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CA FINAL (May 2024)

GROUP II – PAPER 4
DIRECT TAX LAWS & INTERNATIONAL TAXATION
SUGGESTED ANSWERS
(Series 1)

PART – I (MCQs)

MCQ – 2 marks each

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.
D B D A C D C A B C A B A D B

PART – II (Descriptive Answers)

1 Computation of total Income and tax liability of SF Ltd. u/s 115BAA

Particulars Amount (in ₹)
Profits and gains of business and profession
Net profit as per Statement of profit and loss 9,30,00,000
Add: Stock valuation adjustments
Overvaluation of opening stock [₹ 66,00,000 x 10/110] 6,00,000
Undervaluation of closing stock [₹ 63,00,000 x 10/90] 7,00,000
Add: Items debited but to be considered
separately/disallowed
Payment towards know-how for a product 65,00,000
[Payment towards obtaining know-how is capital expenditure
i.e., an intangible asset and eligible for depreciation. Since the
same is debited in statement of profit and loss, it has to be
added back]
Electricity charges unpaid upto the due of filing return of -
income
[Electricity charges are not included within the scope of
section 43B, therefore no disallowance would be attracted.
Since the same is already debited in statement of profit and
loss, no further adjustment is required]
Loss due to hedging contract in respect of raw material -
[Loss due to hedging contract against future price fluctuations
in respect of import of raw material for manufacturing is not
deemed to be speculative transaction. Hence, the same is
chargeable to tax as business income under section 28(va).
Since the same is already credited in statement of profit and
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loss, no further adjustment is required]
Advance forfeited in respect of sale of land 22,00,000
[With effect from A.Y.2015-16, advance forfeited in respect of
sale of land due to non- receipt of balance amount of
consideration would be taxable under the head “Income from
other sources”. Since the same has been credited to the
statement of profit and loss, the same has to be deducted
while computing business income]
Profit on sale of unlisted shares 18,00,000 48,17,000
[Profit on sale of unlisted shares is taxable under the head
“Capital Gains”. Since profits have been credited to the
statement of profit and loss, the same has to be deducted
while computing business income]
10,24,83,000
Less: Depreciation as per Income-tax Act, 1961 [other 35,00,000
than imported plant & machinery and know-how]
Deprecation on:
Plant & Machinery imported 70,00,000
Add: Loss on hedging contract 2,00,000
72,00,000
- Normal depreciation @7.5% of ₹ 72,00,000 [only 50% of 5,40,000
the 15% allowable since machinery is put to use for less
than 180 days]
- Additional depreciation not allowable, since company is -
opting for section 115BAA
Know-how @ 12.5% of ₹ 65,00,000 [50% of 25% since know
how was obtained on 15th October 2023, which is used for less 8,12,500 48,52,500
than 180 days]
9,76,30,500
Capital Gains
Long term capital gain on sale of unlisted shares
[Since shares were held for more than 24 months]
Full value of consideration [₹ 18,00,000 + ₹ 98,00,000
80,00,000]
Less: Indexed cost of acquisition [80,00,000 x 92,49,169 5,50,831
348/301]
Long term capital gain on sale of listed shares of M/s. MS
Ltd. [Since shares were held for more than 12 months]
Full value of consideration (2,200 x ₹ 220) 4,84,000
Less: Cost of acquisition [Higher of (i) and (ii) 4,29,000 55,000 6,05,831
below]
(i) Actual cost of acquisition ₹ 1,87,000(2,200 x ₹ 85)
(ii) ₹ 4,29,000, being lower of fair market value as on
31.1.2018 (i.e., ₹ 4,29,000, being 2,200 x 195) and
sale consideration (i.e., ₹ 4,84,000)
Income from Other Sources

