MODEL TEST PAPER 6

FINAL COURSE: GROUP - II

PAPER – 4: DIRECT TAX LAWS & INTERNATIONAL TAXATION
Time Allowed – 3 Hours Maximum Marks – 100
Working Notes should form part of the answer. Wherever necessary, suitable
assumptions may be made by the candidates and disclosed by way of a
note. However, in answers to Questions in Division A, working notes are
not required.
All questions relate to Assessment Year 2025-26, unless stated otherwise in
the question.
Division A – Multiple Choice Questions
Write the most appropriate answer to each of the following multiple choice
questions by choosing one of the four options given. All questions are
compulsory.
Case Scenario I
Mr. Rohan is an interior decorator by profession. He also delivers online
lectures on interior decoration via an e-commerce platform – Indeco-Academy.
The relevant information from Mr. Rohan’s Indeco-Academy account is given
hereunder:
Date of Credit of services Date of Payment to Value of Services
to account of Mr. Rohan Mr. Rohan Provided (₹)
31.05.2024 10.06.2024 2,00,000
31.10.2024 10.10.2024 1,50,000
31.03.2025 10.04.2025 1,40,000

In addition to the above, Mr. Rohan received ₹ 20,000 on 18.02.2025 directly

from a student instead of through the Indeco-Academy payment portal. Mr.
Rohan has not furnished his PAN or Aadhar number to Indeco-Academy but
has furnished his driving license for KYC requirements.
On 05.05.2024, Mr. Rohan provided interior decorating services to Mr. Naresh
in Mumbai having business turnover of ₹ 1.2 crores during P.Y. 2023-24 for his
office premises as well as residential premises, the consideration for which was
₹ 40,000 and ₹ 60,000, respectively. Mr. Rohan has provided his PAN details
to Mr. Naresh for invoicing purpose.

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Mr. Rohan’s gross receipts from interior decoration profession (excluding fees
for online lectures) from clients in India (including Mr. Naresh) in total in the P.Y.
2024-25 is ₹ 40 lakhs.
Further, ₹ 1,10,000 is payable by Mr. Rohan to Tumble LLC – a social
networking website having no office in India and ₹ 1,05,000 to Doodle Inc.,
USA, for giving online advertisements for the purpose of attracting foreign
clients. Though Doodle Inc., USA, has an office in India, the said office is
involved in providing designing services and nothing in relation to online
advertisements. Fortunately, Mr. Rohan got one client based in Country A (with
which India does not have a DTAA) from whom he received ₹ 3,50,000 as net
income after deduction of ₹ 50,000 as foreign tax.
Profits of Mr. Rohan computed as per books of account maintained under
section 44AA is ₹ 24 lakhs. He has, however, not got his books of account
audited.
From the information given above, choose the most appropriate answer to the
following questions:
1. Is Indeco-Academy required to deduct tax at source on amount
received/receivable by Mr. Rohan? If so, what is the amount of tax to be
deducted?
(a) No tax is required to be deducted at source
(b) Yes; ₹ 5,100
(c) Yes; ₹ 25,500
(d) Yes; ₹ 510
2. Is Mr. Naresh required to deduct tax at source under section 194J? If so,
what is the amount of tax to be deducted?
(a) No tax is required to be deducted at source u/s 194J
(b) Yes; ₹ 1,000
(c) Yes; ₹ 4,000
(d) Yes; ₹ 10,000
3. Is Mr. Rohan required to deduct equalisation levy on the amounts payable
to Tumble LLC or Doodle Inc.? If so, what is the amount of levy to be
deducted?

