Answer to Q.

1 – Main Solution
Computation of total income and tax liability of Mr. Sahil for A.Y. 2024-25
as per books of accounts
Particulars Rs. Rs. Marks
I Income from house property
Annual value of self-occupied property Nil
Less: Deduction 1

Interest on housing loan of Rs. 2,60,000 restricted to Rs.2,00,000 2,00,000 ½

(2,00,000)
II Profits and gains of business or profession
Net Profit 13,56,000
Add: Expenses debited to Profit and loss A/c but not allowable
as deduction or to be considered under other head
- Commission paid to brother [Commission paid to a related 10,000 ½+½
person / relative to the extent it is excessive to market rate is
disallowed2]
- Cash payment to a Transport Carrier [Not disallowed3 since the Nil ½+½
limit for one time cash payment is Rs. 35,000 in respect of
payment to transport operators]
- Interest to bank on term loan [Interest paid to bank after the 40,000 ½+½
due date of filing of return under section 139(1) is disallowed4]
- Contribution to Prime Minister’s Relief Fund [Not allowable 10,000 ½
since the same is not incurred wholly and exclusively for
business purpose]
- SGST Penalty paid [SGST penalty paid is not compensatory in 7,000 ½
nature and therefore, not allowable]
S1.-4½ m
Q.1 Step-1 - 4 ½ marks

- Loss on sale of shares 20,000 ½

- Depreciation as per books of account 2,00,000 ½
16,43,000
Less: Incomes credited to profit and loss account but not
taxable as business income
- Dividend from Domestic Companies 15,000 ½
- Winnings from lotteries 10,500 ½
- Profit on sale of shares 45,000 ½
15,72,500
Less: Depreciation allowable as per Income-tax Rules,1962
- On Plant & Machinery [@15% on Rs. 14,00,000, being opening 2,25,000 1
WDV of Rs. 12 lakhs and additions put to use for more than 180
days of Rs. 2 lakhs + @7.5% on Rs. 2,00,000, being additions
put to use for less than 180 days]

1
under section 24(b)
2
under section 40A(2)
3
under section 40A(3)
4
as per section 43B

5
13,47,500

[8% of sales i.e. Rs. 43,50,000 x 8%5 assuming entire amount of 3,48,000 ½
sales are not received by A/c payee cheque or A/c payee draft or
ECS or other electronic prescribed modes]

Business Income 13,47,500

Note to Examiner - In this case, since Mr. Sahil has maintained
books of account, he can claim the higher sum actually earned
Rs.13,47,500 as his income from business. The main solution has
been, accordingly, worked out by considering the higher sum
actually earned by him i.e., Rs.13,47,500 as his income from
business.
Less: Set off of loss from house property 6 2,00,000 ½
11,47,500
Add: Salary paid to staff not recorded in the books [Assuming the 48,000 ½
expenditure is in the nature of unexplained expenditure (since 11,95,500
nothing has been mentioned about the source of expenditure),
hence, is deemed to be income7 of Mr. Sahil. No deduction would
be allowed in respect of such expenditure.] – (For Alternate
treatment, please see Note to Examiner, below).

Q.1 Step-2 - 5 marks S2.-5m

III Capital Gains

Long term capital gains taxable u/s 112A [Since shares are held for 45,000
2 years and STT has been paid]
Less: Set off of short term capital loss 8 20,000 ½
25,000
IV Income from Other Sources
Dividend from Domestic Companies 15,000 ½
Winning from lotteries (Rs. 10,500 + Rs. 4,500) 15,000 1
30,000
Gross Total Income 12,50,500
Less: Deduction under Chapter VI-A
Deduction under section 80C
Principal repayment of housing loan 50,000 ½
Deduction under section 80EE
Interest on housing loan of Rs. 60,000 [Rs.2,60,000 – Rs.2,00,000, 50,000 ½
allowed u/s 24(b)] allowable under section 80EE upto Rs.50,000

5
If it is assumed that the entire sales are received by A/c payee cheque or A/c payee draft or ECS or other
electronic prescribed modes on or before due date of filing return of income, the presumptive rate would be 6%.
6
As per section 71(3A)
7
as per section 69C
8
As per section 70(2)