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 Advance forfeited on sale of land 22,00,000
Dividend from foreign company 5,20,000 27,20,000
Gross Total Income 10,09,56,331
Less: Deduction under section 80JJAA [Deduction under 11,70,000
section 80JJAA is allowable though company is opting for
concessional tax rate under section 115BAA. For computation
of amount, see working note below]
Total income 9,97,86,331
Total income (rounded off) 9,97,86,330
Computation of tax liability of SF Ltd. for the A.Y. 2024-25 u/s 115BAA
Particulars ₹
Tax on long-term capital gains u/s 112A would be nil, since such gain does Nil
not exceed ₹ 1 lakh
Tax on long term capital gain @20% under section 112 on unlisted shares 1,10,166
[₹ 5,50,831 x 20%]
Tax on remaining income including dividend received from foreign
company @22% remaining income is ₹ 9,91,80,500 [₹ 9,97,86,331 – ₹
55,000 – ₹ 5,50,831] 2,18,19,710
2,19,29,876
Add: Surcharge@10% 21,92,988
2,41,22,864
Add: Health and education cess@4% 9,64,915
Tax liability 2,50,87,779
Tax liability (rounded Off) 2,50,87,780

Working Note - Computation of deduction u/s 80JJAA

No of eligible additional employees [59 (-) 18 (-) 5 = 36] 36
[18 employees who joined on 1.7.2023 do not qualify as “additional
employees” since their monthly emoluments exceed ₹ 25,000 and 5
employees who joined on 1.11.2023 also do not qualify as additional
employees, since they have not employed for more than 240 days during the
P.Y.2023-24]. In respect of these 5 employees deduction in respect of their
additional employee cost would eligible for deduction in subsequent
previous year.
Additional employee cost means the total emoluments paid or payable to
additional employees employed during the P.Y.2023-24. However, the
additional employee cost in respect of 10 employees who joined on 1.6.2023,
whose salary is paid by bearer cheque would be Nil.
Additional employee cost
[₹ 15,000 x 26 employees (36 - 10) x 10 months] = ₹ 39,00,000 ₹ 39,00,000
Eligible deduction = 30% of ₹ 39,00,000 ₹ 11,70,000

2 (a) Computation of total income and tax liability of M/s ABC LLP (under the regular
provisions of the Income-tax Act, 1961)

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 Particulars (₹ in lakhs) (₹ in lakhs)
Profits and gains of business or profession 250.00
Add: Items debited but to be considered separately or
to be disallowed
- Depreciation 20.00
- Remuneration to its working partners 200.00
- Interest provided on current account balance of 15.00
partners@15% p.a. (Interest on current account would be
fully disallowed since the same is not authorized by the
partnership deed)
- Advertisement in a souvenir published by a political party
[not allowed as deduction as per section 37(2B)] 2.00 237.00
487.00
Less: Permissible expenditure and allowances
- Depreciation allowable as per Income-tax Rules, 1962 25.00
- Unabsorbed depreciation under section 32(2) [allowable
as deduction while computing book profit as per 30.00 55.00
Explanation 3 to section 40(b)]
Book Profit 432.00
On first ₹ 3 lakh of book profit [₹ 3,00,000 × 90%] 2.70
On balance ₹ 429 lakh of book profit [₹ 429 × 60%] 257.40
260.10
Remuneration actually paid of ₹ 200 lacs is fully allowable
as deduction, since it is lower than the specified limit 200.00
Business Income 232.00
Less: Brought forward business loss for A.Y. 2023-24 50.00
Gross Total Income 182.00
Less: Deduction under section 10AA [See Note (1)] 182.00
Profit from SEZ unit x Export Turnover/Total Turnover x
100%
= ₹ 232 lakhs x 25/25 x 100% (since it is the fifth year of
operation) = ₹232 lakhs, restricted to gross total income
Less: Deduction under section 80GGC -
[Expenditure on advertisement in a souvenir published by a
political party not allowable as deduction since it is
included within the meaning of the term “contribution” only
for the purpose of deduction u/s 80GGB in case of a
company.]
Total Income Nil
Tax liability (since total income is Nil) Nil

