Mock Test Paper - Series I: March, 2025

Date of Paper: 17 th March, 2025

Time of Paper: 2 P.M. to 5 P.M.

FINAL COURSE: GROUP - II

PAPER – 4: DIRECT TAX LAWS & INTERNATIONAL TAXATION
Working Notes should form part of the answer. Wherever necessary, suitable assumptions
may be made by the candidates and disclosed by way of a note. However, in answers to
Questions in Division A, working notes are not required.
All questions relate to Assessment Year 2025-26, unless stated otherwise in the question.
Time Allowed: 3 Hours Total Marks: 100 Marks
Division A – Multiple Choice Questions
Write the most appropriate answer to each of the following multiple-choice questions by
choosing one of the four options given. All questions are compulsory.
Case Scenario I
Jandhan co-operative bank provides the following information relating to cash withdrawals by
its two customers during the P.Y.2024-25:
Date of cash withdrawal Mr. Ashok (Savings Mr. Bablu (Current
Account) (`) Account) (`)
05.04.2024 20,00,000 -
10.05.2024 - 18,00,000
25.06.2024 25,00,000 -
17.07.2024 - 5,00,000
28.10.2024 35,00,000 -
10.11.2024 - 38,00,000
12.12.2024 25,00,000 -
02.01.2025 - 37,00,000

Mr. Ashok has been regularly filing his return of income while Mr. Bablu has not filed his return
of income for the last three years. No other co-operative bank customer had withdrawn more
than ` 10 lakhs during the P.Y. 2024-25.

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Mr. Kishor, a Jandhan Cooperative Bank customer, paid ` 12 lakhs out of payments for ` 15
lakhs raised in relation to the credit card account using an account payee check before being
declared bankrupt. In the previous year 2024–2025, the bank's actual bad debts, including those
owed to Mr. Kishore were ` 20 lakhs.
On September 30, 2025, the prescribed income tax authority sent a notification to the
cooperative bank, stating that it was required to provide the statement of financial transactions
by October 30, 2025 as they had failed to do so. The co-operative bank, however, furnished the
statement only on November 25, 2025.
From the information given above, choose the most appropriate answer from MCQ 1 to MCQ 4
below:
1. The amount of income-tax that is required to be deducted by Jandhan co-operative bank
under section 194N during the P.Y.2024-25 in respect of withdrawals by Mr. Ashok and
Mr. Bablu are -
(a) ` 25,000 and Nil, respectively
(b) ` 10,000 and ` 3,90,000, respectively
(c) ` 10,000 and ` 1,56,000, respectively
(d) ` 2,10,000 and ` 1,96,000, respectively
2. Identify the accounts which are required to be reported in relation to the specified
financial transactions in the statement of financial transaction by the Jandhan co-
operative bank, based on the above-mentioned facts, for P.Y. 2024-25.
(a) Only Bablu
(b) Kishor and Bablu
(c) Ashok and Bablu
(d) Ashok, Kishor and Bablu
3. What is the amount of penalty leviable under section 271FA?
(a) ` 1,01,500
(b) ` 1,17,000
(c) ` 89,000
(d) ` 1,02,000
4. Let us assume that, on 26.02.2025, as a result of business reorganisation, Jandhan co-
operative bank got succeeded by Dhanvarsha co-operative bank. Assuming that the

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 deduction allowable u/s 32 for the P.Y. 2024-25 is ` 3,50,000 and that the predecessor
co-operative bank had incurred expenditure of ` 30,00,000 during the P.Y.2022-23 on
voluntary retirement scheme for its employees, what is the aggregate deduction
allowable to predecessor co-operative bank u/s 32 and 35DDA for the P.Y.2024-25?
(a) ` 8,61,507
(b) ` 3,17,397
(c) ` 8,61,507
(d) ` 9,17,397
(2 x 4 = 8 Marks)
Case Scenario II
Xylo Pvt. Ltd.(Xylo) is an Indian company. Yen Inc., (Yen) is a private company incorporated in
the USA and its income is not chargeable to tax in India. Both are promoted by Mr. Aryan who
holds 30% equity share capital and voting power in both Xylo and Yen. The balance sheet of
Xylo as on 31 st March, 2025 is as follows:
Liabilities Amount Assets Amount
(` million) (` million)
Paid up capital 250 Fixed Assets 700
Loans: 800 Investments 300
From Yen Inc. 620 Cash and bank balance 200
From others 180
Current liabilities 150
Total 1,200 Total 1,200

Additional information:
(i) The loan was advanced by Yen Inc. to Xylo on 1st July, 2024 in rupee terms and carries
6.5% p.a. rate of interest. For borrowers with similar risk profile who are not associated
enterprises of Yen Inc., it advances loan at 4% p.a. interest rate.
(ii) Xylo has maintained such information and document in respect of the international
transaction as has been prescribed under section 92D but has not reported the
transaction as an international transaction. Xylo does not make any adjustment to its total
income on account of application of provisions of Chapter X of the Income -tax Act, 1961
in its return of income.

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From the information given above, choose the most appropriate answer from MCQ 5 to MCQ 9
below:
5. Are Xylo and Yen associated enterprises? If so, why?
(i) Yes, Xylo and Yen are associated enterprises because Mr. Aryan holds voting
power of 30% in both the companies.
(ii) Yes, Xylo and Yen are associated enterprises as not less than 75% of Xylo’s total
loans have been availed from Yen.
(iii) Yes, Xylo and Yen are associated enterprises since the loan advanced by Yen to
Xylo is not less than 51% of the book value of Xylo’s total assets.
(iv) No, Xylo and Yen are not associated enterprises
The most appropriate answer is -
(a) Only (i)
(b) (i) and (ii)
(c) (i) and (iii)
(d) Only (iv)
6. What is the amount of primary adjustment required to be made to the total income of Xylo
for A.Y.2025-26?
(a) ` 1,16,25,000
(b) ` 58,12,500
(c) ` 1,55,00,000
(d) ` 77,50,000
7. If Xylo has accepted the primary adjustment made by the Assessing Officer on 31.3.2026,
what should Xylo do if it does not want to treat the excess money as deemed advance?
(a) The excess money which is available to Yen, has to be repatriated to India within
90 days from the due date of filing of return.
(b) The excess money which is available to Yen, has to be repatriated to India within
90 days from the date of order of the Assessing Officer.
(c) Xylo has to pay additional income-tax @20.9664% on the excess money.
(d) Either (b) or (c)

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8. If Xylo has accepted the primary adjustment made by the Assessing Officer on 31.3.2026
and the excess money has not been repatriated into India upto 31.3.2027, what would
be the consequence if Xylo has not opted to pay additional income-tax? Assume that SBI
one-year marginal cost of lending rate is 10% on 1.4.2026 and 11% on 1.4.2027.
(a) Interest of ` 16,56,563 has to be added to its total income for P.Y.2026-27
(b) Interest of ` 11,60,509 has to be added to its total income for P.Y.2026-27
(c) Interest of ` 15,40,313 has to be added to its total income for P.Y.2026-27
(d) Interest of ` 20,53,750 has to be added to its total income for P.Y.2026-27
9. Which factor is relevant in determining whether penalty under section 270A of the
Income-tax Act, 1961 will be leviable in respect of the primary adjustment to Xylo’s total
income?
(a) Since Xylo has maintained information and documents as prescribed under
section 92D, that by itself is sufficient for holding that Xylo has not under-reported
its income
(b) If the Assessing Officer/Transfer Pricing Officer makes adjustment to Xylo’s total
income on account of an international transaction not being in accordance with
arm’s length price, that by itself is sufficient to hold that X has under -reported its
income; consequently, penalty u/s 270A is leviable
(c) Since Xylo has not reported the transaction as an international transaction, Xylo
will be considered to have under-reported its income and penalty will be 50% of
the amount of tax payable on the under-reported income
(d) Since Xylo has not reported the transaction as an international transaction, Xylo
will be considered to have misreported its income and penalty will be 200% of the
amount of tax payable on the misreported income
(2 x 5 = 10 Marks)
Case Scenario III
Wave Inc., a corporation incorporated in Country T, specializes in the manufacturing of
computer hardware components and also owns the online social networking platform Attire.
Smile Ltd., an Indian entity, generally imports computer hardware parts from Wave Inc.
However, during the previous year 2024-25, Smile Ltd. did not procure any computer hardware
parts from Wave Inc. Instead, on 24th July 2024, it made a payment of ₹ 5,50,000 to Wave Inc.
for advertising its business on the Attire platform. However, Smile Ltd. neither deducted tax at
source nor equalisation levy on such payment.

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On 9th November 2024, Wave Inc. sold 3,500 equity shares it held in XYZ Ltd., an Indian
company, for a price of ₹102 per share. These shares were originally acquired by Wave Inc. on
15th April 2011 at a cost of ₹36.40 per share. The purchase and sale of these shares were
carried out through a recognized stock exchange in India, and Securities Transaction Tax (STT)
was duly paid on both the purchase and sale transactions. The Fair Market Value (FMV) of these
shares on 31st January 2018 was assessed at ₹90 per share.
CII for F.Y.2011-12 – 182; F.Y.2024-25 – 363.
Smile Ltd. has received a draft order from the Assessing Officer under Section 144C of the
Income-tax Act, 1961, following adjustments made by the Transfer Pricing Officer to the arm's
length price for the Assessment Year 2024-25. However, Smile Ltd. does not prefer to file the
objection against the draft order before the Dispute Resolution Panel; Instead, it wants to file an
appeal before the CIT (Appeals) under section 246A against the final order received from the
Assessing Officer.
From the information given above, choose the most appropriate answer from MCQ 10 to MCQ
12 below:
10. In respect of payment made by Smile Ltd. for advertising services provided by Wave Inc.,
which of the following statements are correct?
(a) Equalisation levy is not attracted and no penalty leviable for non-deduction
(b) Tax is deductible at source u/s 195 by Smile Ltd. and hence, interest is payable
for non-deduction of TDS
(c) Equalization levy of ` 33,000 is deductible by Smile Ltd. and penalty of ` 1,000
per day is attracted for non-deduction
(d) Equalization levy of ` 33,000 is deductible by Smile Ltd. and penalty of ` 33,000
is attracted for non-deduction
11. Compute the amount of long-term capital gains arising to Wave Inc. on transfer of listed
shares of XYZ Ltd. What would be the tax treatment of such capital gains under the
Income-tax Act, 1961?
(a) ` 42,000. The same would be taxable@12.5% u/s 112A
(b) ` 42,000. However, the said amount would not be subject to any tax.
(c) No capital gain would arise, since cost of acquisition would be ` 102.
(d) ` 1,13,400; However, the said amount would not be subject to any tax.

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12. Which of the following statements are correct, in relation to the remedies available to
Smile Ltd. under the Income-tax Act, 1961, if it is not satisfied with the draft order passed
by the Assessing Officer?
(a) It can file an objection before the Dispute Resolution Panel against the draft
assessment order
(b) It can file an appeal before CIT (Appeals) after getting the final assessment order
(c) Either (a) or (b)
(d) Both (a) and (b)
(2 x 3 = 6 Marks)
13.. Thunder Ltd., an Indian company, had taken on lease a commercial premises for its
operations, with an initial security deposit of ₹ 4.2 crores paid to the lessor at the start
of the lease agreement. After several years, the company decided to vacate the premises
and relocate to a new location. However, a dispute arose between the company and the
lessor concerning the terms for vacating the premises. To avoid prolonged litigation and
expedite the resolution of the issue, Thunder Ltd. agreed to forgo the security deposit of
₹ 4.2 crores. Whether the amount of security deposit foregone by Thunder Ltd. allowable
as deduction while computing business income?
(a) Yes, allowable as deduction as such expenditure is of revenue nature and incurred
on account of dispute
(b) No, deduction would not be allowed as such expenditure is of capital nature
(c) Yes, allowable as deduction over the five years period
(d) Yes, allowable as deduction since the amount of foregone security deposit
becomes the income of lessor.
(2 Marks)
14. Vishwas Trust, a public charitable trust registered under section 12AB of the Income -tax
Act, 1961, operates a hospital offering medical treatment for various diseases. Mr. Arjun,
the son of Mr. Ranbir, the founder of the trust, was admitted to the hospita l for heart
surgery. While the general public is charged ₹ 7.4 lakhs for similar treatment, Mr. Arjun
was charged a concessional fee of ₹3.6 lakhs. The Board of Trustees is concerned that
providing this benefit to a relative of the founder may result in the cancellation of the
trust’s registration under section 12AB and the denial of exemption under section 11 on
the entire income of the trust for the P.Y. 2024-25. Is the opinion of the Board of trustees’,
correct?

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 (a) No; registration cannot be cancelled, however, the exemption under section 11
would be denied to the trust in respect of entire income of the trust for the P.Y.
2024-25.
(b) Yes, registration can be cancelled, and trust would not be eligible for exemption
under section 11
(c) No; registration cannot be cancelled, and entire income is eligible for exemption
under section 11.
(d) No; registration cannot be cancelled, and the value of benefit provided to
Mr. Ranbir would be deemed as income of the trust.
(2 Marks)
15. Mr. Veer, a resident individual aged 45 years, has a total income of ₹ 4,05,00,000 for
A.Y. 2025-26. His income includes a computed salary of ₹ 1,80,00,000, long-term capital
gains of ₹ 60,00,000 taxable at 20% under section 112, and ₹ 45,00,000 under section
112A from a transfer on 23rd December 2024. He also earned short-term capital gains
of ₹1,00,00,000 under section 111A from a transfer on 10th January 2025 and interest
income of ₹ 20,00,000. What would be his tax liability for A.Y.2025-26, assume he has
opt out for the default tax regime u/s 115BAC?
(a) ` 1,20,56,200
(b) ` 1,02,67,400
(c) ` 1,14,33,010
(d) ` 1,14,51,700
(2 Marks)
Division B – Descriptive Questions
Question No. 1 is compulsory
Attempt any four questions from the remaining five questions
1. Narmada Ltd. is engaged in the business of manufacturing car spare parts since 1 st April
2021. Its statement of profit and loss shows a net profit of `350 lakhs for the year ended
31-03-2025, after debiting and crediting the following items:
 Fees of `1 lakh paid to independent directors for attending Board meeting without
deduction of tax at source under section 194J.

 The opening and closing stock for the year were ` 200 lakhs and ` 255 lakhs,
respectively. They were overvalued by 10%.

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  Depreciation provided in accounts as per straight line basis ` 50 lakhs.
 ` 9 lakhs contribution to a National Laboratory approved under section 35(2AA).

 GST of ` 2.10 lakhs, pertaining to P.Y.2024-25, was paid on 27-12-2025.

 The company has also purchased goods of ` 63 lakhs from M/s. Saraswati Ltd. in
which directors have substantial interest. The market value of the goods is ` 58
lakhs.
 The company has made cash payments for purchases of ` 5 lakhs on 17-08-2024
due to cash demanded by the supplier. It also made cash payments to transport
operator for hiring of lorry on the following dates:
06-06-2024 - ` 40,000; 03-07-2024 - ` 35,000; 15-01-2025 - ` 52,000.
 The company has incurred legal expenses of ` 5 lakhs and ` 4 lakhs for issue of
bonus shares and for issue of right shares, respectively.
 Donation paid to a registered political party by way of cheque `17 lakhs
Additional Information:
(i) Normal depreciation allowable as per the Income-tax Rules, 1962 is ` 62 lakhs.
(ii) A debt of ` 4 lakh was claimed as bad debt in the previous year 2022-23. A sum
of ` 2 lakh was recovered during the P.Y. 2024-25. The effect of recovery of bad
debt was not given in books of account.
The total turnover of the company for previous year 2022-23 was ` 390 crores and for
financial year 2023-24 ` 405 crores.
You are required to compute total income of the company as per Income -tax Act, 1961
for the Assessment Year 2025-26 indicating reasons for treatment of each item,
assuming that the company has not opted for special provisions under section 115BAA
or 115BAB. Ignore MAT provisions. (14 Marks)
2 (a) PNG LLP, a limited liability partnership in India, is involved in the development of
software and providing IT-enabled services through two distinct units: Unit A and
Unit B. Unit A is located in a Special Economic Zone (SEZ), while Unit B is situated
in the Domestic Tariff Area (DTA). For the 6th year of its operations, which ended
on 31st March 2025, the LLP has provided the following information related to its
activities and financial performance:

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 Items (Amount in ` Lacs)
Unit A Unit B
Export Turnover 1200 920
Domestic Turnover 200 460
Duty Draw Back 38 38
Profit on sale of Import Entitlement 24 Nil
Salaries paid 540 192
Other expenses 420 473
Net Profit of the year 502 753
Additional Information:
(i) Unit A: Expenses of `24 lacs are disallowable under section 43B and
export sales proceeds received in India amounted to `1040 lacs. Export
sales of `1200 lacs include freight and insurance of `200 lacs and
realization of `1040 lacs includes amount of insurance and freight charges
of `140 lacs.
(ii) Unit B: Export sales received in India was `850 lacs. Expenses charged
and are to be disallowed as per section 40A(3) are of `47 lacs.
Compute tax payable by PNG LLP for the Assessment Year 2025-26. (8 Marks)
(b) Lokesh, who is 50 years old, has been serving as the CEO of Platinum India Ltd.
since April 1, 2019. His total income in India is derived from multiple sources.
During the previous year 2024-25, he receives a salary of ₹ 23 lakhs before any
standard deduction is applied. Additionally, he paid ₹ 1,80,000 towards interest
on loan borrowed for a self-occupied property. Furthermore, he receives
₹ 1,60,000 as interest on bank fixed deposits.
For the year ending 31st March 2025, Lokesh has also earned income from
several sources in Country 'A'. He earned USD 25,000 from his business
operations in Country A and received USD 4,500 as rent from a house property.
Although he paid municipal taxes of USD 450 on the house property, these taxes
are not deductible in Country A. Lokesh also earned a dividend of USD 10,000
from shares held in Country A, which was declared and paid in March 2025.
Additionally, he realized a short-term capital gain of USD 5,000 from the sale of
shares of companies registered in Country A, with the sale proceeds credited to
his bank account outside India on 28th March 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

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 ‘A’. Rate of tax is 20% in Country ‘A’ in respect of all incomes. Income -tax was
paid by Lokesh 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 Lokesh for the A.Y. 2025-26.
Assume Lokesh pays tax under default regime under section 115BAC.
The TT buying rate of 1 USD on various dates: 28.02.2025= ` 70; 28.03.2025
= ` 70.50; 31.03.2025 = ` 71; 30.04.2025 = ` 72; and 25.05.2025 = ` 73.
(6 Marks)
3. (a) "Feed the People," a charitable trust registered under section 12AB of the Income -
tax Act, merged with another entity on 1st April 2024, which is not eligible for
section 12AB registration or section 10(23C) approval.
As a result of the merger, all assets and liabilities of the original trust were
transferred to the merged entity. The trust engaged a registered valuer to
determine the value of its assets and liabilities. Based on the details below,
compute the tax liability arising from the merger:
(i) Stamp duty value of land held ` 15 lakhs. However, if this land is sold in
the open market, it would ordinarily fetch ` 17 lakhs. The book value of the
land is ` 20 lakhs.
(ii) 75,000 equity shares in Ink Ltd. traded in Delhi Stock Exchange. The lowest
price per share on 1.4.2024 was ` 75 and the highest price on that day was
` 85. The book value was ` 67 lakhs.
(iii) 55,000 preference shares held in N Ltd. The shares will fetch ` 44 lakhs, if
they are sold in the open market on 1.4.2024. Book value was ` 25 Lakhs.
(iv) Corpus fund as on 1.4.2024 ` 15 Lakhs.
(v) Outside liabilities ` 90 lakhs
(vi) Provision for taxation ` 5 lakhs.
(vii) Liabilities in respect of payment of various utility bills ` 6 lakhs. (8 Marks)
(b) FASHION Inc., a notified Foreign Institutional Investor (FII), derived the following
incomes during the financial year 2024-25:-
(1) Dividend from listed shares of Indian companies – ` 7,15,000
(2) Interest on securities – ` 16,72,000 (Expenses of ` 95,000 has been
incurred to earn such income)

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 (3) Income from sale of securities and shares:
Security/Sha Purchase Sale Date Sale Purchase
re Date Consider Cost (₹)
ation (₹)
Bonds of 5th May 7th March 58,00,000 33,00,000
January Ltd. 2018 2025
Listed Shares 2nd May 9th February 14,50,000 9,90,000
of Exe Ltd. 2024 2025

Unlisted 1st July 7th March 7,90,000 3,22,000

Equity Shares 2024 2025
of May Ltd.

CII: FY 2017-18: 272; FY 2023-24: 348. In case of listed securities, STT

has been paid both at the time of purchase and sale.
Compute the total income and tax liability of the FII, FASHION Inc., for the
A.Y. 2025-26 as per section 115AD, assuming that no other income is
derived by FASHION Inc. during the F.Y.2024-25. (6 Marks)
4. (a) Examine the liability for tax deduction at source in the following cases for the
assessment year 2025-26:
(i) On 21st July 2024, Mr. Anuj, a resident, bought a house property in Chennai
from Mr. Josh for ₹ 85 lakhs. Additionally, he acquired an urban plot in
Mumbai from Mr. Anant for ₹ 49,00,000 and rural agricultural land from
Mr. Digvijay for ₹ 55 lakhs in two independent transactions. The Stamp
Duty value of urban plot is ₹ 54 lakhs.
(ii) Under section 10(47) of the Income-tax Act, 1961, a notified infrastructure
debt fund paid ₹ 6 lakhs as interest to a Hongkong based company, which
incurs ₹ 15,000 as expenses to earn this income. It also makes an interest
payment of ₹ 2.5 lakhs to Mr. Aman, a resident of a notified jurisdictional
area.
(iii) Vikasa Ltd. has incurred an expenditure of ₹ 18 lakhs towards landing and
parking charges, paid to the Airports Authority of India, for the year ending
31st March 2025.
(iv) An employee of the Central Government who receives arrears of salary for

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 the past three years wants to know if tax is to be deducted on the entire
amount during the current year. (8 Marks)
(b) ASHA (P) Ltd., located in Cochi, is engaged in the manufacturing of toys and exports them
to various associated and other enterprises across Southern Countries. The company has
consistently furnished reports regarding its international transactions with its associated
enterprises, complying with transfer pricing regulations. On February 15, 2024, ASHA (P)
Ltd. applied for an Advance Pricing Agreement (APA), which was subsequently signed on
May 5, 2024, in order to ensure pricing certainty for these international transactions.
The company also applied in respect of the international transactions to which APA
applies for rollback benefit which was agreed and signed in January 202 5. The details of
the status of income tax assessments are as follows:
Assessment
Status of Assessment/Dispute
Year
The matter is pending before High Court with regard to acquisition
2019-20 of a company by the assessee and the dispute is about set off of
loss of the erstwhile company
2020-21 &
There is no dispute and the assessments have been completed.
2021-22
The assessment for the A.Y. 2022-23 was completed by making
2022-23 reference to the TPO who enhanced the arm’s length price of the
international transaction by ` 500 lakhs.
ALP of international transaction was disputed before the tribunal
2023-24 which set aside the order for fresh consideration by the Assessing
Officer in November 2024.
2024-25 The income tax return (‘ITR’) was filed on 29 th December 2024.
If the APA is applied, the ALP determined for the A.Y. 2022-23 would get enhanced by
` 300 lakhs as against ` 500 lakhs originally determined by TPO.
Discuss the applicability of rollback agreement for various assessment years in case of
ASHA (P) Ltd. (6 Marks)
5. (a) Attempt any two out the following three sub-parts:
(i) An Income-tax authority did not file an appeal to the Income-tax Appellate
Tribunal against an order of the Commissioner (Appeals) decided against
the Income-tax department on a particular issue in case of one assessee,
Bela for assessment year 2024-25 on the ground that the tax effect of such

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 dispute was less than the monetary limit prescribed by CBDT. In
assessment year 2025-26, similar issue arose in the assessments of
Shweta and her sister Shefali, which was decided by the Commissioner
(Appeals) against the Department. Can the Income-tax department move
an appeal to the Tribunal in respect of A.Y. 2025-26 against the orders of
the Commissioner (Appeals) for Shweta and her sister Shefali? (4 Marks)
(ii) The Assessing Officer filed a complaint against M/s. D & G, a firm, for
failure to furnish its return of income for the A.Y.2018-19 within the due
date under section 139(1). The complaint was filed in accordance with
section 276CC of the Income-tax Act, 1961. The tax payable on the
assessed income, as reduced by the advance tax paid and tax deducted at
source, was `70,000. The appeal filed by the firm against the order of
assessment was allowed by the Commissioner (Appeals). The Assessing
Officer passed an order giving effect to the order of the Commissioner
(Appeals). The tax payable by the firm as per the said order of the
Assessing Officer was ` 9,100. The Assessing Officer has accepted the
order of the Commissioner (Appeals) and has not preferred an appeal
against it to the Income Tax Appellate Tribunal. The firm wants to know if
the prosecution's actions may be sustained given the case's facts and
circumstances. (4 Marks)
(iii) In March 2013, Mr. Rajiv, an Indian national, returned to India to take
charge as CEO of BOS (P) Ltd., an Indian company. He held this position
from April 1, 2013, to March 31, 2020. Before this, he worked for Orange
Inc. in the Singapore from May 2000 to February 2013. He returned to
Orange Inc. in the Singapore in April 2020 and permanently settled there.
Mr. Rajiv visits India every year only for 1 month during his stay in
Singapore. It was discovered that throughout his tenure as CEO of BOS
(P) Ltd., he accumulated undeclared wealth and income, including
(i) shares of listed companies in Singapore acquired on 10th
December, 2012;
(ii) acquired one apartment in Canada on 20th April 2015 and
(iii) established a leather goods manufacturing factory in Malaysia on
15th April 2020.
The above undisclosed assets came to the notice of Assessing Officer in April
2024, and he issued notice under the Black Money Act, 2015 in July, 2024.
Is the Assessing Officer's notice of Mr. Rajiv under the Black Money Act of