6
Deduction under section 80G
Contribution to Prime Minister’s Relief Fund9 10,000 ½
1,10,000
Total Income 11,40,500

Q.1 Step-3 - 3½ marks S3.-3½ m

Tax Liability
Tax on LTCG of Rs. 25,000 u/s 112A [Exempt upto Rs. 1 lakh] Nil ½
Tax on winning from lotteries of Rs. 15,000 @30% 4,500 ½
Tax on unexplained expenditure of Rs. 48,000 @60% 28,800 ½
Tax on balance income of Rs. 10,52,500 at slab rate
Upto Rs. 2,50,000 Nil
From Rs. 2,50,001 to Rs. 5,00,000 @5% 12,500
From Rs. 5,00,001 to Rs. 10,00,000 @20% 1,00,000
From Rs. 10,00,001 to Rs. 10,52,500 @30% 15,750 1,28,250
1,61,550
Add: Surcharge @25% on tax on unexplained expenditure of Rs. 7,200
28,800
1,68,750
Add: Health and education cess @4% 6,750
Tax Liability 1,75,500 ½
.1 Step-4 2 marks
Q.1 Step-4 - 2 marks S4.-2m

Total Marks 15
Note to Examiner – Alternatively, it is possible to assume that the salary not recorded in the books of account
was an erroneous omission and the assessee has offered satisfactory explanation about the source of such
expenditure. In such a case, it would not be considered as deemed income and the same would be allowed as
deduction while computing business income on the basis of books of accounts. Accordingly, the relevant figures
and the marks allocation would be as under:
(i) Salary to Staff – (-)Rs.48,000 i.e. to be reduced while computing the income u/h PGBP on the
basis of books of accounts – ½ mark
(ii) Tax liability – Rs.1,23,084 or rounded off to Rs.1,23,080 – 1 mark *
Hence, due credit may be given to the candidate where he/she has specifically stated this assumption and
answered accordingly.

*Please note that in the main solution, ½ mark has been allotted for correctly computing Tax on unexplained
expenditure as Rs.28,800/- and a further ½ mark has been allotted for correctly computing Tax Liability as
Rs.1,75,500. However, where a candidate has made an assumption that the salary not recorded in the books
of account was an erroneous omission and the assessee has offered satisfactory explanation about the
source, then he/she is not required to compute Tax on unexplained expenditure i.e. Rs.28,800/-. Hence, in
such a case full 1 mark may be awarded where the candidate has correctly computed the tax liability as
Rs.1,23,084 or rounded off to Rs.1,23,080 under such assumption.

9
Assuming contribution is made otherwise than by way of cash

7
Alternate presentation of Step-1 and Step-2 in Main Solution – Solved by taking the
Sales / Turnover from business and then deducting the allowable expenditure for computing income
under the head Profits and gains of business or profession. In that case, the presentation of Step-1 and Step-
2 of the Main solution will change as under:

Computation of total income and tax liability of Mr. Sahil for A.Y. 2024-25
as per books of accounts

Particulars Rs. Rs. Marks

I Income from house property
Annual value of self-occupied property Nil
Less: Deduction
Interest on housing loan of Rs. 2,60,000 restricted to Rs.2,00,000 2,00,000 ½
(2,00,000)
II Profits and gains of business or profession
Sales 43,50,000
Add: Closing Stock 2,00,000
45,50,000
Less: Expenses to the extent allowable
- Opening Stock 71,000
- Purchase of Raw Materials 17,20,500
- Administrative Ch.[Comm. paid to a related person / relative 2,80,000 ½+½
to the extent it is excessive to market rate is disallowed]
- Manufacturing Wages & Expenses [Cash payment of 5,80,500 ½+½
Rs.33,000 to a Transport Carrier is allowed since the limit for
one time cash payment is Rs. 35,000 in respect of payment to
transport operators]
- Interest to bank on term loan [Interest paid to bank after the 20,000 ½+½
due date of filing of return under section 139(1) is disallowed]
- Miscellaneous Expenses [Contribution to Prime Minister’s 1,40,500 ½
Relief Fund is not allowable since the same is not incurred
wholly and exclusively for business purpose]
- SGST Penalty paid [SGST penalty paid is not compensatory in Nil ½
nature and therefore, not allowable]
- GST Paid 1,10,000
- General Expenses 55,000
Q.1 Step-1 - 4 ½ marks S1-4½m