Computation of adjusted total income of M/s ABC LLP for levy of Alternate Minimum
Tax
Particulars (₹ in lakhs)
Total Income (as computed above) Nil

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 Add: Deduction under section 10AA 182.00
Adjusted Total Income 182.00
Alternate Minimum Tax@18.5% 33.6700
Add: Surcharge@12% (since adjusted total income > ₹ 1 crore) 4.0404
37.7104
Add: Health and Education cess@4% 1.5084
Tax liability under section 115JC 39.2188
Since the regular income-tax payable is less than the alternate minimum
tax payable, the adjusted total income shall be deemed to be the total
income and tax is leviable @18.5% thereof plus surcharge@12% and
cess@4%. Therefore, the tax liability is ₹ 39.2188 lakhs.
AMT Credit to be carried forward under section 115JEE
Tax liability under section 115JC 39.2188
Less: Tax liability under the regular provisions of the Income-tax Act, 1961 Nil
Amount of Credit 39.2188

2 (b) Computation of total income of Mr. S

Particulars ₹ ₹
Income from House Property in India
Gross Annual Value [Rent received is taken as GAV] [₹ 30,000 3,60,000
p.m. x 12 months]
Less: Municipal taxes -
Net Annual Value (NAV) 3,60,000
Less: Deduction u/s 24 @30% 1,08,000 2,52,000
Profits and Gains of Business or Profession
Income from music performances in India 5,00,000
Income from Country A 5,00,000
Income from Country B [Income earned during July 2023 and
January 2024 is taxable in India in P.Y. 2023-24] 4,00,000 14,00,000
Gross Total Income 16,52,000
Less: Deduction under Chapter VIA
Under section 80C – Contribution to PPF 1,50,000
Total Income 15,02,000

Computation of tax liability of Mr. S

Particulars ₹
Tax on total income [₹1,50,600 (i.e., 30% of ₹ 5,02,000) plus ₹ 2,63,100
1,12,500 (Tax on income of ₹ 10 lakh)]
Add: Health and education cess @4% 10,524
Tax Liability 2,73,624
Average rate of tax in India [i.e., ₹ 2,73,624/₹ 15,02,000 x 100] 18.217%
Foreign Tax credit
For Country A (with which India does not have a DTAA)

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 Doubly taxed income 5,00,000
Deduction under section 91 on ₹ 5,00,000 @18.217% [being 91,085
the lower of Indian rate of tax (18.217%) and Country A tax
rate (20%)]
For Country B (with which India has a DTAA)
Doubly taxed income [Credit shall be allowed for foreign tax 4,00,000
paid by Mr. S in Country B in respect of income which is
chargeable to tax in India in P.Y. 2023-24 i.e., for income of ₹
4,00,000]
Deduction under section 90:
Lower of:
Tax Payable under the Income-tax Act, 1961 i.e., ₹ 72,868,
being 18.217% of ₹4,00,000; and
Tax paid in Country B i.e., ₹ 40,000, being 10% of ₹ 4,00,000 40,000
Tax Payable 1,42,539
Tax Payable (Rounded off) 1,42,540

3 (a) Computation of total income of Mathi Charitable Trust

Particulars ₹ ₹
Gross receipts from Full Cure Hospital 4,00,00,000
Gross receipts from India Arts College 1,80,00,000
5,80,00,000
Add: Anonymous donations [to the extent not chargeable to
tax@30% under section 115BBC(1)(i)] [₹ 2,25,000,
being 5% of total donations of ₹ 45,00,000 or ₹
1,00,000, whichever is higher] 2,25,000
5,82,25,000
Less: 15% of income eligible for being set apart without any
condition 87,33,750
4,94,91,250
Less: Amount applied for charitable purposes
- On revenue account – Administrative expenses:
For Hospital 2,20,00,000
For College 1,00,00,000
- On capital account – Land & Building 1,20,00,000
[Section 56(2)(x) is not attracted in respect of value of
property received by a trust or institution registered u/s
12AB]
- Donation to Gandhiji Trust registered u/s 12AB –
allowable as application to the extent of 85%, even
though the objects of trust are different. Only corpus
donations are not permissible to other trusts registered
u/s 12AB (25,00,000 x 85%) 21,25,000 4,61,25,000

