INTERMEDIATE COURSE

GROUP – I

REVISION TEST PAPERS

SEPTEMBER, 2025

BOARD OF STUDIES (ACADEMIC)

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)
New Delhi
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

All rights reserved. No part of this publication may be reproduced, stored in a

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Edition : June, 2025

Website : www.icai.org

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ISBN No. :

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Marg, New Delhi- 110 002, India.

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 Contents
Page Nos.
Objective & Approach............................................................................................... i – vii

Objective of RTP ..................................................................................................................... i

Planning & Preparing for Examination ........................................................................... ii
Subject-wise Applicability .................................................................................................. iii

Paper-wise RTPs
Paper 1: Advanced Accounting ........................................................................... 1 – 38
Part I: Announcements Stating Applicability for September 2025 Examination.. 1 – 10

Part II: Questions and Answers.................................................................. 11 – 38

Paper 2: Corporate and Other Laws ................................................................ 39 – 60

Part I: Amendments for September 2025 Examination .................................... 39 – 40

Part II: Questions and Answers.................................................................. 41 – 60

Paper 3: Taxation .............................................................................................................. 61 – 98

Section A: Income-tax Law .......................................................................... 61 – 83
Section B: Goods and Services Tax .......................................................... 84 – 98
Applicability of Standards/Guidance Notes/Legislative Amendments etc.
for September, 2025 – Intermediate Examination ............................ 99 – 102
REVISION TEST PAPER, SEPTEMBER, 2025–OBJECTIVE & APPROACH
(Students are advised to go through the following paragraphs carefully to
derive maximum benefit out of this RTP)
I. Objective of Revision Test Paper
Revision Test Papers are one among the many educational inputs
provided by the Board of Studies (Academic) to its students. Popularly
referred to as RTP by the students, it is one of the very old publications
of the BOS (A) whose significance and relevance from the examination
perspective has stood the test of time.
The primary objectives of the RTP are:
• To help students get an insight of their preparedness for the
forthcoming examination;
• To update them on the latest developments relevant for the
forthcoming examination in select subjects;
• To enhance the confidence level of the students adequately.
Students must bear in mind that the RTP contains a variety of questions
based on different topics of the syllabi and thus a comprehensive study
of the entire syllabus is a pre-requisite before answering the questions
of the RTP. In other words, in order to derive maximum benefit out of
the RTPs, it is advised that before proceeding to solve the questions
given in the RTP, students ought to have thoroughly read the Study
Materials and Statutory Update, wherever applicable.
The topics on which the questions are set herein have been carefully
selected and meticulous attention has been paid in framing different
types of questions. Detailed answers are provided to enable the
students to do a self-assessment and have a focused approach for
effective preparation.
Live Virtual Classes by renowned subject experts conducted free of
charge for the students of Foundation, Intermediate and Final levels
provide the students much required support in preparing for their exams
conveniently at home as these classes can be accessed live or viewed
later as recorded lectures through hand-held devices such as smart
phones, laptops, I-pads, tablets, etc. anytime anywhere. Further,
REVISION TEST PAPER
INTERMEDIATE EXAMINATION

students are advised to attempt the Multiple-Choice Questions (MCQs)

at MCQ Paper Practice Portal which is a holistic platform for self-
assessment within the stipulated timeframe.
Students are welcome to send their suggestions for fine tuning the RTP
to the Joint Director, Board of Studies (Academic), The Institute of
Chartered Accountants of India, A-29, Sector-62, Noida 201309 (Uttar
Pradesh). RTP is also available on BOS Knowledge Portal at
https://boslive.icai.org for downloading.
II. Planning and preparing for examination
Ideally, when the RTP reaches your hand, you must have finished reading
the relevant Study Materials of all the subjects (along with the Statutory
Update in case of Paper 3A and Paper 3B) available at the BoS
Knowledge Portal. Get a good grasp of the concepts/ provisions/
amendments/ cases discussed therein.
After reading the Study Materials alongwith Statutory Update
thoroughly, then, proceed to solve the questions given in the RTP on
your own. RTP is an effective tool to revise and refresh the concepts and
provisions discussed in the Study Material. RTPs are provided to you to
help you assess your level of preparation. Hence you must solve the
questions given therein on your own and thereafter compare your
answers with the answers given therein.
Examination tips
How well a student fares in the examination depends upon the level and
depth of his preparation. However, there are certain important points
which can help a student better his performance in the examination.
These useful tips are given below:
 Reach the examination hall well in time.
 As soon as you get the question paper, read it carefully and
thoroughly. You are given separate 15 minutes for reading the
question paper.
 Plan your time so that appropriate time is awarded for each
question.

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 First impression is the last impression. The question which you can
answer in the best manner should be attempted first.
 Always attempt to do all questions. Therefore, it is important that
you must finish each question within allocated time. Keep
sometime for checking the answers as well.
 Read the question carefully more than once before starting the
answer to understand very clearly as to what is required.
 Answer all parts of a question one after the other; do not answer
different parts of the same question at different places.
 Write in a neat and legible hand-writing.
 Always be concise and write to the point and do not try to fill
pages unnecessarily.
 There must be logical expression of the answer.
 In case a question is not clear, you may state your assumptions
and then answer the question.
 Check your answers carefully and underline important points
before leaving the examination hall.
 In case of case scenario based MCQs, read the facts given in the
case attentively. Also, read each MCQ based thereon and all the
options carefully, before choosing the correct answer.
III. Subject-wise Applicability
PAPER – 1 : ADVANCED ACCOUNTING
The July, 2024 edition of the Study Material, comprising of three
modules, is applicable for the students appearing for September, 2025
Examination. For understanding the coverage of syllabus, it is important
to read the Study Material carefully.
You must read the study material thoroughly to attain conceptual clarity.
The tables, diagrams and flow charts in study material have been
extensively prepared to facilitate easy understanding of concepts.
Likewise, examples and illustrations given in the Study Material would
enable you to grasp the application of theoretical concepts in real-world
scenarios. After covering the concepts and illustrations, work out the

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exercise questions at the end of each chapter and then compare your
answers with the answers given to test your level of understanding.
Also, solve the MCQs and case scenario based MCQs uploaded in MCQ
Practice Dashboard. This will help you to maximize your speed and
accuracy in solving independent MCQs and case scenario based MCQs
in the Examination.
The RTP consists of twenty questions together with their answers on
different topics discussed in the study material. Answers to the questions
have been given in detail along with the working notes for easy
understanding and comprehending the steps in solving the problems.
Moreover, the answers have been presented in the same manner as
expected from the students in the examination. The students are
expected to solve the questions under examination conditions and then
compare their solutions with the solutions given in the RTP. This will
facilitate them to further strategize their preparation for scoring good
marks in the examination.
PAPER – 2: CORPORATE AND OTHER LAWS
The July 2024 edition of the Study Material is applicable for Intermediate
Course Paper 2: Corporate and Other Laws. The Study Material has been
divided into three modules (Modules 1, 2 & 3) for ease of handling by
students.
The Study Material is based on the provisions of the Companies Act,
2013, the Limited Liability Partnership Act, 2008, the General Clauses Act,
1897 and the Foreign Exchange Management Act, 1999, as amended
upto 30th June, 2024.
The amendments in the Companies Act, 2013 for the period
1st July, 2024 to 28th February, 2025 are given under the Part I of the
RTP. These amendments have been uploaded on the website at
https://resource.cdn.icai.org/86582bos-aps1156-amendments-sep2025-
exam.pdf.
The students are advised to read the Study Material thoroughly to attain
conceptual clarity. Tables, diagrams and flow charts have been
extensively used to facilitate easy understanding of concepts. Examples
and Illustrations given in the Study Material would help the students to

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understand the application of concepts. Work out the exercise questions

at the end of each chapter and then compare your answers with the
answers given to test your level of understanding. Thereafter, solve the
MCQs and case scenarios based MCQs uploaded in MCQ Paper Practice
Dashboard and given in the Case scenarios booklet and assess your level
of understanding.
Finally, solve the questions given in this RTP independently and compare
the same with the answers given to assess your level of preparedness for
the examination.
PAPER – 3: TAXATION
Section A: Income-tax Law (50 Marks)
The Income-tax law, as amended by the Finance (No. 2) Act, 2024 and
significant notifications, circulars and other legislative amendments upto
28.02.2025 are relevant for September, 2025 Examination. The relevant
assessment year for September, 2025 examination is A.Y. 2025-26.
The October, 2024 edition of the Study Material, comprising of two
modules (Modules 1 & 2), is based on the provisions of income-tax law,
as amended by the Finance (No. 2) Act, 2024 and significant notifications
and circulars issued upto 30.09.2024. Hence, the same is applicable for
September, 2025 Examination. Further, a list of topic-wise exclusions
from the syllabus and inclusions with reference to section 10 in the
syllabus has been specified by way of “Study Guidelines” and the same
has been webhosted at https://resource.cdn.icai.org/84185bos67885.pdf
at BoS Knowledge Portal.
Since there is no significant notifications/circulars issued between
1.10.2024 and 28.02.2025, Statutory Update is not issued for September,
2025 Examination.
You have to read the Study Material thoroughly to attain conceptual
clarity. Tables, diagrams and flow charts have been extensively used to
facilitate easy understanding of concepts. The amendments made by the
Finance (No. 2) Act, 2024 and latest notifications and circulars have been
given in italics/bold italics. Examples and Illustrations given in the Study

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Material would help you understand the application of concepts. Work

out the exercise questions at the end of each chapter and then compare
your answers with the answers given to test your level of understanding.
Thereafter, solve the MCQs and case scenarios based MCQs uploaded in
MCQ Paper Practice Dashboard and assess your level of understanding.
After that solve the questions given in RTP for May, 2025 examination.
Finally, solve the questions given in this RTP independently and compare
the same with the answers given to assess your level of preparedness for
the examination.
Section B: Goods and Services Tax (50 Marks)
For Section B: Goods and Services Tax of Paper 3: Taxation, the
provisions of the CGST Act, 2017 and the IGST Act, 2017 as amended by
the Finance (No. 2) Act, 2024, including significant notifications and
circulars issued and other legislative amendments made, up to
28th February, 2025, are applicable for September, 2025 examination.
The amendments made by the Annual Union Finance Acts in the CGST
Act, 2017 and IGST Act, 2017 are made effective from the date notified
subsequently. Thus, only those amendments made by the relevant
Finance Acts which have become effective till 28.02.2025 are applicable
for September 2025 examination. Accordingly, all the amendments
made by the Finance (No. 2) Act, 2024 are applicable for September
2025 examination since they have become effective till 28.02.2025.
Further, a list of topic-wise exclusions from the syllabus has been
specified by way of “Study Guidelines for September, 2025
Examination”. The same is given as part of “Applicability of
Standards/Guidance Notes/Legislative Amendments etc. for
September, 2025 - Intermediate Examination” appended at the end
of this Revision Test Paper.
The October, 2024 edition of the Study Material alongwith the Statutory
updates for September, 2025 examination is applicable for Intermediate
Course Paper 3: Taxation, Section B: Goods and Services Tax. The Study

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Material has been divided into two modules for ease of handling by
students.
Study Material is based on the provisions of the CGST Act, 2017 and the
IGST Act, 2017 as amended upto 31.10.2024. The amendments in the
GST law made between 01.11.2024 and 28.02.2025 are covered in the
Statutory Updates for September 2025 examination. For the ease of
reference, the amendments have been grouped into Chapters which
correspond with the Chapters of the Study Material.
You have to read the Study Material alongwith the Statutory Update
thoroughly to attain conceptual clarity. You are advised to solve the
questions given in this RTP independently and compare the same with
the answers given to assess your level of preparedness for the
examination.

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ADVANCED ACCOUNTING

ANNOUNCEMENTS STATING APPLICABILITY

FOR SEPTEMBER 2025 EXAMINATION

I. Revised Criteria for classification of Non-company entities for

applicability of Accounting Standards
The Council, at its 433rd meeting, held on August 13-15, 2024,
considered the revised criteria for classification of Non-company entities
for applicability of Accounting Standards issued by The Institute of
Chartered Accountants of India (ICAI) to Non-company entities
(Enterprises) and recommended to revise the same. The revised scheme
for applicability of Accounting Standards to Non-company entities shall
come into effect in respect of accounting periods commencing on or
after April 1, 2024, which is as under:
1. For the purpose of applicability of Accounting Standards, Non-
company entities are classified into two categories, viz., Micro,
Small and Medium Sized Entities (MSMEs) and Large entities.
2. Micro, Small and Medium Sized Entity (MSME) means, a non-
company entity:
(i) whose equity or debt securities are not listed or are not in
the process of listing on any stock exchange, whether in
India or outside India;
(ii) which is not a bank, financial institution or an insurance
company;
(iii) whose turnover (excluding other income) does not exceed
two hundred and fifty crore rupees in the immediately
preceding accounting year;
(iv) which does not have borrowings in excess of fifty crore
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rupees at any time during the immediately preceding

accounting year; and
(v) which is not a holding or subsidiary of an entity which is not
a micro, small and medium-sized entity.
Explanation.- For the purposes of this clause, a non-company
entity shall qualify as a Micro, Small and Medium Sized entity, if
the conditions mentioned therein are satisfied as at the end of the
relevant accounting period.
Large entity is a non-company entity that is not an MSME.
The terms ‘Small and Medium Enterprise’ and ‘SME’ used in
Accounting Standards shall be read as ‘Micro, Small and Medium
size entity’ and ‘MSME’, respectively. Further, the terms Level II,
Level III and Level IV entities used in Accounting Standards shall be
read as ‘Micro, Small and Medium Sized Entity’ and Level I entity
shall be read as a ‘Large’ entity.
3. Large entities are required to comply in full with all the Accounting
Standards.
4. Certain exemptions/relaxations have been provided to Micro,
Small and Medium sized Entity (MSMEs). Applicability of
Accounting Standards and exemptions/relaxations to such entities
are given in Annexure 1.
5. This Announcement supersedes the earlier Announcement of the
ICAI on ‘Criteria for classification of Non-company entities for
applicability of Accounting Standards issued in March 2021 1.
6. This Announcement is not relevant for Non-company entities
which may be required to follow Indian Accounting Standards (Ind

1 The said announcement was hosted on ICAI website on March 31, 2021 and published in ‘The
Chartered Accountant’, May 2021 and it superseded the earlier announcement of the ICAI on
‘Harmonisation of various differences between the Accounting Standards issued by the ICAI
and the Accounting Standards notified by the Central Government’ issued in February 2008, to
the extent it prescribed the criteria for classification of Non-company entities (Non-corporate
entities) and applicability of Accounting Standards to non-company entities, and the
Announcement ‘Revision in the criteria for classifying Level II non-corporate entities’ issued in
January 2013.

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AS) or Accounting Standards (AS) as per relevant regulatory

requirements applicable to such entities.
7. The changes arising from this Announcement will be incorporated
in the Accounting Standards while publishing the updated
Compendium of Accounting Standards.
Additional requirements
(1) An MSME which avails the exemptions or relaxations given to it
shall disclose (by way of a note to its financial statements) the fact
that it is an MSME and has complied with the Accounting
Standards insofar as they are applicable to an MSME.
(2) Where an MSME had qualified for any exemption or relaxation
previously but no longer qualifies for the relevant exemption or
relaxation in the current accounting period, the relevant standards
or requirements become applicable from the current period and
the figures for the corresponding period of the previous
accounting period need not be revised merely by reason of its
having ceased to be an MSME. The fact that it was an MSME in the
previous period and it had availed of the exemptions or relaxations
available to it shall be disclosed in the notes to the financial
statements. The fact that previous period figures have not been
revised shall also be disclosed in the notes to the financial
statements.
(3) An entity which was previously not an MSME and subsequently
becomes an MSME, shall not be qualified for exemption/relaxation
in respect of Accounting Standards available to an MSME until the
entity remains an MSME for two consecutive years.
(4) If an MSME opts not to avail of the exemptions or relaxations
available to an MSME in respect of any but not all of the
Accounting Standards, it shall disclose the Standard(s) in respect
of which it has availed the exemption or relaxation.
(5) If an MSME opts not to avail any one or more of the exemptions or
relaxations available to it, it shall comply with the relevant
requirements of the Accounting Standard.

