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Mock Test Paper - Series II: October, 2024
Date of Paper: 4th October, 2024
Time of Paper: 2 P.M. to 5 P.M.
FINAL COURSE: GROUP – II
PAPER – 4: DIRECT TAX LAWS & INTERNATIONAL TAXATION
SOLUTIONS
Division A – Multiple Choice Questions
MCQ No. Most MCQ Most Appropriate Answer
Appropriate No.
Answer
1. (b) 9. (b)
2. (d) 10. (c)
3. (a) 11. (d)
4. (b) 12. (a)
5. (a) 13. (a)
6. (c) 14. (d)
7. (d) 15. (b)
8. (d)

Division B – Descriptive Questions

1. (a) Computation of Total Income of SJ Industries Ltd. for the A.Y.
2024-25
Particulars Amount (`)
I Income from house property
Unrealised rent [Taxable
under section 25A, even if SJ
Industries Ltd. is no longer 3,80,000
the owner of commercial
property]
Less: 30% of above 1,14,000 2,66,000
II Profits and gains of
business and profession
Net profit as per the statement 72,00,000
of profit and loss
Add: Items debited but to be
considered separately
or to be disallowed

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(i) Depreciation as per 24,00,000
Companies Act, 2013
(ii) Interest under section 60,000
234B for short payment
of advance tax
[Any interest payable for
default committed by
assessee for discharging
his statutory obligations
under Income-tax Act,
1961 which is calculated
with reference to the tax
on income is not allowable
as deduction under
section 40(a)(ii). Since the
same has been debited to
statement of profit and loss,
it has to be added back] 1
(iii) Interest and borrowing 2,50,000
cost included in
Opening and Closing
inventory
[As per ICDS II, Interest
and borrowing cost which
does not meet the criteria
for recognition as a
component of the cost,
cannot be included in the
cost of inventory. Since
the same have been
included in the opening
and closing inventory, the
difference between
` 9,50,000, being interest
included in opening
inventory – ` 7,00,000,
being interest included in
closing inventory, has to
be added back]
(iv) Cash payment in excess 19,000
of ` 10,000
[Disallowance u/s 40A(3) is
attracted in respect of
expenditure, for which

1Bharat Commerce and Industries Ltd. v. CIT [1998] 230 ITR 733 (SC)
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payment exceeding
` 10,000 in a day has been
made in cash. Since
expenditure of ` 19,000
towards printing and
stationery items is debited
to the statement of profit
and loss, the same has to
be added back.
However, payment of
` 22,000 to producer for
dairy farming products is
not disallowed since it is
covered under the
exceptions specified in
Rule 6DD]
(v) Repair work paid to 1,05,000
contractor without
deduction of tax at
source
[Disallowance of 30% of
the amount of
` 3,50,000 paid for carrying
out repair work to a
contractor without
deduction of tax at source
would be attracted u/s
40(a)(ia)]
(vi) Expenditure for transfer 35,000
of carbon credits
[Income by way of transfer
of Carbon Credits is
chargeable to tax under
section 115BBG at a flat
rate. No deduction is
allowed under any
provision of the Act in
respect of any expenditure
or allowance in relation
thereto. Since such
expenditure is debited to
the statement of profit and
loss, the same has to be
added back]
(vii)Contribution to electoral 3,00,000
trust

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[Contribution to electoral
trust is not allowable as
deduction from business
profits of the company.
Since the expenditure has
been debited to statement
of profit and loss, the same
has to be added back while
computing business
income]
(viii) Advertisement in 40,000
brochure of a
political party
[Advertisement charges
paid in respect of brochure
published by a political
party is not allowable as
deduction from business
profits of the company as
per section 37(2B). Since
the expenditure has been
debited to statement of
profit and loss, the same
has to be added back
while computing business
income]
(ix) Interest to co-operative 2,60,000
bank not paid on or
before the due date
[Disallowance under
section 43B would be
attracted for A.Y.2024-25,
since the interest was not
paid on or before the due
date of filing of return]
(x) Contribution towards 50,000
pension scheme of
employees
[Contribution towards
pension scheme, referred
to in section 80CCD, of
employees is allowed only
to the extent of 10% of
salary of the employee in
the P.Y. i.e., ` 1,00,000
being 10% of ` 10,00,000.