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 (a) No; there is no requirement to deduct equalisation levy from the
amount payable to either Tumble LLC or Doodle Inc.
(b) Yes; ₹ 6,600 to be deducted on the amount payable to Tumble LLC;
No deduction is, however, required on the amount payable to Doodle
Inc.
(c) Yes; ₹ 6,300 to be deducted on amount payable to Doodle Inc; No
deduction is required on the amount payable to Tumble LLC.
(d) Yes; ₹ 6,600 to deducted on the amount payable to Tumble LLC and
₹ 6,300 to be deducted on the amount payable to Doodle Inc.
4. What is Mr. Rohan’s gross income-tax liability for the P.Y.2024-25,
assuming that he has opted out of the default tax regime u/s 115BAC?
(a) ₹ 5,70,960
(b) ₹ 4,91,400
(c) ₹ 5,08,560
(d) ₹ 5,53,800 (2 x 4 = 8 Marks)
Case Scenario II
DEF Inc., a company incorporated under the laws of Country A, is engaged in
management consultancy services. It has set up a branch office in India. India
has a DTAA with Country A.
During the F.Y. 2024-25, it earns the following income in India -
(i) Fee for technical services of ₹ 75,00,000 from ABC Ltd., an Indian
company, in pursuance of an agreement made with it and approved by
the Central Government. The tax rate on such income under India-
Country A tax treaty is 20% on gross income. The fee for technical
services is not effectively connected with the branch office in India.
(ii) DEF Inc. incurred expenses of ₹ 3,00,000 in earning such income from
fee for technical services.
(iii) Sale of shares of Bottle Pvt. Ltd., an Indian company, for ₹ 2,60,00,000
on 15th April 2024.
(iv) Other income ₹ 10,00,000
All the above income has been credited to the statement of profit and loss of
the company.

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DEF Inc. had made an investment in 100% equity share capital of Bottle Pvt.
Ltd., purchased for ₹ 1,75,00,000 on 5th November, 2004. The said shares were
purchased out of foreign exchange of USD 3,50,000 brought from outside India.
From the information given above, choose the most appropriate answer to the
following questions:
5. In the context of the provisions of section 115JB, state which of the
following statements is correct –
(a) The provisions of section 115JB do not get attracted in the hands of
DEF Inc., since it is a foreign company.
(b) The provisions of section 115JB do not get attracted in the hands of
DEF Inc., since its entire income from India is subject to tax at a rate
lower than the rate prescribed u/s 115JB.
(c) The provisions of section 115JB are attracted in the hands of DEF
Inc. since it is resident of a country with which India has a DTAA
and the branch office of DEF Inc. constitutes permanent
establishment in terms of such agreement.
(d) The provisions of section 115JB are attracted in the hands of DEF
Inc., since the provisions of section 115JB are applicable to every
company deriving income from India.
6. What is the rate at which fee for technical services received by DEF Inc.
is chargeable to tax in India?
(a) 20.8% on ₹ 75 lakhs
(b) 10.4% on ₹ 72 lakhs
(c) 20% on ₹ 75 lakhs
(d) 41.6% on ₹ 72 lakhs
7. In respect of sale of shares in Bottle Pvt. Ltd., state which of the following
statements is correct -
(a) The transaction of sale of shares in Bottle Pvt. Ltd. is subject to
transfer pricing since DEF Inc. holds more than 26% shares in Bottle
Pvt. Ltd. Hence, sale price of ₹ 2,60,00,000 shall be subject to arm’s
length computation.
(b) Sale of shares in Bottle Pvt. Ltd. shall not be considered as transfer,
since DEF Inc. holds whole of the share capital of Bottle Pvt. Ltd.

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 (c) Capital gains arising on sale of shares shall be taxable @20% with
indexation or 10% without indexation, whichever is beneficial to DEF
Inc.
(d) Capital gains is taxable@10% without benefit of indexation and
foreign currency conversion.
8. Which of the following statements is correct, assuming that the rates
specified in the DTAA are the same as provided under the Act?
(a) Only capital gains has to be reduced while computing book profit of
DEF Inc. for levy of minimum alternate tax.
(b) Only fee for technical services has to be reduced while computing
book profit of DEF Inc. for levy of minimum alternate tax.
(c) Both capital gains and fee for technical services have to be reduced
while computing book profit of DEF Inc. for levy of minimum
alternate tax
(d) Capital gains, fee for technical services and other income have to
be reduced while computing book profit of DEF Inc. for levy of
minimum alternate tax (2 x 4 = 8 Marks)
Case Scenario III
Seva Niketan, a charitable trust registered under section 12AB runs an
educational institution, which is engaged solely in education and a hospital for
treatment of persons suffering from mental disorder solely for philanthropic
purposes. The trust furnished the following information:
(i) The total receipts of the trust for the P.Y. 2024-25 for educational
institution is ₹ 3.10 crores and for the hospital it is ₹ 3.40 crores.
(ii) Voluntary contributions [included in (i) above] received for the
P.Y. 2024-25 from the public amounted to ₹ 105 lakhs. It includes corpus
donations of ₹ 55 lakhs (for purchase of building for the trust) and
anonymous donations of ₹ 20 lakhs.
(iii) During the P.Y. 2024-25, computers purchased for ₹ 80 lakhs out of
- Corpus fund mentioned in (ii) above ₹ 30 lakhs.
- Loan – ₹ 25 lakhs
- Voluntary contributions - ₹ 25 lakhs