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(6) An MSME may opt for availing certain exemptions or relaxations

from compliance with the requirements prescribed in an
Accounting Standard: Provided that such a partial exemption or
relaxation and disclosure shall not be permitted to mislead users
of financial statements.
Annexure 1
Applicability of Accounting Standards to Non-company Entities The
Accounting Standards issued by the ICAI, as on April 1, 2024, and
such standards as issued from time-to-time are applicable to Non-
company entities subject to the relaxations and exemptions in the
announcement. The Accounting Standards issued by ICAI as on
April 1, 2024, are:

AS 1 Disclosure of Accounting Policies

AS 2 Valuation of Inventories
AS 3 Cash Flow Statements
AS 4 Contingencies and Events Occurring After the Balance Sheet
Date
AS 5 Net Profit or Loss for the Period, Prior Period Items and
Changes in Accounting Policies
AS 7 Construction Contracts
AS 9 Revenue Recognition
AS 10 Property, Plant and Equipment
AS 11 The Effects of Changes in Foreign Exchange Rates
AS 12 Accounting for Government Grants
AS 13 Accounting for Investments
AS 14 Accounting for Amalgamations
AS 15 Employee Benefits
AS 16 Borrowing Costs
AS 17 Segment Reporting

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AS 18 Related Party Disclosures

AS 19 Leases
AS 20 Earnings Per Share
AS 21 Consolidated Financial Statements
AS 22 Accounting for Taxes on Income
AS 23 Accounting for Investments in Associates in Consolidated
Financial Statements
AS 24 Discontinuing Operations
AS 25 Interim Financial Reporting
AS 26 Intangible Assets
AS 27 Financial Reporting of Interests in Joint Ventures
AS 28 Impairment of Assets
AS 29 Provisions, Contingent Liabilities and Contingent Assets

(1) Applicability of the Accounting Standards to Large Non-

company entities.
Large entities are required to comply in full with all the Accounting
Standards.
(2) Applicability of the Accounting Standards and
exemptions/relaxations for Micro, Small and Medium sized
Non-company entities
(A) Accounting Standards not applicable to Micro, Small and
Medium sized entity (MSME) in their entirety
(i) Accounting Standards not applicable to all MSMEs in
their entirety:
o AS 3, Cash Flow Statements
o AS 17, Segment Reporting
o AS 20, Earnings per Share
o AS 24, Discontinuing Operations

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(ii) AS 18, Related Party Disclosures and AS 28, Impairment

of Assets not applicable in their entirety to MSMEs:
(a) whose turnover (excluding other income) does
not exceed rupees fifty crore in the immediately
preceding accounting year;
(b) which does not have borrowings in excess of
rupees ten crore at any time during the
immediately preceding accounting year; and
(c) which is not a Holding and subsidiary of an
MSME not covered above.
(B) Relaxations/exemptions from certain requirements of
Accounting Standards to Micro, Small and Medium sized
Entities (MSMEs)
(i) Accounting Standard (AS) 10, Property, Plant and Equipment
MSMEs may not comply with paragraph 87 relating to
encouraged disclosures.
(ii) AS 11, The Effects of Changes in Foreign Exchange Rates
MSMEs may not comply with paragraph 44 relating to
encouraged disclosures.
(iii) AS 15, Employee Benefits
(1) MSMEs may not comply with the following paragraphs:
(a) paragraphs 11 to 16 of the standard to the extent
they deal with recognition and measurement of
short-term accumulating compensated absences
which are nonvesting (i.e., short-term
accumulating compensated absences in respect
of which employees are not entitled to cash
payment for unused entitlement on leaving);
(b) paragraphs 46 and 139 of the Standard which
deal with discounting of amounts that fall due
more than 12 months after the balance sheet
date;

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(c) recognition and measurement principles laid

down in paragraphs 50 to 116 and presentation
and disclosure requirements laid down in
paragraphs 117 to 123 of the Standard in respect
of accounting for defined benefit plans. However,
such entities may calculate and account for the
accrued liability under the defined benefit plans
by reference to some other rational method, e.g.,
a method based on the assumption that such
benefits are payable to all employees at the end
of the accounting year; and
(d) recognition and measurement principles laid
down in paragraphs 129 to 131 of the Standard in
respect of accounting for other long-term
employee benefits. Such entities may calculate
and account for the accrued liability under the
other long-term employee benefits by reference
to some other rational method, e.g., a method
based on the assumption that such benefits are
payable to all employees at the end of the
accounting year.
(iv) AS 19, Leases
MSMEs may not comply with paragraphs 22 (c),(e) and (f); 25
(a), (b) and (e); 37 (a), (f) and (g); 38; and 46 (b), (d) and (e)
relating to disclosures.
(v) AS 22, Accounting for Taxes on Income
(a) MSMEs shall comply with the requirements of AS 22,
Accounting for Taxes on Income, for Current tax
defined in paragraph 4.4 of AS 22, with recognition as
per paragraph 9, measurement as per paragraph 20 of
AS 22, and presentation and disclosure as per
paragraphs 27-28 of AS 22.
(b) Transitional requirements on the first occasion when an
MSME avails this exemption, the accumulated deferred

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tax asset/liability appearing in the financial statements

of immediate previous accounting period, shall be
adjusted against the opening revenue reserves/owner’s
funds.
(vi) AS 26, Intangible Assets MSMEs may not comply with
paragraphs 90(d)(iii); 90(d)(iv) and 98 relating to disclosures.
(vii) AS 28, Impairment of Assets (a) MSMEs that are otherwise
not exempted from applying this standard [refer note 2(A)(ii)]
are allowed to measure the ‘value in use’ on the basis of
reasonable estimate thereof instead of computing the value
in use by present value technique. Consequently, if such
MSME chooses to measure the ‘value in use’ by not using the
present value technique, the relevant provisions of AS 28,
such as discount rate etc., would not be applicable to such
an entity. Further, such an entity need not disclose the
information required by paragraph 121(g) of the Standard.
(b) MSMEs that are otherwise not exempted from applying
this standard [refer note 2(A)(ii)] may not comply with
paragraphs 121(c)(ii); 121(d)(i); 121(d)(ii) and 123 relating to
disclosures.
(viii) AS 29, Provisions, Contingent Liabilities and Contingent
Assets
MSMEs may not comply with paragraphs 66 and 67 relating
to disclosures.
(C) In case of Micro, Small and Medium sized Non-company entities,
generally there are no such transactions that are covered under AS
14, Accounting for Amalgamations, or jointly controlled operations
or jointly controlled assets covered under AS 27, Financial
Reporting of Interests in Joint Ventures. Therefore, these standards
are not applicable to Micro, Small and Medium size Non-company
entities. However, if there are any such transactions, these entities
shall apply the requirements of the relevant standard.
(D) AS 21, Consolidated Financial Statements, AS 23, Accounting for
Investments in Associates in Consolidated Financial Statements, AS

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27, Financial Reporting of Interests in Joint Ventures (to the extent

of requirements relating to Consolidated Financial Statements),
and AS 25, Interim Financial Reporting, do not require a Non-
company entity to present consolidated financial statements and
interim financial report, respectively. Relevant AS is applicable only
if a Non-company entity is required or elects to prepare and
present consolidated financial statements or interim financial
report.
II. Amendments to AS 22, Accounting for Taxes on Income
Paragraphs 2A, 32A–32D (including their related heading and example
after paragraph 32D) and 35 are added.
Scope ...
2A This Standard applies to taxes on income arising from tax law
enacted or substantively enacted to implement the Pillar Two model
rules published by the Organisation for Economic Cooperation and
Development (OECD), including tax law that implements qualified
domestic minimum top-up taxes described in those rules. Such tax law,
and the taxes on income arising from it, are hereafter referred to as
‘Pillar Two legislation’ and ‘Pillar Two income taxes’. As an exception to
the requirements in this Standard, an enterprise should neither
recognise nor disclose information about deferred tax assets and
liabilities related to Pillar Two income taxes.
Presentation and Disclosure
International tax reform—Pillar Two model rules 32A An enterprise
should disclose that it has applied the exception to recognising and
disclosing information about deferred tax assets and liabilities related to
Pillar Two income taxes (see paragraph 2A). 32B An enterprise should
disclose separately its current tax expense (income) related to Pillar Two
income taxes. 32C In periods in which Pillar Two legislation is enacted or
substantively enacted but not yet in effect, an enterprise should disclose
known or reasonably estimable information that helps users of financial
statements understand the enterprise’s exposure to Pillar Two income
taxes arising from that legislation. 32D To meet the disclosure objective
in paragraph 32C, an enterprise should disclose qualitative and

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quantitative information about its exposure to Pillar Two income taxes at

the end of the reporting period. This information does not have to
reflect all the specific requirements of the Pillar Two legislation and can
be provided in the form of an indicative range. To the extent information
is not known or reasonably estimable, an enterprise should instead
disclose a statement to that effect and disclose information about the
enterprise’s progress in assessing its exposure.
Examples illustrating paragraphs 32C–32D Examples of information an
enterprise could disclose to meet the objective and requirements in
paragraphs 32C–32D include: (a) qualitative information such as
information about how an enterprise is affected by Pillar Two legislation
and the main jurisdictions in which exposures to Pillar Two income taxes
might exist; and (b) quantitative information such as: (i) an indication of
the proportion of an enterprise’s profits that might be subject to Pillar
Two income taxes and the average effective tax rate applicable to those
profits; or (ii) an indication of how an enterprise’s average effective tax
rate would have changed if Pillar Two legislation had been in effect.
Provided that a Micro, Small and Medium-sized Enterprise (Levels IV, III
and II non-company entities) may not apply the disclosure requirements
laid down in paragraphs 32C and 32D. ... Effective date 35 International
Tax Reform—Pillar Two Model Rules, added paragraphs 2A and 32A–
32D. An enterprise should: (a) apply paragraphs 2A and 32A immediately
upon the issue of these amendments and retrospectively; and (b) apply
paragraphs 32B–32D for annual reporting periods beginning on or after
1 April 2024. An enterprise is not required to disclose the information
required by these paragraphs for any interim period ending on or before
31 March 2025.

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PART – II: QUESTIONS AND ANSWERS

QUESTIONS

PART – I: Multiple Choice Questions based on Case Scenarios

1. Surat Ltd. has received a grant of ` 40 crore for purchase of a qualified
machine costing ` 90 crores. The residual value is ` 2 crore and expected
useful life of the machine is 20 years.
Answer the following question as per the requirements of AS 12,
Government Grants assuming that the depreciation method is straight
line:
(a) What is the nature of Grant being received by Surat Ltd.?
(i) Non-Monetary Government Grant
(ii) Grant related to specific fixed assets
(iii) Grant related to Revenue
(iv) Promoter’s Contribution
(b) If Surat Ltd. has the policy to recognise the grant as deduction
from the cost of the asset, what will be the amount of depreciation
to be charged as expense in statement of profit and loss account
every year:
(i) ` 4.5 crores
(ii) ` 2.5 crores
(iii) ` 2.4 crores
(iv) ` 2 crores
(c) If Surat Ltd. has the policy to recognise the grant as deferred
income, what will be the amount of grant to be recognised as
other income in statement of profit and loss account every year:
(i) ` 4.5 crores
(ii) ` 2.5 crores

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(iii) ` 2 crores
(iv) ` 1 crores
(d) If Surat Ltd. has the policy to recognise the grant as deferred
income, what will be the amount of depreciation to be charged as
expense in statement of profit and loss account, every year:
(i) ` 4.5 crores
(ii) ` 4.4 crores
(iii) ` 2.5 crores
(iv) ` 2 crores
2. In the books of G Ltd., closing inventory as at 31.03.2024 amounts to
` 10,40,000 (on the basis of FIFO method).
The company decides to change from FIFO method to weighted average
method for ascertaining the cost of inventory for 31.3.2024. On the basis
of weighted average method, closing inventory as on 31.03.2024
amounts to ` 8,80,000. Realisable value of the inventory as on
31.03.2024 amounts to ` 12,00,000.
What will be the value of inventory in the books and what disclosure
should be given in the financial statement on 31.3.2024?
(i) The value of inventory will be ` 8,80,000 and the fact that the
valuation method has changed to be disclosed in the financial
statement.
(ii) The value of inventory will be ` 12,00,000, and full disclosure with
the amount the valuation method has changed to be disclosed in
the financial statement.
(iii) The value of inventory will be ` 12,00,000, and the fact that
valuation method has changed to be disclosed in the financial
statement.
(iv) The value of inventory will be ` 8,80,000, and full disclosure with
the amount the valuation method has changed to be disclosed in
the financial statement.

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3. Cost of current investment acquired was ` 1000 but the fair value was
` 800. The Investment was recorded at ` 800. Now the fair value of
Investment is ` 1200. At what value should it be recorded and how much
gain will be credited to profit and loss account.
(i) No change is required and it will continue at ` 800
(ii) Current investment will be recorded at ` 1000 and gain of ` 200
will be credited to profit and loss account.
(iii) Current investment will be recorded at ` 1200 and gain of ` 400
will be credited to profit and loss account.
(iv) Current investment will be recorded at ` 1200 but no gain will be
credited to profit and loss account.
Part II - Descriptive Questions
Applicability of Accounting Standards
4. As per the revised scheme effective from accounting periods
commencing on or after April 1, 2024, classify non-company entities for
the purpose of applicability of Accounting Standards. Briefly explain the
criteria for each category.
AS 1 “Disclosure of Accounting Policies”
5. Lion Ltd., engaged in manufacturing and construction contracts,
prepares its financial statements for the year ended 31st March 2025.
The company follows historical cost for fixed assets, FIFO for inventory
valuation, and percentage of completion method for revenue
recognition in construction contracts. During the year, the management
changes:
• The inventory valuation method from FIFO to Weighted Average
due to volatility in raw material prices.
• The depreciation method from Straight Line Method (SLM) to
Written Down Value (WDV) citing better reflection of asset usage.
The company discloses the change in inventory method in notes, but
does not disclose the change in depreciation method, stating that it is
not material.

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Additionally, the company has not disclosed its accounting policy on

recognition of government grants, though it has received a significant
subsidy this year.
You are required to:
(a) Identify and explain violations (if any) of AS 1 in the above case.
(b) Critically evaluate whether "materiality" can be used as a
justification for non-disclosure of a change in accounting policy.
(c) Justify, would the change from FIFO to Weighted Average be
treated as a change in accounting estimate or accounting policy
under AS 1?
AS 2 “Valuation of Inventories”
6. The following information is available for Zing Ltd. for the year 2024-25:
Raw Material:
Closing Stock 700 units
Cost price ` 35 per unit
Replacement cost ` 20 per unit
Finished product: FP 1 FP 2
Production (units) 3,000 1,600
Closing stock (units) 500 300
Material consumed ` 3,20,000
Direct labour ` 1,60,000
Direct expenses ` 78,000
Fixed overhead for the year was ` 95,000, which includes godown rent of
` 15,000. Godown is used for storing finished products.
Besides 2 main products, 1000 units of a by-product (BY) also emerged
in the production process which was sold @ ` 12 per unit after incurring
an expense of ` 2,500. ` 4,800 was realized from sale of scrap. The
average market price of FP1 is ` 160 per unit and FP2 is ` 100 per unit.
Calculate the value of closing stock of Zing Ltd. as per AS 2.

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AS 3 “Cash Flow Statements”

7. From the following information, prepare cash flow statement of Kiran
Ltd. as at 31st March, 2025 by using indirect method:
2024 2025
` `
Liabilities
Share capital 12,00,000 12,00,000
Profit & Loss A/c 8,50,000 10,00,000
Long Term Loans 10,00,000 10,60,000
Trade payables 3,50,000 4,00,000
34,00,000 36,60,000
Assets
Fixed Assets 17,00,000 20,00,000
Investment in shares 2,00,000 2,00,000
Inventory 6,80,000 7,00,000
Trade receivables 7,20,000 6,60,000
Cash 60,000 70,000
Bills Receivable 40,000 30,000
34,00,000 36,60,000
Income Statement for the year ended 31st March, 2025
`
Sales 40,80,000
Less: Cost of sales 27,20,000
Gross Profit 13,60,000
Less: Operating expenses:
Administrative expenses 4,60,000
Depreciation 2,20,000 (6,80,000)
Operating Profit 6,80,000
Add: Non-operating incomes (dividend 50,000
received)
7,30,000
Less: Interest paid (1,40,000)

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Profit before tax 5,90,000

Less: Income-tax (2,60,000)
Profit after tax 3,30,000
Statement of Retained Earnings
`
Opening balance 8,50,000
Add: Profit 3,30,000
11,80,000
Less: Dividend paid (1,80,000)
Closing balance 10,00,000
8. Garden Ltd. acquired fixed assets viz. plant and machinery for ` 20 lakhs.
During the same year it sold its furniture and fixtures for ` 5 lakhs. Can
the company disclose, net cash outflow towards purchase of fixed assets
in the cash flow statement as per AS 3?
AS 5 “‘Net Profit or Loss for the Period, Prior Period Items and Changes
in Accounting Policies’”
9. (a) When can an item qualify to be a prior period item as per AS 5?
(b) The company finds that the stock sheets of 31.3.2024 did not
include two pages containing details of inventory worth ` 20 lakhs.
State, how will you deal with this matter in the accounts of A Ltd.,
for the year ended 31st March, 2025 with reference to AS 5.
AS7 “Construction Contracts”
10. A company took a construction contract for ` 100 lakhs in January, 2024.
It was found that 80% of the contract was completed at a cost of ` 92
lakhs on the closing date i.e. on 31.3.2025. The company estimates
further expenditure of ` 23 lakhs for completing the contract. The
expected loss would be `15 lakhs. Can the company recognise the loss
in the financial statements prepared for the year ended 31.3.2025?
AS 9 “Revenue Recognition”
11. Tonk Tanners is engaged in manufacturing of leather shoes. They
provide you the following information for the year 2024-25:

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(i) On 31st December, 2024 shoes worth ` 3,20,000 were sent to

Mohan Shoes for sale on consignment basis of which 25% shoes
were unsold and lying with Mohan Shoes as on 31st March, 2025.
(ii) On 10th January, 2025, Tonk Tanner supplied shoes worth
` 4,50,000 to Shani Shoes and concurrently agrees to re-purchase
the same goods on 11th April 2025.
(iii) On 21st March, 2025 shoes worth ` 1,60,000 were sold to Shoe
Shine but due to refurbishing of their showroom being underway,
on their request, shoes were delivered on 12th April, 2025.
You are required to advise the accountant of Tonk Tanners, when
amount is to be recognised as revenue in 2024 -25 in above cases in the
context of AS 9.
AS 10 “Property, Plant and Equipment”
12. Precision Tools Ltd. provides the following details related to its fixed
assets for the year ended 31st March 2025:
The company purchased a machine for ` 12,00,000 on 1st October 2024.
The following expenses were also incurred:
Freight and insurance: ` 60,000
Erection charges: ` 40,000
Testing Cost: Raw materials used ` 25,000, Wages `10,000, Sale of
finished goods from testing production ` 8,000.
On 1st December 2024, it replaced the motor of an old machine with a
new one costing `1,20,000, improving the output capacity by 15%. The
old motor had a Cost of `50,000 and Accumulated Depreciation of
` 35,000.
On 15th March 2025, the company shifted a machine from one factory
to another. It incurred the following:
Dismantling cost: `12,000
Transport and installation: `18,000
Loss due to damage in transit: `6,000

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You are required to calculate the amount to be capitalized for each of

the above cases as per AS 10.
AS 12 “Accounting for Government Grants”
13. Zenith Industries Ltd., a manufacturing company, is expanding its
operations and has recently undertaken two major initiatives involving
government assistance.
(i) The company received a sum of ` 65 lakhs from the local authority
to develop medical facilities for its employees at its newly built
township near the factory premises.
(ii) Additionally, it received ` 82 lakhs as a subsidy from the Central
Government for establishing a new production unit in a notified
backward area. This subsidy has been classified as one in the
nature of promoters’ contribution, intended to support the long-
term development of the enterprise.
You are required to explain how the above transactions should be
accounted for in the books of Zenith Industries Ltd. in accordance with
Accounting Standard (AS) 12 “Government Grants”.
AS 13 “Accounting for Investments”
14. On 1st April 2024, Kesar held 75,000 equity shares of Beta Ltd., recorded
at a book value of `15 per share (with a nominal value of ` 10 each). The
following transactions took place during the year:
1. On 20th June 2024, Kesar purchased 15,000 additional shares of
Beta Ltd. at ` 16 per share.
2. On 1st August 2024, Beta Ltd. declared a bonus issue of one share
for every six shares held.
3. On 31st October 2024, the company announced a rights issue,
offering three shares for every seven held at a price of ` 15 per
share. Shareholders were allowed to fully or partially renounce
their rights.
Kesar sold one-third of his rights entitlement to Megha at ` 2 per share
and subscribed to the remaining rights on 5th November 2024.