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Therefore, the excess 35,19,000
contribution of ` 50,000
[i.e., ` 1,50,000 –
` 1,00,000] is disallowed
u/s 36(1)(iva).
1,07,19,000
Add: Amount taxable but not
credited to statement of
profit and loss
A(2) Expenditure pertaining 35,000
to previous financial
year
[Cash payment in excess of
` 10,000 made in the
current year in respect of
expenditure allowed on
mercantile basis in the
previous financial year,
would be deemed as
income in the current year
as per section 40A(3A)]
1,07,54,000
Less: Items credited to
statement of profit and
loss, but not includible
in business income /
permissible
expenditure and
allowances
(i) Unrealised rent 3,80,000
[Unrealised rent in respect
of commercial property is
taxable under the head
“Income for house
property”. Since the said
rent has been credited to
the statement of profit and
loss, the same has to be
deducted while computing
business income]
(ii) Dividend received from 1,60,000
specified foreign
company

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[Dividend received from
specified foreign company
is taxable under the head
“Income from other
sources”. Since the said
dividend has been credited
to the statement of profit
and loss, the same has to
be deducted while
computing business
income]
(iii) Profit from hedging 3,00,000
contract
[Hedging contract is
entered into for
safeguarding against any
loss that may arise due to
currency fluctuation. The
profit from such contract
entered into for meeting
loss in foreign currency
payments towards
imported printing
machinery has to be
adjusted against the cost of
machinery. Since the said
profit has been credited to
the statement of profit and
loss, the same has to be
deducted while computing
business income]
(iv) Interest from bank fixed 1,35,000
deposit
[Interest on fixed deposit
is taxable under “Income
from Other Sources”. Since
the said interest has been
credited to the statement of
profit and loss, the same
has to be deducted while
computing business
income]
A(3) Audit fees of P.Y. 22,500
2022-23
[30% of ` 75,000, being
the audit fees disallowed in

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the P.Y. 2022-23 for non-
remittance of TDS on or
before due date of filing
return of income for P.Y.
2022-23 would be allowed
in the year of payment of
TDS i.e., P.Y. 2023-24]
A(4) Transfer of Carbon
Credits chargeable to Nil
tax under section
115BBG
[Income by way of
transfer of Carbon Credits
chargeable under section
115BBG can be treated as
business income or 9,97,500
income from other
sources, depending upon
the facts of the case. In
this case, since the
question mentions that SJ
Industries Ltd. is engaged
in production and
marketing of diversified
products, it is logical to
assume that the same is in
the nature of business
income. Since the amount
of ` 4 lakh has already
been credited to statement
of profit and loss, no
further adjustment is
necessary]
97,56,500
Less: Depreciation as per
Income tax Rules
A(1) Depreciation under 28,00,000
section 32
Add: Depreciation @7.5% on 6,90,000
` 92 lakhs [` 95 lakhs, being
imported printing machinery -
` 3 lakhs, being profit from
hedging contract] since,
machinery is put to use for less
than 180 days].

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Add: Additional depreciation 9,20,000
@10% on ` 92 lakhs, since
machinery is put to use for less
than 180 days assuming the
conditions for claim of
additional depreciation are 44,10,000
satisfied 2.
Profits and gains from 53,46,500
business or profession
III Income from Other Sources
Dividend from specified 1,60,000
foreign company
Interest from banks on fixed 1,50,000
deposits (Gross) [Interest on
banks on fixed deposits is 3,10,000
taxable as “Income from other
sources”] [`1,35,000 x 100/90]
Gross Total Income 59,22,500
Less: Deduction under
Chapter VI-A
Under section 80GGB 3,40,000
[Contribution by a company to
an electoral trust or registered
political party is allowable as
deduction, since payment is
made otherwise than by cash.
Expenditure incurred by an
Indian company on
advertisement in brochure
published by political party
tantamount to contribution to
such political party]
[` 3,00,000 + ` 40,000]
Total income 55,82,500
2. (a) Computation of “Book Profit” for levy of MAT under section 115JB
for A.Y.2024-25
Particulars ` `
Net Profit as per Statement of Profit and Loss 20,00,000
Add: Net profit to be increased by the following
amounts as per Explanation 1 to section
115JB(2):

