INDEX [PART – 2]

NAME OF THE TOPIC PAGE NO.

9 ASSESSMENT PROCEDURES 193 – 212
10 APPEALS, REFERENCE & REVISION 213 – 227
11 SEARCH, SURVEY & ADVANCE RULING 228 – 232
12 TAXATION OF GIFTS 233 – 234
13 TDS AND TCS 235 – 259
14 DOUBLE TAXATION 260 – 277
15 EQUALISATION LEVY 278 – 287
16 BLACK MONEY ACT 288 – 294
17 TAX AUDIT & ETHICAL COMPLIANCES 295 – 306
18 TAX PLANNING/EVASION/AVOIDANCE 307 - 317
AND GAAR

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 ASSESSMENT PROCEDURE
QUESTION 1:
Shashank filed his return of income on 26th June, 2025 for the PY
2024-25 declaring an income of ` 1,90,000. Later on, he
discovered that he forgot to claim an expense of ` 4,00,000.
Hence, he filed a revised return on 18th November, 2025 declaring
loss of ` 2,10,000. The Assessing officer opined that the loss
claimed in the revised return cannot be carried forward as the
revised return was filed after the due date specified in sec. 139(1).
Is the contention of Assessing Officer correct? Discuss.

ANSWER:
Shashank filed his original return on 26th June, 2025 [Before the due
date]. Later on, he filed a revised return on 18th November, 2025
declaring loss of ` 2,10,000.
As per sec. 80, a loss can be carried forward if the return of such loss is
filed on time. In case of a revised return, the date of original return
will decide whether the return was filed on time or not because a
revised return replaces the original return. Since Shashank has filed
the original return on time, the loss declared in the revised return can
be carried forward.
Hence, the contention of Assessing officer is not correct.

QUESTION 2:
On 14th May, 2026, Rajesh received a notice u/s 142(1) requiring
him to file the return for the PY 2024-25 up to 25th June, 2026.
However, Rajesh is of the opinion that a return cannot be filed after
31st December of the A.Y.
Is Rajesh correct?
Advise him as to what course of action he should adopt on receipt
of notice u/s 142(1) and the consequences of not complying with
this notice.

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ANSWER:
If a return is voluntarily filed then it can be filed latest up to 31st
December of A.Y. or before completion of asst. [whichever is
earlier]. However, if the return is demanded by A.O. then it can
be demanded even after 31st December of A.Y. by sending
notice u/s 142(1).
RETURN

If Voluntarily filed If Demanded by A.O.

Can be filed latest up to 31st Can be demanded up to 31st Dec. and even
December of A.Y. after 31st December of A.Y.

In this question, since the return is demanded by A.O., it can be

filed even after 31st December of A.Y. Hence, the opinion of
Rajesh is not correct. Accordingly, Rajesh is advised to file the
return up to 25th June, 2026 in response to notice u/s 142(1).
Failure to comply with notice u/s 142(1) shall attract penalty of `
10,000 u/s 272A and it shall lead to Best Judgment Assessment
by A.O.

QUESTION 3:
In respect of return filed by following assessees for the PY 2024-25,
you are required to specify the last date by which intimation u/s
143(1) can be sent:
i) Jaimin filed his return on 13th December, 2025.
(ii) Smita filed her return on 24th June, 2026 in response to
notice u/s 142(1).

ANSWER:
Intimation u/s 143(1) is sent to the assessee within 9 months from
the end of the year in which return is filed.
In case of Jaimin, since the return is filed on 13/12/2025,
intimation can be sent to him latest up to 31st December, 2026.

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31/12/26

Return
1/4/25 13/12/25 31/3/26

In case of Smita, since the return is filed on 24/06/26, intimation

can be sent to him latest up to 31st December, 2027 (Note 1).
31/12/27

Return
1/4/26 24/6/25 31/3/27

Note 1: Normally, assessment of PY 2024-25 should be completed

within 12 months from the end of AY i.e. up to 31/03/2027.
However, summary assessment is as good as no assessment.
Accordingly, intimation of summary assessment can be sent even
beyond 12 months from the end of AY.

QUESTION 4:
Arjun filed his return for the PY 2024-25 on 26.07.2025. On
16.09.2025, he received intimation u/s 143(1). After receiving the
intimation, Arjun wants to revise his return. You are required to
advise Arjun as to whether he can revise his return which is already
processed u/s 143(1).

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ANSWER:
As per sec. 139(5), a return can be revised up to 31st December
of A.Y. or before completion of assessment whichever is earlier.
In the given case, return filed by Arjun is processed u/s 143(1) and
intimation for the same is received on 16.09.2025. However, it
should be noted that the processing of return u/s 143(1) does not
amount to assessment. Accordingly, assessment of Arjun is not
yet done.
Hence, Arjun can revise his return even after receiving intimation
u/s 143(1) [latest up to 31st December of AY i.e. 31.12.2025].

QUESTION 5:
Rajan filed his return for the PY 2024-25 on 05-12-2025. His return
was processed u/s 143(1) and an intimation for the same was
received by him on 12-02-2026.
On 22nd June, 2026, he recd. a notice u/s 143(2) requiring him to
attend the office of A.O.
Rajan seeks your advice as to whether he should respond to notice
u/s 143(2) as his assessment for the PY 2024-25 is already
completed u/s 143(1).

ANSWER:
Rajan filed his return on 05-12-2025. His return was processed u/s
143(1) and the intimation for the same is received on 12-02-2026.
However, it should be noted that the processing of return u/s
143(1) does not amount to assessment. Summary assessment is
as good as no assessment. Accordingly, scrutiny can be initiated
even after receipt of intimation u/s 143(1).
Hence, Rajan is advised to respond to the notice of scrutiny
u/s 143(2).

QUESTION 6:
Zoom ltd. filed its return for the AY 2025-26 on 6th July, 2025. The
return is selected for regular assessment u/s 143(3) for which
notice u/s 143(2) is served on the company on 3rd July, 2026. State
whether the service of notice is within time.

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ANSWER:
Notice of scrutiny u/s 143(2) should be served on the assessee i.e.
it should be received by the assessee within 3 months from the
end of the year in which return is filed.
In the given case, Zoom ltd. filed its return on 6 th July, 2025.
Accordingly, notice u/s 143(2) should be received by the assessee
latest up to 30th June, 2026. However, Zoom ltd. received this
notice on 3rd July, 2026. Hence, the service of notice is not within
time and it’s an invalid notice.

QUESTION 7:
Grind ltd. is engaged in sale of beverages. For the PY 2024-25, it
failed to file the return voluntarily. After the end of AY i.e. on 17 th
May, 2026, the Assessing officer served a notice u/s 143(2) and
completed assessment u/s 143(3) by passing an order on 14th
July, 2026. Discuss whether the action taken by A.O. is valid or not.

ANSWER:
In case of a regular assessment, return is must. A regular
assessment u/s 143(3) can be done only if the assessee has filed
the return.
In the given case, Grind ltd. has failed to file its return for the PY
2024-25. In such case, the A.O. cannot send a notice u/s 143(2) for
making assessment u/s 143(3).
Hence, the action of A.O. is not valid.
The right course of action is:
(i) To require the assessee to file the return by sending
notice u/s 142(1) and once the assessee files the return, the
A.O. can initiate the procedure of regular assessment
OR
(ii) To issue a show cause notice to the assessee and make the
assessment u/s 144 as per his best judgment.

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QUESTION 8:
Big Bang Pvt. Ltd is a closely held company. It filed its return for the
PY 2024-25 on 17th October, 2025. A notice u/s 142(1) was issued
by A.O. on 26-11-2025 requiring the assessee to furnish certain
information. However, the assessee failed to reply this notice. On
04-05-2026, the A.O. passed an order u/s 144 computing the
income of assessee as per his best judgment. The assessee
contends that the order passed by A.O. is not tenable in law as the
A.O. failed to issue a show cause notice before passing order u/s
144. Discuss whether the contention of assessee is valid or not.
ANSWER:
Before making best judgment assessment i.e. before passing order
u/s 144, the A.O. should issue a show cause notice requiring the
assessee to give reason as to why assessment should not be done
as per the judgment of A.O. However, if best judgment is done
because of assessee’s failure to comply with notice u/s 142(1)
then show cause notice is not required.
In the given case, Big Bang Pvt. Ltd failed to comply with notice u/s
142(1). In such case, the A.O. can make the best judgment
assessment u/s 144 without issuing a show cause notice. Hence,
the contention of assessee that “the order passed by A.O. is not
tenable in law” is invalid.

QUESTION 9:
In respect of PY 2019-20, AO discovered an escaped income of
` 80,000. To assess this income, the AO initiated proceeding u/s
147 and issued a notice u/s 148 on 4th January, 2025. Is the
proceeding valid?
ANSWER:
For assessing the escaped income, notice u/s 148 should be issued
within 3 years and 3 months from the end of relevant AY.
In the given case, the escaped income pertains to AY 2020-21.
Accordingly, notice u/s 148 can be issued latest up to 30th June,
2024 [within 3 years and 3 months from the end of AY 2020-21].
However, in the given case, the AO has issued this notice on 4th
January, 2025 [after 3 years and 3 months]. Hence, the proceeding
is invalid.
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QUESTION 10:
Case of Samurai ltd. for the PY 2019-20 was reopened with a
reason that the company claimed deduction of ` 6,00,000 which
was disallowed u/s 40A(3).
On 23-07-2023, Samurai ltd. received a notice u/s 148 in response
to which it filed a return on 05-09-2023. You are required to specify
the last date by which order u/s 147 should be passed.
ANSWER:
Order u/s 147 should be passed within 12 months from the end
of the year in which notice u/s 148 is received by the assessee.
In the given case, Samurai ltd. received notice u/s 148 on
23-07-2023. Hence, the order u/s 147 should be passed latest up
to 31-03-2025.

QUESTION 11:
The AO initiated reopening proceeding on Health Plus ltd. for PY
2021-22 in order to disallow a particular expense by issuing notice
u/s 148 on 15-12-2024. During the course of proceeding, the AO
discovered that the company had received rent income in the PY
2021-22 which was not declared by it. Can the AO assess rent
income which was subsequently discovered by A.O.?
ANSWER:
Once a valid proceeding is initiated u/s 147, the A.O. can also
assess/reassess OTHER escaped income which is subsequently
discovered by the A.O. during the course of proceedings under
this section (even if provisions of sec. 148A are not complied
with in respect of such other escaped income). Accordingly, the
AO can also assess rent income subsequently discovered by him.
QUESTION 12:
The High Court found that an income accrued in PY 2012-13 was
wrongly taxed in the hands of Ajay whereas the income was
taxable in the hands of Vijay.
On 13-08-2024, the High Court issued an order directing the A.O.
to reopen the assessment of Vijay for the PY 2012-13.
On 24-10-2024, the A.O. issued a notice u/s 148 to Vijay. Vijay
contends that the issue of notice u/s 148 for PY 2012-13 is time
barred. Is the contention of Vijay correct?
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ANSWER:
As per sec. 150, if notice u/s 148 is issued in order to give effect to the
direction of authority under appeal/reference/revision, then the
notice can be issued anytime (No time limit).
In the given case, the High Court found that an income accrued in
PY 2012-13 was wrongly taxed in the hands of Ajay instead of
Vijay. Hence, the High Court directed the AO to reopen the case
of Vijay in order to include this income in the assessment of Vijay.
Since the AO is directed by High court to reopen the case of Vijay,
notice u/s 148 can be issued any time [i.e. there is no time limit].
Accordingly, the issue of notice u/s 148, in this case, is not barred
by limitation. Hence, the notice issued by AO on 24-10-2024 for
the PY 2012-13 is valid and the contention of Vijay is not correct.

QUESTION 13:
Assessment of Ranjan for the AY 2021-22 was completed u/s
143(3). On 12-07-2024, the AO discovered that certain income of
` 14,00,000 pertaining to the PY 2020-21 was not disclosed by
Ranjan (this information was flagged in accordance with the risk
management strategy of CBDT). After complying with provisions
of sec. 148A, the AO issued notice u/s 148. During the course of
proceeding u/s 147, Ranjan claims:
(i) Set-off of loss of ` 1,00,000 pertaining to PY 2020-21 which
he could not claim in the relevant AY
(ii) Expense of ` 5,00,000 which was wrongly disallowed by
A.O. in the relevant A.Y.
(iii) Expense of ` 3,00,000 related to the aforesaid escaped
income.
Discuss whether Ranjan can claim above in the reassessment
proceeding u/s 147 for the AY 2021-22.

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ANSWER:
Proceeding u/s 147 is for the benefit of Government. As per the
judgment of Supreme Court in the case of Sun Engineering Pvt.
Ltd., the assessee cannot claim any benefit in this proceeding.
The scope of sec. 147 is restricted to escaped incomes only.
In the given case, the AO initiated proceeding u/s 147 in respect
of PY 2020-21. During this proceeding:
(i) Ranjan claims set-off of loss which he could not claim earlier
but he cannot claim this as he had the remedy to revise the
return earlier.
(ii) Ranjan claims expense of ` 5,00,000 which was wrongly
disallowed by AO in the previous assessment but he cannot
reagitate the matters which were already decided in previous
assessment as he had the remedy to file the appeal earlier.
Ranjan claims expense of ` 3,00,000 related to escaped income. Since
this expense is related to the escaped income, it can be claimed as
deduction from the escaped income and the net amt. of escaped
income i.e. ` 11 lakhs [14 L- 3L] shall be included in the order u/s 147.

QUESTION 14:
In an order of assessment for the AY 2022-23, the assessee noticed
a mistake for which application u/s 154 was moved and the order
was rectified. Subsequently, the assessee moved further
application for rectification u/s 154 which was rejected by the A.O.
on the ground that the order once rectified cannot be rectified
again. Is the contention of the A.O. correct?

ANSWER:
In the given case, order of assessment for the AY 2022-23 was
rectified by AO. Subsequently, the assessee moved further
application for rectification of rectified order.
Section 154 empowers Income Tax Authority to rectify a mistake
in the order or intimation if such mistake is apparent from the
record. A rectified order can be further rectified if the rectified
order contains a mistake apparent from the record.
Hence, the contention of AO that the order once rectified cannot
be rectified again is not valid. Accordingly, the AO is not correct
in rejecting the application of the assessee.
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QUESTION 15:
Specify the last date by which following actions should be taken:
(a) Service of notice u/s 143(2) in respect of A.Y. 2025-26 to an
assessee who filed the return on 24-10-2025.
(b) Application for rectification of mistake in an order passed
u/s 147 on 03-05-2023 in respect of PY 2021-22.
(c) Issue of notice u/s 148 on discovery of an escaped income
of ` 90,000 in respect of PY 2020-21 of an assessee whose
original assessment was completed on 04-07-2022.
(d) Passing order u/s 147 in respect of AY 2022-23 in case of
Mr. X who was served notice u/s 148 on 30-11-2024.
(e) Passing order u/s 143(3) in respect of AY 2025-26 in case of
Mr. Y who was served notice u/s 143(2) on 4th June, 2026.
ANSWER:
Action Last date
Service of notice u/s 143(2) in respect of AY 2025- 30-06-2026
26 to an assessee who filed the return on 24-10-
2025.
3 mnths from the end of the year in which return is filed
Application for rectification of mistake in an order 31-03-2028
passed u/s 147 on 03-05-23 in respect of PY 21-22.
4 years from the end of the year in which order is passed
Issue of notice u/s 148 on discovery of an escaped 30-06-2025
income of ` 90,000 in respect of PY 2020-21 of an [assuming
assessee whose original assessment was notice is to be
issued on or
completed on 04-07-2022. after 1/9/24]
3 years and 3 months from the end of relevant AY
Passing order u/s 147 in respect of AY 2022-23 in 31-03-2026
case of Mr. X who was served notice u/s 148 on
30-11-2024.
12 m from the end of the year in which notice u/s 148 is recd.
Passing order u/s 143(3) in respect of AY 2025-26 31-03-2027
in case of Mr. Y who was served notice u/s 143(2)
on 4th June, 2026.
12 m from the end of AY

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QUESTION 16:
The assessment of Mr. Sahaj for A.Y. 2017-18 was made on
28.3.2019 making an addition of ` 3,25,000 for a certain income
received during the P.Y. 2016-17. The assessee contested the
addition before Commissioner (Appeals) but lost the case.
The Appellate Tribunal passed an order on 26.9.2024 holding that
the said income was not taxable in the PY. 2016-17 but the same
was taxable in the year of accrual, being P.Y. 2014-15 relevant to
A.Y. 2015-16. The Assessing Officer issued notice under section
148 for A.Y. 2015-16 in October 2024 bringing to tax the sum of
` 3,25,000. Is the notice valid? Would your answer change if in the
said case, the assessment order for A.Y. 2017-18 was made on
4.4.2019 instead of 28.3.2019?
ANSWER:
As per sec. 150, notice u/s 148 can be issued anytime [if the
reopening is directed by appellate authority] subject to a
condition that the time limit of 3 years and 3 mnths has not
expired as on the date of passing of the assessment order
[which was the subject-matter of appeal].
In this case, the date of passing of assessment order [which was
subject matter of appeal] is 28.03.2019 and as on this date, the
time limit of 3 yrs, 3 mnths for reopening of AY 2015-16 has not
expired.
Hence, sec. 150 is applicable and the notice issued u/s 148 in
October 2024 as per the direction of appellate authority is valid.
If the date of passing of assessment order [which was subject
matter of appeal] is 04.08.2019, then, as on this date, the time limit
of 3 yrs, 3 mnths for reopening of AY 2015-16 has expired.
Hence, sec.150 is not applicable and the notice issued u/s 148 in
October 2024 as per the direction of appellate authority is invalid.

QUESTION 17:
The return for A.Y. 2025-26 was filed on time as per section 139(1)
and proceedings were taken up for assessment under section
143(3). Later on, the assessee, noticed certain omissions and
therefore filed a revised return on 20.02.2026. The Assessing
Officer ignoring the revised return so filed framed the order on
25.4.2026. Is the action of Assessing Officer correct? Examine.
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ANSWER:
As per sec. 139(5), an assessee can file a revised return:
(i) Up to 31st December of A.Y. i.e 31.12.25
or
(ii) Before Completion of Assessment
whichever is earlier
In this case, the assessee has filed the revised return on 20.02.2026
which is beyond the time limit allowed by sec. 139(5). Hence, the
action of the Assessing Officer in making the assessment in
disregard of the revised return filed on 20.02.2026 is correct.
QUESTION 18:
In respect of Mr. Naksh, who is engaged in the export of fabrics,
information is flagged as per the risk management strategy
formulated by the CBDT for A.Y.2021-22, A.Y.2022-23, A.Y.2023-24
and A.Y.2024-25.
In case of Mr. Ramesh (friend of Mr. Naksh), who is engaged in
trading of commodities, the Assessing Officer has in his possession
certain documents showing information pertaining to shares of
value ₹ 28 lakhs purchased in the P.Y. 2018-19 and shares of value
of ₹ 21 lakhs purchased in the P.Y.2019-20. Can the Assessing
Officer issue notice under section 148 to Mr. Naksh and Mr.
Ramesh in April 2025? If so, in respect of which assessment years
can notice be issued? Is it necessary that they be provided with an
opportunity of being heard before issuance of notice?
What would be your answer with respect to issue of notice to Mr.
Ramesh if the shares purchased in the P.Y.2018-19 were of ₹ 30
lakhs instead of ₹ 28 lakhs, all other facts remain the same?
ANSWER:
 In case of Mr. Naksh:
Notice u/s 148 can be issued for A.Y.2021-22, A.Y.2022-23 and
A.Y.2023-24, since the time limit of 3 years and 3 months from
the end of the relevant assessment year has not expired in April,
2025. Before issuing such notice, Mr. Naksh should provided an
opportunity of being heard by issuing a show cause notice within
3 years from the end of relevant A.Y. [for A.Y. 2021-22, show cause
notice should be issued latest by 31/3/2025].
However, notice u/s 148 cannot be issued in respect of A.Y.2024-
25 because for A.Y.2024-25 it is possible to make regular/best
judgment assessment.
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 In case of Mr. Ramesh:
In case of Mr. Ramesh, the A.O. has in his possession certain
documents which reveal escapement of income represented in
the form of shares amounting to ₹ 49 lakhs [PY 2018-19 ₹ 28
lakhs + PY 2019-20 ₹ 21 lakhs]. Since the amount is lower than ₹
50 lakhs, notice cannot be issued beyond 3 years and 3 months
from the end of the relevant AY. In this case, the relevant AYs are
A.Y.2019-20 and A.Y.2020-21. In respect of these A.Y.s, the time
limit of 3 yrs and 3 months has expired before April 2025.
Accordingly, notice cannot be issued u/s 148 in April 2025. However,
where the escaped income represented in the form of shares
amounts to ₹ 51 lakhs (i.e., ₹ 30 lakhs + ₹ 21 lakhs), an extended
period of 5 years and 3 months from the end of the relevant AY
would be available for issue of notice, which has not expired in April,
2025. Therefore, the A.O. can issue notice u/s 148 for A.Y.2019-20
and A.Y.2020-21. Before issuing such notice, Mr. Ramesh should
provided an opportunity of being heard by issuing a show cause
notice within 5 years from the end of relevant A.Y. [for A.Y. 2019-20,
show cause notice should be issued latest by 31/3/2025].

QUESTION 19:
Tai Ltd. filed its return of income for assessment year 2024-25 on
26th September, 2024. The return is selected for regular
assessment under section 143(3) for which notice under section
143(2) is served on the company on 3rd July, 2025. The company
responded to the notice under section 143(2).
Examine whether the service of the notice is within time and if not,
whether the assessment order can be challenged by the assessee.
What would be your answer if the A.O. failed to issue notice under
section 143(2) ?
ANSWER:
 The time limit for service of notice u/s 143(2) is 3 months from
the end of the year in which the return was filed by the assessee.
The return of income for AY 2024-25 was filed by the assessee on
26th September, 2024. Therefore, the notice u/s 143(2) must be
served by 30th June, 2025. However, the notice was served on
the assessee on 3rd July, 2025. Hence, the notice issued u/s
143(2) is time-barred.
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As per section 292BB, where an assessee had appeared in any
proceedings or co- operated in any enquiry relating to an
assessment or reassessment, it shall be deemed that any notice
required to be served upon him, has been duly served upon him
in time in accordance with the provisions of the Act and after
completion of such assessment/reassessment, the assessee
cannot raise objection that the notice was not served
properly. However, the assessee can raise such objection before
the assessment/reassessment is completed.
Therefore, in the instant case, if the assessee, Tai Limited, had
raised an objection for late service of the notice u/s 143(2)
[before the passing of assessment order], then, the validity of the
assessment order can be challenged and if the objection is not
raised before the passing of assessment order then, the
assessment order cannot be challenged.
 Section 292BB is a deeming provision that seeks to cure defects
in any notice issued under any provision of the Income-tax Act,
1961, if the assessee has participated in the proceedings. It is,
however, to be noted that the section does not save complete
absence of issue of notice. For section 292BB to apply, the notice
must have been issued by the Department. The section only seeks
to cure the defects in the manner of service of notice. The section
is not intended to cure complete absence of notice itself. This was
held by Supreme Court in the case of Laxman Das Khandelwal.
Hence, the assessee can challenge the assessment order if the A.O.
fails to issue the notice u/s 143(2).

QUESTION 20:
Ram, an individual, filed his return of income for the assessment
year 2025-26 on 15.6.2025. He later discovered that he had not
claimed deduction under section 80C in the said return. He
claimed the said deduction through a letter addressed to the
Assessing Officer. The Assessing Officer completed the assessment
without allowing the deduction claimed by Ram. Is the Assessing
Officer justified in doing so?

