Guideline Answers for Taxation IPCC

Guideline Answers for Taxation IPCC 31.03.2016 Question 1: 10 Marks Rajat is a Chartered Accountant in practice, he maintains accounts on cash basis. He is a Resident and Ordinarily Resident in India. His Profit and Loss Account for the year ended 31.03.2016 reads as follows: Expenditure Income Salary to Staff 15,75,000 Fees earned : Stipend to Articled Assistants 54,000 Audit 20,27,400 Incentive to Articled Assistants 15,000 Taxation Services 15,55,800 Office Rent 72,000 Consultancy 12,66,000 48,49,200 Printing and Stationery 19,800 Dividend on Shares of Indian Companies (Gross) 28,905 Meeting, Seminar and Conference 1,15,800 Income from Unit Trust of India 19,800 Repairs, maintenance and petrol of car 67,200 Profit on sale of Shares 46,860 Subscription and Periodicals Postage, Telegrams and Fax 45,000 97,500 Honorarium received from various institutions for valuation of Answer Papers 49,050 Depreciation 88,500 Rent from Residential Flat let out 2,52,000 Travelling Expenses 1,65,000 Municipal Tax paid for House Property 3,000 Net Profit 29,28,015 Total 52,45,815 Total 52,45,815 1. The total travelling expenses incurred on foreign tour was 60,000 which was within RBI norms. 2. Incentive to Articled Assistants represent amount paid to two Articled Assistants for passing Inter Exam at first attempt. 3. Repairs and Maintenance of Car includes 4,800 for the period from 01.10.2013 to 30.09.2014. 4. Salary includes 90,000 to a Computer Specialist in cash for professional assignment. 5. 4,500 interest on loan paid to LIC on the security of his Life Insurance Policy and utilized for repair of computer, has been debited to the Drawing Account of Mr. Rajat. 6. Birthday Gifts received by his Minor Son include cash 49,000, which was deposited with a Nationalized Bank. Interest accrued up to 31.03.2016 amounted to 4,500. 7. Medical Insurance Premium on the health of : Amount () Mode of payment Self 30,000 By Cheque Dependent Brother 15,000 By Cheque Major Son dependent on him 9,000 By Cash Minor Married Daughter 6,000 By Cheque Wife dependent on Assessee 18,000 By Cheque 8. Shares sold were held for 10 months before sale. 9. Rajat paid Life Membership Subscription of 3,000 to Chartered Accountants Benevolent Fund, the amount was debited to his Drawings Account. It is an approved fund u/s 80G of IT Act, 1961. Compute the Total Income and Tax Payable of Rajat for the Assessment Year 2016 2017. Assessee: Mr. Rajat Previous Year: 2015 2016 Assessment Year: 2016 2017 1

Get More Updates From http://cawinners.com/ Computation of Total Income and Tax Liability 1. Income from House Property: Annual Value u/s 23(1) 2,52,000 Less: Municipal Taxes Paid (3,000) Net Annual Value (NAV) 2,49,000 Less: Deduction u/s 24(a) 30% of NAV (74,700) 1,74,300 2. Profits & Gains of Business or Profession (30,21,015 4,01,115) Deduction Addition 26,19,900 Net Profit as per Profit and Loss Account 29,28,015 Income chargeable under Income from Other Sources Dividend Income 28,905 Income from UTI 19,800 Honorarium received for valuation of papers 49,050 Profits from Sale of Shares taxable under Capital Gains 46,860 Rent taxable under Income from House Property 2,52,000 Municipal Tax on House Property considered under House Property 3,000 Payment to Computer Specialist disallowed u/s 40A(3) 90,000 [W.N. 5] Interest on loan borrowed for Purchase of computer 4,500 [W.N. 6] Sub Total 4,01,115 30,21,015 3. Capital Gains Short Term Capital Gain on Sale of Shares 46,860 4. Income from Other Sources: Honorarium received for Valuation of Papers 49,050 Dividend from Indian Companies 28,905 Less: Exempt u/s 10(34) (28,905) Ni l Income from units of UTI 19,800 Less: Exempt u/s 10(35) (19,800) Nil Interest on Bank Deposits held in the name of Minor Son [W.N. 7] 4,500 Less: Exempt u/s 10(32) (1,500) Less: 3,000 52,050 Gross Total Income 28,93,110 Deduction under Chapter VI A U/s 80D Medical Insurance Premium 25,000 [W.N. 8 & 9] U/s 80G Donation to Chartered Accountants Benevolent Fund [W.N. 10] 1,500 (26,500) Total Income 28,66,610 Tax on Short Term Capital Gains u/s 111A [ 46,860 15%] 7,029 Tax on Balance Income [1,25,000 + (28,66,610 46,860) 10,00,000 30%] 6,70,925 6,77,954 Add: Education Cess at 2% 13,560 Add: Secondary and Higher Education Cess at 1% 6,780 Tax Payable (Rounded off) 6,98,290 Working Notes: 1. It is assumed that Depreciation as per books of accounts is the Depreciation admissible under the Income Tax Act. 2. Foreign Travel Expenditure within the RBI norms is allowable expenditure, if it is incurred for Business purpose. 3. Incentives paid to Articled Assistants is an allowable expenditure. 4. Repairs and Maintenance expenditure relating to Prior Previous Year is fully allowable as expenditure, as the assessee maintains cash basis of accounting. 2