- Loss on sale of shares Nil ½

15,72,500
Add: Other Incomes
- Dividend from Domestic Companies Nil ½
- Winnings from lotteries Nil ½
- Profit on sale of shares Nil ½
15,72,500
Less: Depreciation allowable as per Income-tax Rules,1962 2,25,000 1½

8
13,47,500
[8% of sales i.e. Rs. 43,50,000 x 8% assuming entire amount of
10 3,48,000 ½
sales are not received by A/c payee cheque or A/c payee draft or
ECS or other electronic prescribed modes]

Business Income 13,47,500

Less: Set off of loss from house property 2,00,000 ½
11,47,500
Add: Salary paid to staff not recorded in the books [Assuming the 48,000 ½
expenditure is in the nature of unexplained expenditure (since 11,95,500
nothing has been mentioned about the source of expenditure),
hence, is deemed to be income of Mr. Sahil. No deduction would be
allowed in respect of such expenditure.] – (For Alternate
treatment, please see Note to Examiner, above).

Q.1 Step-2 - 5 marks S2.-5m

Please note that there would be no change in Step-3 and Step-4 in case a candidate has solved the question
by taking the Sales / Turnover from business and deducted the allowable expenditure for computing income
under the head Profits and gains of business or profession.

10
If it is assumed that the entire sales are received by A/c payee cheque or A/c payee draft or ECS or other
electronic prescribed modes on or before due date of filing return of income, the presumptive rate would be 6%.

9
Answer to Q. 1 - Alternate Solution considering presumptive provisions under section 44AD
Computation of total income and tax liability of Mr. Sahil for A.Y. 2024-25
as per presumptive provisions under section 44AD
Particulars Rs. Rs. Marks
I Income from house property
Annual value of self-occupied property Nil
Less: Deduction 11

Interest on housing loan of Rs. 2,60,000 restricted to Rs.2,00,000 2,00,000 ½

(2,00,000)
II Profits and gains of business or profession
Net Profit 13,56,000
Add: Expenses debited to Profit and loss A/c but not allowable
as deduction or to be considered under other head
- Commission paid to brother [Commission paid to a related 10,000 ½+½
person / relative to the extent it is excessive to market rate is
disallowed12]
- Cash payment to a Transport Carrier [Not disallowed13 since Nil ½+½
the limit for one time cash payment is Rs. 35,000 in respect of
payment to transport operators]
- Interest to bank on term loan [Interest paid to bank after the 40,000 ½+½
due date of filing of return under section 139(1) is disallowed14]
- Contribution to Prime Minister’s Relief Fund [Not allowable 10,000 ½
since the same is not incurred wholly and exclusively for
business purpose]
- SGST Penalty paid [SGST penalty paid is not compensatory in 7,000 ½
nature and therefore, not allowable]
S1.-4½ m
Q.1 Step-1 - 4 ½ marks

- Loss on sale of shares 20,000 ½

- Depreciation as per books of account 2,00,000 ½
16,43,000
Less: Incomes credited to profit and loss account but not
taxable as business income
- Dividend from Domestic Companies 15,000 ½
- Winnings from lotteries 10,500 ½
- Profit on sale of shares 45,000 ½
15,72,500
Less: Depreciation allowable as per Income-tax Rules,1962
- On Plant & Machinery [@15% on Rs. 14,00,000, being opening 2,25,000 1
WDV of Rs. 12 lakhs and additions put to use for more than 180
days of Rs. 2 lakhs + @7.5% on Rs. 2,00,000, being additions
put to use for less than 180 days]

11
under section 24(b)
12
under section 40A(2)
13
under section 40A(3)
14
as per section 43B

10
13,47,500

[8% of sales i.e. Rs. 43,50,000 x 8%15 assuming entire amount of 3,48,000 ½
sales are not received by A/c payee cheque or A/c payee draft or
ECS or other electronic prescribed modes]