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(iv) Corpus donations received during the current year are invested in -
- Post Office Savings Accounts ₹ 10 lakhs
- Canara Bank as Fixed deposits ₹ 5 lakhs
- Non-banking Financial Corporation (NBFC) ₹ 10 lakhs
(v) Deposited ₹ 15 lakhs towards post office savings account which were
utilised for purchase of building during the P.Y. 2020-21 and P.Y. 2021-22
out of corpus fund ₹ 10 lakhs and ₹ 5 lakhs, respectively.
(vi) Amount paid to another trust registered u/s 12AB by way of donation of
₹ 10 lakhs. Out of the said amount ₹ 2 lakhs are given as corpus
donations.
(vii) ₹ 6 lakhs, being the amount set apart in the P.Y.2023-24 by the trust for
charitable purposes u/s 11(2) utilized in the P.Y. 2024-25 for making
donation to another charitable trust, whose object is also education.
From the information given above, choose the most appropriate answer to the
following questions:
9. Seva Niketan wants to avail exemption under section 10(23C)(iiiad) and
10(23C)(iiiae) in respect of educational institution and hospital for the
P.Y. 2024-25. Can it do so?
(a) Yes, it can do so since annual receipts for each activity do not
exceed ₹ 5 crores.
(b) No, it cannot do so since the trust is registered under section 12AB.
(c) No, it cannot do so since aggregate receipts from education and
hospital exceed ₹ 5 crores.
(d) Yes, it can do after seeking the approval from the Commissioner of
Income-tax.
10. What amount of corpus donations received by the trust would not form
part of the total income of the P.Y. 2024-25?
(a) ₹ 25 lakhs
(b) ₹ 40 lakhs
(c) ₹ 15 lakhs
(d) ₹ 55 lakhs

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11. What would be the amount of “specified income” taxable@30% u/s
115BBI for the P.Y. 2024-25?
(a) ₹ 30 lakhs
(b) ₹ 46 lakhs
(c) ₹ 48 lakhs
(d) ₹ 16 lakhs
12. What amount would be considered as application of the trust for the
P.Y.2024-25 (excluding unconditional accumulation of 15%), assuming
that it has fulfilled the relevant conditions stipulated under section 12A?
(a) ₹ 36.8 lakhs
(b) ₹ 25 lakhs
(c) ₹ 38 lakhs
(d) ₹ 30 lakhs (2 x 4 = 8 Marks)
13. A Ltd., an Indian company, borrowed money from B Inc. in Country B, C
Ltd. in Country C, D Inc. in Country D and E Ltd. in Country E, the details
of which are given hereunder-
Lender Amount Interest paid Is it an Associated
borrowed by in the Enterprise of A Ltd.?
A Ltd. P.Y.2024-25
B Inc. ` 15 crores ` 1.50 crores Yes
C Ltd. ` 25 crores ` 2.50 crores No
D Inc. ` 25 crores ` 2.50 crores Yes
E Ltd. ` 15 crores ` 1.50 crores No

B Inc. has provided guarantee of loan taken by A Ltd. from C Ltd. D Inc.
has deposited ` 15 crores with E Ltd. Earnings before Interest, Tax and
Depreciation of A Ltd. for A.Y.2025-26 is ` 10 crores. What is the interest
to be disallowed under section 94B for A.Y.2025-26?
(a) ` 1 crore
(b) ` 3 crores
(c) ` 4 crores
(d) ` 5 crores (2 Marks)