5. Payment made in cash: U/s 40A(3), where an assessee incurs any expenditure in respect of which aggregate of payments on a single day in excess of 20,000 is made, otherwise than by an Account Payee Cheque drawn on a Bank or an Account Payee Bank Draft, whole of such expenditure shall not be allowed as a deduction. In the given case, payment of 90,000 to Computer Specialist is made in cash, hence the entire amount is not allowed as a deduction. 6. Interest on loan for acquisition of asset: (a) Interest will be deductible irrespective of the fact that it is borrowed for working capital or for acquiring capital asset. India Cements Ltd 60 ITR 52 (SC). (b) In case of amount borrowed from Financial Institutions or any Loan or Advance from Banks, then the interest should be paid on or before due date of filing Return. [Sec. 43B] (c) In the given case, since the interest amount is paid, the same is allowed as a deduction u/s 36(1)(iii). 7. Income of Minor Son: (a) U/s 64(1A) income of a Minor Child shall be clubbed in the hands of the Parent whose Total Income is greater before such clubbing. Exemption of 1,500 per Child shall be allowed in respect of such income. (b) If the Minor receives income by exercise of labour, hard work, skill, knowledge, or experience then such income shall not be clubbed. (c) Gifts received from any persons not exceeding 50,000 is not taxable. However, interest earned from the gift amount shall be clubbed in the hands of the parents. 8. Medical Insurance Premium paid: (a) In respect of Mediclaim Insurance Policy taken in the name of individual, his spouse and dependent children, premium paid or 25,000 whichever is lower shall be allowed as a deduction u/s 80D. If the policy is taken in the name of the (Senior Citizen), then deduction of premium paid or 30,000 shall be allowed. (b) Payment should be made by any mode other than cash. 9. Amount eligible for deduction u/s 80D: Premium paid for Eligible Reason Self 30,000 Payment made by cheque. Dependent brother Nil Premium paid for dependent brother not allowed as a deduction. Dependent Major Son Nil Premium payment made in cash not allowed as a deduction. Minor Married Daughter Nil Premium paid for dependent children only eligible for deduction. Spouse 18,000 Payments made otherwise than by cash allowed as a deduction. Total eligible payments 48,000 Maximum Amount of deduction shall be restricted to 25,000. 10. Deduction for Donations Paid: Gross Total Income 28,93,110 Less: Short Term Capital Gain u/s 111A 46,860 Other deductions under Chapter VI A [Sec. 80D] 15,000 61,860 Adjusted Total Income 28,31,250 Maximum permissible deduction = Least of the following (a) 50% of 10% of Adjusted Total Income = [ 28,31,250 10% 50%] 1,41,563 (b) 50% of Amount donated = [ 3,000 50%] 1,500 11. It is assumed that the Shares are listed, and are subject to Securities Transaction Tax. Question 1 (b): 5 Marks Calculate the value of taxable service of X Transport Company engaged in the business of transport of goods by road. Give reasons for taxability or exemption of each item. No Freight is received from any of the specified category of Consignor/Consignee. Total Freight Charges received by X during the year 13,50,000 Freight Charges received for Transporting Fruits 1,25,000 Freight Collected for transporting small consignment for persons who paid < 750 for each consignment 75,000 Freight Collected for transporting goods in small vehicles for persons, who paid less than 1,500 per trip 1,50,000 3

Computation of Value of Taxable Service of X (Transport Company) Total Freight Charges received by X during the year 13,50,000 Less: Freight Charges received for transporting fruits Exempt (1,25,000) Freight for transporting small consignment for persons who paid less than 750 / trip Exempt (75,000) Freight for transporting goods in small vehicles for persons, who paid less than 1,500 per trip (assumed as multiple consignments in a Single Trip) (1,50,000) Gross Amount Charged liable for Service Tax 10,00,000 Value of Taxable Services ( 10,00,000 25%) (after abatement of 75%) 2,50,000 Question 1 (c): 5 Marks Ahmed & Co. of Srinagar rendered Taxable Services both within and outside the State of Jammu & Kashmir. It received 26,12,000 for the services rendered inside the State of Jammu & Kashmir and 18,00,000 for the services rendered outside the State of Jammu & Kashmir. Compute its Taxable Service Value and Service Tax Liability. If Ahmed & Co. was situated in Mumbai what would be value of its Taxable Service & Service Tax Liability? 1. Principle: The levy of Service Tax extends to the whole of India except Jammu & Kashmir. The following are the observations in this regard (a) Services rendered in Jammu and Kashmir will not be liable to Service Tax. (b) Service rendered by a person established in Jammu and Kashmir, but rendered outside the State is liable to Service Tax. Location where service is provided is more important for its taxability. 