Business Income 3,48,000

Note to Examiner - As per section 44AD, in case of Mr. Sahil,
being an eligible assessee, a sum equal to Rs. 3,48,000 (8% of total
turnover i.e., Rs. 43,50,000) or as the case may be, a sum higher
than the aforesaid sum claimed to have been earned by him would
be deemed to be the business income. In this case Mr. Sahil, claims
Rs. 3,48,000 as his business income.
Less: Set off of loss from house property16 2,00,000 ½
1,48,000
Add: Salary paid to staff not recorded in the books [Assuming the 48,000 ½
expenditure is in the nature of unexplained expenditure (since 1,96,000
nothing has been mentioned about the source of expenditure),
hence, is deemed to be income17 of Mr. Sahil. No deduction would
be allowed in respect of such expenditure.] – (For Alternate
treatment, please see Note to Examiner, below).

Q.1 Step-2 - 5 marks S2.-5m

III Capital Gains

Long term capital gains taxable u/s 112A [Since shares are held for 45,000
2 years and STT has been paid]
Less: Set off of short term capital loss 18 20,000 ½
25,000
IV Income from Other Sources
Dividend from Domestic Companies 15,000 ½
Winning from lotteries (Rs. 10,500 + Rs. 4,500) 15,000 1
30,000
Gross Total Income 2,51,000
Less: Deduction under Chapter VI-A
Deduction under section 80C
Principal repayment of housing loan 50,000 ½
Deduction under section 80EE
Interest on housing loan of Rs. 60,000 [Rs.2,60,000 – Rs.2,00,000, 50,000 ½
allowed u/s 24(b)] allowable under section 80EE upto Rs.50,000

15
If it is assumed that the entire sales are received by A/c payee cheque or A/c payee draft or ECS or other
electronic prescribed modes on or before due date of filing return of income, the presumptive rate would be 6%.
16
As per section 71(3A)
17
as per section 69C
18
As per section 70(2)

11
Deduction under section 80G
Contribution to Prime Minister’s Relief Fund19 10,000 ½
1,10,000
Total Income 1,41,000

Q.1 Step-3 - 3½ marks S3.-3½ m

Tax Liability
Tax on LTCG of Rs. 25,000 u/s 112A [Exempt upto Rs. 1 lakh] Nil ½
Tax on winning from lotteries of Rs. 15,000 @30% 4,500 ½
Tax on unexplained expenditure of Rs. 48,000 @60% 28,800 ½
Tax on balance income of Rs. 53,000 Nil
33,300
Add: Surcharge @25% on tax on unexplained expenditure of Rs. 7,200
28,800
40,500
Add: Health and education cess @4% 1,620
Tax Liability 42,120 ½
.1 Step-4 2 marks
Q.1 Step-4 - 2 marks S4.-2m

Total Marks 15
Note to Examiner – Alternatively, it is possible to assume that the salary not recorded in the books of account
was an erroneous omission and the assessee has offered satisfactory explanation about the source of such
expenditure. In such a case, it would not be considered as deemed income and the same would be allowed as
deduction while computing business income on the basis of books of accounts.
However, in case of presumptive provisions, the assessee would be deemed to have been allowed all the
deductions / expenditures under section 30 to 38, therefore, no further deduction for salary paid shall be allowed to
him under presumptive provisions of section 44AD.
The relevant figures and the marks allocation would be as under:
(i) Salary to Staff – (-)Rs.48,000 i.e. to be reduced while computing the income u/h PGBP on the
basis of books of accounts – ½ mark
(ii) Tax liability – Rs.4,680 – 1 mark *
Hence, due credit may be given to the candidate where he/she has specifically stated this assumption and
answered accordingly.

*Please note that in the alternate solution i.e.as per presumptive provisions under section 44AD , ½ mark has
been allotted for correctly computing Tax on unexplained expenditure as Rs.28,800/- and a further ½ mark
has been allotted for correctly computing Tax Liability as Rs.42,120. However, where a candidate has made
an assumption that the salary not recorded in the books of account was an erroneous omission and the
assessee has offered satisfactory explanation about the source, then he/she is not required to compute Tax
on unexplained expenditure i.e. Rs.28,800/-. Hence, in such a case full 1 mark may be awarded where the
candidate has correctly computed the tax liability as Rs.4,680 under such assumption.

