order on ABC Marketplace Ltd., an e- (c) Yes, tax of ` 3,325 is required to be deducted by Mr.
commerce operator for buying 100 toasters, a product listed by Sarthak
DEF Seller, a partnership firm. ABC Marketplace acts as Buyer- (d) No tax is required to be deducted as the order value
side ECO for Mr. Bhuvan as well as Seller- does not exceed ` 5,00,000.
side ECO for DEF seller and charges a convenience fee of
`10/toaster to DEF Seller. DEF Seller processes the order and 7. Would your answer to MCQ 5 be different in respect of the
charges the buyer `1170/toaster, including packaging, shipping and order placed by Mr. Bhuvan if it is assumed that DEF seller is
convenience fees. DEF Seller pays XYZ Logistics ` 5/toaster for an Individual and this is the only sales order received on ABC
shipping, MNO retailer ` 15/toaster for packaging and convenience Marketplace Ltd.?
fees of ` 10/toaster. DEF Seller raised invoice of ` 1170 per (a) No, tax of ` 1140 is still required to be deducted by
toaster. ABC Marketplace Ltd.
Mr. Sarthak placed an order for 500 decor wall clocks on Open (b) No, tax of ` 1170 is still required to be deducted by ABC
Network for Digital Commerce (ONDC). These clocks are listed and Marketplace Ltd.
owned by ABC marketplace Ltd. Mr. Sarthak made a payment of `
665/ wall clock on ONDC platform via Paytm. ONDC credited ` 655/ (c) No, tax of ` 1170 is still required to be deducted by DEF
wall clock after deducting its convenience fees to ABC Marketplace Seller
Ltd. The invoice of ` 665/ wall clock include shipping charges of ` (d) Yes, tax is not required to be deducted in this case.
10/ wall clock, packaging cost of ` 15/ wall clock and convenience
fees of ` 10/ wall clock. 8. Assume that Mr. Bhuvan replaced 5 toasters and returned 5
toasters out of 100 toasters, what would be the adjustment of
From the information given above, choose the most appropriate tax deduction in respect of these 10 toasters?
answer of MCQ 5 to 9:
(a) No adjustment is required for tax deducted in respect of
5. Is there any tax required to be deducted in respect of order replaced toasters and the amount of tax deducted on
placed by Mr. Bhuvan. If yes, by whom and what amount of returned toasters would be refunded to DEF seller by
tax needs to be deducted? ABC Marketplace Ltd.
(a) Yes, tax of ` 1140 is required to be deducted by ABC (b) No adjustment is required for tax deducted in respect of
Marketplace Ltd. replaced and returned toasters.
(b) Yes, tax of ` 1170 is required to be deducted by ABC (c) No adjustment is required for tax deducted in respect of
Marketplace Ltd. replaced toasters and the amount of tax deducted on
(c) Yes, tax of ` 1170 is required to be deducted by DEF returned toasters would be adjusted against the next
Seller sale, if any.