2. Analysis and Conclusion: (amounts in ) If Situated in If Situated Jammu & Kashmir in Mumbai Services rendered in Jammu & Kashmir NIL NIL Services rendered in places outside Jammu & Kashmir See Note Below NIL 18,00,000 Taxable Value of Services NIL 18,00,000 Service Tax Liability at 14% NIL 2,52,000 Note: If Ahmed & Co is located in Jammu & Kashmir, then the Service Receiver would be liable for services rendered in places outside Jammu & Kashmir, since the same would qualify as Import of Services. Question 2(a): Mr.Arjun, aged 40 years, paid Medical Insurance Premium of 12,000 during the Previous Year 2015 2016 to insure his health as well as the health of his spouse. He also paid Medical Insurance Premium of 17,000 during the year to insure the health of his Father, aged 83 years, who is not dependent on him. He contributed 12,400 to Central Government Health Scheme during the year. He has incurred 3,000 in cash on preventive health check up of himself and his spouse and 4,000 by cheque on preventive health check up of his father. He also incurred Medical Expenditure of 25,000 and 15,000 for his mother and father (both over 80 years of age). Compute the deduction allowable u/s 80D for the Assessment Year 2016 2017. Deduction allowable u/s 80D (amounts in ) Paid Permissible 1. Premium Paid and Medical Expenditure incurred for Self and Spouse Medical Insurance Premium paid for Self and Spouse 12,000 12,000 Contribution to Central Government Health Scheme 12,400 12,400 Expenditure on Preventive Health Check Up of Self & Spouse (Note 1) 3,000 600 Total 27,400 25,000 2. Premium Paid and Medical Expenditure incurred for Father (Very Senior Citizen) Mediclaim Premium paid for Father, who is over 80 years of age 17,000 17,000 Expenditure on Preventive Health Check Up of Father (Note 2, 3) 4,000 3,000 Medical Expenditure for mother would only be allowed (Note 4) 25,000 10,000 Total 21,000 30,000 3. Grand Total Deduction u/s 80D 45,000 4

Notes 1. Maximum Deduction under Item 1 is 25,000. So, the expenditure on Preventive Health Check Up for Self and Spouse is restricted to 600, being the balancing figure to reach upto 25,000. 2. Maximum Deduction under Item 2 is 30,000. So, the expenditure on Preventive Health Check Up for Father would be restricted to 3,000, being the balancing figure to reach upto 30,000. 3. Total Deduction allowed as above, on account of expenditure on Preventive Health Check Up of Self, Spouse and Father = 600 + 3000 = 3,600, which is less than the maximum permissible limit of 5,000. 4. Deduction u/s 80D for Very Senior citizen is available only where he is ineligible for Medical Insurance Policy. Question 2(b): Compute the total income of Mr. & Mrs. A from the following information (a) Salary Income (Computed) of Mrs. A 2,30,000 (b) Income from profession of Mr.A 3,90,000 (c) Income of Minor Son B from Company Deposit 15,000 (d) Income of Minor Daughter C from Special Talent 32,000 (e) Interest from Bank received by C on Deposit 3,000 (f) Gift received by C on 30.09.2015 from friend of Mrs.A 2,500 Brief working is sufficient. Detailed computation under various heads of income is not required. [N 05] Assessee: Mr. A & Mrs. A Previous Year: 2015 2016 Assessment Year: 2016 2017 Notes: 1. U/s 64(1A), Income of minor child shall be clubbed in the hands of Parent whose Total Income is greater before such clubbing. Exemption of 1,500 per child shall be allowed for such income. 2. If the Minor receives income by exercise of labour, hard work, skill, knowledge, or experience then such income shall not be clubbed. Here, the income of minor daughter C from application of special talent, shall not be clubbed in the hands of Parents. But however interest earned from such income shall be clubbed in the hands of parents. 3. Gifts received from any persons not exceeding 50,000 is not taxable. Computation of Total Income of Mr. and Mrs. A Mr. A () Mrs. A () Salaries Salary Income of Mrs. A 2,30,000 Profits and Gains from Business or Profession Professional Income of Mr. A 3,90,000 Total Income (before including Minor s Income) 3,90,000 2,30,000 Add: Income from Company Deposit in B s name 15,000 Interest from Deposit in C s name 3,000 Less: Exemption u/s 10(32) ( 1,500 per Child 2 Children) (3,000) Total Income 4,05,000 2,30,000 Question 2(c): 8 Marks State whether the following services are covered under Negative List of Services u/s 66D. Need not assign any reason. (i) Service provided by the Department of Post by way of Speed Post, Express Parcel Post, Life Insurance and Agency Services provided to a person other than Government. (ii) Service provided by way of Supply of Farm Labour relating to Agriculture. (iii) Service by way of renting of Residential Dwelling for use as Residence. (iv) Services for Funeral, Burial, Crematorium or Mortuary and Transportation of the deceased. (v) Services relating to Education as a part of an Approved Vocational Education Course. (vi) Service of Transportation of Passengers with or without accompanied belongings, by Railways in an Air Conditioned Coach. (vii) Service by way of Transportation of Goods by Road by a Goods Transportation Agency. (viii) Selling of Space or Time Slots for Advertisement broadcast by FM Radio. 5

