Test Series – No 2 (Time Dura on – 1.

5 hours)

Topics Covered – Direct Tax - Chapter 4, Chapter 5 and Chapter 3 (Unit 3)

Working Notes should form part of the answer. Wherever necessary, suitable
assump ons may be made by the candidates and disclosed by way of a note. However, in
answers to ques ons in Division A, working notes are not required.
The relevant assessment year is A.Y.2025-26.
Division A – Mul ple Choice Ques ons

Q1 Mr. Bajaj (aged 35 years) submits the following par culars for the purpose of
compu ng his total income: (2 Marks)

Particulars `
Income from salary (computed) 4,00,000
Loss from let-out house property (-) 2,20,000
Brought forward loss from let-out house property for the (-)2,30,000
A.Y. 2024-25
Business loss (-)1,00,000
Bank interest (FD) 80,000

Compute the total income of Mr. Arpan for the A.Y.2025-26 and the amount of loss that can
be carried forward for the subsequent assessment year under normal provisions of the Act?
(a) Total income 2,00,000 and loss from house property of 2,50,000 and business loss of `
20,000 to be carried forward to subsequent assessment year.
(b) Total income 1,60,000 and loss from house property of 2,30,000 to be carried forward to
subsequent assessment year.
(c) Total income 4,00,000 and business loss of 20,000 to be carried forward to subsequent
assessment year.
(d) Total income is Nil and loss from house property of 70,000 to be carried forward to
subsequent assessment year.
Q2 Mr. Naveen, aged 40 years, is engaged in the manufacturing business. He follows
mercantile system of accounting. The details pertaining to his business for the year ending on
31.3.2025 is as under –
(8 Marks)
Particulars Amount
Capital receipts 1.20 crores
Turnover 2.80 crores
Amount received in cash [out of turnover] 8 lakhs
Amount received in cash [out of capital receipts] 2 lakhs

Amount received through account payee cheque/ NEFT and 2.50 crores
other prescribed mode on or before the specified date under
section 139(1) [out of turnover]

Total payment 1.60 crores

Cash payment [out of total payments] 9 lakhs
Net profit as per books of account 10.50 lakhs

An analysis of profit and loss for the year ended on 31.3.2025 revealed the following
information
1. Salary incudes wages of 15,000 p.m. each paid to 1 security guard, 2 housekeeping
staff in cash.
2. Other administration expenses include 70,000 paid in cash (Payment in a day is less
than 8,000).
3. Interest charges includes interest payable on loan to Kamal of 70,000 on which TDS
has not been deducted. Loan was taken for the business purpose.
On the basis of the facts given above, choose the most appropriate answer to Q.(i) to Q(iv).
below -
(i) Is Mr. Naveen eligible to declare income on presumptive basis under the
provisions of the Income-tax Act, 1961 for A.Y. 2025-26?
(a) No, since turnover of Mr. Naveen exceeds the threshold limit of 2 crores.
(b) Yes, since aggregate cash receipts during the year do not exceed 5% of total
amount received.
(c) Yes, since amount received in cash during the year do not exceed 5% of
turnover.
(d) No, as cash payments during the year exceed 5% of aggregate payments.
 (ii) What would be your answer to MCQ 1, assuming for the purpose of answering this
MCQ that Mr. Naveen has additionally received 10 lakhs by way of crossed cheque
[out of turnover] during the P.Y. 2024-25?
(a) No, since turnover of Mr. Naveen exceeds the threshold limit of 2 crore.
(b) No, since the aggregate cash receipts during the year exceed 5% of turnover.
(c) No, as cash payments during the year exceed 5% of aggregate payments.
(d) No, due to both (a) and (b)
(iii) What is the amount of profits and gains of business chargeable to tax in the hands
of Mr. Naveen as per books of account?
(a) 10,50,000
(b) 16,11,000
(c) 16,81,000
(d) 16,60,000
(iv) What is the amount of profits and gains of business chargeable to tax in the hands of
Mr. Naveen if he does not want to get his books of account audited?
(a) 17,40,000
(b) 16,96,000
(c) 22,40,000
(d) 16,80,000

Q3 On 20.10.2024, Pihu (minor child) gets a gift of 20,00,000 from her father's friend. On the
same day, the amount is deposited as fixed deposit in Pihu's bank account. On the said
deposit, interest of 13,000 was earned during the P.Y. 2024-25. In whose hands the income
of Pihu shall be taxable? Also, compute the amount of income that shall be taxable. (2 Marks)

(a) Income of 20,11,500 shall be taxable in the hands of Pihu's father.