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14. Mr. Anjan, a property dealer, sold a flat in Mumbai, the stamp duty of which
is ` 2 crores for ` 1.80 crores to his friend Mr. Ashwin, a college lecturer.
Mr. Anjan had purchased the flat one year back for ` 1.50 crores and the
stamp duty value on that date was also ` 1.50 crores. What are the tax
implications of such sale?
(a) ` 50 lakhs would be taxable as short-term capital gains in the hands
of Mr. Anjan. There would be no tax implication in the hands of
Mr. Ashwin
(b) ` 50 lakhs would be taxable as business income in the hands of
Mr. Anjan. There would be no tax implication in the hands of
Mr. Ashwin
(c) ` 50 lakhs would be taxable as business income in the hands of Mr.
Anjan and ` 20 lakhs would be taxable as income from other
sources in the hands of Mr. Ashwin
(d) ` 50 lakhs would be taxable as short-term capital gains in the hands
of Mr. Anjan and ` 20 lakhs would be taxable as income from other
sources in the hands of Mr. Ashwin
15. Which of the following individuals would be entitled to opt for presumptive
taxation schemes under the Income-tax Act, 1961 for A.Y.2025-26?
(i) A retail trader having turnover of ` 2 crore during the previous year
2024-25.
(ii) A practicing chartered accountant having gross receipts of ` 92
lakhs during the previous year 2024-25.
(iii) A wholesale trader having turnover of ` 1.96 crore during the
previous year 2024-25.
(iv) A doctor having gross receipts of ` 50 lakhs during the previous
year 2024-25.
(v) An individual owning 8 goods carriages as on 1.4.2024. He sold 2
goods carriages on 1.5.2024 and purchased 4 goods carriages on
1.7.2024.
The correct answer is -
(a) Only (iii)
(b) (iii) & (v)
(c) (i), (iii), (iv) & (v)
(d) (i), (ii), (iii), (iv) & (v) (2 Marks)

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 Division B – Descriptive Questions
Question No.1 is compulsory.
Answer any four questions out of the remaining five questions.
1. Kansal Cements Ltd., a resident company set up in the year 2010 is
engaged in the manufacture of cement. Its Statement of Profit and Loss
(from cement business) for the financial year ended 31st March, 2025
shows a net profit of ` 75 Lakhs after debiting/crediting the following
items:
(i) Depreciation as per the Companies Act, 2013 ` 6 lakhs.
(ii) The assessee company received a dividend of ` 5,00,000 from
Arnold Ltd., a foreign company. It has incurred interest expense of
` 1,50,000 towards borrowed funds for the purpose of investing in
the shares of Arnold Ltd.
(iii) It contributed ` 5,00,000 to the State Housing Board towards
construction of tenements for the company's workers which
constituted 25% of the cost of construction and the assessee could
use these for 15 years. Ownership of such tenements remains with
the State Housing Board.
(iv) A trade creditor whose amount of ` 20 lakhs was outstanding for 10
years, has been settled for ` 15 lakhs on 01.03.2025 based on
compromise settlement. The amount waived has been credited to
the statement of profit and loss.
(v) Upfront discounted interest paid during the year to the debenture-
holders ` 5 lakhs. Debentures were issued for a period of 5 years.
Apart from half yearly periodical interest, debenture holders were
paid one-time upfront discounted interest payment. One fifth of the
interest paid has been debited to the statement of profit and loss.
Additional Information:
A. During the previous year 2024-25, the assessee company started a
business of developing and building rental housing projects eligible
under section 80-IBA. Net profit from such business amounted to
` 20 lakhs during the year. Assessee also earned an income of ` 10
lakhs for constructing a housing project eligible under the above
said section which it executed as a work contract, received from X