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 2015 legally tenable? (4 Marks)
(b) What does a hybrid mismatch mean, and how is it different from a branch
mismatch? Describe briefly the reasons of hybrid mismatch arrangements. Which
BEPS Action Plan provides recommendations in this regard? (6 Marks)
6. (a) The Assessing Officer conducted a survey at 9:30 p.m. at a well-known gym under his
jurisdiction called "Silver" for collecting information which may be useful for the
purpose of Income-tax Act, 1961. The concerned gym is kept open for business every
day between 5 a.m. and 10 p.m. The owner of the gym claims that the A.O. could not
enter his business premises after sunset and late in the night. The Assessing Officer
wanted to take away with him the books of account and cash kept at the premises of
the Gym. Determine whether the Gym's owner's claim is correct and whether the
Assessing Officer's suggested course of action is appropriate. (4 Marks)
(b) Determine if the following practices fall under the categories of (i) tax planning, (ii)
tax management, or (iii) tax evasion. Briefly explain your response.
(I) Ms. Kanika deposits `1,50,000 in PPF account to lower her total income
from `5,90,000 to `4,70,000, in order to be in the 5% total income slab.
(II) A corporate entity installed an air-conditioner costing `70,000 at a
director's home in accordance with the terms of his appointment, but it is
treated as if it was installed in the factory's quality control area. This
procedure is performed with the aim of treating it as a plant for depreciation
purposes. (4 Marks)
(c) A foreign national hockey player who is a non-resident in India, Mr. Robert Jonson,
won ` 45 lakhs by competing in hockey competitions in India. In addition, he
received ` 10,000 for writing an article about hockey for an Indian sports
magazine. He earned about ` 69,100 in lottery winnings (net).
With reference to the provisions of the Income-tax Act, 1961, you are required to–
(i) Examine whether the above income are subject to deduction of tax at
source.
(ii) Decide whether it is necessary for him to file his return of income for A.Y.
2025-26. (3 Marks)
(d) Mr. Saiyyam, a non-resident, made an application to the Authority for Advance
Rulings on 15.6.2024 in relation to a transaction proposed to be undertaken by him.
On 21.7.2024, he decides to withdraw the said application. Can he withdraw the
application on 21.7.2024? Examine. (3 Marks)

15
 Mock Test Paper - Series II: April, 2025
Date of Paper: 9th April, 2025
Time of Paper: 2 P.M. to 5 P.M.
FINAL COURSE: GROUP - II
PAPER – 4: DIRECT TAX LAWS & INTERNATIONAL TAXAXTION
Working Notes should form part of the answer. Wherever necessary, suitable assumptions may be
made by the candidates and disclosed by way of a note. However, in answers to Question in
Division A, working notes are not required.
All questions relate to Assessment Year 2025-26, unless stated otherwise in the question.
Time Allowed – 3 Hours Maximum Marks – 100
Division A – Multiple Choice Questions
Write the most appropriate answer to each of the following multiple choice questions by
choosing one of the four options given. All questions are compulsory.
Case Scenario I
Anantam Highways Trust, a business trust, registered under SEBI (Real Estate Investment Trusts)
Regulations, 2014, has generated an interest income of ` 10 lakh and a dividend income of ` 5
lakh from Zee Ltd during the P.Y. 2024-25. It also realised short-term capital gains of ` 4 lakh
from the sale of listed shares of Indian companies on 31-10-2024, with Securities Transaction Tax
(STT) paid both at the time of purchase and sale.
Zee Ltd. is an Indian company in which the business trust holds 100% of the shareholding. Zee
Ltd. does not opt to pay tax under section 115BAA.
Anantam Highways Trust has accumulated the entire income except interest income which is
distributed to its unitholders in March 2025. Mr. Xavier, a resident unit holder, owns 100 units,
while Mr. Yatin, a non-resident unit holder, holds 500 units. The total number of units subscribed
by all unit holders amounts to 5,000.
Mr. Yatin, the Managing Director of XYZ Pvt. Ltd., has been provided with an air-conditioner worth
` 75,000 at his residence in Delhi as part of his employment terms. However, the company has
recorded this asset in its books of account as if it were installed in the quality control section of its
factory, with the intention of classifying it as "plant" and claiming depreciation accordingly.
Mr. Xavier is engaged in cryptocurrency trading. During the financial year, he transferred
cryptocurrencies for ` 4,20,000. The cost of acquisition for these cryptocurrencies was ` 70,000.

1
In addition, he took a loan to invest in cryptocurrencies and incurred an interest expense of
` 20,000 on this loan.
From the information given above, choose the most appropriate answer from MCQ 1 to MCQ 3 below:
1. In respect of the component of interest income from Zee Ltd. distributed by the Anantam
Highways Trust to unit-holders Xavier and Yatin -
(a) No tax is deductible by the Anantam Highways Trust, since such income is not
taxable in the hands of unit holders
(b) Tax is deductible @ 5% on ` 20,000 distributed to Mr. Xavier and @5.2% on ` 1
lakh distributed to Mr. Yatin
(c) Tax is deductible @ 10% on ` 20,000 distributed to Mr. Xavier and @5.2% on ` 1
lakh distributed to Mr. Yatin
(d) Tax is deductible @ 10% on ` 20,000 distributed to Mr. Xavier and 10.4% on ` 1
lakh distributed to Mr. Yatin
2. Recording of the air-conditioner provided by XYZ Pvt. Ltd. to Mr. Yatin in its books of
account to claim depreciation falls under: -
(a) Tax Planning
(b) Tax Management
(c) Tax Evasion
(d) Tax Avoidance
3. Which of the following statements is correct in respect of cryptocurrency?
(a) Mr. Xavier can claim deduction for both, cost of acquisition and interest expense
while computing income from sale of cryptocurrency.
(b) Only the cost of acquisition is allowed as a deduction to Mr. Xavier. Interest expense
is not deductible.
(c) Neither cost of acquisition nor interest expense are allowed disallowed while
computing income from sale of cryptocurrency.
(d) Income from sale of cryptocurrency is exempt from tax in India. (2 x 3 = 6 Marks)

2
Case Scenario II
Mr. Badri, a professional interior decorator, also conducts online lectures on interior decoration through
the e-commerce platform Pathshala. The details of his earnings from Pathshala are as follows:
Date of Credit of services to Date of Payment to Mr. Value of Services
account of Mr. Badri Badri Provided (`)
31.05.2024 10.06.2024 2,00,000
31.10.2024 10.10.2024 1,50,000
31.03.2025 10.04.2025 1,40,000
In addition to the abovementioned income, on 18.02.2025, Mr. Badri received ` 20,000 directly from
a student rather than via the Pathshala payment system. Mr. Badri has provided PAN to Pathshala.
Mr. Badri gave Mr. Nitin in Mumbai, who had a business turnover of ` 1.2 crores in P.Y.
2023–2024, interior decorating services for his office and residential spaces on May 5, 2024, for a
total of ` 40,000 and ` 60,000, respectively. For billing, Mr. Badri has given Mr. Nitin his PAN
information.
The entire revenue received by Mr. Badri from his interior design business in the P.Y. 2024–2025
from clients in India, including Mr. Nitin, is around ` 40 lakhs (excluding fees for online lectures).
Further, ` 1,10,000 is payable by Mr. Badri to Phoenix LLC – a social networking website having
no office in India and ` 1,05,000 to DaVita Inc., USA, for giving online advertisements for the
purpose of attracting foreign clients. DaVita Inc., USA, has an office in India for providing online
advertisement services. Fortunately, Mr. Badri got one client based in Country A (with which India
does not have a DTAA) from whom he received ` 3,50,000 as net income after deduction of
` 50,000 as foreign tax.
According to the books of account maintained by Mr. Badri under section 44AA, his profits
amounts to ` 24 lakhs. However, his books of account have not been audited.
From the information given above, choose the most appropriate answer from MCQ 4 to MCQ 8 below:
4. Is Pathshala required to deduct tax at source on amount received/receivable by Mr. Badri?
If so, what is the amount of tax to be deducted?
(a) No tax is required to be deducted at source
(b) Yes; ` 5,100
(c) Yes; ` 25,500
(d) Yes; ` 510

3
5. Is Mr. Nitin required to deduct tax at source under section 194J? If so, what is the amount
of tax to be deducted?
(a) No tax is required to be deducted at source u/s 194J
(b) Yes; ` 1,000
(c) Yes; ` 4,000
(d) Yes; ` 10,000
6. Is Mr. Nitin required to deduct tax at source under section 194M? If so, what is the amount
of tax to be deducted?
(a) No tax is required to be deducted at source u/s 194M
(b) Yes; ` 600
(c) Yes; ` 1,200
(d) Yes; ` 3,000
7. Is Mr. Badri required to deduct equalisation levy on the amounts payable to Phoenix LLC or
DaVita Inc.? If so, what is the amount of levy to be deducted?
(a) No; there is no requirement to deduct equalisation levy from the amount payable to
either Phoenix LLC or DaVita Inc.
(b) Yes; ` 6,600 to be deducted on the amount payable to Phoenix LLC; No deduction
is, however, required on the amount payable to DaVita Inc.
(c) Yes; ` 6,300 to be deducted on amount payable to DaVita Inc; No deduction is
required on the amount payable to Phoenix LLC.
(d) Yes; ` 6,600 to deducted on the amount payable to Phoenix LLC and ` 6,300 to be
deducted on the amount payable to DaVita Inc.
8. What is Mr. Badri’s gross income-tax liability for the P.Y.2024-25, assuming that he has
opted out of the default tax regime u/s 115BAC?
(a) ` 5,70,960
(b) ` 4,91,400
(c) ` 5,08,560
(d) ` 5,53,800 (2 x 5 = 10 Marks)

4
Case Scenario III
Fiserv Inc., a company headquartered in Country F, operates an online platform that provides end-
user computer software under an End-User License Agreement (EULA). In the Financial Year
2024-25, Turmeric Ltd., an Indian company, entered into a contract for ` 6.7 crore with Fiserv Inc.,
which is approved by the Central Government.
Under the EULA, Fiserv Inc. grants Turmeric Ltd. a limited, non-exclusive license to install, use,
access, display, and run the click-wrap web-based computer software (CWCS) on a single local
hard disk or another permanent storage medium of one computer. However, Turmeric Ltd. is
restricted from making the CWCS available over a network where it could be used by multiple
computers at the same time.
Fiserv Inc. reserves all rights not explicitly granted to Turmeric Ltd. under the EULA. The CWCS is
protected by copyright and other intellectual property laws and treaties. Fiserv Inc. owns the title,
copyright and other intellectual property rights in the CWCS. The CWCS is licenced (only for use
and not any other purpose), not sold.
Fiserv Inc. does not have any offices outside Country F.
Extract of Article 12 of India-Country F DTAA
Royalties and Fees for Technical Services
1. Royalties and fees for technical services arising in a Contracting State and paid to a
resident of the other Contracting State may be taxed in that other State.
2. However, such royalties and fees for technical services may also be taxed in the
Contracting State in which they arise and according to the laws of that Contracting State,
but if the recipient is the beneficial owner of the royalties or fees for technical services, the
tax so charged shall not exceed 10 per cent.
3. The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use :
(a) any copyright of a literary, artistic or scientific work, including cinematograph film or
films or tapes used for radio or television broadcasting, any patent, trade mark, design or
model, plan, secret formula or process, or for information concerning industrial, commercial
or scientific experience, including gains derived from the alienation of any such right,
property or information

5
From the information given above, choose the most appropriate answer from MCQ 9 to MCQ 12
below:
9. Is Turmeric Ltd., India required to deduct tax at source on the payment made to Fiserv
Inc.? If yes, what amount of tax is required to be deducted at source on the said payment?
(a) Yes, Turmeric Ltd. is required to deduct tax at source of ` 1,42,14,720.
(b) No, Turmeric Ltd. is not required to deduct tax at source.
(c) Yes, Turmeric Ltd. is required to deduct tax at source of ` 2,84,29,440.
(d) Yes, Turmeric Ltd. is required to deduct tax at source of ` 67,00,000
10. Would Turmeric Ltd., India be required to deduct tax at source on the payment made to
Fiserv Inc, if there was no DTAA between India and Country F? If so, what amount of tax is
required to be deducted at source on the said payment?
(a) Yes, Turmeric Ltd. is required to deduct tax at source of ` 1,42,14,720.
(b) No, Turmeric Ltd. is not required to deduct tax at source, since such sum is not
taxable in the hands of Fiserv Inc.
(c) Yes, Turmeric Ltd. is required to deduct tax at source of ` 2,84,29,440.
(d) Yes, Turmeric Ltd. is required to deduct tax at source of ` 71,07,360
11. What would be the tax liability of Fiserv Inc. if there is no DTAA between India and Country
F, and it incurred ` 20,00,000 for providing end-user software to Turmeric Ltd.?
(a) ` 1,42,14,720.
(b) Nil
(c) ` 2,84,29,440.
(d) ` 1,37,90,400
12. Is Fiserv Inc. required to file return of income for the A.Y. 2025-26, if there is no DTAA
between India and Country F?
(a) Yes, required to file return of income, since the said income is chargeable to tax in
India.
(b) No, not required to file return of income, since the said income is not chargeable to
tax in India.

6
 (c) Yes, required to file return of income, even if the said income is not chargeable to
tax in India as information of income arising from India is to be disclosed in return.
(d) No, not required to file return of income, if Turmeric Ltd. deducted tax at source on
such income. (2 x 4 = 8 Marks)
13. A Ltd., an Indian company, borrowed money from B Inc. in Country B, C Ltd. in Country C,
D Inc. in Country D and E Ltd. in Country E, the details of which are given hereunder-
Lender Amount borrowed Interest paid in the Is it an Associated
by A Ltd. P.Y.2024-25 Enterprise of A Ltd.?
B Inc. ` 15 crores ` 1.50 crores Yes
C Ltd. ` 25 crores ` 2.50 crores No
D Inc. ` 25 crores ` 2.50 crores Yes
E Ltd. ` 15 crores ` 1.50 crores No

B Inc. has provided guarantee of loan taken by A Ltd. from C Ltd. D Inc. has deposited ` 15
crores with E Ltd. Earnings before Interest, Tax and Depreciation of A Ltd. for A.Y.2025-26
is ` 10 crores. What is the interest to be disallowed under section 94B for A.Y.2025-26?
(a) ` 1 crore
(b) ` 3 crores
(c) ` 4 crores
(d) ` 5 crores (2 Marks)
14. Under which of the following cases, will arm’s length price be determined by considering
the median of the dataset?
Case Most Appropriate No. of entries Does the price at which the
Method in the dataset transaction is undertaken fall
within the arm’s length range
beginning from the 35th percentile
of the dataset and ending on the
65th percentile of the dataset?
I CUP 5 -
II RPM 6 Yes

7
 III TNMM 7 Yes
IV Cost Plus 8 No

(a) II and III

(b) I and IV
(c) Only IV
(d) Only I (2 Marks)
15. Mr. Raghav, a resident, and Mr. John, an American citizen and a non-resident in India, are
both sports commentators deriving income of ` 5 lakh from sports commentaries in India
for A.Y.2025-26. Which of the following statements are correct?
(i) Tax is deductible u/s 194J from remuneration payable to Mr. Raghav.
(ii) Tax is deductible u/s 194E from remuneration payable to Mr. John.
(iii) Tax is deductible u/s 195 from remuneration payable to Mr. John.
(iv) Mr. John is not required to file his return of income u/s 139, if tax deductible at
source is fully deducted.
(v) Mr. Raghav is not required to file his return of income u/s 139, if tax deductible at
source is fully deducted.
Which of the above statements are correct, assuming that this is the only source of income
for Mr. Raghav and Mr. John?
(a) (i), (ii) and (iv)
(b) (i), (ii), (iv) and (v)
(c) (i) and (iii)
(d) (i), (iii) and (iv) (2 Marks)

8
 Division B – Descriptive Questions
Question No. 1 is compulsory
Attempt any four questions from the remaining five questions
1. M/s Suraj Industries Ltd., an Indian company, is engaged in manufacturing and assembling
of automobiles and auto components in Pune, Maharashtra. The net profit after debit/credit
of the following amounts to its Statement of Profit and Loss for the year ended 31-03-2025
was ` 9,50,00,000.
(i) Depreciation calculated as per useful life of its assets ` 2,80,00,000.
(ii) Donation of ` 12,00,000 given to a political party by way of account payee cheque.
(iii) On 15-08-2024, the company contributed `50,00,000 to a research institution
recognized and notified by the Central Government, which is engaged in scientific
research.
(iv) Dividend received from foreign company of ` 15,00,000 in which it holds 30% of the
equity share capital.
(v) On 15-05-2024, a long-term capital gain of ` 4,00,000 was realized from the sale of
equity shares on which STT was paid at the time of acquisition and sale.
(vi) Interest at 10% p.a. on ` 4,20,00,000, being amount borrowed from State Bank of
India on 01-06-2024 for purchase of machinery. The interest outstanding as on
31-03-2025 was paid on 01-12-2025.
(vii) Profit of ` 8,00,000 was earned from the sale of a plot of land to PQR Limited, an
Indian company wholly owned by Suraj Industries Ltd. The plot was originally
acquired on 30-06-2023.
(viii) Salary of ` 1,00,00,000 to foreign technicians for installation of machinery at the
factory premises was paid.
(ix) The company sold automobile parts for ` 22,00,000 to M/s ABC Co Engineers, a
sole proprietary concern, on 01.11.2022. On 01.02.2024 ` 12,00,000 was written off
in the books as bad debts. The sole proprietor died on 01.03.2025 and the company
managed to collect ` 11,00,000 towards full and final settlement on 30.03.2025. The
entire amount collected was shown as bad debts recovered and credited to
Statement of Profit and Loss.

9
 Additional Information:
1. Depreciation computed as per Income-tax Rules, 1962 is ` 1,50,00,000 other than
on the additions in assets made during the year.
2. During the year, the company made additions to its assets, including:
• Office building worth `3,00,00,000 [Put to use on 15-12-2024]
• Computers valued at `25,00,000 [Put to use on 11-05-2024]
• Plant and machinery amounting to `5,00,00,000 [Installed and put to use on
31-12-2024]
3. The company declared and distributed dividend for the financial year 2024-25 on
31.5.2025 for ` 12,00,000.
Compute the total income of the company and tax liability for the assessment year 2025-26,
assuming company opts for concessional tax regime under section 115BAA. Total turnover
of the company for the P.Y. 2022-23 was ` 402 crores. (14 Marks)
2 (a) (i) Pigeon Limited was amalgamated with Laksh Limited on 01.04.2024. All the
conditions of section 2(1B) were satisfied.
Pigeon Limited has the following carried forward losses as assessed till the
Assessment Year 2024-25:
 Speculative Loss: ` 5.5 lakhs
 Unabsorbed Depreciation: ` 20 lakhs
 Unabsorbed Capital Expenditure on Scientific Research: ` 2.5 lakhs
 Business Loss: ` 125 lakhs
Laksh Limited has computed a profit of ` 160 lakhs for the Financial Year
2024-25, which is before adjusting the eligible losses of Pigeon Limited but
after accounting for depreciation at 15% on ` 150 lakhs, the consideration at
which plant and machinery were transferred upon amalgamation. However,
as per Income-tax records, the written down value (WDV) of the assets in the
hands of Pigeon Limited as on 1st April 2024 was ` 100 lakhs.
The profit of Laksh Limited of ` 160 lakhs also includes a speculative profit of
` 10 lakhs.

10
 Compute the total income of Laksh Limited for Assessment Year 2025-26 and
indicate the losses/ other allowances to be carried forward by it. (5 Marks)
(ii) Mrs. Urvashi, aged 56 years, a resident individual acquired a residential
house at Ayodhya on 01.04.1993 for ` 45,00,000. The Fair market value of
the property as on 01.04.2001 was ` 1,20,00,000 and the stamp duty value
as on 01.04.2001 was ` 1,02,00,000.
Mrs. Urvashi sold her residential house located at Ayodhya to Mr. Sandeep
Kumar on 15.10.2024 for ` 15,50,00,000. The value determined by the Stamp
Duty Authority on 15.10.2024 was ` 17,00,00,000. Mr. Sandeep Kumar was
handed over the possession of the property on 15.10.2024 and the
registration process was completed on the same date. He paid the sale
proceeds in full on the date of registration.
After recovering the sale proceeds from Sandeep Kumar, Mrs. Urvashi
purchased one residential plot at Amritsar for ` 8 crores on 18.02.2025. She
also deposited ` 3 crores in a Saving account opened with State Bank of
India, Amritsar under Capital gain account scheme on 31.03.2025 for the
construction of the residential house on above plot.
You are required to calculate the taxable capital gain in the hands of
Mrs. Urvashi for the A.Y. 2025-26 as per the provisions of Income-tax Act,
1961. Cost Inflation Index for F.Y. 2001-02: 100 and 2024-25: 363. (3 Marks)
(b) Mr. Pradhyuman, aged 48 years, a resident individual has furnished the following
details of income earned during the previous year 2024-25:
India
(i) Income from a sole-proprietary business in Indore ` 80 lakhs.
(ii) Share of profit from a partnership firm in Bhopal ` 20 lakhs.
Country G
(iii) Agricultural Income (gross) from tea gardens of CGD 40000. Taxable @20%.
(iv) Brought forward business loss of F.Y.2019-20 in Country G was CGD 5,200
which is not permitted to be set off against other income as per the laws of
that country.