(ix) (x) (xi) (xii) Question Service provided by the Department of Post by way of Speed Post, Express Parcel Post, Life Insurance and Agency Services provided to a person other than Government. Service provided by way of Supply of Farm Labour relating to Agriculture. Service by way of renting of Residential Dwelling for use as Residence. Services for Funeral, Burial, Crematorium or Mortuary and Transportation of the deceased. (xiii) Services relating to Education as a part of an Approved Vocational Education Course. (xiv) Service of Transportation of Passengers with or without accompanied belongings, by Railways in an Air Conditioned Coach. (xv) Service by way of Transportation of Goods by Road by a Goods Transportation Agency. (xvi) Selling of Space or Time Slots for Advertisement broadcast by FM Radio. Answer Not covered in Negative List. Taxable. Not Taxable. Negative List item. Not Taxable. Negative List item. Not Taxable. Negative List item. Not Taxable. Negative List item. Not covered in Negative List. Taxable. Not covered in Negative List. Taxable. Not covered in Negative List. Taxable. Question 3(a): 8 Marks (i) Raju Ltd set up a manufacturing unit in notified backward area in the state of Telangana on 01.06.2015. It invested 90 Crore in New Plant and Machinery on 01.06.2015. Further, it invested 75 Crore in the Plant and Machinery on 01.11.2015, out of which 15 Crores was second hand Plant and Machinery. Compute the Depreciation allowable u/s 32. Is Hari Ltd entitled for any other benefit in respect of such Investment? If so, what is the benefit available? (ii) Would your answer change where such Manufacturing Unit is set up by a Firm, say, Raju & Co, instead of Raju Ltd? Assessee: Raju Ltd Previous Year: 2015 2016 Assessment Year: 2016 2017 1. Computation of Depreciation and Additional Depreciation u/s 32 Computation in Crores Plant and Machinery (Acquired on 01.06.2015) 90.00 Plant and Machinery (Acquired on 01.11.2015) 75.00 WDV as on 31.03.2016 165.00 Less: (i) Normal Depreciation @ 15% u/s 32 on 90 Crores (90 15%) Usage Period > 182 days 13.50 on 75 Crores (75 15% 50%) Usage Period < 182 days 5.64 (ii) Additional Depreciation @ 35% (being located in Telangana) on 90 Crores (90 35%) Usage Period > 182 days 31.50 on 60 Crores (60 35% 50%) Usage Period < 182 days 10.50 61.14 WDV as on 01.04.2016 103.86 Note: 1. Plant & Machinery put to use for less than 180 days is eligible for 50% Depreciation only. 2. Balance 50% of Additional Depreciation will be available in the subsequent Assessment Year. 3. Special Rate of Additional Depreciation for Machinery or Plant for Undertakings in Backward Areas in the State of Andhra Pradesh or Bihar or Telangana or West Bengal, shall be at 35% instead of 20%. Additional Depreciation shall not be allowed in respect of Second Hand Machinery. 2. Computation of Deduction u/s 32AC(1A) & 32AD for X Ltd for AY 2016 2017 Computation in Crores Deduction u/s 32AC(1A) @ 15% (Since Investment exceeds 25 Crores) 150 Crores 15% 22.50 Deduction u/s 32AD @ 15% (Since Investment in Notified Backward Area) 150 Crores 15% 22.50 Total Benefit 45.00 6

Note: 1. Deduction u/s 32AC(1A) & 32AD shall not be allowed in respect of Second Hand Machinery. 2. If the Assessee is a firm, Deduction u/s 32AC would not be available. 32AC deduction is available only to Corporate Assessees. However, a Firm is eligible for deduction u/ 32AD. (in this case 15.00 Crores is eligible u/s 32AD). Question 3(b): Suppose a Service becomes taxable with effect from 01.07.2015. Determine in each of the following independent cases whether Service Tax is leviable in accordance with Point of Taxation Rules, 2012. Date of Issuance of Invoice Date of receipt of payment 25.06.2015 for 1,00,000 26.06.2015 for 1,00,000 25.06.2015 for 1,00,000 26.06.2015 for 60,000 25.06.2015 for 60,000 26.06.2015 for 1,00,000 24.06.2015 for 1,00,000 20.06.2015 for 1,00,000 See Rule 5 of the POT Rules above DOI DOP Taxability Reasons 25.06.2015 for 26.06.2015 for 1,00,000 1,00,000 Not Taxable DOI and DOP before effective date 25.06.2015 for 1,00,000 26.06.2015 for 60,000 Not Taxable to the extent of 60,000 40,000 received after effective date will be subject to service tax. 25.06.2015 for 60,000 26.06.2015 for 1,00,000 Non Taxable to the extent of 60,000. The taxability of remaining 40,000/ will be determine in the following manner: Case 1: If Invoice for 40,000 is issued within 14 days from the effective