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You are required to prepare the Investment Account in the books of

Kesar for the year ending 31st March 2025.
AS 14 “Accounting for Amalgamations”
15. X Co. Ltd. having share capital of `50 lakhs divided into equity shares of
`10 each was taken over by Y Co. Ltd. X Co. Ltd. has General Reserve of
`10,00,000 and Profit and Loss account Cr. `5,00,000. Y Co. Ltd. issued
11 equity shares of `10 each for every 10 shares of X Co. Ltd.
How the Journal entry would be passed in the books of Y Co. Ltd. for the
shares issued under the ‘Pooling of interest method’ of amalgamation.
AS 16 “Borrowing Costs”
16. Is it permissible to capitalise borrowing costs incurred on assets which
are necessary for the construction of qualifying assets? A company is in
the process of constructing a large manufacturing plant in a backward
area. As a part of this project it has also purchased a residential building,
which is to be used for housing the workers engaged in the construction
of the plant. The purchase cost of the building is met by raising a long
term loan. The company intends to dispose off the building once the
construction of the manufacturing plant is complete. If the
manufacturing plant meets the definition of a qualifying asset, would the
borrowing costs incurred on funds borrowed to purchase the residential
building be eligible for capitalisation?
AS 17 “'Segment Reporting'”
17. The Chief Accountant of Cotton Garments Limited gives the following
data regarding its five segments:
(` in Crore)
Particulars A B C D E Total
Segment Assets 40 15 10 10 5 80
Segment Results (95) 5 5 (5) 15 (75)
Segment Revenue 310 40 30 40 30 450

The Chief Accountant is of the opinion that segment "A" alone should be
reported. Is he justified in his view? Examine his opinion in the light of
provisions of AS 17 'Segment Reporting'.

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AS 18 “Related Party Disclosures”

18. X Ltd. sold goods to its associate company for the 1st quarter ending
30.6.2024. After that, the related party relationship ceased to exist.
However, goods were supplied as was supplied to any other ordinary
customer. Decide whether transactions of the entire year have to be
disclosed as related party transaction.
AS 19 “Leases”
19. On 1st April, 2024, Mansi Ltd. sold a plant for ` 8,52,800. The carrying
amount of the plant on that date was ` 1,80,000. The sale was a part of
the package under which Akash Ltd. leased the asset to Mansi Ltd. for
eight years term.
The economic life of the asset is estimated as 8 years. The minimum
lease rents payable by the lessee has fixed at ` 1,60,000 payable
annually beginning from 31st March, 2025.
The incremental borrowing interest rate of Mansi Ltd. is estimated at
10% p.a.

Calculate the net effect on the Statement of profit and loss in the books
of Mansi Ltd.
20. Following is the trial balance of ABC Limited as on 31.3.2025.
(Figures in ` ‘000)

Particulars Debit Particulars Credit

Land at cost 800 Equity capital (shares 500

of ` 10 each)

Calls in arrears 5 10% Debentures 300

Cash in hand 2 General reserve 150

Plant & Machinery at 824 Profit & Loss A/c (F.Y. 75

cost 2023-24)

Trade receivables 120 Securities premium 40

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Inventories (31-3-25) 96 Sales 1200

Cash at Bank 28 Trade payables 30

Adjusted Purchases 400 Provision for 150

depreciation

Factory expenses 80 Suspense Account 10

Administrative 45
expenses

Selling expenses 25

Debenture Interest 30

2455 2455

Additional Information:
(i) The authorized share capital of the company is 80,000 shares of
` 10 each.
(ii) The company revalued the land at ` 9,60,000.

(iii) Equity capital includes shares of ` 50,000 issued for consideration

other than cash.
(iv) Suspense account of ` 10,000 represents cash received from the
sale of some of the machinery on 1.4.2024. The cost of the
machinery was ` 24,000 and the accumulated depreciation thereon
being ` 20,000.

(v) Depreciation is to be provided on plant and machinery at 10% on

cost.
(vi) Balance at bank includes ` 5,000 with Abhay Bank Ltd., which is not
a Scheduled Bank.
You are required to prepare ABC Limited's Balance Sheet as on
31.3.2025 and Statement of Profit and Loss with notes to accounts for
the year ended 31.3.2025 as per Schedule Ill. Ignore previous year's
figures & taxation.

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SUGGESTED ANSWERS/HINTS

Answer to Case Scenario and MCQ

Q. No. Hints
1. (a) (ii)
(b) (iii)
(c) (iii)
(d) (ii)
2. (iv)
3. (ii)

Descriptive Answers
4. The revised scheme for applicability of Accounting Standards to Non-
company entities shall come into effect in respect of accounting periods
commencing on or after April 1, 2024, which is as under:
1. For the purpose of applicability of Accounting Standards, Non-
company entities are classified into two categories, viz., Micro,
Small and Medium Sized Entities (MSMEs) and Large entities.
2. Micro, Small and Medium Sized Entity (MSME) means, a non-
company entity:
(i) whose equity or debt securities are not listed or are not in
the process of listing on any stock exchange, whether in
India or outside India;
(ii) which is not a bank, financial institution or an insurance
company;
(iii) whose turnover (excluding other income) does not exceed
two hundred and fifty crore rupees in the immediately
preceding accounting year;
(iv) which does not have borrowings in excess of fifty crore

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rupees at any time during the immediately preceding

accounting year; and
(v) which is not a holding or subsidiary of an entity which is not
a micro, small and medium-sized entity.
Explanation.- For the purposes of this clause, a non-company
entity shall qualify as a Micro, Small and Medium Sized entity, if
the conditions mentioned therein are satisfied as at the end of the
relevant accounting period.
Large entity is a non-company entity that is not an MSME.
The terms ‘Small and Medium Enterprise’ and ‘SME’ used in
Accounting Standards shall be read as ‘Micro, Small and Medium
size entity’ and ‘MSME’, respectively. Further, the terms Level II,
Level III and Level IV entities used in Accounting Standards shall be
read as ‘Micro, Small and Medium Sized Entity’ and Level I entity
shall be read as a ‘Large’ entity.
5. As per AS 1 "Disclosure of Accounting Policies", the following
requirements are relevant:
• All significant accounting policies adopted in the preparation and
presentation of financial statements should be disclosed.
• Any change in an accounting policy which has a material effect
should be disclosed along with the nature and reasons for such
change.
• If the effect of such change is not ascertainable wholly or in part,
the fact should be indicated.
Application to Lion Ltd.:
(a) 1. Change in Inventory Valuation Method (FIFO to Weighted
Average): This is a change in accounting policy. The company
has disclosed the change in the notes to accounts along with
justification, which is in line with the disclosure requirements of
AS 1, provided the impact of the change is also disclosed or
indicated as unascertainable if applicable.

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2. Change in Depreciation Method (SLM to WDV): As per

AS 10 (Revised), a change in the method of depreciation is
considered a change in accounting estimate. However, AS 1
also requires disclosure of material items affecting financial
statements. Depreciation affects key financial figures such as
profit, asset value, and return ratios. Even if the change is
classified as an estimate, if it has a material effect, disclosure
is warranted. The company's decision not to disclose the
change on the grounds of immateriality may not be
appropriate unless supported by clear quantitative evidence.
3. Non-Disclosure of Accounting Policy for Government
Grants: Lion Ltd. has received a significant subsidy during
the year but has not disclosed its accounting policy for
government grants. As per AS 1, all significant accounting
policies, including those for government grants, should be
disclosed. Hence, non-disclosure amounts to a violation of
AS 1.
(b) Evaluation of "Materiality" as Justification for Non-Disclosure
AS 1 emphasizes that accounting policies that are significant and
changes that materially affect the financial statements should be
disclosed.
• Materiality is assessed in terms of the potential of an item or
change to influence economic decisions of users.
• Change in the method of depreciation affects not only profit
and loss but also asset values and tax liabilities. Thus, even if
the quantitative impact appears small, its qualitative impact
(e.g., on comparability and trend analysis) may be significant.
• Therefore, the company's reliance on "materiality" as a
justification for non-disclosure is not valid unless there is
concrete evidence showing the impact is indeed immaterial
both quantitatively and qualitatively.

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(c) Nature of Change from FIFO to Weighted Average

The change from FIFO to Weighted Average should be treated as a
change in accounting policy and not a change in accounting
estimate under AS 1, and its nature and financial impact should be
properly disclosed in the financial statements.
6. As per para 10 of AS 2 ‘Valuation of Inventories’, most by-products as
well as scrap or waste materials are often measured at net realizable
value and this value is deducted from the cost of the main product.
(i) Calculation of net realizable value of by-product, BY
`
Selling price of by-product (1,000 units x ` 12 12,000
BY per unit)
Less: Separate processing
charges of by-product BY (2,500)
Net realizable value of by- 9,500
product BY

(ii) Calculation of cost of conversion for allocation between joint

products FP1 and FP2
` `
Raw material consumed 3,20,000
Direct labour 1,60,000
Direct expenses 78,000
Fixed overhead (95,000 – 15,000) 80,000
6,38,000
Less: NRV of by-product BY (See (9,500)
calculation 1)
Sale value of scrap (4,800) (14,300)
Joint cost to be allocated between FP 1 6,23,700
and FP 2

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(iii) Determination of “basis for allocation” and allocation of joint

cost to FP 1 and FP 2

FP 1 FP 2
Output in units (a) 3,000 1,600
Sales price per unit (b) ` 160 ` 100
Sales value (a x b) ` 4,80,000 `
1,60,000
Ratio of allocation 3 1
Joint cost of ` 6,23,700 allocated in the
ratio of 3:1 (c) ` 4,67,775 `
1,55,925
Cost per unit [c/a] `155.93 `97.45

(iv) Determination of value of closing inventory of Finished

Products FP1 and FP2

FP 1 FP 2
Closing inventory in units 500 300
Cost per unit ` 155.93 ` 97.45
Value of closing inventory (finished ` 77,965 ` 29,235
goods)

Determination of value of closing stock of raw material

FP 1` FP 2`
Cost price 155.93 97.45
Sales price 160 100

Since both finished goods FP 1 and FP 2 are sold above cost, raw
material will be valued at cost i.e. ` 35 per unit (ie) ` 24,500 (700
units x ` 35)
(i) Total value of closing inventory
(a) Finished products:
FP 1 ` 77,965

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FP 2 ` 29,235
` 1,07,200
(b) Raw material ` 24,500
` 1,31,700
7. Cash flow statement of Kiran Ltd.
for the year ended 31st March 2025
` `
(i) Cash flows from operating activities
Profit before tax 5,90,000
Add: Depreciation (Non-cash expenses) 2,20,000
Interest (Non-operating expenses) 1,40,000
9,50,000
Less: Dividend (Non-operating income) (50,000)
Operating Profit 9,00,000
Add: Decrease in Bills Receivable 10,000
Decrease in Trade receivables 60,000
Increase in Trade paybles 50,000
10,20,000
Less: Increase in inventory (20,000)
Cash flow from operations before tax 10,00,000
Less: Tax paid (2,60,000)
Cash flow from operating activities 7,40,000
(ii) Cash flows from investing activities
Purchase of fixed assets (5,20,000)
[20,00,000 + 2,20,000 - 17,00,000]
Dividend on investments 50,000
Cash used in investing activities (4,70,000
)

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(iii) Cash flows from financing activities

Long term loan taken 60,000
Interest paid (1,40,000)
Dividend paid (1,80,000)
Cash used in financing activities (2,60,000)
Net increase in cash during the year 10,000
Add: Opening cash balance 60,000
Closing cash balance 70,000

8. According to Para 21 of AS 3 (Revised) ‘Cash Flow Statements’, an

enterprise should report separately major classes of gross cash receipts
and gross cash payments arising from investing and financing activities,
except to the extent that cash flows described in paragraphs 22 and 24
are reported on a net basis. Acquisition and disposal of fixed assets is
not prescribed in para 22 and 24 of the standard.
Hence, the company cannot disclose net cash flow in respect of
acquisition of plant and machinery and disposal of furnitures and
fixtures.
9. (a) According to para 16 of AS 5 on ‘Net Profit or Loss for the Period,
Prior Period Items and Changes in Accounting Policies’, prior period
items refers to those income or expenses, which arise in the current
period as a result of errors or omissions in the preparation of financial
statements of one or more prior periods. The term does not include
other adjustments necessitated by circumstances, which though
related to prior periods, are determined in the current period e.g.,
arrears payable to workers in current period as a result of revision of
wages with retrospective effect.
(b) As per para 16 of AS 5 on ‘Net Profit or Loss for the Period, Prior
Period Items and Changes in Accounting Policies’, omission of two
pages containing details of inventory worth `20 lakhs in 31.3.2024
is a prior period item. As per para 19 of the standard, prior period
items are normally included in the determination of net profit or
loss for the current period. Accordingly, `20 lakhs must be added
to opening stock of 1.4.2024. An alternative approach is to show

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such items in the statement of profit and loss after determination

of current net profit or loss. In either case, the objective is to
indicate the effect of such items on the current profit or loss.
10. As per paragraphs 31 and 35 of AS 7 on Construction Contracts, an
expected loss on the construction contract should be recognized as an
expense immediately irrespective of (i) whether or not the work has
commenced on the contract; or (ii) the stage of completion of the
contract; or (iii) the amount of profits expected to arise in other
contracts.
Hence, the company must recognize the loss immediately.
11. (i) Shoes sent to Mohan Shoes (consignee) for consignment sale
In case goods are sent for consignment sale, revenue is recognized
when significant risks of ownership have passed from seller to the
buyer.
In the given case, Mohan Shoes is the consignee i.e. an agent of
Tonk Tanners and not the buyer. Therefore, the risk and reward is
considered to vest with Tonk Tanners only till the time the sale is
made to the third party by Mohan Shoes; although the goods are
held by Mohan Shoes. Hence, in the year 2024-25, the sale will be
recognized for the amount of goods sold by Mohan Shoes to the
third party i.e. for ` 3,20,000 x 75% = ` 2,40,000.
(ii) Sale/repurchase agreements i.e. where seller concurrently
agrees to repurchase the same goods at a later date
For such transactions that are in substance a financing agreement,
the resulting cash inflow is not revenue and should not be
recognised as revenue in the year 2024-25. Hence, sale of
` 4,50,000 to Shani Shoes should not be recognized as revenue.
(iii) Delivery is delayed at buyer’s request
On 21st March, 2025, if Shoe Shine takes title and accepts billing
for the goods then it is implied that the sale is complete and all
the risk and rewards of ownership has been transferred to the
buyer. In case no significant uncertainty exists regarding the
amount of consideration for sale, revenue shall be recognized in

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the year 2024-25 irrespective of the fact that the delivery is

delayed on the request of Shoe Shine.
12. As per AS 10, Property, Plant and Equipment, the cost of an item of PPE
includes:
(a) Purchase price including import duties and non-refundable taxes,
(b) Directly attributable costs to bring the asset to working condition
(e.g., transport, installation, trial run),
(c) Any trial run net costs (i.e., cost – recoverable proceeds).

Particulars Amount (`)

Purchase Price 12,00,000
Freight & Insurance 60,000
Erection Charges 40,000
Net Cost of Testing (25,000 + 10,000 – 8,000) 27,000
Cost of Machinery 13,27,000

Recognition of Motors Replacement

Particulars `
Cost of Motors 50,000
Less: Depreciation 35,000
Carrying Amount of Motors 15,000

Accounting: The company should derecognize the existing

Carrying Amount of Motors replaced of ` 15,000. Further, the
acquisition cost of new motors of ` 1,20,000 would be capitalized
as a separate component.
Costs of relocating or reorganising part or all of the operations of
an enterprise are not included in the carrying amount of an item of
PPE. Hence Costs of relocation of ` 36,000 (12,000 +18,000 +6,000)
of PPE are not capitalized. Thus, entire expense to be charged off
to Profit and Loss A/c.
Thus, total capitalization (net off derecognition) = 14,32,000
(13,27,2000 +1,20,000-15,000).

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13. (i) In the books of Zenith Industries Ltd ` 65 lakhs received from the
local authority for providing medical facilities to the employees is a
grant received in nature of revenue grant. Such grants are
generally presented as a credit in the profit and loss statement,
either separately or under a general heading such as ‘Other
Income’. Alternatively, ` 65 lakhs may be deducted in reporting the
related expense i.e. employee benefit expenses.
(ii) As per AS 12 ‘Accounting for Government Grants’, where the
government grants are in the nature of promoters’ contribution,
i.e. they are given with reference to the total investment in an
undertaking or by way of contribution towards its total capital
outlay and no repayment is ordinarily expected in respect thereof,
the grants are treated as capital reserve which can be neither
distributed as dividend nor considered as deferred income. In the
given case, the subsidy received from the Central Government for
setting up a unit in notified backward area is neither in relation to
specific fixed asset nor in relation to revenue. Thus, amount of
` 82 lakhs should be credited to capital reserve.
14. In the books of Kesar
Investment Account
(Equity shares in Beta Ltd.)
Date Particulars No. of Amount Date Particulars No. of Amount
shares (`) shares (`)
1.4.24 To Balance 75,000 11,25,000 31.3.25 By Balance 1,35,000 18,15,000
20.6.24 b/d 15,000 2,40,000 c/d (Bal.
To Bank A/c fig.)