11
 Country M
(v) Dividend income (gross) of CMD 30,000. Taxable @10%.
(vi) Rental Income of CMD 52,000 from house property. Taxable @15%. CMD
6,000 paid towards Municipal taxes in Country M. Municipal taxes are not
allowed as deduction in Country M.
Other Information
- Mr. Pradhyuman has deposited `1,50,000 in public provident fund and paid
medical insurance premium of ` 28,000 by account payee cheque to insure
the health of himself and his wife (aged 48 years).
- India has no DTAA with Country G and Country M.
Compute total income and tax liability of Mr. Pradhyuman for the A.Y. 2025-26 after
providing for deduction under section 91, assuming that 1 CGD/CMD = ` 70.
Mr. Pradhyuman is opting out of the default tax regime and paying tax under normal
provisions of the Act. (6 Marks)
3. (a) (i) A not-for-profit trust, engaged in philanthropic activities, operates both an
educational institution and a hospital. During P.Y. 2024-25, the trust recorded
annual receipts of ` 4.5 crores from its educational institution and ` 4.5
crores from its hospital.
The trust seeks to claim exemption separately under section 10(23C)(iiiad) for
the educational institution and section 10(23C)(iiiae) for the hospital, on the
basis that the receipts for each entity individually do not exceed ` 5 crores,
the threshold specified for exemption under the respective provisions. Can it
do so? Examine. (4 Marks)
(ii) A public charitable trust, registered under section 12AB, earned a gross
income of ` 21 lakhs during the previous year ending 31st March 2025,
comprising
• ` 14 lakhs from properties held by the trust,
• ` 6 lakhs as net income from a business incidental to its main
objectives,
• ` 9 lakhs from voluntary contributions received from the public

12
 The trust applied a sum of ` 12.80 lakhs towards charitable purposes during
the year which includes repayment of loan taken for construction of
orphanage ` 4.80 lakhs. The entire expenditure incurred on construction of
orphanage was allowed as application of income in the P.Y. 2020-21.
Determine the taxable income of the trust for the assessment year 2025-26.
(4 Marks)
(b) (i) Laurus Labs Limited specializes in providing scientific research services to
various non-resident clients, including Meta Inc. A key aspect of this
arrangement is that Meta Inc. extends a guarantee for 12% of Laurus Labs
Limited’s total loans. The primary consideration here is whether this financial
guarantee constitutes an “international transaction” under the transfer pricing
provisions of the Income-tax Act, 1961. (2 Marks)
(ii) Without prejudice to the answer to (i) above, if transfer pricing provisions are
applicable and the Assessing Officer has made a primary adjustment of
` 310 lakhs to the transfer price for P.Y. 2022-23 through an order dated
01.04.2024, which has been accepted by Laurus Labs Limited, what are the
statutory compliance requirements under the Income-tax Act, 1961?
Furthermore, if the transaction is denominated in Indian Rupees and the
adjusted amount is not repatriated as on 31.03.2025, what would be the tax
implications for non-compliance. Given that the one year marginal cost of
fund lending rate of State Bank of India as on 1.4.2024 is 9%. (4 Marks)
4. (a) (i) Vijaya Bank credited ` 65,50,000 as interest on deposits into a separate
account for macro-monitoring purposes using its Core-branch Banking
Solutions (CBS) software. However, no tax was deducted at source (TDS) on
the credited interest, even in cases where the interest on certain deposits
exceeded ` 40,000.
The Assessing Officer disallowed 30% of interest expenditure, where interest
on time deposits exceeded ` 40,000 and further levied a penalty under
section 271C for non-deduction of TDS.
Examine whether the action taken by the Assessing Officer is justified.
(4 Marks)

13
 (ii) Examine in the context of provisions contained in Chapter XVII of the Act and
also work out the amount of tax to be deducted by the payer of income in the
following cases:
(I) "Profit Commission" of ` 1 lakh paid on 18.7.2024 by a re-insurance
company to the insurer company after the expiry of the term of
insurance and where there was no claim during the treaty.
(II) Amrish, a part time director of Krish Pvt. Ltd. was paid an amount of
` 3,10,000 as fees which was actually in the nature of commission on
sales for the period 1.4.2024 to 30.6.2024. (4 Marks)
(b) (i) Tekken Ltd., an Indian company engaged in the manufacturing and trading of
video games under the brand name "TIMETODIE", undertook a large-scale
publicity campaign in overseas markets to boost export sales. As part of its
online advertising strategy, the company hired Moonland Inc., an Australian-
based company with no permanent establishment (PE) in India, for digital
advertising services. Tekken Ltd. paid ` 20 lakhs to Moonland Inc. for its
services in the previous year 2024-25.
Discuss the tax and TDS implications of such transaction both in the hands of
Tekken Ltd. and Moonland Inc. (3 Marks)
(ii) The Board for Advance Rulings has the powers of issuing commissions –
Examine the correctness or otherwise of this statement. (3 Marks)
5. (a) (i) Examine whether the following persons are required to file return of income
for A.Y.2025-26, giving brief reasons for your answer –
(I) Mr. Govind, 28 years old, started his business in P.Y. 2024-25, making
it his first year of operations. During the year, his turnover from
business amounted to ` 70 lakhs, and his total income, as computed
from his books of account is ` 2 lakhs. He has no other sources of
income and has not claimed any deductions under Chapter VI-A or
Section 10AA of the Income-tax Act, 1961.
(II) Mr. Vicky, aged 54 years, received a gift of ` 50 lakhs from his son,
Mr. Shravan (aged 26 years), who is employed in a company. He
deposited the entire amount in his savings bank account with IDFC
Bank on 28th March 2025. Subsequently, on 25th April 2025, he

14
 utilized ` 30 lakhs from the said sum to purchase a residential flat for
self-occupation, while the remaining balance was transferred to a one-
year fixed deposit on 28th April 2025. Mr. Vicky does not maintain any
other bank account and does not have any additional sources of
income, except for the interest accrued on the fixed deposit. (4 Marks)
OR
(ii) Examine the correctness or otherwise of the following propositions in the
context of the Income-tax Act, 1961:
(I) At the time of hearing of rectification application, the Income-tax
Appellate Tribunal can re-appreciate the evidence produced during the
proceedings of the appeal hearing.
(II) The High Court cannot interfere with the factual finding recorded by
the lower authorities and the Tribunal, without any valid reasons.
(4 Marks)
(b) Determine the penalty leviable under section 270A of the Income-tax Act,
1961, in the case of Alibaba Ltd., an Indian company, considering that none
of the additions or disallowances made during the assessment or
reassessment fall under section 270A(6) and that the under-reported income
does not result from misreporting.
Particulars of total income of A.Y.2025- Alibaba Ltd., an
26 Indian company
(`)
(1) As per the return of income furnished u/s 139(1) (12,00,000)
(2) Determined under section 143(1)(a) (7,50,000)
(3) Assessed under section 143(3) (5,00,000)
(4) Reassessed under section 147 4,50,000

Note - The total turnover of Alibaba Ltd. for the P.Y.2022-23 was ` 350 crore.
The company has not opted for special provisions under section 115BAA or
115BAB. (4 Marks)

15
 (c) Explain the following terms in the context of interpretation of tax treaties:
(i) Principle of Contemporanea Expositio
(ii) Teleological Interpretation. (6 Marks)
6. (a) (i) In a search operation conducted under section 132 of the Income-tax Act on
31.10.2024, the department seized cash amounting to ` 25 lakhs. The assessee,
after duly explaining the source of the seized cash, submitted an application on
15.12.2024 requesting its release. However, the department declined the request.
The assessee seeks your opinion on, the following issues:
(i) Can the department retain the seized cash even after the assessee
has explained its source?
(ii) If yes, then to what extent and upto what period? (4 Marks)
(ii) Under the tax treaty between India and Country X, capital gains from the sale
of shares of Red Chilies Ltd., an Indian company, are taxable only in Country
X, provided the transferor is a resident of Country X, except when the
transferor holds more than 10% equity in Red Chilies Ltd. X Ltd., a resident of
Country X, invests in Red Chilies Ltd. through its two wholly owned
subsidiaries, Lalit Ltd. and Mohan Ltd., both incorporated in Country X. Each
subsidiary individually holds 9.95% shares, resulting in a combined holding of
19.9% in Red Chilies Ltd. The subsidiaries sell the shares of Red Chilies Ltd
and claim exemption as each is holding less than 10% equity shares in the
Indian company. Examine whether GAAR be invoked to deny treaty benefit?
(4 Marks)
(b) Mischief Ltd. is a company incorporated in Maldives and 55% of its shares are held
by Kaveri (P) Ltd., an Indian company. Mischief Ltd. has its presence in India also.
The details relating to Mischief Ltd. for the P.Y.2024-25, are as under:
Particulars India Maldives
1. Assets
Fixed assets at depreciated values for tax purposes 120 80
(` in crores)
Intangible assets (` in crores) 50 200
Other assets (value as per books of account) (` in crores) 40 120

16
2. Income
Income from trading operations (` in crores) 25 50
The above figure includes:
(i) Income from transactions where purchases are from 2 4
associated enterprises and sales are to unrelated parties
(ii) Income from transactions where sales are to associated 3 5
enterprises and purchases are from unrelated parties
(iii) Income from transactions where both purchases and 5 10
sales are from/to associated enterprises
Interest and dividend from investments (` in crores) 20 15
3. Employment Details
Number of employees (Residents in respective countries) 70 90
Payroll expenses on employees (` in crores) 8 12

Determine the residential status of Mischief Ltd. for A.Y.2025-26, if during the
F.Y.2024-25, eight board meetings were held – 3 in India and 5 in Maldives.
(6 Marks)

17
 Mock Test Paper - Series I: March, 2025
Date of Paper: 19th March, 2025
Time of Paper: 2 P.M. to 5 P.M.
FINAL COURSE: GROUP - II
PAPER – 5: INDIRECT TAX LAWS
1. Question paper comprises of two parts – Division A and Division B.
2. Division A comprises of Case Scenario based Multiple-Choice Questions (MCQs).
3. Division B comprises of questions which require descriptive type answers.
4. Working Notes should form part of the answers. However, in answers to Questions in
Division A, working notes are not required.
5. All questions should be answered on the basis of the position of (i) GST law as amended
by significant notifications/circulars issued and by the amendments made by the Finance
(No. 2) Act, 2024 which have become effective, till 31.10.2024 and (ii) Customs law as
amended by the Finance (No. 2) Act, 2024 and significant notifications/circulars and other
legislative amendments made upto 31.10.2024.
Division A – Case Scenario based MCQs (30 Marks)
Write the most appropriate answer to each of the following multiple-choice questions by
choosing one of the four options given. All questions are compulsory.
Case Scenario - I
PQR Pvt. Ltd., a company registered under GST in the State of Uttar Pradesh, manufactures
products which are used in laboratories. The products are manufactured in the company’s
factory located in Lucknow, Uttar Pradesh and sold in various parts of Uttar Pradesh. The
company also provides intra-State repair and maintenance services for its products. The details
of turnover of the company for preceding two financial years are as under:
Particulars F.Y.-1 (`) F.Y.-2 (`)
Turnover from supply of goods 75,00,000 1,02,00,000
Turnover from supply of services 7,10,000 9,25,000
Interest income from extending loans to others (not 5,25,000 6,26,000
included in aforesaid turnover of services)

The company procures the service of M/s Nakul Enterprises, a Goods Transport Agency, having
its place of business in Lucknow, Uttar Pradesh, for transport of goods from its factory to
customers’ location in April. M/s Nakul Enterprises has not exercised the option to itself pay

1
GST on the services supplied by it. M/s Nakul Enterprises prepares a regular consignment note
containing the details of consignor and consignee and other prescribed details. The services
provided by M/s Nakul Enterprises are chargeable to tax @ 5%.
Following details are provided by PQR Pvt. Ltd. for April-June quarter of FY-3 (current FY):
S. No. Particulars Amount (`)
(i) Turnover of supply of goods 10,20,000
(ii) Turnover of supply of services 92,550
(iii) Interest income from extending deposit to others 5,000
(iv) Amount paid for services received from M/s Nakul Enterprises 50,000
(v) Raw material received from other States 5,26,000
(vi) Input services received 7,80,900

Following additional information is also provided:

(1) The raw material mentioned in point (v) above received by PQR Pvt. Ltd. in April in its
factory located in Lucknow, Uttar Pradesh, includes goods amounting to ` 2,26,000
received from M/s Suraj Enterprises on the instructions received from M/s Abhinay
Enterprises. M/s Suraj Enterprises has its principal place of business in Uttar Pradesh
whereas M/s Abhinay Enterprises has its principal place of business in Gujarat.
(2) Vidhata Foundation, a Charitable Trust, registered under section 12AB of the Income Tax
Act, 1961 has been set up by the founders of PQR Pvt. Ltd. for conducting charitable
activities, in the State of Uttar Pradesh. The Trust organises sessions on yoga and
spirituality in the State of Uttar Pradesh and charges participation fees for the same. The
total fees collected from participants for the month of April of current FY is ` 2,50,000.
The input services received by the Trust during the said month amount to ` 1,25,260.
The Trust is also analysing the proposal of granting rights to PQR Pvt. Ltd. to advertise
on its premises.
All the above amounts are exclusive of GST. Following GST rates are applicable on the inward
and outward supplies unless otherwise specified:
Particulars CGST SGST IGST
Outward supply 9% 9% 18%
Inward supply 6% 6% 12%

Based on the case scenario given above, choose the most appropriate answer to Q. nos.
1 to 5, below, carrying 2 marks each:
1. Whether the service provided by M/s Nakul Enterprises to PQR Pvt. Ltd. is chargeable
to tax. If yes, who will discharge the tax liability?

2
 (a) The service is chargeable to tax and M/s Nakul Enterprises will discharge the tax
liability.
(b) The service is chargeable to tax and PQR Pvt. Ltd. will discharge the tax liability.
(c) The service is exempt under the CGST Act, 2017.
(d) The service is chargeable to tax and M/s Nakul Enterprises and PQR Pvt. Ltd. will
discharge the tax liability in the ratio of 1:1.
2. Whether PQR Pvt. Ltd. could have opted for composition levy under sub-sections (1) and
(2) of section 10 of the CGST Act, 2017 for current financial year (F.Y.-3)?
(a) Yes. However, it could have provided services up to a value of
` 11,12,500 under composition levy during the current financial year.
(b) No, it could not have opted for composition levy.
(c) Yes. However, it could have provided services up to ` 5,00,000 under composition
levy during the current financial year.
(d) Yes. However, it could have provided services up to ` 11,75,100 under
composition levy during the current financial year.
3. Assuming PQR Pvt. Ltd. has opted for composition scheme under sub-sections (1) and
(2) of section 10 of the CGST Act, 2017 at the beginning of the current financial year
(F.Y.-3), what shall be the total GST liability of PQR Pvt. Ltd. in the State of Uttar Pradesh
for April-June quarter?
(a) No liability, ITC of 1,56,828 will be carried forward.
(b) ` 45,931
(c) ` 13,626
(d) ` 2,02,759
4. Which of the following statements is incorrect in case of Vidhata Foundation?
i. Services provided to charitable or religious trusts are not outside the ambit of
GST. Unless specifically exempt, they are chargeable under GST.
ii. All the activities of Vidhata Foundation are exempt from GST since it is a
charitable trust registered under section 12AB of the Income-tax Act, 1961.
iii. Fees charged by any registered person for sessions on yoga and spirituality are
exempt since the objective of such programs is advancement of yoga and
spirituality.

3
 (a) i & ii
(b) i
(c) ii
(d) ii & iii
5. What shall be the place of supply (POS) for the supply transaction(s) between PQR Pvt.
Ltd., M/s Abhinay Enterprises and M/s Suraj Enterprises and the nature of tax leviable
thereon?
(a) POS for transaction between M/s Abhinay Enterprises and M/s Suraj Enterprises
is the location of principal place of business of M/s Abhinay Enterprises, i.e.
Gujarat and IGST is leviable on such supply. POS for transaction between M/s
Abhinay Enterprises and PQR Pvt. Ltd. is the location at which the movement of
goods terminates i.e. at the factory of PQR Pvt. Ltd. in Lucknow, Uttar Pradesh
and IGST is leviable on such supply.
(b) POS for transaction between M/s Abhinay Enterprises and M/s Suraj Enterprises
is the location of principal place of business of M/s Suraj Enterprises, i.e. Uttar
Pradesh and IGST is leviable on such supply. POS for transaction between M/s
Abhinay Enterprises and PQR Pvt. Ltd. is the location of principal place of
business of M/s Abhinay Enterprises, i.e Gujarat and CGST and SGST are
leviable on such supply.
(c) POS for transaction between M/s Abhinay Enterprises, PQR Pvt. Ltd. and M/s
Suraj Enterprises is the location of principal place of business of PQR Pvt. Ltd.,
i.e. Uttar Pradesh since goods are delivered there and CGST and SGST are
leviable on such supply.
(d) POS for transaction between M/s Abhinay Enterprises, PQR Pvt. Ltd. and M/s
Suraj Enterprises is the location of principal place of business of PQR Pvt. Ltd.,
i.e. Uttar Pradesh since goods are delivered there and IGST is leviable on such
supply.
Case scenario-II
Himgiri Solutions Private Limited (hereinafter referred to as ‘Himgiri Solutions’) is engaged in
providing multidimensional services to its clients through its office in Haryana, registered under
GST. During the month of July, the following transactions were undertaken by Himgiri Solutions:
(i) Import of certain cloud services from Easecart.com for an amount of ` 51,00,000.
(ii) Himgiri Solutions pays sitting fee of ` 25,000 each to its 4 directors per month. Further,
there are two directors who are in the executive roles and are withdrawing ` 2,00,000

4
 each per month as salary from the company and the applicable TDS amount, under
section 192 of the Income-tax Act, 1961, is deducted from such salary.
(iii) Himgiri Solutions paid for life insurance of its employees in compliance of its internal
policy. The total amount of premium paid for 20 employees was ` 5,00,000.
(iv) Himgiri Solutions provided consultancy services to its client, Zoom Corp. based in
Bangalore and issued an invoice of ` 30,00,000.
(v) Empowering India is a Non-Government Organisation located in Haryana. It aims at
empowering the eligible companies to grow their business in India. Himgiri Solutions,
being one of the eligible companies, received a subsidy of ` 5,00,000 in lumpsum from
Empowering India for the month of July.
(vi) Himgiri Solutions provided sponsorship services to Mr. X, an individual, for an event
organised by it in the State of Haryana. The amount agreed for such sponsorship
services is ` 5,00,000.
All the amounts given above are exclusive of GST unless otherwise provided. There is
no other outward or inward supply transaction apart from aforesaid transactions in the
month of July.
The opening balance of input tax credit for the relevant tax period for the company is nil.
Subject to the information given above, assume that all the other conditions necessary
for availing ITC have been fulfilled.
GST is applicable on all inward and outward supplies in the aforesaid case scenario
@ 18%, unless otherwise specified. Ignore CGST, SGST and IGST bifurcation for the
sake of simplicity.
Based on the facts of the case scenario given above, choose the most appropriate answer
to Q. Nos 6 to 10 below, carrying 2 marks each:
6. The liability to pay GST for cloud services procured by Himgiri Solutions from
Easecart.com shall be:
(a) on Easecart.com since the services are online information and database access
or retrieval services and GST of ` 9,00,000 shall be paid by Easecart.com.
(b) nil. There will not be any GST liability on the transaction since Easecart.com is
located outside India and services are provided electronically.
(c) on Easecart.com under forward charge and GST of ` 9,18,000 shall be paid by
Easecart.com.

5
 (d) on Himgiri Solutions under reverse charge and GST of ` 9,18,000 shall be paid
by Himgiri Solutions.
7. Himgiri Solutions seeks your advice on the taxability of the sitting fee payable to directors
and salary payable to the executive directors. The correct advice is:
(a) Sitting fees paid to the directors is liable to GST under reverse charge and the
salary paid to executive directors shall not be liable to GST.
(b) Total amount payable to directors (sitting fees as well as salary) is exempt from
GST.
(c) Total amount payable to directors (sitting fees as well as salary) is liable to GST
under reverse charge in hands of Himgiri Solutions.
(d) Total amount payable to directors (sitting fees as well as salary) is liable to GST
under forward charge in the hands of the directors as professional income.
8. What shall be the amount of input tax credit available with Himgiri Solutions for the month
of July?
(a) ` 10,26,000
(b) ` 11,16,000
(c) ` 9,36,000
(d) ` 1,96,000
9. Compute the value of outward supplies made by Himgiri Solutions in the month of July.
(a) ` 30,00,000
(b) ` 25,00,000
(c) ` 35,00,000
(d) ` 40,00,000
10. Compute the amount of net GST to be deposited in cash by Himgiri Solutions for the
month of July.
(a) Nil
(b) ` 7,20,000
(c) ` 9,36,000
(d) ` 14,76,000

6
Case Scenario - III
Bhaskar (P) Ltd., registered under GST in Delhi, is engaged in trading of cement as well as
providing services by way of renting of commercial properties. On 2 nd January, it received a
contract for supply of 1,000 kg cement from Ruksana (P) Ltd., registered under GST in Punjab.
Ruksana (P) Ltd. directed Bhaskar (P) Ltd. to send the consignment to Prem & Sons, registered
under GST in Gujarat.
Bhaskar (P) Ltd. prepared the consignment on 4 th January and dispatched the same on the next
day from its warehouse in Gurugram, Haryana. The invoice was also issued on 5 th January. On
7th January, it received the cheque and accountant entered the payment in books of accounts.
However, he presented the cheque in bank on 14th January which was credited in the bank
account of the company on 15th January. In the meanwhile, on 10th January, the rate of tax on
cement was reduced from 28% to 18%.
On the inspection of said goods, it was found that there is some deficiency in the quality of
goods and therefore, the defective goods were returned to Bhaskar (P) Ltd. Bhaskar (P) Ltd.
issued credit note for the same on 20th January.
Bhaskar (P) Ltd. let out its property located in Delhi for a year in lieu of monthly rental income
and received rent for the month of January from Ruksana (P) Ltd. on 10th February. Ruksana
(P) Ltd. will establish its sales outlet on the same. However, as per the contract entered, the
rent for a month should have been received by 7th of the following month.
Based on the facts of the case scenario given above, choose the most appropriate answer
to Q. Nos. 11 to 13 below, carrying 2 marks each:
11. What will be the time of supply and rate of tax to be charged in respect of supply of 1,000
kg of cement?
(a) 5th January; 28%
(b) 7th January; 28%
(c) 14th January; 18%
(d) 15th January; 18%
12. What is the place of supply in respect of transaction between Bhaskar (P) Ltd. and
Ruksana (P) Ltd., and Ruksana (P) Ltd. and Prem & Sons, respectively?
(a) Delhi, Punjab
(b) Punjab, Gujarat
(c) Haryana, Punjab
(d) Haryana, Gujarat

7
13. Bhaskar (P) Ltd. has not issued any invoice in respect of the services provided by way
of renting of commercial properties in the month of January. What is the last date for
issuance of invoice?
(a) 10th February
(b) 7th February
(c) Either (a) or (b), whichever is earlier.
(d) Either (a) or (b), whichever is later.
Independent MCQs
14. For determining the CIF price of the imported goods, “Metal PMT” certain additions
have to be made to the value of imported goods under rule 10(2) of the Customs
Valuation (Determination of Value of Imported Goods) Rules, 2007. If cost of insurance
is not ascertainable from the documents submitted before the customs authorities, then
such amount is determined as follows:
(i) 20% of free on board value of imported goods
(ii) 1.125% of free on board value of imported goods
(iii) Where free on board value is not ascertainable, but sum of free on board value
and cost of transport, loading, unloading and handling charges up to place of
importation is ascertainable; then 1.125% of such sum
(iv) Where free on board value is not ascertainable, but sum of free on board value
and cost of transport, loading, unloading and handling charges up to place of
importation is ascertainable; then 20% of such sum.
Choose the most appropriate option.
(a) (i) or (iii)
(b) (i) or (iv)
(c) (ii) or (iii)
(d) (ii) or (iv) (2 Marks)
15. Determine the total duties payable under the customs law if Mr. Aditya imported
rubber from Singapore at landed price (exclusive of duties) of ` 50 lakh. It has been
notified by the Central Government that share of imports of rubber from the
developing country against total imports to India exceeds 5%. Safeguard duty notified

8
 on this product is 30% and basic customs duty is 10%. Ignore integrated tax and
agriculture infrastructure and development cess.
(a) ` 20,50,000
(b) ` 20,00,000
(c) `23,50,000
(d) `18,00,000 (2 Marks)
Division B – Descriptive Questions (70 Marks)
Question paper comprises of 6 questions.
Answer Question No. 1 which is compulsory and any 4 questions out of the remaining 5
questions.
1. Vedant Shoppe is a retail trader of both taxable and exempted goods, registered under
GST in the State of Rajasthan. Vedant Shoppe has furnished the following details for a
month:
(`)
(1) Details of sales:
Supply of taxable goods 50,00,000
Supply of goods not leviable to GST 10,00,000
(2) Details of goods purchased for being sold in the shop:
Taxable goods 45,00,000
Goods not leviable to GST 4,00,000
(3) Details of expenses:
Monthly rent payable for the shop 3,50,000
Telephone expenses paid 50,000
(` 30,000 for bills of land line phone installed at the shop and
` 20,000 towards mobile phone bills of the employees – Mobile
phones are also given to employees for official use)
Audit fees paid to a Chartered Accountant 60,000
(` 35,000 for the statutory audit of preceding financial year and
` 25,000 for certification work)
Premium paid on health insurance policies taken for specified 10,000
employees of the shop as per company policy.

9
 Freight paid to goods transport agency (GTA) [service taxable @ 50,000
5%] for inward transportation of goods not leviable to GST
Freight paid to goods transport agency (GTA) [service taxable under 1,50,000
reverse charge @ 5%] for inward transportation of taxable goods
Goods given as free samples (Not included in taxable goods value 5,000
of 45,00,000)

All the above amounts are exclusive of all kinds of taxes, wherever applicable.
All the inward and outward supplies made by Vedant Shoppe are from/to registered
suppliers within Rajasthan.
Assume, wherever applicable, for purpose of reverse charge payable by Vedant Shoppe,
the CGST, SGST and IGST rates as 2.5%, 2.5% and 5% respectively. CGST, SGST and
IGST rates to be 6%, 6% and 12% respectively in all other cases.