date [i.e within 14.07.2014] Not Taxable. Case 2: If invoice for 40,000 is not issued within 14 days from the effective date Taxable 24.06.2015 for 1,00,000 20.06.2015 for 1,00,000 Not Taxable DOI and DOP are before the effective date Question 3(c): Compute the excise duty payable in the following cases: Value of Date of Rate of duty on date of S.No Date of removal Goods() Manufacture manufacture (i) 10,000 28.02.2013 10% 20.03.2013 12.50% (ii) 25,000 20.06.2014 12.50% 25.09.2014 (iii) 30,000 23.06.2014 Goods exempt from duty vide an exemption notification 25.08.2014 Rate of duty on date of removal 12.50% + Additional duty @ 6% imposed w.e.f. 01.07.2013 Exemption withdrawn goods liable to duty @ 12.50% (iv) 60,000 25.02.2013 20.04.2013 15% S. No Value of Goods() Applicable rate of duty (i) 10,000 12.50% (ii) 25,000 12.50% (iii) 30,000 12.50% (iv) 60,000 15% 1. Computation of Excuse duty payable: Reason Excise Duty liability shall be quantified based on the rate existing on the date of removal of such excisable goods from the Factory or Warehouse. [Rule 5 of the Central Excise Rules, 2002] Since, excise duty is a levy on manufacture of excisable goods, the additional duty which was not in force on the date of manufacture cannot be imposed on goods removed after its levy. Since, on the date of manufacture, the goods were excisable, the rate of duty on date of removal will be applied. The applicable rate of duty is the rate prevalent on the date when goods are removed from the warehouse. 7 Excuse duty payable () 1,250 3,125 3,750 9,000

Question 4(a): 8 Marks Mr. Ganesh retires on 31.10.2015 voluntarily from XYZ (P) Ltd as per the scheme approved u/s 10(10C) of the Income Tax Act, 1961. He furnishes the following particulars: (a) Salary 10,000 p.m. (b) Pension 6,000 p.m. (c) D.A. forming part of Basic pay 2,000 p.m. (d) Compensation on voluntary retirement 6,00,000 (e) Gratuity 1,50,000 (f) Leave Salary 40,000 He gets 60% of his pension commuted for 54,000 on 31.01.2016. Completed years of service 18 years and 7 months. Leave availed while in service 19 months. But for the voluntary retirement, Mr. Ganesh would have retired only after 45 months. The last increment he received was on 01.11.2014. Compute his Taxable Salary Income for the Assessment Year 016 2017. Assessee: Mr. Ganesh Previous Year: 2015 2016 Assessment Year: 2016 2017 Computation of Total Income Basic Salary ( 10,000 7) 70,000 Dearness Allowance ( 2,000 7) 14,000 Gratuity (W.N. 1) 42,000 Pension (W.N. 2) 46,800 Voluntary Retirement Compensation (W.N. 3) 1,00,000 Leave Encashment (W.N. 4) 40,000 Income under the head Salaries 3,12,800 Working Notes: 1. Taxable Gratuity Gratuity received (assumed as not covered by Payment of Gratuity Act,1972) 1,50,000 Less: Exempt u/s 10(10): Least of the following Actual Amount of Gratuity 1,50,000 Notified Limit 10,00,000 12,000 ½ 18 years 1,08,000 (1,08,000) Taxable Gratuity 42,000 2. Taxable Pension (a) Uncommuted Pension Period: November 2015 January 2016 ( 6,000 3 Months) 18,000 Period: February 2016 March 2016 ( 6,000 40% 2 Months) 4,800 Total 22,800 (b) Commuted Pension Amount Received 54,000 Less: Exempt u/s 10(10A) [1/3rd of total pension] = [1/3 rd of (54,000/60) 100] (30,000) 24,000 Taxable Pension 46,800 3. Computation of Taxable VRS Compensation Amount of VRS Compensation Received 6,00,000 Less: Exempt u/s 10(10C): Least of the following Amount actually received 6,00,000 Notified Amount 5,00,000 The above shall not exceed higher of: (i) Last Drawn Salary 3 No. of completed yrs of service (12,000 3 18 Years) 6,48,000 (ii) Last drawn Salary balance of months of service left (12,000 45 Months) 5,40,000 (5,00,000) 8

Less: Taxable Value of VRS Compensation 1,00,000 4. Computation of Taxable Leave Encashment Amount of Leave Encashment Received 40,000 Amount exempt u/s 10(10AA) = Least of the following i.e. Amount Received 40,000 Notified Amount 3,00,000 Average salary of past 10 months Salary x 10 months (12,000 10) 1,20,000 Leave Encashment based on 30 days credit for every completed year of service (Note) NIL NIL Taxable Leave Encashment 40,000 Note: Total Leave Eligible on basis of 30 days credit for every completed years of service of 18 years Total Leave Taken Leave to his credit 18 Months 19 Months NIL Question 4(b): Kalaniketan Enterprises imported some goods from UK. The assessable value of the imported goods is 20,00,000. Compute the customs duty payable from the following additional information. Date of bill of entry 24.10.2013 (Rate of BCD is 10%) Date of entry inward 20.10.2013 (Rate of BCD is 8%) C.V.D. is payable @ 12.50%, Special C.V.D. as applicable Assessable value 20,00,000 Add: Basic Custom Duty @ 10% (Note below) 2,00,000 Total 22,00,000 Add: CVD @12.50% 2,75,000 Add: EC & SHEC (3% of custom duty) = 3% of ( 2,00,000 + 2,75,000) 14,250 Total for Special CVD [ 22,00,000 + 2,75,000 + 14,250] 24,89,250 Special CVD @ 4% 99,570 Total duty payable ( 2,00,000 + 2,75,000 + 14,250+ 99,570) 5,88,820 Note: The rate of duty shall be: (i) The rate in force on the date of presentation of bill of entry or (ii) The rate in force on the date of entry inward Whichever is later. Question 4(c): When can a person avail exemption for subsequent sale? [Sec. 6(2)] 1. The sale should be a subsequent sale u/s 3(b), i.e. after an initial sale in the course of inter state trade. 