19
Assuming contribution is made otherwise than by way of cash

12
Alternate presentation of Step-1 and Step-2 in Alternate Solution – Solved by taking
the Sales / Turnover from business and then deducting the allowable expenditure for computing
income under the head Profits and gains of business or profession. In that case, the presentation of Step-1
and Step-2 of the Alternate Solution will change as under:

Computation of total income and tax liability of Mr. Sahil for A.Y. 2024-25
as per presumptive provisions under section 44AD

Particulars Rs. Rs. Marks

I Income from house property
Annual value of self-occupied property Nil
Less: Deduction
Interest on housing loan of Rs. 2,60,000 restricted to Rs.2,00,000 2,00,000 ½
(2,00,000)
II Profits and gains of business or profession
Sales 43,50,000
Add: Closing Stock 2,00,000
45,50,000
Less: Expenses to the extent allowable
- Opening Stock 71,000
- Purchase of Raw Materials 17,20,500
- Administrative Ch.[Comm. paid to a related person / relative 2,80,000 ½+½
to the extent it is excessive to market rate is disallowed]
- Manufacturing Wages & Expenses [Cash payment of 5,80,500 ½+½
Rs.33,000 to a Transport Carrier is allowed since the limit for
one time cash payment is Rs. 35,000 in respect of payment to
transport operators]
- Interest to bank on term loan [Interest paid to bank after the 20,000 ½+½
due date of filing of return under section 139(1) is disallowed]
- Miscellaneous Expenses [Contribution to Prime Minister’s 1,40,500 ½
Relief Fund is not allowable since the same is not incurred
wholly and exclusively for business purpose]
- SGST Penalty paid [SGST penalty paid is not compensatory in Nil ½
nature and therefore, not allowable]
- GST Paid 1,10,000
- General Expenses 55,000
Q.1 Step-1 - 4 ½ marks S1-4½m

- Loss on sale of shares Nil ½

15,72,500
Add: Other Incomes
- Dividend from Domestic Companies Nil ½
- Winnings from lotteries Nil ½
- Profit on sale of shares Nil ½
15,72,500
Less: Depreciation allowable as per Income-tax Rules,1962 2,25,000 1½

13
13,47,500
[8% of sales i.e. Rs. 43,50,000 x 8% assuming entire amount of
20 3,48,000 ½
sales are not received by A/c payee cheque or A/c payee draft or
ECS or other electronic prescribed modes]

Business Income 3,48,000

Less: Set off of loss from house property 2,00,000 ½
1,48,000
Add: Salary paid to staff not recorded in the books [Assuming the 48,000 ½
expenditure is in the nature of unexplained expenditure (since 1,96,000
nothing has been mentioned about the source of expenditure),
hence, is deemed to be income of Mr. Sahil. No deduction would be
allowed in respect of such expenditure.] – (For Alternate
treatment, please see Note to Examiner, above).

Q.1 Step-2 - 5 marks S2.-5m

Please note that there would be no change in Step-3 and Step-4 in case a candidate has solved the question
by taking the Sales / Turnover from business and deducted the allowable expenditure for computing income
under the head Profits and gains of business or profession.

20
If it is assumed that the entire sales are received by A/c payee cheque or A/c payee draft or ECS or other
electronic prescribed modes on or before due date of filing return of income, the presumptive rate would be 6%.

14
Answer to Q. 2 (a)

Computation of total income of Mr. Tilak for the A.Y. 2024-25

(if he is Resident and Ordinarily Resident - ROR)
Particulars Rs. Marks
a) Remuneration for services rendered in Malaysia. 50,000 ½
Global income is taxable in case of a ROR.
(For Alternate Answer, please see Note to Examiner below)

b) Profit from business in England controlled from Bombay. 3,00,000 ½

Global income is taxable in case of a ROR.

c) Past untaxed profits earned in Singapore and brought to India in Nil ½

current year

d) Capital gain on sale of land in India but received in Malaysia 2,00,000

Deemed to accrue or arises in India, since the property is situated in India.

e) Income from agricultural land in Nepal, received there. 18,000 ½

Global income is taxable in case of a ROR

f) Interest on saving bank deposit in SBI.