2Balance additional depreciation can be claimed in the A.Y.2025-26

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- Provision for the loss of subsidiary 1,70,000
- Provision for doubtful debts, being the 1,75,000
amount set aside as provision for
diminution in the value of any asset
- Provision for income-tax 2,05,000
[As per Explanation 2 to section 115JB,
income-tax shall include, inter alia, any
interest charged under the Act, therefore,
whole of the amount of provision for
income-tax including ` 55,000 towards
interest payable has to be added back]
- Depreciation 4,60,000
10,10,000
30,10,000
Less: Net profit to be decreased by the following
amounts as per Explanation 1 to section
115JB:
- Share in income of an AOP as a 2,00,000
member
[In a case, where AOP has paid tax on its
total income at maximum marginal rate, no
income-tax is payable by the company,
being a member of AOP, in accordance
with the provisions of section 86.
Therefore, share in income of an AOP on
which no income-tax is payable in
accordance with the provisions of section
86, would be reduced while computing
book profit, since the same has been
credited to profit and loss account]
- Income from units in UTI -
[Income from units in UTI not to be
reduced while computing the book profits,
since the same is taxable in the hands of
unitholders]
- Depreciation other than depreciation on
revaluation of assets (` 4,60,000 – 2,10,000
` 2,50,000)
- Unabsorbed depreciation or brought 5,00,000
forward business loss, whichever is
less, as per the books of account.
Lower of unabsorbed depreciation
` 5,00,000 and brought forward business

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loss ` 6,00,000 as per books of accounts 9,10,000
has to be reduced while computing the
book profit]
Book Profit 21,00,000
Computation of MAT liability under section 115JB
Particulars `
15% of book profit 3,15,000
Add: Health & education cess@4% 12,600
Minimum Alternate Tax liability 3,27,600
Notes:
(1) It is only the specific items mentioned under Explanation 1 to
section 115JB, which can be adjusted from the net profit as per the
Statement of Profit and Loss prepared as per the Companies Act
for computing book profit for levy of MAT. Since the following items
are not specified thereunder, the same cannot be adjusted for
computing book profit:
• Interest to financial institution (unpaid before filing of return)
and
• Penalty for infraction of law
(2) Provision for gratuity based on actuarial valuation is an ascertained
liability [CIT v. Echjay Forgings (P) Ltd. (2001) 251 ITR 15 (Bom.)].
Hence, the same should not be added back to compute book profit.
(3) As per proviso to section 115JB(6), the profits from unit established
in special economic zone cannot be excluded while computing the
book profit, and hence, such income would be liable for MAT.
(b) Computation of total income of Mr. Nitin for A.Y.2024-25
Particulars ` `
Income from House Property
Rental income from property in Country X 3 3,60,000
Less: Municipal taxes paid 12,000
3,48,000
Less: Deduction u/s 24(a) @30% 1,04,400
2,43,600

3In the absence of any information relating to fair rent, municipal value and standard rent, rental income
assumed to be gross annual value.
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Profits and gains from business or
profession
Royalty 4 from Country X for writing article in 13,60,000
journals [only the amount which is received
during the previous year is includible, since
he maintains cash system of accounting]
Income from Other Sources
Dividend from M Ltd. an Indian company 5,50,000
Gross Total Income 21,53,600
Less: Deduction under Chapter VI-A
U/s 80E – deduction in respect of
interest on educational loan for his son 36,000
U/s 80QQB – No deduction is allowable
since royalty income is for writing articles -
in journals and newspapers and not for 36,000
writing books
Total Income 21,17,600
Computation of net tax liability of Mr. Nitin for A.Y.2024-25
Particulars `
Tax on total income [30% of ` 11,17,600 + ` 1,12,500] 4,47,780
Add: Health and education cess @4% 17,911
4,65,691
Less: Relief under section 91 -
Average rate of tax in India [[i.e., 21.991%
` 4,65,691/21,17,600 x 100]
Average rate of tax in Country X 15%
Doubly Taxed income [Rental income of 16,03,600
` 2,43,600 + royalty income of
` 13,60,000]
Deduction under section 91 on ` 16,03,600 @15%,
being lower average Indian tax rate and foreign tax rate. 2,40,540
Net tax liability 2,25,151
Net tax liability (rounded off) 2,25,150
3. (a) As per section 115TD, the accreted income of “M/s SN Charitable Trust”,
registered under section 12AB would be chargeable to tax at maximum
marginal rate @ 34.944% [30% plus surcharge @12% plus cess@4%] for

4 Royalty can also be shown under the head “Income from other sources” instead of “Profits and gains

from business or profession.