2. The sale is effected by transfer of documents of title to goods. 3. Such transfer should be made during inter state movement of goods on original inter state sale u/s 3(1). 4. It should take place (a) Between one Registered Dealer and another Registered Dealer of goods specified in Sec.8(3), or (b) Between a Registered Dealer and the Government, and (c) The sale should be effected during the same movement of goods. 5. The whole transaction of sale should be supported by necessary documents as mentioned below Type of transaction (a) Original Inter state Sale (ISS) [Sec.3(1)] (b) Next ISS by transfer of documents of title to goods (c) Subsequent sale u/s 6(2) in Sec.3(b) mode Buyer Issues Form C Form C Form C Seller Issues Form E I Form E II Form E II Time limit for furnishing the declaration Form C or E I or E II Within 3 months after the end of the quarter to which the declaration or the certificate 9

(d) Second subsequent sale during same transit Form C Form E II relates. NOTE: In the above cases (a) Form D will be issued if Sale is made to a Government. (b) Form I will be issued if Sale is made to Dealer in Special Economic Zone. (c) If the Dealer is prevented by a sufficient cause, the declaration may be submitted within the extended time limit permitted by such authority. Other Points 1. Single Declaration: A Dealer who is liable to file declaration to Prescribed Authority may furnish single declaration for all transactions of sale which take place in a quarter of a financial year between the same two Dealers. 2. Delivery is spread over: In the case of any transaction of sale, the delivery, of goods is spread over to different quarters in a financial year or of different financial years, it shall be necessary to furnish a separate declaration or certificate in respect of goods delivered in each quarter of a financial year. Question 5(a): 5 Marks Mr. Thomas inherited a house in Jaipur under will of his father in May 2008. The house was purchased by his father in January 1981 for 2,50,000. He invested an amount of 7,00,000 in construction of one more floor in this house in June 2010. The house was sold by him in November 2015 for 37,50,000. The valuation adopted by the Registration Authorities for charge of stamp duty was 47,25,000 which was not contested by the Buyer, but as per Assessee s request, the Assessing Officer made a reference to Valuation Officer. The value determined by the Valuation Officer was 47,50,000. Brokerage at 1% of Sale Consideration was paid by Mr. Thomas to Mr. Sunil. The Market Value of house as on 01.04.1981 was 2,70,000. Compute the amount of Capital Gain chargeable to tax for AY 2016 2017. Assessee: Mr. Thomas Previous Year: 2015 2016 Assessment Year: 2016 2017 Computation of Capital Gain Sale Consideration (WN 1 & 2) 47,25,000 Less: Expenses on Transfer ( 37,50,000 1%) (37,500) Net Consideration 46,87,500 Less: Indexed Cost of Acquisition = FMV on 1.4.81 or Cost of Acquisition by Previous Owner, CII for year of transfer 1081 whichever is higher =(2,70,000 ) (29,18,700) 100 100 Less: Indexed Cost of Improvement CII for Year of Transfer 1081 = Cost of Improvement = 7,00,000 (10,64,276) CII for Year of Improvement 711 Long Term Capital Gain (Rounded off) 7,04,520 Notes: 1. U/s 50C where the value declared by Assessee is less than Stamp Duty Authority Value, value adopted by Stamp Duty Authority shall be treated as sale consideration for the purpose of Capital Gains. 2. Where the Value determined by the Valuation Officer exceeds the value adopted by the Stamp Valuation Authority, the Capital Gain shall be computed based on the value adopted by Stamp Duty Authority only. The Indexation Benefit shall be given from the period in which Previous Owner held the Asset or 01.04.1981 whichever is later. [CIT vs Manjula J Shah 204 Taxmann 691 (Bom.)] Question 5(b): What are the consequences of Non Filing of Return? 3 Marks 1. Consequences for not filing within due date u/s 139(1): (a) Interest u/s 234A shall be charged at 1% per month or part thereof on tax payable on self assessment. (b) Benefit of carry forward of losses u/s 72 / 73 / 74 / 74A is lost. (c) Right to revise the Return of Income u/s 139(5) is lost. 10