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ANSWER:
In the case of Goetze (India) Ltd., the Supreme Court has ruled
that the assessing officer has no power to entertain any fresh
claim made after filing of the return of income otherwise than by
way of a revised return.
In the instant case, Ram has claimed the deduction under section
80C, which he omitted to claim in the original return of income,
through a letter addressed to the Assessing Officer and not by
filing a revised return under section 139(5).
In view of the decision of the Supreme Court cited above, the A.O.
was justified in completing the assessment without allowing the
deduction under section 80C.
QUESTION 21:
Mr. X filed his return of income for A.Y. 2025-26 by declaring a total
income of ` 10 lakhs. His case was selected for scrutiny assessment
and an addition of ` 4 lakhs was made by the Assessing Officer on
account of disallowances of certain expenses. During the course
of the assessment proceedings, Mr. X found that he erroneously
failed to claim the set-off of brought forward losses under section
72 amounting to ` 3 lakhs, which he was otherwise entitled to.
By the time the error was discovered by Mr. X, the time-limit for
filing revised return had also expired. Hence, during the course of
the proceedings, Mr. X approached the Assessing Officer to allow
the set-off of the brought forward losses which was erroneously
not claimed in the return of income filed under section 139(1).
Whether the Assessing Officer is bound to accept the request of
Mr. X? Your Answer should cover these aspects:
 Issue involved
 Provision applicable
 Analysis and
 Conclusion
ANSWER:
Issue Involved:
The issue under consideration is whether the Assessing Officer is
bound to allowed the set-off of brought forward losses under
section 72 even if the assessee, Mr. X, in this case, has not claimed
the same in the return filed by him and the time limit for filing
revised return has expired.
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Provision Applicable:
Under section 72, business losses shall be carried forward and
shall be set-off against the profits and gains of any business in the
next assessment year. It is assumed that the assessee has filed the
return of income within the time stipulated u/s 139(1) and hence
is eligible for set off of the unabsorbed loss in the subsequent year.
The wording used in section 72 is “shall”, indicating that the
provisions relating to set off of brought forward business loss are
mandatory provided the return for the year of loss was filed on
time.
Analysis:
As per a CBDT Circular, it is the duty of the A.O. to assist a
taxpayer in every reasonable way, particularly in the matter of
claiming and securing reliefs and in this regard, they should take
the initiative in guiding a taxpayer where proceedings or other
particulars before them indicate that some refund or relief is due
to him. Thus, it is the duty of the Assessing Officer to apply the
relevant provisions of the Act for the purpose of determining the
true figure of Mr. X’s total income and consequential tax liability.
Merely because Mr. X has not claimed the set-off of brought
forward losses of ` 3 lakh in the original return filed and the time
limit for filing revised return has expired, it cannot relieve the
Assessing Officer of his duty to apply section 72 in the appropriate
case.
Conclusion:
The Assessing Officer is bound to accept the request of Mr. X and
allow the set-off of brought forward losses of ` 3 lakh under section
72, even if Mr. X has not claimed the same in the return filed, and the
time limit for filing the revised return has expired.
Note – The facts of this case are similar to the case of Mahalakshmi
Sugar Mills Co. Ltd., wherein the Supreme Court gave ruling taking
note of the CBDT Circular.

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QUESTION 22:
Pruthvi Ltd. did not make a claim of ₹ 20 lakhs in the return of
income filed for A.Y. 2025-26 which was disallowed in the previous
assessment year under section 43B. However, the said claim was
also not considered by the Assessing Officer during assessment
proceedings on the ground that no revised return was filed. Can
the assessee now make such claim before the appellate authority?

ANSWER:
Yes, the assessee is entitled to raise additional claims before the
appellate authorities.
The restriction that an additional claim must be made by filing a
revised return applies only in respect of a claim made before the
Assessing Officer. An assessee cannot make a claim before the
Assessing Officer otherwise than by filing a revised return. It was
so held by the Supreme Court in the case of Goetze (India) Ltd.
However, this restriction does not apply to an additional claim
made before an appellate authority. The appellate authorities
have jurisdiction to permit additional claims before them. though,
the exercise of such jurisdiction is entirely the authorities'
discretion. It was so held by the Bombay High Court in the case of
Pruthvi Brokers & Shareholders.
Thus, additional claim can be raised before Appellate Authority
even if no revised return is filed.

QUESTION 23:
Mr. Surajit e-filed his Income-tax Return for A.Y. 2024-25 on July 21,
2024. He declared a total income of ` 11,75,000.
Total income includes interest from Public Provident Fund (PPF) `
95,530 and long- term capital gains on agricultural land exempt
under section 10(37). Both these incomes were disclosed in the
schedule of exempt income.
Mr. Surajit also found that by mistake he failed to claim the current
year business loss in the Income-tax Return amounting to `
4,50,000 which he is entitled to claim.

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In due course of time, the above I.T. Return got processed under
section 143(1) and both the above exemptions for Interest on
Public Provident Fund and long-term capital gains on agricultural
land were denied. Intimation was served to Mr. Surajit and a
demand of tax was raised.
For all the above mistakes in the return he filed a revised return u/s
139(5) but time limit for e-verification of revised return had lapsed
and the same became invalid.
Assessee filed for rectification under section 154 which was also
rejected by the Assessing Officer. Is the Assessing Officer bound to
accept the request of Mr. Surajit?
Your answer should cover:
(1) Issues involved
(2) Provisions Applicable
(3) Analysis and Conclusion

ANSWER:
Issue Involved:
The issue under consideration is whether a rectification application
before the Assessing Officer under section 154 can be filed to rectify
a mistake
- for denial of exemption in respect of interest on PPF and
Long-term Capital Gains on agricultural land u/s 10(37)
while processing return u/s 143(1) which was disclosed by
the assessee in the Schedule of exempt income of ITR; and
- to claim a business loss which the assessee failed to claim in
the return filed by him.
Provisions Applicable:
As per section 154, the Income Tax Authority can rectify a mistake in
his order or intimation if such mistake is “apparent” from the record.
Analysis and Conclusion:
The jurisdiction of any authority u/s 154 depends upon the
existence of a mistake apparent on the face of the record. As per
section 154, an income-tax authority can rectify mistake which is
committed in the intimation passed u/s 143(1) or an order passed
under the Act.

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In the present case, denial of exemption while processing the
return u/s 143(1) in respect of interest from Public Provident Fund
(PPF) and LTCG on agricultural land exempt under section 10(37)
are mistakes in the intimation [apparent from record].
However, mistake to claim current year business loss in the
return of income in the not a mistake in the intimation [apparent
from record]. It is a mistake in the return for which the only
remedy is to revise the return. Moreover, the assessing officer has
no power to entertain a fresh claim for deduction made after filing
return of income otherwise than by way of a revised return.
Accordingly, the Assessing Officer is bound to accept the request
of Mr. Surajit for rectification only in respect of exemption of
interest on PPF and LTCG under section 10(37) and not in
respect of claim for business loss.

QUESTION 24:
Mr. Ravi would like to furnish his updated return for the AY 2024-
25. In case he furnished his updated return, his tax liability would
be ₹4,50,000 [including ₹55,000 towards interest].
Tax paid by him at the time of filing previous return was ₹1,65,000
[including ₹15,000 towards interest].
- You are required to examine whether Mr. Ravi can furnish
updated return:
(i) on 05.03.2026
(ii) on 28.02.2027
(iii) on 31.05.2028
- If yes, compute the amount of additional income tax payable
by him at the time of filing his updated return.
- Would your answer be different if the assessee has received
notice u/s 148 for the said AY 2024-25 on 23.07.2026 ?
- What would be the time limit for completion of assessment
- u/s 143(3) if Mr. Ravi files the updated return for AY 2024-25
on 20.05.2026 ?

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ANSWER:
- Updated return can be filed within 24 months from the end
of relevant AY i.e. within 24 months from 31.03.2025 i.e.
latest upto 31.03.2027.
Accordingly, Mr. Ravi can furnish updated return on
5.3.2026 and on 28.2.2027. However, he cannot furnish
such return on 31.05.2028, since it falls beyond 24 months.
- Additional income tax payable if updated return is filed on
5.3.2026 i.e. within 12 mnths from the end of relevant AY
= (4,50,000 – 1,65,000) x 25% = ₹ 71,250
Additional income tax payable if updated return is filed on
28.02.2027 i.e. after 12 mnths from the end of relevant AY
= (4,50,000 – 1,65,000) x 50% = ₹ 1,42,500
- An assessee cannot furnish updated return in respect of a
year for which assessment proceedings under Income tax
are pending.
Accordingly, if Mr. Ravi received notice u/s 148 on
23.07.2026 then the he cannot file updated return
28.2.2027. However, he can file the updated on 5.3.2026
because as on this date the proceeding did not commence.
- If Mr. Ravi files the updated return for AY 2024-25 on
20.05.2026 then the assessment of AY 2024-25 u/s 143(3)
should be completed within 12 months from the end of the
year in which updated return is filed i.e. the time limit for
completion of assessment would be 31.03.2028.

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QUESTION 1:
The Income-tax Appellate Tribunal (ITAT) passed an order
providing relief as prayed by the assessee on 7-06-2023. On 13-12-
2023, the Tribunal found a mistake apparent from the record and
immediately rectified the mistake and passed an order on 15-12-
2023.
Is the order passed by the Tribunal barred by limitation?
What would be your answer if the mistake was identified by the
Assessing Officer who filed rectification petition on 13-12-2023
and the Tribunal passes the rectification order on 24-01-2025?
ANSWER:
As per sec. 254, if there is any apparent mistake in the order of
ITAT then the ITAT can rectify such mistake [either on its own
motion or on an application made by Assessee/AO]. If rectification
is done by ITAT on its own motion, then it should be done within
6 months from the end of the month in which order is passed. If
assessee/AO applies for rectification then he should apply within
such 6 months [no time prescribed for reply].
In the given case, the ITAT passed the order on 7-06-2023. This order
can be rectified by ITAT on its own motion till 31-12-2023. Since
the order is rectified on 15-12-2023, it is not barred by limitation.
If the mistake is identified by AO then the AO should apply till
31-12-2023 and there is no time prescribed for reply by ITAT.
Accordingly, if the AO applies for rectification on 13-12-2023 then
the application is within the prescribed time limit and it is not
barred by limitation. Hence, the rectification order passed by ITAT
on 24-01-2025 is valid.

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QUESTION 2:
Discuss the correctness or otherwise of following propositions in
the context of the Income-tax Act, 1961:
(i) The ITAT is the final fact-finding authority.
(ii) The Commissioner (Appeals) cannot admit an appeal filed
beyond 30 days from the date of receipt of order by an assessee.
(iii) An assessee aggrieved by an order passed u/s 263 by the
Commissioner of Income-tax cannot file an appeal.
(iv) The Commissioner of Income-tax can revise an order passed
by AO within 2 years from the end of relevant AY if such
order is erroneous and prejudicial to the interest of revenue.

ANSWER:
(i) The statement is correct because if the appeal is on a
question of fact then the judgment of ITAT is final.
(ii) The statement is incorrect because if an assessee has
genuine reason for delay in filing the appeal then the
CIT(A) can condone the delay and admit the appeal filed
beyond 30 days.
(iii) The statement is incorrect because if the assessee is
aggrieved by the revisionary order of CIT u/s 263 then he
can file an appeal to ITAT within 60 days from the date of
receipt of such order. However, if the appeal is to be filed
on/after 1/10/24 then it can be filed within 2 months from
the end of the month in which order u/s 263 is received.
(iv) The statement is incorrect because as per sec. 263, the CIT
can revise the order of AO within 2 years from the end of
the year in which such order is passed if the order is
erroneous and prejudicial to Government. [Note: 2 years is
not from the end of relevant AY]

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QUESTION 3:
An Income-tax authority did not file an appeal to the ITAT against
an order of Commissioner (Appeals) decided against the Income-
tax department on a particular issue in case of one assessee, Mr.A
for the AY 2023-24 on the ground that the tax effect of such
dispute was less than the monetary limit prescribed by CBDT.
In AY 2024-25, a similar issue arose in the assessments of Mr. A and
his brother Mr. B, which was decided by the Commissioner
(Appeals) against the Department.
Can the Income-tax department move an appeal to the Tribunal in
respect of AY 2024-25 against the orders of the Commissioner
(Appeals) for Mr. A and his brother Mr. B?
ANSWER:
Section 268A empowers CBDT to fix monetary limits for
regulating appeals by department (the underlying objective is to
reduce litigation in small cases).
Accordingly, IF the dept. did not file appeal on a particular issue
in case of particular assessee in a particular year THEN it shall not
stop the department from filing appeal on the same issue in case
of same assessee in another year or on the same issue in case of
another assessee in any year.
In the given case, the dept. did not file appeal in case of Mr.A in AY
2023-24 because the tax effect was less than the monetary limit
prescribed by CBDT. However, this shall not stop the dept. from
filing appeal on the same issue in case of Mr. A and his brother
Mr. B in AY 2024-25.

QUESTION 4:
The Commissioner of Income-tax issued notice to revise the order
passed by an Assessing Officer under section 143. During the
pendency of proceedings before the Commissioner, on the basis
of material gathered during survey under section 133A after issue
of the first notice, the Commissioner of Income-tax issued a second
notice, the contents of which were different from the contents of
the first notice. Examine whether the action of the Commissioner
is justified as to the second notice.

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ANSWER:
The action of the Commissioner in issuing the second notice is not
justified. The term “record” has been defined in clause (b) of
Explanation 1 to section 263(1). According to this definition
“record” shall include all records relating to any proceeding under
the Act available at the time of examination by the
Commissioner. In other words, the information, material, report
etc. which were not in existence at the time the assessment was
made and came into existence afterwards can be taken into
consideration by the Commissioner for the purpose of invoking his
jurisdiction under section 263(1). However, information, material,
report etc which came in to existence after the examination by
Commissioner cannot be taken in to consideration for the
purpose of sec. 263.
In this case, proceedings took place in following sequence:
- First, assessment took place u/s 143(3);
- Then, examination of records by CIT;
- Then, issue of first notice u/s 263;
- Then, materials gathered during survey u/s 133A;
- Then, issue of second notice based on such materials.
Based on above sequence, action u/s 263 is justified only on the
basis of examination of records before issue of first notice. Since,
materials gathered during survey u/s 133A came in to existence
after the examination by commissioner, the issue of second
notice is not justified.
QUESTION 5:
A petition for stay of demand was filed by XYZ Ltd. before the
Income-tax Appellate Tribunal in respect of a disputed demand for
which appeal was pending before it. The Appellate Tribunal
granted stay vide order dated 1.1.2025 for a period of 180 days
from the date of such order, on deposit of 20% of the amount of
tax by XYZ Ltd. Thereafter, the bench was functioning
intermittently till 1.2.2026 and therefore, the disputed matter
could not be disposed of. In the meanwhile, in June 2025, XYZ Ltd.
had made an application for extension of stay and was granted
extension of stay upto 31.12.2025. Thereafter, on 5.1.2026, the
Assessing Officer attached the bank account of XYZ Ltd. and

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recovered the amount of ₹15 lakhs against the arrear demand of
₹25 lakhs. The company requested the Assessing Officer to refund
the amount as it holds stay over it. The Assessing Officer, however,
rejected the contention of the assessee stating that the stay period
expired on 31.12.2025, after which the order of stay stood vacated
automatically. Examine the correctness of contention of the
Assessing Officer.
ANSWER:
While filing appeal to ITAT, the assessee can apply to ITAT for stay
of demand. If the ITAT is satisfied then it can grant a stay of
maximum 180 days. During this period, the ITAT shall give its
judgement (if possible). If the ITAT fails to give the judgement with
this period and if the delay is not due to the fault of assessee then
the assessee can apply for extension of stay. In such case, the ITAT
can extend the stay but the total period of stay (original +
extension) should not exceed 365 days. After this period, the
order of stay shall stand vacated.
This provision would result in automatic vacation of stay on
expiry of 365 days even in cases where the ITAT could not dispose
off due to its own fault or due to the fault of Department [and no
fault of assessee]. This would cause undue hardship to the
assessee even where the assessee is not at fault. In this sense, the
provision is arbitrary and disproportionate so far as the assessee
is concerned. Hence, the order of stay shall stand vacated after
expiry of 365 days only if the delay in disposing of the appeal is
due to the fault of assessee. This was held by Supreme Court in
the case of Pepsi Foods Ltd.
Accordingly, if an appeal is not heard by the bench, due to the
bench functioning intermittently, the delay is not attributable to
XYZ Ltd. and the order of stay shall not vacate after expiry of 365
days. In such a case, the recovery of 15 lakhs against the arrear
demand of 25 lakhs made by the A.O. on 5.1.2025 is not in
[Link] the contention of the Assessing Officer is not correct.

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QUESTION 6:
XYZ Limited entered into a contract for purchase of software with
M/s. Delta Inc, a non-resident company based in Sweden. It filed an
application u/s 195(2) before the Assessing Officer to make payment
to the non-resident company for purchase of software without
deducting tax at source.
The assessee, XYZ Limited, contended that said non-resident
company had no Permanent Establishment in India and in terms
of the DTAA between India and Sweden, no tax was to be
deducted in India on same. The AO rejected the assessee's
application on grounds that consideration for software licensing
constituted royalty u/s 9(1)(vi) and was liable to be taxed in India
and, accordingly, assessee was directed to deduct tax at source at
rate of 10% on said royalty payment.
On Appeal, the Commissioner (Appeals) passed an order in favour of
the assessee. On further appeal, the Tribunal upheld the order
passed by the Assessing Officer on grounds that payments made for
purchase of software were in nature of royalty and tax at source to
be deducted on such payment.
The assessee company filed a miscellaneous application for
rectification under Section 254(2) before the Tribunal.
The assessee had also filed an appeal before the High Court.
Tribunal allowed said application in exercise of his powers under
section 254(2) and reheard entire appeal on merits and recalled its
original order and passed an order in favour the assessee.
Thereafter, the writ petition filed by the assessee with High Court
was also withdrawn. Is Tribunal justified in recalling its original
order? Please state your answer on the basis of latest provisions of
the Act and Supreme Court rulings. Your answer should cover:
(a) Issue involved
(b) Provisions applicable
(c) Analysis and Conclusion

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ANSWER:
Issue Involved:
The issue under consideration is whether the powers under
section 254(2) can be exercised by the Tribunal to recall an order
and rehear the entire appeal on merits.
Provisions applicable:
Sec. 254(1) empowers the ITAT to pass such order as it thinks fit,
after giving both the parties to the appeal an opportunity of being
heard.
Sec. 254(2) empowers the ITAT to rectify any apparent mistake
in an order passed by it u/s 254(1).
Analysis and Conclusion:
The power u/s 254(2) is limited to rectification of a mistake
apparent on record and therefore, the Tribunal must restrict itself
within those parameters.
A detailed order was passed by the ITAT upholding [supporting]
the order passed by the A.O. While allowing the application u/s
254(2) and recalling its earlier order, the ITAT had reheard the
entire appeal. The subsequent order passed by the ITAT recalling
its earlier order was beyond the scope and ambit of the powers
u/s 254(2) and is not tenable in law.
Note – The facts given in the question are similar to the facts in the
case of Reliance Communications Ltd. wherein the issue came
up before the Supreme Court. The above answer is based on the
rationale of the Supreme Court in the said case.

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QUESTION 7:
Doctrine of precedence would be applicable in case of tax laws. In
light of the Doctrine of Precedence, comment on correctness or
otherwise of following statements alongwith reasons for your
answers:
(a) The ratio decidendi (the rationale for deciding a case) of a
Supreme Court decision is absolutely binding on all lower
courts, Tribunals & authorities. However, the lower courts,
Tribunals & authorities are not bound by the:
- obiter dicta (additional remarks or things said by the
way) of Supreme Court decisions and
- judgments passed by Supreme Court per incuriam (i.e.
without referring the statutory provision).
(b) Where there are two irreconcilable decisions of two Benches
of similar strength of the Supreme Court, the decision with
more detailed discussion on the subject shall prevail.
(c) Lower authorities may deviate from the decision of the
jurisdictional High Court, only in a situation to keep the issue
alive where the Department has not accepted the said
decision and has taken the matter to the Supreme Court.
ANSWER:
(a) Incorrect - Not only the ratio decidendi (the rationale
for deciding a case), but also obiter dicta (additional
observations, remarks, and opinions given while
deciding a case) of the Supreme Court are binding on all
the Courts. Judgments passed by Supreme Court per
incuriam (i.e. without referring the statutory provision)
are also binding on the lower courts.
(b) Incorrect - When there are two irreconcilable decisions
of two Benches of similar strength of Supreme Court, the
decision later in time shall prevail.
(c) Incorrect - Lower authorities cannot pass orders which
are inconsistent with the decisions of the jurisdictional
High Court even for the purpose of keeping the issue
alive.

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QUESTION 8:
The assessment of Vindhyas Ltd. was completed under section
143(3) with an addition of ` 21 lakhs to the returned income.
Vindhyas Ltd. preferred appeal before the Commissioner (Appeals)
which is pending now. In this backdrop, examine the following
issues:
(i) Based on fresh information that there was escapement of
income for the same assessment year, can the Assessing
Officer initiate reassessment proceedings when the appeal
is pending before Commissioner (Appeals)?
(ii) Can the Assessing Officer pass an order under section 154
for rectification of mistake in respect of issues not being
subject matter of appeal?
(iii) Can the assessee-company seek revision under section 264
in respect of matters other than those preferred in appeal?
(iv) Can the Commissioner make a revision under section 263 both
in respect of matters covered in appeal and other matters?
ANSWER:
(i) Section 147 empowers the A.O. to assess/reassess escaped
incomes if he has information suggesting escapement.
As per the third proviso to sec. 147, the A.O. cannot
assess/reassess an escaped income which involves appeal
matters. However, the A.O. can assess/reassess other
matters of the same order. The doctrine of partial merger
would apply in this case.
Therefore, even when an appeal is pending on the matter
of additions of ` 21 lakhs to the returned income, the A.O.
can initiate reassessment proceedings in respect of other
matters.
(ii) Section 154 empowers the Income Tax Authority to rectify
mistakes in the order or intimation if the mistakes are
apparent from the record.
As per this section, the Income Tax Authority cannot rectify
apparent mistake in relation to appeal matters. However, the
A.O. can rectify apparent mistake in relation to other matters
of the same order. Thus, the doctrine of partial merger holds
good for section 154 also.

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Since the issue under consideration in this case relates to
rectification of a mistake in respect of a non-appeal matter,
the A.O. can pass an order u/s 154 for rectification of the
same provided the mistake is apparent from the record.
(iii) Section 264 empowers the Commissioner to revise an order
which is prejudicial to the assessee.
As per this section, once the assessee files an appeal on a
particular matter, the Commissioner can neither revise that
matter not any other matter of the same order. Thus, the
doctrine of total merger would apply u/s 264.
Therefore, under section 264, the Commissioner cannot
revise an order which is pending before the commissioner
(Appeals), even if the revision pertains to a matter,
other than the matter(s) covered in the appeal.
(iv) Section 263 empowers the Commissioner to revise an order
which is erroneous and prejudicial to the Govt.
As per this section, the Commissioner cannot revise appeal
matters. However, he can revise other matters of the same
order. Here again, the doctrine of partial merger applies.
Therefore, where an appeal is pending on a particular
matter, the Commissioner cannot revise such matter but he
can revise other matters if the same are erroneous and
prejudicial to the Govt.
QUESTION 9:
ABC Ltd. has approached the Supreme Court under a special leave
petition. There has been a delay of 439 days in filing the appeal
under section 260A for which reason ABC Ltd. requested for a
condonation of delay under section 14 of Limitation Act, 1963. The
company submitted that the delay was on account of pursuing an
alternate remedy of filing a miscellaneous application before the
Income-tax Appellate Tribunal (ITAT) under section 254(2).
From the above facts, examine whether delay in filing appeal
under section 260A can be condoned under section 14 of
Limitation Act, 1963 where the stated reason for delay is the
pursuance of an alternate remedy by way of filing an application
before the ITAT under section 254(2) for rectification of mistake
apparent on record.

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ANSWER:
The issue under consideration is whether delay in filing appeal
under section 260A can be condoned under section 14 of the
Limitation Act, 1963, where the stated reason for delay is the
pursuance of an alternate remedy by way of filing an application
before the ITAT under section 254(2) for rectification of mistake
apparent on record.
This issue came up before the Supreme Court in the case of
Spinacom India (P.) Ltd. In this case, the Supreme Court rejected
the question of invoking section 14 of the Limitation Act 1963
which allows condonation of delay on demonstration of sufficient
cause. The Apex Court did not accept that the rectification
application before the ITAT under section 254(2) was an alternate
remedy to filing appeal to High Court u/s 260A. The former is an
application for rectifying a 'mistake apparent from the record'
which is much narrower in scope than the latter. The Court stated
that the appellant had the option of filing an appeal to High
Court while the rectification application was pending before
the ITAT. The time period for filing an appeal to High Court does
not get suspended on account of the pendency of a rectification
application before the ITAT.
Accordingly, applying the rationale of the above Supreme Court
ruling to the facts of this case, the delay in filing appeal to HC due
to pursuance of an alternate remedy by way of filing an
rectification application before the ITAT cannot be condoned.