1.8.24 To Bonus
issue 15,000 -
(W.N.1)
5.11.24 To Bank A/c
(right
shares) 30,000 4,50,000
(W.N.4)
1,35,000 18,15,000 1,35,000 18,15,000

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Working Notes:
75,000 + 15,000
(1) Bonus shares = = 15,000 shares
6
75,000 + 15,000 + 15,000
(2) Right shares = × 3 = 45,000 shares
7
1
(3) Sale of rights = 45,000 shares × 3
× ` 2 = ` 30,000 to be
credited to statement of profit and loss
2
(4) Rights subscribed = 45,000 shares × × ` 15 = ` 4,50,000
3

15. In the books of Y Co. Ltd.

Journal Entries

` `
Business Purchase A/c Dr. 55,00,000
To Liquidator of X Co. Ltd. 55,00,000
(Being business of X Co. Ltd.
purchased)
Assets A/c (Bal. Fig.) Dr. 65,00,000
To Business Purchase A/c 55,00,000
To General Reserve A/c* 5,00,000
(10,00,000 – 5,00,000)
To Profit and Loss A/c 5,00,000
(Being assets and reserves and
surplus taken over)
Liquidator of X Co. Ltd. Dr. 55,00,000
To Equity share capital A/c 55,00,000
(Being purchase consideration
discharged through equity shares of
Y Co. Ltd.)

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Working note:
∗
Purchase consideration (11/10*50 lakh) ` 55,00,000
Less: Share capital of X Co. Ltd. ` 50,00,000
To be adjusted from general reserve ` 5,00,000

16. As per para 3 of AS 16 “Borrowing Costs” a qualifying asset as "an asset

that necessarily takes a substantial period of time to get ready for its
intended use or sale". Further, para 5 of the AS explains that "Assets that
are ready for their intended use or sale when acquired also are not
qualifying assets".
In the given case, prima facie, it may appear that the residential building
is ready for use when acquired, and thus, borrowing costs incurred on
purchase ofresidential building should not be capitalised. However, since
in the present case provision of housing facilities is necessary for the
construction of the plant, the borrowing costs incurred are, in substance,
directly attributable to the construction of the manufacturing plant.
Accordingly, the company should capitalise, as a part of the cost of the
manufacturing plant, borrowing costs incurred on funds borrowed to
acquire the residential building upto the period the manufacturing plant
is ready for its intended use.
17. As per para 27 of AS 17 ‘Segment Reporting’, a business segment or
geographical segment should be identified as a reportable segment if:
(i) Its revenue from sales to external customers and from other
transactions with other segments is 10% or more of the total
revenue- external and internal of all segments; or
(ii) Its segment result whether profit or loss is 10% or more of:
(1) The combined result of all segments in profit; or
(2) The combined result of all segments in loss,
whichever is greater in absolute amount; or
(iii) Its segment assets are 10% or more of the total assets of all
segments.

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Further, if the total external revenue attributable to reportable segments

constitutes less than 75% of total enterprise revenue, additional
segments should be identified as reportable segments even if they do
not meet the 10% thresholds until at least 75% of total enterprise
revenue is included in reportable segments.
Accordingly,
(a) On the basis of revenue from sales criteria, segment A is a
reportable segment.
(b) On the basis of the result criteria, segments A & E are reportable
segments (since their results in absolute amount is 10% or more of
` 100 crore).
(c) On the basis of asset criteria, all segments except E are reportable
segments.
Since all the segments are covered in atleast one of the above criteria,
all segments have to be reported upon in accordance with AS 17.
Hence, the opinion of chief accountant that only segment ‘A’ is
reportable is wrong.
18. As per para 23 of AS 18 on ‘Related Party Disclosures’, transactions of X
Ltd., with its associate company for the first quarter ending 30.6.2024
only are required to be disclosed as related party transactions. The
transactions for the period in which related party relationship did not
exist need not to be disclosed as related party transaction
19. (a) Net effect on the Statement of Profit and Loss in the year of sale in
the books of Lessee (Mansi Ltd.)
For calculation of net effect on the statement of profit and loss on
sale of equipment, it has to be judged whether lease is an
operating lease or finance lease.
The lease term is for 8 years which covers the entire economic life
of the equipment. At the inception of the lease, the present value
of the minimum lease payments (MLP) is ` 8,53,600 [` 1,60,000 x
5.335 (Annuity factor of ` 1 @10% for 8 years)] and amounts to at
least substantially all of the fair value (sale price i.e. ` 8,52,800) of
the leased equipment. Thus, lease is a finance lease.

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As per para 48 of AS 19 “Leases”, if a sale and leaseback

transaction results in a finance lease, profit of ` 6,72,800 (Sale
value ` 8,52,800 less carrying amount ` 1,80,000) will not be
recognized as income in the year of sale in the books of lessee i.e.
Mansi Ltd. It should be deferred and amortised over the lease
term in proportion to the depreciation of the leased asset.
Therefore, assuming that depreciation is charged on straight line
basis, Mansi Ltd. will recognize depreciation of ` 1,06,600 per
annum for 8 years (` 8,52,800/8) and amortise profit of ` 6,72,800
over the lease term of 8 years, i.e. ` 84,100 p.a.
The net effect is a debit of (` 1,06,600-84,100) ` 22,500 p.a. to the
Statement of Profit and Loss, for 8 years as covered under the
lease term.
20. ABC Limited
Balance Sheet as at 31st March 2025

Particulars Note No. (` in ‘000)

A. Equity and Liabilities
1. Shareholder’s funds
(a) Share Capital 1 495.00
(b) Reserves and Surplus 2 971.00
2. Non-Current Liabilities
(a) Long Term Borrowings 3 300.00
3. Current Liabilities
(a) Trade Payables 30.00
Total 1,796.00
B. Assets
1. Non-Current Assets
(a) Property, Plant and Equipment 4 1,550.00
2. Current Assets
(a) Inventories 96.00
(b) Trade Receivables 120.00

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(c) Cash and Cash equivalents 5 30.00

Total 1,796.00
ABC Limited
Statement of Profit and Loss for the year ended 31st March 2025

Particulars Note No. (` in ‘000)

I. Revenue from Operations 1200.00
II. Other Income 6 6.00
III. Total Revenue 1,206.00
IV. Expenses:
Purchases 400.00
Finance Costs 7 30.00
Depreciation (10% of 800) 80.00
Other expenses 8 150.00
Total Expenses 660.00
V. Profit / (Loss) for the period (III – IV) 546.00

Notes to Accounts

Particulars (` in ‘000)
1 Share Capital
Equity Share Capital
Authorised
80,000 Shares of ` 10/- each 800
Issued, Subscribed and Called-up
50,000 Shares of ` 10/- each 500
(Out of the above 5,000 shares have
been issued for consideration other
than cash)
Less: Calls in arrears (5) 495

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2 Reserves and Surplus

Securities Premium Account 40
General Reserve 150
Profit & Loss Balance
Opening Balance 75
Add: Profit for the period 546 621
Revaluation Reserve ` (960 – 800) 160
971
3 Long-Term Borrowings
10% Debentures 300
4 PPE
Land
Opening Balance 800
Add: Revaluation adjustment 160
Closing Balance 960
Plant and Machinery
Opening Balance 824
Less: Disposed off (24)
800
Less: Depreciation ` (150 – 20 + 80) (210)
Closing Balance 590
Total 1,550
5 Cash and Cash Equivalents
Cash at Bank
With scheduled banks 23
With others (Abhay Bank Limited) 5
Cash in hand 2 30

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6 Other Income
Profit on sale of machinery
Sale value of machinery 10
Less: Book value of machinery (4) 6
(24 – 20)
7 Finance Costs
Debenture Interest 30
8 Other Expenses:
Factory expenses 80
Selling expenses 25
Administrative expenses 45 150

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CORPORATE AND OTHER
LAWS

PART – I: AMENDMENTS FOR SEPTEMBER 2025 EXAMINATIONS

The Study Material (July 2024 edition) is applicable for September 2025
examinations. This study material is updated for all amendments till 30th June,
2024.
All relevant amendments/ circulars/ notifications etc. in the Company law part
for the period 1st July, 2024 to 28th February, 2025 are mentioned below:
THE COMPANIES ACT, 2013
Chapter 11: Companies Incorporated Outside India
Notification G.S.R 491(E) dated 12th August, 2024

The Central Government has amended the Companies (Registration of Foreign

Companies) Rules, 2014, through the Companies (Registration of Foreign
Companies) Amendment Rules, 2024.
Amendment:
In the Companies (Registration of Foreign Companies) Rules, 2014,-
(i) in rule 3, in sub-rule (3), for the word, “registrar”, the words, “Registrar,
Central Registration Centre” shall be substituted.
(ii) in rule 8, in sub-rule (1), the following proviso shall be inserted, namely:-
“Provided that the documents for registration by a foreign company referred
to in sub-rule (3) of rule (3) shall be delivered in Form FC-1 to the Registrar,
Central Registration Centre.”.
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[Enforcement Date: 9th September, 2024]

For (i) Pg 11.6

Form, procedure and time for making application and submission of

prescribed documents: According to the Companies (Registration of
Foreign Companies) Rules, 2014, the above information shall be filed with
the Registrar within 30 days of the establishment of its place of business in
India, in Form FC-1 along with prescribed fees and documents required to
be furnished as provided in section 380(1). The application shall also be
supported with an attested copy of approval from the Reserve Bank of India
under the Foreign Exchange Management Act or Regulations, and also from
other regulators, if any, approval is required by such foreign company to
establish a place of business in India or a declaration from the authorised
representative of such foreign company that no such approval is required.

For (ii) Pg 11.7

Proviso to rule 8(1) is newly inserted.

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PART – II: QUESTION AND ANSWERS

QUESTIONS

DIVISION A: MULTIPLE CHOICE QUESTIONS

Case Scenario 1
Kapoor Limited is a mid-sized listed manufacturing company incorporated in
the year 2010 by R.D. Kapoor. Mr. Kapoor has two son, Mr. Vineet and
Mr. Aditya. Both Mr. Aditya and Mr. Vineet are working as directors in Kapoor
Limited.
Kapoor Limited had some compliance issues in the past. In 2016–17, the
company issued redeemable preference shares but later failed to pay
dividends on them for some time. In September 2018, the company fixed this
by clearing all its loans and paying the pending dividends to the preference
shareholders. After resolving these issues, the company proposed to issue new
equity shares with differential rights for the financial year 2019–20.
As part of its broader capital raising strategy, the board of directors decided
to issue three different securities:
• a rights issue of equity shares to existing shareholders,
• a new class of preference shares offered exclusively to current equity
shareholders, and
• a public issue of convertible debentures.
So, for the rights issue, it prepares a simplified document omitting several
disclosures required under section 26(1) and for the new preference shares,
they created a detailed prospectus but excluded certain financial reporting.
But for the convertible debentures, they prepare a complete prospectus with
all section 26(1) requirements.
Further, Ms. Roshni, a shareholder, owned 1,500 partly paid equity shares in
the company (` 8 paid out of ` 10). On 5th July 2024, she applied to transfer
500 of these shares to Mr. Bakshi, who didn’t know about it. The company
sent him a notice on 10th July, 2024, which he received on 12th July, 2024.
Since Mr. Bakshi was abroad, he saw the notice only on 20th July, 2024. After

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realizing the shares had unpaid amounts, he sent an objection email on

24th July, 2024. However, the company went ahead with the transfer on
27th July, 2024, saying his objection came too late. According to the
company’s rules, the Board can approve the transfer of partly paid shares if
they believe the buyer can pay the remaining amount in the future.
In another case, Mr. Varun, one of the shareholders of Kapoor Limited, is the
legal representatives of a deceased shareholder, Mr. Kartik. He had written an
application to the company, to transfer the shares (of Mr. Kartik) in his name.
But Mr. Varun did not receive any reply from the company. Mr. Varun went to
the company office to inquire about the same. The company refused to
transfer the shares in his name, as he is not the registered member of the
company.
For your information, the company’s financial position as of 31st March, 2024
is as follows:
• Paid-up equity share capital: ` 200 crore (20 crore shares of ` 10 each)
• Free reserves: ` 600 crore
• Securities premium: `150 crore
• Secured loans: ` 400 crore
• Unsecured loans: `300 crore
The Board of Directors approved a buy-back proposal on 15th September,
2024, to purchase 3 crore equity shares at ` 60 per share. The company had
previously conducted a buy-back of 1 crore shares (` 10 crore) in August 2023
during the financial year 2023-24. The new buy-back is planned for October
2024, which falls in financial year 2024-25. The Chief Financial Officer has
confirmed that post-buy-back, the debt-to-capital ratio would remain within
prescribed limits, and the shares are fully paid-up.
In the light of the stated facts and figures, answer the following Multiple
Choice Questions, as per the provisions of the Companies Act, 2013:
1. Since the default was made good in FY 2018-2019, the company
considered to issue new equity share with differential rights. According
to the provisions of the Companies Act, do you think the company is
eligible to issue the shares for the financial year 2019-2020?

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(a) Yes, the company is immediately eligible to issue new shares as it

has cleared all the dues and loan by September 2018.
(b) No, the company is ineligible to issue the shares as the company
needs to wait three years till March 31, 2022.
(c) Yes, the company is eligible to issue new shares in the next
financial year, as the default was made good in the previous
FY year 2018-2019.
(d) No, the company is ineligible to issue the new shares as the
company needs to wait for five years till March 31, 2024.
2. According to the provision of the Companies Act, do you consider the
company's action of affecting the transfer of partly paid shares to
Mr. Bakshi is valid?
(a) Yes, because the company waited for more than 7 days from the
date of dispatch of notice before registering the transfer.
(b) No, because the transferee did not give his explicit consent before
the transfer of partly paid shares.
(c) No, because Mr. Bakshi made objection within 2 weeks from the
date of receipt of notice.
(d) Yes, because the Board has assessed Mr. Bakshi’s financial
capability before approving the transfer.
3. According to the provision of the Companies Act, can the company deny
transferring shares in Mr. Varun’s name and what is the company’s
obligation?
(a) Yes, the company can refuse the transfer if he is not a registered
shareholder.
(b) No, the legal representative has the right to transfer even if they
are not registered shareholder.
(c) No, the company can deny if the legal representative’s name is not
registered with the company.
(d) Yes, the company needs the approval from the Tribunal before
transferring the shares.

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4. Based on the buy-back limitations under the provision of the Companies

Act, do you think the proposed buy-back is valid?
(a) Yes, the buy-back is valid as the total amount (` 180 crore) is
within 25% of the aggregate paid-up capital and free reserves
(` 800 crore), and the buy-back in the new financial year is not
affected by the previous year's buy-back.
(b) Yes, the buy-back is valid as the number of shares (3 crore) is
within the 25% of the total paid-up equity capital (5 crore shares).
(c) Yes, the buy-back is valid as the value of shares being bought back
(` 180 crore) represents only 22.5% of the aggregate paid-up
capital and free reserves (` 800 crore).
(d) No, the buy-back is invalid as the total amount (` 180 crore)
combined with the premium being paid (` 150 crore above face
value) exceeds 25% of the aggregate paid-up capital and free
reserves.
5. The company had earlier made buy-back of 1 crore shares in August
2023. Can it legally conduct another buy-back in October 2024?
(a) Yes, as both of the gap between the buy backs is more than 1 year
(b) No, as only one buy-back is allowed in the company’s lifetime
(c) No, only listed companies can do multiple buy-backs
(d) Yes, but only if Tribunal gives specific permission
6. Suppose, if Kapoor Limited’s post-buy-back debt-to-equity ratio would
have exceeded 2:1, which of the following is correct?
(a) Buy-back is still valid if Board approves
(b) Buy-back will be invalid unless a higher ratio is prescribed by the
Central Government (through Notification) for the company
(c) The ratio rule applies only to private companies
(d) Buy-back is still valid as the Companies Act, 2013, does not
prescribe any limit on debt-to-equity ratio.

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Independent MCQs
7. Samyak Solutions Limited held its Annual General Meeting (AGM) on
20th September, 2024 to adopt the financial statements for the financial
year ending 31st March, 2024. However, due to lack of quorum, the
meeting was adjourned and was finally held on 27th September, 2024.
What is the last date for filing the Annual Return with the Registrar of
Companies under the Companies Act, 2013.
(a) 60 days from 31st March, 2024
(b) 60 days from 20th September, 2024
(c) 60 days from 27th September, 2024
(d) 60 days from 30th September, 2024
8. Blue Leaf Limited, an Indian company with a total paid-up share capital
of ` 50 crore, has a wide base of shareholders, including a large number
residing in the Middle East. Out of its total capital, ` 15 crore worth of
shares are held by members residing in Kuwait.
To facilitate better maintenance of records and communication with its
overseas shareholders, the company decides to open a foreign register
in Kuwait containing the names and particulars of those members and
other security holders residing there. The foreign register is formally
opened on November 1, 2024.
Which of the following actions is Blue Leaf Limited required to take in
this context?
(a) File a resolution passed by the Board approving the foreign
register with the Registrar of Companies within 60 days from
November 1, 2024.
(b) Send an intimation to the Ministry of External Affairs within 15
days of opening the foreign register.
(c) File with the Registrar of Companies a notice of the situation of
the Kuwait office within 30 days from November 1, 2024, along
with the prescribed fee.
(d) Apply to the Reserve Bank of India for approval to maintain a
foreign register outside India.