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 Constructions Ltd. These projects were approved/ notified during
the F.Y. 2021-22.
B. The assessee company has purchased a land on 01.04.2010 for
` 5 lakhs which was compulsorily acquired by the Government on
31.03.2018. Original compensation awarded ` 10 lakhs was
received on 30.06.2018. The assessee company has filed a suit for
the additional compensation in the High Court and was awarded an
additional compensation of ` 8 lakhs on 31.05.2024.
C. Depreciation as per the Income-tax Act, 1961 ` 4.5 lakhs
D. The assessee company has purchased machinery worth ` 20 lakhs
on May 1, 2021 and insured it against fire, flood, earthquake etc.
The insurance policy contained a reinstatement clause requiring the
insurance company to pay the value of machinery, as on the date of
loss due to fire, flood, earthquake etc. A fire broke out in September,
2024 causing total damage to the machinery. The company
received a sum of ` 22 lakhs from the insurance company on
01.03.2025 (Rate of depreciation is 15% and assume that the
machinery was the only asset in the block)
E. The company declares and distributes a dividend of ` 6,00,000 to
its shareholders on 31.08.2025
Compute the total income and tax liability of Kansal Cements Ltd for the
assessment year 2025-26 under the regular provision by analyzing and
applying the relevant provisions of Income-tax Law, assuming that the
assessee has not opted for any concessional rates under special
provisions of the Income-tax Act, 1961. Briefly explain the reasons for
treatment of each item. Total turnover of the company for the previous
year 2022-23 was ` 450 crores. (14 Marks)
2. (a) Salsy Limited has two units one engaged in manufacture of textile
goods and the other involved in manufacturing of chemicals. As a
restructuring drive, the company sold its chemical unit as a going
concern by way of slump sale for ` 242 lakhs on 01.10.2024.
The balance sheet of Salsy limited as on 01 October 2024, being
the date on which chemical unit has been transferred, is given here
under –

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 Liabilities ` Assets `
Paid up Share 2,50,00,000 Land
Capital
General Reserve 1,35,00,000 Textile Unit 60,00,000
Share Premium 60,00,000 Chemical Unit 70,00,000
Revaluation 20,00,000 Building
reserve
Trade Creditors Textile Unit 90,00,000
Textile Unit 90,00,000 Chemical Unit 70,00,000
Chemical unit 47,00,000 Machinery
Textile Unit 40,00,000
Chemical unit 52,00,000
Investment in
Equity Share
(1,00,000) shares
of ABC Ltd, a
listed company at
` 35 per share
Chemical Unit 35,00,000
Inventories
Textile Unit 82,00,000
Chemical unit 60,00,000
Licenses and
Franchises
Textile Unit 20,00,000
Chemical unit 23,00,000
6,02,00,000 6,02,00,000

The following information have been furnished by the management:

(i) The Chemical unit was established in July, 2020 during the
COVID period.
(ii) Land of Chemical unit includes revaluation reserve of ` 20
lakhs. The Land was purchased at ` 50 lakhs in May 2020 and
revalued at ` 70 lakhs as on October 1, 2024. The stamp duty
value on 01.10.2024 is ` 62 lakhs.
(iii) The Building and Machinery have been shown in the balance
sheet at its written down value as per section 43(6)(c) of the

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 Income-tax Act,1961. The stamp duty value of building of
Chemical unit on 01.10.2024 is ` 72 lakhs.
(iv) License and Franchises were acquired on 01.06.2023 and
shown in the balance sheet at its original purchase price.
(v) Equity shares were acquired by the company through National
stock exchange on 01.04.2022 and value recorded for shares
of ABC Limited as on 01.10.2024 at NSE is ` 42 per share.
You are required to Compute the Taxable capital gain to Salsy
Limited for A.Y.2025-26. (8 Marks)
(b) The net result of the business carried on to a branch of US based
foreign company in India for the year ended 31.03.2025 was a loss
of ` 28 lakhs after charge of the following expenses -
(i) Depreciative for the current financial year of ` 35 lakhs.
(ii) Unabsorbed depreciation for previous financial year of ` 18
lakhs.
(iii) Short term capital loss of ` 1.5 lakhs on sale of shares of an
Indian company received in US.
(iv) Expenditure incurred for payment in respect of voluntary
retirement scheme ` 12 lakhs.
(v) Speculative Business Ioss brought forward for A.Y. 2023-24
of ` 17 lakhs.
(vi) Deductions under Chapter VI-A of 29 ` lakhs.
(vii) Head Office expenses of ` 165 lakhs allocated to the branch.
The assessable adjusted total income of the assessee for the three
immediately preceding assessment years was:
Assessment year ` (in lakhs)
2024-25 600
2023-24 450
2022-23 500