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QUESTION 10:
M/s. Uranus LLP filed its return for the A.Y. 2022-23 on 23-07-2022.
The assessment u/s 143(3) was completed on 15.06.2024. The
A.O. made 2 additions to the income of the LLP, namely:
- `12 lakhs towards unexplained investment u/s 69; and
- ` 4 lakhs u/s 40(b) due to excess interest paid to partners.
The assessee contested the addition of ` 12 lakhs u/s 69 and filed
an appeal before the Commissioner (Appeals). The appeal was
decided on 12th February, 2025 against the LLP. In March, 2025,
the LLP approaches you to know whether it should apply for
revision to Principal Commissioner u/s 264 or for rectification u/s
154 to the Assessing Officer as regards disallowance u/s 40(b). You
are required to advise the LLP, keeping in mind the relevant
provisions of income-tax law.
ANSWER:
Section 264 empowers the Commissioner to revise an order
which is prejudicial to the assessee. As per this section, once the
assessee files an appeal on a particular matter, the Commissioner
can neither revise that matter not any other matter of the same
order. Thus, the doctrine of total merger would apply u/s 264.
Section 154 empowers the Income Tax Authority to rectify
mistakes in the order or intimation if the mistakes are apparent
from the record. As per this section, the Income Tax Authority
cannot rectify apparent mistake in relation to appeal matters.
However, the A.O. can rectify apparent mistake in relation to other
matters of the same order. Thus, the doctrine of partial merger
would apply u/s 154.
In the present case, since the order passed by the A.O. in respect
of the addition of unexplained investment of ` 12 lakhs became
the subject matter of an appeal to CIT(A), M/s. Uranus LLP, can
neither apply for revision u/s 264 for the matter of unexplained
investment nor for the matter of addition u/s 40(b).
However, M/s Uranus LLP can apply to the A.O. for rectification
u/s 154 in relation to matter of addition u/s 40(b) if the mistake
is apparent from the record (as it is not an appeal matter).
In the view of above, the assessee, M/s Uranus LLP should seek
rectification under section 154.

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QUESTION 11:
An assessee who had been served with an order of assessment
passed under section 143(3) on 1.1.2025 had filed an application
against this order before the CIT as per section 264 on 11.1.2025.
However, the CIT refused to entertain the application on the
pretext of premature application. Assessee seeks your opinion.
ANSWER:
An assessee, who is aggrieved by the order of the A.O. can apply
to CIT/CCIT for revision u/s 264 within 1 year from the date of
receipt of order of A.O. The assessee can make such application
either after the time limit of filing appeal to CIT(A) expires and if
he applies before such time limit expires then he should expressly
waive his right to appeal.
In the present case, the time limit for filing appeal to CIT(A) had not
expired on 11.1.2025 and the assessee had also not waived the
right of appeal while filing the application to CIT for revision u/s
264. Therefore, the Commissioner's refusal to entertain such
application is correct.
Question 12:
Mr. Vijay furnished his return of income for A.Y. 2024 –25 declaring
total income of ₹28,00,000 for the A.Y. 2024–25. He received an
assessment order under section 143(3) on 26.11.2025 enhancing
the total income for the A.Y. 2024–25 by ₹5,00,000. He is
aggrieved by the said order and is desirous of knowing whether
he can file an application before the Dispute Resolution Committee
(DRC). He informs you that no order of detention has been made
and no prosecution proceedings have been initiated or instituted
against him under any law for the time being in force. However,
penalty under section 271D has been levied on him for failure to
comply with the provisions of section 269SS.
Can Mr. Vijay file an application before the DRC?
(i) If yes, what is the time limit for making an application to DRC,
against such order under the Income – tax Act, 1961. He is
also keen to know, whether, in case he is aggrieved by the
order passed by the DRC, can he file appeal against such
order of DRC?
(ii) Would your answer be different, if assessment order is based
on information received under a DTAA with Country X?
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Answer:
Dispute Resolution committee (DRC) is a committee to resolve
disputes of small and medium taxpayers. An assessee is eligible
to resolve disputes through DRC if following conditions are
satisfied:
(i) Returned income of such assessee is upto Rs. 50 lakhs.
(ii) The aggregate amount of Variation made in the order of
A.O. is up to Rs. 10 lakhs.
(iii) The disputed order should not be based on Search/ Survey
or information received under DTAA.
(iv) Such person should not be Convicted under laws like the
Indian Penal Code, Prevention of Corruption Act, Prevention
of Money Laundering Act, Unlawful Activities Act etc.
Accordingly, in the present case, Mr. Vijay can file an application
before DRC as his returned income is ₹28 lakhs [</= ₹50 lakhs] and
the amount of variation done by the A.O. is ₹4 lakhs [</= ₹10 lakhs]
and he satisfies the other specified conditions. Levy of penalty
under section 271D on him does not result in non – compliance
with any specified condition.
Mr. Vijay should file an application for resolution of dispute in the
prescribed form on or before 25.12.2025 i.e., within one month
from the date of receipt of the order of A.O.
However, once a modified order is passed based on the resolution
by DRC, an appeal or revision would lie against such order.
If order of A.O. is based upon the information received from
foreign country under DTAA entered with India, Mr. Vijay, will
not be eligible to make an application before DRC.

QUESTION 13:
The assessment of AUM Enterprises u/s 143(3) for the A.Y.2020-21
was completed on 15th June, 2021 as follows:
(a) Addition of ` 8 Lakhs for unexplained cash credit u/s 68;
(b) Allowance of expenditure “P” – 5 lakhs;
(c) Allowance of expenditure “R” – 12 lakhs.
On 4th August, 2022, a notice u/s 148 was sent to the assessee in order
disallow expenditure “P” and the income of P.Y. 2019-20 was
reassessed u/s 147 by passing an order on 9th December, 2022.

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Later, the Commissioner discovered that the expenditure “R” was
erroneously allowed against the judgement of Supreme Court. Hence,
he initiated the proceedings u/s 263 and disallowed expenditure “R”
by passing a revisionary order on 17th August, 2024.
Examine whether the revisionary power exercised by Commissioner
u/s 263 is in order or barred by limitation.

ANSWER:
Section 263 empowers CIT/CCIT to revise an order passed by his sub-
ordinate authority if the same is erroneous and prejudicial to the Govt.
The time limit prescribed for such revision is 2 years from the end of
the year in which the order containing error was passed.
In case of AUM Enterprises:
- Order u/s 143(3) was passed on 15th June, 2021 and
- Order u/s 147 was passed on 9th December, 2022.
The issue involved is whether the time limit of 2 years u/s 263 shall be
reckoned from the date of original assessment order u/s 143(3) or the
date of reassessment order u/s 147.
The facts of the case are similar to the case of Industrial Development
Bank of India Ltd. where the Supreme Court held that if the issue
before the Commissioner relates to the original assessment order
then the time limit shall be reckoned from the date of original
assessment order. However, if the issue before the Commissioner
relates to the reassessment order then the time limit shall be
reckoned from the date of reassessment order.
In this case, the issue before the Commissioner was expenditure “R”
which relates to the original assessment order [It was not related to
reassessment order as the reassessment was in relation to a different
issue i.e. expenditure “P”]. Hence, the time limit of 2 years u/s 263 shall
be reckoned from the end of the year in which the original
assessment order u/s 143(3) was passed which comes to 31st March,
2024. Since the revisionary order was passed on 17th August, 2024,
it is barred by limitation.

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 SEARCH SEIZURE AND SURVEY
QUESTION 1:
In a search conducted on 24-07-2024, cash of ` 70 lakhs was
seized. The assessee moved an application on 26-08-2024 to
release such cash after explaining the sources thereof, which was
turned down by the department.
The assessee seeks your opinion on whether the department can
withhold the explained money?

ANSWER:
 The person on whom search is conducted can make an
application to the A.O. for release of explained assets (within
30 days from the end of month in which assets are seized).
 The application should state the nature & source of
acquisition of such assets.
 If the A.O. is satisfied, then he shall release the explained
assets after taking the permission of CIT/CCIT & after
deducting existing liabilities.
 The explained assets shall be released within 120 days from
the date on which search is completed i.e. date on which
last of the authorizations for search is executed.
In this case, since the application was made to the Assessing
Officer within 30 days period, the amount of existing liability may
be recovered out of the explained cash and balance may be
released within 120 days from the date on which last of the
authorizations for search is executed. However, if the application
is turned down by the Department due to the reason that it was
not satisfied with the explanation given by the assessee as to the
nature and source then the seized cash cannot be released.

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QUESTION 2:
The Income-tax authority surveyed a popular Coffee shop at 12
o’clock in the night for the purpose of collecting information which
may be useful for income-tax purposes. The Coffee shop is open
for business everyday between 2 p.m. and 2 a.m. The owner of the
coffee shop claims that the income-tax authority could not enter
the shop in late night. The Income-tax authority wanted to take
away with him the books of account kept at the Coffee shop.
Examine the validity of the claim made by the owner and the
proposed action of the Income-tax authority.

ANSWER:
 As per section 133A, for survey at place of business, the
Income-tax Authority can enter during business hours.
However, for survey at other place, the Income-tax Authority
can enter after sunrise but before sunset.
In the given case, the Income-tax Authority surveyed a
Coffee shop at 12 o’clock in the night i.e. a place of business
which is open for business everyday between 2 p.m. and 2
a.m.
Since the time of entry is during business hours, the owner
cannot claim that the income-tax authority could not enter
the shop in late night. Hence, the claim of owner is invalid.
 During survey, the Income-tax authority can impound books
of accounts for max. 15 days [excluding public holidays].
Hence, in the given case, the income-tax authority can take
away the books of account kept at Coffee shop for max. 15
days [excluding public holidays]. However, for retaining
books of account beyond this period, permission of CIT/CCIT
is required.

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ADVANCE RULING
QUESTION 1:
State whether in following cases, the application for advance
ruling will be allowed or rejected by the Board for Advance
Rulings:
(i) Mr. Bonnie is a non-resident. He made an application to the
Board for Advance Rulings on 02-11-2024 in respect of an
issue pending before Commissioner (Appeals).
(ii) Nitin Shetty, a resident of India, made an application to the
Board for Advance Rulings on 17-10-2024 in respect a
transaction valued at ` 135 crores.
(iii) ZENO ltd., a public sector undertaking, applied to the Board
for Advance Rulings in respect of an issue pending before
Commissioner of Income-tax u/s 263.
ANSWER:
(i) A Non - Resident can approach BAR for determination of a
question arising out of a transaction undertaken or
proposed to be undertaken by him. Ruling cannot be sought
if the issue is pending before AO/Comm./ITAT/HC/SC.
In the given case, Mr. Bonnie (a non-resident) applied for
advance ruling in respect of an issue pending before
Commissioner (Appeals).
Since the issue is pending before Commissioner, the
application will be rejected by BAR.
(ii) A Resident can approach BAR for determination of a
question arising out of a transaction undertaken or
proposed to be undertaken by him if aggregate value of
such transactions is `100 crores or more.
In the given case, Nitin Shetty applied for advance ruling in
respect a transaction valued at ` 135 crores.
Since the transaction value is more than ` 100 crores, the
application will be allowed by BAR.

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(iii) Notified Residents (notified* by Central Govt.) can
approach BAR for determination of a question arising out of
issues pending before A.O or Commissioner or ITAT (but not
before H.C/ S.C)
* Presently, Public Sector Undertakings are notified.
In the given case, ZENO ltd., a public sector undertaking,
applied for advance ruling in respect of an issue pending
before Commissioner of Income-tax u/s 263.
Since ZENO ltd. is a notified resident, it can apply for
advance ruling in respect of issue pending before
Commissioner.
Hence, the application of ZENO ltd. will be allowed by BAR.

QUESTION 2:
Chris, a non-resident, made an application to the Board for
Advance Rulings on 27-06-2024 in respect a transaction valued at
` 220 crores.
He seeks your advice as to following matters:
(i) What is the amount of fees required to be paid by him?
(ii) Can he withdraw the application?
(iii) Can his brother use the ruling of BAR pronounced in his
case?
ANSWER:
(i) Fees for advance ruling depends upon the value of
transaction for which ruling is sought.
Value of transaction Fees
up to ` 100 crores ` 2,00,000
> ` 100 crores up to ` 300 crores ` 5,00,000
> ` 300 crores ` 10,00,000
In case of a public sector company, fee is ` 10,000.
In the given case, Chris applied for advance ruling in respect
of a transaction valued at ` 220 crores.
Accordingly, fees payable by Chris will be ` 5,00,000.

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(ii) An applicant of advance ruling can withdraw his application
within 30 days from the date of application.
Accordingly, Chris can withdraw his application within 30
days from the date of application i.e. latest up to 27-07-2024.
(iii) The Ruling of AAR can be used:
 By the Applicant only;
 In respect of the Transaction for which ruling is sought.
Accordingly, brother of Chris cannot use the advance
ruling pronounced in case of Chris.

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 TAXATION OF GIFTS
QUESTION 1:
Mr. Mansoor, a dealer in shares, received following without
consideration during the PY 2024-25:
1) A Plot of land from his friend [SDV ` 8,00,000].
2) Cash Gift of ` 80,000 on his anniversary from his friend
Jason.
3) Bullion, the fair market value of which was ` 75,000 on his
birthday from his brother-in-law.
On 23rd June, 2024, Mansoor purchased 5,000 shares of Orange
ltd. @ ` 500 per share [FMV ` 800 per share].
Further, on 5th September, 2024, Mansoor took possession of a flat
booked by him 2 years back at ` 30 lakhs. The SDV of the flat on
the date of registration is ` 44 lakhs and on the date of booking
was ` 35 lakhs. He paid ` 1,00,000 by account payee cheque as
down payment on the date of booking.
Compute the taxable income from other sources for the AY 25-26.

ANSWER:
STATEMENT OF INCOME FROM OTHER SOURCES
`
Gift of plot from a friend [Taxable as the SDV > 8,00,000
`50,000]
Gift of cash from a friend [Taxable as it is > `50,000] 80,000
Gift of bullion from his brother-in-law -----
[Exempt as brother-in-law is a relative]
Purchase of shares at low price -----
[Exempt because Mansoor is a dealer in shares and
shares are stock-in-trade for him]
Purchase of immovable property at low price 5,00,000
[Note 1]
TAXABLE IFOS 13,80,000

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Note 1:
SDV** ` 35 lakhs
Actual Cost ` 30 lakhs
Difference ` 5 lakhs > [Higher of 10% of Actual cost or ` 50,000]

Since the difference of ` 5 lakhs is more than `3,00,000, such

difference is taxable as Gift.
**If part or whole of the consideration is paid by account payee
cheque/draft/ECS on or before the agreement date then SDV as
on the date of agreement i.e. the date of booking should be
considered.

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TAX DEDN/COLLECTION AT SOURCE
QUESTION 1:
Examine the applicability of the provisions for tax deduction at
source under section 194DA in the following cases:
1) Mr. Singh, a resident, is due to receive ` 4.50 lakhs on
31.03.2025, towards maturity proceeds of LIC policy taken
on 1.4.2022, for which the sum assured is ` 4 lakhs and the
annual premium is ` 1,25,000.
2) Mr. Roy, a resident, is due to receive ` 3.25 lakhs on
31.3.2025 on LIC policy taken on 31.3.2015, for which the
sum assured is ` 3 lakhs and the annual premium is
` 30,100.
3) Mr. Zack, a resident, is due to receive ` 95,000 on 1.8.2024
towards maturity proceeds of LIC policy taken on 1.8.2017
for which the sum assured is ` 90,000 and the annual
premium is ` 10,000.

ANSWER:
1) In case of Mr. Singh, since the annual premium (`1,25,000)
is more than 10%* of sum assured (10% of ` 4,00,000), the
income element comprised in the maturity proceeds of
`4,50,000 is subject TDS u/s 194DA @ 5%.
*10%, because the policy is taken on/after 1/4/2012
2) In case of Mr. Roy, since the annual premium (` 30,100)
exceeds 10%* of sum assured (10% of ` 3,00,000), the
income element comprised in the maturity proceeds of
`3,25,000 is subject TDS u/s 194DA @ 5%.
*10%, because the policy is taken on/after 1/4/2012
3) In case of Mr. Zack, since the annual premium (` 10,000) is
more than 10%* of sum assured (10% of ` 90,000), the
income element comprised in the maturity proceeds of `
95,000 is taxable. However, it shall not be subject to TDS
u/s 194DA as the maturity proceeds is less than ` 1,00,000.
*10%, because the policy is taken on/after 1/4/2012

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QUESTION 2:
Romit, a salaried individual, pays rent of ₹ 70,000 per month to
Rajiv from June, 2024. Is he required to deduct tax at source? If so,
when is he required to deduct tax and when is he required to
deposit the same? Also, compute the amount of TDS.
What would be your answer if Romit vacated the premises on 30th
November, 2024?
Also, what would be your answer if Rajiv does not provide his PAN
to Romit?

ANSWER:
Since Romit is a salaried individual [not carrying on business], he
has no turnover in the preceding year and Ind/HUFs with no/low
turnover are liable to deduct TDS u/s 194IB if the rent exceeds `
50,000 per month. Since rent paid by Romit is ` 70,000 per
month, he is liable to deduct TDS u/s 194IB.
Although the rent is paid on monthly basis, TDS u/s 194IB is
deducted in the last month of financial year i.e. in the month of
March and the same is to be deposited within
30 days from the end of the month of tax deduction i.e. it should
be deposited by 30th April, 2025.
Amount of TDS to be deducted from the rent of March month =
[70,000 p.m. x 4 months x 5%] + [70,000 p.m. x 6 months x 2%] =
` 22,400.
 If Romit vacated the premises on 30th November, 2024 then
TDS should be deducted in the month of November and
the same should be deposited by 30th December, 2024.
As per sec. 206AA, if Rajiv fails to provide his PAN then TDS should
be deducted @20%. Amt of TDS = 70,000 p.m. x 10 months x 20%
= `1,40,000. However, the amt of TDS should not exceed the
amount of Rent of March. Hence, TDS shall be restricted to
` 70,000.

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QUESTION 3:
Callos ltd. paid ` 70,000 to Ankush on 16.07.2024 towards fees for
professional services. Tax on the same was deducted on
22.10.2024 and deposited on 03.01.2025.
Compute the amount of interest chargeable u/s 201(1A).

ANSWER:
In case of Callos ltd., there is delay is deduction as well as deposit
of TDS.
As per section 201(1A),
Interest for late deduction
= Amt of TDS x 1% p.m. x No. of months [from the date when
deductible upto the date when deducted]
= (70,000 x 10%) x 1% p.m. x 4 months [July to Oct.]
= ` 280
Interest on late deposit
= Amt of TDS x 1.5% p.m. x No. of months [from the date when
deducted upto the date when deposited]
= (70,000 x 10%) x 1.5% p.m. x 3 months [Nov. to Jan.]
= ` 315
Total interest u/s 201(1A) = ` 280 + ` 315 = ` 595

QUESTION 4:
Explain the applicability of the provisions relating to the deduction
of tax at source in the following transactions:
1) Trax ltd. pays ` 1,00,000 to Trinity ltd., a resident contractor
who, under the contract dated 15-10-2024, manufactures a
product according to the specification of Trax Ltd. by using
materials purchased from Trax ltd.
2) A State Government pays ` 20,000 as commission on 13-06-
2024 to one of its agents for sale of lottery tickets.
3) On 17-07-2024, A Turf Club awards a jackpot of ` 5 lakhs to
the winner of one of its races.
4) State Bank of India pays rent of ` 15,000 per month to Miss
Zoya, a non-resident.
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5) Mr. Sharma pays interest of ` 35,000 to Mr. Shenoy on 12-
06-2024. Loan was taken for his business purpose. His
turnover during PY 2023-24 was ` 89 lakhs.
6) Mr. Agarwal paid ` 2,00,000 to Sunder Caterers for the
contract of catering for her son’s birthday party.
7) Matrix ltd. paid ` 46,000 to Mr. Mishra, a goods transporter.
Mr. Mishra owns 6 trucks.
8) KLF ltd. [whose turnover during PY 2023-24 was ` 67 lakhs]
paid advertisement charges of ` 88,000 to Mr. Ahmed on
12-05-2024.
9) On 1-06-2024, Mr. Rupesh, aged 40 years, made 3 nine
months fixed deposits of ` 3 lakh each, carrying interest @
9% p.a. with Colaba branch, Santacruz branch and Dahisar
branch of Canara Bank [which has adopted CBS]. The Fixed
deposits mature on 28-02-2025.
10) Mr. Kulkarni, an employee of PQR ltd., since 10-04-2021,
resigned on 31-03-2025 & withdrew ` 60,000 being balance
in his Recognised PF account.

ANSWER:
1) Since Trinity ltd. is manufacturing the product as per the
specification of Trax ltd out of materials supplied by Trax ltd.,
payment of ` 1,00,000 is treated as payment for works
contract. Accordingly, tax will be deducted @2% u/s 194C.
Note: In the above case,
Trinity ltd. has used materials purchased from Trax ltd.
If Trinity ltd uses materials purchased from outsiders then it
is not a job work [not subject to TDS].
However, if that outsider is relative of Trax ltd. then it is a
job work [subject to TDS].
2) Payment of commission of ` 20,000 by State Govt. for sale of
lottery tickets is subject to TDS u/s 194G @5% as the
amount of commission exceeds ` 15,000.
3) Payment of ` 5 lakhs by a Turf club to the winner is subject
to TDS u/s 194BB @30% as the payment is > ` 10,000.

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4) Payment of Rent by SBI to a non-resident is subject to TDS
u/s 195 irrespective of the amount of rent [as the threshold
limit of ` 2,40,000 p.a. u/s 194-I is applicable when rent is
paid to a resident].
5) Mr. Sharma is an individual. Since his turnover in the
preceding year did not exceed ` 1 crore, he is not liable to
deduct TDS u/s 194A on interest paid.
6) Payment of ` 2,00,000 by M` Agarwal to Sunder Caterers is
not subject to TDS u/s 194C because u/s 194C and 194J,
personal transactions are exempt from TDS.
7) Since Mr. Mishra does not own more than 10 trucks,
payment to him for goods transport is not subject to TDS
u/s 194C provided Mr. Mishra furnishes his PAN and a
declaration that he does not own more than 10 trucks.
8) KLF ltd. is a company. Even though its turnover in the
preceding year did not exceed ` 1 crore, it is liable to deduct
TDS u/s 194C on payment of advertisement charges @1%
[1%, because the receiver is an individual].
9) Since Canara bank has adopted CBS, the threshold limit of `
40,000 for deduction of tax from bank interest should be
checked in aggregate. Aggregate interest on bank FD with
all the branches = 9,00,000 x 9% x 9/12 = ` 60,750. Since the
aggregate of interest from all branches is more than
` 40,000, tax will be deducted at source u/s 194A @10%.
10) Since the service of Mr. Kulkarni is for less than 5 years,
amount received from RPF is a premature withdrawal. It will
be subject to TDS @10% u/s 192A as the amount received
is >/= ` 50,000.

QUESTION 5:
Examine whether TDS provisions would be attracted in the
following cases, and if so, under which section. Also, specify the
rate of TDS applicable in each case.
1) ICICI Bank makes a payment of ` 24,000 to Mr. Naresh on
1st June, 2024 towards fees for professional services and
another payment of ` 23,000 to him on the same date
towards fees for technical services.
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2) Samrat, a salaried individual, pays rent of ` 63,000 p.m. to Nasir
from August 2024.
3) On 25th August 2024, Mr. Rampal purchased a house
property in Hyderabad and a rural agricultural land for a
consideration of ` 74 lakh and ` 22 lakh respectively.
Turnover of Mr. Rampal in the PY 2023-24 was ` 95 lakh.
4) East Bengal Club, a renowned football club, engaged
Raghu, a resident in India, as its coach with effect from 1st
July, 2024. Remuneration of ` 6 lakhs was paid to him on
23-03-2025.
5) Jagdeep, an individual carrying on retail business with the
turnover of ` 2.8 crores in the PY 2023-24 paid ` 7 lakhs in
October 2024 to a contractor for repairs of his residential
house.
6) Mr. Ketan, a wholesale trader whose turnover was ` 4 crores
in PY 2023-24 paid ` 80 lakhs in February 2025 to a contractor
for reconstruction of his residential house.
7) Mr. Simpson, a salaried individual, paid ` 20 lakhs a
brokerage for buying a residential house.
8) On 13-06-2024, Mr. Khurana withdrew cash of ` 1.22 crores
from Bank of Baroda. Calculate the amount of TDS, if
applicable.
9) On 23-12-2024, Abhishek withdrew cash of ` 1.3 crores
from Post office. Mr. Abhishek didn’t file the return in any of
the preceding 5 years. Calculate the amount of TDS, if
applicable.
10) Thomas Cook, an authorized foreign exchange dealer
withdrew cash of ` 5 crores from SBI. Calculate the amount
of TDS, if applicable.