(d) No tax is required to be deducted as order value does (d) The amount of tax deducted on replaced and returned
not exceed toasters would be refunded to DEF seller.
` 5,00,000.
9. Assume that ABC Marketplace Ltd. provides a discount of ` 10 would be denied to the trust in respect of entire income for the
each to both Mr. Bhuvan and Mr. Sarthak on sale of toasters P.Y. 2023-24. Is the opinion of the Board of trustees’, correct?
and wall clocks. Is there any tax required to be deducted at (a) No; registration cannot be cancelled, however, the
source? If yes, on what amount tax is deductible? exemption under section 11 would be denied to the trust
(a) Yes; on ` 1,17,000 for sale of toasters and on ` 3,32,500 in respect of entire income of the trust for the P.Y. 2023-
for wall clocks 24.
(b) Yes; on ` 1,16,000 for sale of toasters and on ` (b) Yes, registration can be cancelled, and trust would not
3,22,500 for wall clocks be eligible for exemption under section 11
(c) Yes; on ` 1,17,000 for sale of toasters and on ` (c) No; registration cannot be cancelled, and entire
3,27,500 for wall clocks income is eligible for exemption under section 11.
(d) No tax is required to be deducted as the order value (d) No; registration cannot be cancelled, and the value of
does not exceed ` 5,00,000 in both cases. benefit provided to Mr. Neeraj would be deemed as
10. Dynamic Ltd., an Indian company, took on lease a income of the trust.
commercial premises for its operations. After some years, the 12. Mr. Aviral opened a bank account in Country “R” on
company decided to vacate the premises and relocate to a 1.7.2020. He has
new location. However, disputes arose with the lessor made deposits of foreign currency equivalent to ` 5 lakhs
regarding the terms of vacating the premises. To resolve the on 1.7.2020,
dispute and avoid prolonged litigation, Dynamic Ltd. agreed ` 7 lakhs on 1.10.2020, ` 12 lakhs on 1.9.2022 and ` 25
not to claim the security deposit of ` 3.4 crores it had initially lakhs on 1.3.2024, in that bank, out of Indian income which
paid to the lessor at the start of the lease. Whether the has not been assessed to tax in India. The deposit of ` 12
amount of security deposit foregone by Dynamic Ltd. lakhs on 1.9.2022 is made out of the withdrawal of earlier
allowable as deduction while computing business income? deposits made on 1.7.2020 and 1.10.2020 with the said
(a) Yes, allowable as deduction as such expenditure is of bank. Further, out of ` 25 lakhs deposited by him on
revenue nature and incurred on account of dispute 1.3.2024, Mr. Arvind withdrew ` 2 lakhs on 31.3.2024. The
value of an undisclosed asset in form of bank account under
(b) No, deduction would not be allowed as such expenditure the Black Money (Undisclosed Foreign Income and Assets)
is of capital nature and Imposition of Tax Act, 2015 will be taken as:
(c) Yes, allowable as deduction over the five years period (a) ` 49 lakhs
(d) Yes, allowable as deduction since the amount of (b) ` 47 lakhs
foregone security deposit becomes the income of lessor.
(c) ` 37 lakhs
11. Satya Trust, a public charitable trust registered u/s 12AB of
the Income- tax Act, 1961 runs a hospital for the treatment of (d) ` 35 lakhs
various diseases. Mr. Shaurya, son of Mr. Neeraj, who is the 13. G Ltd., a resident Indian Company, on 01-04-2023 has
founder of this trust, was admitted in the hospital for heart borrowed ` 80 crores from M/s. M Inc, a Company
surgery. He was charged a total fee of incorporated in Country F, at an interest rate of 8% p.a. The
` 3.6 lakhs as against the amount of ` 7.4 lakhs charged by said loan is repayable over a period of 12 years. Further,
the hospital for similar treatment to the general public. The loan is guaranteed by M/s A Inc incorporated in Country
Board of trustees are of the opinion that on account of F. M/s. C Inc, a non-resident, holds shares carrying 40% of
providing this benefit to Mr. Neeraj, the registration of the voting power both in M/s G Ltd. and M/s A Inc. M/s C Inc has
trust can be cancelled, and exemption under section 11 also deposited
 ` 80 crores with M/s M Inc. M Inc.
Interest payable by G Ltd. to M Inc. would be subject to (iv) M/s. C Inc. has deposited ` 80 crores with
limitation of interest deduction because –
M/s. M Inc. The most appropriate answer is -
(i) M/s. C Inc. holds shares carrying 40% voting power in G
Ltd. (a) (i) and (iv) above