There is no opening balance in the electronic cash ledger or electronic credit ledger.
Subject to the information given above, assume that all the other conditions necessary
for availing ITC have been fulfilled.
You are required to compute the following:
(i) Input Tax Credit (ITC) credited to Electronic Credit Ledger
(ii) Common credit available for apportionment
(iii) ITC attributable towards exempt supplies out of common credit
(iv) Net GST payable from Electronic Cash Ledger for the month (14 Marks)
2. (a) Malceto Manufacturers Ltd., registered in Mumbai (Maharashtra), is a
manufacturer of footwear. It imports a footwear making machine from USA.
Malceto Manufacturers Ltd. enters into a contract with Shiva Logistics, a licensed
customs broker with its office at Ahmedabad (Gujarat), to meet all the legal
formalities in getting the said machine cleared from the customs station.
Apart from this, Malceto Manufacturers Ltd. authorises Shiva Logistics to incur,
on its behalf, the expenses in relation to clearance of the imported machine from
the customs station and bringing the same to the warehouse of Malceto
Manufacturers Ltd. which shall be reimbursed by Malceto Manufacturers Ltd. to
Shiva Logistics on the actual basis in addition to agency charges.
Shiva Logistics provided following details in the invoice issued by it to Rolly
Manufacturers Ltd.:

10
 S. No. Particulars Amount (`)
(i) Agency charges 5,00,000
(ii) Unloading of machine at Kandla port, Gujarat 50,000
(iii) Charges for transportation of machine from 25,000
Kandla port, Gujarat to its Shiva Logistics’
godown in Ahmedabad, Gujarat
(iv) Charges for transportation of machine from 28,000
Shiva Logistics’ Ahmedabad godown to the
warehouse of Malceto Export Import House in
Mumbai, Maharashtra
(v) Prepared and submitted Bill of Entry and paid 5,00,000
customs duty
(vi) Dock dues paid 50,000
(vii) Port charges paid 50,000
(viii) Hotel expenses 45,000
(ix) Travelling expenses 50,000
(x) Telephone expenses 2,000

Compute the value of supply made by Shiva Logistics with the help of given
information.
Would your answer be different if Shiva Logistics has charged ` 13,00,000 as a
lump sum consideration for getting the imported machine cleared from the
customs station and bringing the same to the warehouse of Malceto
Manufacturers Ltd.? (10 Marks)
(b) 15,000 chalices were imported for charitable distribution in India by Social Welfare
Charitable Trust. The Trust did not pay either for the cost of goods or for the design
and development charges, which was borne by the supplier. Customs officer
computed its FOB value at USD 20,000 (including design and development
charges), which was accepted by the Trust. Other details obtained were as
follows:
Sl. Particulars Amount
No.
1. Freight paid (air) (in USD) 4,500
2. Design & development charges paid in USA (in USD) 2,500
3. Commission payable to an agent in India (in `) 12,500

11
 4. Exchange rate notified by CBIC and rate of basic duty is
as follows:
Date of Bill of Entry BCD Exchange Rate in

8th September 20% ` 70

Date of arrival of aircraft BCD Exchange Rate in

30th September 10% ` 72

The inter-bank rate was 1 USD = ` 73

Compute the amount of Assessable value of chalices. Make suitable assumptions

where required. Working notes should form part of your answer. (4 Marks)
3. (a) RMN Company Ltd., a registered supplier of Bengaluru (Karnataka), is a
manufacturer of goods. The company provides the following information
pertaining to GST paid on inward supplies during the month of April (current
financial year):
S. Items GST paid in
No. (`)
(i) Life Insurance premium paid by the company for the 1,50,000
life insurance of factory employees as per the policy of
the company. There is no legal obligation for such
insurance for employees.
(ii) Raw materials purchased for which invoice is missing 38,000
but delivery challan is available
(iii) Raw materials purchased which are used for zero 50,000
rated supply
(iv) Works contractor's service used for repair of factory 30,000
building which is debited in the profit and loss account
of company
(v) Company purchased the capital goods for ` 4,00,000 48,000
and claimed depreciation of ` 44,800 (@ 10%) on the
full amount of ` 4,48,000 under Income Tax Act, 1961

Other information:
(1) In the month of September of previous financial year, RMN Company Ltd.
availed ITC of ` 2,40,000 on purchase of raw material which was directly
sent to job worker's premises under a challan on 25th September (previous

12
 financial year). The said raw material has not been received back from the
job worker up to 30th April (current financial year).
(2) All the above inward supplies except at S. No. (iii) above have been used
in the manufacture of taxable goods. Inward supplies at S. No. (iii) above
have been used in the manufacture of exempt goods.
Compute the amount of net ITC that can be availed by RMN Company Ltd. for the
month of April with necessary explanations for the treatment of various items as
per the provisions of the CGST Act. Subject to the information given above,
assume that all the other conditions necessary for availing ITC have been fulfilled.
(5 Marks)
(b) Determine the time of supply in the following cases:
(i) Bhansali Ltd. sells goods to Chopra Ltd. on 4th June. The goods are taxable
under reverse charge. Invoice for the same is issued on 4th June. Chopra
Ltd. receives the goods on 12th June.
Chopra Ltd. records the payment in the books of account on 30 th June and
the same is debited from the bank account of C Ltd. on 2nd July.
(ii) Aanand Ltd. sells food coupons to Banwari Ltd. The company gives these
coupons to its employees as part of the agreed perquisites. The coupons
can be redeemed for purchase of any item of food /provisions in the outlets
that are part of the program. (5 Marks)
(c) M/s Bhalla Imports Ltd. imported certain goods, which were unloaded in the
customs area on 1st October. When order for clearance was passed by proper
officer on 5th October, it was found that there was some pilferage of such goods.
As the imported goods were in the custody of Port Trust, the Department
demanded duty from the custodian under section 45(3) of the Customs Act, 1962,
on such pilferage. The Port Trust denied such demand contending that it was not
an approved custodian falling under section 45 of Customs Act, 1962 and
possession of goods by it was by virtue of powers conferred under the Major Port
Trust Act, 1963. Hence, it is not liable for customs duty on pilfered goods.
M/s Bhalla Imports Ltd. has also asked the Port Trust to make good the loss of
goods. Examine, whether the demands made by the Department and M/s Bhalla
Imports Ltd. are justified in law, referring to decided case law. (4 Marks)
4. (a) M/s Surajbhan & Co. is registered under GST in the state of Maharashtra. They
have made zero-rated supply of goods worth ` 84,50,000 without payment of
IGST for ` 10,14,000 during the month of May. The refund application under
section 54 for the above supply has been rejected by the proper officer.

13
 Mr. Abhay, taxation manager of the firm, has sought for recrediting the Electronic
Credit Ledger as per the provisions of rule 86 for the above rejection. Examine
the scenario and offer your comments. (5 Marks)
(b) Mr. Narayan has, over three consignments of 200, 400 and 400 units, imported a
total of 1000 units of an article "ZEP", which has been valued at ` 1,150 per unit.
The customs duty on this article has been assessed ` 250 per unit. He adds his
profit margin ` 350 per unit and sells the article for ` 1,750 per unit.
After one month of selling the entire consignment of article "ZEP", Mr. Narayan
found that there had been an error in payment of amount of duty, in which duty for
the consignment of 200 units was paid as if it was 400 units, resulting in excess
payment of duty. Mr. Narayan files an application for refund for
` 50,000 (200 X 250). Is the bar of unjust enrichment attracted? (5 Marks)
(c) Vishal imported certain goods in May. An ‘into bond’ bill of entry was presented
on 14th May and goods were cleared from the port for warehousing. Assessable
value on that date was US $ 1,00,000. The order permitting the deposit of goods
in warehouse for 4 months was issued on 21st May. Vishal deposited the goods
in warehouse on the same day but did not clear the imported goods even after the
warehousing period got over on 21st September.
A notice was issued under section 72 of the Customs Act, 1962, demanding duty
and interest. Vishal cleared the goods on 14th October. Compute the amount of
duty and interest payable by Vishal while removing the goods on the basis of the
following information:
Particulars 14th May 21st September 14th October
Rate of exchange per US $ `65.20 ` 65.40 ` 65.50
(as notified by Central
Board of Indirect taxes &
Customs)
Basic customs duty 15% 10% 12%

Integrated Tax leviable under section 3(7) of the Customs Tariff Act is exempt.
Ignore agriculture and infrastructure development cess. (4 Marks)
5. (a) Examine the implications as regards the bailability and quantum of punishment on
prosecution, in respect of the following cases pertaining to the month of December
under CGST Act, 2017-
(i) 'Amit' collects ` 245 lakh as tax from its clients and deposits ` 241 lakh
with the Central Government. It is found that he has falsified financial
records and has not maintained proper records.

14
 (ii) 'Suresh' collects ` 550 lakh as tax from its clients but deposits only
` 30 lakh with the Central Government.
What will be the implications with regard to punishment on prosecution of 'Amit'
and 'Suresh' for the offences? What would be the position, if 'Amit' and 'Suresh'
repeat the offences?
It may be assumed that offences are proved in the Court. (5 Marks)
(b) In an order dated 20th August issued to QR (P) Ltd., the Joint Commissioner of
CGST has confirmed IGST demand of ` 280 crore. The company is disputing the
entire demand of IGST and wants to know the amount of pre-deposit it has to
make under the IGST Act for filing an appeal before the Appellate Authority
against the order of the Joint Commissioner.
Assuming that the Appellate Authority also confirms the order of the Joint
Commissioner and the company wants to file an appeal before the Appellate
Tribunal against the order of the Appellate Authority, determine the amount of
pre-deposit to be made by the company for filing the said appeal. (5 Marks)
(c) What are the conditions required to be fulfilled by the importer to make the imported
goods eligible for preferential rate of duty prescribed by the Central Government by
notification under section 25 of the Customs Act, 1962? (4 Marks)
6. (a) Write a brief note on Summary Assessment in certain special cases as per section
64 of the CGST Act, 2017. (6 Marks)
(b) Explain the provisions relating to rectification of errors apparent on the face of
record under section 161. (4 Marks)
OR
(b) State the circumstances when the proper officer can authorize ‘arrest’ of any
person under the CGST Act. (4 Marks)
(c) Discuss the liability of the retiring partner of a firm to pay any tax, interest or
penalty, if any, leviable on the firm under CGST/ lGST/ SGST Act. (4 Marks)

15
 Mock Test Paper - Series II: April, 2025
Date of Paper: 11th April, 2025
Time of Paper: 2 P.M. to 5 P.M.
FINAL COURSE: GROUP - II
PAPER – 5: INDIRECT TAX LAWS
1. Question paper comprises of two parts – Division A and Division B.
2. Division A comprises of Case Scenario based Multiple-Choice Questions (MCQs).
3. Division B comprises of questions which require descriptive type answers.
4. Working Notes should form part of the answers. However, in answers to Questions in
Division A, working notes are not required.
5. All questions should be answered on the basis of the position of (i) GST law as amended
by significant notifications/circulars issued and by the amendments made by the Finance
(No. 2) Act, 2024 which have become effective, till 31.10.2024 and (ii) Customs law as
amended by the Finance (No. 2) Act, 2024 and significant notifications/circulars and other
legislative amendments made upto 31.10.2024.
Division A – Case Scenario based MCQs (30 Marks)
Write the most appropriate answer to each of the following multiple-choice questions by
choosing one of the four options given. All questions are compulsory.
Case Scenario-I
Mr. Samrat, proprietor of M/s Corporate-Linc Enterprises, is engaged in trading of office
stationery items in its stationery store located at Salt Lake City, Kolkata. The said store is taken
on lease from Kolkata Municipal Corporation (KMC).
During the previous financial year, the turnover of M/s Corporate-Linc Enterprises was ` 14
lakh. Mr. Samrat supplies goods within the State of West Bengal only, but purchases stationery
items mostly from Delhi & Mumbai. He owns a duplex house in New Town, Kolkata. He stays
on the ground floor & has let out the first floor to an employee of IDICI Bank, registered in Delhi,
for residential purposes. The rent for the same is paid by IDICI Bank to Mr. Samrat.
During the financial year 2024-25, he applied for GST registration on voluntary basis on
2 nd April, 2024 and the registration was granted to him w.e.f. 9th April, 2024.
The details of his stock position during current financial year is as under:
 Particulars 2nd April, 2024 8th April, 2024
Corporate stationery items purchased from a registered ` 1 lakh ` 1 lakh
dealer
Books, periodicals, journals, newspaper, maps etc. ` 0.20 lakh ` 0.30 lakh

The details of transactions carried out by Mr. Samrat during the current financial year is
furnished hereunder:
Particulars 1st April, 2024 to 9th April, 2024 to
8th April, 2024 31st March, 2025
(` in lakh) (` in lakh)
Sale of office stationery items 3 84
(Intra-State supply to registered persons)
Sale of office stationery items 2 14
(Intra-State supply to unregistered persons)
Legal fees paid to advocate in Kolkata - 0.10
Purchase of stationery items 3 74
(Intra-State supply received from registered person)
Purchase of furniture for use in own office - 1
(from an unregistered dealer of Kolkata)
Purchase of stationery items from a registered dealer of 1 18
Delhi
Lease rent of the stationery store paid to Kolkata - 1.20
Municipal Corporation (KMC)
Transportation charges paid to M/s Gati Transporters, 0.10 1.50
a GTA in Kolkata, who has not exercised the option to
pay tax itself (tax is payable @ 5%)
Interest paid on borrowings from BBI Bank, Kolkata 0.20 1.80
Accrued interest on Fixed deposit with BBI Bank, - 0.16
Kolkata
Rent received from IDICI Bank for its employee - 2.40

Mr. Samrat went to Mumbai, Maharashtra for a business meeting in February, 2025 and stayed
in Hotel Blue Pines for a week. Hotel charged ` 1,00,000 (taxable value) for the stay.
All the amounts given above are exclusive of GST, wherever applicable, unless otherwise
provided. Assume that there is no other outward or inward supply transaction apart from
aforesaid transactions in the current financial year. GST is applicable on all inward and outward
supplies, except on services of transportation of goods, at the following rates:
I. Intra-State supply – 6% CGST and 6% SGST
II. Inter-State supply – 12% IGST
Based on the facts of the case scenario given above, choose the most appropriate answer
to Q. Nos. 1 to 5 below, carrying 2 marks each:
1. The value of outward supply tax on which GST is payable by Mr. Samrat for the financial
year 2024-25 is _______.
(a) ` 98 lakh
(b) ` 100.40 lakh
(c) ` 102.40 lakh
(d) ` 108 lakh
2. Which of the following statements is correct in terms of the facts of the case scenario
given above?
(a) Mr. Samrat cannot opt to pay tax in the FY – 2025-26 under composition scheme
under section 10(1) and 10(2) of the CGST Act, 2017.
(b) Mr. Samrat is entitled to take the ITC of inputs held in stock on 1 st April, 2024.
(c) Mr. Samrat shall be liable to pay GST under reverse charge under section 9(4) of
the CGST Act during the financial year 2024-25 in respect of purchases made
from unregistered persons.
(d) Mr. Samrat is entitled to take the ITC of inputs held in stock on 8th April, 2024.
3. The value of supply on which Mr. Samrat is liable to pay GST under reverse charge for
the financial year 2024-25 is _______________.
(a) ` 1,60,000
(b) ` 2,80,000
(c) ` 1,30,000
(d) ` 2,70,000
4. Which of the following inward supply is not subject to payment of tax under reverse
charge mechanism?
(i) Shop rent paid to KMC
 (ii) Legal fee paid to advocate
(iii) Purchase of stationery items from unregistered person
(iv) Transportation charges paid to M/s Gati Enterprises
Choose the most appropriate option.
(a) (i) and (ii)
(b) (iii)
(c) (ii) and (iii)
(d) (i) and (iii)
5. Whether input tax credit is available on the GST paid by Mr. Samrat on the taxable value
of ` 1,00,000 charged by Hotel Blue Pines located in Mumbai, Maharashtra, for his stay?
If yes, please specify the amount of input tax credit available.
(a) Yes, ` 3,000 - CGST and ` 3,000 - SGST
(b) Yes, ` 12,000 - IGST
(c) Yes, ` 6,000 - CGST and ` 6,000 - SGST
(d) No input tax credit is available. (5 X 2 Marks= 10 Marks)
Case scenario 2
Mr. Anshul, registered under GST, is a practicing Chartered Accountant who is supplying the
service in the field of auditing and assurance. His earnings during the current financial year are
as follows-
1. Income from the auditing and assurance service provided during the year- ` 1,86,00,000
2. Income for acting as an examiner from the ICAI and ICSI (not on their rolls) in the month
of June - ` 2,50,000
3. Rental income from a commercial property, during the year- ` 13,90,000
Further, in the month of April, Mr. Anshul purchased 10 computers at a price of
` 25,000 each, for his office as new staff has been recruited by his HR team and had availed
and utilized ITC on the same.
On 31st October, out of these 10 computers, Mr. Anshul donated 2 computers to a blind school
within the State. Open market value of each of these computers, on 31st October, is ` 10,000.
Mr. Anshul belatedly filed GSTR-3B for the month of December, by 5 days. Net tax liability for
the month of December was ` 1,80,000 and gross tax liability for the month was ` 2,00,000.
Applicable rate of tax on all supplies was 18%.
Note:
1. All the above amounts are exclusive of taxes, wherever applicable.
2. The opening balance of input tax credit of Mr. Anshul for the relevant tax period(s) is nil.
Subject to the information given above, assume that all the other conditions necessary
for availing ITC have been fulfilled.
3. Mr. Anshul furnishes return on a monthly basis.
Based on the facts of the case scenario given above, choose the most appropriate answer
to Q. Nos. 6 to 10 below, carrying 2 marks each:
6. Assuming that the current financial year is the financial year 2023-24, Mr. Anshul is
required to maintain and retain the books of accounts for said financial year under the
GST law up to_____.
(a) 31st December 2029
(b) 31st December 2030
(c) 31st December 2031
(d) 31st December 2032
7. Aggregate turnover of Mr. Anshul for the current financial year is_________.
(a) ` 2,02,50,000
(b) ` 2,02,90,000
(c) ` 2,02,65,000
(d) ` 2,02,60,000
8. Total taxable turnover of Mr. Anshul for the current financial year is ___________.
(a) ` 2,00,10,000
(b) ` 2,00,40,000
(c) ` 2,02,60,000
(d) ` 2,02,50,000
9. Which of the following transactions/activities are considered as supply under GST law?
(i) Service provided as an examiner to ICAI and ICSI
(ii) Rental income
 (iii) Donation of computers to blind school without consideration
(a) (i) and (ii)
(b) (ii) and (iii)
(c) (i) and (iii)
(d) (i), (ii) and (iii)
10. Which of the following statement(s) is correct with respect to interest liability of
Mr. Anshul, for the month of December? Consider the year to be of 365 days.
(a) Interest liability of Mr. Anshul is ` 444 and he can pay the same either from input
tax credit available in electronic credit ledger or in cash.
(b) Interest liability of Mr. Anshul is ` 444 and he cannot utilize the input tax credit
for the payment of interest. He needs to pay the interest in cash.
(c) Interest liability of Mr. Anshul is ` 493 and he can pay the same from input tax
credit available in electronic credit ledger or in cash.
(d) Interest liability of Mr. Anshul is ` 493 and he cannot utilize the input tax credit
for the payment of interest. He needs to pay the interest in cash.
(5 X 2 Marks = 10 Marks)
Case scenario 3
Shivam Traders is a partnership firm in Jaipur, Rajasthan. The firm has obtained GST
registration at its Head Office (HO) in Jaipur and is a monthly return filer. Further, the firm is
having its depot for storage of goods in other districts in Rajasthan. The depots are added as
additional place of business in the GST registration obtained at HO. Following details are
provided about the firm for the month of July:
a. Shivam Traders received goods worth ` 5,00,000 for which GST is payable on reverse
charge basis. The goods were received on 25th July. The supplier issued an invoice
dated 24th July and payment for the same was debited in the bank account of Shivam
Traders on 30th July. Due to the absence of accountant, the transaction was recorded in
the books of accounts on 1st August.
b. In the month of July, Shivam Traders issued vouchers worth ` 2,00,000 to its customers,
which were eligible to be redeemed against identified goods. Also, certain set of
customers were issued vouchers worth ` 5,00,000 in the month of August. The said
vouchers were eligible to be redeemed against any supply of goods in next 6 months
starting from August month.
c. Mr. Ajay, a partner in the firm, booked a Hotel in Udaipur, Rajasthan for the wedding of
his daughter in the month of October. An advance of ` 5,00,000 for booking the hotel
was paid by way of online payment from the current account of Shivam Traders in July.
The hotel charged GST on such booking at the rate of 28% (CGST @ 14% and SGST
@ 14% or IGST @ 28%, as the case may be) on the amount received as advance and
issued a receipt voucher.
d. Shivam Traders made a supply of goods worth ` 25,00,000 during the month of July.
Out of the aforesaid supply, goods worth ` 5,00,000 were not liable to GST. However,
Shivam Traders inadvertently charged GST on such goods and collected the same from
the customers.
The opening balance of input tax credit for all registrations is nil for the relevant tax
period. Further, subject to the information given above, assume that all the other
conditions necessary for availing ITC have been fulfilled. All the above transactions are
exclusive of GST, wherever applicable.
GST is applicable on all inward and outward supplies @ 18%.
Based on the facts of the case scenario given above, choose the most appropriate answer
to Q. Nos. 11 to 13 below, carrying 2 marks each:
11. Compute the net GST liability to be discharged from electronic cash ledger for the month
of July by Shivam Traders.

(a) ` 5,76,000

(b) ` 4,36,000

(c) ` 3,96,000

(d) ` 4,86,000
12. Amount of input tax credit available to Shivam Traders against the hotel booking expense
shall be _______________. Would there be any change if the hotel is located outside
Rajasthan?
(a) Nil. There will be no change even if hotel is located outside Rajasthan.
(b) ` 70,000 as CGST and ` 70,000 as SGST. No credit would be available, had the
hotel been located outside Rajasthan.
(c) ` 70,000 as CGST and ` 70,000 as SGST. IGST of ` 1,40,000 would be available,
had the hotel been located outside Rajasthan.
 (d) Nil. IGST of ` 1,40,000 would be available, had the hotel been located outside
Rajasthan.
13. What is the time limit for issuance of show cause notice in respect of the GST
inadvertently charged and collected on the goods in July assuming that Shivam Traders
does not deposit the same with the Government?
(a) Within 2 years and 9 months from due date of filing annual return for the financial
year
(b) Within 4 years and 6 months from due date of filing annual return for the financial
year
(c) No time limit to issue the show cause notice
(d) No show cause notice is required to be issued. The tax amount shall be refunded
to the customers if the customer demands the same. (3 X 2 Marks = 6 Marks)
14. Axe & Sledge India Ltd. imported a consignment from U.S.A (by sea). The value of
consignment was ` 7,50,000 and total duty payable was ` 1,50,000.
Company filed bill of entry for home consumption but before inspection and clearance for
home consumption it found that the goods were damaged. The proper officer has also
agreed about the damage of goods.
The value of goods has come down to only ` 1,50,000.
The amount of the duty payable by Axe & Sledge India Ltd. is:
(a) 1,50,000
(b) 30,000
(c) 15,000
(d) NIL (2 Marks)
15. Paridhi Ltd. sent certain goods abroad for repairs. Paridhi Ltd. has been advised by their
consultants that they will have to pay customs duty (i.e. basic customs duty, IGST & GST
compensation cess) only on fair cost of repairs, cost of materials used in repairs (whether
such costs are actually incurred or not), freight and insurance charges, both ways, on re-
import of exported goods under Notification No. 45/2017 Cus dated 30.06.2017 provided
they fulfill following conditions:
(i) The re-importation is done within 3 years from date of export or, if time is
extended, within 5 years.
(ii) The exported and re-imported goods are same.
 (iii) The ownership of goods should not have changed.
Paridhi Ltd. seeks your opinion about which one of the above-mentioned conditions is/are
correct:
(a) (i), (ii) and (iii)
(b) (ii) and (iii)
(c) (i) and (iii)
(d) Only (ii) (2 Marks)

Division B – Descriptive Questions (70 Marks)

