CA- INTER NOV.

’21 BATCH
TEST OF TAXATION
TOPIC COVERED: PGBP
HELD ON: 03/05/2021
TIME – 1 hr. 30 min. M.M.- 50
SECTION-I Multiple Choice Questions- [16 MARKS]
1. An electricity company charging depreciation on straight line method on each
asset separately, sells one of its machinery in April, 2020 at ₹ 1,20,000. The
WDV of the machinery at the beginning of the year i.e., on 1st April, 2020 is
₹ 1,35,000. No new machinery was purchased during the year. The shortfall
of ₹ 15,000 is treated as - [1 MARKS]
(a) Terminal depreciation
(b) Short-term capital loss
(c) Normal depreciation.
(d) Any of the above, at the option of the assesse

2. Mr. X acquires an asset in the year 2015-16 for the use for scientific research
for ₹ 2,75,000. He claimed deduction under section 35(1)(iv) in the previous
year 2015-16. The asset was brought into use for the business of Mr. X in the
P.Y.2020-21, after the research was completed. The actual cost of the asset to
be included in the block of assets is - [1 MARKS]
(a) Nil
(b) Market value of the asset on the date of transfer to business
(c) ₹ 2,75,000 less notional depreciation under section 32 upto the date of
transfer.
(d) Actual cost of the asset i.e., ₹ 2,75,000

3. Mr. X, a retailer acquired furniture on 10th May 2020 for ₹ 10,000 in cash
and on 15th May 2020, for ₹ 15,000 and ₹ 20,000 by a bearer cheque and
account payee cheque, respectively. Depreciation allowable for A.Y. 2021-
22 would be – [1 MARKS]
(a) ₹ 2,000 (b) ₹ 3,000 (c) ₹ 3,500 (d) ₹ 4,500

4. The W.D.V. of a block (Plant and Machinery, rate of depreciation 15%) as on

1.4.2020 is ₹ 3,20,000. A second hand ‘machinery costing ₹ 50,000 was
acquired on 1.9.2020 through account payee cheque but put to use on
1.11.2020. During Jan 2021, part of this block was sold for ₹ 2,00,000. The
depreciation for A.Y.2021-22 would be – [1 MARKS]
(a) ₹ 21,750 (b) ₹ 25,500 (c) ₹ 21,125 (d) ₹ 12,750

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5. “LUX Enterprise” a proprietorship firm of Mr. Lucifer Mornigstar, a resident
individual, in Maharashtra engaged in business of printing and publishing.
The following details pertain to the assets of the business:[4 X 2= 8 MARKS]
Particulars Date of Date of put Amount
purchase to use

Office building superstructure 30.09.2020 30.12.2020 1,85,00,000

constructedon leased land
BMW M4 convertible car 23.08.2019 25.08.2019 94,80,000

Machineries used in printing and 25.09.2020 15.10.2020 9,12,500

publishingprocess
Notes:
(1) Car is also used for personal purposes; disallowance for personal use
may be taken at 20%.
(2) Written down value of Plant & Machinery (Depreciable @15%) as on
1.4.2020 is ₹ 1,45,00,000.
Based on the facts of the case scenario given above, choose the most
appropriate answer to the following questions, assuming all the
aforementioned assets are purchased through account payee cheque:

I. What would be the amount of depreciation allowable on plant and

machinery (@15%) for the previous year 2020-21?
(a) ₹ 24,25,938
(b) ₹ 23,34,688
(c) ₹ 24,94,376
(d) ₹ 24,03,126

II. What would be the WDV of plant and machinery

Depreciable@15%) as on 1.4.2021?
(a) ₹ 1,29,86,562
(b) ₹ 1,29,18,124
(c) ₹ 1,30,77,812
(d) ₹ 1,21,65,312

III. What would the WDV of Office building superstructure constructed

on leased land as on 1.4.2021?
(a) ₹ 1,85,00,000
(b) ₹ 1,66,50,000
(c) ₹ 1,75,75,000
(d) ₹ 1,57,25,000

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 IV. What would be the amount of depreciation allowable on BMW M4
convertible car for the previous year 2020-21?
(a) ₹ 22,75,200
(b) ₹ 11,37,600
(c) ₹ 10,01,088
(d) ₹ 17,29,152

6. Expenditure incurred on family planning amongst the employees is allowed

to [1 MARKS]
(a) any assessee
(b) a company assesse
(c) an assessee which is a company or Cooperative Society
(d) an individual or HUF

7. Expenditure incurred on purchase of animals to be used by the assessee for

the purpose of carrying on his business & profession is subject to [1 MARKS]
(a) depreciation
(b) deduction in the previous year in which animal dies or become
permanently useless
(c) nil deduction
(d) deduction over a period of 5 years