(b) Income of 20,13,000 shall be taxable in the hands of Pihu's father.
(c) Income of 20,11,500 shall be taxable in the hands of Pihu's father or mother, whose
income before this clubbing is higher.
(d) Income of 20,13,000 shall be taxable in the hands of Pihu's father or mother, whose
income before this clubbing is higher.
Q 4 Ram owns 500, 15% debentures of Reliance Industries Ltd. of ₹ 500 each. Annual interest of
37,500 was declared on these debentures for P.Y. 2024-25. He transfers interest income to his
friend Shyam, without transferring the ownership of these debentures. While filing return of
income for A.Y. 2025-26, Shyam showed 37,500 as his income from debentures. As tax advisor
of Shyam, do you agree with the tax treatment done by Shyam in his return of income?
(3 Marks)
(a) Yes, since interest income was transferred to Shyam therefore, a er transfer it becomes
his income.
(b) No, since Ram has not transferred debentures to Shyam, interest income on the
debentures is not taxable income of Shyam.
(c) Yes, if debentures are not transferred, interest income on debentures can be declared by
anyone, Ram or Shyam, as taxable income depending upon their discre on.
(d) No, since Shyam should have shown the income as interest income received from Mr. Ram
and not as interest income earned on debentures.

Division B – Descrip ve Ques ons

Q5 (15Marks)
Mr. Mohit provides the following details for the financial year 2024-25 (previous year).
(Amount)
(i) Income from salary 6,50,000
(ii) Income from House-I 55,000
(iii) Loss from House-II (self-occupied property) 1,25,000
(iv) Loss from House-III 190,000
(v) Loss from leather business 68,000
(vi) Profit from cloth business 1,70,000
(vii) Short term capital loss in equity-oriented funds 35,000
on which STT was paid
(viii) Income from crossword puzzles 12,000
(ix) Dividend from foreign company (Gross) 8,500
(x) Loss on owning and maintenance of race horses 7,500

(xi) Income from owning and maintenance of race bulls 9,000

Compute the gross total income and losses to be carried forward of Mr. Mohit for assessment
year 2025-26 under regular provisions of the Act. Mr. Mohit has filed his return of income on
25.07.2025
 Q6 (15 Marks)
Dr. Rohan, 82 years old resident surgeon, having his Nursing Home in Mumbai, gives the
following par culars for the year ended on 31.03.2025
Receipts ` Payments `
Opening Balance b/d 1,25,000 Salary to Staff 3,50,000
Fees from visits to other 5,85,000 Taxes & Insurance 26,000
hospitals (net)
Fees for March, 2021 received in April, Entertainment Expenses 1,10,000
2021
IPD 40,000 85,000 Purchase of Television 48,000
OPD 45,000
Dividend from shares (net) 18,900 Gift to daughter-in law 60,000
Fees received during the year 10,25,000 Interest on loan for repairs to 65,000
Property
Gifts received from relatives of 45,000 Personal medical expenses 70,000
patients
Honorarium for painting services in 22,500 Deposits in PPF A/c 55,000
Jai Hind Art School (net)
Income-tax Refund (Including 12,100 Nursing Home expenses 3,75,000
interest ` 1,500)
Prof. fees paid for consulting 1,20,000
services
Purchase of furniture 1,35,000
At home
Personal Expenses 3,00,000
Balance c/f 2,04,500

19,18,500 19,18,500

Other Information:
(a) He keeps his books of accounts on cash basis and has not opted for the provisions of sec on 44ADA.
(b) Salary includes 60,000 paid to his sister who is a qualified nurse paid in cash.
(c) Entertainment expenses include 25,000 for dinner to doctors in a five star hotel.
(d) Interest on loan for repairs to property includes 40,000 for his residen al property.
(e) His daughter in law earned income of 10,000 from the amount received as gift.
(f) Fixed Assets values as on 01.04.2024 are as under :
Nursing Home Equipment's - 2,20,000,
Laptop - 40,000.
(g) Television purchased for nursing home purpose on 21.09.2024 is put to use on 03.10.2024
You are required to
(i) Compute the total income and tax payable by him for AY 2025-26 as per sec on 115BAC.
(ii) What will be his total income and tax payable, if he opts for the provisions of sec on 44ADA? Will it be
more beneficial for him to adopt sec on 44ADA?

Q7 (5 Marks)
Mr. Aman has furnished the following particulars relating to payments made and expenditure incurred towards
scientific research for the year ended 31.3.2025:

Particulars Amount (In lakhs)

Payment made to AB University, an approved University 15
Payment made to Siya College 17
Payment made to IIT, Bangalore (under an approved 12
programme for scientific research)
Machinery purchased for in-house, scientific research 25
Compute the deduction available under section 35 of the Income-tax Act, 1961 for A.Y. 2025-26, while computing his
income under the head PGBP under default tax regime under section 115AC of the Income Tax Act, 1961

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