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9. Ms. Smriti, an Indian national, recently won ` 41 lakh in an international

online lottery. She now wishes to remit an equivalent of US $50,000
abroad to a foreign account using her lottery winnings. She approached
her authorized dealer bank to request foreign exchange for this purpose.
As per the provisions of the Foreign Exchange Management Act, 1999
and the relevant Rules, what is the correct position regarding
Ms. Smriti’s request to remit foreign exchange out of her lottery
winnings?
(a) The remittance is allowed under the Liberalised Remittance
Scheme (LRS) without any approval.
(b) The remittance is allowed only with prior approval of the Reserve
Bank of India.
(c) The remittance is allowed only with prior approval of the Central
Government.
(d) The remittance is prohibited, as it falls under the First Schedule to
the FEM (Current Account Transactions) Rules, 2000.
10. What among the following could be considered in the term ‘Immovable
Property’ as per the General Clauses Act, 1897?
(i) The soil for making bricks
(ii) Right to catch fish
(iii) Right to drain water
(iv) Doors and Windows of the house
(a) Only (i) and (iv)
(b) Only (i), (ii) and (iv)
(c) Only (i) and (ii)
(d) Only (ii), (iii) and (iv).
Descriptive Questions
11. On 30th June 2023, Sunrise Infratech Limited, raised secured deposits
amounting to ` 160 crore from the public at an interest rate of 12% per
annum, repayable after a period of 30 months. The company created

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charges within the prescribed time in favour of the trustees for

depositors, securing the deposits by creating charges over the following
assets:
• Land and Building – ` 110 crore
• Plant and Machinery – ` 30 crore
• Factory Shed – ` 20 crore
• Trademark – ` 20 crore
• Goodwill – ` 30 crore
You are required to examine the validity of the charges created,
particularly considering the nature of the assets offered as security, with
reference to the applicable provisions of the Companies Act, 2013.
12. The company, Fateh Limited, engaged in the business of electronics
manufacturing, has a paid-up share capital of ` 12.50 crore and a
shareholder base comprising 3,500 members. The company's equity
shares are listed on a recognized stock exchange, and it has a history of
strong shareholder participation in general meetings.
On 10th May, 2025, the Board of Directors issued a notice convening the
Annual General Meeting (AGM) to be held on Saturday, 13th June, 2025
at 11:00 AM at the company’s registered office in Mangalore, for
considering ordinary and special business items, including approval of
the financial statements and appointment of a new independent
director.
On the scheduled date, however, the required quorum, was not present.
Consequently, the meeting was adjourned to the same time and place
on the next Saturday, i.e., 20th June, 2025.
In connection with the meeting and its adjournment, the company’s
compliance officer has raised the following queries for legal clarification:
(i) If only two members (in person) are present at the adjourned
meeting on 20th June, 2025, will the meeting be validly held and its
business transacted?
(ii) Assume that on 13th June, 2025, 16 members (in person) were
present, but due to disorderly conduct by a few shareholders

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during the proceedings, the Chairman exercised his discretion and

adjourned the meeting to 20th June, 2025. On that date, only three
members (in person) attended the adjourned meeting. Would such
a meeting be valid in terms of quorum requirements?
The company has approached you to analyse both scenarios with
reference to the provisions of the Companies Act, 2013.
13. Stridewalk Limited, a listed company engaged in the manufacturing and
export of premium shoes and accessories, has been undergoing financial
restructuring over the past few years. After several years of operational
losses and sluggish growth, the Board recently appointed a new
Production Manager, Mr. Arjun Mehra, whose strategic improvements
have helped to revive the company's margins and production efficiency.
In light of the improved performance and renewed investors’
confidence, the Board of Directors, at its meeting held on 20th April,
2025, resolved to recommend a final dividend of `50 lakh to its equity
shareholders — a notable development as this would be the first
dividend declaration in eight years.
The financial data available is as follows:
• Current year profit (after providing for depreciation and necessary
reserves): ` 16 lakh
• Accumulated profits /free reserves over the past eight years: ` 170
lakh
• Paid-up share capital of the company: ` 680 lakh
• The proposed dividend of ` 50 lakh is intended to be funded partly
from the current year’s profit and partly from the accumulated
profits of previous years.
As the current year’s profits alone are not sufficient to meet the
proposed dividend payout, the company plans to draw from free
reserves as permitted under the Companies Act, 2013.
With reference to the provisions of the Companies Act, 2013 and the
Companies (Declaration and Payment of Dividend) Rules, 2014, examine
whether the proposed dividend declaration by Stridewalk Limited

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complies with the legal conditions applicable in the case of inadequate

profits.
14. New Sales Pvt. Limited, a company engaged in the business of trading
heavy-duty paper tapes used in industrial packaging, has seen
consistent growth over the past five years. The company’s turnover for
the financial year 2024–25 crossed ` 130 crore, with a net profit of ` 9.2
crore.
During the same financial year, the company’s long-serving Chief
Financial Officer (CFO), Mr. Ram, retired in December 2024 due to
prolonged health issues. Following his retirement, Mr. Shyam, a qualified
Chartered Accountant with two decades of experience in financial
reporting, was appointed as the new CFO in March 2025.
Upon assuming his duties and reviewing the company’s past financial
records and statutory filings, Mr. Shyam noted certain material
classification errors and omissions in the audited financial statements for
the year 2021–22.
Concerned about the potential implications of these discrepancies,
Mr. Shyam advised the Board of Directors of New Sales Pvt. Limited to
revise the financial statements for FY 2021–22, even though the financial
statements had already been adopted by the shareholders and filed with
the Registrar of Companies (RoC).
With reference to the relevant provisions of the Companies Act, 2013,
examine and advise whether New Sales Pvt. Limited is permitted to
revise its financial statements for the financial year 2021–22.
15. Pride Pvt. Limited, a start-up by a few qualified professionals, was
incorporated in 2018. The company is booming and favouring the younger
generation to work. The Capital Structure of the company is as follows:

Particulars INR (Crore)

Authorised Share Capital
1,00,00,000 Equity Shares of ` 10 each 10
Issued, Subscribed and Paid-up Share Capital
50,00,000 Equity Shares of ` 10 each 5

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Share Premium 1
General Reserve 3.52
Profit & Loss Account 1.58

The company decided to issue 30% of its equity share capital as sweat
equity shares to a class of directors and permanent employees with the
objective of motivating them and making them partners in the
company's growth. The proposed sweat equity shares will be subject to
a lock-in period of five years.

Accordingly, the company passed a resolution in its general meeting

authorizing the issuance of 15 lakh sweat equity shares at a current
market price of ` 25 per share, to be issued for a consideration of ` 5
per share to the identified class of directors and employees.

In light of the above facts and in accordance with the provisions of the
Companies Act, 2013, examine the following:

(i) Whether size of issue of sweat equity shares was appropriate?

(ii) Whether lock-in period was justifiable?

16. Shubham Limited is the holding company of Vaibhav Pvt. Limited. As per
the financial statements of Vaibhav Pvt. Limited for the financial year
ending 31st March 2025, its turnover was `1.80 crore and its paid-up
share capital was ` 80 lakh. The Board of Directors of Vaibhav Pvt.
Limited intends to avail the status of a small company under the
Companies Act, 2013.

However, the Company Secretary advised the Board that Vaibhav Pvt.
Limited cannot be classified as a small company.

In light of the above facts, examine the correctness of the advice given
by the Company Secretary with reference to the relevant provisions of
the Companies Act, 2013.

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The Limited Liability Partnership Act, 2008

17. Ravi and Neha, two entrepreneurs, plan to start a new Limited Liability
Partnership (LLP) focused on AI-based software development. They
decide to name their LLP as “NextGen AI Innovations LLP.” Before
proceeding with the incorporation, they want to ensure that their chosen
name is available and reserved. They apply to the Registrar through the
prescribed web-based platform and pay the required fee for name
reservation.
Describe the legal requirements as to the reservation of a name as per
relevant provisions under the Limited Liability Partnership Act, 2008.
The General Clauses Act, 1897
18. “No person shall be prosecuted and punished for the same offence more
than once." Explain in the light of provisions of the General Clauses Act,
1897.
Interpretation of Statutes
19. What is meant by beneficial construction in statutory interpretation?
Under what circumstances the rule of beneficial construction is
generally applied?
The Foreign Exchange Management Act, 1999

20. Ms. Pearl was an Indian citizen who got a job in a software company in
USA. She went to USA and stayed there for 15 years. During her stay, she
purchased a house in USA for her residence. Then due to some personal
issues she moved back to India and joined a software company in India.
As she had moved back to India, she let out her house in USA and
deposited the obtained rent in her account in USA.

Advise whether Ms. Pearl can purchase another house in USA from her
account in USA? Give you answer referring to the provisions of the
Foreign Exchange Management Act, 1999.

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SUGGESTED ANSWERS

Multiple Choice Questions

MCQ No. Most Appropriate Answer

1. (d)
2. (c)
3. (b)
4. (b)
5. (a)
6. (b)
7. (c)
8. (c)
9. (d)
10. (b)

Descriptive Questions
11. As per second proviso to section 76(1) of the Companies Act, 2013,
every company which accepts secured deposits from the public shall
within 30 days of such acceptance, create a charge on its assets. The
amount of charge shall not be less than the amount of deposits
accepted. The charge shall be created in favour of the deposit holders in
accordance with the prescribed rules.
In respect of creation of security, Rule 6 of the Companies (Acceptance
of Deposit) Rule, 2014, states that the company accepting secured
deposits shall create security by way of charge on its tangible assets
only.
The other notable points are:
• The company cannot create charge on intangible assets (i.e.
goodwill, trade-marks, etc.).

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• Total value of security should not be less than the amount of

deposits accepted and interest payable thereon.
In the given question,

Particulars Amount (in `)

Total value of security (value 110+30+20 [Land and Building, Plant
of assets on which charge can & machinery and Factory Shed]
be created) = 160 crore
Total deposits accepted and 160+ [(160*12%)*3 years]
interest payable thereon = 217.6 crore

Since, the total value of security is less than the amount of deposits
accepted and interest payable thereon, hence the charge is not validly
created.
12. According to section 103 of the Companies Act, 2013, in case of a public
company, unless the articles of the company provide for a larger
number, if the number of members is more than 1000 but upto 5000,
then the quorum shall be 15 members personally present.
If the quorum is not present within half-an-hour from the time
appointed for holding a meeting of the company:
(a) the meeting shall stand adjourned to the same day in the next
week at the same time and place, or to such other date and such
other time and place as the Board may determine; or
(b) the meeting, if called by requisitionists under section 100, shall
stand cancelled:
Provided that in case of an adjourned meeting or of a change of day,
time or place of meeting under clause (a), the company shall give not
less than three days’ notice to the members either individually or by
publishing an advertisement in the newspapers (one in English and one
in vernacular language) which is in circulation at the place where the
registered office of the company is situated.
Quorum not present at the adjourned meeting also: Where quorum is
not present in the adjourned meeting also within half an hour, then the
members present shall form the quorum.

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In the given question, the quorum for the given company having 3500
members shall be 15 members personally present.
(i) Where quorum is not present in the adjourned meeting (i.e. 20th
June, 2025) also within half an hour, then the two members
present shall form the quorum. In this case, the meeting held with
2 members shall be deemed to be validly held and the business
transacted thereat shall also be deemed to be validly done.
(ii) The meeting held on 13th June, 2025 had 16 members present.
Hence, the quorum was present. However, the meeting was
adjourned due to unruly behaviour of some members and not for
want of quorum. In the meeting held on 20th June, 2025, only 3
members in person were present. In such a case, these 3 members
shall not constitute the quorum and hence, shall stand further
adjourned.
13. According to second proviso to section 123, where in any year there are
no adequate profits for declaring dividend, the company may declare
dividend out of the accumulated profits earned by it in previous years
and transferred by it to the free reserves only in accordance with the
procedure laid down in Rule 3 of the Companies (Declaration and
Payment of Dividend) Rules, 2014.
Free Reserves means such reserves which, as per the latest audited
balance sheet of a company, are available for distribution as dividend.
Under Rule 3 such declaration shall be subject to the following
conditions:
CONDITION I
The rate of dividend declared shall not exceed the average of the rates
at which dividend was declared by the company in the immediately
preceding three years.

However, this condition shall not apply if the company has not declared
any dividend in each of the three preceding financial year.

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CONDITION II
The total amount to be drawn from such accumulated profits shall not
exceed 10% of its paid-up share capital and free reserves as appearing
in the latest audited financial statement.
CONDITION III
The amount so drawn shall first be utilised to set off the losses incurred
in the financial year in which dividend is declared and only thereafter,
any dividend in respect of equity shares shall be declared.
CONDITION IV
The balance of reserves after such withdrawal shall not fall below 15% of
its paid- up share capital as appearing in the latest audited financial
statement.
In the given question, since Stridewalk Limited current year profits of
` 16 lakh are insufficient to meet the dividend requirement of ` 50 lakh,
hence the company has to fulfil the conditions as prescribed under Rule
3 (mentioned above).

Particulars Amount (in `)

Amount of dividend declared (A) 50 lakh
Current year profits (B) 16 lakh
Amount to be withdrawn accumulated profits [(A)- (B)] 34 lakh
Accumulated profits during the past 8 years 170 lakh
paid up share capital of the company 680 lakh

Fulfilment of Conditions mentioned in Rule 3

Conditions Calculation Met/
Not Met
I This condition is not applicable the company has -
not declared any dividend in each of the three
preceding financial year.
II Paid-up share capital and free 680+ 170 Met
reserves
= 850 lakh (C)

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10% of (C) 85 lakh

Amount to be withdrawn
accumulated profits i.e. 34 lakhs
is less than (C)
III The company has since made Met
profit in the financial year in
which dividend is declared.
IV Free Reserves (D) 170 lakh Met
Amount drawn for payment of 34 lakh
dividend (E)
Balance of reserves after such 136 lakh
withdrawal (F) =(D)- (E)
15% of its paid up share capital 102 lakh
(G)
(F) more than (G)
In the given question, since all the conditions are met, hence Stridewalk
Limited has validly declared dividend.
14. Voluntary Revision of Financial Statements or Board’s Report on the
Approval of the Tribunal
As per section 131 of the Companies Act, 2013, if it appears to the
directors of a company that:
a. the financial statement of the company does not comply with the
provisions of section 129; or
b. the report of the Board does not comply with the provisions of
section 134
they may prepare revised financial statement or board’s report in
respect of any of the 3 preceding financial years after obtaining the
approval of the Tribunal on an application made by the company within
fourteen days of the decision taken by the Board.
A certified copy of the order of the Tribunal shall be filed with the
Registrar of Companies within 30 days of the date of receipt of the
certified copy.

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In the given question, Mr. Shyam has advised the Board of New Sales
Pvt. Limited to revise the financial statements for the year 2021-22. The
Board of Directors can do so as the said financial statements are
pertaining to not later than three preceding financial years (from 2024-
2025) and by obtaining the approval of the Tribunal within fourteen days
of the decision taken by the Board.
15. Issue of Sweat Equity Shares: As per section 53, a company shall not
issue shares at a discount, except as provided in section 54.
Section 54 of the Companies Act, 2013 states that sweat equity shares
are issued to keep the employees of a company motivated by making
them partner in the growth of the company.
Section 54 mentions the provisions which need to be adhered to by a
company if it desires to issue sweat equity shares.
Conditions: According to section 54(1), a company may issue sweat
equity shares of a class of shares already issued, if the following
conditions are fulfilled, namely—
(a) the issue is authorised by a special resolution passed by the
company;
(b) the resolution specifies the number of shares, the current market
price, consideration, if any, and the class or classes of directors or
employees to whom such equity shares are to be issued.
Limit on issue of Sweat Equity Shares: According to proviso to Rule 8
(4) of the Companies (Share Capital & Debentures) Rules 2014, w.r.t a
start-up company, it may issue sweat equity shares not exceeding fifty
percent of its paid-up capital up to ten years from the date of its
incorporation or registration.
Lock-in Period: Rule 8(5) of the Companies (Share Capital &
Debentures) Rules 2014, states that the sweat equity shares issued to
directors or employees shall be locked in/non-transferable for a period
of three years from the date of allotment.
Accordingly, in the given instance,
(i) Size of issue of sweat equity shares was appropriate, as the
decision of the company to issue 30% sweat equity shares to a

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class of directors and employees was within the prescribed limit of

50% (in case of startup company). Resolution containing 15 lakh
sweat equity shares was also within the limit of 25 lakh sweat
equity shares (i.e.,50% of paid-up capital) with the details as to the
current market price and with the consideration to be issued.
(ii) No, as per law, lock-in period will be of three years from the date
of allotment. Here, it states five years which is against the law.
16. As per section 2(85) of the Companies Act, 2013, Small company means
a company, other than a public company, —
(i) paid-up share capital of which does not exceed four crore rupees,
and
(ii) turnover of which as per profit and loss account for the
immediately preceding financial year does not exceed forty crore
rupees:
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act.
In the instant case, as per the last profit and loss account for the year
ending 31st March, 2025 of Vaibhav Pvt. Limited, its turnover was to the
extent of ` 1.80 crore, and paid-up share capital was ` 80 lakh. Though
Vaibhav Pvt. Limited, as per the turnover and paid-up share capital
norms, qualifies for the status of a ‘small company’ but it cannot be
categorized as a ‘small company’ because it is the subsidiary of another
company (Shubham Limited).
Hence, the advice of the Company Secretary is correct.
17. Under section 16 of the Limited Liability Partnership (LLP) Act, 2008, a
person may apply to the Registrar for the reservation of a name in either
of the following circumstances:
(a) As the name of a proposed LLP, or
(b) As the name to which an existing LLP proposes to change its name.