(ii) M/s. C Inc. holds shares carrying 40% voting power (b) (ii) and (iii) above
both in G Ltd. and M/s. A Inc. (c) (i) and (iii) above
(iii) M/s. A Inc. guarantees the loan taken by G Ltd. from M/s. (d) Either (a) or (b)
Que Ans Que Ans Que Ans
1 6 11
2 7 12
3 8 13
4 9
5 10
14. M/s Cure Ltd., an Indian company, is engaged in the manufacturing of pharmaceutical
products since 2020. Net profit as per statement of Profit and Loss for the year ended 31 st
March, 2024 was ` 95,45,000 after debiting or crediting the following items:
(a) Paid ` 6,00,000 as expenses for public issue of shares. The public issue could not
materialize on account of non-clearance by SEBI.
(b) Goods purchased of ` 5 lakhs from M/s Sunny Traders (a micro enterprise as per MSMED
Act, 2006) was delivered on 25.02.2024. Payment terms were agreed for 25 days
from the date of delivery as per the contract in writing with Sunny Traders. The
payment was actually made on 29.03.2024. However, no Interest or late payment
charges were agreed upon between the parties in case of delay in payment.
(c) Expense of ` 7,25,000 incurred for providing freebies to medical practitioners.
(d) Depreciation of ` 12,50,000 charged on the basis of useful life of assets.
(e) One-time license fee of ` 10 lakhs paid to a foreign Company for obtaining a
franchise on 17th September, 2023.
(f) The profit from setting up a warehouse in rural area for storage of sugar (before
claiming deduction under section 35AD) is ` 17 lakhs. The warehouse
commenced its operations on 24th November, 2023.
(g) Power subsidy of ` 5,30,500 was received on 12-09-2023 with a stipulation that the
same is to be adjusted in the electricity bills for the financial year 2022-23. The
subsidy received was not included in the income for the year 2022-23.
(h) The company earned ` 4,80,000 of profit from the sale of 3,000 shares of M/s ABC Ltd.,
a listed company. The shares were sold on 08-09-2023 for ` 260 per share. The highest
price of ABC Ltd. quoted on stock exchange as on 31.01.2018 was ` 180 per share.
These shares were purchased for ` 100 per share on 16-08-2015. STT paid both at
the time of purchase and sale.
(i) PNB waived a loan of ` 8,00,000 in a one-time settlement which includes ` 6,00,000
principal amount and ` 2,00,000 of arrear of interest amount. The loan was taken on
12.9.2020 to meet working capital requirement.
The Company furnished the following additional information relating to it:
(i) Company has employed 50 new additional workers during the F.Y. 2023-24 on regular
basis w.e.f. 01.07.2023 at the wages of 23,000 per month per employee. The regular
employees participate in recognized provident fund. Wages to Additional workers were
paid through an account payee cheque.
(ii) The company has invested ` 40 lakhs in the construction of a warehouse (including land
of ` 25 lakhs) in a rural area for the storage of sugar as an additional line of business.
(iii) Depreciation as per the Income-tax Rules, 1962 without considering any adjustments
given above is ` 9,20,000.
(iv) The company's turnover for the financial year 2021-22 was ` 395 crores.
(v) Book Profit of the company for the A.Y. 2024-25 is ` 99.50 lakhs.
Compute the total income of the company and optimum income-tax liability for the
assessment year 2024-25. Your answer must give reasons for treatment of each item given
above and also for the tax liability.
15. XYZ & Co., a partnership firm consisting of three working partners A, B and C and one non-
working partner D, engaged in the business of manufacturing and selling electric kettles.
Following information is furnished for receipts and payments of the previous year 2023-24:
(i) Total turnover 2,80,00,00
0
(ii) Consideration for transfer of plot at New 57,00,000
Delhi [profits on sale is credited to P & L A/c]
(iii) Cash receipts [out of turnover in (i) above] 10,50,000
(iv) Receipts by way of cheque other than A/c 2,00,000
payee cheque [out of turnover in (i) above]
 (v) Amount of sales consideration for plot 16,80,000
received in cash [out of (ii) above]
(vi) Total Payments 1,95,00,00
0
(vii) Cash payments [out of (vi) above] [each 4,50,000
payment does not exceed ` 10,000 except
salary of
` 12,000 p.m. made to a clerk which is
debited to P & L A/c]
Net profit as per the Profit and Loss A/c is ` 8,65,000 after debiting or crediting the
following:
- Interest @ 15% is provided to partner B on his capital of ` 10 lakh as authorized by
the partnership deed.
- ` 60,000 p.m. paid as remuneration to each partner as authorised by partnership
deed.
Additional information
- The firm had brought forward business loss of ` 75,000 of Assessment Year 2020-21.
Till A.Y. 2023-24, the firm gets its books of accounts audited every year.
- The firm acquired plot on 30.4.2019 for ` 12,00,000. Cost Inflation Index for F.Y. 2019-
20 :289; F.Y. 2023-24: 348.
(i) This year firm do not want to get its books of accounts audited. Advise the firm on this
and compute the total income of the firm for the A.Y. 2024-25.
(ii) Compute the total income of the firm for the A.Y. 2024-25 assuming that instead of `
2,00,000, firm received ` 4,00,000 by cheque other than A/c payee cheque.
16. Beta, a Real Estate Investment Trust (REIT), registered under relevant SEBI Regulations,
holds 65% shares in H Ltd. Beta REIT provides the following information about its income for
the F.Y. 2023-24.
(i) Interest income from H Ltd. - ` 12 crores
(ii) Dividend income from H Ltd. - ` 2 crores
(iii) Short-term capital gains on sale of developmental properties -
` 1.2 crore
(iv) Interest received from investments in unlisted debentures of companies - ` 12 lakhs