You are required to compute income to be declared by the branch

in its return for the assessment year 2025-26. (6 Marks)

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3. (a) Examine each of the following independent cases of charitable trust/
institutions based on the relevant provisions of the Income-tax Act
and judicial pronouncements for the assessment year 2025-26:
(i) M/s MPL, an electoral trust incorporated on 1st April 2024,
provides following information for the previous year 2024-25.
Total voluntary contributions received ` 600 lakhs. It spends
` 5 lakhs on management of its affairs.
In light of the provisions of section 13B of the Income-tax Act
and rule 17CA notified by the Central Government in this
context, give answer to the following questions.
What is the amount of surplus that can be distributed by the
electoral trust to a registered political party assuming all other
conditions as provided under the Act are satisfied?
What will be your answer if out of the total voluntary
contributions of ` 600 lakhs, ` 100 lakhs received from
individuals who are not citizen of India? (4 Marks)
(ii) Astha Foundation is a not for profit trust that runs a secondary
school and a hospital. The trust had total receipts of ` 1.2
crores from school and ` 4.2 crores from hospital for the
assessment year 2025-26. Con the trust claim exemption
under section 10(23C)(iiiad) and section 10(23c)(iiiae) for
assessment year 2025-26? (2 Marks)
(iii) Care for All Foundation is claiming exemption under section
10(23C)(vi). On 15.11.2024 it gets notified under section
10(46). The foundation intends to know whether it can enjoy
the benefits of both sections in section 10(46) and section
10(23C)(vi) simultaneously. (2 Marks)
(b) Mr. Ashok, aged 66 years, a resident individual furnishes the
following particulars of income earned by him in India and Country
N for the assessment year 2025-26:
(i) Taxable income from a sole proprietary concern in Mumbai
` 8,00,000.
(ii) Income from Country N with which India does not have any
Double Taxation Avoidance Agreement:

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 (A) Business income ` 9,50,000.
(B) Gift in foreign currency from a friend ` 65,000.
(C) Dividend (gross) (taxed in country N) ` 1,40,000.
(D) Brought forward business loss of assessment year
2021-22 in Country N ` 50,000. The domestic tax laws
of Country N do not permit set off of business loss
against any income.
(E) Country N taxed dividend income at the rate of 10% and
all other income at the rate of 20%.
(iii) Mr. Ashok has deposited ` 1,50,000 in Public Provident fund
and paid contribution to approved Pension fund of LIC
` 22,000.
Compute taxable income and net tax liability of Mr. Ashok in India for
assessment year 2025-26. Assume that Mr. Ashok pays tax under
default tax regime provided under section 115BAC(IA). (6 Marks)
4. (a) Discuss the relevant provisions of the Income-tax Act, 1961, with
respect to collection/deduction of tax in the following situations:
(i) Mr. Bhavan, an individual purchased urban land on 12.07.2015
which was compulsory acquired by Maharashtra State
Government on 10.04.2023. The compensation for acquisition
was fixed at ` 2,40,000, which was paid to Mr. Bhuvan on
10.04.2024. Against the order of court, the compensation was
enhanced by ` 50,000 and paid to Mr. Bhuvan on 10.12.2024.
(2 Marks)
(ii) On 1st October, 2024. Mr. Aman makes payment of ` 9,00,000
towards cost of overseas tour programme package to Mr.
Robert, a seller of an overseas tour programme package and
an authorized dealer under the Liberalised Remittance
Scheme of the RBI.
Mr. Aman has not filed his return of income the last two
assessment years i.e., 2024-25 and 2023-24. Mr. Aman has
total TCS of ` 51,000 in A.Y. 2024-25 and ` 60,000 in A.Y.
2023-24 to his credit. Tax is collected and deposited before
due date of filing return of income for both the assessment
years. (3 Marks)