8. Interest on money borrowed for the purpose of acquiring a capital asset

pertaining to the period after the asset is put to use is to be: [1 MARKS]
(a) capitalized
(b) treated as revenue expenditure
(c) either capitalized or treated as revenue expenditure
(d) capitalized to the extent of 50% and balance 50% is to be treated as
revenue expenditure

9. In case the assessee follows mercantile system of accounting, bonus or

commission to employee are allowed as deduction on: [1 MARKS]
(a) due basis
(b) payment basis
(c) due basis but subject to section 43B.
(d) due or payment basis, at the option of the assesse

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SECTION-II Descriptive Type Questions
1. X furnishes the following particulars for the previous year relevant to the
assessment year 2021-22:
Profit and loss A/c for the year ending 31-03-21
Particular Rs. Particular Rs.
To salary to staff 22,000 By gross profit 2,50,000
To entertainment expenses 13,000
To general expenses 11,000
To bad debts 4,500
To reserve for bad debts 10,000
To advertisement 7,000
expenses
To interest on X’s capital 3,000
A/c
To expenditure on 28,000
acquisition of patents
To telephone expenses 12,000
To depreciation 10,000
To provision for income 4,000
tax
To net profit 1,25,500
2,50,000 2,50,000
Other Information
1. Salary to staff includes salary paid to a relative which is unreasonable to
the extent of Rs. 3,100
2. Provision for income-tax is excessive to the extent of Rs. 3,000.
3. Depreciation on tangible assets according to the income-tax provisions
comes to Rs. 9,500.
4. During the P.Y. 2020-21 the following payments were made and the same
have not been debited to profit and loss account of 2020-21.
(a) Rs. 3,000 paid on 10.10.2020 on account of outstanding customs duty
of the previous year 2019-20 and
(b) Rs. 5,000 paid on 15.12.2020 on account of outstanding GST of the
previous year 2018-19.
5. Patents were acquired on 4.11.2020.
Find out the taxable income of X for the assessment year 2021-22. Due date
of filling return of income of assessment years 2020-21 and 2021-22 is 31st
October of the relevant assessment year. [8 MARKS]

2. Examine with reasons, the allowability of the following expenses incurred

by Mr. Manav, a wholesale dealer of commodities, under the Income-tax Act,
1961 while computing profit and gains from business or profession for the
Assessment Year 2021-22. [8 MARKS]

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 (i) Construction of school building in compliance with CSR activities
amounting to ₹ 5,60,000.
(ii) Purchase of building for the purpose of specified business of setting up
and operating a warehousing facility for storage of food grains
amounting to ₹ 4,50,000.
(iii) Interest on loan paid to Mr. X (a resident) ₹ 50,000 on which tax has
not been deducted. The sales for the previous year 2019-20 was ₹ 202
lakhs. Mr. X has not paid the tax, if any, on such interest.
(iv) Commodities transaction tax paid ₹ 20,000 on sale of bullion.

3. Examine, with reasons, the allowability of the following expenses under the
Income- tax Act, 1961 while computing income from business or profession
for the Assessment Year 2021-22: [6 MARKS]
(i) Provision made on the basis of actuarial valuation for payment of
gratuity ₹ 5,00,000. However, no payment on account of gratuity was
made before due date of filing return.
(ii) Tax on non-monetary perquisite provided to an employee ₹ 20,000.
(iii) Payment of ₹ 50,000 by using credit card for fire insurance.
(iv) Salary payment of ₹ 4,00,000 to Mr. X outside India by a company
without deduction of tax assuming Mr. X has not paid tax on such
salary income.
(v) Payment made in cash ₹ 30,000 to a transporter in a day for carriage of
goods
4. R Ltd. Constructed a building and started operating a hotel of 3 star category
w.e.f. 1.4.2020. The company incurred the following expenditure in this
connection
1. Capital expenditure (including cost of land Rs. 50 Rs. 1,10,00,000
lakhs) incurred during December, 2019 to March
2020 which were capitalized in the books of account
31.3.2020
2. Capital expenditure incurred during previous year Rs. 1,40,00,000
2020-21(it includes Rs. 20 lakhs paid for Goodwill
and Rs. 2,00,000 paid in cash for purchasing
machine)
Compute the deduction available under section 35AD in the assessment year
2021-22. [6 MARKS]
5. (a) Compute the deduction allowable under section 35D on the basis of the
following information submitted to you.
Preliminary expenses incurred Rs. 2,40,000
Cost of project Rs. 40,00,000
(b) What will be your answer if the above preliminary expenses have been
incurred by R. Ltd. & the capital employed is Rs. 46,00,000. [6 MARKS]

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