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The application must be made in the prescribed form and manner along
with the prescribed fee.
Upon receiving such an application, the Registrar may, if satisfied that
the name is not one liable to be rejected under section 15(2) of the LLP
Act, reserve the name for a period of three months from the date of
intimation by the Registrar.
As per section 15(2), no LLP shall be registered by a name which, in the
opinion of the Central Government is—
(a) undesirable; or
(b) identical or too nearly resembles to that of any other LLP or a
company or a registered trademark of any other person under the
Trade Marks Act, 1999.
18. Provision as to offence punishable under two or more enactments
As per section 26 of the General Clauses Act, 1897, where an act or
omission constitutes an offence under two or more enactments, then the
offender shall be liable to be prosecuted and punished under either or
any of those enactments, but shall not be punished twice for the same
offence.
Article 20(2) of the Constitution of India states that no person shall be
prosecuted and punished for the same offence more than once.
Provisions of section 26 of the General Clauses Act, 1897 read with
Article 20(2) of the Constitution of India apply only when the two
offences which form the subject of prosecution is the same, i.e., the
ingredients which constitute the two offences are the same. If the
offences under the two enactments are distinct and not identical, none
of these provisions will apply.
19. Beneficial construction is not a strict rule of interpretation but rather a
method used to interpret a statute liberally in order to give effect to the
declared intention of the legislature, particularly when the statute is
enacted to benefit a specific class of people.
Beneficial construction will be applied to a statute, which brings into
effect provisions for improving the conditions of certain classes of
people who are under privileged or who have not been treated fairly in

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the past. In such cases it is permissible to give an extended meaning to

words or clauses in enactments. But this can only be done when two
constructions are reasonably possible and not when the words in a
statute are quite unequivocal or clear. Thus, if the language of the
statute is clear and unambiguous, the courts must follow the plain
meaning and cannot stretch the language beyond its natural meaning.
20. According to section 6(4) of the Foreign Exchange Management Act,
1999, (the Act) a person resident in India may hold, own, transfer or
invest in foreign currency, foreign security or any immovable property
situated outside India if such currency, security or property was
acquired, held or owned by such person when he was resident outside
India or inherited from a person who was resident outside India.
As per the fact, Ms. Pearl during her stayed in USA purchased a house in
USA.
As per the above provision and facts of the case, Ms. Pearl can purchase
the new house in USA from her USA account.

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SECTION A: INCOME TAX LAW

The Income-tax law, as amended by the Finance (No. 2) Act, 2024, including
significant notifications/ circulars issued upto 28th February, 2025, is applicable for
September, 2025 examination. The relevant assessment year for September, 2025
examination is A.Y.2025-26. The October, 2024 edition of the Study Material is
based on the provisions of Income-tax law as amended by the Finance (No. 2)
Act, 2024 and significant notifications/circulars issued upto 30.09.2024, and
hence, the same is relevant for September, 2025 examination. Since there is no
significant notifications/circulars issued between 1.10.2024 and 28.02.2025,
Statutory Update is not issued for September 2025 Examination.

QUESTIONS

Case Scenario
Mr. Manish is a real estate developer. His main business is construction,
development and sale of residential properties. He developed a project named
Ashiyana Heaven which has both residential and commercial units. He
obtained certificate of completion for the said project on 1.2.2023. He sold
majority of the units, however, 15 residential units and 10 commercial units
were not sold and held as stock in trade. To earn some income from such
units, he let out 10 residential and 5 commercial units from 1st May 2024 at
` 15,000 p.m. and ` 20,000 p.m. each, respectively. Expected rent of each
residential unit is ` 14,000 p.m. and ` 22,000 p.m. for each commercial unit. All
units are identical.
Mr. Manish is also engaged with the firm Zoco & associates as a sleeping
partner. The firm has 3 partners. His capital in the firm is ` 10,00,000. Each
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partner received interest @15% on capital from the firm and remuneration
@ ` 30,000 p.m. Interest and remuneration are authorized by partnership
deed. The book profit of the firm for the P.Y. 2024-25 is ` 9,50,000.
He has taken four life insurance policies. The details of such policies are given
hereunder:
Particulars A B C D
Date of Issue 1.4.2021 1.4.2023 1.2.2024 1.7.2024
Annual Premium ` 4,00,000 ` 1,50,000 ` 2,00,000 ` 3,00,000
(excluding (excluding (excluding (excluding
GST@18%) GST @18%) GST@18%) GST@18%)
Date when premium falls 1st April 1st April 1st Feb 1st July
due every year
Date of maturity 31.3.2030 31.3.2032 31.1.2033 30.6.2033
Consideration received on ` 40,00,000 ` 20,00,000 ` 25,00,000 ` 32,00,000
maturity (including bonus)
Sum assured ` 35,00,000 ` 14,00,000 ` 22,00,000 ` 31,00,000

Based on the facts of the case scenario given above, choose the most
appropriate answer to the following multiple choice questions:
1. How much amount would be taxable in respect of income earned by
Mr. Manish for let out of the residential and commercial units and under
which head?
(a) ` 11,55,000 from residential units and ` 8,47,000 from commercial
units both under the head “Income from house property”.
(b) ` 11,55,000 from residential units under the head “Income from
house property”; ` 7,70,000 from commercial units under the head
“Income from house property”.
(c) ` 10,78,000 from residential units under the head “Income from
house property”; ` 8,47,000 from commercial units under the head
“Profits and gains from business or profession”.
(d) ` 11,55,000 from residential units under the head “Income from
house property”; ` 12,10,000 from commercial units under the
head “Profits and gains from business or profession”.

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2. What would be your answer to MCQ 1, if Mr. Manish is not a real estate
developer and has a business of letting out of properties?
(a) ` 16,50,000 from residential units under the head “Profits and gains
from business or profession”; ` 11,00,000 from commercial units
under the head “Profits and gains from business or profession”.
(b) ` 11,55,000 from residential units under the head “Income from
house property”; ` 8,47,000 from commercial units under the head
“Income from house property”.
(c) ` 16,50,000 from residential units under the head “Profits and gains
from business or profession”; ` 12,10,000 from commercial units
under the head “Profits and gains from business or profession”.
(d) ` 11,55,000 from residential units under the head “Income from
house property”; ` 11,00,000 from commercial units under the
head “Profits and gains from business or profession”.
3. What would be the tax treatment of vacant residential and commercial
units held as stock in trade during the P.Y. 2024-25?
(a) No tax treatment would be there as the units were not let out and
held as stock in trade and 2 years have not lapsed from the end of
the F.Y. in which certificate of completion is obtained.
(b) Vacant units would be deemed to be let out for 2 months i.e.,
February and March 2025 and expected rent would be taxable
under the head “Income from house property”.
(c) Vacant units would be deemed to be let out for 2 months i.e.,
February and March 2025 and expected rent of residential units
would be taxable under the head “Income from house property”
and expected rent of commercial units would be taxable under the
head “Profits and gains from business or profession”.
(d) Vacant units would be deemed to be let out for 2 months i.e.,
February and March 2025 and expected rent would be taxable
under the head “Profits and gains from business or profession”.

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4. Which of the life insurance policies would be exempt at the time of

maturity proceeds?
(a) LIC “B”, “C” and “D”
(b) None
(c) LIC “C” and “D”
(d) All
5. What would be the income taxable in the hands of Mr. Manish from the
firm, Zoco & associates, for A.Y. 2025-26?
(a) ` 4,80,000
(b) ` 1,20,000
(c) ` 3,70,000
(d) ` 3,90,000
6. Mr. Varun, an Indian citizen, engaged in consultancy business in India. He
shifted to Dubai in the year 2019 to expand his consultancy business
overseas. He visits India every year to supervise his office in Delhi. His stay
in India for current as well as past years is as follows:
• P.Y. 2020-21: 95 days
• P.Y. 2021-22: 105 days
• P.Y. 2022-23: 95 days
• P.Y. 2023-24: 75 days
• P.Y. 2024-25: 100 days
During the P.Y. 2024-25, he earned the following income:
1. Income from consultancy business in India – ` 10,00,000
2. Income from consultancy business in Dubai - ` 4,00,000
3. Agricultural income from land situated in Kerala - ` 70,000
4. Dividend from an Indian company, received in Dubai - ` 50,000
5. Interest expenditure on investment in above shares - ` 15,000

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You are required to:

(a) Determine Mr. Varun’s residential status for A.Y. 2025-26,
assuming he is not liable to tax in Dubai.
(b) Compute the Total income of Mr. Varun for P.Y. 2024-25 if he opts
out of the default tax regime.
7. Mr. Aryan, a resident individual, is working in Nishchay Ltd. and earns
salary of ` 90,000 per month during P.Y. 2024-25. He holds 20,000 equity
shares of Alpha Ltd., an Indian listed company, purchased on 1st January
2016 at ` 200 per share. These were acquired through a recognized
stock exchange and STT was paid on both acquisition and sale.
In August, 2024, Mr. Aryan transferred a plot in Chandigarh for ` 70
lakhs which was acquired by him in May 2016 for ` 22 lakhs. He paid
brokerage of 1% on transfer.
In November, 2024, Alpha Ltd. decided to buy back 50% of its shares at
` 250 per share. Alpha Ltd. bought back proportionate shares of
Mr. Aryan. In May 2025, Mr. Aryan acquired a residential house property
in Kanpur for ` 40 lakhs. Fair Market value of equity shares of Alpha Ltd.
as on 31.1.2018 was ` 190 per share.
You are required to compute the total income of Mr. Aryan if he is
paying tax under default tax regime.
CII for F.Y. 2015-16: 254; F.Y. 2016-17: 264; F.Y. 2017-18: 272;
F.Y. 2024-25: 363
8. Mr. Suraj, aged 40 years, submits the following information for the
financial year ending 31.3.2025:
(i) He is employed in ABC Ltd. and earned salary income of
` 10,50,000 (computed).
(ii) He is engaged in a speculation and a non-speculation business. He
earned profit from speculation business of ` 60,000 and suffered
loss from non-speculation business of ` 40,000.
(iii) He reported short-term capital gain of ` 80,000. He also received
lottery winnings of ` 20,000 (Gross).

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(iv) He has a brought forward long-term capital loss of ` 30,000 from

A.Y. 2023–24.
(v) Mr. Suraj has two children: one married daughter Riya aged 17
years, and a son Raj aged 16 years. The interest income of Riya and
Raj is ` 1,200 p.a. and ` 2,000 p.a., respectively.
(vi) He transferred a flat to Riya on 1st April 2024, on account of
natural love and affection. This flat was let out from that date and
generated rental income of ` 5,000 per month.
(vii) Mr. Suraj paid a medical insurance premium of ` 22,000 during the
financial year to insure his health, his spouse and dependent
children. Additionally, he paid ` 33,000 to insure the health of his
mother, aged 67 years, who is not dependent on him. He also
incurred ` 20,000 as medical expenditure for his father, aged 71
years, who is not dependent and is not covered under any
insurance policy. He contributed ` 6,000 during the year to the
Central Government Health Scheme (CGHS).
Compute the total income of Mr. Suraj assuming that Mr. Suraj’s total
income is higher than Mrs. Suraj’s total income, before including the
income of minor children. Mr. Suraj exercises the option of shifting out
of the default tax regime provided under section 115BAC(1A).
9. Examine the applicability and determine the amount of tax deduction at
source (TDS) as per the Income-tax Act, 1961 for the A.Y. 2025-26 in the
following situations:
(i) Nexus Tech Pvt. Ltd., a company engaged in the business of
manufacturing electronic goods, reported a turnover of ` 12 crore
during the F.Y. 2023–24. During the F.Y. 2024–25, the company
made the following purchases from resident sellers:
- From Vendor A – Raw materials worth ` 60,00,000 (` 25 lakh
in April, ` 35 lakh in July). Payment of ` 20 lakhs was made in
June and remaining payment in September. Vendor A has
not furnished his PAN.

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- From Vendor B – Trading goods worth ` 48,00,000 on

instalments (` 15 lakh in May, ` 20 lakh in October, ` 13 lakh
in December). Entire payment was made in March, 2025.
It is to be noted that Nexus Tech Pvt. Ltd. made the entry in its
books on the date of purchase and TCS provisions are not
applicable on vendors.
(ii) In January 2025, Mr. Sumit, engaged in business having turnover of
` 1.20 crores during the P.Y. 2023-24, enters into an annual
maintenance contract (AMC) with ABC Ltd., a resident company,
for ` 5,40,000 plus GST@18%. Mr. Sumit made the payment in
February 2025 and ABC Ltd. has not provided its PAN to Mr. Sumit.
10. Mr. Shobhit, a resident individual aged 54 years, engaged in the
manufacture of spare parts of cars. He follows the mercantile system of
accounting and regularly files his return of income. The profit and loss
account for the year ended 31.3.2025 shows a net profit of ` 57,25,000
after debiting/ crediting the following:
(i) During the year, Mr. Shobhit purchased plant and machinery for
` 55 lakhs for which he took loan from a scheduled bank. (Date of
loan 1.5.2024 and rate of interest 11% p.a.). The asset was acquired
on 1.7.2024 and put to use on 1.9.2024. The entire interest amount
is debited to the profit and loss account.
(ii) On 1.4.2024, the production manager working in the factory of
Mr. Shobhit took voluntary retirement from the services.
Mr. Shobhit paid him ` 8,00,000 as compensation for his services
under the Voluntary Retirement Scheme.
(iii) Mr. Shobhit purchased raw material from M/s Kamal & Sons, a
micro enterprise, and M/s Hitesh & Sons, a medium enterprise, for
` 51,000 and ` 75,000, respectively on 15.3.2025. As per the written
agreement with them, both the payment has to be made by
10.4.2025. Mr. Shobhit made the payment to M/s Kamal & Sons on
9.4.2025 and to M/s Hitesh & Sons on 15.11.2025.
(iv) He contributed 20% of basic salary to the account of each
employee under a pension scheme referred to in section 80CCD
which is debited to the profit and loss account. Basic salary of the

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employees aggregate to ` 10 lakhs and dearness allowance is 40%

of basic salary and it forms part of retirement benefit.
(v) Depreciation debited to profit and loss account is ` 27,50,000.
(vi) He received ` 13,850 as income-tax refund out of which ` 3,850 is
interest on refund. The entire amount is credited to profit and loss
account.
Additional Information:
(a) Mr. Shobhit purchased a new computer on 31st August, 2024 and
was put to use on the same day in his office. The payment was
made as under:
- ` 28,000 paid in cash at the time of purchase of new
computer on 31/08/2024
- ` 25,000 paid by account payee cheque on 05/09/2024 as
balance cost of new computer
(b) WDV (as per the Income-tax Act, 1961) of different assets as on
1.4.2024:
Plant and machinery ` 8,00,000;
Factory Building ` 6,45,000
(c) He paid ` 50,000 as life insurance premium taken on the life of his
father who is dependent on him. The sum assured is ` 8,00,000
and the policy was taken on 1.4.2015.
(d) He also paid ` 45,000 as life insurance premium taken on the life
of his married daughter who is not dependent on him. The sum
assured is ` 5,00,000 and the policy was taken on 1.4.2017.
(e) On 1.10.2024, he withdrew ` 1.50 crores in cash from two current
accounts maintained by him with PNB Bank of India. There are no
other withdrawals during the year.
(f) Mr. Shobhit had sold a house on 30th March, 2022 and deposited
the long term capital gains of ` 25,00,000 in capital gain account
scheme by the due date of filing return of income for that year. On
1st July, 2024, he sold another house property in which he resided

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for ` 1 crore. He earned a long-term capital gain (without

indexation benefit) of ` 50,00,000 on sale of this property. On
5th January, 2025, he withdrew the whole money out of his capital
gain account and invested ` 60 lakhs on construction of a house in
Mumbai. The construction of the house completed on 23rd March
2025. The indexed cost of acquisition of the house property is ` 60
lakhs.
You are required to compute the total income of Mr. Shobhit and also
the tax payable by him after TDS/TCS credit, if any, for the A.Y. 2025-26
if he is opting out of the default tax regime.

SUGGESTED ANSWERS

Question Answer
No.
1. (a) ` 11,55,000 from residential unit and ` 8,47,000 from
commercial unit both under the head “Income from
house property”
2. (d) ` 11,55,000 from residential unit under the head
“Income from house property”; ` 11,00,000 from
commercial unit under the head “Profits and gains
from business or profession”
3. (a) No tax treatment would be there as the units were not
let out and held as stock in trade and 2 years have not
lapsed from the end of the F.Y. in which certificate of
completion is obtained.
4. (c) LIC “C” and “D”
5. (b) ` 1,20,000

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6. (a) Determination of residential status

As per section 6(1), an Indian citizen who, being outside India
comes on a visit to India during the relevant previous year is said
to be resident in India if he has been in India during the previous
year for a total period of 182 days or more.
However, if his total income, other than the income from foreign
sources exceeds ` 15 lakhs during the previous year, he will also be
treated as resident in India if he has been in India for at least 120
days in the previous year and has been in India during the 4 years
immediately preceding the relevant previous year for a total period
of 365 days or more.
Mr. Varun visited India only for 100 days during the P.Y. 2024-25,
hence he is a non-resident as per section 6(1) irrespective of
whether his total income, other than the income from foreign
sources exceeds ` 15 lakhs or not.
As per section 6(1A), an Indian citizen, having total income, other
than the income from foreign sources, exceeding ` 15 lakhs during
the previous year would be deemed to be resident in India in that
previous year, if he is not liable to tax in any other country or
territory by reason of his domicile or residence or any other criteria
of similar nature.
Computation of total income, other than the income from
foreign sources, of Mr. Varun

Particulars ` `
Income from consultancy business in 10,00,000
India [Accrued or arisen in India]
Income from consultancy business in 4,00,000
Dubai [Income derived from a profession
set up in India]
Agricultural income from land in Kerela -
[Exempt u/s 10(1)]
Dividend from Indian company 50,000

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Less: Deduction for interest expenses 10,000 40,000

upto 20%
14,40,000

Since Mr. Varun’s total income, other than the income from foreign
sources, does not exceed ` 15 lakhs, he is not deemed resident as
per section 6(1A).
Thus, Mr. Varun is a non-resident for A.Y. 2025-26.
(b) Computation of total income of Mr. Varun, a non-resident, for
A.Y. 2025-26

Particulars ` `
Income from consultancy business in 10,00,000
India [Taxable as income accrued or
arisen in India]
Income from consultancy business in -
Dubai [Not taxable since neither income
accrued or arisen in India nor received in
India]
Agricultural income from land in Kerela -
[Exempt u/s 10(1)]
Dividend from Indian company 50,000
Less: Deduction for interest expenses 10,000 40,000
upto 20%
10,40,000

7. Computation of total income of Mr. Aryan for A.Y. 2025-26

Particulars ` `
I Salaries
Salary from Nishchay Ltd. [ ` 90,000 10,80,000
x 12]
Less: Deduction under section 16 - 75,000 10,05,000
Standard deduction upto ` 75,000