(v) Rental income from directly owned real estate assets - ` 2 crores
Mr. Arpan, a resident Indian, holds 70% of the units of the REIT. He acquired units in the REIT
at an issue price of ` 1.5 crores. He does not have any other income during the year. During
the P.Y. 2023-24, REIT distributed ` 20 crores to its unit holders.
Compute the total income in the hands of Beta Ltd. and Mr. Arpan.
Note: H Ltd. has opted to pay tax under section 115BAA. Ignore TDS implications.
17. ABC Telecom Ltd. has entered into agreements with various distributors to sell its prepaid
products. According to the agreement, the distributors purchase prepaid products at a
discounted price from ABC Telecom Ltd. and are free to sell these products at any price
below the printed price. The distributors make a profit based on the margin between their
purchase price and the sale price to retailers or consumers. The distributors pay for the
products in advance, irrespective of when they
sell them. ABC Telecom Ltd. does not credit or pay any income to the distributors and is not
involved in the transactions between the distributors and third-party buyers.
Examine whether ABC Telecom Ltd. is obligated to deduct tax at source on the
income/profit component earned by the distributors.
18. The Assessing Officer surveyed a popular Sports Complex by the name "SDX" which is within
his jurisdiction at 9:30 pm in the night for collecting information which may be useful for
the purpose of Income- tax Act, 1961. The concerned Sports Complex is kept open for
business every day between 5 a.m. and 10 p.m. The owner of the Sports Complex claims that
 the A.O. could not enter his business premises after sunset and late in the night. The
Assessing Officer wanted to take away with him the books of account and cash kept at the
premises of the Sports Complex. Examine the validity of the claim made by the owner of
Sports Complex and the proposed action of the Assessing Officer.
19. State with reasons the penalty leviable on each of the three
independent instances:
(1) M/s ABC Trust, an eligible investment fund referred u/s 9A has filed a statement of its
activities for the year ended 31-3-2024 on 31-7-2024.
(2) Meena Caterers has received ` 1 lakh in cash and ` 9 lakh by account payee cheque
from Mr. Arvind for rendering catering services on the occasion of his daughter's
wedding.
(3) The premises of Tip Ltd. was searched and undisclosed income of
` 18 crores was determined. The Company did not admit the undisclosed income in a
statement under section 132(4) but declared the same in a return furnished and paid
the tax with interest thereon.
20.
20. Q 21 of Super 25
21. Peter Inc., is a company incorporated under the laws of USA. The value of its global assets
are ` 50 crores. The value of assets in India are ` 25 crores. Its turnover during the P.Y. 2023-
24 is US $ equivalent to ` 90 crores. Out of 10 board meetings held during the F.Y.2023-24,
only 4 meetings are held in India. The key management and commercial decisions for
conduct of the company’s business as a whole are, however, made by the directors located
in India at the meetings held in India. Your client, Payal Ltd, an Indian company, wishes to
remit an amount towards professional fees to Peter Inc. on which tax is required to be
deducted in India.
Determine the residential status of Peter Inc. for A.Y.2024 -25 under the Income-tax Act,
1961. Advise Payal Ltd as to whether tax on fees for professional services paid to Peter Inc.
has to be deducted under section 194J or section 195.
22.B Ltd. is an Indian Company located in Special Economic Zone (SEZ) in which TQR Inc., a
Country C company is holding 30% shares and voting power. Following transactions were
entered between these two companies during the year 2023-24:
a. B Ltd. sold 90,000 pieces of LED sticks at $ 10 per LED stick to TQR Inc. Identical LED
sticks were sold by B Ltd. to an unrelated party, namely, G Inc. in Country C at $ 12 per
LED stick.
b. B Ltd. borrowed loan of $ 3,50,000 from a Country C lender on the strength of guarantee
given by TQR Inc. and for the purpose of giving guarantee, B Ltd. paid $ 15,000 as
guarantee fee to TQR Inc.
However, for the same amount of loan taken by an unrelated party in India, TQR Inc.
had charged guarantee fees of $ 12,000.
c. B Ltd. paid $ 18,000 to TQR Inc. for getting the details of various potential customers to
improve its business outside India in global market. TQR Inc. provided the same services
and details to an unrelated party in India for $ 16,000.
Examine the relationship of B Ltd. and TQR Inc. of Country C and the nature of various
transactions entered into between them during the year 2023-24.
(i) What are the adjustments, if any, required to be made to the total income of B Ltd.
under transfer pricing provisions. One Country C dollar may be taken as ` 85.
(ii) If the said adjustments are made by the Assessing Officer, can B Ltd. claim
deduction under section 10AA in respect of the enhanced income?
14. Computation of Total Income of M/s Cure Ltd. for the Assessment Year 2024-25
under normal provisions of the Act
Particula ` `
rs
I Profits and gains from
business or profession
Net profit as per statement of 95,45,00
profit & loss 0
Add: Item debited but to
be considered
separately or disallowed
(a) Expenditure for public 6,00,000
issue of shares
[Share issue expenses is a capital
expenditure, even though it could
not go in for public issue on
account of non-clearance by SEBI.
Such expenditure was incurred
only for the purpose of expansion
of the capital base of the
company. Since the same has
been debited to statement of
profit and loss, it has to be added
back]

