CA Final :: Direct Taxes : November 2004

A & Co. Limited, engaged in the business of manufacturing, shows a net profit of Rs. 65.00 lacs for the financial year ended 31-3-2004. A scrutiny of the Profit & Loss Account revealed the following:

A private limited company has share capital in the form of equity share capital. The shares were held uptil 31st March, 2002 by four members A, B, C and D equally. The company made losses/profits for the past three assessment years as follows:

Given below is the summarized Profit and Loss Account of Sun and Sand Limited, engaged in the business of hotel approved by the prescribed authority:

Compute the amount of deduction that can be claimed by the company under section 80 HHD.

R purchased equity shares in P. Ltd., a constituent of BSE—500 index on Mumbai Stock Exchange on 1st March, 2003. He sold the shares on 4th March, 2004 at a loss of Rs. 10,000. He wants to set off the loss against other long-term capital gain during the year. Examine whether such set off is permissible. Both purchase and sale transactions were entered into on recognized stock exchange.

Dinesh, an individual engaged in the business of finance advances Rs. 5 lacs to his HUF on interest at 12% p.a., which is the prevailing market rate. The HUF invests the amount in its business and earn profit of Rs. 2 lakhs from this money. Can the assessing officer add a sum of Rs. 1,40,000 (i.e. Rs. 2,00,000-Rs. 60,000) as income of Dinesh under section 64(2) of the Income-tax Act? Will the position remain the same, if Dinesh does not charge any interest?

A domestic company is liable to pay minimum alternate tax under section 115JB for the Assessment Year 2003-04. While computing book profit under section 115JB the company claims provision for deferred tax charged to Profit & Loss account in accordance with Accounting Standard-22 of the Institute of Chartered Accountants of India, which is sought to be disallowed by the Assessing Officer. On what grounds you can contest such disallowance?

J field a return of income for the Assessment Year 1999-2000, in due time disclosing a total income of Rs. 4 lakhs. The taxes due on the income were covered by taxes deducted at source, advance tax self-assessment tax.

The return was taken for security by the assessing officer, who made large additions to the income inclosed by J. On appeal, the High Court set aside the order of assessment and directed or fresh assessment to be made after hearing the parties. The court order had become final since neither party and preformed on appeal against it.

The assessing officer did not make any fresh assessment with the result that the assessment become based by time.

J has filed a petition that since no assessment of his income had been made by the assessing officer the entire taxes paid, including the pre-assessment payments, must be refunded to him.

As assessment was completed by the Assessing Officer under section 143(3) on the basis of return submitted and other information furnished by the assessee. The Assessing Officer accepted the cost of the land after waiting for a reasonable period for report of the valuation officer to whom a reference was made. Subsequent to receiving the report from the valuer, it revealed that there was a variation by about Rs. 3.00 lacs. On the basis of this valuation report, the Commissioner issued notice under section 263 to set aside the completed assessment.

M filed return of income for Assessment Year 2003-04 claiming a refund of Rs. 45,000. The said refund was granted and paid to the assessee on 1st March, 2004 after processing the return under section 143(1). Later on the case was taken up for regular assessment by issue of notice under section 143(2) and the said assessment was completed on 16th August, 2004 resulting in demand of Rs. 2500. Is the assessee liable to interest on the amount of refund already granted to him and if so, what is the amount of interest?

A search was initiated in the premises of an assessee on 11th November, 2003 and it was concluded on 14th November, 2003. What is the period of limitation for issue of notice for making assessment of preceding six assessment years? In case assessment under Section 143(3) for assessment year 2001-02 and appeal before CIT(A) for assessment year 1999-2000 are pending on 11th November, 2003, what would be the fate of such pending assessment and appeal?

A company engaged in the manufacturing of pharmaceutical products, commenced its business on 1.4.2003. During the financial years 2000-01 to 2002-03 it had incurred Rs. 2.00 lacs annually as expenditure on salaries and purchase of raw materials for the purpose of research connected with its business. During the previous 2003-04, it incurred on scientific research, revenue expenditure of Rs. 2.00 lacs and a capital expenditure of Rs. 3.50 lacs on purchase of plant and machinery. Since the result of the research was unsuccessful, the company sold it plant and machinery on 31.12.2003 for Rs. 8.00 lacs and closed its research activity. Compute the admissible deduction under Section 35 for the assessment year 2004-05.

A company engaged in textile manufacturing, debited to its Profit & Loss Account a sum of Rs. 60,000 being the interest on loan of Rs. 6,00,000 taken for financing its expansion scheme. The plant and machinery for the project purchased with the loan were not received during the year and those were still in transit at the end of the year. A sum of Rs. 6,000 was paid to a broker who arranged the loan. Discuss the admissibility or otherwise of the interest on borrowing.

R & Co. is a partnership firm consisting of two partners R and S. The partners decide to dissolve the firm on 31.3.2004. The firm owns a land which was purchased 15 years back. One of the decisions taken in the scheme of dissolution was that the land, whose present market value was ascertained at Rs. 15,00,000, would be given to S. A suggestion was made to the firm that instead of making an allotment at the time of dissolution, the firm can gift the land to S by making book entries. Discuss the pros and cons of the decision and advise the firm suitably in this context.

Redemption of preference shares amounts to "transfer" within the meaning of Section 2(47) of the Income Tax Act, 1961 in the hands of the shareholder. Discuss.

S. Ltd. is engaged in export of goods manufactured by it and by others. During a year it has suffered loss in export of trading goods but earned good profit in export of manufactured goods. The company is of the view that it can claim deduction under Section 80HHC in respect of entire profit from export of manufactured goods ignoring the loss from export of trading goods, as Section 80 HHC basically is an incentive provision. Discuss the correctness of the view.

US Ltd., a US company has a subsidiary, IND Ltd. in India. US Ltd. sells computer monitors to IND Ltd, for resale in India. US Ltd, also sells computer monitors to CMI Ltd., another computer reseller. It sells 50,000 computer monitors to IND. Ltd. at Rs. 11,000 per unit. The price fixed for CMI Ltd. is Rs. 10,000 per unit. The warranty in case of sale of monitors by IND Ltd. is handled by IND Ltd. However, for sale of monitors by CMI Ltd. US Ltd. is responsible for the warranty for 3 months. Both US Ltd. and IND Ltd. offer extended warranty at a standard rate of Rs. 1,000 per annum. On these facts, how the assessment of IND Ltd. is going to be affected?

X Limited is engaged in the construction of residential flats. For the valuation date 31.3.2004, it furnishes the following data and requests you to compute the taxable wealth :

The computation should be supported with proper reasoning for inclusion or exclusion.

What are the various circumstances under which an assessee will be deemed to have concealed the particulars of his net wealth or furnished inaccurate particulars thereof?