Taxable since it is deemed to accrue or arises in India. 12,000

Gross Total Income 5,80,000

Less: Deduction under Chapter VI-A

Deduction under section 80C - For repayment of housing loan 50,000

Deduction under section 80TTA - Interest on savings bank account subject

to a maximum of Rs. 10,000 10,000
Total Income 5,20,000

Note to Examiner – Regarding remuneration for services rendered in Malaysia, since the word used is
“remuneration”, due credit may also be given to the candidate who has assumed that such amount is taxable as
“Salaries” and provided the standard deduction of Rs. 50,000. Although such assumption is not required to be
specifically stated by the candidate, however, the marks are to be awarded only when the deduction is
clearly stated and also the taxable remuneration is shown as Nil. Consequently, total income in case of ROR
would be Rs. 4,70,000 instead of Rs.5,20,000.
Q.2(a) Step-1 - 2 marks S1.- 2m.

……….continued

15
. Answer to Q. 2 (a)….. continued from previous page

Computation of total income of Mr. Tilak for the A.Y. 2024-25

(if he is Resident but Not Ordinarily Resident - RNOR)
Particulars Rs. Marks
a) Remuneration for services rendered in Malaysia. Nil ½
In case of RNOR, remuneration would not be taxable in India since neither
services are rendered in India nor remuneration received in India.

b) Profit from business in England controlled from Bombay 3,00,000 ½

In case of RNOR, whole profits of Rs. 3,00,000 from business in England
is taxable since business is controlled from India.

c) Past untaxed profits earned in Singapore and brought to India in Nil ½

current year

d) Capital gain on sale of land in India but received in Malaysia 2,00,000 ½

Deemed to accrue or arises in India, since the property is situated in India.

e) Income from agricultural land in Nepal, received there. Nil ½

In case of RNOR, it would not be taxable in India, since neither it is deemed
to accrue or arise in India nor received in India.

f) Interest on saving bank deposit in SBI.

Taxable since it is deemed to accrue or arises in India. 12,000 ½

Gross Total Income 5,12,000

Less: Deduction under Chapter VI-A

Deduction under section 80C - For repayment of housing loan 50,000 ½

Deduction under section 80TTA - Interest on savings bank account subject 10,000 ½
to a maximum of Rs. 10,000
Total Income 4,52,000

Q.2(a) Step-2 - 4 marks S2.- 4m.

Total Marks 6

16
Answer to Q. 2(b)

Marks

(i) ABC Limited is required to deduct tax at source under section 194-I @ 10% on rent of Rs. 75,000 per ½
month exclusive of GST component, since the aggregate rent of Rs. 9,00,000 during the financial year
exceeds the threshold limit of Rs. 2,40,000. ½

Hence, TDS in this case would be Rs.90,000. ½

Tax has to be deducted at the time of payment or credit, whichever is earlier. ½

(Note to Examiner - Where a candidate has not computed TDS amount as Rs.90,000 but has clearly
stated that TDS is applicable on Rs.9,00,000 @ 10%, then ½ mark allocated for Rs.90,000 may still be
awarded).

(ii) XYZ Pvt. Ltd. is not required to collect tax at source on sale of car of Rs.4,00,000 to Mrs. Anju since its
value does not exceed Rs. 10 lakhs ½
However, it is required to collect tax at source u/s 206C(1F) @ 1% on the total sale consideration of ½
Rs.12 lakhs since the value of this car exceeds Rs. 10 lakhs.

Hence, TCS in this case would be Rs.12,000. ½

Tax has to be collected at the time of receipt of Rs. 12 lakhs. ½

(Note to Examiner - Where a candidate has not computed TCS amount as Rs.12,000 but has clearly
stated that TCS is applicable on Rs.12,00,000 only @ 1%, then ½ mark allocated for Rs.12,000 may
still be awarded)

Q.2(b) Step-1 - 4 marks S1.- 4m.

Total Marks 4

17
Answer to Q.3(a)(i)

Particulars Rs. Marks

In the present case, the amount of advance of Rs. 2,00,000 received by Mr. Ravi 1,00,000 ½
from closely held manufacturing company would be deemed as dividend to the ½
extent of accumulated profit of Rs. 1,00,000, since Mr. Ravi holds 22% shareholding
in the company which is not less than 10% of the voting power in the company. ½

Accordingly, deemed dividend of Rs. 1,00,000 would be taxable in the hands of Mr.
Ravi under the head “Income from Other Sources” for the A.Y. 2024-25. ½

Q.3(a)(i) Step-1 - 2 marks S1.- 2m.