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ANSWER:
1) Since the payment made by ICICI Bank for professional
services and technical services does not exceed ` 30,000
individually, there is no liability for deducting TDS u/s 194J.
The limit of ` 30,000 is separate for each category of
payment covered in section 194J.
2) Since Samrat is a salaried individual, he has no turnover in
preceding year and Ind/HUFs with no/low turnover in
preceding year are exempted from TDS on rent u/s 194-I
(Sec. 194 RA C H I J). However, the same is liable for TDS
u/s 194IB because the rent exceeds ` 50,000 p.m. [5% TDS
on Rent of August and September and 2% TDS for
remaining months].
3) Purchase of house property by Rampal is subject to TDS
@1% u/s 194IA as the consideration is >/= ` 50 lakhs
[irrespective of his turnover in the preceding year] [Ind/HUF
with low turnover are exempt for TDS only u/s 194R,A,
C,H,I,J; not in section 194IA].
Purchase of rural agricultural land is not subject to TDS
u/s 194IA.
4) Payment of remuneration by East Bengal Club to its coach is
subject to TDS @10% u/s 194J because a “Coach” is a
notified professional for the purpose of section 194J
[SUP2AC3E].
5) Since the payment to contractor for repairs of residential
house is a payment for personal transaction, it not subject
to TDS u/s 194C. Such payments are subject to TDS u/s
194M if the aggregate payment during the year exceeds `
50 lakhs. Since the payment by Jagdeep for works contract
does not exceed ` 50 lakhs, it is not subject to TDS u/s
194M also.
6) Payment by Mr. Ketan for reconstruction of residential house
is personal in nature. It is not subject to TDS u/s 194C.
However, it will be subject to TDS @ 5% u/s 194M because
the payment exceeds ` 50 lakhs.

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7) Payment of commission by Mr. Simpson is not subject to TDS.
Since he is a salaried individual, he has no turnover in
preceding year and Ind/HUFs with no/low turnover in
preceding year are exempted from TDS u/s 194H (Sec. 194
RA C H I J). However, such Ind/HUFs are covered u/s 194M
if payment exceeds ` 50 lakhs. Since the payment of
commission by him does not exceed ` 50 lakhs, it is not
subject to TDS u/s 194M also.
8) Cash withdrawal of ` 1.22 crores by Mr. Khurana from Bank
of Baroda is subject to TDS @2% u/s 194N.
Amount of TDS = 2% of (1.22 cr. – 1 cr.) = ` 44,000.
9) Since Mr. Abhishek did not file the retrun in any of the
preceding 3 years, cash withdrawal by him of ` 1.3 crores
will be subject to TDS as follows:
TDS up to ` 20 lakhs Nil
TDS above ` 20 L up to ` 1 crore 1,60,000 (2% of 80 L)
TDS above ` 1 crore 1,50,000 (5% of 30 L)
10) Cash withdrawal by Thomas Cook, an authorised foreign
exchange dealer is not subject to TDS u/s 194N.
QUESTION 6:
In respect of the following independent case scenarios you are
required to discuss the provisions related to TDS/TCS and amount
of tax deductible/collectible for the year ended 31st March 2025:
1) State Government of Telangana grants a lease of coal mine
to M/s XYZ Co. Ltd. on 1.09.2024 and charged ₹10 crores for
the lease. M/s XYZ Co. Ltd. sold coal for ₹1 crore to M/s AB
(P) Ltd. during the previous year 2024-25. The turnover of
M/s XYZ Co. and M/s AB (P) Ltd. for the financial year 2023-
24 amounted to ₹5 crores and ₹6 crores, respectively.
ANSWER:
State Government is required to collect tax at source @2% u/s
206C(1C) on ₹10 crores, being charges for lease of coal mine.
TCS = 2% x ₹10 crores = ₹20,00,000
M/s XYZ Co. Ltd. is required to collect tax at source @1% u/s
206C(1) on sale of coal to M/s AB (P) Ltd.
TCS = 1% of ₹1 crore = ₹1,00,000.
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2) M/s Aryan Ltd., a domestic company having a total turnover
of ₹12 crores for the financial year 2023-24, purchased
goods worth ₹85 lakhs (excluding purchase return) from
M/s Varun & Co. during the previous year 2024-25. M/s
Varun & Co., a resident firm, has furnished its PAN to Aryan
Ltd. Details of payments for purchases from M/s Varun (P)
Ltd, are given below:
On 25.05.2024 - ₹30 lakhs;
On 28.06.2024 - ₹25 lakhs,
On 10.12.2024 - ₹20 lakhs (out of these purchases, goods
worth ₹5 lakhs were returned on 20.12.2024 due to quality
issue for which money was refunded by M/s Varun & Co.);
On 20.02.2025 ₹10 lakhs.
Assume that the turnover of M/s Varun & Co. during the
Financial year 2023-24 was ₹ 8 crores and the above
amounts were credited to M/s Varun & Co.'s account in the
books of M/s Aryan Ltd. on the same date.
ANSWER:
M/s Varun & Co. (Seller) is not required to collect tax at source on
the sale of goods to M/s Aryan Ltd. since it’s turnover for the P.Y.
2023-24 does not exceed ₹10 crores.
Since turnover of M/s Aryan Ltd. (Buyer) for the P.Y. 2023-24
exceeds ₹10 cr. and the aggregate value of purchases from M/s
Varun & Co, exceeds ₹50 lakhs, M/s Aryan Ltd. is required to
deduct tax at source u/s 194Q @0.1% on sum exceeding ₹50 L.
In case of purchase return, if the money is refunded by the seller,
then, this tax deducted on purchase return would be adjusted
against the next purchase from the same seller.
Applicability of TDS on purchases from M/s Varun & Co.
25.05.23 30 lakhs No TDS (< ₹50 Lakhs)
28.06.23 25 lakhs TDS = ₹500 (5 lakhs x 0.1%)
10.12.23 20 lakhs TDS = ₹2,000 (20 lakhs x 0.1%)
20.02.24 10 lakhs TDS = ₹500 {(10L–5L Returns) x 0.1%}

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3) XYZ Ltd. was incorporated on 1.4.2024 for trading goods. Its
turnover for the P.Y. 2024-25 is ₹12 crores. During the
P.Y.2024-25, it purchased goods from M/s. White Ride, the
details of which are as follows:
On 1.8.2024 for ₹25,00,000;
On 15.9.2024 for ₹30,00,000 and
On 15.12.2024 for ₹15,00,000.
The above dates represent the date of credit to the account
of M/s. White Ride. Payment is made after one month (i.e.,
on the same date in the immediately following month). M/s
White Ride's turnover for the FY. 2023-24 and F.Y. 2024-25
was ₹11 crores and ₹9.7 crores, respectively.
ANSWER:
Sec. 194Q is attracted if buyer’s turnover in the preceding year is >
₹10 crore. Since this condition would not be satisfied in the year of
incorporation, the provisions of sec. 194Q shall not apply in the
year of incorporation. Since XYZ Ltd. is incorporated in the P.Y.24-
25, sec. 194Q shall not apply in P.Y. 24-25.
However, since White Ride's turnover for the F.Y. 2023-24 exceeds
₹ 10 crores and its receipts from XYZ Ltd. exceed ₹50 lakhs, TCS
provisions under section 206C(1H) would be attracted in its hands.
TCS would be attracted at the time of receipt of consideration
(i.e., in respect of receipts in excess of ₹50 lakhs).
No tax is to be collected u/s 206C(1H) on 1.9.2024, since the
aggregate receipts till that date i.e., ₹25 lakhs, has not exceeded
the threshold of ₹50 lakhs.
Tax of ₹500 (i.e., 0.1% of ₹5 lakhs) has to be collected u/s 206C(1H)
by M/s White Ride on 15.10.2024.
Tax of ₹1,500 (i.e., 0.1% of ₹15 lakhs) has to be collected u/s
206C(1H) by M/s. White Ride on 15.01.2025.

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4) Mr. Rajat aged 79 years, a retired resident individual,
maintains a savings bank account and a fixed deposit
account with ABC Bank, Delhi. He provides following details
to ABC Bank in respect of financial year 2024-25:
Interest on Savings A/c ₹75,100
Pension (received in savings a/c) ₹55,000 p.m.
Interest from Fixed deposit A/c ₹1,20,000
He does not have any other income during the year 24-25.
Assume that Mr. Rajat has shifted out of default tax regime.
ANSWER:
Mr. Rajat is a specified person as per section 194P as he is of age of
79 years, having pension income and only interest income with
ABC Bank [where he receives his pension].
As per section 194P, ABC Bank is required to deduct tax at source
at rates in force on total income computed after deduction under
Chapter VI-A and rebate u/s 87A
Particulars ₹ ₹
Pension (₹55,000 x 12) 6,60,000
Less: Standard deduction 50,000 6,10,000
Interest on Bank FD 1,20,000
Interest on Bank Savings account 75,100 1,95,100
Gross Total Income 8,05,100
Less: Deduction under VIA:
 Sec. 80TTB:
Interest on Bank FD & Savings a/c, - 50,000
(Max. ₹50,000)
Net Taxable Income 7,55,100
Tax on above 61,020
Upto 3 L 0% Nil
3 L to 5 L 5% 10,000
5 L to 7,55,100 20% 51,020
Add: HEC @4% + 2,441
Tax to be deducted by ABC Bank 63,460

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5) Raghav Motors Ltd., Ludhiana, is a dealer in cars of Ford and
Maruti Cars and also runs a service station. The sale of cars
of Raghav Motors Ltd. for F.Y.2023-24 is 9.80 crores. The sale
of spare parts and service station is 60 lakhs for F.Y.2023-24.
M/s. Om Ltd., dealing in textile manufacturing, bought
following cars from Raghav Motors Ltd. during F.Y. 2024-25
for business purposes:
Model of Car Date of Invoice Value of Car (₹)
Maruti 14.7.2024 37 lakhs
Maruti 12.8.2024 19 lakhs
Ford 18.10.2024 8 lakhs
Maruti 5.11.2024 12 lakhs
The payment against each invoice was made on the date of
invoice itself.

ANSWER:
As per section 206C(1F), Raghav Motors Ltd., a seller is required to
collect tax at source @1% of the sale consideration received from
M/s. Om Ltd., a buyer, on sale of motor vehicle of the value
exceeding ₹10 lakhs.
Accordingly, Raghav Motors Ltd. is required to collect tax at source
u/s 206C(1F) on the following dates
₹37,000 [1% on ₹37,00,000] on 14.7.2024
₹19,000 [1% on ₹19,00,000] on 12.8.2024
₹12,000 [1% on ₹12,00,000] on 5.11.2024
Total amount of TCS is ₹68,000.
In all three cases mentioned above, the payment was received on
the date of sale of Maruti cars, hence, the tax has to be collected
on the respective dates of sale mentioned above.
In respect of Ford car, the value of which is ₹8,00,000, tax is not
required to be collected under section 206C(1F), since its value
does not exceed ₹10,00,000.
Note: Sale consideration of ₹8 lakh in respect of Ford car on
18.10.2024 is the only receipt from Om Ltd. which is excluded from
the purview of TCS u/s 206C(1F), and this receipt does not exceed
the annual threshold of ₹50 lakhs. Hence, no tax is required to be
collected at source u/s 206C(1H).

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6) Mr. Z, a resident individual, starts a new business on 01-11-
2024 for sale of unique T-shirts. He obtained a valid PAN in
his name and registers himself on [Link] (a Singapore
based website), an e-commerce operator, for sale of his
products in India.
Mr. Z sold goods worth ₹60 lakhs through [Link] upto
31-03-2025. E-commerce operator credited the following
payments from time to time payable to Mr. Z in its books of
accounts.
31-12-2024 ₹20 lakhs
28-02-2025 ₹15 lakhs
Full and final payments have been released by [Link] to
Mr. Z on 31-03-2025 after deducting a commission of 10%
on gross sale proceeds.
Mr. Z received ₹10,00,000 directly in his bank out of above
₹60 lakhs through PayTM Wallet directly connected by
[Link] to the account of Mr. Z.
ANSWER:
As per section 194-O, [Link], an e-commerce operator is
required to deduct tax @1%* on the gross amount of sale of goods
(T-shirts, in the present case] of Mr. Z, a resident individual, an e-
commerce participant, since such sale of goods is facilitated by
[Link] through its digital or electronic facility or platform.
*0.1% w.e.f. 1/10/2024
[Link] is required to deduct tax at the time of credit of such sum or
actual payment, whichever is earlier. Any payment received directly by
Mr. Z for the sale of goods, facilitated by [Link], would be deemed
to be amount credited or paid by [Link] to Mr. Z.
Accordingly,
[Link] is required to deduct tax of:
- ₹2,000 (0.1% x ₹20,00,000) on 31.12.2024 and
- ₹1,500 (0.1% x ₹15,00,000) on 28.02.2025
being the dates on which such amounts were credited in books of
account of [Link].
[Link] is also required to deduct ₹1,000 (0.1% of ₹10,00,000
being the amount directly received by Mr. Z).
On 31.3.2025, [Link] is also required to deduct tax of ₹1,500
(0.1% of ₹15,00,000), being the amount of full and final
payment made on 31.3.2025.
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7) Deer Co Ltd engaged in the business of manufacture of
furniture items on contract basis. It sub- contracted the
production of cushion for the chairs to M/s Lion & Co, a sole
proprietary concern. The sub-contractor M/s. Lion & Co
procured the raw materials for production of cushions,
performed further labour works and supplied the same to Deer
Co Ltd. It raised its bill on Deer Co Ltd, showing the cost of raw
materials ₹4,00,000 and labour charges ₹1,50,000, separately.
ANSWER:
TDS under section 194C is attracted on any sum payable to a
resident contractor/sub- contractor for carrying out any work
which includes job work. However, "Job work" means
manufacturing as per the requirement or specification of a
customer by using material purchased from such customer or
associate of such customer.
In this case, M/s Lion & Co. has to supply cushion for the chairs to
Deer Co Ltd., according to the specifications of the customer (Deer
Co Ltd.) by using materials purchased from a person other than
the customer, Deer Co Ltd. Thus, the sub-contract for production
of cushions is not a 'works contract’. Consequently, there is no
liability to deduct tax at source under section 194C in this case.
8) Maha Bank Ltd accepted fixed deposits of ₹20 crores in the
name of Registrar General of the High Court and issued a
fixed deposit receipt in compliance with a direction passed
by court in relation to certain proceedings.
Answer:
The issue under consideration is whether the bank is required to
deduct tax at source on the amount of interest paid or payable on
fixed deposits in the name of Registrar General of High Court.
Under section 194A, the bank is obliged to deduct tax at source in
respect of any credit or payment of interest (exceeding ₹40,000) on
deposits made by the payee. The expression "payee” under section
194A would mean the recipient of income. However, in this case,
the actual payee is not ascertainable because the interest is credited
in the name of the Registrar General of HC who is not the recipient
of the income. In the absence of a payee, the machinery provisions
for deduction of tax from interest credited become
ineffective. Hence, the bank is not required to deduct tax at source.

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9) StudyKart, an online education provider and a trust
registered under section 12AB of the Income-tax Act, pays
₹98,000 during the Financial Year 2024-25, to Mr. Monty, a
non-resident for providing web based lectures.
ANSWER:
Any person responsible for paying any sum chargeable to tax to a
non - resident is liable to deduct tax at source at the rates in force.
Since Mr. Monty, a non-resident has provided web based lectures
from outside India, income arising therefrom is not chargeable to
tax in India as no income is deemed to accrue or arise in India.
Thus, no tax is deductible at source on such payment to him.
Alternatively, it may be possible to take a view that income arising
from web lectures may fall within the meaning of "Fees for
technical services". If this view is taken, such income would be
deemed to accrue or arise in India, since the services are utilised in
India, even though they are rendered from outside India.
Therefore, such income would be chargeable to tax in India in the
hands of Mr. Monty, a non-resident. Thus, StudyKart, a trust
registered u/s 12AB, is required to deduct tax at source under
section 195.

10) On 31st December, 2024, Mr. Nitin, a resident individual

whose gross turnover was ₹97 lakhs during the preceding
previous year, paid ₹65 lakhs to Mr. Basant, a resident
individual, as contract payment for repairing his office
building.
ANSWER:
Since Mr. Nitin’s turnover does not exceed ₹1 crore in the
P.Y.2023-24, TDS provisions u/s 194C are not attracted in respect
of payment made in the P.Y, 2024-25 to Mr. Basant, a resident
individual, for repairing his office building. However, tax is required
to be deducted at source @2% u/s 194M, on the payment of
₹65,00,000, since such amount exceeds ₹50 lakhs. Therefore, tax
deducted at source would be ₹1,30,000, being 2% of ₹ 65,00,000.

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11) Mr. Soham purchased licensed copy of computer software
from the software vendor (resident of India) along with all
right to use it for ₹50,000 to be used for business purposes.
ANSWER:
As per Explanation 4 to section 9(1)(vi), consideration for transfer
of all or any right to use of computer software (including granting
of a licence) would fall within the meaning of "royalty".
Tax deduction at source @10% under section 194J would be
attracted where the amount of royalty exceeds ₹30,000.
However, an individual/HUF [whose turnover in preceding year
does not exceed ₹1 crore, in case of a business or ₹50 L, in case
of a profession] is not required to deduct tax at source under
section 194J on the sum paid by way of royalty, even if it exceeds
₹30,000. Therefore, Mr. Soham, being an individual, is required to
deduct tax at source on the amount of ₹50,000 paid towards
purchase of licensed copy of computer software [if his turnover in
preceding year exceeds ₹1 crore].

12) X is a bookmaker and Mr. B is a punter.

On 22-09-2024, B has won ₹5,000 in a Horse Race 1.
On 12-01-2025, B has won ₹8,000 in a Horse Race 2 and
suffered a loss of ₹2,000 in Horse Race 3.
ANSWER:
As per sec. 194BB, any person who is responsible for paying any
income by way of winnings from horse race is liable to deduct tax
@30% at the time of such payment if the aggregate amount of
winnings paid during the financial year exceeds ₹10,000.
Tax would be deducted on winnings before set-off of losses.
Thereafter, the net amount, i.e., winnings after deduction of tax
and losses, would be paid to the individual.
Thus, in the present case, Mr. X is liable to deduct tax at the time
of payment of winnings in Horse Race – 2 when the aggregate
amount exceeds ₹10,000.
Amt. of TDS on 12/01/2025 = 30% of ₹13,000 = ₹3,900.

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13) AKL Ltd., a third-party administrator on behalf of an
Insurance Company has settled medical bills of ₹5,00,000 on
31.10.2024 submitted by Kay Hospitals Ltd. from a patient
under a cashless scheme.
ANSWER:
As per section 194J, every person, who is responsible for paying
to resident any sum by way of fees for professional services
exceeding ₹30,000 shall deduct tax at source at the rate of 10%
at the time of credit to the account of payee or at the time of
payment, whichever is earlier.
"Professional services" include services rendered by a person in the
course of carrying on medical profession.
The CBDT has, vide Circular No.8/2009 dated 24.11.2009,
clarified that since the services rendered by hospitals to various
patients are primarily medical services, TPAs (Third Party
Administrator's), who are making payment on behalf of insurance
companies to hospitals for settlement of medical/insurance claims
etc. under various schemes including cashless schemes are liable
to deduct tax at source on all such payments to hospitals etc.
Thus, AKL Ltd., a TPA is liable to deduct tax of ₹50,000, being
10% of ₹5,00,000 from the payment made to Kay Hospitals Ltd.

14) ₹19,50,000 credited to the account of Digitech Studios (a P.

Firm) on 31.03.2025 by Star-TV, Television channel, towards
part consideration for shooting of Tele Episode for 10 weeks
as per the storyline, contents and specifications of Star TV
channel.
ANSWER:
Shooting of Tele Episode for Star-TV as per the storyline, contents
and specifications of Star-TV falls within the scope of "work"
under section 194C. Since the amount credited exceeds the
specified limit of 30,000, TDS@2% under section 194C is attracted
on amount credited to the account of Digitech Studios, a
partnership firm. Amt of TDS = ₹39,000 [2% of ₹19,50,000].

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15) X Ltd. is a producer of natural gas. During the year, it sold
natural gas worth ₹20,50,000 to M/s Hawa Co., a
partnership firm. It also incurred ₹2,00,000 as freight for
transportation of gas. It raised the invoice and clearly
bifurcated the value of gas as well as the transportation
charges.
ANSWER:
TDS u/s 194C is attracted on “works contract”. Sale of natural
gas by X Ltd. [including transportation] to the purchaser, M/s.
Hawa Co. is a 'contract for sale of goods' [not a works contract].
The manner of raising the sale bill (whether the transportation
charges are included in the cost of gas or shown separately) does
not alter the basic nature of such contract.
Therefore, in such circumstances, TDS provisions under section
194C are not applicable.

16) An Indian company pays gross salary including allowances

and monetary perquisites amounting to ₹7,30,000 to its
General Manager. Besides, the company provides non-
monetary perquisites to him whose value is estimated at
₹1,20,000. General Manager is opting out of the provisions
of Section 115BAC.
ANSWER:
₹
Gross salary [incl allowances & monetary perquisites] 7,30,000
Non – Monetary perquisites 1,20,000
8,50,000
Less: Standard deduction - 50,000
Taxable Salary 8,00,000
Tax liability 75,400
The company is liable to deduct ₹75,400 at source from the salary
of the General Manager. If the company bears the tax on non-
monetary perquisites i.e. *9.425% of ₹1,20,000 i.e. ₹11,310 then
the amount of TDS would be ₹ 64,090 [75,400 – 11,310]
* Average rate of tax (₹75,400/ ₹8,00,000 x 100) = 9.425%
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17) ABC Ltd. took on sub-lease a building from Jeet, an
individual, with effect from 1.9.2024 on a rent of ₹25,000
per month. It also took on hire machinery from Jeet with
effect from 1.10.2024 on hire charges of 15,000 per month.
ABC Ltd. entered into two separate agreements with Jeet for
sub-lease of building and hiring of machinery.
ANSWER:
As per section 194-I, the rate of TDS is 2% for rent of plant,
machinery and equipment and 10% for land, building and
furniture. TDS under this section is applicable if rent exceeds
₹2,40,000 p.a.
The limit of ₹2,40,000 for tax deduction at source will apply to the
aggregate rent of all the assets. Even if two separate agreements
are entered into, one for sub-lease of building and another for
hiring of machinery, rent and hire charges under the two
agreements have to be aggregated for the purpose of application
of the threshold limit of ₹2,40,000. In this case, since the payment
for rent and hire charges aggregates to ₹2,65,000 (₹ 1,75,000 +
₹90,000), tax is deductible at source under section 194-I, tax is
deductible @10% on ₹1,75,000 (rent of building) and @2% on ₹
₹90,000 (hire charges of machinery).

18) Miss Tara, resident individual aged 32 years, is a social media

influencer. She makes videos reviewing various electronic
items and posts those videos on social media. On 1st
December 2024, XYZ Ltd., an Indian company manufacturer
of electric cars gave her a brand new car having fair market
value of ` 6 lakhs to promote on her social media page. She
used that car for 7 months for her personal purposes,
recorded a video reviewing the car and then returned the
car to the company.
ANSWER:
Under section 194R, the person who is responsible for providing
to a resident, any benefit or perquisite whether convertible into
money or not, arising from business or the exercise of a profession
by such resident, has to first ensure deduction of tax@10% of the
value of such benefit or perquisite, if the same exceeds ₹ 20,000.