Question paper comprises of 6 questions. Answer Question No. 1 which is compulsory and
any 4 questions out of the remaining 5 questions.
1. Rajnath Private Limited is registered under GST in the State of Uttar Pradesh. It is
engaged in supplying three products – Product Theta, Product Delta and Product Omega,
from its factory located in Rampur, Uttar Pradesh. Product Theta and Product Delta are
taxable whereas Product Omega is exempt from GST. Besides, it also supplies
cigarettes from its factory located in Kanpur and owns a petrol pump in Lucknow. It is
also engaged in supply of certain services.
It has furnished the following information with regard to the supplies made by it in the
month of August:
Particulars (`)*
Supply of Product Theta 50,00,000
Supply of Product Omega 1,00,00,000
Supply of management consultancy services 50,00,000
Renting of commercial complex to local traders of electronic goods 50,00,000
Export of Product Delta 1,00,00,000
Export of consultancy services 20,00,000
[including exports made to a Nepal based company of ` 5 lakh
(payment is received in Indian currency in said case)]
Sale of building (excluding stamp duty of ` 2.50 lakh being 2% of value 2,50,00,000
adopted for paying stamp duty)
[Entire consideration is received post issuance of completion
certificate; building was occupied thereafter]
Interest received on investment in fixed deposits with Haribhari bank 10,50,000
 Sale of shares of a public company (Purchase price of such shares is 2,50,00,000
` 2,40,00,000)
Supply of cigarettes [GST being levied @ 28%.] 1,00,00,000
(including excise duty of ` 12,50,000)
Supply of petrol and diesel 80,00,000
(including VAT of ` 5,00,000 and excise duty of ` 12,50,000)
Amount received from Devi Prasad Private Limited of Lucknow, Uttar 6,00,000
Pradesh. It has sponsored the business exhibition organized in Delhi
by Rajnath Private Limited.
*excluding GST
With the help of the above-mentioned information, compute the gross GST liability of
Rajnath Private Limited for the month of August on the outward supplies made by it during
said period.
Note: Assume that rates of GST on outward supply of goods and services are 12% and
18% respectively unless otherwise specified (Ignore CGST, SGST or IGST for the sake
of simplicity). Exports made by Rajnath Private Limited, if any, have been made to
persons other than distinct/related persons and are made by furnishing LUT without
payment of IGST. (14 Marks)
2. (a) Travis, a manufacturer of roofing sheets, is having ` 1,60,000 as opening balance
of ITC for June month. He provides the following information pertaining to the
goods and services procured during the month of June:
(1) Input tax on raw materials is ` 40,000. The raw material is used for making
both taxable and exempt supplies.
(2) Input tax on catering services procured from ‘Hari Caterers’ in connection
with his housewarming ceremony is ` 10,000.
(3) Input tax on raw materials used exclusively in manufacture of exempt
supplies of ` 2 lakh is ` 20,000.
(4) Input tax on cosmetic and plastic surgery of manager of the factory is
` 30,000.
Total taxable turnover for the month of June is ` 60 lakh exclusive of tax.
Compute the ITC credited for the month of June to the Electronic Credit Ledger
and net GST payable from Electronic Cash Ledger by Travis for the month of
June. Rate of GST is 18% (Ignore CGST, SGST or IGST and provisions of rule
86B for the sake of simplicity).
 Subject to the information given above, assume that all the other conditions
necessary for availing ITC have been fulfilled. All the purchases are made from
registered suppliers. (10 Marks)
(b) SOP & Company Ltd. has imported a machine from U.K. From the following
particulars furnished by it, arrive at the assessable value for the purpose of
customs duty payable.
Particulars Amount
(i) Price of the machine 10,000 U.K. Pounds
(ii) Freight (air) 3,000 U.K. Pounds
(iii) Engineering and design charges paid to a 500 U.K. Pounds
firm in U.K.
(iv) License fee relating to imported goods 20% of Price of machine
payable by the buyer as a condition of sale
(v) Materials and components supplied in UK
by the buyer free of cost valued at ` 20,000
(vi) Insurance paid to the insurer in India ` 6,000
(vii) Buying commission paid by the buyer to 100 U.K. Pounds
his agent in U.K.
Other particulars:
(i) Inter-bank exchange rate: ` 98 per U.K. Pound.
(ii) CBIC had notified for purpose of section 14 of the Customs Act, 1962,
exchange rate of ` 100 per U.K. Pound.
(iii) Importer paid ` 5,000 towards demurrage charges for delay in clearing the
machine from the Airport.
(Make suitable assumptions wherever required and show workings with
explanations). (4 Marks)
3. (a) Mohan Medical Centre, a Multi-speciality hospital, is a registered supplier in
Mumbai. It hires senior doctors and consultants independently, without entering
into any employer-employee agreement with them. These doctors and consultants
provide consultancy to the in-patients (patients who are admitted to the hospital
for treatment) without there being any contract with such patients. In return, they
are paid the consultancy charges by Mohan Medical Centre.
However, the money actually charged by Mohan Medical Centre from the
in-patients is higher than the consultancy charges paid to the hired doctors and
 consultants. The difference amount retained by the hospital, i.e. retention money,
includes charges for providing ancillary services like nursing care, infrastructure
facilities, paramedic care, emergency services, checking of temperature, weight,
blood pressure, etc.
The Department took a stand that senior doctors and consultants are providing
services to Mohan Medical Centre and not to the patients. Hence, their services
are not the health care services and must be subject to GST. Further, GST is
applicable on the retention money kept by Mohan Medical Centre.
You are required to examine whether the stand taken by the Department is
correct. (5 Marks)
(b) Mr. Sumit Awasthi, an interior decorator provides professional services to
Mr. Manish Pareek in relation to two of his immovable properties.
Determine the place of supply in the transactions below as per provisions of GST
law in the following independent situations:
Case Location of Location of Property situated
Mr. Sumit Awasthi Mr. Manish Pareek at
I Delhi Maharashtra New York (USA)
II Delhi New York Paris (France)
Explain the relevant provisions of law to support your conclusions. (5 Marks)
(c) Vinayak Company imported goods valued at ` 10,00,000 vide a Bill of Entry
presented before the proper officer on 15thDecember, 2024, on which date the
rate of customs duty was 20%. The proper officer decided that the goods should
be subject to chemical or other test and therefore, the same were provisionally
assessed at a value of ` 10,00,000 and Vinayak Company paid provisional duty
of ` 2,00,000 on the same date. Vinayak Company wants to voluntarily pay duty
of ` 1,50,000 on 20th January, 2025.
(1) Can Vinayak Company provisionally pay the duty and what are the
conditions which are to be complied before such payment is made?
(2) Determine the amount of interest payable, if any, under section 18 of the
Customs Act, 1962 assuming that the payment of ` 1,50,000 as stated
above is made on 20th January, 2025 and that the final duty is assessed on
31st January, 2025 at ` 4,00,000 and the balance duty is paid on the same
day. (4 Marks)
4. (a) Mahima Ltd. has belatedly filed GST return (under section 39 of the CGST
Act,2017) for the month of January after 60 days from the due date for filing such
return. Total tax paid in such return is as below:
Particulars IGST (`) CGST (`) SGST (`)
Output tax payable 4,50,000 2,85,000 2,85,000
Tax payable under reverse charge 18,000 32,000 32,000
Input tax available for utilisation 2,50,000 55,000 55,000
Tax paid through Electronic Cash 2,18,000 2,62,000 2,62,000
Ledger

Examine the interest payable as per the provisions of GST law with the help of
above information.
What would be your answer, if entire tax for the month of January has to be paid
through Electronic Credit Ledger except taxes to be paid on reverse charge basis?
(5 Marks)
(b) With the help of the following information in the case of M/s Avkash Enterprises,
Jaipur (Rajasthan) for the financial year, determine the aggregate turnover for the
purpose of registration under the CGST Act.
Sl. Particulars Amount
No. (`)
(i) Sale of diesel on which VAT is levied by Rajasthan 1,00,000
Government.
(ii) Supply of goods, after completion of job work, from the 3,00,000
place of Avkash Enterprises directly by principal by
declaring the place of M/s Avkash Enterprises as its
additional place of business.
(iii) Export of goods to England (U.K.) 5,00,000
(iv) Supply to its own additional place of business in 5,00,000
Rajasthan.
(v) Outward supply of services on which GST is to be paid 1,00,000
by recipient under reverse charge.

All the above amounts are excluding GST.

You are required to provide reasons for treatment of various items given above.
(5 Marks)
 (c) Determine the total duties payable under Customs Act if Mr. Raju imported rubber
from Malaysia at landed price (exclusive of duties) of ` 25 lakh. It has been
notified by the Central Government that share of imports of rubber from the
developing country against total imports to India exceeds 5%. Safeguard duty
notified on this product is 30%, IGST u/s 3(7) is 12% and BCD is 10%. Ignore
agriculture infrastructure and development cess. (4 Marks)
5. (a) Examine the implications as regards the bailability and quantum of punishment on
prosecution, in respect of the following cases pertaining to the month of December
under CGST Act, 2017-
(i) 'Makkhanlal' collects ` 245 lakh as tax from its clients and deposits ` 241
lakh with the Central Government. It is found that he has falsified financial
records and has not maintained proper records.
(ii) 'Kishore' collects ` 550 lakh as tax from its clients but deposits only
` 30 lakh with the Central Government.
What will be the implications with regard to punishment on prosecution of
'Makkhanlal' and 'Kishore' for the offences? What would be the position, if
'Makkhanlal' and 'Kishore' repeat the offences?
It may be assumed that offences are proved in the Court. (5 Marks)
(b) In an order dated 20th August issued to UX (P) Ltd., the Joint Commissioner of
CGST has confirmed IGST demand of ` 280 crore. The company is disputing the
entire demand of IGST and wants to know the amount of pre-deposit it has to
make under the IGST Act for filing an appeal before the Appellate Authority
against the order of the Joint Commissioner.
Assuming that the Appellate Authority also confirms the order of the Joint
Commissioner and the company wants to file an appeal before the Appellate
Tribunal against the order of the Appellate Authority, determine the amount of pre-
deposit to be made by the company for filing the said appeal. (5 Marks)
(c) What are the conditions required to be fulfilled by the importer to make the
imported goods eligible for preferential rate of duty prescribed by the Central
Government by notification under section 25 of the Customs Act, 1962?
(4 Marks)
6. (a) TFT Private Ltd. has been declared insolvent by the order of court and the same
company is going under liquidation process. Advise the directors of that company
about the provisions relating to liability for GST in case of company in liquidation.
(6 Marks)
(b) Explain the provisions relating to rectification of errors apparent on the face of
record under section 161 of the CGST Act, 2017. (4 Marks)
OR
(b) List the cases, in which transfer of property to be void specified under section
81 of the CGST Act, 2017. (4 Marks)
(c) Discuss the key similarities and differences between Advance Authorization and
DFIA (Duty Free Import Authorization) schemes. (4 Marks)
 Mock Test Paper - Series I: March 2025
Date of Paper: 21st March, 2025
Time of Paper: 2 P.M. – 6 P.M.
FINAL COURSE: GROUP – II
PAPER – 6: INTEGRATED BUSINESS SOLUTIONS
Attempt any four out of five case study based questions.
Each Case Study carries 25 Marks.
Time Allowed – 4 Hours Maximum Marks – 100

CASE STUDY 1
Due to increased urbanization, there has been a strong demand for residential housing facilities
in various cities in India. Residential housing construction in each region is largely a fragmented
market dominated by local and regional builders. Few builders have a nationwide presence.
Residential construction is segmented by type, that is apartments and condominiums, villas and
other types. Most of the apartments’ construction is aimed at the mid-range income to luxury
segment of customers. There are very few players targeting the low-income customers who are
also in need of affordable housing facilities. The need for affordable housing is especially felt in
well-developed cities like Pune, Bangalore, Gurgaon and Ahmedabad that have become urban
centers in the last few decades. Housing facilities catering to the low-income customer segment
are generally of poor quality, consequently, are prone to unfortunate accidents.
BharatTech3D (B3D) is a company established by Mrs. Sinha, an architect and avid innovator.
She has been a seasoned professional having more than 25 years of experience in the
construction industry. She is also an innovator who wishes to harness the power of technology
that can revolutionize the construction industry. “Provide over each head a safe and secure
roof, without a huge debt” is the current vision for her latest project. B3D specializes on
building 600 sq. ft to 800 sq. ft single- and two-bedroom homes using 3D technology. This is a
revolutionary innovation in the construction industry. Traditional construction involved
developing a blueprint for the home, then procure men, material and machines to work on the
home. Completing a project the traditional way can take months, up to even more than a year
in some cases.
B3D plans to turn this concept on the head, by introducing 3D printing technology for
construction. Once the blueprint is finalized, the 3D construction printer takes over and creates
the physical structure by printing out layers of concrete based on the design and specifications
in the blue print. This substantially reduces wastes, errors and time required for construction in
addition to generating better quality output. One housing project can be built within 6 months as

1
compared to a period of 18 months for a similar project built using traditional construction
techniques.
As compared to traditionally built homes, the cost of construction of 3D printed homes are
expected to be cheaper. An advantage of using 3D construction technology is that it reduces
the need for construction labourers as many of the processes are automated. This results in the
reduction of construction labour cost by almost 40%. Also, reduction in wastes and errors helps
in managing costs better. B3D is in talks with 3D construction printer manufacturers to procure
machines needed for construction. These are costly machines that require huge initial
investment. B3D is considering financing options for procurement of these machines, currently
the loan financing rates are high. Due to limited supply in the face of high demand for prime
locations, the cost of land procurement in these fast-developing urban centres is also high.
Inflationary pressures on cost of materials, labour and other constructions costs, high financing
costs etc. are challenges that B3D expects to encounter. Hence, generating a quick inventory
turnover is critical.
B3D has well qualified engineers and architects who will be working on this project. Since B3D
plans to build these 3D homes across different cities, their expertise will be required at multiple
locations. Hence, in order to retain them and motivate them, the company has offered good
remuneration packages to them. For the staff it is a matter of pride to be able to be part of such
innovative projects.
B3D wants construction material such as cement and steel need to be of specific quality. There
are limited suppliers who can provide material of such grade quality. Moreover, B3D’s material
requirements form a very small portion of the suppliers’ market. Many times, the lead times for
procuring these materials are uncertain. Construction material includes bricks and glass that
are very fragile and difficult to store. These materials are widely available in the market with
many suppliers and can be procured easily on demand. B3D is considering its strategy for
inventory management for each of the requirements like cement, steel, bricks and glass.
B3D targets to achieve low cost of production, less lock in of time and capital for each project.
Keeping this in mind, the company plans to price the houses at a very attractive price of ` 10
lakhs for a single bedroom flat and ` 12 lakh for double bedroom flat in prime locations in urban
cities across India. On average, similar traditional homes costs around ` 15 lacs per single
bedroom flat and ` 18 lakh for double bedroom flat in the same locality. This will bring a lot of
relief for this segment of customers who until now were dependent on the traditional builders for
their home shelter needs. B3D targets to make a profit of at least 8% on sale price per flat. At
present, it plans to have a uniform selling prices for single bedroom and double bedroom flats
across cities in order to popularize the projects. However, there is flexibility for B3D to charge
according to the exact cost considerations for each location in each city. Incumbents in the real
estate cannot compete at this low range pricing, hence the company expects them to

2
concentrate their business on the higher end segments for middle income and luxury class
segments.
B3D has received the requisite approvals for the projects from town planning and other
regulatory authorities. To create awareness and generate demand among the lower income
groups, it plans to advertise its products in vernacular newspapers and TV channels. This would
ensure better reach to the target customer segment. The cost of advertising in these channels
is also cheaper as compared to other mediums. B3D will have a sales office at each project
website, which will handle customer enquiries and take them on site tours in order to familiarize
themselves with this novel building project.
B3D wishes to create traction on its sales quickly in order to capitalize on its revolutionary
concept. Hence, B3D has tied up with Smart Bank Ltd. This is a reputed bank that has a national
presence. It has vetted and listed B3D’s project across various cities as one of its approved
projects for which it is willing to provide loans along with assistance with loan processing. This
tie-up gives further credibility in the market for this novel housing project.
Since customers are of the lower income group, the probability of their requirement for loan
financing would be higher. Hence where felt appropriate, the sales team of B3D would
encourage customers to approach Smart Bank Ltd. for home loans. Fast loan processing due
to pre-approved tie-up, speeds up fund procurement and the transaction can be completed
quickly, improving churn in sales. Smart Bank Ltd. will also use its digital marketing activities
and direct selling agents who will advertise the availability of home loan facilities through these
channels. For each loan that gets approved through this tie-up, B3D gets a small commission
on each transaction. B3D expects at least 85% of the potential customers to utilize the tip-up
with Smart Bank Ltd. to avail loans.
Bhavna, an engineer in the research and development team, has been working on making the
construction process more efficient. Consequently, it can reduce the cost of construction. Given,
the spectre of inflationary pressures on cost of operations, this project is considered to be critical
to business and has the support of the senior management at B3D. Required finances have
been approved by the management for this project i.e., efficient 3D construction technology.
Project costs are easily identifiable and quantifiable. Bhavna believes that the cost reductions
will exceed the project costs within 36 months of their implementation. Regulatory testing, health
and safety approvals were obtained on June 1, 2023. This removed uncertainties concerning
the project, which was finally completed on April 30, 2024. Costs of ` 24,00,000 incurred till
March 31, 2024 have been recognized as an intangible asset. An offer of ` 17,00,000 has been
received from a third party potential buyer, but it was rejected by B3D, believes that the project
will be a major success and that the B3D has the potential to save ` 19,00,000 in perpetuity.
However, Mrs. Sinha, the head of the research and development team, is concerned about the
long term prospects of the new process. She is of the opinion that competitors would have

3
developed new technologies at some time which would require to replace the new process within
five years. She estimates the present value of future cost savings over this period to be
`18,00,000. After that, she feels there is no certainty about the future.
In order to know the state of art developments in the 3D construction business, B3D engages
technical services of Pathway Consulting GMBH (having no PE in India), a consulting company
in Germany for ` 25,00,000. On 31st December 2024, it paid the fees for technical services to
this company. This was paid to the company’s account in Germany. The accountant engaged
at B3D was new to the job. He deducted the tax at source correctly but forgot to deposit the
same. B3D paid the relevant TDS in December 2025. India and Germany have a Double
Taxation Avoidance Agreement (DTAA) in place to prevent the double taxation of income earned
in both countries. As per Article 12 of the India-Germany DTAA, the applicable TDS rate on
royalties and fees for technical services (FTS) is 10%.
The management of B3D is considering the following capital budgeting report for its first project
in Pune. Due to the novel nature of the project, the management wishes to know the guaranteed
return that it would rather accept as compared to a higher but uncertain return. Accordingly, the
capital budgeting analysis has incorporated the certainty equivalent co-efficient of future cash
flows.
Total investment in the project in Pune ` 5 crores.
Risk free return 3%
Expected cash flow for the next five years
Year Expected cash flow (`) Certainty Equivalent co-efficient
1 1 crore 0.95
2 2 crores 0.90
3 2 crores 0.85
4 3 crores 0.80
5 2 crores 0.75
In May 2024, B3D enters into a lease with AK Enterprises for a 3D construction printer for the
Pune project for a period of 3 years. The contract stipulates that AK Enterprises will perform
maintenance of the leased 3D construction printer and receive consideration for that
maintenance service. The contract contains the following fixed prices for the lease and non-
lease component:
Lease component for 3D printer ` 6,00,000 per annum
Maintenance component for 3D printer ` 1,00,000 per annum
Total payment made to AK Enterprises ` 7,00,000 per annum

4
Assume that the stand-alone prices cannot be readily observed, so B3D makes estimates
maximizing the use of observable information of the lease and non-lease components as
follows:
Lease component for 3D printer ` 8,00,000 per annum
Maintenance component for 3D printer ` 2,00,000 per annum
Total payment made to AK Enterprises ` 10,00,000 per annum

B3D has not opted for the practical expedient option regarding the lease and non-lease
component.
Multiple Choice Questions
1. Which type of disruption does the introduction of 3D printing in the real estate sector
represent?
(a) Low end disruption
(b) New market disruption
(c) competitive disruption
(d) Generic disruption
2. From the case scenario, which stage of startup is B3D in and what is the value proposition
match has it achieved?
(a) Pre-start up stage with problem-market FIT stage
(b) Pre-start up stage with problem-solution FIT stage
(c) Start up stage with product-market FIT stage
(d) Start up stage with scale-FIT stage
3. B3D is considering its strategy for inventory management. Given the information in the
case study about the lead times, availability of suppliers and negotiating powers with
suppliers, which of the following inventory management methodologies can the company
follow for these products?
(a) Just in Time Purchasing for all construction materials like bricks and glass, cement
and steel.
(b) Just in Time Production for all construction materials like bricks and glass, cement
and steel.
(c) inventory to stock for materials like bricks and glass and Just in Time Production
for construction materials like cement and steel.

5
 (d) Inventory to stock for construction materials like cement and steel while Just in
Time purchasing for materials like bricks and glass.
4. The net present value of the project in Pune using the certainty equivalent technique
shall be approximately
(a) ` 3.35 crores
(b) ` 2.60 crores
(c) ` 4.07 crores
(d) ` 5.00 crores
5. What will be the allocation of consideration paid by B3D for the lease and non-lease
component against the contract with AK Enterprises for 3D printer?
(a) Lease component ` 6,00,000 per annum and non lease component ` 1,00,000
per annum
(b) Entire payment of ` 7,00,000 per annum as lease component as B3D has not
opted for practical expedient regarding the lease and non lease components
(c) Lease component ` 8,00,000 per annum and non lease component ` 2,00,000
per annum
(d) Lease component ` 5,60,000 per annum and non lease component ` 1,40,000
per annum (5 x 2 = 10 Marks)
Descriptive Questions
6. What are the tax implications for B3D due to the non-deduction of TDS on payments
made to Pathway Consulting GMBH? Additionally, is there any interest liability for failing
to deduct TDS? (5 Marks)
7. B3D wants to ensure that its business model has a competitive advantage over its rivals.
DEVELOP Osterwalder’s Business Model Canvas to help the management understand
the key elements of its business model. (5 Marks)
8. ADVISE the appropriate accounting treatment for the research and development costs
incurred by Bhavna to make construction process more efficient that will consequently
result in future cost savings. (5 Marks)

6
CASE STUDY 2
An article singing paeans for India’s space-tech start-ups appeared in “The New York Times”
recently. The article underlined that India has become home to many such start-ups. It pointed
out that space technology is fulfilling smaller-scale and commercial purposes like helping
farmers in timely insurance of their crops. Space technology is also helping commercial fishing
fleets in tracking their catch by sending images back to Earth. Satellites are bringing phone
signals to country’s remotest corners and are helping in operation of solar farms far away from
India’s megacities. It’s also one of India’s most sought-after sectors for venture capital investors.
Space technology is at the forefront of humanity’s next great leap expanding our presence
beyond Earth while enhancing life on our home planet. By making in-space resources available
on demand, we are not only enabling sustainable exploration but also unlocking new
opportunities for innovation, commerce, and scientific discovery.
Start-ups are mushrooming in different sectors of India’s economy as varied as education,
health, agriculture, fintech, clean energy, electric vehicles, bio technology, waste management,
food processing and even drones. Economic Survey for year 2021-22 highlights that by
capitalising on the digital infrastructure support, India has also emerged as one of the world's
most vibrant destinations for start-up ecosystems. Start-ups are being envisioned as the spine
of new India. In fact, India is home to world’s third largest start-up eco system.
Agrofine is an ed-tech start-up incorporated as a private company in April 2022. The founders
of start-up believe that some benefits are available to start-ups under income tax law. However,
they are unaware about nitty-gritty of the same as they are from engineering and management
backgrounds. The company had launched its products in year 2024-25 itself and had a turnover
of ` 20 crores. It is recognized by DPIIT (Department for Promotion of Industry and Internal
Trade under Ministry of Commerce and Industry) and holds a certificate of eligible business and
is recognized as a technology driven start-up by competent authority.
Agrofine’s vision is to help farmers with space & science and to accelerate humanity’s expansion
into space by making in-space resources available on-demand.
Agrofine’s mission is make the earth a more vibrant and sustainable place to live in by ensuring
education for all sects and to promote the higher standards of education and to revolutionizing
space access by dramatically lowering costs.
Agrofine has issued shares to certain investors who are familiar with founders of this ed-tech
start-up during year 2024-25. They believe in the business idea of founders of the company and
have decided to invest money out of their own resources. These investors are wedded to idea

7
of providing quality affordable education to all and promoting standards of education in the
country. In this way, their ideological belief stands aligned with mission of founders of start-up.
The start-up Agrofine has issued equity shares having face value of ` 10/-per share to these
individuals @ ` 50/-per share during year 2024-25. The fair market value of equity shares of
start-up as on valuation date is ` 11/-per share. The existing paid up share capital of company
is ` 1.50 crores. The company has not issued shares at premium anytime in past.
Agrofine is still in nascent stages. However, it has already launched its products and has entered
a segment of the market. The market has a considerable potential for company’s business to
grow. Start-ups not only need finance but they also require favourable and conducive eco
system to grow. It includes not only hand holding at time of germination of a business idea but
also policy measures having a legislative backing. In India, relaxations and benefits have been
provided to start-ups under various laws like under Income tax Act,1961 and Companies
Act,2013.
Agrofine needs talented and skilled employees for its business. However, the company is not in
a position to pay high cash salaries to attract and retain employees. It is, therefore, considering
route of employee stock option plans (ESOPs). Employee stock option plans provide a chance
to employees to become shareholders in the company and also be benefitted by its future
growth. The company plans to draft an ESOP scheme containing matters relating to grant of
option, vesting period and manner of determining exercise price among others. The company is
approaching many talented persons for assuming various senior roles in its organizational set-
up. One such senior person, Mr. X, has shown interest in joining the company. However, he is
sceptical regarding income tax implications pertaining to ESOPs. He has a doubt that it may
lead to withholding of tax by start-up impacting his immediate “in-hand” salary.
Agrofine purchased a patent right in April, 2022, for ` 3,00,000, which has a legal life of 15
years. However, due to the competitive nature of the product, the management estimates a
useful life of only 5 years. Straight-line amortisation is determined by the management to be the
best method. As at 1st April, 2023, management is uncertain that the process can actually be
made economically feasible, and decides to write down the patent to an estimated market value
of ` 1,50,000 and decides to amortise over 2 years. As at 1st April, 2024, having perfected the
related production process, the asset is now appraised at a value of ` 3,00,000. Furthermore,
the estimated useful life is now believed to be 4 more years.
Company has recently developed a Soil & Water Diagnostic equipment, AgriSense-20, featuring
advanced environmental analysis Instruments for soil testing, water pH evaluation and indicate
the presence of dissolved salts or minerals. The company projects a total profit of ₹75,000 from

8
the first 256 equipments produced. The first equipment required 112.50 hours to manufacture,
with a labor rate of ₹20 per hour. A 90% learning curve is expected to apply indefinitely,
improving efficiency as production scales. This efficiency gain will play a crucial role in making
soil and water analysis more accurate and accessible, aligning with Agrofine’s mission to drive
sustainable agricultural and environmental solutions. With the AgriSense-20 equipment,
Agrofine takes another step toward pioneering the next generation of precision farming,
empowering farmers and researchers with cost-effective and reliable diagnostic tools for
improved resource management.
Agrofine is planning to merge another start-up company engaged in similar line of activity to
increase its size, revenue and scalability. However, founders of the company are clueless
regarding modalities of the same under relevant laws. Valuation of start-ups is often required
for bringing in investments. The value of a start-up is dependent upon its future growth
prospects. It is also quite likely that such a business idea has never been tested before. It only
lies in realms of future. Another problem in start-up valuation is totally new or non-comparable
business products and strategies. Start-ups also depend upon many rounds of funding. Agrofine
may also approach another set of investors in further rounds of funding. It is actively exploring
multiple avenues for funding to support its growth and business expansion. Agrofine is also
planning to approach venture capital (VC) funds, which specialize in providing financial support
to high-growth startups with significant market potential.
Multiple Choice Questions
1. From the description given in case study relating to finance brought by individuals from
their own resources and whose belief in promoting affordable education to all in the
country and also improving its standards is aligned with mission of founders, which type
of financing for a start-up is being referred to?
(a) Bootstrapping
(b) Venture capital financing
(c) Funding by angel investors
(d) Factoring
2. The founders of Agrofine believe that some benefits are available to start-ups.
Considering the description provided in case study, which of the following statements is
in accordance with provisions of income tax law?
(a) Company is eligible to deduction @ 75% of its profits from eligible business for
any 5 consecutive assessment years out of 10 years beginning from the year in

9
 which start-up is incorporated. Further, certificate of eligible business in this
regard is provided by Inter-Ministerial Board for Certification.
(b) Company is eligible to deduction @ 100% of its profits from eligible business for
any 3 consecutive assessment years out of 10 years beginning from the year in
which start-up is incorporated. Further, certificate of eligible business in this
regard is provided by Inter-Ministerial Board for Certification.
(c) Company is eligible to deduction @ 75% of its profits from eligible business for
any 5 consecutive assessment years out of 10 years beginning from the year in
which start-up is incorporated. Further, certificate of eligible business in this
regard is provided by CBDT.
(d) Company is eligible to deduction @ 100% of its profits from eligible business for
any 3 consecutive years out of 10 years beginning from the year in which start-up
is incorporated. Further, certificate of eligible business in this regard is provided
by CBDT.
3 As regards doubt of Mr. X regarding withholding tax in relation to ESOPs is concerned,
which of the following statements is most appropriate?
(a) Income tax would be withheld at rates in force when option is exercised and
shares are allotted to Mr. X.
(b) The company is an eligible start-up holding certificate of eligible business. Income
tax would not be withheld when option is exercised and shares are allotted to Mr. X
as such transactions are exempted from withholding tax in case of eligible start-ups.
(c) The company is an eligible start-up holding certificate of eligible business.
However, such start-up is allowed to defer withholding tax when option is exercised
and shares are allotted to Mr. X. It is deducted in required manner after expiry of
certain timelines and/ or happening of certain events.
(d) Income tax would be withheld when option is granted. Such withholding tax would
be deducted at the rates in force at time option is granted to Mr. X.
4. The start-up is planning merger with another start-up engaged in similar activities. Which
of the following statements is in line with provisions of law regarding proposed merger of
these start-ups?
(a) It requires filing of proposed scheme with NCLT and final order in respect of merger
is made by NCLT after following a detailed procedure.

