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Question Paper

Direct Tax Laws Duration: 65

Details: Test- 3 (Ch- 3) Marks: 35

Instructions:

 All the questions are compulsory

 Properly mention test number and page number on your answer sheet, Try to upload sheets in
arranged manner.
 In case of multiple choice questions, mention option number only Working notes are
compulsory wherever required in support of your solution
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performance.

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Q-1

The business profit of T Ltd., a tea growing and manufacturing company, is Rs. 120 lacs (before
deduction under section 33AB) for the assessment year 2024-25. It deposits Rs. 50 lacs with
NABARD for claiming deduction under section 33AB. It wants to claim set-off of brought
forward business loss of Rs. 40 lacs of the assessment year 2017-18. Find out the taxable
income of T Ltd. for the assessment year 2024-25.

(6 Marks)

Q-2

"Rameshwarm" after purchase put to use on 15-12-2021 a machine worth Rs. 3,00,000 which
is eligible for depreciation @ 15% under the Act. He sold this machine to "Ganesham" on 1 -
1-2023 for Rs. 3,20,000 (FMV on that date was Rs. 2,50,000), who after having used the
machine for his business purposes again sold it back to "Rameshwarm" on 15 -11-2023 for Rs.
3,10,000.

Compute the amount of allowable depreciation and of chargeable capital gain, if any, for
assessment years 2022-23 to 2024-25 assuming that this was the only machine in the block
of asset held by both "Rameshwarm" and “Ganesham”.

(8 Marks)

Q-3

Atul Housing Finance Co. Ltd., engaged in the business of providing long-term finance for
construction or purchase of houses in India for residential purposes, provides you the
following particulars from its accounts for the year ended on 31.3.2024 and seeks your
opinion as to availability of deduction under section 36(1)(viii) and the amount there of:

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Profits from the business computed as per Part D of Chapter IV of the Income-tax Act, 1961,
but before claiming deduction under section 36(1)(viii) is Rs. 560 lacs

Paid-up share Capital Rs. 500 lacs

General Reserve Rs. 100 lacs

Balance in reserve created under section 36(1)(viii) on 31.3.2023 Rs. 1,100 lacs

(5 Marks)

Q-4

ABX Limited is engaged in the manufacturing of pipes and tubes. The profit and loss account
of the company for the year ended 31st March 2024 shows a net profit of Rs.800 lakhs.
Compute the total income of the company for Assessment Year 2024-25, indicating reasons
for the treatment of each item. Assume that the company has not opted for special provisions
under section 115BAA or 115BAB.

1) A group free air ticket was provided by a supplier for reaching a certain volume of purchase
during the financial year 2023-24. The same is encashed by the company for Rs.14 lakhs in
April 2023 and credited to the General Reserve Account.

2) A regular supplier of raw materials agreed for settlement of 6 lakhs instead of 10 lakhs for
poor quality of material supplied during the previous year, which was not given effect in the
running account of the supplier.

3) Zenith Bank sanctioned and disbursed a term loan in the financial year 2020-21 for a sum
of 120 lakhs. Interest of 16 lakhs was in arrears. The bank has converted the arrear interest
into a new loan repayable in 10 equal instalments. During the year, the company has paid 2
instalments, and the amount so paid has been reduced from Funded Interest in the Balance
Sheet.

4) The company remitted Rs.6 lakhs as interest to a company incorporated in Canada on a

loan taken 2 years ago. Tax deducted under section 195 from such interest has been

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deposited by the company on 20th August 2024. The said interest was debited to the profit
and loss account.

5) Rahul, a sales executive stationed at HO at Mumbai, was on official tour in Chennai from
5th June 2023 to 28th June 2023 and 10th October 2023 to 25th October 2023 for business
development. The company has paid Rahul's salary in cash, from its local office at Chennai for
the month of June 2023 (payable on 1st July) and October 2023 (payable on 1st November),
amounting to 55,000 and 50,000 respectively (net of TDS and other deductions), as Rahul has
no bank account at Chennai. These were included in the amount of “salary” debited to Profit
and Loss Account.

6) The company has contributed Rs.95,000 by account payee cheque to an electoral trust,
and the same stands included under the head "General Expenses."

(8 Marks)

Q-5

A firm assessed as such has paid Rs. 25,00,000 as remuneration to its partners for the
P.Y.2024-25, in accordance with its partnership deed, and it has a book profit of Rs. 15 lakh.
What is the remuneration allowable as deduction?