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However, in case of benefit or perquisite being a product like car,
mobile etc. if the product is returned to the manufacturing
company after using for the purpose of rendering service, then it
will not be treated as a benefit/perquisite for the purposes of
section 194R.
Accordingly, in the present case, since Miss Tara has returned the
car to XYZ Ltd., TDS provisions under section 194R would not
apply.
QUESTION 7:
The following details pertain to Mr. Sahil & his best friend Mr. Akhil:
 Mr. Sahil:
₹
Amount remitted to his elder son Aarav, who is
pursuing two-year MBA Program from Columbia
University, USA
- Out of own savings through HDFC Bank, an
authorized dealer under LRS of the RBI 3,50,000
• towards tuition fees on 5.7.2024
• to meet day to day exps. for study purposes
- 10.5.2024 1,20,000
- 29.9.2024 90,000
- 01.1.2025 1,35,000
- Out of loan through Axis Bank, an authorized
dealer under LRS towards tuition fees on
- 11.10.2024 3,50,000
- 10.01.2025 3,50,000
- Own savings (to meet day to day exps.) on
- 1.7.2024 1,50,000
To complete the formalities of admission, Mr. Sahil 5,20,000
visited the USA from 10.4.24 to 13.4.24 for which he
purchased a tour package from M/s Gate 2 Travel, a
foreign tour operator and remits money under LRS on
5.4.2024. International travel tickets and hotel
accommodation are included in the said package.
Mr. Sahil has furnished undertakings containing the details of
earlier remittances to HDFC bank and Axis bank. He has also
furnished his PAN to the authorized dealers and to the seller of
overseas tour program package.

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 Mr. Akhil:
Mr. Akhil, an Indian citizen got a job offer from M/s Wellbeing Inc.,
a Dubai based company of AED 10,500 per month. He left for
Dubai on 29.3.2024 and joined M/s Wellbeing Inc. on 1st April
2024. He returned to India on 15.12.2024 on leaves for 15 days.
On 23.12.2024, he went on 7 days tour to Bali with his wife and
son. Thereafter, he directly went to Dubai with his wife and son.
On 16.12.2024, he purchased a tour package for Bali from Make
Your Trip, an Indian tour operator for which he paid ₹ 7,50,000
towards flight tickets and hotel accommodation. During F.Y. 2024-
25, he has business income of ₹ 4,20,000 from a retail shop in India
and interest on fixed deposit and savings account with Canara
Bank of ₹ 1,20,000 and ₹ 8,000, respectively. He is not liable to pay
any tax in Dubai. Assume 1 AED = ₹ 23.
From the information given above, choose the most appropriate
answer to Q. 1 to Q. 6:
1) Is HDFC Bank required to collect tax at source on the
amount remitted by Mr. Sahil? If so, what is the amount of
tax to be collected?
(a) Yes; TCS of ₹ 2,000 on 29.9.2024 and TCS of ₹ 27,000
on 1.1.2025
(b) Yes; TCS of ₹ 500 on 29.9.2024 and TCS of ₹ 27,000
on 1.1.2025
(c) Yes; TCS of ₹ 500 on 29.9.2024 and TCS of ₹ 6,750 on
1.1.2025
(d) No tax is required to be collected at source since
receipts do not exceed ₹ 7 lakh
2) Is Axis Bank required to collect tax at source on the amount
remitted by Mr. Sahil? If so, what is the amount of tax to be
collected?
(a) Yes; TCS of ₹ 7,500 on 1.7.2024; TCS of ₹ 1,750 on
11.10.2024 and TCS of ₹ 1,750 on 10.1.2025
(b) Yes; TCS of ₹ 17,500 on 11.10.2024 and TCS of ₹
17,500 on 10.1.2025
(c) Yes; TCS of ₹ 1,750 on 11.10.2024 and TCS of ₹ 1,750
on 10.1.2025
(d) No tax is required to be collected at source, on the
remittances for education and for other purposes
since each receipt does not exceed ₹ 7 lakh
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3) Is tax required to be collected at source on the amount
remitted for tour package to USA by Mr. Sahil? If so, what is
the amount of tax to be collected?
(a) Yes; TCS of ₹ 26,000
(b) Yes; TCS of ₹ 1,04,000
(c) No tax is required to be collected at source, since tour
package is purchased from a foreign tour operator
(d) No tax is required to be collected at source, since
receipt does not exceed ₹ 7 lakh
4) Does Make Your Trip require to collect tax at source on the
amount received for tour package to Bali from Mr. Akhil? If
so, what is the amount of tax to be collected?
(a) Yes; ₹ 2,500 is required to be collected at source
(b) Yes; ₹ 37,500 is required to be collected at source
(c) Yes; ₹ 45,000 is required to be collected at source
(d) No tax is required to be collected at source
5) What is the total income of Mr. Akhil for the A.Y. 25-26?
Assume he has shifted out of the default tax regime u/s
115BAC.
(a) ₹ 33,88,000
(b) ₹ 5,48,000
(c) ₹ 33,96,000
(d) ₹ 5,40,000
6) What would be the amount of the tax liability (computed in
the most beneficial manner) of Mr. Akhil for the A.Y.25-26?
(a) ₹ 7,47,550
(b) ₹ 12,900
(c) Nil
(d) ₹ 12,480

ANSWER:
1 – (c) 2 – (c) 3 – (a) 4 – (d) 5 – (d) 6 – (b)

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Note for MCQ – 1 and 2:
 Date wise remittance
Date Amount Dealer Amt of TCS
10/5/24 1,20,000 HDFC Nil
1/7/24 1,50,000 Axis Nil
5/7/24 3,50,000 HDFC Nil
29/9/24 90,000 HDFC 500 (7,10,000 – 7,00,000) x 5%
11/10/24 3,50,000 Axis 1,750 (3,50,000 x 0.5%)
1/1/25 1,35,000 HDFC 6750 (1,35,000 x 5%)
10/1/25 3,50,000 Axis 1,750 (3,50,000 x 0.5%)
Note for MCQ – 3: TCS is collected @5% on ₹ 5,20,000 as the
consideration does not exceed 7,00,000 [whether the tour
operator is of India or Foreign – is not relevant].
Note for MCQ – 4: Section 206C(1G) of the Act is not applicable
to a buyer who is a non-resident and who does not have a
permanent establishment in India.
Note for MCQ – 5 and 6:
COMPUTATION OF TAX
Old Regime 115BAC
Income from salaries Nil Nil
Income from business 4,20,000 4,20,000
IFOS:
FD Interest 1,20,000 1,20,000
Savings Interest 8,000 8,000
Gross Total Income 5,48,000 5,48,000
Less: Dedn [Sec.80TTA] 8,000 Nil
Net Taxable Income 5,40,000 5,48,000
Tax on above 20,500 12,400
Less: Rebate Nil Nil
Add: SC Nil Nil
Add: HEC +820 +496
Tax Payable 21,320 12,896
Rounded off 21,320 12,900

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QUESTION 8:
ABC bank provides the following information relating to cash
withdrawals by its two customers during the P.Y.2024-25:
Date of cash Mr. Arjun XYZ Co-operative Society
withdrawal (Savings Account) (`) (Current Account) (`)
12.04.2024 20,00,000 -
9.05.2024 - 68,00,000
15.06.2024 25,00,000 -
19.07.2024 - 85,00,000
18.10.2024 35,00,000 -
5.11.2024 - 88,00,000
22.12.2024 25,00,000 -
03.01.2025 - 57,00,000
Co-op. society regularly files its return of income.
However, Mr. Arjun has not filed his return for the last 3 years.
Would cash withdrawals by Mr. Arjun and XYZ Co-operative
society during the P.Y. 2024-25 attract deduction of tax at source?
If yes, how much tax would be deductible by ABC bank?
(a) Yes; ` 1,85,000 and ` 3,96,000, respectively
(b) Yes; ` 1,85,000 and ` 5,56,000, respectively
(c) Yes; ` 10,000 and `3,96,000, respectively
(d) ` 1,85,000 in respect of cash withdrawals by Mr. Arjun and
no tax is required to be deducted from cash withdrawals by
the co-operative society.
ANSWER:
In case of Arjun (non-filer), TDS u/s 194N is calculated as follows:
Cash Withdrawal TDS % TDS (₹)
Upto 20 L 20 L 0% Nil
Above 20 L up to 1 Cr. 80 L 2% 1,60,000
Above 1 Cr. 5L 5% 25,000
105 L 1,85,000
In case of XYZ Co-op Sty, TDS u/s 194N = 2% of cash withdrawal in
excess of 3 crores i.e. NIL (total withdrawal is 2.98 cr.).

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QUESTION 9:
Mr. Sunil took an education loan of ` 8 lakhs on 1.7.2024 from State
Bank of India, Mumbai, for his son’s MBA from University of Oxford,
UK and remitted the said amount through the same bank, which
is an authorised dealer, under the Liberalised Remittance Scheme of
RBI (LRS).
He, further, remitted ` 2 lakhs on 15.10.2024 to his son for his
personal expenditure, out of his personal savings, through Bank of
India, Mumbai which is also an authorised dealer, under LRS.
Mr. Sunil also remitted ` 6 lakhs on 28.3.2025, out of his personal
savings, under LRS through Union Bank of India, Mumbai, for his
sister’s medical treatment in London.
Mr. Sunil has furnished undertaking containing the details of
earlier remittance to Bank of India and Union Bank of India.
What is the amount of TCS from Mr. Sunil ?
(a) TCS @0.5% of ` 1 lakh in respect of remittance for son’s
education; @5% of ` 2 lakhs in respect of remittance for son’s
personal expenditure and 5% of ` 6 lakhs in respect of
remittance for sister’s medical treatment.
(b) TCS @0.5% of ` 1 lakh in respect of remittance for son’s
education; @20% of ` 2 lakhs in respect of remittance for
son’s personal expenditure and 5% of ` 6 lakhs in respect of
remittance for sister’s medical treatment.
(c) TCS @0.5% of ` 1 lakh in respect of remittance for son’s
education; no TCS in respect of remittance for son’s personal
expenditure and sister’s medical treatment since each
transaction is of less than ` 7 lakhs.
(d) TCS @0.5% of ` 1 lakh in respect of remittance for son’s
education; @5% of ` 1 lakh in respect of remittance for sister’s
medical treatment.
ANSWER:
 Date wise remittance
Date Amount Dealer Amt of TCS
1/7/24 8,00,000 SBI 500 = (8 L – 7 L) x 0.5%
15/10/24 2,00,000 BOI 40,000 (2,00,000 x 20%)
23/3/25 6,00,000 UBI 30,000 (6,00,000 x 5%)
~~~~~~~~~~~~
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QUESTION 1:
Mr. Ravi, an individual resident in India aged 45 years, furnishes
you the following particulars of income earned in India, Foreign
Countries "S" and "T" for the previous year 2024-25.
Particulars ₹
Indian Income:
Income from business in Mumbai 4,40,000
Interest on savings bank with ICICI Bank 42,000
Income in Foreign Country “S”: (Rate of Tax – 16%)
Agricultural income in Country “S” 94,000
Royalty from a book on art from Country “S” 7,80,000
Expenses incurred for earning royalty 50,000
Income in Foreign Country “T”: (Rate of tax – 20%)
Dividend from a company in Country “T” 2,65,000
Rent from a house situated in Country “T” (Gross) 3,30,000
Municipal Tax paid in respect of the above house
(not allowed as deduction in Country “T”) 10,000
Compute the total income and tax payable by Mr. Ravi in India for
A.Y. 2025-26 assuming that India has not entered into double
taxation avoidance agreement with Countries S & T. Mr. Ravi has
opted to shift out of default tax regime.
ANSWER:
STATEMENT OF TOTAL INCOME
Particulars Amt.
* Income from Salaries Nil
* Income from House Property – Country “T”:
Rent 3,30,000 – [Link] 10,000 – 30% Std dedn. 2,24,000
* Income from Business
Business in India 4,40,000
* Capital Gains Nil
* Income from Other Sources:
 Interest on savings bank with ICICI Bank 42,000
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 Agricultural income in Country “S” 94,000

 Royalty from Country “S” [7,80,000 – 50,000] 7,30,000
 Dividend from Country “T” 2,65,000
GROSS TOTAL INCOME 17,95,000
Less: Deduction under Chapter VI A: -----
 Sec. 80QQB: Royalty from books - 3,00,000
 Sec. 80TTA: Interest on Savings Bank A/c - 10,000
NET TAXABLE INCOME 14,85,000

STATEMENT OF TAX
ST LT LT Win Balance
111A 112A
Net Taxable Income Nil Nil Nil Nil 14,85,000
Tax on above (Slab Rt) 2,58,000
Add: SC + Nil
2,58,000
Add: HEC @ 4% + 10,320
2,68,320
Less: Relief u/s 91(Note1) - 1,72,202
Tax Payable 96,118
Tax Payable [Rounded] 96,120
Note 1:
Since India does not have DTAA with Country “S” and Country “T”,
the assessee will get unilateral relief u/s 91 as follows:
 Amount Doubly x Avg. Indian Tax Rate
=
of Relief Taxed Income or
Avg. Foreign Tax Rate
[whichever is less]

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Country Country
“S” “T”
Agricultural income 94,000 Rent from HP [Net] 2,24,000
Royalty [7.3 L – 3 L] 4,30,000 Dividend 2,65,000
Doubly Taxed Inc. 5,24,000 Doubly Taxed Inc. 4,89,000
Avg. Indian Tax Rate *18.07% Avg. Indian Tax Rt. *18.07%
or Or
Avg. Foreign Tax Rt. 16% Avg. Foreign Tax Rt. 20%
Amt of Relief 83,840 88,362
Total Relief u/s 91 = 83,840 + 88,362 = ₹ 1,72,202
*Avg. Indian Tax Rate = Total Tax / Net Taxable Income
= 2,68,320/14,95,000 = 18.07%
QUESTION 2:
Mr. Praveen (aged 41 years), a sportsman and an individual resident
in India, furnishes the following particulars of income earned in India
and from Country Y for the Assessment Year 2025-26. India does not
have a Double Taxation Avoidance Agreement with Country Y.
Particulars ₹
Income in India:
Gross Salary 8,40,000
Interest on Savings Bank A/c with SBI 50,000
Dividend income from Indian companies 10,00,000
Income from Country “Y”:
Gift from a friend (not taxed in Country Y) 90,000
Dividend (taxed in Country Y) 2,30,000
Rent from HP (taxed in Country Y) 3,00,000
Municipal taxes in respect of the above house 30,000
(Not allowed as deduction in Country Y)
Business loss 1,60,000
(not allowed to be set off in Country Y)
Royalty from writing articles in journals 2,20,000
(taxed in Country Y)
Note: Country Y taxes dividend at the rate of 10% and all other
incomes at the rate of 20%.
Compute total income and tax payable by Mr. Praveen in India for
Assessment Year 2025-26 as per the default tax regime.
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ANSWER:
STATEMENT OF TOTAL INCOME
Particulars Amt.
* Income from Salaries 7,65,000
Gross Salary 8,40,000 – Std dedn. 75,000
* Income from House Property – Country “Y”:
Rent 3,00,000 – [Link] 30,000 – 30% Std dedn. 1,89,000
* Income from Business Nil
* Capital Gains Nil
* Income from Other Sources:
 Interest on savings bank with SBI 50,000
 Gift from Friend in Country “Y” 90,000
 Royalty from articles in journals in Country “Y” 2,20,000
 Dividend from Indian Companies 10,00,000
 Dividend from Country “Y” 2,30,000
Less: Business loss in Country “Y” Set-off (1,60,000)
GROSS TOTAL INCOME 23,84,000
Less: Deduction under Chapter VI A: -----
 Sec. 80TTA: Interest on Savings Bank A/c Not Allowed
NET TAXABLE INCOME 23,84,000
Under default tax regime, deductions under chapter VIA is not
allowed [except sec.80JJAA, 80LA, 80CCD(2) and 80CCH(2)].

STATEMENT OF TAX
ST LT LT Win Balance
111A 112A
Net Taxable Income Nil Nil Nil Nil 23,84,000
Tax on above (Slab Rt) 4,05,200
Add: SC + Nil
4,05,200
Add: HEC @ 4% + 16,208
4,21,408
Less: Relief u/s 91(Note1) - 81,095
Tax Payable 3,40,313
Tax Payable [Rounded] 3,40,310

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Note 1:
Since India does not have DTAA with Country “Y”, the assessee will
get unilateral relief u/s 91 as follows:
 Amount Doubly x Avg. Indian Tax Rate
=
of Relief Taxed Income or
Avg. Foreign Tax Rate
[whichever is less]
Country “Y”
Rent from HP 1,89,000
Royalty income 2,20,000
Dividend 2,30,000
Gift from friend [Not doubly taxed] Nil
Less: Business loss 1,60,000
Doubly Taxed Income 4,79,000
Avg. Indian Tax Rate* 17.68 %
Or
Avg. Foreign Tax Rt.* 16.93 %
Amt of Relief 81,095

*Avg. Indian Tax Rate = Total Tax / Net Taxable Income

= 4,21,408/23,84,000 = 17.68%

*Avg. Foreign Tax Rate = Total Foreign Tax/Total Foreign Income

= 1,27,000 / 7,50,000 = 16.93%
Foreign Income Foreign Tax
Dividend 2,30,000 10% 23,000
Rent of HP 3,00,000 20% 60,000
Royalty income 2,20,000 20% 44,000
7,50,000 1,27,000

 Amt of Relief if there is DTAA with Country “Y”:

1) Tax in India [Doubly Taxed Income x Avg. Indian Tax Rate]
= 4,79,000 x 17.68% = 84,687
2) Actual tax paid in Foreign Country “Y” = 1,27,000

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QUESTION 3:
Mahesh (Age 50 years) is the CEO of Silver India Ltd. since
01.04.2019.
His income in India consists of:
(i) Salary (before standard deduction) of ₹ 23 lakhs;
(ii) Interest in respect of self-occupied property of ₹ 1,80,000;
(iii) Interest on bank fixed deposits ₹ 1,60,000.
His income in Country ‘A’ consists of:
(i) Income from business in Country A = USD 25,000;
(ii) Rent from house property in Country A = USD 4,500;
(iii) Municipal taxes in respect of the above house (Not
allowed as deduction in Country A) = USD 450;
(iv) Dividend from shares held in Country ‘A’ where dividend
was declared and paid in March, 2025 = USD 10,000;
(v) Short term capital gain of USD 5,000 on sale of shares of
companies registered in Country ‘A’ and sale proceeds
were credited in bank account outside India on
28.03.2025.
India has DTAA with Country ‘A’ and the tax paid in Country ‘A’
is eligible for tax credit in India. The fiscal year for income-tax is
the same both in India and Country ‘A’. Rate of tax is 20% in
Country ‘A’ in respect of all incomes. Income-tax was paid by
Mahesh on 25.05.2025 for the incomes of the year ended 31st
March 2025 in Country ‘A’.
Compute the total income and net tax liability of Mahesh for
the A.Y. 2025-26. Assume Mahesh pays tax under section
115BAC.
The TT buying rate of 1 USD on various dates:
29.02.2025 = ₹ 70;
28.03.2025 = ₹ 70.50;
31.03.2025 = ₹ 71;
30.04.2025 = ₹ 72; and
25.05.2025 = ₹ 73.

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ANSWER:
STATEMENT OF TOTAL INCOME
Particulars Amt.
* Income from Salaries [23 L – Std dedn 75,000] 22,25,000
* Income from House Property
 LOP in Country “A”:
Rent 4,500 – [Link] 450 – 30% = 2,835 USD x ₹71 2,01,285
 SOP(R) in India:
Interest deduction – not allowed u/s 115BAC -----
* Income from Business
Business in Country “A” (25,000 x 71) 17,75,000
* Capital Gains Nil
STCG in Country “A” on sale of shares (5,000 x 70) 3,50,000
* Income from Other Sources:
 Dividend from Country “A” (10,000 x 70) 7,00,000
 Interest on FD with Bank in India 1,60,000
GROSS TOTAL INCOME 54,11,285
Less: Deduction under Chapter VI A -----
NET TAXABLE INCOME 54,11,290

STATEMENT OF TAX
ST LT LT Win Balance
111A 112A
Net Taxable Income Nil Nil Nil Nil 54,11,290
Tax on above 13,13,387
Add: SC @10% +1,31,339
14,44,726
Add: HEC @ 4% + 57,789
Tax Payable 15,02,515
Less: Relief u/s 90 [Note 1] - 6,40,800
Tax Payable 8,61,715
Tax Payable [Rounded] 8,61,720

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Note 1:
Since India has DTAA with Country “A”, the assessee will get
bilateral relief u/s 90 as follows:
1) Doubly Taxed Income x Avg. Indian Tax Rate
= Rent 2,01,285 Net + Bus. Income 17,75,000 + CG 3,50,000
+ Dividend 7,00,000 = 30,26,285 x *27.77 % = ₹ 8,40,399
2) Actual tax paid in Foreign Country “A”
= Rent 4,500 Gross + Bus. Income 25,000 + CG 5,000 +
Dividend 10,000 = $ 44,500 x 20% x ₹ 72 = ₹ 6,40,800

*Avg. Indian Tax Rate = Total Tax / Net Taxable Income

= 15,02,515/54,11,290 = 27.77 %

Rule 115 of Income Tax Rules, 1962:

Rate of exchange for conversion [income in foreign currency]

Buying rate
Income from salaries Month end rate Preceding the
month in which
salary is due
Income from HP Year end rate
Income from Business Year end rate
Capital Gains Month end rate Preceding the
month in which
asset is transferred
IFOS
 Interest on securities Month end rate Preceding the
month in which
interest is due
 Dividend Month end rate Preceding the
month in which
dividend is declared
or received
IFOS (Other incomes) Year end rate
Foreign tax paid is converted at the buying rate of the end of the
month preceding the month in which tax is paid in foreign.
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QUESTION 4:
Mr. Sameer is a performing musician, resident of India. He has
following income for year ended 31-3-2025.
Particulars Amt.
Indian Income:
Income from music performances ₹3,50,000
Dividend received from Blink ltd. ₹1,35,000
Income in Foreign Country “A”: (Rate of Tax – 20%)
Agricultural income in Country “A” $ 4,000
Rent from a house situated in Country “A” (Gross) $ 3,000
Municipal Tax paid in respect of the above house
(not allowed as deduction in Country “A”) $ 300
Income in Foreign Country “B”: (Rate of tax – 10%)
During January 2024 ₹1,00,000
During July 2024 ₹1,00,000
During January 2025 ₹3,00,000
Country B follows Calendar Year for its tax purposes.
During the year, he repaid ₹ 2,40,000 towards education loan
(which includes interest of ₹ 70,000).
He is eligible for basic exemption limit of $ 2,000 in Country “A”
and on balance income, he paid income tax @20% in Country “A”.
Compute the total income and tax payable by Mr. Sameer in India
for A.Y. 2025-26 assuming that India has not entered into double
taxation avoidance agreement with Countries A & B.
Mr. Sameer has opted to shift out of default tax regime.
The TT buying rate of 1 CAD on various dates:
01.04.2024 = ₹ 78
31.03.2025 = ₹ 80

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ANSWER:
STATEMENT OF TOTAL INCOME
Particulars Amt. (₹)
* Income from Salaries Nil
* Income from House Property – Country “A”:
(Rent $3,000 – [Link] $300 – 30% Std dedn.) x ₹80 1,51,200
* Income from Business
Income from music performances 3,50,000
* Capital Gains Nil
* Income from Other Sources:
 Gross Dividend from Blink ltd (1,35,000/90%) 1,50,000
 Ag.. Income in Country “A” ($ 4,000 x ₹ 80) 3,20,000
 Income from Country “B” 4,00,000
(Financial Year 24-25 – 1,00,000 + 3,00,000)
GROSS TOTAL INCOME 13,71,200
Less: Deduction under Chapter VI A: -----
 Sec. 80E: Interest paid on Education loan - 70,000
NET TAXABLE INCOME 13,01,200

STATEMENT OF TAX
ST LT LT Win Balance
111A 112A
Net Taxable Income Nil Nil Nil Nil 13,01,200
Tax on above (Slab Rt) 2,02,860
Add: SC + Nil
2,02,860
Add: HEC @ 4% + 8,114
2,10,974
Less: Relief u/s 91(Note1) - 1,07,315
Less: TDS on Dividend - 15,000
Tax Payable 88,659
Tax Payable [Rounded] 88,660

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Note 1:
Since India does not have DTAA with Country “A” and “B”, the
assessee will get unilateral relief u/s 91 as follows:
 Amount Doubly x Avg. Indian Tax Rate
=
of Relief Taxed Income or
Avg. Foreign Tax Rate
[whichever is less]
Country “A” Country “B”
Rent from HP 1,51,200 ----
Agricultural income 3,20,000 ----
Other Income ----- 4,00,000
Doubly Taxed Income 4,71,200 4,00,000
Avg. Indian Tax Rate* 16.214 % 16.214 %
Or
Avg. Foreign Tax Rt. *14,286 % 10 %
Amt of Relief 67,316 40,000
Total Relief u/s 91 = 67,316 + 40,000 = ₹ 1,07,316

*Avg. Indian Tax Rate = Total Tax / Net Taxable Income

= 2,10,974 / 13,01,200 = 16.214 %

*Avg. Foreign Tax Rate (Country “A”)

= Total Foreign Tax/Total Foreign Income
= $ 1,000 / $ 7,000 = 14.286 %

Foreign Inc. Foreign Tax

Basic Exemption $ 2,000 0% Nil
Balance $ 5,000 20% $ 1,000
Total income in Country “A” $ 7,000 $ 1,000

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Question 5:
Arif is a resident of both India and another foreign country in the
previous year 2024-25. He owns immovable properties (including
residential house) in both the countries.
He earned income of ₹50 lacs from rubber estates in the foreign
country during the financial year 2024-25.
He also sold some house property situated in foreign country
resulting in short-term capital gain of ₹10 lacs during the year.
Arif has no permanent establishment of business in India.
However, he has derived rental income of ₹6 lacs from property let
out in India and he has a house in Lucknow where he stays during
his visit to India.
Article 4 of the Double Taxation Avoidance Agreement between
India and the foreign country where Arif is a resident, provides that
"where an individual is a resident of both the Contracting States,
then, he shall be deemed to be resident of the Contracting State in
which he has permanent home available to him. If he has
permanent home in both the Contracting States, he shall be
deemed to be a resident of the Contracting State with which his
personal and economic relations are closer (centre of vital
interests)".
You are required to examine with reasons whether the business
income of Arif arising in foreign country and the capital gains in
respect of sale of the property situated in foreign country can be
taxed in India.

Answer:
Section 90(1) of the Income-tax Act, 1961 empowers the Central
Government to enter into an agreement with the Government of
any country outside India for avoidance of double taxation of
income under the Indian law and the corresponding law of that
country. Section 90(2) provides that where the Central
Government has entered into an agreement with the Government
of any other country for granting relief of tax or for avoidance of
double taxation, then, in relation to the assessee to whom such
agreement applies, the provisions of the Income-tax Act, 1961 shall
apply to the extent they are more beneficial to that assessee.

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Arif has residential houses both in India and foreign country. Thus,
he has a permanent home in both the countries. However, he has
no permanent establishment of business in India. The Double
Taxation Avoidance Agreement (DTAA) with foreign country
provides that where an individual is a resident of both the
countries, he shall be deemed to be resident of that country in
which he has a permanent home and if he has a permanent home
in both the countries, he shall be deemed to be resident of that
country, which is the centre of his vital interests i.e. the country
with which he has closer personal and economic relations.
Arif owns rubber estates in a foreign country from which he
derives business income. However, Arif has no permanent
establishment of his business in India. Therefore his personal and
economic relations with foreign country are closer.
Accordingly, he shall be deemed to be resident of the foreign
country for A.Y. 2024-25.
Therefore, in this case, Arif is not liable to income tax in India for
assessment year 2024-25 in respect of business income and
capital gains arising in the foreign country provided he
furnishes the Tax Residency Certificate and provides such other
documents and information as may be prescribed.

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QUESTION 6:
Mr. Ram, a citizen of USA, resides in San Jose in USA since 2007.
He is a non-resident since Assessment Year 2007-08. He works for
X Inc., a US based company. He came to India on 10th January, 2024,
to visit his aged parents. He could return back on only 31st Jan., 2025.
He was permitted to work from home in India by his employer.
The details of his earnings and withholding tax during the said
period is as given below: (All figures in US $)
Months Salary Federal State Social TT Buying rate as on
Tax Tax Security the last day of the
Tax month immediately
preceding the month
in which tax has
been paid/deducted
(in INR) (assumed)
Jan 2024 8750 1313 525 613 71
Feb 2024 6250 938 375 438 71
Mar 2024 6250 1600 420 420 71
Apr 2024 6250 1600 420 420 72
May 2024 6250 1600 420 420 72
June 2024 6250 1600 420 420 72
July 2024 6250 1600 420 420 72
Aug 2024 6250 1600 420 420 72
Sep 2024 6250 1600 420 420 72
Oct 2024 6250 1600 420 420 72
Nov 2024 6250 1600 420 420 72
Dec 2024 6250 1600 420 420 72
Jan 2025 6250 1600 420 420 72
He has also earned Fixed Deposit Interest in USA on 30.9.2024
US $200 (Tax deducted US $ 20) and on 31.3.2025 US $ 220
(Tax Deducted US $ 22)
As per Article 2 of the DTAA, the taxes covered for credit are
Federal Income Taxes imposed by Internal Revenue Code but
excluding Social Security Taxes.
Return of Income for Assessment Year 2025-26 was filed on
25th August, 2025. You are required to:
1. Compute tax payable, if any, by Mr. Ram as per sec. 115BAC.
2. Advise Mr. Ram the procedure involved to claim Foreign
Tax Credit.

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ANSWER:
1) Mr. Ram is a resident for A.Y. 2025-26, since his stay in India
is for a period of 306 days in the P.Y. 2024-25. Therefore,
he satisfies the condition of stay in India for a period of
182 days or more for being treated as a resident.
However, he is a “not ordinarily resident” in India –
- Since his stay in India in the preceding 7 PYs is only 81
days (i.e. less than 730 days).
- Since he is a non-resident in all preceding 10 PYs.
Accordingly, he is a resident but not ordinarily resident in
India for A.Y. 2025-26.
In case of a resident but not ordinarily resident, only income
which accrues in India or which is received in India would
be taxable in India. Income which accrues outside India
would be taxable in India only if it is derived from a business
controlled in India.
Since Ram renders service in India, income from salaries for
the period from 1st April, 2024 to 31st January, 2025 would
be deemed to accrue or arise to him in India and would be
taxable in his hands.
Since his period of stay in India in the P.Y. 2024-25 exceeds
90 days, he would not be eligible for exemption u/s
10(6)(vi) in respect of remuneration received as an
employee of a foreign enterprise for services rendered by
him during his stay in India.

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STATEMENT OF TOTAL INCOME
Particulars Amt.
* Income from Salaries Nil
Salary from 1/4/24 to 31/1/25 45,00,000
($ 6,250 x 10 months x ₹ 72)
Less: Standard Dedn. - 75,000 44,25,000
* Income from Other Sources:
 Interest on FD in USA Nil
(Accrued and received outside India)
GROSS TOTAL INCOME 44,25,000
Less: Deduction under Chapter VI A: -----
NET TAXABLE INCOME 44,25,000

STATEMENT OF TAX
ST LT LT Win Balance
111A 112A
Net Taxable Income Nil Nil Nil Nil 44,25,000
Tax on above (Slab Rt) 10,17,500
Add: SC + Nil
10,17,500
Add: HEC @ 4% + 40,700
10,58,200
Less: Relief u/s 90(Note1) - 10,58,200
Tax Payable Nil
Note 1:
Since India has DTAA with USA, the assessee will get bilateral relief
u/s 90 as follows:
1) Tax in India [Doubly Taxed Income x Avg. Indian Tax Rate]
= 44,25,000 x *23.914 % = ₹ 10,58,200
2) Actual tax paid in USA [Federal Tax]
= $ 1,600 x 10 months x ₹ 72 = ₹ 11,52,000

*Avg. Indian Tax Rate = Total Tax / Net Taxable Income

= 10,58,200 / 44,25,000 = 23.914 %

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2) The following statements/forms need to be furnished by
Mr. Ram on or before 31st July, 2025 for claiming FTC –
(i) A statement of “Income from US” offered for tax
and of “US tax deducted or paid” on such income
in the prescribed form.
(ii) Certificate or statement specifying the nature of
income and the amount of tax deducted therefrom
or paid by the assessee
- from the tax authority of US or
- from the person responsible for dedn of tax or
- signed by the assessee.

QUESTION 7:
Nandini, an individual resident retired employee of the Prasar
Bharti aged 60 years, is a well-known dramatist deriving income of
` 1,10,000 from theatrical works played abroad. Tax of ` 11,000
was deducted in the country where the plays were performed.
India does not have any Double Taxation Avoidance Agreement
under section 90 of the Income Tax Act, 1961, with that country.
Her income in India amounted to `7,10,000. In view of tax
planning, she has made specified investments for which she is
eligible for deduction of `1,50,000 under section 80C. Compute
the tax liability of Nandini for the AY 2025-26 as per old regime.

ANSWER:
STATEMENT OF TOTAL INCOME
Particulars Amt. Amt.
* Indian income 7,10,000
* Foreign income 1,10,000
GROSS TOTAL INCOME 8,20,000
Less: Deduction under Chapter VI A:
 Sec. 80C - 1,50,000
NET TAXABLE INCOME 6,70,000

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STATEMENT OF TAX
STCG LTCG LT Win.. Balance
111A 112A
Net Taxable Income Nil Nil Nil Nil 6,70,000
Tax on above 44,000
[Slab Rt]
Add: Surcharge Nil
44,000
Add: HEC @ 4% + 1,760
45,760
Less: Relief u/s 91(Note1) - 7,513
38,247

Note 1:
Since Nandini has derived income from a foreign country with
which India does not have DTAA, she will get unilateral relief u/s
91 as follows:

Doubly Avg. Indian Tax Rate or

= x Avg. Foreign Tax Rate
Taxed Income
[whichever is less]

= 1,10,000 x 6.83% = 7,513

Avg. Tax Rate = Total Tax / Net Taxable Income

= 45,760/6,70,000 x 100 = 6.83% [Avg. Indian Tax rate]
= 11,000/1,10,000 x 100 = 10% [Avg. Foreign Tax rate]