10
 (b) It involves giving notice of proposed scheme to Registrar and Official Liquidators
and approval of scheme by both the companies. After approval of scheme by
creditors, the scheme is approved by Registrar of Companies.
(c) It involves giving notice of proposed scheme to Registrar and Official Liquidators
and approval of scheme by both the companies. After approval of scheme by
creditors, the scheme is filed with Regional Director, Registrar and Official
Liquidators. The scheme is finally registered by Regional Director.
(d) It requires filing of proposed scheme with NCLT and final order in respect of merger
is made by NCLT after following a fast-track procedure.
5. Which of the following is not a factor to be considered for valuing a start-up like Agrofine?
(a) Past performance indicators
(b) Educational background of founders
(c) Uniqueness of product launched by start-up
(d) Traction (5 x 2 = 10 Marks)
Descriptive Questions
6. Determine the value of the intangible asset i.e. patent right, as of the financial year ending
31st March, 2025. Consider factors such as amortization, impairment, market valuation, and
any relevant financial adjustments that may impact its final valuation. (5 Marks)
7. Explain the different stages of Venture capital funding and also state an indicative Risk
Matrix along with period and activity to be financed during each of these stages.
(6 Marks)
8. For the developed Soil & Water Diagnostic equipment,
i. What will be the total labour cost for the first 256 equipments produced at 90%
learning curve effect?
ii. What should be the revised labour cost required to achieve zero profit, and at
revised labour cost what will be the cumulative average time (Revised) required
per equipment for producing 256 equipments? (4 Marks)

11
CASE STUDY 3
Shakti Agrochemical Limited (SAL)
Shakti Agrochemical Limited (SAL) is engaged in the business of producing agrochemical
chemicals, specializing in fertilizers. Known as the Crop Nutrition Business (CNB) the company
has a portfolio of 20 products offering different grades of fertilizers for different requirements of
farmers. Crop nutrition is an important part of any farming activity as it has a direct impact on
productivity and sustainability. An active management of micro and macro nutrients is required
to ensure that the crop yield is maximized. Maximizing crop yield has become a significant global
challenge due to the food requirement demands of a growing population. Hence, companies like
SAL need to provide top grade fertilizers in order to ensure that farmers can maximize the crop
yield from their farming activity.
Government grants
SAL carries out various projects with government’s financial assistance. It received two grants
of ` 5 crores each in April 2024 for ongoing research and development initiatives. The first
unconditional grant pertains to research on “Soil degradation due to misuse of fertilizers”,
focusing on the long-term effects of excessive fertilizer use, such as soil acidification, hardening,
and pollution in a designated agricultural belt in Punjab. However, as of March 31, 2025, no
major steps have been taken to commence this research. The second grant supports the
commercial development of crop-specific nutrition solutions, designed to provide tailored
nutrients based on crop variety and growth stage to enhance yield and meet the country’s food
requirements. SAL is confident in the technical feasibility and financial viability of this research,
with the product expected to be available for sale by April 2026. Additionally, in September
2024, an earthquake led to a complete production loss at one of SAL’s factories, forcing a two-
month shutdown. The state government introduced a compensation package for affected
manufacturing entities, entitling SAL to claim compensation based on the average sales of the
preceding three months. To avail of this relief, SAL must submit an application with the
necessary figures by May 30, 2025. However, by the time SAL’s financial statements were
adopted on May 31, 2025, the claim form had not yet been submitted.
Development of customized micronutrient mixture fertilizers for specific crops
After considerable research, SAL developed customized micronutrient mixture fertilizers that
are designed to meet specific needs of certain soil type and crop variety. These are specialized
fertilizers made by enriching mixing and blending fertilizers along with the crop or soil specific
nutrient requirements. They promote growth of healthy crops and enhance soil nutrition. In
recent years, in order to improve crop yield and soil productivity, there has been a lot of research
and development done on such specialized fertilizers. They are not covered under any

12
government subsidy scheme. The manufacturer can fix the Maximum Retail Price (MRP) and
can also offer discounts as needed.
Recently, SAL has introduced 3 new grades of such fertilizers in the market. All three grades
can be primarily used for growing vegetables. SAL has decided to test the market by launching
these products in a limited scale.
After the end of the financial year in April 2025, the sales manager Mr. Ray looked up the sales
volume report. The SAL had sold 11,000 units of all 3 grades put together during the year, this
was more than the budget of 10,000 units for the period. Mr. Ray planned to mention this in his
annual performance assessment report in order to get a good bonus for the year. He approaches
Mr. Bose, the management account of the company, to help him analyse the sales performance.
The budget for the year 2024-25 projected sales of 2,000 kg for Grade 1, 3,000 kg for Grade 2,
and 5,000 kg for Grade 3, totaling 10,000 kg. The average selling price per kg was set at ` 500
for Grade 1, ` 300 for Grade 2, and ` 200 for Grade 3. The direct material cost per kg was
budgeted at ` 150, ` 100, and ` 75 for Grades 1, 2, and 3, respectively, while the direct labour
cost was projected at ` 100, ` 60, and ` 75 per kg for the three grades. Variable overhead costs
were expected to be ` 50 per kg for Grade 1, ` 40 per kg for Grade 2, and ` 10 per kg for
Grade 3.
In contrast, actual sales for the year stood at 2,500 kg for Grade 1, 3,100 kg for Grade 2, and
5,400 kg for Grade 3, bringing the total to 11,000 kg. The average selling price per kg realized
was ` 450 for Grade 1, ` 280 for Grade 2, and ` 180 for Grade 3. Direct material costs per kg
increased to ` 170 for Grade 1, ` 120 for Grade 2, and ` 95 for Grade 3. Meanwhile, direct
labour costs remained consistent with the budget at ` 100, ` 60, and ` 75 per kg for Grades 1,
2, and 3, respectively. Similarly, variable overhead costs remained unchanged at ` 50, ` 40,
and ` 10 per kg for the respective grades.
The main sales responsibility of Mr. Ray is restricted to these grades of fertilizers. Due to the
novelty of these products, the management of SAL decided not to stock up the products as
inventory as they want to first test the demand and market conditions. Rather for these products
alone, SAL follows Just in Time system for purchasing and production and does not hold any
inventory. Mr. Ray co-ordinates as an intermediary with the whole sale dealers in various
regions and SAL’s production department. Mr. Ray is not in charge of any other function or
operation of the manufacturing process.
Sales campaign of customized micronutrient mixture fertilizers for specific crops
The above grades Grade 1, Grade 2 and Grade 3 are of a variety of fertilizers that can substitute
one another based on the requirements of the farmer. SAL launched a sales and marketing
campaign through social media that helped them reach out to farmers directly all across the
country. This campaign was spearheaded by Mr. Ray. This was done to understand how product

13
pricing can impact sales of each of these grades. Since the products are similar, SAL expects
the product price to play a primary role in generating sales. As a threshold for analysis, the
company considers a product to be price sensitive only if there is an impact of 5% of sales
volume due to a change in price.
During the campaign, SAL offered slightly higher discounts on bulk purchases beyond a certain
limit. This helped spur the sales volumes. The additional discount policy was not factored in the
budgets. The campaign also helped SAL overcome the problem of good sales personnel who
have been hard to find in the recent past. There have been times when there is a sudden spike
in demand for a particular grade of fertilizer since the conditions to grow and sell that crop is
favourable in that season.
Combined with a successful sales and marketing campaign that spurred sales volume, the
procurement department had to procure the raw material from the open market at prevailing
prices. Generally, the current prevailing market prices are higher than that agreed with the JIT
supplier partners.
Educational and promotional campaign for effective use of fertilizers
Crop yield can be maximized only if the farmers use the fertilizers effectively. There is not much
awareness about customized micronutrient mixture fertilizers. The above-mentioned grades of
customized micronutrient mixture fertilizers have the potential to improve agricultural
productivity of farmers. SAL’s management expects the demand for such customized mixture
fertilizers to increase in future. Hence it was important to promote the potential such products,
educate and spread awareness about them among farmers and agriculturalists.
Sales campaigns such as those above have been helpful in generating preliminary interest in
these products. They are more temporary and seasonal in nature. Proper awareness about the
application techniques of these fertilizers would generate more regular sales. This requires SAL
to be able to connect even better with the farmers by educating them and making them aware
about these products. With this in mind, the company bought a plot of agricultural land, which
was used exclusively to showcase fertilizer application techniques for farmers. By being able to
understand firsthand from the experts at SAL, the farmers can better understand the potential
benefits of these fertilizers. These promotional events are held almost all year round, where
depending on the season, fertilizers can be customized to suit the crop that requires it. After
gaining adequate knowledge, many farmers who attend such events buy such customized
fertilizers from the stalls in such events, based on their requirements. No actual agricultural
production occurs on this land.
Financial performance
As of 31st March 2025, SAL has a share capital of `5 crores; reserves and surplus of `4 crores;
long term debt of `16 crores; trade payables of `0.2 crores. SAL has demonstrated strong

14
financial performance by achieving a profit before interest and tax (PBIT) of `9 crores; Interest
paid for the financial year is `1.12 crores. The corporate tax rate is 30%; the cost of equity is
12.50% and the cost of debt is 4.9%.
To effectively evaluate the company's financial performance and make informed investment
decisions, SAL utilizes the weighted average cost of capital (WACC) as a key metric. At all
times, the management wishes to keep the average cost of financing the company's operations
across all sources of capital (debt and equity) to be below 10%.
Regulatory scrutiny: Refer Annexure 1
Out of the 20 products in its portfolio, SAL sells 3 products that have a red label and 2 products
that have a yellow label. Such products generate higher margins and thus far they have
contributed around 25% of SAL’s annual revenue. Central Insecticide Board (CIB) has
periodically raised queries and investigations about these products in the recent years. Due to
the increased scrutiny of these harmful products, SAL’s management has decided to gradually
phase out them from its portfolio. On stopping their production, the revenue is likely to fall by at
least 25% in the short term. Meanwhile, SAL plans to invest in R&D to develop more
environmentally safe products. PAL which is a competitor of SAL in the same industry also
derives around 30% of its annual revenue from sale of red and yellow labelled products. CIB
has recently launched an investigation into these highly toxic products that PAL is
manufacturing. Yet PAL, on account of them being high margin products, plans to increase its
production of these products despite regulatory concerns of imposition of a ban in the near
future. PAL expects revenues to grow by at least 10% in the coming year.
Merger with Unlimited Urea Limited (UUL): Refer Annexure 2
SAL (transferee company) decided to acquire UUL (transferor company) by acquiring its shares
via a process of takeover under section 235 of the Companies Act, 2013. SAL prepared a
scheme by which an offer was made to the shareholders of UUL. The offer was made on 1st
August 2024. The offer has remained open for 4 months and was approved by shareholders
having 92% value of the shares. Subsequently, SAL gave notice to the remaining dissenting
shareholders that it desires to acquire their shares. Such notice was given on 5th January 2025.
Certain dissenting shareholders made an application to the Tribunal that acquisition of their
shares should not be permitted. However, the application was dismissed by the Tribunal. Hence,
SAL acquired shares of 5% of the dissenting shareholders (out of the balance 8%). The
shareholding of the remaining 3% shareholders continued to remain with the dissenting
shareholders.

15
Annexure 1

State Times
Hidden Dangers of Agrochemicals
Jaipur, 21st February 2025 – A bountiful harvest, at affordable
prices is the need of the hour to feed the world’s growing
population. Enter agrochemicals, in particular chemical
fertilizers and pesticides which have ensured higher crop yield.
Chemical formulations are precise and deliberate, depending
on the intended use, and they are relatively cost effective. This
has helped farmers across the globe get better control over
their crop production. In the short-term farmers can produce
more and higher quality crops. However, excessive usage of
these fertilizers erodes soil health in the long run. They can
seep into groundwater and other water sources leading to contamination, which can be toxic in the long
run. Greenhouse gases emitted during the production of nitrogen fertilizers have had a profound impact
on climate change and caused immense biodiversity losses.
Human health issues also crop up as due to the use of fertilizers, crops are not as nutritious as they
should be. It also increases the risk of developing cancer in adults and children. The nervous, endocrine
and immune systems are severely affected by their usage, especially with that of pesticides. Many other
health issues have been highlighted by medical fraternity over the past few decades.
The recent months have seen a lot of public outcry and debate over the excessive use of fertilizers in
India. There has been increasing pressure on the government to force companies to label their products
based on their toxicity. Due to the profound, sometimes adverse impact that agrochemicals (including
fertilizers) can have on human health and other natural resources, the Central Insecticide Board (CIB)
has categorised agrochemical toxicity levels based on a labelling system – using red, yellow, blue and
green labels – where red is the most toxic while green is the least toxic. In addition, to prevent counterfeit
products companies are adding barcode or other identifying technologies to identify their product
packaging.
Red-labelled products have come under a lot of scrutiny in recent years following public outcry about
their harmful effects. The regulatory authorities are severely curtailing the use of these products and are
also gradually bringing restrictions for the yellow labelled products as well. It is very likely that they will
be banned in the near future as per ESG guidelines. All packages carry labels to help users identify their
toxicity level. Despite this certain companies are increasing production of such products since they are
highly profitable to them.

16
Annexure 2

The Chronicle

Shakti Agrochemicals Limited to Acquire Unlimited Urea Limited in a ` 1,000 Crore

Deal
Jaipur, 2nd September 2024 – Unlimited Urea Limited (UUL) to
change hands by sale of unit to Shakti Agrochemicals Limited
(SAL). Unlimited Urea Limited (UUL) based at Gadepan in Kota
district of Rajasthan, is set to change hands with the company
revealing sale of its entire business to Shakti Agrochemical
Limited (SAL) for a total consideration of ` 1,000 crores.

The company disclosed the information as part of the

mandatory disclosure to the stock exchanges, the BSE and the
NSE, under Regulation 30 of SEBI (listing obligations and disclosure requirements) Regulations, 2015.
The disclosure states that the board of directors at its recent meeting granted in-principal approval for
the sale of its business to SAL. The agreed consideration value is expected to be ` 1,000 crores. The
notice adds that the sale is subject to approval from shareholders, other regulatory and statutory
approvals and financial due diligence.
The acquisition is of particular interest since the Government of India had announced New Investment
Policy (NIP) to facilitate fresh investment in the urea sector and to make India self-sufficient in the urea
sector. SAL is a well-established player in the fertilizer industry, its portfolio includes both chemical and
organic fertilizers and crop nutrition solutions. The acquisition of the urea business of UUL will give a fillip
to unlocking value within its business. Recent geo-political tensions have led to supply chain disruptions
and sent price of raw materials including that of urea skyrocketing. Having a captively owned urea
manufacturing unit will help it mitigate risks of supply chain disruptions and price fluctuations.

Multiple Choice Questions

1. Which of the following statements are true?
(i) One of the reasons for actual material procurement to be higher than the budget
is on account of SAL following JIT procurement which had to cater to higher than
anticipated demand due to a successful marketing campaign by SAL.

17
 (ii) Mr. Ray is solely responsible for the contribution generated from sale of each
grade of fertilizer.
(iii) JIT production system may not always be suitable since there have been
instances of sudden spike seasonal demand for certain products depending on
the seasonal conditions for growing crops. Production department may not be able
to account for this in their annual planning exercise.
(iv) JIT procurement of raw materials is suitable since production is also done on a
just in time basis.

Options:
(a) (i) and (iii)
(b) (i), (ii) and (iii)
(c) (i), (iii) and (iv)
(d) (ii), (iii) and (iv)
2. Referring to sale of highly toxic red and yellow labelled products, which of the following
should be the consideration by the auditors of SAL and PAL in the audit of the financial
statements?
(i) Auditors of SAL and PAL need to obtain audit evidence regarding compliance with
laws and regulations and audit procedures have to be designed accordingly.
(ii) Auditors of SAL and PAL do not need to obtain audit evidence regarding
compliance with laws and regulations since these products are not explicitly
banned in India.
(iii) Auditors of PAL need to keep in mind SA 250 where non-compliance with laws
and regulations may result in fines and litigations or other consequences that may
have a material effect on the financial statements.
(iv) Auditors of SAL need to be concerned about the phase out of these products that
can impact revenue negatively by 25%. In addition, the company plans to invest
in R & D to develop environmentally safe products despite losing revenue
following this decision.

18
 Options:
(a) (i) and (iv)

(b) (ii) and (iv)

(c) (i) and (iii)
(d) (ii), (iii) and (iv)

3. Based on the sales variance analysis, which product(s) should the management prioritize
for future discounts to maximize sales volume while ensuring continued profitability?
(a) Grade 1 and Grade 2 since they both have increased sales volumes as well as
positive net contribution
(b) Grade 1 and Grade 3 since they both are price sensitive, given the 5% threshold
for analysis as considered by the company.
(c) Grade 1, Grade 2 and Grade 3 since the volume increased in all the cases for the
discount that was given
(d) Grade 1 only as that is the only product that is both price sensitive as well as has
the capability of yielding positive contribution due to high margins.
4. Which of the following statements would be true regarding the takeover of UUL by SAL?
(a) The takeover of UUL by SAL is valid as the Tribunal dismissed the application
made by the dissenting shareholders.
(b) The takeover of UUL by SAL is invalid as even after the Tribunal dismissed the
application made by the dissenting shareholders, UUL acquired the shares of only
5% out of the total 8% dissenting shareholders.
(c) The takeover of UUL by SAL is valid as shareholders having 92% of shareholding
value gave approval to the offer and this was done within 4 months of receiving
the offer from SAL.
(d) The takeover of UUL by SAL is invalid as shareholders having 8% of the
shareholding value have dissented to the takeover and they cannot be legally
bound to surrender their ownership to SAL.

19
5. How should SAL’s income from the sale of such customized micronutrient mixture
fertilizers at these stalls be classified under the Income Tax Act, 1961?
(a) The income qualifies as agricultural income because SAL acquired agricultural
land to promote awareness of fertilizer usage in farming.
(b) The income qualifies as agricultural income only if SAL’s fertilizers are applied on
the acquired land for agricultural production.
(c) The income does not qualify as agricultural income and is taxable as business
income under "Profits and Gains of Business or Profession," despite acquiring
agricultural land.
(d) The income can be partially considered agricultural if the fertilizers sold by SAL
are used by farmers trained on the acquired land. (5 x 2 = 10 Marks)
Descriptive Questions
6. ADVISE the appropriate accounting treatment, if any, for the two grants received and the
earthquake-related compensation in the books of accounts of SAL as at March 31, 2025.
(5 Marks)
7. PERFORM a detailed variance analysis of the budgeted and actual contributions. Include
a comprehensive breakdown of all elements causing the variances, such as volume
differences, variations in selling prices, changes in cost structures, and the impact of
discounting strategies. (5 Marks)
8. EVALUATE SAL’s financial performance based on the given data. (5 Marks)

20
CASE STUDY 4
JayZee Ltd.
Indian automotive industry is a cornerstone of the nation's economy, contributing around 7.1%
to the GDP and nearly 49% to the manufacturing GDP. In the fiscal year 2020-2021, the industry
produced over 22 million vehicles, including passenger cars, commercial vehicles, and two-
wheelers. The two-wheeler segment dominates the market, with over 80% of the total
automotive sales. In the same period, India exported approximately 4.5 million vehicles,
showcasing its growing influence in the global automotive market. The government aims to
make India a hub for electric vehicles (EVs), targeting a 30% EV adoption rate by 2030. This
ambitious goal is supported by policies such as the Faster Adoption and Manufacturing of Hybrid
and Electric Vehicles (FAME) scheme, which allocates significant funds to boost EV
infrastructure and adoption.
Raj Malhotra, founder of JayZee Ltd. , a leading manufacturer of automotive spare parts,
envisioned the company's potential during one of his visits to the USA. In 1998, he anticipated
the forthcoming boom in the Indian automotive industry, particularly from 2011 to 2020.
Foreseeing this growth, he decided to establish JayZee Ltd. to provide high-quality and
affordable spare parts for the Indian market. The company is based in Gurgaon, Haryana, with
manufacturing facilities in Uttarakhand and Uttar Pradesh strategically located to leverage
government benefit schemes.
Over the years, JayZee Ltd. has expanded its product range to include various components
such as engine parts, brake systems, suspension systems, electrical components, and more.
The company has a state-of-the-art manufacturing facility spread over 20 acres, equipped with
advanced machinery imported from Germany and Japan. JayZee Ltd. employs over 1,000
skilled technicians, engineers, and support staff dedicated to maintaining the highest standards
of quality. JayZee Ltd.’s commitment to quality has earned it a reputation as a trusted supplier
among domestic and international customers. The company follows stringent quality control
measures adhering to international standards like ISO 9001, TS 16949, and IATF 16949,
ensuring its products meet stringent performance, safety, and environmental regulations. While
Raj Malhotra provided the technical vision, his sons Arjun and Karan, have been instrumental
in driving the company's financial strategy and decision-making processes. Their astute financial
acumen and business insights have played a crucial role in JayZee Ltd.'s growth and expansion
plans.

21
In addition to the domestic market, JayZee Ltd. has a strong global presence, exporting to over
30 countries across Asia, Europe, Africa, and North America. Major export destinations include
the UAE, Saudi Arabia, South Africa, Germany, USA, and Canada. The company has
established robust distribution networks and partnerships in these regions. In line with the
government’s vision, Raj Malhotra knows that the next decade, from 2021 to 2030, will be a
boom period for the EV market in India. He foresees this due to the recent government push
towards Atmanirbhar Bharat with its Production Linked Incentive (PLI) Scheme and the global
shift towards India as part of the China Plus One strategy. This strategy essentially means that
companies do not want all their manufacturing footprint in China due to geopolitical tensions.
Additionally, the fast acceleration towards EVs is driven by climate and sustainability strategies
of companies.

To meet the burgeoning demand, JayZee Ltd. has implemented aggressive expansion plans,
including the construction of two new state-of-the-art manufacturing units in Gujarat and Tamil
Nadu. The company has also invested heavily in R&D, collaborating with leading automotive
engineering institutes to develop innovative products using advanced materials and cutting-
edge technologies.
Apr’2023 Begining
To support the company's strategic objectives, JayZee Ltd. relies on its skilled workforce, who
are considered as the backbone of the organization. In order to foster long-term loyalty and
engagement, the company is offering Employee Stock Ownership Plans (ESOPs) to its
employees. As the company achieves its earnings targets, shares will vest, granting employees
ownership in the company. JayZee Ltd. grants 100 shares to each of its 500 employees on 1st
April, 2023. The employees should remain in service during the vesting period. Annexure 1
containing Terms and Conditions of Employee Stock Option Plan has been approved by the
shareholders of JayZee Ltd. passing a special resolution.
JayZee Ltd.’s success is attributed to its strong leadership team, employee-friendly policies,
continuous training programs, and a culture that fosters innovation. The company provides
competitive compensation, growth opportunities, and a positive work-life balance, resulting in
high employee satisfaction and low attrition rates. Despite challenges like increased
competition, fluctuating raw material prices, and regulatory changes, JayZee Ltd. has
maintained a steady growth trajectory with consistent profitability and a strong balance sheet.