(3 Marks)

Q-6 MCQ Question

1. M/s Beautiful Homes, an interior decorator proprietorship concern, submitted the

following details of three years immediately preceding the P.Y. 2023-24.

Previous Year Gross Receipts Income from Total income

profession

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 2020-21 1,39,000 91,000 3,10,000

2021-22 2,02,000 1,35,000 4,07,000

2022-23 3,85,000 2,49,000 6,83,000

Comment upon the applicability of section 44AA and Rule 6F regarding the maintenance of
books of account and documents for P.Y. 2023-24.

a) The assesse is required to maintain books of accounts as per section 44AA(1) as interior
decorator is a notified profession and consequentially under Rule 6F also.
b) The assesse is not required to maintain books of accounts as per section 44AA(1)
And hence not covered under Rule 6F.
c) The assesse is required to maintain books of accounts as per section 44AA(1), but, is
exempted under Rule 6F since his gross receipts do not exceed Rs. 1,50,000 in P.Y. 2020-
21.
d) Rule 6F shall be applicable, even though assesse does not meet the criteria for gross
receipts/income from business / total income , as the case may be , as per section 44AA.

2. X Co. Ltd. was amalgamated with Y Co. Ltd. on 30-09-2023. X Co. Ltd. was engaged in real
estate whereas Y Co. Ltd. was engaged in manufacture of textile articles. Y Co. Ltd. after
amalgamation altered its objects clause of Memorandum of Association, to carry on real
estate business.

The stock in trade of X Co. Ltd. (being vacant lands) was taken over at Rs. 110 lakhs by Y Co.
Ltd. as against their original cost of Rs. 125 lakhs to X Co. Ltd. for the purpose of
amalgamation.

Y Co. Ltd incurred Rs. 25 lakhs towards development of those lands obtained on
amalgamation. It sold the entire land for Rs. 160 lakhs during the year ended 31-03-2024.

Determine the business profits in the hands of Y Co. Ltd.

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a) Rs.10 lakhs

b) Rs.25 lakhs

c) Rs.50 lakhs

d) 35 lakhs

3. The expression” expenditure incurred by an assesse for any purpose which is an offence or
which is prohibited by law” would include the expenditure incurred by an assesse,-

a) for any purpose which is an offence under any law for the time being in force, in India or
outside India or which is prohibited by any law for the time being in force , in India or outside
India.

b) to provide any benefit or perquisite, in whatever form, to a person, whatever or not

carrying on a business or exercising a profession, and acceptance of such benefit or perquisite
by such person is in violation of any law or rule or regulation or guidelines, as the case may
be, for the time being in force, governing the conduct of such person.

c) to compound an offence under any law for the time being in force , in India or outside
India.

d) All of the above.

4. Mr. Kishore claims the deduction (on accrual basis) on account of purchases of Rs. 25,000
made from Mr. Lalit for the year ended 31-03-2024. On 15-07-2024, he paid this amount to
Lalit through a crossed cheque. What are the consequences of this transaction?

a) This deduction will be allowed in FY 2023-24 but will be added while computing Profits and
gains of business for F.Y. 2024-25.

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b) This deduction will be allowed in F.Y. 2024-25 at the time of making payment in subsequent
year.

c) This deduction will be allowed in F.Y. 2023-24 and no adjustment will be made in
subsequent year 2024-25.

d) This deduction will be allowed in F.Y. 2023-24 as well as in F.Y 2024-25 at the time of making
payment of the said sum.

5. XYZ Ltd. commenced business of production of fertilizer on 1-4-2021. The company

purchased plant and machinery for manufacture of the fertilizer amounting Rs. 100 lakhs for
which deduction was claimed u/s 35AD. In financial year 2023-24 the said asset was used for
non- specified business. The operational profits before claiming depreciation is Rs. 50 lakhs
You are required to determine the tax implications of the said transaction in hands of XYZ Ltd.

a) Rs.35 lakhs will be chargeable to tax under the head Profits and gains of business and
profession.

b) Rs. 40.25 lakhs will be chargeable to tax under the head Profits and gains of business and
profession.

c) Rs.55.25 lakhs will be chargeable to tax under the head Profits and gains of business and
profession.

d) Rs.140.25 lakhs will be chargeable to tax under the head Profits and gains of business and
profession.

(1×5=5 Marks)

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