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 Total income [other than anonymous donation 33,66,250
taxable@30% under section 115BBC(1)(i)]
Add: Anonymous donation taxable @30% u/s 115BBC(1)(i) 7,75,000
Total Income (including anonymous donation 41,41,250
taxable@30%)

Computation of tax liability of the trust

Particulars ₹ ₹
Tax on total income of ₹ 33,66,250 [Excluding
anonymous donations]
Upto ₹ 2,50,000 Nil
₹ 2,50,000 – ₹ 5,00,000 [₹2,50,000 x 5%] 12,500
₹ 5,00,000 – ₹ 10,00,000 [₹5,00,000 x 20%] 1,00,000
> ₹ 10,00,000 [₹23,66,250 x 30%] 7,09,875
8,22,375
Tax on anonymous donations taxable@30% [₹ 7,75,000 x 2,32,500 10,54,875
30%]
Add: Education cess @4% 42,195
Total tax liability 10,97,070
Total tax liability (rounded off) 10,97,070
Note: Since the trust follows cash system of accounting, fees not realized from patients and
from students would not form part of gross receipts. Therefore, there is no need of applying
the provisions of Explanation 1 to section 11(1) to exclude such income.

3 (b) (i) A Co. Ltd, Mumbai has manufactured and supplied garments as per the variations and
customization in accordance with its AE. However, such customization is not carried
by it on the goods sold to other unrelated parties.
In cases of contract manufacturing transactions with AEs, the most appropriate
method is the Transactional Net Margin Method (TNMM).
(ii) DEF Co. Ltd. manufactures semi-finished drugs in bulk and sells them to related
parties. In the case of sale of semi-finished goods to related parties, the most
appropriate method is the Cost Plus Method, in which adjustment of gross profit
mark-up is to be made on the direct and indirect costs of production.
(iii) ZY Ltd., Bengaluru provided identical call centre services to both related and unrelated
parties. In respect of provision of services, the most appropriate method can be either
the Comparable Uncontrolled Price (CUP) or Cost Plus Method (CPM) and
Transactional Net Margin method (TNMM), since in all these three methods there
are similar transactions with related parties and unrelated parties; and adjustments
are made for functional differences.

4 (a) (i) Since the agreement between the owner of land, A, and the developer and builder, B, is
in the nature of specified agreement under section 45(5A), which involves money
consideration as well, TDS@10% on ₹ 25,00,000, being the money component
payable to A, is deductible under section 194-IC.