~~~~~~~~~~~~

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QUESTION 1:
MNO Inc., a Country A based company, is carrying on the business
of manufacture and sale of furniture under the brand name
"PUREWOOD". In order to increase its share in Indian market, it
launched a massive advertisement campaign of its products. For
the purpose of online advertisement, it utilized the services of PQR
Inc., a Country Y based company which also owns and operates a
digital platform. The gross receipt of PQR Inc from provision of such
services during the P.Y.2024-25 is ₹ 3 crores. During the previous
year 2024-25, MNO Inc. paid ₹ 5 lakhs to PQR Inc. for such services.
Discuss the tax implications of such payment and receipt in the
hands of MNO Inc. and PQR Inc., respectively, if-
(i) Both MNO Inc. and PQR Inc. have no PE in India
(ii) MNO Inc. has a PE in India but PQR Inc. has no PE in India
(iii) PQR Inc. has a PE in India and the advertisement services are
effectively connected with such PE.
ANSWER:
Equalisation levy [6%] u/s 165 on online advt/specified
service:
This is attracted if following conditions are satisfied:
- Transaction is of online advertisement/other specified services;
- Payer is Resident [carrying business/prof.] or NR [with PE in India];
- Receiver is NR [without PE in India];
- Aggregate amount paid or payable during the year is > ₹1 lakh.
Equalisation levy [2%] u/s 165A* on E-comm. supply/service:
This is attracted if following conditions are satisfied:
- E-commerce operator is NR [without PE in India];
- Product is owned by NR [without PE in India];
- Customers are Indian customers;
- Total consideration from such e-commerce supply or service is >/=
₹2 crores during the previous year [From 1/4/24 to 31/7/24].
*Equalisation levy u/s 165A is also applicable on sale of
advertisement targeting Indian customers or sale of data collected
from Indian customers [where the receiver as well as payer are NR
without PE in India].

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Note: Indian customer means person who is a resident of India or
a person using IP address of India].
Case (i):
MNO Inc. and PQR Inc. have no PE in India:
If the service provider [PQR Inc.] and the service receiver [MNO
Inc.] – both are NR (without PE in India) then equalisation levy
@2% is attracted on ₹ 5 lakhs, being amount received by PQR Inc.,
an e-commerce operator from MNO Inc. for online advertisement
services which targets Indian customers [assuming the gross
receipt of PQR Inc. from 1/4/24 to 31/7/24 exceeds ₹2 crores and
the receipt of 5 lakhs is on/before 31/7/24].
Case (ii):
MNO Inc. has a PE in India but PQR Inc. does not have a PE in
India:
If the service receiver i.e. MNO Inc. is a NR with PE in India then
equalisation levy @6% is attracted on ₹ 5 lakhs, being amount
received by PQR Inc. [sine the amount paid in P.Y. 2024-25
exceeds ₹1,00,000].
Accordingly, MNO Inc. is required to deduct equalisation levy of ₹
30,000 i.e., @6% of 5 lakhs, being the amount paid towards online
advertisement services.
Non- deduction of equalisation levy would attract disallowance
under section 40(a) of 100% of the amount paid while computing
business income.
Since, equalisation levy is attracted on the amount of ₹ 5 lakhs, the
said amount is exempt from income-tax by virtue of section 10(50)
of the Income-tax Act, 1961.
Case (iii):
PQR Inc. has a PE in India and the advt services are connected
with such PE:
Equalisation levy would not be attracted where the service
provider (PQR Inc.) is NR with PE in India and the service is
effectively connected to such PE.
In such case, advertisement income of PQR Inc. would be deemed
to accrue or arise in India u/s 9 and would be taxable in the hands
of PQR Inc. under the Income-tax Act, 1961 [in the form of regular
income tax and not in the form of equalization levy].
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QUESTION 2:
Mr. Bharat has opened an office of Alpha Pvt. Ltd., a Country A
based company, in Pune from where he and Mr. Ashok execute
the work of the company relating to Indian operations. Alpha Pvt.
Ltd. is further considering advertising the product on internet
using Facepad. Alpha Pvt. Ltd. enters into talks with Facepad Inc.
for hosting the desired advertisements. It negotiated a sum of 20
lakhs, which is paid to Facepad Inc. for online advertisement
services in March, 2025. Assume that Facepad does not have a
permanent establishment in India.
(i) Is the fee paid for online advertisement services by Alpha Pvt.
Ltd. to Facepad Inc. taxable in India? Examine.
(ii) If the answer to (a) is in the affirmative, is there any
requirement to deduct equalisation levy? If equalisation levy
is not so deducted, what would be the consequence?
(iii) As per which action plan of BEPS was this provision
incorporated in Indian tax laws?
(iv) What is the provision incorporated in the Indian tax laws to
avoid double taxation of such income?

ANSWER:
Equalisation levy [6%] u/s 165 on online advt/specified
service:
This is attracted if following conditions are satisfied:
- Transaction is of online advertisement/other specified services;
- Payer is Resident [carrying business/prof.] or NR [with PE in India];
- Receiver is NR [without PE in India];
- Aggregate amount paid or payable during the year is > ₹1 lakh.
(i) Alpha Pvt. Ltd. has an office in Pune. Hence, it is a NR with a
PE in India. Facepad Inc is a NR without PE in India. It
receives consideration of ₹20 lakhs from Alpha Pvt. Ltd., a NR
with PE in India, for online advertisement services provided by
it. Hence, equalization levy @6% on ₹20 lakhs is attracted in
the hands of Facepad Inc.

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(ii) Alpha Pvt. Ltd. is liable to deduct equalization levy of ₹1,20,000
from the amount of ₹20 lakhs payable to Facepad Inc.
Alpha Pvt. Ltd. shall be liable to pay such the levy by 7th
next month i.e. 7th April, 2025 [irrespective of whether it
deducts such levy or not].
Further, penalty of an amount equal to ₹1,20,000 would be
attracted for failure to deduct equalization levy.
Also, disallowance of the expenditure of 20 lakhs would be
attracted under section 40(a) while computing business
income of Alpha Pvt. Ltd.
(iii) Provision of equalisation levy was incorporated in Indian law
as per BEPS Action Plan 1 "Addressing Challenges of the
Digital Economy”.
iv) To avoid double taxation, section 10(50) of the Income-tax
Act, 1961 exempts income arising from providing specified
service of online advertisement from income-tax.

QUESTION 3:
M/s. Raghuram Co. Ltd., Mumbai entered into the following
agreements with various non-resident entities during the previous
year 2024-25;
(i) Paid ₹ 4,00,000 to M/s. Neil Inc., a company based in USA for
online advertisement of its products. M/s. Neil Inc., does not
have a PE in India.
(ii) Paid 50,000 to Mr. David, a non-resident individual, against
providing digital space for online advertisement of its
products.
Examine the equalisation levy implications of such payments. Also,
state the consequence of non- deduction of equalisation levy.

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ANSWER:
Equalisation levy [6%] u/s 165 on online advt/specified
service:
This is attracted if following conditions are satisfied:
- Transaction is of online advertisement/other specified services;
- Payer is Resident [carrying business/prof.] or NR [with PE in India];
- Receiver is NR [without PE in India];
- Aggregate amount paid or payable during the year is > ₹1 lakh.
(i) In this case, equalisation levy @6% is attracted on the amount
of ₹ 4,00,000 received by Niel Inc., a non-resident [without PE
in India], from M/s Raghuram Co. Ltd., [a resident] for online
advertisement of its products. Accordingly, M/s Raghuram Co.
Ltd. is required to deduct equalisation levy of ₹ 24,000 i.e.,
@6% of ₹ 4 lakhs.
Non-deduction of equalisation levy would attract
disallowance under section 40(a) of 100% of the amount paid
to M/s. Neil Inc. while computing business income of M/s .
Raghuram Co. Ltd.
(ii) In this case, equalisation levy is not attracted as the amount of
consideration of ₹ 50,000 for digital space for online
advertisement paid to Mr. David does not exceed ₹ 1,00,000.
QUESTION 4:
Sun Ltd., an Indian company, is engaged in the business of
manufacture and sale. of carpets. To expand its international sales,
it hired the services of a London based company, Shine Inc., for
online advertisements. Shine Inc. has no permanent establishment
in India. During the previous year 2024- 25, Sun Ltd. paid ₹ 5 lakh
to Shine Inc. for such services and deducted the equalization levy
on 15.03.2025 and credited it to the account of Central Govt. on
15.05.2025.
You are required to -
(i) Calculate interest and penalty payable by Sun Ltd. if any.
(ii) What are the circumstances under which penalty cannot be
imposed?
(iii) Sun Ltd. is aggrieved by the order imposing penalty. What is
the time limit for filing of appeal against the order of the
Assessing Officer imposing the penalty?

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ANSWER:
(i) Interest and Penalty for late deposit of equalization levy:
The equalization levy deducted on 15.3.2025 should be deposited
by 7.4.2025 (i.e., 7th of next month). However, in this case, Sun Ltd.
deposited the same on 15.5.2025. The delay in this case is 2
months [part of the month is treated full month]. Hence, interest
on late deposit @1% p.m. is calculated as follows:
Amt of Interest =
Amt of Levy x 1% p.m. x No. of months of delay
= (5,00,000 x 6%) x 1% p.m. x 2 months = ₹ 600
In addition to interest, the assessee is also liable to pay penalty for
late deposit @₹1,000 per day (subject to maximum of levy).
Amt of penalty =
₹1,000 x 38 days = ₹38,000 restricted to ₹30,000
(ii) Circumstances under which penalty cannot be imposed
No penalty for failure to deduct or pay equalisation levy shall be
imposable, if Sun Ltd. proves to the satisfaction of the Assessing
Officer that there was reasonable cause for the said failure.
Further, no order imposing a penalty shall be made unless Sun Ltd.
has been given a reasonable opportunity of being heard.
(iii) Time limit for filing appeal:
If Sun Ltd. is aggrieved by the order imposing penalty, it can file an
appeal to CIT(A) i.e. Commissioner of Income Tax (Appeals) within
30 days from the date of receipt of the order of the Assessing
Officer imposing the penalty.

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QUESTION 5:
Atiwna Inc., a non-resident company incorporated in U.S.,
engaged in manufacturing of computer hardware and software. It
also owns an online social networking site, Friendszone. It exports
its products globally including India for which it owns a warehouse
in Mumbai. Ari ltd., an Indian company, imports computer
hardware and software from Atiwana Inc. During the PY 2024-25,
Ari ltd. did not import any article from Atiwna Inc. but paid `
5,45,000 to Atiwna Inc. for advertising its business on the platform
of Friendszone. However, Ari Ltd., neither deducts TDS nor
equalization levy on such payments. You are required to discuss
whether Ari ltd. is required to equalization levy or TDS on such
payment? If yes, then discuss the consequences of non-deduction
of such levy in the hands of Ari ltd.

ANSWER:
Atiwna Inc. is a non-resident having two units:
1) Manufacturing of computer hardware and software
2) Online social networking site
In respect of the unit carrying on the business of computer
hardware and software, it has a warehouse in India which
amounts to a permanent establishment in India. However, in
respect of its other unit of online social networking site, it does
not have a PE in India.
If a resident carrying on business in India makes payment
exceeding ` 1,00,000 for online advertisement to a non-
resident having no PE in India then such payment is subject to
deduction of equalisation levy @6%. Hence, payment of
` 5,45,000 by Ari ltd. to Atiwna Inc. for advertisement in the social
networking site is subject to deduction of equalisation levy @6%.
Accordingly, Ari ltd. is liable to deduct equalisation levy of ` 32,700
[6% of 5,45,000] in respect of payment made to Atiwna Inc.
Failure to deduct such levy shall attract a penalty of an amount
equal to the amount of levy not deducted i.e. ` 32,700 and the
expenditure of advertisement shall not be allowed as deduction
under the head Profits and gains from business/profession.

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QUESTION 6:
Kiwi Inc., a company based in USA, is engaged in manufacturing
and selling of mobile phones, globally. It sells each mobile phone
for USD 2,000.
Alpha Inc., another company based in USA, owns and manages a
website which acts as a marketplace for buying and selling of
goods and also hosts advertisements.
Gama LLC, incorporated in UK, is engaged in manufacturing and
selling of printers. During the PY 2024-25 [from April 2024 to July
2024], Kiwi Inc. sold 80,000 mobiles as under-
Platform through Customer to whom the Number of
which the mobile mobile phones are sold mobile
phones are sold phones sold
Through Alpha Inc. Persons who are resident in 15,000
India
Through Alpha Inc. Persons who are not resident 25,000
in India, sitting in U.K.
Through Kiwi Inc.'s Persons who are resident in 7,000
own website India
Through Kiwi Inc.'s Persons who are not 12,000
own website resident in India, using
Internet in U.K.
Through Kiwi Inc.'s Persons who are resident in
physical store in US India 21,000
Total 80,000
Gama LLC enters into a contract with Alpha Inc. for publishing its
advertisement on the website of Alpha Inc., for the period from
1st March 2025 to 31st March 2025. Gama LLC paid USD 50,000 for
hosting advertisement in India for Indian customers and USD 20,000
for hosting advertisement in UK for UK customers.
Kiwi Inc., Alpha Inc. & Gama LLC do not have any PE in India.
Examine the equalisation levy implications in above transactions.
You may assume the rate of 1 USD is equal to ` 80.

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ANSWER:
Equalisation levy [2%] u/s 165A* on E-comm. supply/service:
This is attracted if following conditions are satisfied:
- E-commerce operator is NR [without PE in India];
- Product is owned by NR [without PE in India];
- Customers are Indian customers;
- Total consideration from such e-commerce supply or service is >/=
₹2 crores during the previous year [From 1/4/24 to 31/7/24].
*Equalisation levy u/s 165A is also applicable on sale of
advertisement targeting Indian customers or sale of data collected
from Indian customers [where the receiver as well as payer are NR
without PE in India].
Note: Indian customer means person who is a resident of India or
a person using IP address of India].

EQ.. LEVY IMPLICATIONS IN VARIOUS TRANSACTIONS

 Sale of 15,000 mobile phones:

In this sale,
- E-Commerce operator is Alpha Inc. [NR without PE in India]
- Product belongs to Kiwi Inc. [NR without PE in India]
- Sale is to Indian customers [persons who are resident of India]
Equalisation levy @2% shall be attracted as the consideration is
>/= 2 crores.
Consideration = 15,000 x $2,000 x ₹80 = ₹240 crores.
Amount of levy = 240 crores x 2% = 4.80 crores
 Sale of 25,000 mobile phones:
In this sale,
- E-Commerce operator is Alpha Inc. [NR without PE in India]
- Product belongs to Kiwi Inc. [NR without PE in India]
- Sale is to UK customers
Since the sale is to UK customers [persons who are neither resident
of India nor using IP address of India], equalization levy shall not
be attracted.