2. Further Consequences when Return is not filed: (a) Where the Assessee is required to file Return of Income u/s 139(1), and the Return is not filed before the end of the relevant Assessment Year, he is liable to pay a penalty of 5,000 u/s 271F. (b) Best Judgment Assessment can be made u/s 144. (c) Prosecution u/s 276CC is also attracted in the following manner Tax evaded/ payable after Advance Tax & TDS/ TCS Punishment Does not exceed 3,000 (or) if Return is filed before end of No prosecution can be initiated. relevant Assessment Year Imprisonment (Minimum: 3 months, Maximum: 2 Greater than 3,000 upto 25 Lakhs years) and Fine. Rigorous Imprisonment (Minimum: 6 months, More than 25 Lakhs Maximum: 7 years), and Fine. For second and subsequent offences u/s 276CC (Sec.278A) Rigorous Imprisonment (Minimum: 6 months, Maximum: 7 years) and Fine 3. Other Specific Consequences: Refer Note 4 Para 17.1.2 for Trust / Institution / University, etc. Question 5(c): 8 Marks Mr. Bansilal of Punjab is a Manufacturer, registered under VAT. He provides the following particulars for the Financial Year 2015 2016. Purchases from Local Registered Dealer (excluding VAT 4%) 1,15,000 Purchases from a Dealer having opted Composition Scheme (includes VAT 4%) 2,20,000 Purchases of Machinery eligible for Input Credit on 01.10.2015 (excluding VAT 4%) Depreciation Rate 15% p.a. 5,00,000 Other Direct & Indirect Expenses 30% of Total Purchases (excluding Depreciation) Profit Margin 20% of the Total Cost Unutilized Balance of VAT Input Credit as on 01.04.2015 7,500 90% of the Production is sold during the year. VAT Rate on Sales is 12.5% Find the Taxable Turnover, Net VAT Payable and Input Credit for the year 2015 2016. A. Computation of Taxable Turnover 1. Purchase from Registered Dealers (excluding VAT) VAT Credit not considered as cost. 1,15,000 2. Purchase from Dealers under Composition Scheme (not eligible for Input Credit) 2,20,000 3. Total Purchases (1 + 2) 3,35,000 4. Other Direct and Indirect Expenses @ 30% of Total Purchases 1,00,500 5. Depreciation [5,00,000 15% 6/12] 37,500 6. Cost of Production (3 + 4 + 5) 4,73,000 7. Cost of Goods Sold [90% of 4,73,000] 4,25,700 8. Add: Profit Margin at 20% on Cost 85,140 9. Taxable Turnover (7+8) 5,10,840 B. Computation of Eligible Input Tax Credit 1. Opening Balance 7,500 2. Credit during the Financial Year (a) Purchase from Local Regular Dealer = 1,15,000 4% 4,600 (b) Purchase from Dealer under Composition Scheme Not eligible for credit (c) Purchase of Capital Goods = 5,00,000 4% 6/36 3,333 3. Total Credit available 15,433 Note: (a) VAT Credit on Capital Goods is available in 36 monthly instalments as per white paper on VAT. (b) There is no Input Output matching for availment of VAT Credit. Hence, entire VAT Credit on Inputs is availed even though some Finished Goods are not yet sold. 11

(c) If it is assumed that VAT paid on Capital Goods is entirely availed in the month of purchase itself, the Input Tax Credit entitlement will be 20,000 under Capital Goods category above. In such case, the Net VAT Payable will differ accordingly. C. Calculation of Net VAT Payable 1. VAT on Taxable Turnover = 5,10,840 12.5% 63,855 2. Less: Eligible VAT Credit as per B above (15,433) 3. Net VAT Payable 48,422 Question 6(a): 6 Marks Mr. A and B constructed their houses on a piece of land purchased by them at New Delhi. The built up area of each house was 1,000 sq ft. Ground Floor, and an equal area in the First Floor. A started construction on 01.04.2014 and completed on 31.03.2015. B started the construction on 01.04.2013 and completed the construction on 01.07.2015. A occupied the entire house on 01.04.2015. B occupied the Ground Floor on 01.07.2015 and let out the First Floor for a rent of 15,000 p.m. However, the tenant vacated the house on 31.12.2015 and B occupied the entire house during the period 01.01.2016 to 31.03.2016. Following are the other information: (i) Fair Rental Value of each unit (Ground Floor / First Floor) 1,00,000 p.a. (ii) Municipal Value of each unit (Ground Floor / First Floor) 72,000 p.a. (iii) Municipal Taxes paid by A 8,000, B 8,000 (iv) Repair and Maintenance charges paid by A 28,000, B 30,000 A has availed a housing loan of 20.00 Lakhs at 12% p.a. on 01.04.2014. B has availed a housing loan of 12.00 Lakhs at 10% p.a. on 01.07.2014. No repayment was made by either of them till 31.03.2016. Compute the Income from House Property for A and B for the Assessment Year 2016 2017. Assessee: Mr. A Previous Year: 2015 2016 Assessment Year: 2016 2017 Nature: Self Occupied, So Annual Value u/s 23(2) NIL Less: Deduction u/s 24: Interest on borrowed Capital = 20 Lakhs 12% = 2,40,000, Restricted to 2,00,000 (2,00,000) Loss from House Property (2,00,000) Note: Since construction of the property is completed in the year of borrowal of loan itself, there is no Prior Period Interest. Assessee: Mr. B Previous Year: 2015 2016 Assessment Year: 2016 2017 Ground Floor Nature: Self Occupied Annual Value u/s 23(2) NIL Less: Deduction u/s 24: Interest on Borrowed Capital Current Year: 12,00,000 10% 50% 60,000 Prior Period: 12,00,000 10% 9/12 50% 1/5 9,000 (69,000) (69,000) First Floor Nature: As Deemed Let Out, for the whole year Annual Value u/s 23(1)(a)/(b) Higher of Fair Rent Vs. Municipal Rent [See Note 1] 75,000 Higher of Rent selected above Vs. Actual Rent receivable [See Note 1,35,000 1,35,000 2] Less: Municipal Taxes = ( 8,000 50%) (4,000) Net Annual Value 1,31,000 Less: Deduction u/s 24 (a) 30% of Net Annual Value 39,300 (b) Interest on Borrowed Capital 12