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 TDS liability would be ₹ 2,50,000, being 10% of ₹ 25,00,000.
(ii) Since Mr. Shrikanth pays rent exceeding ₹ 50,000 per month, he is liable to deduct
tax at source @5% under section 194-IB on such rent.
However, since Mr. Ashok does not provide his PAN to Mr. Shrikanth, tax would
be deductible@20%, instead of 5%.
Tax has to be deducted from rent payable for the last month of the P.Y.2023-24.
However, since he vacated the premises in February, 2024, tax has to be deducted
from rent paid on 1.2.2024 for the month of February, 2024.
Tax of ₹ 96,000 [₹ 60,000 x 20% x 8] has to be deducted but the same has to be
restricted to ₹ 60,000, being rent for February, 2024.
If Mr. Ashok furnished his PAN to Shrikanth, tax would be deductible@5%.
Tax of ₹ 24,000 [₹ 60,000 x 5% x 8] has to be deducted from rent paid on 1.2.2024 for
the month of February, 2024.
(iii) Section 194-IA requires deduction of tax by every transferee responsible for paying
any sum as consideration for transfer of immovable property (land, other than
agricultural land, or building or part of building) at the rate of 1% of such sum or
stamp duty value, whichever is higher, to a resident transferor.
Tax is not required to be deducted at source where the total amount of
consideration for transfer and stamp duty value of immovable property is less than ₹
50 lakhs. Consideration for transfer of any immovable property includes, inter alia,
club membership fee, car parking fee, maintenance fee, which are incidental to
transfer of immovable property.
In the present case, since the consideration for transfer of flat by Mr. Mani to
Param Construction Ltd. is ₹ 52,20,000 (₹ 48 lakhs + ₹ 1,20,000, being ₹ 5,000 x 24
+ ₹ 2 lakhs + ₹ 1 lakh) which is not less than ₹ 50 lakhs, Mr. Mani is required to deduct
tax @1% on ₹52,20,000.
Tax deductible by Mr. Mani would be ₹ 52,200.
(iv) Shooting of Tele Episode for B-TV as per the storyline, contents and specifications of B-
TV falls within the scope of “work” under section 194C. Since the amount credited
exceeds the specified limit of ₹ 30,000, TDS@2% under section 194C is attracted on
₹ 19,50,000 credited to the account of Digitec Studios, a partnership firm.
TDS liability would be ₹ 39,000 [being 2% of ₹ 19,50,000]

4 (b) AI Kuber Ltd., a company incorporated in Dubai, would be resident in India in the P.Y. 2023-
24, if its place of effective management is in India in that year.
For determining the POEM of AI Kuber Ltd., the important criteria is whether the company is
engaged in active business outside India or not.
A company would be said to be engaged in “Active Business Outside India” (ABOI) for POEM,
if
- its passive income is not more than 50% of its total income; and
- less than 50% of its total assets are situated in India; and
- less than 50% of total number of employees are situated in India or are resident in India;
and

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- the payroll expenses incurred on such employees is less than 50% of its total payroll
expenditure.
AI Kuber Ltd. would be regarded as a company engaged in active business outside India for
POEM purpose only if it satisfies all the four conditions cumulatively.
Condition 1: The passive income of AI Kuber Ltd. should not be more than 50% of its
total income.
Total income of AI Kuber Ltd. is ₹ 2,980 crores Passive income is the aggregate of, -
(i) income from the transactions where both the purchase and sale of goods is from/to its
associated enterprises i.e., ₹ 125 crores; and
(ii) income by way of, inter alia, interest and dividend i.e., ₹ 880 crores;
Passive Income of AI Kuber Ltd. is ₹ 1,005 crores (i.e., ₹ 125 crores + ₹ 880 crores)
Percentage of passive income to total income = ₹ 1,005 crore/ ₹ 2,980 crore x 100 = 33.72%
Since passive income of AI Kuber Ltd. i.e., 33.72% is not more than 50% of its total income,
the first condition is satisfied.
Condition 2: AI Kuber Ltd. should have less than 50% of its total assets situated in
India
Value of total assets of AI Kuber Ltd. is ₹ 6,150 crores [₹ 1,500 crore + ₹ 225 crore + ₹ 800
crore + ₹ 650 crore + ₹ 1,075 crore + ₹ 1900 crore].
Value of total assets of AI Kuber Ltd. in India is ₹ 2,525 crores [₹ 1,500 crore + ₹ 225 crore +
₹ 800 crore]
Percentage of assets situated in India to total assets = ₹ 2,525 crores/₹ 6150 crores x 100 =
41.06%
Since the value of assets of AI Kuber Ltd. situated in India is less than 50% of its total assets,
the second condition for ABOI test is satisfied.
Condition 3: Less than 50% of the total number of employees of AI Kuber Ltd. should
be situated in India or should be resident in India
Number of employees working in India is 70.
Total number of employees of AI Kuber Ltd. is 160 [70+90].
Percentage of employees working in India to total number of employees is 70 x 100/160 =
43.75%
Since the number of employees of AI Kuber Ltd. working in India is less than 50% of its total
number of employees, the third condition for ABOI test is satisfied.
Condition 4: The payroll expenses incurred on employees situated in India or resident
in India should be less than 50% of its total payroll expenditure
Payroll expenditure on employees in India is ₹ 940 crores
Total payroll expenditure of AI Kuber Ltd. is ₹ 2190 crores [₹ 940 crore + ₹ 1250 crore].
Percentage of payroll expenditure on employees in India to total payroll expenditure is
42.92%, being ₹ 940 crores x 100/₹ 2190 crores.
Since payroll expenditure on employees of AI Kuber Ltd. in India is less than 50% of its total
payroll expenditure, the fourth condition for ABOI test is satisfied.
Since AI Kuber Ltd. satisfies all the above four conditions cumulatively, AI Kuber Ltd. has
passed the Active Business Outside India (ABOI) test.
POEM of a company engaged in active business outside India shall be presumed to be