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II Capital Gains
On buy back of equity shares of
Alpha Ltd.
Consideration received on buy back Nil
of shares
Less: Cost of acquisition 20,00,000
Higher of
- Actual cost of acquisition of
` 20 lakhs [10,000 shares @
` 200 per share]
- Lower of FMV as on 31.1.2018
i.e., ` 19 lakhs and full value of
consideration i.e., Nil
Long term capital loss on buy back (20,00,000)
of shares
On sale of plot
Sale consideration 70,00,000
Less: Brokerage @1% 70,000
Net sale consideration 69,30,000
Less: Cost of acquisition [Indexation
benefit is not available on transfer
which took place on or after
23.7.2024] 22,00,000
47,30,000
Less: Exemption under section 54F 27,30,159
Amount invested in residential house
within 2 years would qualify for
exemption against long term capital
gain arising from transfer of plot.
Since the amount invested is less than
the net consideration, proportionate
capital gains is exempt
[` 47,30,000 x ` 40,00,000/` 69,30,000]

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Long term capital gain on transfer of 19,99,841

plot
Less: Set off of long term capital loss 19,99,841 Nil
on buy back of original shares
against long term capital gain on
transfer of plot to the extent of
Balance long term capital loss of
` 159 on buy back of original shares
is to be carried forward to
A.Y. 2026-27
III Income from Other Sources
Dividend on buy back of shares 25,00,000
[10,000 x 250]
Total Income 35,05,000

8. Computation of total income of Mr. Suraj for the A.Y.2025-26

Particulars ` `
I Salaries
Income from Salary (computed) 10,50,000
II Income from business
Income from speculation business 60,000
Less: Loss from non-speculation (40,000) 20,000
business
As per section 73(1), loss from
speculation business cannot be set off
against profit from non-speculation
business. However, there is no restriction
under section 72 to set off loss from
non-speculation business against profit
from speculation business.
III Capital Gains
Short-term capital gain 80,000
As per section 74(1), long term capital
loss can be set off only against long

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term capital gain. Therefore, long term

capital loss of ` 30,000 has to be carried
forward to A.Y. 2026-27
IV Income from Other Sources
Winnings from lotteries 20,000
Gross Total income before including 11,70,000
income of minor children
Income of minor married daughter Riya
(i) Interest income 1,200
(ii) GAV [Rental income from 60,000
house property] [` 5,000 x 12]
[Section 27 is not attracted if the
house property is transferred by a
parent to a minor married
daughter. Hence, Mr. Suraj is not
a deemed owner of the house
property. However, by virtue of
section 64(1A), all income of a
minor child is includible in the
hands of parent whose income is
higher.
Less: 30% of GAV 18,000 42,000
43,200
Less: Exempt under section 10(32) 1,500 41,700
Income of Minor Son Raj
Interest income 2,000
Less: Exempt under section 10(32) 1,500 500
Gross Total Income 12,12,200
Less: Deduction under section 80D (Refer 75,000
working note below)
Total Income 11,37,200

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Working Note
Deduction allowable under section 80D for the A.Y.2025-26

Particulars ` `
(i) Medical insurance premium paid for self,
spouse and dependent children 22,000
(ii) Contribution to CGHS 6,000
28,000
restricted to 25,000
(iii) Mediclaim premium paid for mother, who is
over 60 years of age 33,000
(iv) Medical expenditure incurred for father,
who is over 60 years of age and not covered
by any insurance 20,000

53,000
restricted to 50,000
75,000

9. (i) Since the turnover of Nexus Tech Pvt. Ltd. exceeds ` 10 crores
during the P.Y. 2023-24, it is required to deduct tax at source
under section 194Q for paying any sum to a resident for purchase
of goods of the value exceeding ` 50 lakhs in a previous year, at
the time of payment or credit, whichever is earlier.
The rate of TDS would be 0.1% of sum exceeding ` 50 lakhs. In
case of non-furnishing of PAN, TDS @5% would be deducted as
per section 206AA. TDS liability in respect of the purchases made
by Nexus Tech Pvt. Ltd. is as follows -
- Purchase of raw material from Vendor A

The threshold limit of ` 50 lakhs is exhausted in July at the time

of credit; accordingly, tax would be deducted by Nexus Tech
Pvt. Ltd. on ` 10 lakhs, being the sum exceeding ` 50 lakhs in
July.

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Since Vendor A has not provided his PAN to Nexus Tech Pvt.
Ltd., tax at higher rate of 5% would be deducted.

Accordingly, the tax to be deducted by Nexus Tech Pvt. Ltd.

would be ` 50,000.
- Purchase of trading goods from Vendor B

The threshold limit of ` 50 lakhs is per resident seller per

buyer. On purchase of trading goods from Vendor B, no tax
is required to be deducted since the threshold of ` 50 lakhs
is not exhausted.
(ii) Since the turnover of Mr. Sumit exceeds ` 1 crore during the
P.Y. 2023-24 and the contract payments made to ABC Ltd. exceeds
` 1,00,000, the TDS provisions under section 194C would be
attracted. The rate of TDS under section 194C is 2%. However, as
per section 206AA, in case of non-furnishing of PAN, TDS @20%
would be deducted.
In the present case, ABC Ltd. has not provided its PAN to
Mr. Sumit, hence, TDS@20% is applicable on ` 5,40,000 being the
amount excluding GST as GST is separately mentioned. The
amount of tax to be deducted by Mr. Sumit would be ` 1,08,000.
10. Computation of total income of Mr. Shobhit for A.Y. 2025-26
Particulars ` ` `
I Income from business or
profession
Net profit as per profit and 57,25,000
loss account
Add: Items of expenditure
not allowable while
computing business
income
- Depreciation as per 27,50,000
books of accounts

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- Interest on loan taken 2,01,667

for purchase of plant
& machinery [Interest
from the date on
which capital was
borrowed till the date
on which asset as first
put to use not
allowable as
deduction.
Accordingly, interest
of ` 2,01,667
[` 55,00,000 x 11% x
4/12] has to be added
back, since the same
is debited to the profit
and loss account]
- Compensation on 6,40,000
voluntary retirement
[Only 1/5th of the
compensation paid is
allowable in the
current year. The
remaining are
allowable in the four
succeeding years in
equal installments.
Hence, 4/5th of ` 8
lakh debited to profit
and loss account has
to be added back]
- Payment to M/s Kamal Nil
& Sons, a micro
enterprise, for
purchase of raw
material [Allowable as

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per section 43B(h)

since payment was
made to a micro
enterprise and the
same was within the
time specified in the
written agreement
which is within 45
days from 15.3.2025]
- Payment to M/s Hitesh Nil
& Sons, a medium
enterprise, for purchase
of raw material
[Allowable, as section
43B which mandates
allowability of
expenditure on actual
payment basis is not
applicable on medium
enterprise and
Mr. Shobhit follows
mercantile system of
accounting]
- Excess Contribution 4,000 35,95,667
towards employees’
pension scheme
[Contribution to the
extent of 14% of
salary (basic salary +
dearness allowance, if
it forms part of pay
for retirement
benefits) is allowable
as deduction under
section 36(1)(iva).
Accordingly,

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disallowance is
required to be made
since contribution
made is not within
the prescribed limit.
Disallowance under
section 40A(9) =
2,00,000 (20% of ` 10
lakh) - 14% of
` 14,00,000 (` 10 lakh
+ ` 4 lakh) = ` 4,000]
93,20,667
Less: Items of income to
be treated separately
under the respective head
of income
- Income-tax refund 13,850
including interest on
refund of ` 3,850
93,06,817
Less: Allowable expenditure
Normal depreciation on
(i) Opening WDV
- Factory Building 64,500
` 6,45,000 @10%
- Plant & Machinery 1,20,000
` 8,00,000 @15%
(ii) Computer acquired on 10,000
31.8.2024 for ` 25,000
@40% [Since payment
of ` 28,000 made in
cash in a day to a
person exceeds
` 10,000, the same

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would not be included

in the actual cost of
computer. Hence, only
actual cost of
` 25,000 is eligible for
depreciation]
(iii) On Plant & Machinery 8,55,250 10,49,750
acquired on 1.5.2024
for ` 57,01,667 @15%
[` 55,00,000 plus
` 2,01,667, being the
amount of interest on
loan taken for
purchase of this plant
and machinery from
the date on which
capital was borrowed
till the date on which
asset as first put to use
shall be capitalized]
Additional depreciation on 11,40,333
Plant & Machinery acquired
on 1.5.2024 for ` 57,01,667
@20%
71,16,734
II Capital Gains
Sale consideration 1,00,00,000
Less: Indexed cost of 60,00,000
acquisition
Long term capital gains 40,00,000
[Indexation benefit is
available since the
property is transferred
before 23.7.2024]

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Less: Exemption under 35,00,000

section 54 [Since ` 35 lakhs
is invested in construction
of house within the
stipulated time limit.]
Capital gain of ` 25 lakhs 5,00,000
in capital gain account
scheme is not taxable in
P.Y. 2024-25, since the
same is withdrawn and
invested in construction of
house within the stipulated
time limit. The remaining
amount of ` 35 lakhs
invested in construction of
house is eligible for
exemption u/s 54 against
the long-term capital gain
on sale of house property
during the P.Y.2024-25]
III Income from Other
Sources
Interest on income-tax 3,850
refund
Gross Total Income 76,20,584
Less: Deduction under Chapter
VI-A
Deduction under section 80C
- Life insurance premium of Nil
his father [Not allowable
as deduction, since not
covered within the
meaning of term “person”
in case of an individual,
though he is dependent
on him]

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- Life insurance premium for 45,000 45,000

married daughter
[Allowable as deduction
though she is not
dependent, since child of
an individual whether
Dependent or not falls
within the meaning of
term “Person” and the
premium does not exceed
10% of the ` 5,00,000,
being the sum assured]
Total Income 75,75,584
Total Income (Rounded off) 75,75,580

Computation of tax payable by Mr. Shobhit for A.Y. 2025-26

Particulars ` `
Tax @20% on LTCG of ` 5 lakhs on sale of 1,00,000
house property [Since the property is
transferred before 23.7.2024]
Tax at slab rate on balance income of
` 70,75,580
Upto ` 2,50,000 Nil
` 2,50,001 – ` 5,00,000 [@5% of ` 2.50 lakh] 12,500
` 5,00,001 – ` 10,00,000 [@20% of ` 5,00,000] 1,00,000
` 10,00,001 - ` 70,85,580 [@ 30% of 18,22,674
` 60,75,580]
19,35,174
20,35,174
Add: Surcharge @10%, since total income 2,03,517
exceeds ` 50,00,000 but does not exceed
` 1 crore
22,38,961

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Add: Health and education cess@4% 89,548

Tax liability 23,28,239
Less: TDS u/s 194N @ 2% on ` 50 lakhs, being 1,00,000
the cash withdrawals exceeding ` 1 crore
Tax payable 22,28,239
Tax payable (Rounded off) 22,28,240

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SECTION B: GOODS AND SERVICES TAX

(1) All questions should be answered on the basis of the position of GST law
as amended up to 28.02.2025.
(2) The GST rates for goods and services mentioned in various questions are
hypothetical and may not necessarily be the actual rates leviable on
those goods and services. Further, GST compensation cess should be
ignored in all the questions, wherever applicable.

QUESTIONS

Case Scenario
Rapidmove Logistics Pvt. Ltd. (hereinafter referred as RLPL), a registered
company based in Pune, Maharashtra, is engaged in providing logistics and
warehousing services, including transport of goods by road, cold storage
warehousing for perishables, and consultancy services. It also deals in
activities like storage of agricultural produce.
During the quarter April to June of current year, the company undertook
following transactions:
(i) Logistics services provided to M/s Hanuman Enterprises, registered in
Amravati, Maharashtra for ` 28,00,000 and to M/s Shiv Industries,
registered in Gwalior, Madhya Pradesh for ` 22,00,000.
(ii) Services by way of warehousing of vegetables provided to M/s Safal
Farms registered in Solapur, Maharashtra and M/s Fresh Veggies
registered in Vapi, Gujarat for ` 8,00,000 and ` 4,00,000 respectively
(iii) Sale of land to Mr. Amit in Pune for ` 1,20,00,000, excluding stamp duty
of ` 2,50,000 (stamp duty is charged at 2%).

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(iv) It also received consultancy services from Mr. Shreyas, an architect in the
month of March of the previous financial year, for ` 80,000 (exclusive of
GST @18%), but input tax credit (ITC) was not availed until now. The
related invoice was dated 20th March of previous financial year.
(v) Supplied goods to its newly opened warehouse in Bengaluru Unit valued
at ` 6,00,000 (exclusive of GST @18%). The company has paid the GST
but, Bengaluru unit did not make payment against this invoice within
180 days.
(vi) In addition to the aforesaid transactions, RLPL spent an amount of
` 5,00,000 on the procurement of certain goods which were distributed
as part of the corporate social responsibility [CSR] expenditure required
under the provisions of the Companies Act, 2013.
During the same quarter, it also received a subsidy of ` 40,000 from an
environmental NGO for adopting green refrigeration technology and using
the Electric Vehicles for logistics. This subsidy was linked to a performance
metric (carbon reduction), not to the price of services.
The company has been compliant in filing periodic returns and statements on
time during the year and has filed the annual return for preceding financial
year on 15th October, of current financial year.
Multiple choice Questions
1. What would be the aggregate turnover of RLPL for the quarter
April–June?
(a) ` 1,88,00,000
(b) ` 1,93,00,000
(c) ` 1,82,00,000
(d) ` 68,00,000
2. Which of the following options is correct regarding the availability of ITC
to RLPL in respect of GST paid on the procurement of goods meant for
the purpose of corporate social responsibility activity?
(a) The amount of ITC related to such procurement of goods is not
available to RLPL.

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(b) The amount of ITC related to such procurement of goods is

available to RLPL.
(c) The amount of ITC only to the extent of 50% of amount of such
procurement of goods is available to RLPL.
(d) The amount of ITC shall be available to the registered person to
whom such goods are distributed under CSR activity.
3. RLPL can claim ITC for the invoice dated 20th March of the previous FY
upto _________of the current financial year.
(a) 30th September
(b) 31st December
(c) 15th October
(d) 30th November
4. Subsidy received from the environmental NGO is to be _____________:
(a) treated as part of consideration as it is received in connection with
business
(b) excluded from transaction value as it is not directly linked to price
of supply
(c) included in value, as it is consideration flown from third-party.
(d) included only if received before completion of supply
5. Which of the following statements is true in relation to the non-payment
of consideration by the Bengaluru Unit to Pune office?
(a) The Bengaluru Unit shall reverse the ITC availed on the goods
received from Pune and also required to pay interest computed
from the date of invoice till the date of reversal of ITC.
(b) The Bengaluru Unit shall reverse the ITC availed on the goods
received from Pune and no interest shall be applicable.
(c) The restriction of 180 days for payment of consideration is not
applicable in the present case.
(d) The Pune godown shall issue a credit note to Bengaluru Unit to
reverse the supply.

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6. Mr. Sagar Chaturvedi, registered under GST, is engaged in supplying

multiple services (as discussed in the table below) in Mumbai,
Maharashtra. He has furnished the following information with respect to
the services supplied and received by him, during the month of April:

S. Particulars Amount
No. (`)
(i) Services of transportation of students provided to 90,000
Sanskar College offering the degree courses
recognized by law.
(ii) Outward supply of services of milling of paddy into 1,80,000
rice
(iii) Received the services by way of transportation of 2,00,000
goods by road from Sindhu Transporters, an
unregistered Goods Transport Agency of Nagpur,
Maharashtra.
(iv) Organized a business exhibition in Gujarat for 20,00,000
Ramesh Industries, registered in Delhi.
(v) Provided training at his Mumbai Office to 1,00,000
employees of Aashiyana Interiors, a proprietorship
concern of Rajasthan, which was not registered
under GST.
(vi) Recovery agent’s services provided to a car dealer 30,000
(vii) Legal services availed for official purpose from an 1,60,000
individual advocate located in Gujarat
(ix) Sponsored his business in a Cricket Match,
organized by Mumbai Cricket Association,
Maharashtra wherein he paid an amount of
` 1,50,000 to the association.

Note:
(i) Rates of CGST, SGST and IGST are 9%, 9% and 18% respectively for
both inward and outward supply of services except the service of
transportation of goods by GTA, on which the rates of CGST, SGST
and IGST are 2.5%, 2.5% and 5% respectively.

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(ii) All inward and outward supplies are exclusive of taxes, wherever
applicable.
(iii) All the conditions necessary for availing the ITC have been fulfilled.
(iv) The turnover of Sagar was ` 1.8 crore in the previous financial year.
(v) All the above mentioned supplies are intra-state, wherever the
information for determining the place of supply is not provided.
Compute the net GST payable in cash, by Sagar for the month of April.
7. Regal Foundation of Commerce organized a business summit in Surat,
Gujarat, in which all the startups were invited to pitch their business
ideas. Pandit Jewels Pvt Ltd., registered in the State of Maharashtra,
sponsored the summit and paid a sponsorship fee of ` 1,50,000 to Regal
Foundation of Commerce.
You are required to determine, who is the person liable to pay tax if:
(I) Regal Foundation of Commerce is a body corporate.
(II) Regal Foundation of Commerce is not a body corporate.
8. Examine whether GST is exempted in the following independent cases of
supply of services:
(i) Apex Facilities provided civil maintenance services for the upkeep
of the Municipal Corporation of Delhi (MCD) head office building.
Value of supply of goods constitute 20% while providing such
maintenance services.
(ii) M/s Talreja & Talreja, a firm of advocates, provides legal services
to the State Government for representation in the High Court.
(iii) BLF Mall, Noida provides services by way of vehicle parking to
general public in the basement of mall.
(iv) Service provided by a private transport operator to Scholar Boys
Higher Secondary School by way of transportation of students to
and from the school.
9. Mr. Muttswami, an electronics dealer registered in Bangalore, Karnataka
hired M/s Parivahan Logistics, an unregistered Good Transport Agency
(GTA), to deliver his goods at the place of business of customer in Jaipur,

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Rajasthan. M/s Parivahan Logistics charged ` 60,000 for the

transportation of goods, which was paid by Muttswami on 4th January
through account payee cheque. The delivery was also made on the same
day.
M/s Parivahan Logistics did not raise the tax invoice for these services,
since it was unregistered.
In this case, you are required to determine:
(i) Person liable to issue the tax invoice
(ii) Time limit for issuance of the tax invoice
(iii) Time of supply of transportation services provided by GTA,
assuming that tax invoice is issued on the last day on which it
should have been issued.
10. Mascot Motors Private Limited (hereinafter referred as MMPL), a dealer
of motor vehicles, registered in Udaipur, Rajasthan, has given an ex-
works contract to M/s Ganesh Traders, registered in Ahmedabad, Gujarat
for manufacturing 10 units of Pick-Up vans.
M/s Ganesh Traders manufactured the vans and handed them over to
transporter on behalf of MMPL on 29th April and delivery on its part is
complete at it’s factory gate in Ahmedabad.
Further, it raised the invoice for all ten Pick-Up vans on
same day. MMPL has recorded the invoice in it’s books on the same day.
Price of the vans (ex-factory) was ` 10 lakh each (excluding GST @ 28%).
However, the vans were physically received by MMPL at its showroom in
Udaipur, Rajasthan on 2nd May and payment was also made on the same
day. After the payment, two Vans got damaged completely in a fire in
the showroom in first week of May and therefore, they were written off
in the books in the month of receipt by MMPL.
Discuss the availability of ITC on pick-up vans to MMPL with reference to
the provisions under GST law. In which month, MMPL is eligible to avail
ITC on the purchase of vans and how much ITC is available in respect of
the vans?