(b) Payment to micro -

enterprise for purchases
[As per section 43B(h), no
deduction shall be allowed for
any sum payable by an assessee
to a micro or small enterprise
unless such sum is actually paid,
where a due date of payment is
agreed upon in writing, within
such due date, subject to a
maximum of 45 days from the
day of acceptance/ deemed
acceptance. Deduction is allowed
in that previous year in which
such sum is actually paid.
In this case the actual date of
payment is 29.03.2024 i.e. before
31.03.2024. Hence, purchase of `
5 lakhs shall be allowed as
deduction because the payment
was made before 31.03.2024]

(c) Expenses on freebies 7,25,000

to medical
practitioners
[Expenses incurred for providing
freebies to medical practitioners
are an expense which is
prohibited by the law. Any
expenditure incurred for any
purpose which is prohibited by
law is not deemed to have been
incurred for the purpose of
business or profession and hence,
has to be disallowed from
business income]
(d) Depreciation on the basis 12,50,000
of useful life of assets
(e) One-time license fee 10,00,000 35,75,000
[Franchise is in the nature of an
intangible asset eligible for
depreciation @25%. Since one-
time license fees of ` 10 lakhs
paid to a foreign company for
obtaining franchise has been
debited to statement of profit
and loss, the same has to be
added back]
1,31,20,000
Less: Items credited but to be
considered separately/
permissible expenditures and
allowances
(f) Profit from setting of 17,00,00
warehouse in rural area for 0
storage of sugar

[Since it is a specified business,

its profits would be computed
separately]
(g) Power subsidy received -
from the Central Government
[As per ICDS VII, Government
grant (subsidy) which is
receivable as compensation for
expenses or losses incurred in a
previous financial year shall be
recognized as income of the
period in which it is received. It
would be taxable in P.Y. 2023-24
as the subsidy is received in P.Y.
2023-24. Since such subsidy has
been credited to statement of
profit and loss, no further
adjustment is required]