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 outside India, if the majority of the board meetings are held outside India.
Since AI Kuber Ltd. is engaged in active business outside India in P.Y. 2023-24 and majority
of its board meetings i.e., 4 out of 7, were held outside India, POEM of AI Kuber Ltd.
would be outside India.
Therefore, AI Kuber Ltd. would be non-resident in India for the P.Y. 2023-24.

5 (a) (i) As per section 148, the Assessing Officer shall be deemed to have information
which suggests that the income chargeable to tax has escaped assessment in case of an
assessee where a search is initiated under section 132 on or after 01.04.2021.
Further, in case of search under section 132, notice under section 148 need not be
accompanied by order u/s 148A. Thus, the Assessing Officer can issue a notice
under section 148 for any of the relevant assessment years -
(a) if three years have not elapsed from the end of the relevant assessment year,
(b) if three years, but not more than ten years, have elapsed from end of relevant
assessment year and the Assessing Officer has in his possession books of
account or other documents or evidence which reveal that the income
chargeable to tax, represented in the form of
(I) asset: or
(II) expenditure in respect of a transaction or in relation to an event or
occasion; or
(III) an entry or entries in the books of account,
which has escaped assessment amounts or is likely to amount to ₹ 50 lakhs or
more for that year.
Where the income chargeable to tax represented in the form of an asset or
expenditure in relation to an event or occasion of the value referred to in (b)
above, has escaped the assessment and the investment in such asset or
expenditure in relation to such event or occasion has been made or incurred, in
more than one previous years relevant to the assessment years within the
period referred to in (b), a notice under section 148 shall be issued for every
such assessment year for assessment, reassessment or recomputation, as the
case may be.
In this case, Mr. Sanskar has incurred expenditure of ₹ 5 crores in relation to
marriage of his daughter. Hence, the Assessing Officer can issue notice under
section 148 for A.Y. 2018-19, since it falls within the 10 year period.

(ii) The statement is not correct.

The Apex Court, in SAP Labs India Pvt. Ltd. v. ITO [2023] 454 ITR 121, laid down the
following with respect to powers of High Court to consider the substantial question of
law involving determination of arm’s length price (ALP):
- While determining the ALP, the Tribunal has to follow the guidelines stipulated
under Chapter X of the Income-tax Act, 1961, namely, sections 92 to 92F of the Act
and Rules 10A to 10E of the Income-tax Rules, 1962. Any determination of the
ALP under Chapter X not in accordance with the relevant provisions of the Income-
tax Act, 1961 and Rules can be considered as perverse and it may be considered as
a substantial question of law as perversity itself can be said to be a substantial