22
Guided by Raj Malhotra's principles and the financial expertise of his sons, Arjun and Karan,
JayZee Ltd. Ltd thrived under the directors' unwavering dedication and the collective efforts of
its team. As JayZee Ltd. looked towards the future, the directors' global vision and local roots
served as a powerful combination, propelling the company's success in the competitive
automotive spare parts industry.

JayZee Ltd. is focused on enhancing its manufacturing processes and assessing the efficiency
of its operations in relation to their full potential, while also identifying areas of loss. The
company has a state-of-the-art production facility that operates in two shifts of 9 hours each, for
6 days a week. Under the leadership of Raj Malhotra, the founder, and his sons Arjun and Karan,
the company emphasizes efficiency and productivity in its operations. One of JayZee Ltd.'s
critical production lines, responsible for manufacturing essential spare parts, has been closely
monitored by the team. Over the last 4 weeks, the following details have been collected for one
of their important equipment: Lunch break is 30 mins and other miscellaneous breaks add up to
15 minutes; Hours for Planned Preventive Maintenance is 15 minutes per shift; For Breakdown
Maintenance is 6 hours total; Set up Changes require 14 hours in total; Power Failure is 4 hours
in total; Standard Cycle Time per piece is 3 minutes; No of Parts Produced per shift are 140;
and Parts Accepted per shift are 131.
Year Ended Mar 2024
In an effort to build long-term loyalty and enhance employee engagement, the company
introduced Employee Stock Ownership Plans (ESOPs) in 2023. The ESOPs were designed to
provide employees with a direct stake in the company’s growth and success. By offering
employees the opportunity to become shareholders, the company aims to foster a culture of
ownership, where every team member has a vested interest in the organization’s performance
and outcomes. One year has now elapsed since the implementation of the ESOPs. The program
has proven to be an effective way to show appreciation for the hard work of employees and to
build stronger ties between the workforce and the company.

At the end of FY 2023-24, earnings is 11%, and 29 employees left the organisation. The
company expects that the shares will vest at the end of March 2025 subject to earnings target
achieve. The company also expects that an additional 31 employees will leave the organisation
in the FY 2024-25 and that 440 employees will receive their shares at the end of the
FY 2024-25.

23
JayZee Ltd., has always been proactive in capitalising on strategic opportunities for growth and
diversification. Under the astute leadership of Raj Malhotra, the founder, and his sons, Arjun
and Karan, the company has consistently made sound investment decisions to strengthen its
position in the market.
JayZee Ltd. acquired a building from Moon Ltd, another reputed manufacturing company, for a
cost of ₹10 million on 1st April, 2020. The building, which Moon Ltd had previously used as a
factory, was accounted for under the cost model. At the time of acquisition, JayZee Ltd.'s
management, guided by their financial advisors, estimated the building's expected useful life to
be 10 years.
Initially, JayZee Ltd. had plans to repurpose the building and integrate it into their expanding
operations. However, a few years down the line, the company faced a significant decline in
demand for one of its product lines. As a result, the need for an additional factory became
redundant. Recognizing the opportunity to generate alternative revenue streams, Arjun and
Karan, known for their strategic foresight, proposed renting out the building to a third party. On
1st April, 2024, after conducting a thorough market analysis and obtaining necessary approvals,
JayZee Ltd. successfully leased (in an operating lease agreement) the building to a reputable
tenant, ABC Industries.
At the time of leasing, JayZee Ltd.'s valuation experts assessed the fair value of the building to
be ₹8 million, reflecting the current market conditions and the building's condition. In
accordance with the company's accounting policies, JayZee Ltd. adheres to the cost model for
recognizing its owned investment properties.
With Arjun and Karan’s strategic guidance, JayZee Ltd. is well-positioned to capitalise on
emerging trends and maintain its leadership in the automotive spare parts industry. At the helm
of JayZee Ltd. were three dynamic directors - Mr. Rajesh Sharma, Mr. Anil Gupta, and Ms. Priya
Mehta. These directors were globetrotters, frequently travelling abroad to develop and secure
sustainable business opportunities for JayZee Ltd. From exploring new markets to forging
strategic partnerships, they left no stone unturned in their pursuit of growth. Despite their global
pursuits, the directors remained deeply rooted in Gurgaon, understanding the importance of
maintaining a strong presence at the company's registered office for legal compliance and
organizational stability.
Mr. Raj Malhotra, is dedicated to developing and securing sustainable business opportunities
while exploring new markets and forging strategic partnerships. His recent business tour took

24
him to North America, where he visited the USA and Canada to identify potential business
ventures. After 4 months, Mr. Raj is now preparing to return to India. During his stay abroad, he
acquired various items and, being a responsible citizen, he is mindful of the customs regulations.
He sent an email (Annexure 2) to Mr. Sanjay, Finance and Taxation head to sought guidance
his guidance, who is well-versed in legal and financial matters.

Year Ended Mar 2025

Gumber & Associates has been appointed as Statutory Auditor for JayZee Ltd. for the financial
year 2024-25. With a strong track record of excellence, Gumber & Associates has experience
in auditing and tax advisory services, ensuring the highest standards of financial oversight and
compliance. The firm has earned a stellar reputation for its meticulous attention to detail, in-
depth knowledge of regulatory frameworks, and a proactive approach to addressing complex
financial and tax matters.
It has already been two years lapsed since the launch of ESOP 2023. At the end of FY 2024-
25, the company's earnings is 19%. Therefore, the shares did not vest, only 29 employees left
the organisation during second year. Company believes that additional 23 employees will leave
during the third year and earnings will further increase so that the performance target will be
achieved in FY 2025-26.
Additionally, it's important to note that JayZee Ltd. has consistently maintained high standards
of corporate governance and regulatory compliance, as overseen by Arjun and Karan. The
company's financial statements are audited annually by a reputed firm, ensuring transparency
and adherence to accounting principles. In a significant strategic move, JayZee Ltd. was
considering expanding its market reach through acquisition of BM Autos Ltd., a company
renowned for its strong foothold in the global automotive sector. Arjun and Karan, with their
financial expertise, meticulously analysed the acquisition's potential benefits. They anticipated
that the combined resources and expanded market reach would significantly bolster JayZee
Ltd.'s position in the industry. This strategic acquisition was not just about expanding market
presence but also about integrating innovative technologies and best practices from BM Autos
Ltd. into JayZee Ltd.'s operations. JayZee Ltd.’s shares are currently traded at ₹ 20. The
company has 25,00,000 shares outstanding and its earnings after taxes (EAT) amounted to ₹
50,00,000. On the other hand, BM Autos Ltd. had 12,50,000 shares outstanding, with a current
market price of ₹ 10. Its EAT was ₹ 12,50,000.

25
After extensive deliberation, BM Autos Ltd. agreed to be get acquired under which JayZee Ltd.
would offer the current market value of BM Autos Ltd.'s shares in a stock swap exchange. This
acquisition was seen as a strategic fit, enabling JayZee Ltd. to leverage BM Autos Ltd.’s robust
market presence and enhance its competitive edge. The acquisition promised to enhance
shareholder value, improve operational efficiencies, and foster a more resilient business model,
well-equipped to navigate the complexities of the global automotive market.
JayZee Ltd. places a strong emphasis on its employees as key assets to the company,
understanding that their well-being and professional growth directly contribute to the
organization’s achievements. For many years, JayZee Ltd. has consistently paid bonuses to its
employees, recognizing the constructive obligation to reward their hard work and dedication.
JayZee Ltd. discovered that a provision for constructive obligation for payment of bonus to selected
employees in the corporate office (material in amount), which was required to be recognized in the
annual financial statements for the year ended 31st March, 2023, was not recognized due to
oversight of facts. The bonus was paid during the financial year ended 31st March, 2024 and was
recognized as an expense in the annual financial statements for the year 2024-25.
JayZee Ltd. has significantly expanded its global presence by acquiring a major stake in a
Singapore-based company. During the financial year 2022-23, JayZee Ltd. acquired a 54%
stake in SYD Pte Ltd. (SPL), marking its first subsidiary company. This move underscored
JayZee Ltd.'s commitment to international presence and leveraging new market opportunities.
Mr. Rajesh Sharma, one of the dynamic directors at JayZee Ltd., was instrumental in this
acquisition. His vision strengthening its for international expansion aligned perfectly with the
company’s growth strategy. Moreover, in the financial year 2024-25, his daughter, Sunita, who
has been residing in Singapore for the past six years, was appointed as a director in SPL.
Sunita's extensive experience in the region made her a valuable asset to SPL. She was
appointed at a monthly remuneration of SGD 5082. (SGD 1 = INR 59). Sunita’s appointment
was a strategic decision aimed at ensuring strong leadership and effective governance at SPL.
Her presence in Singapore facilitated smoother operations and stronger ties between JayZee
Ltd. and its first international subsidiary. This expansion into Singapore not only broadened
JayZee Ltd.'s market reach but also reinforced its position as a formidable player in the global
automotive spare parts industry.
Gumber & Associates has worked with a wide range of industries, providing tailored auditing
services that align with the unique needs of each client, and has a long history of successfully

26
navigating intricate tax laws to deliver optimal solutions. The firm's commitment to quality is
reflected in its robust internal processes and a team of highly skilled professionals who
continually update their expertise to stay ahead of industry trends. CA. Krish, engagement
partner, is concerned about the non-verification of physical inventory.
Management of JayZee Ltd. has not undertaken the physical verification of inventories at regular
intervals. Inventories constitute 30% of the total assets of the company. Due to non-maintenance of
adequate inventory records at the factory, audit team could not undertake the physical verification of
inventory. Hence value of inventory as on 31st March, 2025 could not be verified.
Annexure: 1
JayZee Ltd.
(Regd. Office: JayZee tower, Gurgaon, Haryana)

Employees Stock Option Plan 2023

(Plan as approved by the Shareholders through Special Resolution)
1. Name, Objective and Term of plan
1.1 This Employee Stock Option Plan shall be called Employee Stock Option Plan 2023
(“ESOP 2023” / “Plan”).
1.2 The objective of ESOP 2023 is to reward employees for association, dedication and
contribution to the goals of the Company.
1.3 ESOP 2023 is applicable with effect from 1st April, 2023 on which the shareholders have
approved the Plan by way of a special resolution and shall continue to be in force until
earlier of:
i. 31st March, 2026; or
ii. The date all the options reserved under the Plan are granted and exercised; or
iii. The date of termination, if any, of the Plan.
2. Grant and Acceptance of Grant
2.1 Grant of Options: Each grant under this ESOP 2023 shall be made in writing by the
Company to the eligible employees fulfilling the eligibility criteria in a Letter of Grant as
may be approved under the ESOP 2023 from time to time.
2.2 Acceptance of the Grant: Any employee who wishes to accept the Grant made under
ESOP 2023 must deliver to the Company a duly signed acceptance of the Letter of Grant

27
 on or before the date (Closing Date) which shall not be more than 60 (Sixty) days from
the date of the grant, as specified in the letter of Grant.
3. Vesting Schedule and Vesting Conditions:
Options granted under ESOP 2023 would vest as the company achieves its targets. The
shares will vest at the end of
• First year- if the company’s earnings is 15%;
• Second year- if the company’s earnings is 23% over the two-year period;
• Third year- if the entity’s earnings is 29% over the three-year period.
4. Fair value of option: The fair value per share at the grant date is ₹ 122.

Annexure: 2

Raj Malhotra/ Managing Director / JayZee Ltd.

From: "Raj Malhotra" < rajmalhotra@jayzee.com >
Sent: 15th April 2024 10:00
To: "Sanjay Kumar" < sanjay@jayzee.com >
Cc: "Manik Paul" < paul@jayzee.com >
Subject: Custom baggage’s related
Attachments:
CA. Sanjay,
Trust you are doing well!
After a productive 4 months business tour in the USA, I am now preparing to return to India.
During my stay abroad, I have acquired a few personal items, and as a responsible citizen, I want
to ensure that I comply with all customs regulations upon my arrival.
The following are the items I will be bringing back with me:
• Personal Effects items: ₹59,000
• 13-Inch Laptop: ₹37,000
• Jewellery (15 grams, purchased in the USA): ₹67,000
• Music System: ₹1,25,000
I would appreciate it if you could kindly guide me on the proper procedures and any applicable
customs duties or exemptions, I should be aware of regarding these items.
Your expertise in finance and taxation matters would be greatly helpful in ensuring everything is in
order for a smooth entry into India.
Thank you for your time and assistance. Looking forward to hearing from you soon.
Best regards,
Raj Malhotra

28
Multiple Choice Questions
1. JayZee Ltd. has previously intended to use the building for its business operations.
However, due to changes in the business environment, the company leased the property
to ABC Industries. Determine the value at which the investment property should be
recognized and calculate the gain or loss to be recognised from the reclassification of
the asset on 1st April, 2024.
(a) `10 million and no gain or loss
(b) `8 million and gain of 2 million
(c) `4 million and loss of 2 million
(d) `6 million and no gain or loss
2. You are required to compute the customs duty payable by Mr. Raj Malhotra with
reference to the Baggage Rules, 2016, Assuming if the effective rate of customs duty is
38.50% inclusive of social welfare surcharge, while ignoring the Agriculture Infrastructure
and Development cess.
(a) ` 67,875
(b) ` 43,320
(c) ` 38,500
(d) ` 54,670
3. Determine the amount of expenses to be recognized in the Statement of Profit and Loss
at the end of second year in respect of options granted to employees under “ESOP plan
2023” as approved by the shareholders of JayZee Ltd.
(a) ` 6,78,750
(b) ` 7,23,867
(c) ` 8,94,667
(d) ` 7,46,703
4. JayZee Ltd aims to enhance its manufacturing efficiency and productivity by reducing
breakdown losses and defective products. To achieve this, management seeks to assess
Overall Equipment Effectiveness (OEE), a key metric for evaluating the performance of
the manufacturing process. You are required to calculate 'OEE'.
(a) 83.65%
(b) 81.03%

29
 (c) 81.87%
(d) 83.14%
5. Whether JayZee Ltd. was required to pass resolution with respect to appointment of Mrs.
Sunita in SPL considering it to be a related party transaction?
(a) No, as such appointment did not amount to appointment of Mrs. Sunita to an office
or place of profit in SPL.
(b) Yes, as Mrs. Sunita was a related party to JayZee Ltd. and she would be drawing
a monthly remuneration exceeding ₹2.5 lakhs in its subsidiary company.
(c) No, as even though Mrs. Sunita was a related party to JayZee Ltd., she would be
drawing remuneration from SPL, its subsidiary company and not JayZee Ltd.,
itself.
(d) No, as such provisions with respect to related party are not applicable in relation
to a foreign subsidiary company. (5 x 2 = 10 Marks)
Descriptive Questions
6. You are required to analyse whether the situation relating to constructive obligation for
payment of bonus is an error requiring retrospective restatement of comparatives,
considering that the amount is material. (4 Marks)
7. (A) Referring to the merger transaction with BM Autos Ltd. in the case study, answer
the following questions:
(i) Determine the number of shares of JayZee Ltd, will be issued to the
shareholders of BM Auto Ltd. as per the arrangement entered.
(ii) Suppose if BM Autos Ltd.’s P/E ratio is 6.4, then what will be its current
market price and what will be exchange ratio on this basis. Also determine
JayZee Ltd.’s post-acquisition EPS.
(iii) What should be the exchange ratio if JayZee Ltd.’s shareholders desire
that pre-acquisition and post-acquisition EPS should remain the same?
Note: - Round off your calculations upto 2 decimal points.
(B) What is take over by reverse bid? (5 Marks)
8. How should auditors deal with the issues in the audit report of JayZee Ltd.? (6 Marks)

30
CASE STUDY 5
Safe and Wise Advisory Limited
Safe and Wise Advisory Limited (SWAL) is well established financial planning & risk advisory
firm of the country with nation-wide presence. SWAL is engaged in selling third party products
be it financial products or insurance products (life assurance only). Financial advisory business
of SWAL is doing well and contributing to the half of gross revenue of group and two-third of
overall group’s bottom line, but insurance brokerage business is not performing as per
expectation. ‘Independent and impartial advice’ to client
is unique selling point of SWAL.
SWAL was established by Mr. Ravi Verma around two
decade ago (when life-assurance business goes private),
at then it was one division business i.e. assurance
brokerage business. Mr. Ravi Verma is dynamic leader
and presently leading the company as CEO, apart from
being major shareholder of the company.
SWAL is widely acknowledged in market for two distinct
features, first being presence wide across the nation, in
form of ‘sub-agency offices’ equipped with professionally trained sale staff headed by financial
planner or advisor, where customer can take advise and discuss opinion prior to investing/
buying any insurance or financial product. SWAL has ‘sub-agency offices’ in 580 cities, towns
and blocks. Locations are semi-commercial in nature but prominent. SWAL has practice to sign
30-year lease, when so ever taking and ‘sub-agency office’ on lease in order to reduce the lease
cost and bring stability.

Secondly, SWAL sold product of all third parties, hence provide a range of products to its client
to choose from. In 2010, SWAL signed a 15 year’s agency agreement with all 23 life insurance
companies recognised then. SWAL’s tagline is also depicting the same ‘we are ethically
committed to understand and deliver your needs’. SWAL believes in organic growth and listed
on stock market 3 years back to float additional capital to fund more ‘sub-agency offices’.
22 out of these 23 life assurance companies are private and registered themselves with
regulatory between the year 2000-2009 for a period of 25 years. Considering the default by few
insurance firms and increasing customer complaints, regulator of insurance business in country
tighten the registration criteria and harden the norms.

31
Typically each of ‘sub-agency office’ comprises three regular and one contractual employee.
One being financial planner/ advisor, 2 sales and relationship officer and contractual worker in
role of support staff and vested with miscellaneous clerical responsibilities. The on-roll number
of employees engaged in assurance brokerage business has been increased to 1,564 from 720
five year ago (up-till 3 year ago number was 845 but since expansion of ‘sub-agency’ office
division it is around 1,500).
Market trend is changing, since the SWAL commence the business. Each of such insurance
company, now has their own network of branch offices to sale their insurance product directly;
that too at more prominent locations. SWAL counter this step by highlighting its ‘independence
and impartial advice’ practice, although SWAL managed to retain the revenue at same level,
but this result in low profitability of ‘sub-agency office’ business. Now these insurance
companies are not authorising any new agent.
Safe and Wise Advisory Limited (SWAL), a service-oriented company, sought to expand its
market reach. To achieve this, SWAL established a dedicated 'E-platform' division, 'Policy at
Your Click,' staffed by 50 professionals. Giganet is a service provider offering broadband and
voice call services. SWAL intends to obtain broadband connectivity from Giganet to support the
operational needs of its E-platform. For data security reasons, SWAL also wants to retain the
right to procure the modem from any vendor of its choice at any time. So, SWAL has entered
into an agreement (Annexure1) with Giganet for Broadband Services and for Modem
procurement on 15th June 2024.
SWAL Ltd. requires a robust data management software to store, manage, and secure its
valuable data against unauthorized access and malware threats. In pursuit of a reliable solution,
SWAL engaged with DBMS Ltd., a renowned and experienced leader in data security solutions.
After extensive negotiations spanning over a month, both parties have reached an agreement
under which DBMS Ltd. shall provide SWAL with a license to use its proprietary data
management software ("Software"). DBMS Ltd. is the sole owner and developer of the Software
and agrees to grant SWAL a license under the terms and conditions set forth in Annexure 2.
SWAL’s ‘E-platform’ enables the seamless online sale of life insurance policies, strategically
compensating for losses incurred by its sub-agency network. The insurance company has
introduced multiple life insurance plans, all of which are available for purchase through SWAL’s
E-platform. Acting as an intermediary, SWAL facilitates the sale of these policies and earns a
commission from the insurance company on each policy sold through its platform. This

32
commission-based model ensures a sustainable revenue stream for SWAL while streamlining
the insurance purchasing process for customers.
The insurance company offers a range of life insurance plans, each with distinct premium
structures and allocations for investment or savings components. Below is a detailed description
of these plans:- Investment-Linked Policy – This policy requires an annual premium payment
of ₹1,00,000. A portion of ₹60,000 is explicitly allocated towards investment or savings, which
is clearly communicated to the policyholder at the time of service supply. The remaining amount
covers risk protection and other associated costs. Single Premium Annuity – This plan
involves a one-time premium payment of ₹5,00,000. Unlike investment-linked policies, this plan
does not have a separate investment or savings component. The entire premium is utilized to
provide annuity benefits, ensuring a steady stream of income for the policyholder. Regular Life
Insurance – Under this policy, the policyholder pays an annual premium of ₹80,000. However,
there is no explicit allocation for investment or savings, meaning the distribution of funds
between risk coverage and any potential savings component is not clearly defined. Pure Risk-
Cover Policy – This policy is designed solely for risk coverage, with an annual premium of
₹50,000. The entire premium is dedicated to providing financial protection against life risks,
without any portion being allocated for investment or savings. These plans cater to different
financial and coverage needs, offering flexibility based on the policyholder’s preferences and
risk appetite.
JS & Associates are at a crossroads regarding their audit approach for SWAL for the financial
year ending March 31st, 2025. Historically, they have identified management override of
controls and revenue recognition as significant risks. However, their audits in the past 2 financial
years yielded clean reports with no issues detected in these areas.
This absence of recent red flags presents a dilemma. On one hand, maintaining a conservative
approach suggests continuing to assess these areas as significant risks. This ensures a
thorough examination and mitigates the chance of missing potential issues that could arise due
to unforeseen circumstances or changes within SWAL.
On the other hand, consistently clean reports raise the question of continued significance. JS &
Associates might consider performing a more focused assessment or reducing the emphasis on
these risks while still acknowledging their potential impact. This could streamline the audit
process without compromising effectiveness. As part of a risk-based audit approach, JS &
Associates focus on areas with a higher likelihood of material misstatement.

33
Supported by revenue figures given below (in ‘000 Crores), analysts reach to conclusion that
growth in the assurance brokerage business is slowing down both for SWAL and industry overall–
Market Size/Year 2024-25 2023-24 2022-23 2021-22 2020-21
SWAL’s assurance brokerage 326 320 312 298 280
business
Total market size of life 2,240 2,198 2,122 2,004 1,960
assurance
Revenue earned by each division of assurance brokerage business (in term of age of the client),
is shown in table below for F.Y. 2024-25–
Division/Age 20-30 30-40 40-50 50-60 60+ Total
‘Sub-agency office’ division 2 25 38 164 51 280
‘E-platform’ division 8 28 8 2 0 46
Total Business of SWAL 326
Since the profitability of ‘sub-agency office’ division is declining, hence the strategic review
committee of board of directors are concerned about the company's declining profitability due
to poor performance of ‘sub-agency office’ division and suggest that the ‘sub-agency office’
division should be sold off and that SWAL shall re-position its assurance business as an online
solution.
Extract from financial statement for agency office division only (figures in ’000 Crores) –
Particulars/Year 2024-25 2023-24 2022-23
Revenue 280 272 250
Profit before interest and tax 18 16 31
Shareholder’s’ Equity 156 150 150
8% Long term debt 78 64 50
Current Liabilities 455 437 395
Current Assets 605 565 540

Applicable tax rate is 22%. The nature of cost incurred by ‘sub-agency office’ division is more
or less balanced between the variable and fixed. Fixed costs are largely committed in nature.
But the CEO does not agree to the suggestion made by strategic planning committee, because
CEO is of belief that SWAL’s USP or original business model is ‘sub-agency offices’ through
which they ensure ‘independence and impartial advice’ to their clients.
On 20/04/2025 – a board meeting of directors was held to discuss on continuance or sale of the
'Sub-Agency Office' division and few other matters, the minutes of which are given in
Annexure 3.

34
Annexure 1
AGREEMENT FOR BROADBAND SERVICES
AND MODEM PROCUREMENT
This Agreement is made and entered into on this 15th day of June, 2024, by and between:
First party i.e. Safe and Wise Advisory Limited (SWAL), a company duly incorporated and having
its registered office at New Delhi, hereinafter referred to as "SWAL"; and
Second party i.e. Giganet Ltd., a company duly incorporated and having its registered office at
Chandigarh, hereinafter referred to as "Giganet."
Terms of Agreement shall be as follows:
1) Scope of Services
Giganet shall provide broadband and voice call services to SWAL in accordance with the
selected service plan for a period agreed as per terms. Additionally, SWAL also reserves the
right to opt for any single plan individually, i.e. voice call or broadband services at any time.
Giganet offers various plans, including broadband services, voice call services, and a
combination of both to its customers.
2) Modem Procurement
Giganet shall provide the Modem device to SWAL. But also, SWAL reserves the right to procure
the modem independently from any vendor, and this Agreement shall not impose any restriction
in this regard.
3) Term and Termination
The term of this Agreement shall be for a period of three (3) years from the effective date. Upon
expiration, the Agreement may be renewed by mutual consent of both parties under terms and
conditions agreed upon at the time of renewal.
4) Pricing
The modem shall be sold at a one-time cost of ` 10,000. The combined broadband and voice
call service plan shall be provided at an annual pricing of ` 50,000.
5) Miscellaneous
• Any amendments or modifications to this Agreement shall be made in writing and duly
signed by both parties.
• Any dispute arising out of or in connection with this Agreement shall be resolved amicably
between the parties. If not resolved, it shall be subject to arbitration under the applicable
laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above
written.