(h) Profit from sale of shares 4,80,000

of M/s ABC Ltd.
[Capital gain on sale of shares of
ABC Ltd. is liable to tax under the
head “Capital Gains”. Since the
profit on sale of shares has been
credited to the statement of
profit & loss, the same has to be
deducted while computing
business income]
(i) Waiver of principal on bank -
loan
[Waiver of principal amount of
loan taken for working capital
requirement is a benefit in
respect of a trading liability by
way of remission or cessation
thereof and is, hence, taxable
u/s 41(I). Since the principal
amount has already been credited
to statement of profit and loss, no
adjustment is required]
(i) Waiver of interest on 2,00,000
bank loan
[As per section 43B, since the
interest is allowable only on
actual payment, deduction in
respect of interest due loan would
not have been allowed as
deduction in any previous year.
Therefore, waiver of such interest
cannot be brought to tax by
invoking section 41(1). Since such
interest has been credited to
statement of profit and loss, the
same has to be deducted while
computing business income].

AI(iii) Depreciation as per

Income- tax Rules, 1962
- On Franchise 2,50,000 35,50,00
Fee [` 10 lakhs 0
x 25%]
- On other assets 9,20,000 11,70,000
Profits & Gains from 95,70,000
manufacture of
pharmaceutical products
Profits & gains from setting
of warehouse in rural area
for storage of sugar

Net profit before deduction 17,00,000

u/s 35AD
Less: Deduction u/s 35AD [100% 15,00,000 2,00,000
deduction u/s 35AD in respect
of cost of warehouse (` 40 lakhs –
` 25 lakhs, being cost of land, not
allowable)]

97,70,000
 II Income from Capital Gains
Long-term capital gains on sale
of shares M/s ABC Ltd. [Since
shares were held for more than
12 months]
Full Value of consideration (3000 7,80,000
shares X ` 260)
Less: Cost of acquisitions 5,40,000 2,40,000
[higher of
(i) and (ii)]
(i) Actual cost of acquisition
(3000 X ` 100) `
3,00,000
(ii) Being lower of fair
market value as at
31.01.2018 (i.e.
` 5,40,000 being
3000 x
` 180) and sale
consideration (i.e. `
7,80,000)
Gross Total Income 1,00,10,000
Less: Deduction under Chapter VI-A
Under Section 80JJAA (` 23,000 x 9 x 31,05,000
50)
x 30%
Total Income 69,05,000

Computation of tax liability for the A.Y. 2024-25 under normal

provisions of the Act
Particulars `
Tax on Long-term capital gains u/s 112A 14,000
= 10% of (` 2,40,000 – 1,00,000)
Tax on remaining income of ` 66,65,000 @25% 16,66,250
[Since turnover during F.Y. 2021-22 is less than `
400 crores
16,80,250
Add: Health & education cess 67,210
@4%
17,47,460

Computation of tax liability of M/s Cure Ltd. for the A.Y. 2024 -25 under
section 115JB
Particula `
rs
Minimum Alternate Tax @15% on book profit of 14,92,500
` 99,50,000
Add: Health and Education cess@4% 59,700
Tax liability under section 115JB 15,52,200

Computation of Total Income of M/s Cure Ltd. for the Assessment Year 2024-25
under section 115BAA
 Particula `
rs
Total Income under regular provisions of the 69,05,00
Act 0
Add: Deduction u/s 35AD 15,00,000
84,05,000
Less: Depreciation @10% on warehouse building 1,50,000
Total Income under section 115BAA 82,55,00
0
Tax liability
Tax on Long-term capital gains u/s 112A 14,000
= 10% of (` 2,40,000 – 1,00,000)
Tax on remaining income of ` 80,15,000 @22% 17,63,300
17,77,300
Add: Surcharge @10% 1,77,730
19,55,030
Add: Health & education cess @4% 78,201
Tax liability 20,33,23
1
Tax liability (Rounded off) 20,33,23
0
Suggestion to M/s Cure Ltd.
Since the tax liability under the regular provisions of the Act is
` 17,47,460, which is higher than MAT liability vis-à-vis tax liability of
` 20,33,230 computed under section 115BAA, it is not beneficial for Cure
Ltd. to opt for the special provisions under section 115BAA for A.Y. 2024-25.
15. (i) As per section 44AD, a resident individual, HUF or Partnership firm (but not LLP)
engaged in eligible business and who has not claimed deduction under section 10AA
or Chapter VIA under “C – deductions in respect of certain incomes” is an eligible
assessee. Eligible business means whose total turnover/ gross receipts in the
P.Y. ≤ ` 200 lakhs or >` 200 lakhs but ≤ ` 300 lakhs, if its cash receipts do not exceed
5% of total turnover/gross receipts. Such eligible assessee can declare 8%/6%, as the
case may be, of total turnover/ sales/ gross receipts or a sum higher than the aforesaid
sum claimed to have been earned by the assessee, as its business income.
In this case, XYZ & Co., a partnership firm, can declare profits as per the presumptive
provisions of section 44AD, since the percentage of receipts in cash of ` 12.50 lakhs to
the total turnover/gross receipts of ` 280 lakhs is 4.46%. In such a case, it is not
required to get its books of account audited under section 44AB.
Computation of total income of XYZ & Co. for the A.Y. 2024-25
Particulars ` `
Profits and Gains of
business or
profession
Presumptive income under section 17,05,000
44AD [` 16,05,000, being 6% of
` 2,67,50,000 (excluding cash
receipts
and amount received by cheque
other
than A/c payee cheque and `
1,00,000,
being 8% of ` 12,50,000] [See
Note 1]
Less: Brought forward business
loss
under section 72 [See Note 2] 75,000
16,30,00
0
 Capital Gains
Sale consideration 57,00,00
0
Less: Indexed cost of 14,44,98
acquisition [` 12,00,000 x 3 42,55,01
348/289] 7
Long-term capital gains, since plot
is held for more than 24 months
Gross Total Income/ Total 58,85,017
Income
Gross Total Income/ Total 58,85,020
Income (Rounded off)