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 (iii) Dream 44 is an online gaming portal. Mr. Z is a user of this
portal and he has a credit balance of ` 10,000 in his user
account with Dream 44 as on 31.03.2024. He deposited
` 1,00,000 from his accumulated savings on 02.04.2024 to
play online games. He earned ` 30,00,000 from online games
during IPL season which started on April 4, 2024 and ended
on May 31, 2024. During the previous year 2024-25, Mr. Z
also earned Referral bonus of ` 50,000 from Dream 44 for
referring new users on 31.03.2025.
Out of the above sum Mr. Z withdrew ` 25,00,000 on
01.02.2025 and kept the balance of ` 6,60,000 in user account
on 31.03.2025 to utilise it in next year online games.
(3 Marks)
(b) Surya Ltd., an Indian Company, is engaged in manufacturing
activities by importing raw material from Sun Inc. of UK. Sun Inc.
has a total loan of 1 million pounds from XYZ Bank of UK. Out of
that, Surya Ltd. guarantees 20% of total borrowings in case of any
default made by Sun Inc.
During the financial year 2024-25, Surya Ltd. imported goods for
` 60 crores from Sun Inc. Sun Inc. supplied similar raw materials to
unrelated parties with a mark-up of 20%, whereas, for Surya Ltd. it
provided a mark-up of 25%. Surya Ltd. was allowed to use the brand
name of Sun Inc., without any payment and whereas the unrelated
parties cannot use such brand name in India. The annual cost of
brand value is ` 100 Lakhs. Surya Ltd. was allowed credit period of
2 months, whereas for the unrelated parties, Sun Inc. allowed only
1 month as credit period. The interest cost may be taken as 12%
per annum and the purchases were uniform throughout the year.
The Assessing Officer referred the matter to Transfer Pricing Officer
(TPO) for determination of Arm Length Price (ALP).
You are required to (i) Compute the ALP and the adjustments to be
made to the income of Surya Ltd. (ii) What is the due date for Surya
Ltd. for furnishing audit report u/s 92E? (iii) What amount of penalty is
leviable on Surya Ltd., if it fails to furnish audit report u/s 92E?
(6 Marks)

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5. (a) Answer any two out of the following three sub-parts viz (i), (ii) and
(iii)
(i) Mr. Balram Kumar, a jeweller was intercepted by Police
personnel with 1 kg of gold ornaments at New Delhi on
17.01.2024. The case was referred to Income Tax
Investigation wing by the Police and the gold ornaments were
seized by the Income Tax Department. The registered valuer
made the valuation of the gold ornaments amounting to
` 65.30 lakhs, to which the assessee did not raise any
objection
During the assessment proceedings, the AO was not satisfied
with the explanation given by the assessee and the AO made
the additions of ` 65.30 lakhs as unexplained jewellery u/s
69A in the hands of Mr. Balram Kumar and applied section
115BBE for applicability of tax alongwith Interest. As a result,
a demand of tax of ` 50.934 lakhs and interest of ` 12.35 lakhs
were created against the assessee,
The assessee filed an appeal before the Commissioner of
Income Tax (Appeals), as per Law. The CIT(Appeals) allowed
the appeal and the addition of ` 65.30 lakhs was deleted by
the CIT being satisfied with the nature and source of the
ornaments found from the assessee.
The jurisdictional CIT contemplates to file an appeal in
December 2024 before the ITAT against the order of
CIT(Appeals). Can Jurisdictional CIT do so? Discuss while
explaining the provisions of Income-tax Act and Rules.
(ii) Due to the nature, complexity and volume of the accounts of
M/s ABC Private Limited, during the assessment proceedings,
the Assessing Officer issued the direction for inventory
valuation under section 142(2A) of the Income-tax Act. The
relevant approval has been taken by the AO and the company
was given an opportunity of being heard as per law. The AO
wants to appoint a Chartered Accountant in practice for the
purpose. The AO fixed the fees for inventory valuation at
` 1,00,000 and asked the CA to raise the bill for valuation
report directly to the company after completion of the
valuation.