Total Marks 2

Answer to Q.3(a)(ii)

Computation of deduction allowable u/s 35 for the A.Y. 2024-25

Particulars Rs. Marks

(i) Revenue expenditure on scientific research allowable as deduction21, assuming 1,00,000 ½
such expenditure is related to his business
(ii) Capital expenditure allowable as deduction22, assuming such expenditure is 3,00,000 ½
incurred for his business
(iii) Contribution to notified approved research association for scientific research – 1,50,000 ½
100% of the amount paid is allowed as deduction23
(iv) Amount paid to H Ltd., an Indian company approved by the prescribed authority 2,50,000 ½
- 100% of the amount paid is allowed as deduction24
(v) Expenditure towards purchase of land – not allowed as deduction Nil ½
(vi) Revenue expenditure towards salary of research staff incurred in the F.Y. 2022- 2,00,000 ½
23 (before commencement of business) – allowed as deduction25 in the P.Y.
2023-24 as it was expended within the 3 years immediately preceding the ½
commencement of business (assuming business is commenced during the P.Y.
2023-24).
Note to Examiner- Since the date of commencement of business is not given in
the question, it is possible to assume that the business is commenced
during the F.Y. 2022-23 itself. In such a case, deduction for revenue
expenditure incurred towards salary of research staff in F.Y. 2022-23 before
commencement of business would have been allowed in the F.Y. 2022-23.
Accordingly, total deduction allowable u/s 35 for the A.Y. 2024-25 would be Rs.
8,00,000. Due credit may be given to the candidate who have specifically
stated this assumption and answered accordingly.
Total deduction allowable 10,00,000 ½

Q.3(a)(ii) Step-1 - 4 marks S1.- 4m.

Total Marks 4

21
u/s 35(1)(i)
22
u/s 35(1)(iv)
23
u/s 35(1)(ii)
24
u/s 35(1)(iia)
25
u/s 35(1)(i)

18
Answer to Q. 3(b)
Computation of Taxable Capital Gains for A.Y.2024-25
Particulars Rs. Marks

Full Value of Consideration 75,00,000

Less: Expenditure in connection with transfer 50,000 ½
Net Sales Consideration 74,50,000
Less: Indexed cost of acquisition [Rs. 13,00,000 (higher of actual cost to the 45,24,000 1
previous owner of Rs. 10 lakhs and Fair market value as on 1.4.2001 of Rs. 13
lakhs) x 348/100]

Less: Indexed cost of improvements [Rs. 10 lakhs x 348/220] 15,81,818 1

13,44,182
Less: Exemption u/s 54 – in respect of residential house purchased on 20.12.2023 12,00,000 ½

Taxable Long Term Capital Gains 1,44,182 ½+½

Total Marks 4
Note to Examiner – In the above solution, the Indexed cost of acquisition has been worked out on the basis of the
view expressed by Bombay High Court in CIT v. Manjula J. Shah 16 Taxman 42, wherein it was held that
Indexed cost of acquisition in case of gifted asset has to be computed with reference to the year in which the
previous owner first held the asset and not the year in which the assessee became the owner of the asset.
However, as per the plain reading of the provisions of section 48, the indexed cost of acquisition would be
determined by taking the Cost Inflation Index (CII) for the year in which the asset is first held by the assessee
i.e. F.Y.2009-10 in this case. Hence, due credit should be given to the candidate who has worked out the
Indexed cost of acquisition by taking the CII of F.Y.2009-10. In such case, the Indexed cost of acquisition
would Rs. 30,56,757 (Rs. 13,00,000 x 348/148) and taxable long term capital gains would be Rs. 16,11,425.
Please note that in this question, the candidate is not expected to expressly state whether he/she is relying
on the rationale of the Bombay High Court in CIT v. Manjula J. Shah 16 Taxman 42 OR on the plain
reading of the provisions of section 48 for computing the Indexed Cost of acquisition.

Q.3(b) Step-1 - 4 marks S1.-4m.