Notes:
(1) Interest on capital and working partner salary are not deductible while computing
the presumptive income of a partnership firm under section 44AD.
(2) Brought forward business loss of assessment year 2020-21 can be set-off against
current year business income as per section 72.
(ii) In case, XYZ & Co. received ` 4,00,000 instead of ` 2,00,000 by cheque other than A/c
payee cheque it cannot declare profits as per the presumptive provisions of section
44AD, since the percentage of cash receipts of ` 14.50 lakhs to the total turnover/gross
receipts of ` 280 lakhs is 5.17%.
As per section 44AB, every person carrying on business or profession is required to get
his accounts audited before the “specified date”, if the total sales, turnover or gross
receipts in business exceeds ` 1 crore in any previous year.
However, tax audit is not required in case of such person carrying on business whose
total sales, turnover or gross receipts in business ≤ ` 10 crore in the relevant
previous year (P.Y.), if -
- aggregate cash receipts including amount received for sales, turnover, gross
receipts in the relevant previous year ≤ 5% of such receipts; and
- aggregate cash payments including amount incurred for
expenditure in the relevant P.Y. ≤ 5% of such payments or
In this case, the turnover of XYZ & Co. exceeds ` 1 crore but does not exceed ` 10
crore. Accordingly, percentage of cash receipts to aggregate receipts and percentage of
cash payments to aggregate payments need to be checked.
The percentage of cash receipts of ` 31.30 lakhs [` 16,80,000 +
` 10,50,000 + ` 4,00,000] to aggregate receipts of ` 337 lakhs is 9.287% and the
percentage of cash payments of ` 4,50,000 to aggregate payments of ` 1,95,00,000 is
2.308%.
Since the cash receipts made during the year exceed 5% of aggregate receipts, the
firm is required to get its accounts audited under section 44AB.
Computation of total income of XYZ & Co. for the A.Y. 2024 -25
Particula ` `
rs
Net profit as per profit & loss 8,65,000
account
Add: Interest paid to partner B 30,000
allowable to the extent of 12%.
Thus, excess interest of ` 30,000
[3% of ` 10 lakhs] would be
disallowed.
Salary paid to working 28,80,000
 partners considered
separately.
Salary to clerk would be 1,44,000
disallowed as per section 40A(3),
since payment exceeding ` 10,000
made in cash [` 12,000 x 12]
39,19,000
Less: Profit on sale of land 45,00,000
[Taxable under the head
“Capital Gains”]
Book Profits/loss (5,81,000)
Less: Salary to working partners -
(i) As per section 1,50,000
40(b) in case
of loss, limit is
(ii) Salary actually 21,60,000
paid only
to 1,50,00
working 0
partners
Deduction
allowed being
(i) or (ii),
whichever is
less
Business Loss (It can be set- 7,31,000
off against long-term capital gains
Brought forward business loss
relating to A.Y. 2020-21 of `
75,000 will be carried forward to
the subsequent year
Capital Gains
Sale consideration 57,00,000 35,24,01
7
Less: Indexed cost of 14,44,983
acquisition [` 12,00,000 x
348/289]
Long-term capital gains, since plot 42,55,017
is held for more than 24 months
Less: Current year business loss (7,31,000
Gross Total Income/ Total ) 35,24,017
Income
Gross Total Income/ Total 35,24,020
Income (Rounded off)

16. Computation of total income in the hands of Beta, REIT and Mr. Arpan (unit-
holder)
Particula Beta Mr.
rs (REIT) Arpan
(Unit-
holder)
(i) Interest income of ` 12 Nil 8,40,00,00
crores from H Ltd. (SPV) 0
Interest income from SPV would
be

exempt in the hands of REIT by

virtue of section 10(23FC)(a).
The component of such interest
income distributed to unit holders
would be deemed as income of
the unit holders as per section
115UA(3). Accordingly, ` 8.4
crores being 70% of ` 12 crores
is taxable in the hands of the
unitholder Mr. Arpan.
(ii) Dividend income of ` 2 Nil 1,40,00,000
crores from H Ltd. (SPV)
The dividend distributed by the
SPV to the REIT is exempt in the
hands of REIT by virtue of section
10(23FC)(b). The component of
such dividend income distributed
to unitholders is taxable in the
hands of unitholders by virtue of
the exception contained in
section 10(23FD), since H Ltd.
(SPV) has exercised the option
u/s 115BAA. Accordingly, ` 1.40
crore, being 70% of ` 2 crores,
would be taxable in the
hands of the unitholder Mr. Arpan.
(iii) Short-term capital 1,20,00,000 Nil
gains of
` 1.2 crore on sale of
developmental properties
STCG on sale of development
properties is taxable at maximum
marginal rate in the hands of the
REIT as per section 115UA(2).
There would be no tax liability in
the hands of the unit holders on
the capital gain component of
income distributed to them by
virtue of exemption contained in
section 10(23FD).