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the reason of cancellation of registration.
Computation of exit tax payable by M/s SN Charitable Trust
Particulars Amount (`)
Aggregate FMV of total assets as on 31.1.2024, being 12,85,00,000
the specified date (date of order of cancellation of the
registration) [See Working Note 1]
Less: Total liability computed in accordance with the
prescribed method of valuation [See Working Note 2] 3,05,00,000
Accreted Income 9,80,00,000
Tax Liability @ 34.944% of ` 9,80,00,000 3,42,45,120
Working Note 1:
Aggregate fair market value of total assets on the
date of cancellation of the registration
Valuation of Land, being an immovable property -
purchased in the year 2009
[Value of land purchased in the year 2009 not includible
in the aggregate fair market value, since the exemption
provisions under section 11 and 12 would apply from
P.Y.2012-13, being the previous year in which
application for registration of trust is made]
Valuation of Land and building, being an immovable 10,50,00,000
property, purchased in 2015
[The fair market value of land and building would be
higher of ` 1,000 lakhs i.e., price that the land and
building would ordinarily fetch if sold in the open market
as per registered valuer’s certificate and ` 1,050 lakhs,
being stamp duty value as on the specified date i.e.,
31.1.2024]
Valuation of Quoted equity shares in M/s XP Ltd. 21,50,000
[2,000 x ` 1,075 per share]
[The fair market value of quoted shares would be
` 1,075 per share, being the average of the lowest
(` 1,051) and highest price (` 1,099) of such shares on
the specified date i.e., 31.1.2024]
Balance in current account of a nationalized bank 10,00,000
Balance in fixed deposits with scheduled banks 2,00,00,000
Cash in hand 3,50,000
12,85,00,000
Working Note 2 - Total liability
Book value of liabilities in the balance sheet on 11,35,00,000
specified date
Less: Capital fund 8,00,00,000