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 Sale of 7,000 mobile phones:
In this sale,
- E-Commerce operator is Kiwi Inc. [NR without PE in India]
- Product belongs to Kiwi Inc. [NR without PE in India]
- Sale is to Indian customers [persons who are resident of India]
Equalisation levy @2% shall be attracted as the consideration is
>/= 2 crores.
Consideration = 7,000 x $2,000 x ₹80 = ₹112 crores
Amount of levy = 112 crores x 2% = 2.24 crores.

 Sale of 12,000 mobile phones:

In this sale,
- E-Commerce operator is Kiwi Inc. [NR without PE in India]
- Product belongs to Kiwi Inc. [NR without PE in India]
- Sale is to UK customers
Since the sale is to UK customers [persons who are neither resident
of India nor using IP address of India], equalization levy is not
attracted.

 Sale of 21,000 mobiles through physical store:

Since the sale is through physical store in UK, equalization levy
is not attracted.

 Contract of Gama LLC with Alpha Inc. for online advt.:

In this contract,
- Service provider is Alpha Inc. [NR without PE in India]
- Servicer receiver is Gama LLC [NR without PE in India]
- USD 50,000 is for targeting Indian customers
- USD 20,000 is for targeting UK customers
Equalisation levy of 2% is not attracted in this case as the
transaction of online advertisement is after 31/7/2024.

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 BLACK MONEY ACT
QUESTION 1:
Ravinder, an Indian citizen, left India and settled in UK from
10.4.2017. He had never left India previously since April, 2009. He
acquired a house property for ` 80 lakhs in his name in the
financial year 2014-15 at Malaysia. Out of the investment of ` 80
lakhs, ` 55 lakhs was assessed to tax in India.
The Assessing Officer came to know of this in March, 2025 based
on the investigation made by Enforcement Directorate in some
other person’s case. The value of the house property on 1.4.2024
was ` 120 lakhs.
The Assessing Officer issued a notice u/s 10 of the Black Money
and Imposition of Tax Act, 2015 on 27.3.2025.
Mr. Ravinder’s counsel contended that since Mr. Ravinder is not a
resident in the financial year 2024-25, a notice under section 10
could not be issued to him.
(i) Is the issue of notice on Ravinder u/s 10 of the Black Money
Act, 2015 tenable in law? Examine.
(ii) Is there any time limit for initiating proceedings under Black
Money Act ?
(iii) What is the value of undisclosed asset (house property
located in Malaysia) in the hands of Mr. Ravinder for the
purpose of Black Money Act, 2015?

ANSWER:
(i) Every assessee would be liable to tax @30% in respect of his
undisclosed foreign income and asset of the previous year.
Undisclosed foreign asset is taxable in the previous year in
which the A.O. comes to know.
The term “assessee” defined under section 2(2) of the Black
Money Act includes a person being:
 a Resident in India in the relevant PY; or
 a NR or NOR in the relevant PY, who was resident in India
in the PY in which the undisclosed foreign asset was
acquired.

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Since Mr. Ravinder left India and settled in United Kingdom from
10.4.2017 and has not visited India at any time thereafter, he
would be non-resident in India in the previous year 2024-25 in
which notice is issued. However, he was resident and
ordinarily resident in India in the P.Y. 2014-15 when he
acquired the property at Malaysia.
Accordingly, the issue of notice on Mr. Ravinder under section
10 of the Black Money Act, 2015, is tenable in law.
(ii) There is no time limit for initiating proceedings under Black
Money Act.
(iii) Value of house property in Malaysia:
= FMV as on the valuation date (1/4/2024) – Proportionate
amount of taxed income utilised to purchase such property
= ₹ 120 lakhs – [120 x 55/80]
= ₹ 120 lakhs – ₹ 82.50 lakhs
= ₹ 37.50 lakhs

QUESTION 2:
Mr. Sahil is a resident of India. He bought an apartment in Dubai
in 1988 for ` 10 lakhs out of undisclosed sources. This apartment
was sold on 5th June 2023 for ` 30 lakhs (FMV as on 5th June 2023
was ` 40 lakhs). Sale proceeds of ₹ 12 lakhs was deposited in his
undisclosed savings bank account in Abu Dhabi. Other deposits in
this bank account since the date of opening the account
amounted to ₹ 33 lakhs which includes a deposit of ₹ 5 lakhs on
12/7/2021 which was withdrawn from this same account on
5/7/2021.
Compute the tax payable under Black Money Act, 2015 assuming
above assets comes to the notice of A.O. on 18th October 2024 ?

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ANSWER:
COMPUTATION OF TAX UNDER BLACK MONEY ACT
`₹ `₹
Value of Asset transferred before valn. date
Cost of Acquisition 10 L
Sale Price 30 L
FMV on the date of sale 40 L
Whichever is higher 40 L
Less: Amount deposited in foreign bank a/c - 12 L
Less: Utilized for purchase of new asset Nil 28 L

Value of Bank A/c in Abu Dhabi

Sum of all deposits from the date of opening
the account [12 L + 33 L] 45 L
Less: Amount withdrawn redeposited -5L
Less: Utilized for purchase of new asset Nil 40 L
Total Value of Undisclosed Foreign Assets 68 L
Tax on above (68 L x 30%) 20.40 L

QUESTION 3:
Deepak, aged 45 (an Indian citizen) has settled in California, USA
since 2016. Prior to that, he has always been in India.
He had acquired a residential property in California on 25-06-2010
for USD 20,000.
He kept bank deposit of USD 10,000 in a bank account in New
York since 15-04-2011.
Notice under Black Money (Undisclosed Foreign Income and
Assets) and Imposition of Tax Act, 2015 was issued on 20-10-2024.
The fair market value of residential property was:
USD 25,000 as on 01-04-2024
USD 32,000 as on 01-04-2025
USD 30,000 as on 20-10-2024

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The bank deposit with accrued interest thereon was:
USD 12,500 on 01-04-2024
USD 12,800 on 01-04-2025
USD 12,700 on 20-10-2024
Note: USD = United States Dollar
The exchange rate of Indian currency per 1 USD as per the
reference rate of the RBI on the various dates are:
01-04-2024 = ` 71
20-10-2024 = ` 72
01-04-2025 = ` 73
Compute the value of undisclosed foreign asset chargeable to tax
in the hands of Deepak as per Black Money (Undisclosed Foreign
Income and Assets) and Imposition of Tax Act, 2015.

ANSWER:
Every assessee would be liable to tax @30% in respect of his
undisclosed foreign income and asset of the previous year.
Undisclosed foreign asset is taxable in the previous year in which the
A.O. comes to know.
The term “assessee” defined under section 2(2) of the Black Money
Act includes a person being:
 a Resident in India in the relevant PY; or
 a NR or NOR in the relevant PY, who was resident in India in
the PY in which the undisclosed foreign asset was acquired.
Therefore, Deepak is an assessee under the Black Money Law since
he was resident in India in the P.Y.2010-11, when the property
was acquired, even though he is a non-resident in the P.Y.2024-
25. Accordingly, the value of undisclosed asset located outside
India of Deepak would be chargeable to be tax under the Black
Money Law in the previous year in which such asset comes to the
notice of the Assessing Officer i.e., P.Y 2024-25, even though he is
a non-resident in India for that previous year.

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COMPUTATION OF VALUE OF UNDISCLOSED FOREIGN ASSET
Particulars USD `₹
 Value of Property in California
- Cost of acquisition 20,000
- FMV as on the valn date (1.4.2024) 25,000
Whichever is higher 25,000
Value in Indian currency 17,75,000
(25,000 x 71 – Rate as on 1/4/24)
 Value of Bank A/c in New York 10,000
The sum of all the deposits made in the
account with the bank since the date of
opening of the account would be the
value of the bank deposits. ` 7,10,000
Value in Indian currency
(10,000 x 71 – Rate as on 1/4/24)
Total value of undisclosed foreign asset 24,85,000

QUESTION 4:
Mithun Banerjee is a renowned technocrat, and is one of the
directors of the company Democrat (P) Ltd since 01.06.2019. He
is a partner in Lilly LLP, New York. A notice for assessment of his
income under Black Money (Undisclosed Foreign Income and
Assets) and Imposition of Tax Act, 2015 was served on
01.05.2024 for the alleged undisclosed assets held in USA.
The Balance Sheet of Lilly LLP is given below:
01.04.2024 1.05.2024 31.3.2025
In US $
Cash on hand (as per books) 10,000 12,000 15,000
Cash at bank (as per books) 20,000 18,000 15,000
Stock in trade (as per books) 30,000 30,000 30,000
Vacant site 20,000 50,000 60,000
[FMV on 1.4.2024 $ 40,000] (FMV) (FMV)
Plant and machinery 75,000 50,000 40,000
(Books) (FMV) (FMV)
Bullion 15,000 30,000 35,000
[FMV on 1.4.2024 $ 25,000] (FMV) (FMV)
1,90,000 1,90,000 1,95,000
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Liabilities:
Sundry Creditors 50,000 55,000 60,000
Partners’ Capital
- Mithun Banerjee (25%) 30,000 No fresh capital
- Bimal (50%) 50,000 No fresh capital
- Senthil (25%) 60,000 No fresh capital
1,90,000
The partnership agreement provides that in the event of
dissolution, the net worth exceeding the capital of the partners
is to be shared in the profit-sharing ratio.
The reference rate of RBI of 1 US $ as on various dates are as under:
01.04.2024 = ₹ 75; 01.05.2024 = ₹ 78; 31.03.2025 = ₹ 81
Compute the tax payable under Black Money Act, 2015?

ANSWER:
Value of interest of Mithun Banerjee in Lilly LLP is chargeable to tax
in India under the Black Money Act in the A.Y.2025-26, since these
assets came to the notice of the A.O. in the P.Y.2024-25.
For computing the value of interest in Lilly LLP, market value as on
valuation date, being value on 1st April of the previous year i.e., on
01.04.2024 is to be considered.
Computation of Value of Share in Lilly LLP of Mithun
Particulars Amount
(In US $)
Cash in hand (as per books) 10,000
Cash at bank (as per books) 20,000
Stock-in-trade (as per books) 30,000
Plant and machinery (as per books) 75,000
Vacant site (FMV as on 1.4.2024) 40,000
Bullion (FMV as on 1.4.2024) 25,000
Sundry Creditors (as per books) (C) (50,000)
Net worth of Lilly LLP (A + B – C) 1,50,000

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Distribution of Net Worth
M B S Total
To the extent of Capital 30,000 50,000 60,000 1,40,000
Balance [Link] 2,500 5,000 2,500 10,000
Value of Partner’s Share 32,500 55,000 62,500 1,50,000

Hence, Value of Mithun’s Share [in Rupees]

= $ 32,500 x ₹ 75 = ₹ 24,37,500

As per section 3(1) of Black Money Act, 2015, every assessee would
be liable to tax @30% in respect of his undisclosed foreign income
and asset of the previous year.
Tax liability of Mithun Banerjee = ₹ 7,31,250 (30% of ₹ 24,37,500)

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 TAX AUDIT AND ETHICAL COMPLIANCES
QUESTION 1:
Sunlight & Co., a partnership firm engaged in trading of electronic
goods, has a turnover of ` 265 lakhs for the F.Y. 2024-25. Examine
whether Sunlight & Co. is required to get its books of account
audited mandatorily as per section 44AB from the information
given below –
Particulars `
(i) Total turnover of F.Y.2024-25 2,65,00,000
(ii) Aggregate of all receipts during the year 3,25,00,000
(including amount received for turnover
mentioned in (i) above)
(iii) Cash receipts out of (i) above 14,00,000
(iv) Cash receipts out of (ii) above (This is inclusive 16,00,000
of the figure mentioned in (iii) above)
(v) Aggregate of all payments during the year 1,35,00,000
(vi) Cash payments out of (v) above 6,95,000
Would your answer change if the cash receipts indicated in (iii) is `
13 lakh instead of ` 14 lakh?

ANSWER
As per section 44AB, every person carrying on business or
profession is required to get his accounts audited before the
"specified date" by a Chartered Accountant, if the total sales,
turnover or gross receipts in business exceeds ` 1 crore in any
previous year.
However, tax audit is not required in case of such person carrying
on business whose total sales, turnover or gross receipts in business
≤ ` 10 crore in the relevant previous year (P.Y.), if:
- aggregate cash receipts including amount received for sales,
turnover, gross receipts in the relevant previous year ≤ 5% of
such receipts; and
- aggregate cash payments including amount incurred for
expenditure in the relevant P.Y. ≤ 5% of such payments or

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In this case, the turnover of Sunlight & Co. exceeds ` 1 crore but
does not exceed ` 10 crore. Accordingly, it has to be seen whether
cash receipts exceed 5% of aggregate receipts and cash payments
exceed 5% of aggregate payments, to determine whether tax audit
is compulsory.
In this case, the percentage of cash receipts of ` 16 lakhs to
aggregate receipts of ` 325 lakhs is 4.92% and the percentage of
cash payments to aggregate payments is 5.14%.
Since the cash payments made during the year exceed 5% of
aggregate payments, the firm is required to get its accounts audited
under section 44AB and furnish audit report before the specified
date, irrespective of the fact that its turnover does not exceed ` 10
crores and its cash receipts do not exceed 5% of total receipts.
It may be noted that, in this case, Sunshine & Co. cannot declare
profits as per the presumptive provisions of section 44AD, since the
percentage of turnover receipts in cash of ` 14 lakhs to the total
turnover of ` 265 lakhs is 5.28%.
If the cash receipts indicated in (iii) is `13 lakhs instead of `14 lakhs,
the percentage of turnover receipts in cash of 13 lakhs to the total
turnover of `265 lakhs would be 4.91%. In such a case, Sunshine &
Co. can declare profits as per the presumptive provisions of section
44AD, in which case, it need not get its books of account audited
under section 44AB.

QUESTION 2
Mr. Abhinav Ahuja runs a travel agency business since the year
2010. His total commission receipts for the F.Y. 2024-25 is 287 lakhs.
The details of receipts and payments made by him during the year
2024-25 are as follows:
Particulars Amount (`) Mode of
receipt/payment
Date of Receipt
15.4.2024 15,65,000 BHIM UPI
27.4.2024 13,80,000 A/c payee cheque
7.5.2024 13,35,000 Bearer cheque
6.6.2024 18,21,000 A/c payee cheque
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15.8.2024 15,25,000 NEFT
19.9.2024 16,72,000 NEFT
18.10.2024 15,35,600 UPI
15.2.2025 16,25,350 UPI
17.3.2025 18,19,450 NEFT
Other aggregate receipts 1,44,21,600 A/c payee
not exceeding cheques, NEFT
`2,000 per person on and UPI
certain occasions from
various customers. Out of
this, receipts of `52,500 are
received in cash.
Payments
Aggregate all payments 2,58,00,000
made during the P.Y. 24-25
Amount incurred for 20,58,000
expenditure in cash (not
exceeding `10,000 per
person in each case)
Mr. Abhinav contended that he is not required to get his accounts
audited since his turnover does not exceed ` 3 crores and he is
eligible to declare his income as per presumptive provisions of
section 44AD. Examine the contention of Mr. Abhinav Ahuja.
ANSWER
As per section 44AB, every person inter alia carrying on business or
profession is required to get his accounts audited before the
"specified date" by an accountant, if total sales, turnover or gross
receipts in business exceeds `1 crore in any previous year.
However, tax audit is not required in case of such person carrying
on business whose total sales, turnover or gross receipts in business
≤ `10 crore in the relevant previous year (P.Y.), if -
- aggregate cash receipts including amount received for sales,
turnover, gross receipts in the relevant previous year ≤ 5% of such
receipts; and
- aggregate cash payments including amount incurred for
expenditure in the relevant P.Y. ≤ 5% of such payments or
As per section 44AD, a resident individual, HUF or Partnership firm

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(but not LLP) engaged in eligible business whose total turnover/ gross
receipts in the P.Y. < ` 200 lakhs (where cash receipts do not exceed
5% of total turnover, higher threshold limit of `300 lakhs applicable)
can declare 8%/6%, as the case may be, of total turnover/sales/gross
receipts. However, a person carrying on any agency business are not
eligible for presumptive provisions of section 44AD. In the present
case, since Mr. Abhinav Ahuja is carrying on travel agency business,
he is not eligible for presumptive provisions of section 44AD, though
his turnover does not exceed ` 3 crores.
In this case, the turnover of Mr. Abhinav Ahuja exceeds `1 crore but
does not exceed `10 crore. Accordingly, it has to be seen whether
cash receipts exceed 5% of aggregate receipts and cash payments
exceed 5% of aggregate payments, to determine whether tax audit is
compulsory. During the P.Y. 2024-25, his cash receipts are `13,35,000
plus ` 52,500 totalling to `13,87,500, which is 4.83% of total receipts
of ` 2,87,00,000. Cash payments made during the P.Y. 2024-25 are
20,58,000 which is 7.98% of aggregate payments of ` 2,58,00,000.
Since his cash payments during the P.Y. 2024-25, exceed 5% of
aggregate payments made during the year, he is required to get the
accounts audited under section 44AB.
QUESTION 3
ABC Ltd. is engaged in transportation of building material and
transportation of goods to contractor It made payment for hiring
dumpers for this purpose. The company has not deducted tax at source
on the ground that since the payment was for transportation of goods
and not renting out machinery and equipment, such payments could
not be termed as rent paid for use of machinery under section 194-I
and hence, no tax was deductible at source.
The tax auditor is, however, of the view that the transactions being
in the nature of contracts for shifting of goods from one place to
another would be covered under works contracts, thereby
attracting the provisions of section 194C. He relied upon the
Gujarat High Court ruling in CIT (TDS) v. Shree Mahalaxmi Transport
Co. (2011) 339 ITR 484.
What is the reporting responsibility of the tax auditor in such a case
and the consequent ethical implications? Examine.

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ANSWER
In clause 34(a) of Form 3CD, the tax auditor is required to report
whether the assessee is required to deduct TDS or collect TCS and
if yes, to furnish the details mentioned thereunder. While
answering the issue of applicability of the provisions of TDS or TCS,
a number of debatable issues may arise before the assessee as well
as the tax auditor. The tax auditor may have a difference of opinion
with regard to the applicability of the provisions of TDS/TCS on a
particular payment. In such a case, the tax auditor has to report the
difference of opinion appropriately as an observation in Form 3CA.
This requirement is contained in the Guidance Note on Tax Audit.
Also, in clause 21(b)(ii) of Form 3CD, the amount inadmissible
under section 40(a) has to be mentioned.
In case the tax auditor does not comply with the reporting
requirements under these clauses and fails to mention the
difference of opinion appropriately as an observation in para 3 of
Form 3CA, clause (7) of Part I of the Second Schedule to the
Chartered Accountants Act, 1949 for not exercising due diligence
may be invoked.
QUESTION 4
A search was conducted u/s 132 of the Income-tax Act, 1961 in the
case of LMN Jewellers (P) Ltd., a gold jewellery retail chain. As part
of the post search enquiries, data from the billing software was
analysed. On analysis of this data, it was found that the company
was involved in violation of section 40A(3) in a major way to the
tune of 20 crores in the purchase of old gold.
In order to verify the findings culled from digital data, some of the
customers whose whereabouts were available from computer
records were contacted and their statements were recorded under
oath. These customers admitted under oath that they had sold old
gold and received the amounts (all exceeding 10,000) in cash. The
fact which emerged from the enquiries is that LMN Jewellers (P)
Ltd. purchase old gold and make payments for these purchases in
cash, even if they exceed ` 10,000. However, the tax auditor had
mentioned "Yes" in response to the statement in sub-clause (A) of
Clause 21(d) on whether the expenditure covered under section
40A(3) read with Rule 6DD were made by account payee cheque
drawn on a bank or account payee bank draft. The tax auditor
submitted that standing instructions were given by the
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management of the entity to the employees to make payments
above ` 10,000 only through account payee cheques and/or bank
drafts or other permissible electronic modes; and copy of these
instructions were verified by him. He further submitted that he had
also taken a representation from the Management that net
payment in cash to any person in a day did not exceed `10,000.
Also, he mentioned that the test checks conducted by him did not
reveal any violation.
Examine the ethical implications in this case and the consequences
thereof.
ANSWER
As per section 40A(3), where the assessee incurs any expenditure,
in respect of which payment or aggregate of payments made to a
person in a day otherwise than by an account payee cheque, draft
or ECS exceeds ` 10,000, such expenditure shall not be allowed as
a deduction.
Clause 21(d) of Form 3CD requires the tax auditor to report, on the
basis of the examination of books of account and other relevant
documents/evidence, whether the expenditure covered under
section 40A(3) read with rule 6DD were made by account payee
cheque drawn on a bank or account payee bank draft; and if not,
to furnish details mentioned thereunder, namely, date of payment,
nature of payment, amount etc.
The Guidance Note on Tax Audit issued by ICAI states that there
may be practical difficulties in verifying whether each payment is
made through account payee cheque or bank draft or ECS or other
prescribed electronic modes. Where the reporting has been done
on the basis of the certificate of the assessee, the fact has to be
reported as an observation in para 3 of Form 3CA.
The tax auditor is required to point out in tax audit report, the
violation of the provisions of section 40A(3) thereof involving
expenditure to a person in a day exceeding ` 10,000 otherwise
than by way of account payee cheque/bank draft, ECS and other
prescribed electronic modes. However, in this case, the tax auditor
has certified that there was no such instance, though such
instances aggregate to a large quantum of ` 20 crores.
The tax auditor should have considered the nature of business i.e.,
jewellery business of the assessee and accordingly undertaken
necessary checks to verify whether there are cash payments in
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violation of section 40A(3). He should have made use of the audit
tools which are available to find out such payments expeditiously
and accurately where the data is voluminous.
In this case, considering the nature of business of the assessee,
namely, jewellery business, the onus was on the tax auditor to verify
the same before reporting in Form 3CD. Mere reliance on certificate
issued by the management is not acceptable in such a case. Also, even
in a case where the reporting has been done on the basis of the
certificate of the assessee, the fact has to be reported as an
observation in para 3 of Form 3CA, which he had failed to do.
Thus, in the case, the tax auditor had failed to exercise due diligence
in the conduct of his professional duties. He had also failed to
obtain sufficient information which is necessary for expression of
opinion. On account of such failure, clauses (7) and (8) of Part I of
the Second Schedule to the Chartered Accountants Act, 1949 may
be invoked.
QUESTION 5
X Ltd., an Indian company, paid interest of 95 lakhs to X Inc., a non-
resident associated enterprise in the P.Y.2024-25 on loan borrowed
from it. X Ltd. also obtained loan of ` 5 crore @10% p.a. on 1.4.2024
from Y Inc., a foreign company in which it holds 20% voting power.
X Inc. deposits ` 2 crore with Y Inc. X Ltd. contends that the
provisions of section 94B are not attracted in its case, since the
interest paid to non-resident associated enterprise does not exceed
` 1 crore in the P.Y.2024-25. The tax auditor is, however, of the
opinion that the interest of `20 lakh (i.e., 10% of ` 2 crore) also has
to be considered for the purpose of section 94B. X Ltd. contends
that X Inc. has not deposited a corresponding and matching
amount of 5 crore with Y Inc, and hence, the provisions of section
94B will not be attracted in this case. Examine the reporting
requirement, if any, of the tax auditor in this case.
ANSWER
Relevant provision of law - Section 94B provides that where the debt is
issued by a lender which is not associated but an associated enterprise
either provides guarantee to such lender or deposits a corresponding
and matching amount of funds with the lender, such debt shall be
deemed to have been issued by an associated enterprise.
In this case, the debt issued by Y Inc. is `5 crore and the deposit
made by the associated enterprise, X
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Inc. with Y Inc. is ` 2 crore. Since the deposit is not of a matching
amount, the X Ltd. contends that provisions of section 94B will not be
attracted in respect of interest payable by it to Y Inc. The tax auditor is
of the opinion that interest on ` 2 crore amounting to ` 20 lakhs will
have to be considered for the purpose of section 94B. Accordingly, the
interest payable/paid by X Ltd. to non-resident associated enterprises
during the year would be ` 115 lakhs and hence, the provisions of
section 94B would be attracted, since the same exceeds the threshold
of `1 crore. This appears to be the legislative intent, since otherwise it is
possible to escape the application of this provision by even by
depositing a marginally lower amount than the loan taken.
Relevant clause of Form 3CD - Clause 30B(a) of Form 3CD requires the
tax auditor to state whether the assessee has incurred expenditure
during the previous year by way of interest or of similar nature
exceeding one crore rupees as referred to in sub-section (1) of section
94B. Relevant paras of the Guidance Note on Tax Audit - As per para
18.6 of the Guidance Note on Tax Audit, the tax auditor may have a
difference of opinion with regard to the particulars furnished by the
assessee. These differences are to be reported in para 3 of Form No.
3CA or para 5 of Form 3CB. As per para 19.3, if there is any difference
in the opinion of the tax auditor and that of the assessee in respect of
any information furnished in Form No. 3CD by the assessee, the tax
auditor may consider stating both the view points and also the
relevant information related to matter in order to enable the tax
authority to take a decision in the matter.
Therefore, the tax auditor has to report the difference of opinion
appropriately as an observation in para 3 of Form No. 3CA or para
5 of Form No. 3CB as the case may be.
Accordingly, in this case, the tax auditor may state both the view
points in Clause 30B as well as report the difference of opinion
appropriately as an observation in para 3 of Form 3CA to enable
the tax authority to take a decision in the matter.
QUESTION 6
XYZ & Co, a firm engaged in interior decoration business, employed
20 new employees on 1.4.2024 on a monthly salary of ` 25,000 to
be paid by account payee cheque. In addition, each employee was
entitled to 10% employer contribution to recognised provident
fund. The employees were also entitled to transport allowance of `
3,000 p.m. paid in cash. The gross total income of XYZ & Co.
included profits and gains from business of ` 62 lakh.