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Answer to Q.4(a)

Computation of total income of Mr. Joshi for the A.Y.2024-25

Particulars Rs. Marks
Income from house property 2,00,000
Less: Set-off of brought forward loss from house property of A.Y. 2021- 2,00,000 ½
22 is allowed, since 8 years period not yet lapsed Nil

Profits and gains from business or profession

Income from proprietary business 3,00,000
Less: Set off of brought forward business loss of A.Y. 2013-14 not Nil ½
allowable as 8 years’ time has already lapsed in the A.Y. 2021-22

Less: Set off of unabsorbed depreciation of A.Y. 2014-15 1,00,000 ½

[Note to Examiner – Alternatively, unabsorbed depreciation can be set- 2,00,000
off against short-term capital gains]

Capital Gains
Short-term capital gain on sale of land 2,00,000
Less: Set-off of short-term capital loss on sale of listed equity shares 75,000 ½
1,25,000
Brought forward long-term capital loss is not allowed to be carried forward
and set-off, since return of income for the A.Y. 2018-19 was filed after the ½
due date of filing return of income.

Income from Other Sources

Interest on fixed deposit not includible in the hands of Mr. Joshi since Nil ½
his son is major
Gross Total Income 3,25,000
Less: Deduction under Chapter VI-A Nil
Total Income 3,25,000 ½

Q.4(a) Step-1 - 3½ marks S1.-3½ m.

Items eligible for carried forward Marks

(i) Loss from speculation business of Rs. 40,000 can be set-off against income from speculation ½
business only. Hence, such loss would be carried forward to subsequent assessment year. ½

(ii) Loss from owning and maintenance of race horses Rs.50,000, can be set-off against income ½
from income from owning and maintenance of race horses only. Thus, such loss would be
carried forward to subsequent assessment year. ½

(iii) Brought forward loss from house property can be set off only against income of house property.
Hence, remaining loss of Rs. 50,000 has to be carried forward to subsequent assessment year. ½

Q.4(a) Step-2 - 2½ marks S2.-2½ m.

Total Marks 6

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Answer to Q.4(b) [First Alternative]

Marks

(i) In this case, Mr. Aneesh is not required to file return of income, since his total income ½
does not exceed Rs. 3,00,000, being the basic exemption limit as per the default tax ½
regime u/s 115BAC, assuming Mr. Aneesh has not claimed any deduction u/s
54/54D/54EC or 54F and deduction allowable under Chapter VI-A.

(ii) In the present case, since Smt. Patel, a senior citizen has a TDS credit of Rs. 55,000,
which exceeds the threshold limit of Rs. 50,000, she is required to file her return of 1+½
income even if it is assumed that her total income does not exceed the basic exemption
limit.

(iii) In this case, since Mr. Ajit’s gross receipts from the profession of architect was
Rs. 12,00,000 for the P.Y. 2023-24, which is in excess of Rs. 10 lakhs, hence, he is 1
required to file his return of income though his total income is Rs. 2,25,000 which does ½
not exceed the basic exemption limit.
Q.4(b) (1st alternative) Step-1 - 4 marks S1.-4m.
Total Marks 4

Answer to Q.4(b) [Second Alternative]

Marks
The CBDT has, vide Notification No. 37/2022 dated 21.4.2022, inserted Rule 12AB to provide
that a person, other than a company or a firm, who is not required to furnish a return under
section 139(1), and who fulfils any of the following conditions during the previous year has to file
their return of income on or before the due date in the prescribed form and manner –
(i) if his total sales / turnover / gross receipts, as the case may be, in the business > Rs.
60 lakhs during the previous year; or 1

(ii) if his total gross receipts in profession > Rs. 10 lakhs during the previous year; or
1

(iii) if the aggregate of TDS and TCS during the previous year, in the case of the person, is ½
Rs. 25,000 or more.
However, a resident individual who is of the age of 60 years or more, at any time during
the relevant previous year (or senior citizen) would be required to file return of income
½
only, if the aggregate of TDS and TCS during the previous year, in his case, is Rs. 50,000
or more
(iv) the deposit in one or more Savings bank account of the person, in aggregate, is Rs. 50
lakhs or more during the previous year. ½+½
S1.-4m.
Q.4(b) (2nd alternative) Step-1 - 4 marks
Total Marks 4

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