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Less: Contingent liability on estimated basis to 30,00,000
contractor for which no bills are received
Total liability of M/s SN Charitable Trust 3,05,00,000
The latest day on which such tax has to be paid is 14th
April, 2024,
being 14 days from 31.3.3024, the date on which the order confirming
the cancellation is received.
(b) (1) STP Ltd. and Fix Ltd. of Canada are deemed to be associated
enterprises, since Fix Ltd., a Canadian company provides
guarantee for loan of ` 9 crores taken by STP Ltd., which is 15% of
the total borrowings (i.e., not less than 10%) of STP Ltd. i.e., ` 60
crores.
As per section 92B, the transactions entered into between STP Ltd.
and Fix Ltd., two associate enterprises, for sale of bedsheets falls
within the meaning of “international transaction”.
As STP Ltd. has sold similar bedsheets to other dealers, being
unrelated entity, at ` 2,300 per unit, the transactions between STP
Ltd. and such unrelated party can be considered as a comparable
uncontrolled transaction for the purpose of determining the arm’s
length price of the transactions between STP Ltd. and Fix Ltd.
However, such figure needs to be adjusted by the functional
adjustments.
Computation of ALP of transaction between STP Ltd. and
Fix Ltd.
Particulars Amount (in `)
Selling price of each bedsheets to unrelated 2,300
dealers in Canada
Add: Adjustment of cost of credit [STP Ltd. 46
provides credit for 1 month to unrelated
entity whereas it provided credit period of 3
months to Fix Ltd. Therefore, adjustment for
the cost of such credit has to be carried out
to arrive at arm’s length price. (12% x 2,300
x 2/12)]
Arm’s length price of 1 unit of bedsheets 2,346
Arm’s length price of 4 lakh units of bedsheets 93,84,00,000
(A)
Sale price of 4 lakh units of bedsheets by STP 88,00,00,000
Ltd. to Fix Ltd. (associated enterprise) (B) [2,200
x 4,00,000]
Amount to be added to STP Ltd.’s total
5,84,00,000
income by way of ALP adjustment
(2) Where the primary adjustment to transfer price has been made suo
moto by STP Ltd. in its return of income, the time limit for the
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repatriation of such excess money (i.e., ` 584 lakhs) available with
the associated enterprise (i.e., STP Ltd.) is within 90 days from
30.11.2024, being the due date of filing of return u/s 139(1) i.e.,
28.2.2025.
(3) The excess money (i.e., ` 584 lakhs) available with the associated
enterprise (i.e., Fix Ltd.) not repatriated to India within 90 days from
the due date of filing return of income u/s 139(1) would be deemed
as an advance made by the STP Ltd. to its associated enterprise,
Fix Ltd.
Interest would be calculated on such advance at the rate of one
year marginal cost of fund lending rate of SBI as on 1st April of the
relevant previous year i.e., 1.4.2024 + 3.25%, since the
international transaction is denominated in Indian rupee.
Option to pay additional income-tax, if the excess money not
repatriated
STP Ltd. has the option to pay additional income-tax @20.9664%
(tax @18% plus surcharge @12% plus cess@4%) on excess
money (i.e., ` 584 lakhs), in lieu of repatriation of such excess
money.
Where additional income-tax is so paid by STP Ltd., it will not be
required to make secondary adjustment and compute interest from
the date of payment of such tax.
The additional income-tax so paid by STP Ltd. would be treated as
the final payment of tax in respect of excess money not repatriated
and no further credit would be allowed to STP Ltd. or to any other
person in respect of the amount of additional income-tax so paid.
4. (a) (i) Section 194N, provides that every person, including, inter alia, a
banking company, who is responsible for paying, in cash, any sum
or aggregate of sums exceeding ` 1 crore during the previous year
to any person from one or more accounts maintained by such
recipient-person with it, shall deduct tax at source @2% of sum
exceeding ` 1 crore.
In the present case, M/s Kite & Co. LLP has withdrawn ` 1.26 crores
in cash in aggregate during the previous year 2023-24. Since
aggregate amount of cash withdrawals exceed ` 1 crore, bank is
required to deduct tax at source on the amount exceeding ` 1 crore
i.e., ` 26 lakhs though he withdraws ` 68 lakhs for buying
agricultural produce from farmers, agriculturists, being raw material
required for manufacturing of finished products by it.
(ii) Any person responsible for paying interest (other than interest
referred to in section 194LB or section 194LC or section 194LD) or
any other sum chargeable to tax (other than salaries) to a non-
corporate non-resident or to a foreign company is liable to deduct
tax at source at the rates in force.
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Since interest of ` 98,000 on Capital Gains Bond issued by Power
Finance Corporation Ltd. is taxable in the hands of Mr. Ajay, being
a non-resident, the provisions for tax deduction at source under
section 195 are attracted in this case.
(b) When an assessee is in default or is deemed to be in default in making
a payment of tax, the TRO may draw up under his signature a statement
in the prescribed form specifying the amount of arrears due from the
assessee and shall proceed to recover from such assessee the amount
specified in the certificate by inter alia attachment and sale of the
assessee’s movable or immovable property.
The assessee’s movable or immovable property shall include any
property which has been transferred, directly or indirectly by the
assessee to his spouse or minor child or son’s wife or son’s minor child,
otherwise than for adequate consideration, and which is held by, or
stands in the name of any of the persons aforesaid.
In the present case, Mr. Pramod had transferred his land 5 years ago to
his son who was 30 years old at that time. He also gifted a diamond
necklace to his son’s wife on 5.10.2021. He also has bank fixed deposits,
receivables from T & Co. Ltd.
The Tax Recovery Officer can proceed to recover the tax by attaching -
(i) bank fixed deposits,
(ii) receivables from T & Co. Ltd.;
He can also proceed to recover the tax by attaching the diamond
necklace gifted to his son’s wife.
However, he cannot proceed to recover the tax by attaching the land
which he transferred to his son, since at the time of transfer, his son was
major.
(c) If an Indian company, being the borrower, incurs any expenditure by way
of interest in respect of any debt issued by its non-resident associated
enterprise and such interest exceeds ` 1 crore, then, the interest paid or
payable by such Indian company in excess of 30% of its earnings before
interest, taxes, depreciation and amortization (EBITDA) or interest paid
or payable to associated enterprise, whichever is lower, shall not be
allowed as deduction as per section 94B.
Further, where the debt is issued by lender which is not associated
enterprise but an associated enterprise provides an implicit or explicit
guarantee to such lender, such debt shall be deemed to have been
issued by an associated enterprise and limitation of interest deduction
would be applicable.
In the present case, since SAM Ltd., a Country Y company, holds 36%
share in XYZ Ltd., an Indian company, i.e., more than 26% of voting
power, SAM Ltd. and XYZ Ltd. are deemed to be associated enterprise.