(iv) Interest of ` 12 lakh 12,00,000 Nil

received in respect of
investment in unlisted
debentures of companies
Such interest is taxable at
maximum marginal rate in the
hands of the REIT as per section
115UA(2).
There would be no tax liability in
the hands of the unit holders on
the interest component of income
distributed to them by virtue of
section 10(23FD).
(v) Rental income of ` 2 Nil 1,40,00,000
 crores from directly owned
real estate assets
Income by way of renting or
leasing or letting out any real
estate asset owned directly by
REIT is exempt in the hands of
the REIT as per section
10(23FCA).
However, the component of such
rental income distributed to
unitholders is deemed as income
of the unit holders as per section
115UA(3). Accordingly, ` 1.4
crores, being 70% of ` 2 crores
would be taxable in the hands of
Mr. Arpan.
(vi) Otherincome distributed - 37,60,000
to unitholders
As per section 115UA(3A), any
sum other than interest and
dividend received from SPV,
rental income and income which
are chargeable to tax in the
hands of REIT, in the present
case it is STCG on sale of
developmental properties and
interest on unlisted
debentures, would be
chargeable to

tax under section 56(2)(xii) in

the hands of unitholders as
income from other sources. In
the present case,
` 37,60,000 [` 1.876, being
70% of
` 2.68 [` 20 crores – ` 17.32 (` 12
crores + ` 2 crores + ` 1.2
crores +
` 12 lakhs + ` 2 crores)] Less `
1.5 crores, being the issue price of 1,32,00,00 11,57,60,0
units held by Mr. Arpan} would 0 00
be taxable as Income from other
sources.
Total income
16. The same issue came up before the Supreme Court in the case of Bharti Cellular Ltd. vs. ACIT
[2024] 462 ITR 247, wherein the Apex Court noted that the obligation to deduct tax at
source in terms of section 194H arises when the legal relationship of principal and agent is
established. Agency is a triangular relationship between the principal, agent and the third
party. The legal position of a distributor is generally regarded as different from that of an
agent. Based on perusal of agreement between assessee and distributors / franchisee, the
franchisee/distributor paid the discounted price regardless of, and even before, the pre-paid
products being sold and transferred to the retailers or the actual consumer. The
franchisee/distributor was free to sell the prepaid products at any price below the price
printed on the pack. The franchisee/distributor determined his profits/income.
Section 194H fixes the liability to deduct tax at source on the 'person responsible to pay' and
the liability to deduct tax at source arises when the income is credited or paid by the
person responsible for paying. The expression "direct or indirect" used in Explanation (i) to
section 194H is meant to ensure that "the person responsible for paying" does not dodge
the obligation to deduct tax at source, even when the payment is indirectly made by the
principal-payer to the agent-payee. However, deduction of tax at source in terms of section
194H is not to be extended and widened in ambit to apply to true/genuine business
transactions, where the assessee is not the person responsible for paying or crediting
income. In the present case, the ABC Telecom Ltd., being an
 assessee neither pays nor credit any income to the person with whom he has contracted.
ABC Telecom Ltd. is not privy to the transactions between distributors/franchisees and third
parties. It is, therefore, impossible for ABC Telecom Ltd. to deduct tax at source and comply
with section 194H, on the difference between the total/sum consideration received by the
distributors/franchisees from third parties and the amount paid by the
distributors/franchisees to them. In the present case, the contractual obligations of the
franchises or distributors did not reflect a fiduciary character of the relationship, or the
business being done on the principal’s account.
Applying the rationale of the Apex Court ruling in the case on hand, section 194H is not
applicable in the hands of ABC Telecom Ltd. and it would not be under a legal obligation to
deduct tax at source on the income/profit component in the payments received by the
distributors/franchisees from the third parties/customers.
17. The Assessing Officer can exercise his power of survey under section 133A only after
obtaining the approval of the Principal Director General or the Director General or the
Principal Chief Commissioner or the Chief Commissioner.
Assuming that he has obtained such approval in this case, he is empowered under section
133A to enter any place of business of the assessee within his jurisdiction only during the
hours at which such place is open for the conduct of business.
In the case given, the “SDX” a popular Sports Complex is open from 5.00
a.m. to 10.00 p.m. for the conduct of business. The Assessing Officer entered the Sports
Complex at 9:30 pm in the night which falls within the working hours of the Sports
Complex.
Therefore, the claim made by the owner to the effect that the Assessing Officer could not
enter the Sports Complex at night is not valid.
Further, as per section 133A(3)(ia), the Assessing Officer may, impound and retain in his
custody for such period as he thinks fit, any books of account or other documents inspected
by him after recording reasons for doing so. However, the Assessing Officer cannot
remove cash kept atthe sports complex. Moreover, he shall not retain any books of
account or other documents in his custody for a period exceeding 15 days (excluding
holidays) without obtaining the approval of the Principal Chief Commissioner or Chief
Commissioner or Principal Director General or Director General or the Principal
Commissioner or Commissioner or Principal Director or Director, as the case may be.
19. (1) An eligible investment fund, in respect of its activities in a financial year, is required to
furnish within 90 days from the end of the financial year (i.e., by 29th of June), a
statement of its activities to the prescribed Income-tax authority under section 9A(5).
In the present case, M/s ABC Trust, an eligible investment fund has furnished its
statement of its activities on 31.7.2024, i.e., after 29th June 2024, being the due date of
furnishing such statement, accordingly penalty of ` 5,00,000 would be attracted under
section 271FAB.
(2) No penalty would be leviable on Meena caterers under section 271DA, since it received
only ` 1 lakh in cash, (which is less than the permissible threshold of ` 2 lakhs) in
respect of transactions relating to rendering of catering services on the occasion
of Mr. Arvind’s daughter marriage from Mr. Arvind. The balance ` 9 lakh was paid by
way of account payee cheque which is a permissible mode of payment.
(3) As per section 271AAB(1A), penalty @60% of undisclosed income would be attracted,
since Tip Ltd. had not admitted the undisclosed income in a statement under section
132(4) though declared the same in a return furnished and paid the tax with interest
thereon.
20. Q 21 of Super 25
21. In the given case, Peter Inc. is a company incorporated under the laws of USA and hence, it is
a foreign company under the Income-tax Act, 1961. However, the said company shall
be considered to be resident in India if its place of effective management is in India. In
this case, the company does not satisfy the active business outside India test since 50%
of its assets are located in India. Since it has failed the active business test outside
India on account of 50% of its assets being located in India, the persons who take key
management and commercial decisions for conduct of the company’s business as a
 whole and the place where the decisions are made are the key factors in determining
whether the POEM of the company is in India. The facts of the case clearly state that
the key management decisions and commercial decisions for conduct of the company’s
business as a whole are made by the directors located in India and at the meetings
held in India. Therefore, the POEM of Peter Inc. is in India in the P.Y.2023-24,
irrespective of the fact that majority of the board meetings are held outside India.
Section 194J applies when professional fees are being paid to a resident, whereas section 195
applies when payments are made to a non- corporate non-resident or a foreign company.
Section 194J is income specific and section 195 is payee specific. CBDT vide Notification No.
29/2018 dated 22nd June 2018 has clarified that the foreign company shall continue to be
treated as a foreign company even if it is said to be resident in India on account of its POEM
being in India, and all the provisions of the Act shall apply accordingly. Where more than one
provision of Chapter XVII-B of the Act applies to the foreign company as resident as well as a
foreign company, the provision applicable to the foreign company alone shall apply. Further,
in case of conflict between the provision applicable to the foreign company as resident and
the provision applicable to it as foreign company, the latter shall generally prevail. Hence,
Payal Ltd shall deduct tax under section 195 while making payment of fees for
professional services to Peter Inc., a foreign company resident in India.
22. B Ltd, the Indian company and TQR Inc., the Country C company are deemed to be associated
enterprises as per section 92A(2)(a), since TQR Inc. holds shares carrying 30% of voting
power (which is not less than 26% of the voting power) in B Ltd.
As per Explanation to section 92B, the transactions entered into between two associated or
deemed associated enterprises for sale of product, lending or guarantee and provision of
services relating to market research are included within the meaning of “international
transaction”.
Accordingly, transfer pricing provisions would be attracted and the income arising from
such international transactions have to be computed having regard to the arm’s length
price.
(i) In this case, from the information given, the arm’s length price has to be determined
by taking the comparable uncontrolled price (CUP) method to be the most appropriate
method.
Particula ` in
rs lakhs
Amount by which total income of B
Ltd. is
enhanced on account of adjustment in the
value of
international transactions:
(i) Difference in price of LED stick @ $ 2 153.00
each
for 90,000 pieces sold to TQR Inc. [$ 2
($ 12 -
$ 10) x 90,000 x ` 85)
(ii) Difference for excess payment of 2.55
guarantee fee to TQR Inc. for loan
borrowed from foreign lender [$ 3,000
($ 15,000 - $ 12,000) x
` 85]
(iii) Difference for excess payment for
services to TQR Inc. [$ 2,000 ($ 18,000 - 1.70
$ 16,000) x ` 85]
157.25

(ii) B Ltd. cannot claim deduction under section 10AA in respect of

` 157.25 lakhs, being the amount of income by which the total income is enhanced by
virtue of the first proviso to section 92C(4), since the adjustments are made by the
Assessing Officer to determine the arm’s length price.