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SUGGESTED ANSWERS/HINTS

MCQ No. Most Appropriate Answer

1. (d)
2. (a)
3. (c)
4. (b)
5. (c)

6. Computation of GST payable

Particulars Value of CGST SGST IGST

supply
(`) (`) (`) (`)
GST payable under
forward charge
Services of transportation 90,000 8,100 8,100 Nil
of students provided to [90,000 x [90,000 x
Sanskar College 9%] 9%]
[Services of transportation
of students provided to an
educational institution
other than an institution
providing pre-school
education or education up
to higher secondary school
or equivalent, are not
exempt.]
Services of milling of paddy 1,80,000 16,200 16,200 Nil
into rice. [1,80,000 x [1,80,000
[Milling of paddy into rice 9%] x 9%]
cannot be considered as an
intermediate production
process in relation to

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cultivation of plants for

food, fibre or other similar
products or agricultural
produce. Thus, it is not
eligible for exemption.]
Business exhibition 20,00,000 Nil Nil 3,60,000
organized for Ramesh [20,00,000 x
Industries 18%]
[Taxable since services by
an organizer to any person
in respect of a business
exhibition are exempt only
when such exhibition is
held outside India. Further,
it is an inter-State supply
since the place of supply of
services by way of
organization of a cultural,
artistic, sporting, scientific,
educational or
entertainment event
including supply of services
in relation to an exhibition
in case of a registered
recipient is location of such
recipient, i.e. Delhi.]
Training to employees of 1,00,000 9,000 9,000 Nil
Aashiyana Interiors. [1,00,000 x [1,00,000
[Taxable. Further, the place 9%] x 9%]
of supply of services in
relation to training and
performance appraisal
provided to an unregistered
person, shall be the location
where the services are
actually performed. Thus,

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place of supply is Mumbai.

Hence, it is an Intra-State
supply.]
Services provided as a 30,000 2,700 2,700 Nil
recovery agent [30,000 x [30,000 x
[Tax is payable under 9%] 9%]
forward charge since
recovery agent’s services
are being provided to a
person other than banking
company/financial
institution/ non-banking
financial company.]
Total GST payable under 36,000 36,000 3,60,000
forward charge (A)

GST payable under

reverse charge

Services of transportation 2,00,000 5,000 5,000 Nil

of goods received from [2,00,000 x [2,00,000
unregistered GTA 2.5%] x 2.5%]
[It is intra-State supply
since the place of supply of
services by way of
transportation of goods
provided to a registered
recipient is location of such
recipient, i.e., Maharashtra. ]
Legal services availed from 1,60,000 Nil Nil 28,800
an advocate [1,60,000 x
[Legal services received by 18%]
a business entity with
aggregate turnover in the
preceding financial year
exceeding threshold limit

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for registration (` 20 lakh)

are not exempt and tax on
the same is payable under
reverse charge. Further,
place of supply of services
provided to a registered
person is the location of
such person. Thus, place of
supply is Mumbai.
Resultantly, same is an
inter-State supply as
supplier is located in
Gujarat.]
Total GST payable under 5,000 5,000 28,800
reverse charge (B)
Computation of total ITC available

Particulars Value of CGST SGST IGST

supply @ 9% @ 9% @ 18%
(`) (`) (`) (`)
Services of transportation of 2,00,000 5,000 5,000 Nil
goods received from [2,00,000 x [2,00,000 x
unregistered GTA 2.5%] 2.5%]
[ITC is available on said
service since it is used in
course or furtherance of
business.]
ITC on sponsorship services 1,50,000 13,500 13,500 Nil
(It is an intra-State supply, [1,50,000 x [1,50,000
since place of supply is 9%] x 9%]
Mumbai, Maharashtra, being
the location of recipient. ITC
is available on services used
in the course or furtherance
of business.)

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Legal services availed from 1,60,000 Nil Nil 28,800

an advocate [1,60,000
[ITC is available on services x 18%]
used in the course or
furtherance of business.]
Total ITC available 18,500 18,500 28,800

Computation of net GST payable in cash

Particulars CGST SGST IGST
@ 9% @ 9% @ 18%
(`) (`) (`)
GST payable under forward charge 36,000 36,000 3,60,000
Less: ITC 18,500 18,500 28,800
17,500 17,500 3,31,200
Add: GST payable under reverse charge 5,000 5,000 28,800
in cash
[Tax payable under reverse charge,
being not an output tax, cannot be set
off against ITC and thus, will have to be
paid in cash.]
Net GST payable in cash 22,500 22,500 3,60,000
7. (i) In case of services provided by way of sponsorship service to any
body corporate or partnership firm by any person other than a body
corporate, the recipient is liable to pay tax under reverse charge
mechanism.
Since Regal Foundation of Commerce, the supplier, is a body
corporate in this case, so reverse charge provisions are not
applicable in this case.
Thus, Regal Foundation of Commerce is required to pay tax under
forward charge on the supply of the sponsorship services.
(ii) In case of services provided by way of sponsorship to any body
corporate or partnership firm by any person other than a body

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corporate, the recipient is liable to pay tax under reverse charge

mechanism.
Since Regal Foundation of Commerce, the supplier, is not a body
corporate in this case, so reverse charge provisions are applicable
in this case.
Accordingly, Pandit Jewels Pvt Ltd is required to pay tax under the
reverse charge on sponsorship fees paid to Regal Foundation of
Commerce.
8. (i) If the composite supply of goods and services provided to local
authority, in which the value of supply of goods constitutes not
more than 25% of the value of the said composite supply , by way
of any activity in relation to any function entrusted to a
Municipality under article 243W of the Constitution, then it would
be exempt under GST.
Further, it has been clarified vide a Circular that civil maintenance
services received for the upkeep of the MCD office are not in relation
to any function entrusted under Article 243W of the Constitution and
thus not covered under the exemption. Therefore, such civil
maintenance services are not exempt and hence taxable.
(ii) Services provided by a partnership firm of advocates to the Central
Government, State Government, Union territory, local authority,
Governmental Authority or Government Entity are exempted from
GST. Thus, legal services provided by Talreja & Talreja, a firm of
advocates, to the State Government for representation before the
High Court are exempted from GST.
(iii) Services provided by way of vehicle parking to general public are
not specifically exempted from GST. Therefore, GST is payable on
the same.
(iv) Services by way of transportation of students provided to an
educational institution which is engaged in providing services by
way of pre-school education and education up to higher
secondary school or equivalent are exempted from GST.
Therefore, in the given case the services provided by private
transport operator are exempt.

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9. Supply of services by a Goods Transport Agency (GTA) in respect of

transportation of goods by road to any person registered under the GST
is taxable under reverse charge mechanism in terms of section 9(3) of
the CGST Act, 2017. Thus, Mr. Muttswami, being the registered recipient
is liable to pay tax under reverse charge mechanism in respect of
services received from unregistered GTA.
(i) Person liable to issue the tax invoice
As per section 31(3)(f) of the CGST Act, 2017, a registered person
who is liable to pay tax under reverse charge mechanism under
section 9(3)/ 9(4), shall within the period as may be prescribed
issue an invoice in respect of goods or services or both received by
him from the supplier who is not registered on the date of receipt
of goods or services or both.
Since, M/s Parivahan Logistics is an unregistered GTA, Mr.
Muttswami, being liable to pay the tax under reverse charge
mechanism under section 9(3) is required to issue the tax invoice.
(ii) Time limit for issuance of the tax invoice
Rule 47A of the CGST Rules, 2017 provides that where an invoice
referred to in rule 46 is required to be issued under section 31(3)(f)
by a registered person, who is liable to pay tax under section 9(3)/
9(4), he shall issue the said invoice within a period of 30 days from
the date of receipt of the said supply of goods and/or services, as
the case may be.
Thus, Mr. Muttswami is required to issue a tax invoice till 3rd
February (i.e. within 30 days of receipt of services).
(iii) Time of supply of transportation services supplied by GTA.
As per section 13(3) of the CGST Act, 2017, in case of supplies in
respect of which tax is paid or liable to be paid on reverse charge
basis, the time of supply shall be the earlier of the following dates,
namely:—
(a) the date of payment as entered in the books of account of
the recipient or the date on which the payment is debited in
his bank account, whichever is earlier; or

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(b) the date immediately following sixty days from the date of
issue of invoice or any other document, by whatever name
called, in lieu thereof by the supplier, in cases where invoice
is required to be issued by the supplier, or
(c) the date of issue of invoice by the recipient, in cases where
invoice is to be issued by the recipient.
Since, in this case the reverse charge mechanism is applicable on
receipt of services provided by GTA and invoice is issued by
recipient, time of supply would be earliest of the following date:
(a) Date of payment i.e. 4th January
(b) The date of issue of invoice by the recipient i.e. 3rd February.
So, the time of supply in this case will be 4th January.
10. Section 16(2)(b) of the CGST Act, 2017 provides that no registered
person shall be entitled to the credit of any input tax in respect of any
supply of goods or services or both to him unless he has received the
goods or services or both.
Explanation to section 16(2)(b) of the CGST Act, 2017 provides that it
shall be deemed that the registered person has received the goods or,
as the case may be, services, where the goods are delivered by the
supplier to a recipient or any other person on the direction of such
registered person, whether acting as an agent or otherwise, before or
during movement of goods, either by way of transfer of documents of
title to goods or otherwise.
Further, it has been clarified vide a circular that in case of Ex-works
contract, the property in the goods can be considered to have been
passed on to the dealer by the Original Equipment Manufacturer (OEM)
upon handing over of the said goods to the transporter at his factory
gate, meaning thereby that the goods can be considered to have been
delivered to the registered person (the dealer), through the transporter,
by the supplier (the OEM) at his factory gate and the supply of the said
goods can be considered to have fructified at the factory gate of the
OEM, even though the goods may be physically received by the
registered person (the dealer) after the transit period.

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In the given case, since the contract between M/s Ganesh Traders (OEM)
and MMPL (dealer) is ex-works, pick up vans are considered to be
received by MMPL on 29th April i.e. the date on which the vans are
handed over to the transporter, even though they were physically
received in the month of May.
So, initially on 29th April, full ITC of `28 lakh [`10 lakh X 10 vans X 28%]
can be availed while filing the return of the month of April.
Subsequently, after the receipt of vans in the showroom, 2 vans were
destroyed due to fire and written off in the books.
So, ITC in respect of such vans, which was already availed has to be
reversed while filing the return of the next month-May, since ITC on the
goods, which are destroyed is not available in accordance with section
17(5) of the CGST Act, 2017.
The Amount of ITC which has be to be reversed in the return of next
month is = `5.6 lakh [`10 lakh X 2 vans X 28%].

98 SEPTEMBER 2025 EXAMINATION

Applicability of Standards/Guidance Notes/Legislative Amendments etc. for
September, 2025 Examination
Intermediate Level

Paper 2: Corporate and Other Laws

The provisions of the Companies Act, 2013 and the Limited Liability
Partnership Act, 2008 along with significant Rules/ Notifications/ Circulars/
Clarification/ Orders issued by the Ministry of Corporate Affairs, and the laws
covered under Part II: Other Laws, as amended by concerned authority,
including significant notifications and circulars issued up to 28.02.2025 are
applicable for September 2025 examination.
The Study Material (July 2024 edition) has to be read along with the 'Relevant
Legislative amendments for September 2025 examinations' for the period of
01.07.2024 to 28.02.2025.

Paper 3: Taxation

Section A: Income-tax Law

The provisions of income-tax law, as amended by the Finance (No. 2) Act,
2024, including significant circulars, notifications, press releases issued and
legislative amendments made upto 28.2.2025, are applicable for
September, 2025 examination. The relevant assessment year for income-tax is
A.Y. 2025-26.
The October 2024 edition of the Study Material for Intermediate Paper 3A,
based on the provisions of income-tax law, as amended by the Finance (No. 2)
Act, 2024 and Notifications and Circulars issued upto 30th September, 2024, is
relevant for September, 2025 examination. Considering that no significant
Notifications and Circulars are issued between 1st October 2024 and 28th
February, 2025, there is no statutory update for September 2025 examination.
Note –The Study Guidelines specifying the list of topic-wise exclusions from the
scope of syllabus and topic-wise inclusion of clauses of section 10 in the
syllabus is webhosted at https://resource.cdn.icai.org/84185bos67885.pdf.
REVISION TEST PAPER
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Section B: Goods and Services Tax

Applicability of the GST law
The provisions of the CGST Act, 2017 and the IGST Act, 2017 as amended by
the Finance (No. 2) Act, 2024 including significant notifications and circulars
issued and other legislative amendments made, which have become
effective up to 28.02.2025, are applicable for September 2025 examination.
The amendments made by the Annual Union Finance Acts in the CGST Act, 2017 and
IGST Act, 2017 are made effective from a date notified subsequently. Thus, those
amendments made by the relevant Finance Acts which have become effective till
28.02.2025 are applicable for September 2025 examination. Accordingly, all the
amendments made by the Finance (No. 2) Act, 2024 are applicable for September
2025 examination since they have become effective till 28.02.2025.
The Study Guidelines given below specify the exclusions from the syllabus
for September 2025 examination.

List of topic-wise exclusions from the syllabus

(1) (2) (3)

S. No. in Topics of Exclusions
the the syllabus (Provisions which are excluded from the
syllabus corresponding topic of the syllabus)
2(iii) Charge of CGST Act, 2017
tax including (i) Rate of tax prescribed for supply of goods*
reverse (ii) Rate of tax prescribed for supply of
charge services*
(iii) Categories of supply of goods, tax on which
is payable on reverse charge basis under
section 9(3)
IGST Act, 2017
(i) Rate of tax prescribed for supply of goods
(ii) Rate of tax prescribed for supply of services
(iii) Categories of supply of goods, tax on which
is payable on reverse charge basis under
section 5(3)

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2(iv) Exemption CGST Act, 2017 & IGST Act, 2017

from tax Exemptions for supply of goods
3(ii) Basic IGST Act, 2017 & IGST Rules, 2017
concepts of (i) Place of supply of goods imported into, or
place of exported from India
supply (ii) Place of supply of services where location of
supplier or location of recipient is outside
India
(iii) Special provision for payment of tax by a
supplier of online information and database
access or retrieval [OIDAR] services
(iv) Refund of integrated tax paid on supply of
goods to tourist leaving India
(v) Special provision for specified actionable
claims supplied by a person located outside
taxable territory
3(iii) Basic CGST Act, 2017 & CGST Rules, 2017
concepts of Provisions relating to change in rate of tax in
time of respect of supply of goods or services
supply
3(iv) Basic CGST Act, 2017 & CGST Rules, 2017
concepts of Chapter IV: Determination of Value of Supply
value of [Rules 27-35] of CGST Rules, 2017
supply
3(v) Basic CGST Act, 2017 read with CGST Rules, 2017
concepts of (i) Claim of credit by a banking company or a
input tax financial institution [Rule 38]
credit (ii) Manner of determination of input tax credit
in respect of inputs or input services and
reversal thereof [Rule 42]
(iii) Manner of determination of input tax credit
in respect of capital goods and reversal
thereof in certain cases [Rule 43]

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(iv) Input tax credit provisions in respect of

inputs and capital goods sent for job work.
(v) Input tax credit provisions relating to
distribution of credit by Input Service
Distributor [ISD]
(vi) Manner of recovery of credit distributed in
excess
(vii) Manner of reversal of credit of additional
duty of customs in respect of Gold dore bar
*Rates specified for computing the tax payable under composition levy are
included in the syllabus.
Note: The syllabus includes select provisions of the CGST Act, 2017 and IGST
Act, 2017 and not the entire CGST Act, 2017 and the IGST Act, 2017. The
provisions covered in any topic(s) of the syllabus which are related to or
correspond to the topics not covered in the syllabus shall also be excluded.
In the above table, in respect of the topics of the syllabus specified in column
(2) the related exclusion is given in column (3). Where an exclusion has been
so specified in any topic of the syllabus, the provisions corresponding to such
exclusions, covered in other topic(s) forming part of the syllabus, shall also be
excluded. For example, since provisions relating to ISD are excluded from the
topics “Input tax credit”, the provisions relating to (i) registration of ISD and
(ii) filing of returns by an ISD are also excluded from the topics “Registration”
and “Returns” respectively.

The entire content included in the October 2024 edition of the Study
Material (except where it is expressly mentioned that the content is not
relevant for the examination) and the Statutory Update for September
2025 examination shall ALONE be relevant for the said examination. The
amendments in the GST law made after the issuance of the Study
Material - to the extent covered in the Statutory Update for September
2025 examination shall only be relevant for the said examination.

102 SEPTEMBER 2025 EXAMINATION