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Since loan of ` 120 crores taken by XYZ Ltd., an Indian company from L
& T Inc., Country R company, is guaranteed by SAM Ltd., an associated
enterprise, such debt shall be deemed to have been issued by an
associated enterprise and interest paid or payable to L & T Inc. shall be
considered for the purpose of limitation of interest deduction under
section 94B.
Computation of income under the head profits and gains of
business or profession of XYZ Ltd
Particulars Amount
(in lakhs)
Interest allowable u/s 94B for A.Y. 2023-24
Gross Profit 2,030
Less: Employee benefits expenses 390
EBITDA 1,640
Interest paid or payable to L & T Inc. 562
Lower of the following would be disallowed
- Total interest paid or payable in ` 70 lakhs
excess of 30% of EBITDA [` 562
lakhs – ` 492 lakhs (i.e., 30% of
` 1,640 lakhs)]
- Interest paid or payable to L & T ` 562 lakhs
Inc.
Interest to be disallowed as deduction for A.Y. 70
2023-24, which can be carried forward up to 8
assessment years
Interest allowable u/s 94B for A.Y. 2024-25
Gross Profit 1,780
Less: Employee benefits expenses 402
EBITDA 1,378
Interest paid or payable to L & T Inc. 389
Lower of the following would be disallowed
- Total interest paid or payable in Nil
excess of 30% of EBITDA [` 389
lakhs – ` 413.40 lakhs (30% of
` 1378 lakhs)]
- Interest paid or payable to L & T ` 389 lakhs
Inc.
Interest to be disallowed as deduction for A.Y. Nil
2024-25
Brought forward interest of A.Y. 2023-24 allowed as
deduction against profits and gains of A.Y. 2024-25

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to the extent of maximum allowable interest
expenditure u/s 94B i.e., ` 24.4 lakhs [` 413.40 lakhs
– ` 389 lakhs]
Total interest allowed in A.Y. 2024-25 [` 389 lakhs + 413.40
` 24.40 lakhs)
Balance of amount of interest relating to A.Y. 2023-
24 is eligible for carried forward i.e., ` 45.60 lakhs
(` 70 lakhs minus ` 24.40 lakhs) to 7 more
subsequent assessment years.
Income under the head profit and gains of
business or profession of XYZ Ltd. for A.Y.
2024-25
EBITDA 1,378.00
Less: Interest (maximum interest allowable as 413.40
deduction u/s 94B)
Depreciation (As per the Income-tax Act, 1961) 254.00
710.60
5. (a) (i) Issue Involved: The issue under consideration is whether the arm’s
length price (ALP) determined by the Tribunal, which is the final fact-
finding authority, is final and cannot be the subject matter of scrutiny
by the High Court as it does not give rise to a substantial question of
law.
Relevant provision of law: As per section 260A(1), an appeal
shall lie to the High Court from every order passed in appeal by the
Appellate Tribunal, if the High Court is satisfied that the case
involves a substantial question of law.
Analysis & Conclusion: The High Court have the powers to
consider the substantial question of law involving determination of
arm’s length price (ALP):
- While determining the ALP, the Tribunal has to follow the
guidelines stipulated under Chapter X of the Income-tax Act,
1961, namely, sections 92 to 92F of the Act and Rules 10A to
10E of the Income-tax Rules, 1962. Any determination of the
ALP under Chapter X not in accordance with the relevant
provisions of the Income-tax Act, 1961 and Rules can be
considered as perverse and it may be considered as a
substantial question of law as perversity itself can be said to
be a substantial question of law. Therefore, there cannot be
any absolute proposition of law that in all cases where the
Tribunal has determined the ALP, the same is final and cannot
be the subject matter of scrutiny by the High Court in an
appeal under section 260A.