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The firm claimed deduction under section 80JJAA of ` 18 lakh, being
30% of `60 lakh (20 new employees x ` 25,000 p.m. x 12) on the basis
of the report of the chartered accountant issued in Form 10DA. The
same chartered accountant was also the tax auditor of the firm. The
chartered accountant contended that "emoluments" do not include
employer contribution to PF. Also, cash payments were not to be
considered as "additional employee cost" for the purpose of section
80JJAA. Hence, only 25,000 p.m. per employee paid by account
payee cheque has to be treated as additional employee cost. Since the
same does not exceed the limit of ` 25,000 p.m. and the employees
have been employed for more than 240 days in the P.Y.2024-25, the
employees would qualify as "additional employees" for the purpose of
deduction under section 80JJAA for A.Y.2025-26.
Is his contention correct? Examine the ethical implications in this case.
ANSWER
Deduction under section 80JJAA is allowable to an assessee to
whom section 44AB applies and whose gross total income includes
any profits and gains derived from business, in respect of
employment of new employees. The amount of deduction is 30%
of additional employee cost incurred in the course of such business
in the previous year, for three assessment years including the
assessment year relevant to the previous year in which such
employment is provided. "Additional employee cost" means the
total emoluments paid or payable to additional employees
employed during the previous year. However, in the case of an
existing business, the additional employee cost shall be nil, if
emoluments are paid otherwise than by an account payee cheque
or account payee bank draft or use of ECS through bank account
or other prescribed electronic mode.
"Emoluments" means any sum paid or payable to an employee in
lieu of his employment by whatever name called but does not
include, inter alia, contribution by employer to provident fund.
"Additional employee" means an employee who has been
employed during the previous year and whose employment has
the effect of increasing the total number of employees employed
by the employer as on the last day of the preceding year, but does
not include, inter alia, an employee whose total emoluments are
more than ` 25,000 p.m.

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In this case, the contention of the chartered accountant that the
emoluments do not include employer contribution to PF is correct.
However, emoluments include ` 3,000 paid in cash by way of
transport allowance to the employee. Hence, the total emoluments
per employee is ` 28,000 p.m. Due to this reason, the 20 employees
employed on 1.4.2024 will not qualify as "additional employees" for
the purpose of deduction under section 80JJAA, since their total
emoluments are more than ` 25,000 p.m. Hence, XYZ & Co. is not
eligible for any deduction under section 80JJAA due to failure to
fulfil the condition for being treated as an "additional employee". In
this case, the chartered accountant has failed to ensure compliance
with the condition stipulated for claim of deduction under section
80JJAA and has wrongly issued the report in Form 10DA certifying
the deduction claimed by the assessee under section 80JJAA.
Also, clause 33 of Form 3CD requires section-wise details of
deductions, if any, admissible under Chapter VIA. Here again, the
tax auditor has to ensure that the assessee fulfils all the conditions
specified in the section under which the deduction is claimed.
However, in this case, the tax auditor has failed to do so.
On account of such failure, clause (7) of Part I of the Second
Schedule to the Chartered Accountants Act, 1949 may be invoked.
QUESTION 7
The Income-tax department collected documents from ABC Bank
which revealed that M/s. Alpha Travels and Consultancy Services
(Alpha Travels) had remitted substantial amounts abroad. The
documents collected include Form 15CB issued by the chartered
accountant, list of passengers, copy of their passports, date of travel
and invoice raised by the foreign party. On enquiring from the
passengers and verifying their passports, it is found that they did
not travel abroad during the dates mentioned in the documents.
Further, the passengers denied any sort of transactions with Alpha
Travels. The department, therefore, concluded that the amounts
were remitted abroad on the basis of false invoices and for wrong
reasons, leading to FEMA violations and that the Form 15CB issued
by the chartered accountant facilitated such violations. During the
nine-month period in question, the chartered accountant had
issued 120 certificates in Form 15CB approximately involving
remittances of 30 crores in favour of Alpha Travels.

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The chartered accountant submitted that he had issued Form 15CB
based on invoices produced by the company and verifying the KYC
documents of the signatory to the invoices. He however, failed to
bring on record the invoices. He further submitted that since he
was not the statutory auditor of the company, he did not examine
the books of account before issue of Form 15CB or conduct due
diligence of its business activities. He had charged ` 3,000 per
certificate. Mostly, the fees was collected in cash. Some part of the
fee was credited to his bank account.
Examine the ethical implications in this case.

ANSWER
Form 15CB is a certificate of an accountant wherein he certifies that
he has examined the agreement between the remitter and the
beneficiary requiring such remittance as well as the relevant
documents and books of account required for ascertaining the
nature of remittance and for determining the rate of deduction of
tax at source. The chartered accountant certifying the form
undertakes to have verified the agreement between the remitter
and the beneficiary as well as the relevant documents and books of
account to ascertain the nature of remittance and determine the
rate of TDS. In this case, however, the chartered accountant
mentioned that he had only verified KYC of signatory to invoice and
the invoices thereof. He had not only failed to justify as to how
verification of invoices was considered as sufficient compliance for
certifying the forms but also failed to bring on record the said
invoices. Thus, he failed to provide any basis on which he relied for
issuing Form 15CB certificates to the company.
On account of such failure, clauses (7) and (8) of Part I of the Second
Schedule to the Chartered Accountants Act, 1949 for failure to
exercise due diligence in discharging his professional
responsibilities and failure to obtain sufficient information may be
invoked.

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 TAX PLANNING/EVASION/AVOIDANCE
AND GAAR
QUESTION 1
A choice is made by a company by acquiring an asset on lease over
outright purchase. The company claims deduction for lease rentals
in case of acquisition through lease rather than depreciation as in
the case of purchase of the asset. Would the lease rent payment,
being higher than the depreciation be disallowed as expense under
GAAR?

ANSWER
This is a case of tax planning, through which Company chooses a
legally permissible option to minimize its tax liability. It opts for
leasing of an asset instead of an outright purchase. This is not a case
of tax avoidance.
GAAR provisions would not apply in this case as the taxpayer
merely makes a selection out of the options available to him.

QUESTION 2
M/s. Highway Drive Limited incorporates a wholly owned
subsidiary M/s. Highway Roads Limited in India during the F.Y.
2017-18. Its main business is to develop infrastructure facility and is
eligible for deduction u/s 80-IA. Accordingly the company has
claimed deduction u/s 80-IA for the A.Y. 2024-25.
(i) Highway Roads Limited derives income other than income
from developing infrastructure facilities and discloses such
income as income from developing infrastructure facilities,
thus enjoying the benefit u/s 80-IA.
(ii) Highway Roads Limited purchases the supplies for the
development of infrastructure facilities from M/s. Highway
Drive Limited at a price lesser than the fair price, thus
transferring the income of M/s. Highway Drive Limited to
M/s. Highway Roads Limited and enjoying the benefit of
section 80-IA on such income.
Can GAAR be invoked in both the instances mentioned above?

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ANSWER
(i) In the present case, Highway Roads Ltd. derives income
other than income from developing infrastructure facilities
and discloses such income as income from developing
infrastructure facilities to avail benefit of deduction u/s 80-IA.
This is a case of misrepresentation of facts by showing non-
eligible income as income eligible for deduction u/s 80-IA.
Hence, this is an arrangement of tax evasion and not tax
avoidance.
Tax evasion, being unlawful, can be dealt with directly by
establishing correct facts. GAAR provisions need not be
invoked in such a case.
(ii) In this case, there is a close connection between Highway
Drive Limited, ineligible assessee and Highway Roads Ltd, an
eligible assessee, since the eligible assessee is a wholly owned
subsidiary of ineligible assessee. The purchase transaction
has been arranged in such a way that it produces more than
ordinary profits to the eligible assessee.
However, such tax avoidance is specifically dealt with
through the provisions contained in section 80-IA(10).
Further, if the aggregate of such transactions entered into in
the relevant previous year exceed the threshold of `20 crore,
domestic transfer pricing regulations under section 92BA
would be attracted.
It is not the intention of the legislation to invoke GAAR in
such situations. Hence, the Revenue need not invoke GAAR
in such a case, though GAAR and SAAR can co-exist as per
clarification given in the CBDT Circular.
QUESTION 3
Critically examine the following cases and discuss whether the
provisions of General Anti-avoidance Rules (GAAR) can be invoked
in these cases?
(i) Diva Ltd., an Indian company has 2 manufacturing units, unit
A in the Special Economic Zone (SEZ) and unit B in non-SEZ.
Manufacturing activities are carried out in Unit B while unit A
only does the packaging of the goods manufactured by unit
B. In its books of accounts, it shows the, manufacturing to be
carried out in unit A and claims allowable deductions.

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(ii)Jeeva Ltd., an Indian company has 2 manufacturing units,
unit C in the Special Economic Zone (SEZ) and unit D in non-
SEZ. It transfers the goods manufactured by unit D to unit C
at a price significantly lower than the market value of the
goods and thus becomes eligible for higher deductions.
ANSWER
(i) In the present case, Diva Ltd., an Indian company has 2
manufacturing units, unit A in the SEZ and unit B in non-SEZ.
Though unit A only does the packaging of goods
manufactured by Unit B, the company, in its books of
account, shows the manufacture of goods by Unit B as
manufacture of goods by unit A to enjoy exemption under
section 10AA. This is a case of misrepresentation of facts by
showing manufacture of non-SEZ unit as manufacture of SEZ
unit. Hence, this is an arrangement of tax evasion and not tax
avoidance.
Tax evasion, being unlawful, can be dealt with directly by
establishing correct facts. GAAR provisions need not be
invoked in such a case.
(ii) In this case, goods manufactured by unit D, a non-SEZ unit,
being a non-eligible business, are transferred to unit C, a SEZ
unit, being an eligible business, at a price significantly lower
than the market value of goods to claim higher deduction
under section 10AA in respect of unit C.
As there is no misrepresentation of facts or false submissions,
it is not a case of tax evasion The company has tried to take
advantage of tax provisions by diverting profits from non-SEZ
unit to SEZ unit. However, this is not the intention of the
legislation.
Such tax avoidance is specifically dealt with through the
provisions contained in section 10AA(9), as per which
provisions of section 80-IA(8) would get attracted in such a case
Further, if the aggregate of such transactions entered into in
the relevant previous year exceed the threshold of 20 crore,
domestic transfer pricing regulations under section 92BA
would be attracted. Hence, the Revenue need not invoke
GAAR in such a case, though GAAR and SAAR can co-exist as
per clarification given in the CBDT Circular.

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QUESTION 4
Y Tech Ltd. is a company resident of country C1. It enters into an
agreement with Z Energy Ltd., an Indian company for setting up a
power plant in India. It is a composite contract for an agreed price
of US$ 100 million. The payment has been split in the following
parts as per separate agreements
(i) US$ 10 million for design of power plant outside India
(payment for which is taxable at 10% on gross basis)
(ii) US$ 70 million for offshore supplies of equipment etc. (not
taxable as no role is played by any PE in India. These are not
subject to import duty)
(iii) US$ 20 million for local supplies and installation charges
(taxable on net income basis)
It is found that the fair market value of offshore design is about USD
30 million; therefore, it is under invoiced. On the other hand,
offshore supplies were over invoiced. The arrangement resulted in
significant tax benefit to the taxpayer. Can GAAR be invoked in
such a case?
ANSWER
The allocation of price to different parts of the contract has been
decided in such a manner as to reduce tax liability of the foreign
company in India. Both conditions for declaring an arrangement as
impermissible are satisfied. (1) The main purpose of this arrangement
is to obtain tax benefit; and (2) the transactions are not at arm's length.
Consequently, GAAR may be Invoked and prices would be
reallocated. However, determination of arm's length price should be
based on transfer pricing regulations under the Act, if the enterprises
are associated enterprises.
QUESTION 5
Under the provisions of a tax treaty between India and country F4,
any capital gains arising from the sale of shares of Indco, an Indian
company, would be taxable only in F4 if the transferor is a resident
of F4 except where the transferor holds more than 10% interest in
the capital stock of Indco. A company, A Ltd., being resident in F4,
makes an investment in Indco through two wholly owned
subsidiaries (K Ltd. and L Ltd.) located in F4. Each subsidiary holds
9.95% shareholding in the Indian Company, the total adding to
19.9% of equity of Indco. The subsidiaries sell the shares of Indco
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and claim exemption as each is holding less than 10% equity shares
in the Indian company. Can GAAR be invoked to deny treaty
benefit?
ANSWER
The above arrangement of splitting the investment through two
subsidiaries appears to be with the intention of obtaining tax
benefit under the treaty. Further, there appears to be no
commercial substance in creating two subsidiaries as they do not
change the economic condition of investor A Ltd. in any manner
(i.e. on business risks or cash flow), and reveals a tainted element of
abuse of tax laws. Hence, the arrangement can be treated as an
impermissible avoidance arrangement by Invoking GAAR.
Consequently, treaty benefit would be denied by ignoring K and L,
the two subsidiaries, or by treating K and L as one and the same
company for tax computation purposes.
QUESTION 6
Examine whether General Anti-Avoidance Rules (GAAR) can be
invoked to deny the treaty benefit in the following case, assuming
that all other conditions prescribed for application of GAAR are
being satisfied:
X Pvt. Ltd., an Indian Company and Y Pvt. Ltd. (100% subsidiary of
YAN Ltd.) located in country "A" formed a joint venture company XY
Pvt. Ltd. in India on 01.04.2023. As per the joint venture agreement,
51% of shares are held by X Pvt. Ltd. and 49% are held by Y Pvt. Ltd
in XY Pvt. Ltd. There is no other business activity in Y Pvt. Ltd.
Y Pvt. Ltd. is designated as Permitted Transferee of YAN Ltd.
Permitted Transferee means though shares of XY Pvt. Ltd. are held
by Y Pvt. Ltd. all rights of voting, management, right to sell etc. are
vested with YAN Ltd.
On 19.03.2024, the shares held by Y Pvt. Ltd. in XY Pvt. Ltd. are sold
to P Pvt. Ltd. which is a group company of X Pvt. Ltd. As per the tax-
treaty between India and Country "A", there is no tax for capital
gains either in source country or in Country "A". Consequently, the
capital gains arising to Y Pvt. Ltd. are not taxable in India.
ANSWER
GAAR may, prima facie, apply, when the following twin conditions
are satisfied:
 Main purpose of the arrangement being tax benefit, and
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 Existence of tainted benefit.
As per the tax treaty between India and Country "A", there is no tax
on capital gains either in the Source country or in Country "A",
Consequently, the capital gains arising to Y Pvt. Ltd. is not taxable
in India.
The arrangement of routing investment through Country "A" would
result in a tax benefit. Since there is no business purpose in
incorporating a company Y Pvt. Ltd. (100% subsidiary of YAN Ltd.)
in Country "A", it can be said that the main purpose of the
arrangement is to obtain a tax benefit.
On the question of whether the arrangement has any tainted
element, it is evident that there is no commercial substance in
incorporating Y Pvt. Ltd. as it does not have any effect on the
business risk of YAN Ltd. or cash flow of YAN Ltd.
Additionally, the fact that all rights of shareholders of Y Pvt. Ltd.
(designated as Permitted Transferee) are being exercised by YAN
Ltd. instead of Y Pvt. Ltd, indicates that Y Pvt. Ltd lacks commercial
substance.
As the twin conditions of main purpose being tax benefit and
existence of a tainted element are satisfied, GAAR may be invoked
in this case.
QUESTION 7
Mr. Gavaskar sought voluntary retirement from a Government of
India Undertaking and received compensation of `40 lacs on 28th
February, 2024. He is planning to use the money as capital for
business dealership in electronic goods. The manufacturer of the
product requires a security deposit of `15 lacs, which would carry
interest at 8% p.a. Gavaskar's wife is a graduate and has worked as
marketing manager in a multinational company for 15 years. She
now looks for a change in employment. She is willing to join her
husband in running the business. She expects an annual income of
`5 lacs. Mr. Gavaskar would like to draw a monthly remuneration
of `40,000 and also interest @ 10% p.a. on his capital in the
business. Mr. Gavaskar has approached you for a tax efficient
structure of the business.
Discuss the various issues, which are required to be considered for
formulating your advice. Computation of income or tax liability is
not required.
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ANSWER
The selection of the form of organisation to carry on any business
activity is essential in view of the differential tax rates prescribed under
the Income tax Act, 1961 and specific concessions and deductions
available under the Act in respect of different entities. For the purpose
of formulating advice as to the tax efficient structure of the business, it
is necessary for the tax consultant to consider the following issues:
(i) In the case of sole proprietary concern, interest on capital and
remuneration paid to the proprietor is not allowable as
deduction under section 37(1) as the expenditure is of personal
nature. On the other hand, in the case of partnership firm, both
interest on capital and remuneration payable to partners are
allowable under section 37(1) subject to the conditions and
limits laid down in section 40(b). Such interest and salary shall be
taxable in the hands of partners to the extent the same is
allowed as deduction in the hands of the firm under section
40(b). Interest to partners can be allowed up to 12% on simple
interest basis, while the limit for allowability for partners'
remuneration is based on book profit under section 40(b).
Note - However, if the firm is eligible to opt for presumptive
taxation under section 44AD, 8% of gross receipts or 6% of gross
receipts, as the case may be, would be deemed as its income. All
deductions under section 30 to 37 are deemed to be allowed.
No deduction is allowable, including deduction for partner's
remuneration and interest on capital.
(ii) Partner share in profits of firm is not taxed in hands of partners
by virtue of section 10(2A).
(iii) If a proprietary concern is formed, the salary of Mrs. Gavaskar
shall be allowed as deduction under section 37(1).
(iv) The possibility of invoking section 40A(2) cannot be ruled out
as salary is payable to a relative, who is an interested person
within the meaning of section 40A(2). However, it can be
argued successfully that salary of `5 lacs is justified in view of
her long experience as marketing manager of a multinational
company and the fair market value of services to be rendered
by her to the concern.

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(v) An issue arises as to whether remuneration of Mrs. Gavaskar
would be includible in the total income of Mr. Gavaskar.
Under section 64(1)(ii), remuneration of the spouse of an
individual working in a concern in which the individual is
having a substantial interest shall be included in the total
income of the individual. However, the clubbing provision
does not apply if the spouse possesses technical or
professional qualification and the income is solely
attributable to the application of his or her technical or
professional knowledge and experience. The experience of
Mrs. Gavaskar as a marketing manager in a multinational
company for 15 years may reasonably be considered as a
professional qualification for this purpose.
(vi) If Mrs. Gavaskar joins the proprietary concern or partnership
concern of her husband as employee, remuneration of `5
lacs shall be taxed in her hands under the head "salary".
(vii) If she joins as partner in the business, remuneration shall be
taxed in her hand as business income u/s 28 to the extent
such remuneration is allowed in the hands of the firm u/s
40(b).
(viii) The tax rate applicable to an individual depends on the level of
his/her income, whereas for partnership firms it is flat rate at
30%. Surcharge @ 12% would be attracted only if total income
exceeds `1 crore. For individuals, the tax is as per slab rates. The
surcharge for total income exceeding ` 50 lakhs but not
exceeding `1 crore is 10% of tax payable; for total income
exceeding `1 crore but not exceeding `2 crore is 15% of tax
payable; for total income exceeding `2 crore but not exceeding
`5 crore is 25% of tax payable and for total income exceeding
`5 crore is 37% of tax payable. Health and Education cess @ 4%
on income-tax plus surcharge, if applicable, is attracted in all the
cases.

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QUESTION 8
Specify with reason, whether the following acts can be considered
as (i) Tax planning; or (ii) Tax management; or (iii) Tax evasion.
(i) Mr. P deposits `1,00,000 in PPF account so as to reduce his
total income from `5,90,000 to `4,90,000.
(ii) SOL Ltd. maintains register of tax deduction at source
effected by it to enable timely compliance.
(iii) An individual tax payer making tax saver deposit of `1,00,000
in a nationalised bank.
(iv) A partnership firm obtaining declaration from
lenders/depositors in Form No. 15G/15H and forwarding the
same to income-tax authorities.
(v) A company installed an air-conditioner costing `75,000 at
the residence of a director as per terms of his appointment
but treats it as fitted in quality control section in the factory.
This is with the objective to treat it as plant for the purpose of
computing depreciation.
(vi) RR Ltd. issued a credit note for `80,000 as brokerage payable
to Mr. Ramana who is the son of the managing director of
the company. The purpose is to increase the total income of
Mr. Ramana from `4,20,000 to `5,00,000 and reduce the
income of RR Ltd. correspondingly.
(vii) A company remitted provident fund contribution of both its
own contribution and employees' contribution on monthly
basis before due date.
ANSWER
Tax Planning/Tax Management/Tax Evasion
Answer Reason
1. Tax planning Depositing money in PPF and claiming
deduction under section 80C is as per the
provisions of law.
2. Tax Maintaining register of payments subject to TDS
management helps in complying with the obligations under
the Income-tax Act, 1961.
3. Tax planning Making a tax saver deposit of `1,00,000 in
a nationalized bank for claiming deduction
under section 80C by an individual is a
permitted tax planning measure under the
provisions of income-tax law.

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4. Tax Obtaining declaration from
management lenders/depositors in Form No. 15G/15H
by a partnership firm and forwarding the
same to Income-tax authorities is in the
nature of compliance of statutory
obligation under the Income-tax Act, 1961.
5. Tax evasion An air conditioner fitted at the residence of a
director as per the terms of his appointment
would be a furniture qualifying for depreciation
@10%, whereas an air conditioner fitted in a
factory would be a plant qualifying for a higher
depreciation @15%. The wrong treatment
unjustifiably increases the amount of
depreciation and consequently, reduces profit
and consequent tax liability. Treatment of air-
conditioner fitted at the residence of a director
as a plant fitted at the factory would tantamount
to furnishing of false particulars with an attempt
to evade tax.
6. Tax evasion Issuance of a credit note for 80,000 by RR Ltd. as
brokerage payable to Mr. Ramana, the son of
the Managing Director, to increase his total
income from `4.2 lakh to `5.00 lakh and to
correspondingly reduce the company's
total income is a method of reducing the tax
liability of the company by recording a fictitious
transaction.
The company is liable to tax at a flat rate of
30%/25%, as the case may be, whereas Mr.
Ramana would not be liable to pay any tax,
since his total income does not exceed
`5,00,000, consequent to which he would be
eligible for tax rebate of `12,500 under sec. 87A.
Reducing tax liability by recording a fictitious
transaction would tantamount to tax evasion.
7. Tax Remitting of own contribution to provident
management fund & employees contribution to provident
fund on a monthly basis before due date is
proper compliance of the statutory obligations.

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 Address:
CA SHIRISH VYAS
Prime Vision Professional Education
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Opp. Jain Temple, Jambhali Galli,
Borivali (West), Mumbai 400 092
85915 15899 / 85910 89800 / 99304 33999

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