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 Is AO justified in doing so? What are the relevant provisions
for Inventory valuation under section 142(2A)? Discuss in
detail.
(iii) M/s SBE Cellular Limited, a domestic company, had entered
into franchisee agreement with various distributors for sale of
its prepaid connections. Under these agreements, they sold
startup kits and recharge vouchers at discounted prices to
distributors, who in turn sold them to customers. The
Assessing Officer while going through the TDS return fled by
the company found that the company had paid commission on
startup kits and recharge vouchers to 10 parties herein called
"Franchisees" and though the company had deducted TDS on
commission and deposited the same during the period from
April 2024 to July 2024, such deduction of tax at source
however wan discontinued by the company treating such
payment to the franchisee not as commission but discount
which was outside the ambit of TDS under section 194H. The
revenue contended that the company should deduct tax under
section 194H on the amounts which, as per Revenue, is a
commission payable to an agent by the company under the
franchise agreement between the company and the
franchisees.
However, as per M/s SBL Cellular Limited, neither are they
paying a commission or brokerage to the
franchisees/distributors, nor the franchisees/distributors are
their agents. In the light of the latest Supreme Court rulings,
discuss whether the contention of Revenue is correct or not?
(2 x 4 = 8 Marks)
(b) (i) What do you understand by Automated Digital Services as per
UN model? List out the services (at least 4) mentioned in
paragraph 6?
(ii) What is meant by Hybrid Mismatch Arrangement? What are
the ways in which hybrid mismatch arrangements are used to
achieve unintended double non-taxation or long-term tax
deferral? (3 + 3 = 6 Marks)

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6. (a) (i) M/s. PQR Waste Management Pvt. Ltd., a domestic company,
engaged in developing, operating and maintaining a solid
waste management system filed its return of income for A.Y.
2024-25 on 30th September, 2025 claiming deduction under
section 80-IA, on the basis of Form 10CCB issued by the
chartered accountant. However, in November 2025, it came
to the notice of the chartered accountant that the ten years
period for which the company had been eligible to claim
deduction had expired in A.Y.2023-24. The chartered
accountant withdrew the audit report in Form 10CCB and
advised the company to file a revised return u/s 139(5). The
company, accordingly, filed a revised return withdrawing the
claim under section 80-IA. The Assessing Officer completed
the assessment on the basis of the revised return and issued
the assessment order.
However, the department concluded that the concerned
chartered accountant had issued Form 100CB without
ensuring that the ten years period had expired or not.
The chartered accountant contended that as soon as he came
to know about the error, he withdrew his report in Form 10CCB
and informed the assesseee accordingly. Further, according
to him, his report in Form 10CCB was neither the subject
matter at the time of assessment nor at the time of penalty
proceedings.
Is his contention correct? Examine the ethical implications in
this case. (6 Marks)
(ii) A. The management of M/s. KKT Private limited, Chennai
planned to acquire 5 JCB machines for business
purposes. The total depreciation on such machines is
around ` 30 lakhs for one year. However, a choice is
made by the management of the company by acquiring
the machines on lease over outright purchase. The lease
rentals are ` 36 lakhs per annum. The company claims
deduction for lease rentals. Would the lease rent
payment, being higher than the depreciation, be
disallowed as expense under GAAR provisions?

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 B. Mr. Dhaval, aged 45 years, is making investment in
Equity shares at recognised stock exchange through
registered broker. During previous year 2024-25, he
made a short term capital gain in Equity shares of
` 10,00,000 till 20.03.2025.
He was holding 1000 Equity shares of SPR Limited
(purchased on 01.01.2025 at ` 500 per share). The
market price of it was ` 200 per share on 31.03.2025.
Mr. Dhaval sold all the shares of SPR Limited on
31.03.2025 and purchased the same quantity of these
shares back on 01.04.2025. He did it so that his short-
term capital gain may reduce by ` 3,00,000 for P.Y.
2024-25.
Is it a tax planning or tax evasion? (4 Marks)
(b) M/s ABC Limited, an Indian company makes an application to Board
of Advance rulings in relation to the tax liability of M/s. Pinicer Inc,
a non-resident arising out of a transaction which is proposed to be
undertaken by ABC Limited with M/s. Pinicer Inc. The value of
transactions entered into between both the parties is ` 250 crores.
What would be the amount of fees to be accompanied with the
application for advance ruling.
What is the remedy available to M/s ABC Limited if it is aggrieved
by the ruling of Board for Advance Rulings? Also, state the time
limit within which it should exercise this remedy. (4 Marks)

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