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 question of law. Therefore, there cannot be any absolute proposition of law that in
all cases where the Tribunal has determined the ALP, the same is final and cannot
be the subject matter of scrutiny by the High Court in an appeal under section
260A. When the determination of the ALP is challenged before the High Court, it is
always open for the High Court to consider and examine whether the ALP has been
determined while taking into consideration the relevant guidelines under the Act
and the Rules.
- The High Court can examine the question of comparability of two companies or
selection of filters and examine whether the same is done judiciously and on the
basis of the relevant material/evidence on record. The High Court can also examine
whether the comparable transactions have been taken into consideration properly
or not, i.e., to the extent as to whether non-comparable transactions are considered
as comparable transactions or not. Therefore, in an appeal challenging the
determination of the arm's length price, it is always open for the High Court
to examine in each case, within the parameters of section 260A, whether while
determining the ALP, the guidelines laid down under the Income-tax Act, 1961 and
the Income-tax Rules, 1962 are followed or not and whether the determination of
the ALP and the findings recorded by the Tribunal while determining the ALP are
perverse or not.

5 (b) Section 165A of the Finance Act, 2016 provides for equalisation levy@2% on the amount of
consideration received or receivable by an e-commerce operator from e-commerce supply
or services made or provided or facilitated by it, inter alia, to a person resident in India and a
person who buys such goods or services or both using internet protocol address located in
India.
First, it has to be determined whether DOT Inc., Country X is an e-commerce operator.
E-Commerce Operator means a non-resident who owns, operates or manages digital or
electronic facility or platform for online sale of goods or online provision of services or both.
In the given situation, DOT Inc., Country X, a non-resident, maintains a digital platform for
providing end user computer software. Therefore, DOT Inc. is an e-commerce operator.
However, the consideration received or receivable for e-commerce supply or services
would not include the consideration, which are taxable as, inter alia, royalty or fees for
technical services in India under the Income-tax Act, read with the DTAA notified by the
Central Government under section 90 or section 90A.
The consideration paid by Spacecraft Ltd. to DOT Inc. for use of computer software as
per the terms of EULA is not “royalty” as per the meaning assigned in the DTAA, since it
does not create any interest or right to Spacecraft Ltd. which would amount to the use of or
right to use any copyright. Accordingly, the same does not give rise to any income chargeable
to tax in India. Since the provisions of the DTAA are more beneficial, the same would
apply in the case on hand as decided by Apex Court in Engineering Analysis Centre of
Excellence P. Ltd v. CIT and Another (2021) ITR 471.
In the given situation, DOT Inc. is an e-commerce operator defined in section 165A, since it
provides services through its digital platform. Further, the consideration for such services is
₹ 4.5 crores which exceeds the threshold limit of ₹ 2 crores specified in section 165A. Also,
all the other conditions specified in section 165A are satisfied viz. namely there is no PE for
DOT Inc., Country X, in India and services are provided to a resident in India i.e., Spacecraft
Ltd., an Indian company.
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 Hence, DOT Inc., Country X has to pay 2% on ₹ 4.5 crores which would amount to ₹ 9
lakhs, as equalisation levy. Spacecraft Ltd., India, the service recipient, need not deduct the
amount as equalisation levy under section 165A (e-commerce supply or services), since the
same is to be paid directly by the service provider i.e., DOT Inc., Country X.

6 (a) The cost of the product being T-Shirts sold by the company to its subsidiary Oxfam Pty of
UK is Rs. 840 per unit and company is maintain a 30% GP ratio on the sales. Therefore, the
price to be charged from the subsidiary works out to be:
(840 x 100/70) = Rs. 1200 per piece.
The functional differences as stated are required to be adjusted for ascertaining the Arm’s
Length Price for the sales made to the subsidiary of the Indian company.
Particulars Amount (Rs.)
Ideal Price required to be charged per piece 1200
Less: Adjustments for Functional differences
For packaging (since no packaging on goods sold to Oxfam) 36
For tagging (since no tagging on goods gold to Oxfam) 3
For working capital cost (3% of selling price for 6 months) 36
Arm’s Length Price 1125
Profit Difference due to ALP Applicability {2,50,000 pcs x (1125-1000)} 3,12,50,000