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When the determination of the ALP is challenged before the
High Court, it is always open for the High Court to consider
and examine whether the ALP has been determined while
taking into consideration the relevant guidelines under the Act
and the Rules.
- The High Court can examine the question of comparability of
two companies or selection of filters and examine whether the
same is done judiciously and on the basis of the relevant
material/evidence on record. The High Court can also
examine whether the comparable transactions have been
taken into consideration properly or not, i.e., to the extent as
to whether non-comparable transactions are considered as
comparable transactions or not.
Therefore, in an appeal challenging the determination of the arm's
length price, it is always open for the High Court to examine in each
case, within the parameters of section 260A, whether while
determining the ALP, the guidelines laid down under the Income-
tax Act, 1961 and the Income-tax Rules, 1962 are followed or not
and whether the determination of the ALP and the findings recorded
by the Tribunal while determining the ALP are perverse or not.
The statement is, therefore, not correct.
Note – The facts given in the question are similar to the facts in
SAP Labs India Pvt. Ltd. v. ITO [2023] 454 ITR 121 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.
(ii) 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.
Relevant provision of law: Section 254(1) empowers the
Appellate Tribunal to pass such order thereon as it thinks fit, after
giving both the parties to the appeal an opportunity of being heard.
Under section 254(2), the Appellate Tribunal, may amend an order
passed by it u/s 254(1) with a view to rectifying any mistake
apparent from the record.
Analysis & 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 Tribunal upholding the order
passed by the Assessing Officer. While allowing the application u/s
254(2) and recalling its earlier order, the Tribunal had reheard the
entire appeal on the merits as if the Tribunal was deciding the
appeal against the order passed by the Commissioner (Appeals).
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The subsequent order passed by the Tribunal 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
Reliance Telecom Ltd./Reliance Communications Ltd. (2022) 440
ITR 1 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.
(iii) Issue Involved: The issue involved in this case is whether Mr.
Yatin’s application, for adjustment of tax liability on income
surrendered during search by sale of seized gold bars, can be
entertained where assessment has not been completed.
Relevant provision of law: The provision contained in section
132B(1) lays down the manner in which the assets seized under
section 132 may be dealt with. An assessee is entitled to make an
application to the Assessing Officer for adjustment of seized assets
towards existing tax liability.
Analysis & Conclusion: Here, the application by the assessee is
not for adjustment of any existing liability, but towards the tax
liability. In the said provision, the expression used is “the amount
of the liability determined”. “A liability is determined” only on
completion of the assessment. Until the assessment is complete, it
cannot be postulated that a liability has been crystallized.
Accordingly, the action of the Assessing Officer rejecting the
application on the ground that such action can be taken only after
the assessment is completed and a demand has been quantified,
is justified.
Note - The facts given in the question are similar to the facts in
Hemant Kumar Sindhi & Another v. CIT (2014) 364 ITR 555
wherein the issue came up before the Allahabad High Court. The
above answer is based on the rationale of the Allahabad High Court
in the said case.
(b) BEPS Action Plan 13 contains a three-tier standardized approach to
transfer pricing documentation which consists of:
(i) Master file: Master file requires MNEs to provide tax
administrations with high-level information regarding their global
business operations and transfer pricing policies. The master file is
to be delivered by MNEs directly to local tax administrations.
(ii) Local file: Local file requires maintaining of transactional
information specific to each country in detail covering related-party
transactions and the amounts involved in those transactions. In
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addition, relevant financial information regarding specific
transactions, a comparability analysis and analysis of the selection
and application of the most appropriate transfer pricing method
should also be captured. The local file is to be delivered by MNEs
directly to local tax administrations.
(iii) Country-by-country (CBC) report: CBC report requires MNEs to
provide an annual report of economic indicators viz. the amount of
revenue, profit before income tax, income tax paid and accrued in
relation to the tax jurisdiction in which they do business. CBC
reports are required to be filed in the jurisdiction of tax residence of
the ultimate parent entity, being subsequently shared between
other jurisdictions through automatic exchange of information
mechanism.
A specific reporting regime in respect of CbC reporting and also the
master file has been incorporated in the Income-tax Act, 1961. The
essential elements have been incorporated in the Income-tax Act, 1961
while remaining aspects would be dealt with in detail in the Income-tax
Rules, 1962.
(i) Section 286 of the Income-tax Act, 1961 contains the provisions
relating to CbC reporting requirement and related matters.
(ii) Section 92D of the Income-tax Act, 1961 contains the provisions
relating to maintenance and furnishing of Master file.
6. (a) In clause 34(a) of Form 3CD, the tax auditor is required to report whether
the assessee is required to deduct or collect tax as per the provisions of
Chapter XVII-B or Chapter XVII-BB, and if yes, to furnish the details
mentioned thereunder. While answering the issue of applicability of the
provisions of Chapter XVII-B and/or XVII-BB, 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 para 3 of 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)(ia) 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.