Current Period Interest ( 12,00,000 10% 50%) 60,000 Prior Period Interest ( 12,00,000 10% 9/12 50% 1/5) 9,000 (1,08,300) 22,700 Net Loss from House Property (46,300) Note: 1. Since the construction of property was completed on 01.07.2015, Fair Rent, Municipal Rent and Actual Rent Receivable are to be considered for a period of 9 months. 2. Since the House Property has been self occupied for part of the year and let out for part of the year, Income from House Property shall be calculated for the whole year as deemed let out property. Therefore, Rent Receivable is ( 15,000 9) = 1,35,000. Question 6(b): 6 Marks Discuss the TDS implications in the case of a Contractor in the business of Plying, Hiring or Leasing Goods Carriages. 1. As per Sec.194C, TDS is not required for payment to a Contractor, in the business of Plying, Hiring or Leasing Goods Carriages, if the Contractor if he owns 10 or less Goods Carriages at any time during the PY and furnishes a declaration to that effect along with his PAN, to the Payer. 2. The Person responsible for making the payment shall furnish the prescribed particulars in Form 15J on or before 30 th June of the following Financial Year, to the Income Tax Authorities. Question 6(c): Vishal is a dealer. His sales during first quarter of 2015 2016 (April to June) are as under: Date Invoice No. Amount in (a) 05.04.2015 103 / FCA / 01 / 06 10,000 plus Tax @ 4% (b) 12.04.2015 103 / FCA / 02 / 06 80,000 plus Tax @ 4% (c) 05.05.2015 103 / FCA / 03 / 06 62,400 (inclusive of Tax) (d) 27.06.2015 103 / FCA / 04 / 06 14,000 plus Tax @ 4% (e) 27.06.2015 103 / FCA / 05 / 06 18,000 plus Tax @ 4% (f) Goods worth 7,000 (exclusive of tax) against Invoice No.103/FCA/04/06 were returned on 29.06.2015. (g) Goods worth 13,000 (inclusive of tax) sold on 26.12.2014 were returned on 30.06.2015. (h) Goods worth 6,500 (inclusive of tax) sold on 27.12.2014 were returned on 30.06.2015. All the above sales were made in the course of inter state trade. Calculate the Turnover and Sales Tax payable if the rate of tax is 4%. Assessee: Mr. Vishal Computation of Central Sales Tax payable and Turnover Date Invoice Number Amount 05.04.2015 103 / FCA / 01 / 06 10,000 12.04.2015 103 / FCA / 02 / 06 80,000 05.05.2015 103 / FCA / 03 / 06 ( 62,400 X 100 / 104) 60,000 27.06.2015 103 / FCA / 04 / 06 14,000 Less: Sales Returns on 29.6.2015 (7,000) 7,000 27.06.2015 103 / FCA / 05 / 06 18,000 Total Basic Price 1,75,000 Add: 4% Central Sales Tax = 1,75,000 4% 7,000 Total Turnover 1,82,000 Note: Goods returned on 30.6.2015 valuing 19,500 ( 13,000 + 6,500) shall not be excluded from the Sale Value as they are received after 6 months from the date of sale. 13

Question 6(d): BC Pvt. Ltd, a Manufacturer, has furnished the following information: () Excise Duty/ST Paid (i) Input A Invoice dated 23.03.2015 1,56,000 (ii) Input B Invoice dated 10.04.2016 1,35,000 (iii) Input C Invoice missing 89,460 (iv) Input Service X Invoice dated 12.11.2015 45,340 (v) Input Service Y Invoice dated 20.09.2015 68,240 (vi) Machinery (being eligible Capital Goods under Chapter 82) Invoice dated 12.03.2015 3,54,670 (vii) GTA Service bringing Raw Materials to the Factory Invoice dated 14.04.2016 (Payment has not been made to GTA but Service Tax Value of Services 3,00,000 has been paid under Reverse Charge.) 9,270 BC Pvt. Ltd is not entitled to SSI exemption. Determine the total CENVAT Credit that can be availed by BC Pvt. Ltd during April 2016. Reasons/ Explanations Input A Ineligible as credit shall be availed within 1 year from date of invoice NIL Input B Eligible Credit 1,35,000 Input C (Note 1) Ineligible as credit shall be only based on valid invoice NIL Input Service X Eligible Credit 45,340 Input Service Y Ineligible as Credit shall be availed within 1 year from Date of Invoice NIL Machinery (Note 2) 50% for subsequent year [Note: 1 st 50% Ineligible ] 1,77,335 GTA Service for bringing Raw Materials Eligible Credit or payment of Service Tax 9,270 Credit that can be availed 3,66,945 Notes: 1. CENVAT Credit can be availed if Duplicate/ Copies of the Invoice are available. 2. Assumed that CENVAT Credit of 50% is already availed in FY 2015 16. If 1 st Instalment is not availed in FY 2015 16, then the Assessee can avail 100% Credit in 2 nd year. The restriction of 6 months is not applicable for Credit on Capital Goods. 14