6 (b) The definition of “assessee” under the Black Money Law, inter alia, includes a person who,
being a non-resident in the previous year when the undisclosed income came to the notice of
the Assessing Officer, was resident in India in the previous year in which the
undisclosed asset located outside India was acquired. Therefore, Deepak is an assessee
under the Black Money Law since he was resident in India in the P.Y.2009-10, when the
property was acquired, even though he is a non-resident in the P.Y.2023-24, when notice
under Black Money Law was issued. Accordingly, the value of undisclosed asset located
outside India of Deepak would be chargeable to be tax under the Black Money Law in the
previous year in which such asset comes to the notice of the Assessing Officer i.e., P.Y
2023-24, even though he is a non-resident in India for that previous year.
Computation of value of undisclosed foreign asset
Particulars USD ₹
Value of residential property in California acquired on 25,000
25.6.2009
Value of residential property would be the fair market value,
being the higher of -
- Cost of acquisition USD 20,000
- Price that the property shall ordinarily fetch if sold in the USD 25,000
open market on the valuation date, i.e., 1.4.2023
Converted into Indian currency taking the rate as on 1.4.2023 ₹ 71/USD 17,75,000
Bank Deposits in a bank A/c in New York as on 1st April 10,000
2023 [The sum of all the deposits made in the account with the
bank since the date of opening of the account would be the

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 value of the bank deposits]

Converted into Indian currency taking the rate as on 1.4.2023 ₹ 71/USD 7,10,000
Total value of undisclosed foreign asset 24,85,000

6 (c) Deduction under section 80JJAA is allowable to an assessee to whom section 44AB applies
and whose gross total income includes any profits and gains derived from business, in
respect of employment of new employees. The amount of deduction is 30% of additional
employee cost incurred in the course of such business in the previous year, for three
assessment years including the assessment year relevant to the previous year in which such
employment is provided.
“Additional employee cost” means the total emoluments paid or payable to additional
employees employed during the previous year. However, in the case of an existing
business, the additional employee cost shall be nil, if emoluments are paid otherwise than by
an account payee cheque or account payee bank draft or use of ECS through bank account or
other prescribed electronic mode.
“Emoluments” means any sum paid or payable to an employee in lieu of his employment by
whatever name called but does not include, inter alia, contribution by employer to
provident fund.
“Additional employee” means an employee who has been employed during the previous year
and whose employment has the effect of increasing the total number of employees employed
by the employer as on the last day of the preceding year, but does not include, inter alia, an
employee whose total emoluments are more than ₹ 25,000 p.m.
In this case, the contention of the chartered accountant that the emoluments do not include
employer contribution to PF is correct. However, emoluments include ₹ 3,000 paid in cash
by way of transport allowance to the employee. Hence, the total emoluments per
employee is ₹ 28,000 p.m. Due to this reason, the 20 employees employed on 1.4.2023 will
not qualify as “additional employees” for the purpose of deduction under section 80JJAA,
since their total emoluments are more than ₹ 25,000 p.m. Hence, XYZ & Co. is not eligible
for any deduction under section 80JJAA due to failure to fulfil the condition for being
treated as an “additional employee”. In this case, the chartered accountant has failed to
ensure compliance with the condition stipulated for claim of deduction under section 80JJAA
and has wrongly issued the report in Form 10DA certifying the deduction claimed by the
assessee under section 80JJAA.
Also, clause 33 of Form 3CD requires section-wise details of deductions, if any,
admissible under Chapter VIA. Here again, the tax auditor has to ensure that the assessee
fulfils all the conditions specified in the section under which the deduction is claimed.
However, in this case, the tax auditor has failed to do so.
On account of such failure, clause (7) of Part I of the Second Schedule to the Chartered
Accountants Act, 1949 may be invoked.

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