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(b) Computation of tax liability of SD Ltd. for A.Y. 2024-25 under regular
provisions of the Act
Particulars `
Total Income before allowing additional depreciation 22,00,000
Less: Additional Depreciation u/s section 32(1)(iia)[ ` 12 2,40,000
lakh x 20%]
Total Income 19,60,000
Applicable Tax Rate (since turnover of P.Y. 2021-22 < 25%
` 400 crores)
Tax payable 4,90,000
Add: Health & Education cess@4% 19,600
Tax Liability 5,09,600
Computation of tax liability of SD Ltd. for A.Y. 2024-25 under
section 115BAA
Particulars `
Total Income before allowing additional depreciation 22,00,000
Less: Additional Depreciation u/s section 32(1)(iia) [ not -
allowable as deduction while computing income u/s
115BAA]
Total Income 22,00,000
Applicable Tax Rate 22%
Tax payable 4,84,000
Add: Surcharge@10% 48,400
5,32,400
Add: Health & Education cess@4% 21,296
Tax Liability 5,53,696
Tax Liability (rounded off) 5,53,700
Since tax payable as per the regular provisions of the Act is lower than
the tax payable under the provisions of section 115BAA, it would be
beneficial for SD Ltd. not to opt for section 115BAA.
(c) Computation of total income and tax liability of Strawberry Ltd., a non-
resident German company, for the A.Y. 2024-25
Particulars `
Profits and gains from business or profession
Business Income from a unit established at Mumbai 8,00,000
Income from other sources
- Dividend income from XY Ltd. an Indian company 12,50,000

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- Fees for technical services [would be equivalent 20,00,000
to the amount of debentures of ` 20,00,000
received from an Indian company, issued in
consideration of providing technical knowhow]
- Interest on Debentures [` 20,00,000 x 8% x 6/12] 80,000
- Dividend on Global Depository Receipts (GDRs) 5,50,000
of Y Ltd. an Indian company, issued under a
scheme of Central Government against the initial
issue of Y Ltd. and purchased in foreign currency
by Strawberry Ltd.
- Royalty income received from Z Ltd. an Indian
company in pursuance of an agreement approved
by Central Government 10,00,000
Gross Total Income/ Total income 56,80,000
Computation of tax liability
Dividend income of ` 12,50,000, taxable @20% 2,50,000
u/s 115A
Dividend on GDRs of ` 5,50,000, taxable @10% 55,000
u/s 115AC
Royalty income of ` 10,00,000, taxable @20% 2,00,000
u/s 115A, since it is in pursuance of an agreement
approved by the Central Government
FTS of ` 20,00,000, taxable @40%, since it is not in 8,00,000
pursuance of an agreement approved by the Central
Government
Interest on debentures of ` 80,000, taxable @40%, 32,000
since debt is incurred in Indian currency, it is not
eligible for concessional rate of 20% u/s 115A
Business income of `8,00,000 [taxable @40%] 3,20,000
16,57,000
Add: Health and education cess@4% 66,280
Tax liability 17,23,280

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