Signed for and on behalf Signed for and on behalf

of Safe and Wise Advisory Limited (SWAL) of Giganet Ltd.
Ravi Verma Mahesh Makhija
(CEO, Safe and Wise Advisory Limited) (Managing Director, Giganet Ltd.)

35
Annexure 2

SOFTWARE LICENSE AGREEMENT

This Software License Agreement ("Agreement") is made and entered into on this 20th day of June,
2024, by and between:
First party i.e. Safe and Wise Advisory Limited (SWAL), a company duly incorporated and having
its registered office at New Delhi, hereinafter referred to as "SWAL"; and
Second party i.e. DBMS Ltd., a company duly incorporated and having its registered office at
Bangalore, hereinafter referred to as "DBMS."
WHEREAS:
DBMS Ltd. is the owner and developer of a data management software ("Software"). DBMS Ltd.
agrees to grant SWAL a license to use the Software under the terms and conditions set forth herein.
SWAL intends to utilize the Software for its business operations while maintaining operational stability.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein,
the Parties agree as follows:
a) Grant of License
DBMS Ltd. hereby grants SWAL a non-exclusive, non-transferable license to use its Data
Management Software for their internal business operations.
b) Updates and Upgrades
DBMS Ltd. shall provide updates and upgrades to the Software on a when-and-if-available
basis. SWAL shall have sole discretion in determining whether to install such updates or
upgrades.
c) Software Integrity
DBMS Ltd. shall not engage in any activity that alters the functionality of the Software without
SWAL's prior written consent.
d) Term of contract
The term of this Agreement shall be for a period of two (2) years from the effective date.
e) Consideration
SWAL shall pay DBMS Ltd. an annual fee of ` 4,00,000 (inclusive of all taxes, surcharges and
cess) for the licensed use of the Software.
f) Miscellaneous
• Any modifications or amendments to this Agreement must be made in writing and signed
by both parties.
• Any disputes arising out of or related to this Agreement shall be resolved amicably between
the parties. If unresolved, the matter shall be subject to arbitration as per applicable laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above
written.

Signed for and on behalf of SWA Ltd. Signed for and on behalf of DBMS Ltd.
Ravi Verma Jay Soni
(CEO, Safe and Wise Advisory Limited) (Managing Director, DBMS Ltd.)

36
Annexure 3
SWAL
(Safe and Wise Advisory Limited, Reg Address. New Delhi)

Extract of Minutes of the 89th Meeting of the Board held on April 20,2025 at New Delhi
Item: To discuss the sale or continuance of sub agency division, managerial remuneration and
several other matters.
Decision on the 'Sub-Agency Office' Division
The Board deliberated on the continuance or sale of the 'Sub-Agency Office' division. After
discussions, it was decided that further evaluation of strategic options would be conducted before
making a final decision.
Clarification on Maximum Remuneration
The Company Secretary, Mr. Amit Binoi, was asked about the maximum permissible remuneration for
all Directors and the Manager in a financial year. He provided the necessary clarification, confirming
that the company follows an annual remuneration structure while ensuring compliance with statutory
limits. The Board noted that the company has Mrs. Jalpa Sen as the Whole-time Director (WTD) and
recently appointed Mr. Keyur Valia as the Managing Director (MD). It was emphasized that
remuneration must adhere to the prescribed statutory limits for the MD, WTD, and Manager
collectively. During the scrutiny of accounts for the financial year 2024-25, it was observed that Mrs.
Jalpa Sen, heading the Sub-Agency Office division, had inadvertently drawn remuneration exceeding
the statutory limit in the previous financial year due to an oversight. The Board directed corrective
action to be taken to ensure future compliance.
Risk Assessment of loan given to – Savya Ltd.
A resolution was passed approving a 10-year amortizing loan of ₹100 crore to Savya Ltd., from surplus
funds. The Board reviewed the financial implications, considering:
Probability of Default (PoD): Estimated at 0.5% over the next 12 months at initial recognition.
Loss Given Default (LGD): Assessed at 25% of the balance outstanding.
Credit Risk Assessment: Changes in the 12-month PoD were considered a reasonable approximation
for evaluating the lifetime PoD and determining any significant increase in credit risk.
Economic Outlook: Relevant economic factors and credit risk expectations were taken into account.
The Board directed that ongoing monitoring of credit risk and financial exposure should be conducted
to ensure effective risk management.
Conclusion: There being no further business, the meeting concluded with a vote of thanks to the
Chair.
Signed:
Ravi Verma
(Chairperson and CEO)

Signed:
Amit Binoi
(Company Secretary)
25/04/2025

37
Multiple Choice Questions
1. What would have been told by Mr. Amit with respect to maximum remuneration that is
allowed in a F.Y. to all such directors and manager taken together?
(a) 3% of net profits.
(b) 5% of net profits.
(c) 10% of net profits.
(d) 11% of net profits.
2. Mrs. Jalpa, one of the directors, had drawn remuneration in excess of the limit prescribed
by the relevant provisions. As regards recovery of the excess remuneration drawn by
him, which of the following options is applicable, if the company has defaulted in paying
dues to BDS Bank?
(a) The company shall not waive recovery of excess remuneration paid unless
approved by BDS Bank before obtaining approval by a special resolution.
(b) The company shall not waive recovery of excess remuneration paid unless
approved by BDS Bank after obtaining approval by a special resolution.
(c) The company shall not waive recovery of excess remuneration paid unless
approved by a special resolution. Approval of BDS Bank for such purpose is not
required
(d) The company shall not waive recovery of excess remuneration paid unless
approved by BDS Bank and if approved by the bank, then company’s approval by
ordinary resolution is only required.
3. How many Performance obligations are there under the Contract with Giganet ?
(a) There are 2 separate Performance obligations.
(b) There are 3 separate Performance obligations.
(c) Only 1 Performance obligation is there which encompasses 3 sub contracts.
(d) It depends on the company’s choice as to how they want to treat it.

38
4. Which of the following statement is correct w.r.t nature of license as obtained from DBMS
Ltd.?
(a) The Software license doesn’t provide a right to use the Intellectual Property as the
underlying conditions are not satisfied as per the relevant IND-AS.
(b) The Software license doesn’t provide a right to use the Intellectual Property as the
upgrades will change the functionality of the software.
(c) There is no question of Intellectual Property rights over here in this situation.
(d) The Software license provides a right to use the Intellectual Property that is
satisfied at a point in time.
5. As part of a risk-based audit approach, JS & Associates focus on areas with a higher
likelihood of material misstatement. Which of the following statements best describes the
concept of significant auditor attention in the context of scenario given in the case study?
(a) JS & Associates will spend an equal amount of time reviewing all sections of
SWAL's financial statements
(b) JS & Associates will prioritize audit procedures for areas with a lower risk of
material misstatement.
(c) JS & Associates will design the audit procedures based on their assessment of
risks that could potentially cause errors in the financial statements of SWAL.
(d) JS & Associates will rely solely on past audit results to determine the scope of
their procedures. (5 x 2 = 10 Marks)
Descriptive Questions
6. (i) ASSESS the competitive environment of life-assurance business of SWAL
(including ‘sub-agency office’ division). [present only two appropriate points for
each phase of assessing the environment]
(ii) EVALUATE the case for holding the ‘sub-agency office’ division, backed by
financial viability among other criteria. [present only two appropriate points for
each monetary and the non-monetary issue] (6 Marks)
7. Calculate the value of supply for GST purposes in each of the plans launched by
Insurance company on the E platform of SWAL in the case study. (5 Marks)
8. Calculate loss allowance for the amortizing loan originated by Savya Ltd. (4 Marks)

39
 Mock Test Paper - Series II: April 2025
Date of Paper: 14th April, 2025
Time of Paper: 2 P.M. – 6 P.M.
FINAL COURSE: GROUP – II
PAPER – 6: INTEGRATED BUSINESS SOLUTIONS
Attempt any four out of five case study based questions.
Each Case Study carries 25 Marks.
Time Allowed – 4 Hours Maximum Marks – 100

CASE STUDY 1
Daily Mart, ` 99 Store
The country of India whose functional currency is Rupees is home to a large chain of fixed-price
discount stores called Daily Mart, which sells ambient goods at a fixed price of ` 99. Fixed-price
discount chain focus on unbranded commodity goods that they purchase from a number of small
suppliers (apart from almonds which they import from California, US), of which these Daily Mart
Stores are the most important customers. The products they sell have low profit margins and
minimal overheads, and their target price is set. The products are typically functional,
standardised, and undifferentiated.
Daily Mart in order to minimise the overhead cost (in light of target price, to push the margins)
working on efficiency and effectiveness. To achieve this, the company has strategically invested
in automation and advanced technology. It has recently imported 4 advance level machines for
printing and labelling on items or packing thereof from Japan which were directly entered for
home consumption. These state-of-the-art machines are designed to enhance the speed and
precision of printing and labeling on various items and packaging materials. By integrating these
advanced machines into its operations, Daily Mart aims to streamline production processes,
reduce labour dependency, and minimize wastage, ultimately leading to improved cost
efficiency.
Daily Mart has imported four high-tech printing and labeling machines from Japan and the cost
structure for these machines includes various components. The price of raw materials amounts
to 1,500 thousand Japanese Yen. In addition, processing charges incurred for these machines
stand at 300 thousand Japanese Yen. Other expenses associated with the import are estimated
at 90 thousand Japanese Yen. Furthermore, the usual profit margin considered in the cost
structure is 150 thousand Japanese Yen. The cost of transport for bringing these machines to
their destination is 60 thousand Japanese Yen. However, the cost of insurance for the machines

1
is not ascertainable at this stage. The exchange rates applicable for conversion can be referred
to in Annexure 1.
As mentioned earlier, Daily Mart is striving towards effectiveness and efficiency; for this they
are working on sync of system, strategy, staff, skill etc. The Management Accountant of Daily
Mart had experience of using 7S framework and exited to apply the same framework at Daily
Mart to support the drive for efficiency and effectiveness. She made a presentation to C-suite.
CEO is convinced with utility that 7S framework is capable to produce, but has queries regarding
the application of Mckinsey 7S; moreover, skeptic about; how Daily Mart going to get maximum
out of 7S; MD of Daily Mart who is Operation Engineer by education qualification expressed his
contentions about 7S in response.
As a result of a prolonged economic downturn in the neighbour country Bangladesh,
‘Everything at 99’ bargain stores also have grown therein; which Daily Mart is aware of. At
present, there are four major retail chains operating under the ` 99 pricing model. These include
Retail 99, Club Basket 99, Daily Shopee 99, and Quick Buy 99, each catering to budget-
conscious consumers seeking affordable shopping options. Quick Buy 99 out of four stated
above started its operations back in April 2023, while other three has been operating for more
than 5 years, Retail 99 is oldest one.
Year wise total revenue (converted using appropriate exchange rate in ` Lacs) of all four main
discount fixed-price chains operating in Country Bangladesh is calculated. For the financial year
2024-25, the combined revenue of these chains reached ` 2,260 lakhs. In the F.Y. 2023-24, the
total revenue stood at ` 2,100 lakhs, reflecting steady expansion in the market. Meanwhile, in
F.Y. 2022-23, the revenue was recorded at ` 1,450 lakhs, indicating a substantial increase in
subsequent years.
These four chains' stores are typically located on the main streets of cities and villages with high
rates of economic distress. There are vacant stores in many of these cities and towns that may
be rented for a reasonable price. These stores can now be rented for a relatively short fixed-
term lease from landlords who previously demanded hefty rents and asking for lengthy leases.
These ‘Everything at 99 store chains’ in Bangladesh promote their expansion intentions through
various means. Only a few weeks pass before one of the businesses announces intentions to
open many new stores around the nation.
Given the rise of fixed-price discount stores in Bangladesh, Daily Mart is thinking about getting
into this/market. Therefore, a brand awareness survey in Bangladesh was recently
commissioned by Daily Mart. According to the survey's findings, respondents who work in the
retail consumer products industry had a fair amount of knowledge about Daily Mart. The majority
of these respondents accurately recognised the business as a major player in the Country India
and a discount fixed-price enterprise. However, only 10% of respondents had heard of Daily
Mart among ordinary consumers. On the other hand, over 85% of the respondents knew either

2
or all the four fixed-price ‘Everything at 99’ discount shops that are now operating in Country
Bangladesh.
The Daily Mart generates ` 24 crores in income in F.Y. 2024-25. Because of its cash reserves,
it might be able to lease a sizable number of stores in Country Bangladesh and build a solid
reputation in the marketplace. Competencies in efficient supplier management and selection,
backed by efficient procurement procedures, have been acknowledged. One of the company's
main advantages is its logistical systems and procedures.
The success of Daily Mart can be attributed to its diversified and dedicated management team,
whose collective expertise and strategic vision have been instrumental in driving the company
forward. With vast experience across various domains such as retail operations, supply chain
management, finance, marketing, and technology integration, the leadership team has
successfully navigated market challenges while capitalizing on emerging opportunities. One of
the key strengths of Daily Mart’s management is its proactive approach to innovation and cost
optimization. By continuously analyzing consumer trends, implementing advanced technology,
and refining operational efficiencies, the team ensures that the company remains competitive in
the dynamic retail landscape. Their hands-on decision-making, customer-centric strategies, and
focus on sustainable growth have enabled Daily Mart to maintain a strong foothold in the market.
Additionally, the management fosters a culture of adaptability and teamwork, ensuring that
employees at all levels are aligned with the company’s vision. This collaborative and forward-
thinking approach has played a pivotal role in expanding the business, strengthening supplier
relationships, and enhancing customer satisfaction, further solidifying Daily Mart’s position as a
market leader.
Ms. Ambika recently appointed as additional director. Mr. Dehra, who is also Director on board
of Daily Mart went to abroad for 6 months for attending a short-term executive course on
business management, in his place Mr. Dun is appointed as alternate director in the manner as
specified in Articles of Association. Mr. Dehra is going to retire at 22nd AGM i.e. the upcoming
AGM. Mr. Dehra returned back to India after his course.
In Bangladesh, there are also a lot of traditional grocery stores. The biggest of these generates
` 8.50 crores in revenue annually (translated using the relevant currency rate). Out-of-town
locations are becoming more and more popular among Bangladesh supermarkets since they
enable the establishments to stock a greater variety and volume of goods. There is enough of
parking for customers, and it is not too difficult for delivery cars to get to these locations. Most
supermarkets carry a large variety of ambient goods in addition to nonambient items, frequently
with competing brands available. Nevertheless, the cost of these items varies, and no
supermarkets have yet to implement the fixed-price discount sales strategy. The big grocery
chains generally compete with one another and don't give the ‘everything at 99’ discount stores
much thought. Many supermarkets also offer online home ordering platforms, which allow

3
consumers who are unable or unable to visit the store to have their orders delivered (generally
for a fair delivery charge ranging ` 25-50 per order).
Daily Mart also sells the retail packing (of 100 grams, at ` 99) of almonds, which they import
from California, US. Daily Mart owes a California based almond trader/exporter $10,000 due in
3 months’ time. The spot exchange rate is (` / $) 85.7812 - 85.9345.
Mr. Krishnan who is MD of Daily mart during the year executed certain transactions involving
foreign exchange beyond the limits permitted, therefore recently received an order along with
penalty notice under the Foreign Exchange Management Act, 1999 which he failed to pay.
Daily Mart has recently introduced a newly developed product line featuring innovative designs
and intricate handcrafting techniques. It enters into a contract to sell a product to Max Retail
for a total consideration of ` 1,21,000, which is payable 24 months after the date of delivery.
Max Retail obtains control of the product at contract inception. The contract permits Max Retail
to return the product within 90 days. The product being sold is entirely new to the market, which
presents a significant challenge in terms of estimating potential returns. Daily Mart has no prior
sales history for this particular product, nor does it have access to comparable industry data or
market benchmarks that could help forecast the return behavior of customers. In the absence
of such data, the entity is unable to make a reliable estimate of the expected returns.
The cash selling price of the product is ` 1,00,000 which represents the amount that the
customer would pay upon delivery for the same product sold under otherwise identical terms
and conditions as at contract inception. The entity's cost of the product is ` 80,000. The contract
includes an implicit interest rate of 10 per cent (i.e. the interest rate that over 24 months
discounts the promised consideration of ` 1,21,000 to the cash selling price of ` 1,00,000).
Annexure 1 – The exchange rate between Rupees and Japanese Yen (` / ¥ ):
Notified by On the date of filing of Bill of Entry On the date of arrival of vessel
RBI (FBIL) 56.75 55.20
CBIC 57.05 55.50

Annexure 2 - Currently prevailing interest rate per annum in India and US are as follows:
Borrowing Deposit
India 8% 6%
US 4% 3.2%
Note - Ambient goods include things like stationery, small plastic items, cleaning supplies and
specially packed consumables, which can be kept at room temperature and don't require any
special storage facility.

4
Multiple Choice Questions

1. What is the assessable value of 4 advance level machines for printing and labelling in
JPY (¥)?
(a) ¥ 21,64,950
(b) ¥ 21,22,950
(c) ¥ 21,65,625
(d) ¥ 21,23,625
2. How much Daily Mart need to pay in three months’ time in ` to settle $10,000 payment
to the supplier of almonds based in California, if Daily Mart decided to hedge the
exposure using Money Market Hedge (round-off calculation to the nearest full unit of
currency)?
(a) ` 8,68,056
(b) ` 8,99,321
(c) ` 8,69,607
(d) ` 8,32,705
3. Which of the exchange rates shall be used to calculate assessable value of 4 advance
level machines for printing and labelling in ` ?
(a) ` / ¥ 56.75
(b) ` / ¥ 55.20
(c) ` / ¥ 57.05
(d) ` / ¥ 55.50
4. Presuming AGM of BPL took place within the time in which it shall be conducted, you are
required to check validity of following statements:
I. Mr. Dun shall hold office till conclusion of 22nd AGM i.e. the upcoming AGM
II. Ms. Ambika shall hold office till upcoming AGM
Options
(a) Statement I is correct but statement II is incorrect
(b) Statement II is correct but statement I is incorrect
(c) Both I and II are correct

5
 (d) Both I and II are incorrect
5. Regarding failure to make payment of the penalty imposed under the Foreign Exchange
Management Act, 1999, which of the following statements are/is incorrect;
I. Adjudicating Authority may, by order in writing, authorise an officer of Enforcement
not below the rank of Assistant Director to recover any arrears of penalty
II. Order of recovery shall be issued if the person upon whom penalty is imposed
failed to make full payment within a period of sixty days from the date on which
the notice for payment of such penalty is served on him.
IIII. Such authorised officer of enforcement has all the like power which are conferred
on the land revenue collector.
Options
(a) II only
(b) III only
(c) I and III
(d) II and III (5 x 2 = 10 Marks)
Descriptive Question

6. Using appropriate model to Assess the attractiveness, to Daily Mart, of entering the
discount fixed-price retail market in Bangladesh. (4 Marks)
7. The MD at Daily Mart is of opinion, that Strategy is one among the 7 elements of 7S
framework that is core to all remaining elements of 7S and Hard S elements have more
important than Soft S elements; therefore, need to more focused upon. Evaluate the
validity of his 3 contentions and Advice. (2 Marks)
8. Analyse the transaction between Daily Mart and Max Retail with respect to the
recognition of revenue and financing component. (9 Marks)

6
CASE STUDY 2
HomeInn Limited is a well established company that runs chains of hotels and resorts across
different locations in India.
“HomeInn Budget” hotels
The hotels operate as budget hotels and operate under the brand “HomeInn Budget”. It provides
accommodation for cost-conscious travellers visiting the city for short stay lasting a day or two.
Typically a room in “HomeInn Budget” hotels would provide comfortable beds, high speed
internet connection, air conditioning facility, coffee machine, fridge and free television service.
Food service based on a limited menu is provided on the premises. It has few conference rooms
that provide space for guests to hold business meetings. This saves them precious time
otherwise wasted in travelling on congested city roads. The hotel provides free shuttle service
to and from the airport at specific times during the entire day. Proximity to the airport, the free
shuttle service and convenience of conducting work at the conference rooms have been
marketed to attract guests to stay here. The guests also comprise of people who are in transit
between airports. Also when there are long-duration delays in flight operations due to which
passengers need to be provided overnight accommodation, few airline operators host their
guests here. Like all other guests, these airline operators are also interested in for its location
and low-cost room rental.
In all, HomeInn Limited has 15 hotel properties spread over 15 cities. All of them function under
the “HomeInn Budget” brand catering to cost-conscious travellers. In all these establishments,
since the location of the hotel is near the city airport, the real estate cost, both for ownership
and rental is very high. Hence, instead of having an in-house establishment for cleaning and
food service, the company has outsourced these services to specialized vendors. This will
reduce the additional space requirement needed to maintain the facilities to provide these
services. This will help to keep its costs of operations within control. Since the hotel property is
in the city, there is ample availability of vendors providing this service. Cleaning service includes
cleaning of kitchen crockery, bedding, laundry and housekeeping of premises. Similarly, the
entire set of activities related to preparation of food has been outsourced. Vendor service has
been satisfactory, barring few instances where guests have complained of unhygienic rooms or
non-palatable food service. However, due to high guest volume and quick turnover of guests
due to short stay periods, this has never been a hindrance to business.
This business model has been profitable since its establishment. HomeInn Limited has a
sizeable market share in this segment. Competition has increased in the recent past. Price wars
have put pressure on profit margins of the budget hotel segment. Room rates are increasingly
being determined by the prevailing market rates in the respective locations.

7
“HomeInn Comfort” Resorts
The management plans to continue to operate in the budget hotel to maintain its market
presence. At the same time, to sustain business in the long term, the management
of HomeInn Limited has forayed into developing properties for luxury resorts under a separate
new brand called “HomeInn Comfort”. Target guest segment are vacationing tourists interested
in a enjoying a laid-back time in scenic places. These guests would not mind paying premium
for availing good quality service. Maintaining cleanliness of premises and food service are
critical activities in the operation of luxury hotels. Unlike cities, the location of these resorts is in
more sparsely populated areas. While there are vendors providing cleaning and food services,
there are limited options to choose from.
Customer satisfaction is paramount to sustain and grow business in the luxury resort segment.
With the ability to post reviews online on booking portals, any negative review (whether justified
or not) can reach very easily to a large number of potential guests. This can negatively impact
future business.
HomeInn Limited is developing a “HomeInn Comfort” property in Goa. The construction involves
several key expenditures essential for acquiring land, preparing the site, procuring materials,
labor costs, safety measures, and other associated expenses. The company has invested ` 15
crores in land acquisition and ` 2 crores for site preparation, including dismantling existing
structures. The cost of direct materials amounts to ` 8 crores, while labour expenses total ` 3
crores, including `20 lakh paid during a labour strike. Structural safety testing has been
conducted at ` 0.5 crores, and legal and architectural consultation fees stand at ` 1.5 crores.
Additionally, ` 0.10 crores has been spent on relocating the resort manager from Mangalore to
Goa, and ` 0.50 crores has been allocated for administrative and overhead costs. These
expenses collectively contribute to the successful development of the HomeInn Comfort resort,
ensuring quality construction and operational efficiency.
The property is being acquired from an unrelated party at arm’s length transaction value. Five
out of the six directors were present at the Board Meeting to consider and pass the resolution
to acquire the property.
The operations at the Goa resort started as per the expected timeline. It is in its 3rd year of
operations. In a recent management meeting, key financial data was reviewed. The resort
reported a Net Operating Profit Before Interest and Tax (NOPBIT) of ` 5 crores, with a
depreciation expense of ` 3 crores. The change in working capital amounted to ` 4 crores, while
capital expenditure stood at ` 5 crores. The total invested capital in the resort is ` 20 crores,
with a Weighted Average Cost of Capital (WACC) of 8% and a tax rate of 30%.
HomeInn is a renowned hospitality chain with a nationwide presence, providing top-tier
accommodations in key metropolitan cities. With a commitment to providing a seamless and

8
comfortable stay experience, HomeInn operates a diverse portfolio of hotels that cater to both
business and leisure travellers. One of the key offerings of HomeInn is its combined stay
package, which allows guests to book accommodations in multiple locations under a single
consolidated plan. This package is particularly beneficial for travellers with multi-city itineraries,
such as business professionals, tourists, and corporate delegations. By bundling stays across
its hotels in different states, HomeInn provides convenience, cost-effectiveness, and a hassle-
free booking experience. Mr. Vikash Kwatra, a businessman from Mumbai, undertakes a
business trip and chooses HomeInn for his accommodation. HomeInn charges a consolidated
sum of ` 60,000 from Mr. Vikash Kwatra for stay in its two hotels in Delhi and Jaipur, where the
stay in Delhi is for 4 nights and the stay in Jaipur is for 2 nights.
Multiple Choice Questions
1. For the “HomeInn Budget” properties, identify the listed activities to the five primary
activities of Michael Porter’s value chain model.

Sr. Listed Activity Sr. Primary activity as

No. No. per value chain model
A Storing vendor delivered freshly laundered I Operations
crockery, bedding and laundry for future use
as per guest requirements
B Ensuring cleanliness and safety of rooms, II Marketing and Sales
working order of facilities offered like TV and
internet service, coffee machines.
C The review of food items to remove the ones III Inbound Logistics
past expiry to ensure customer satisfaction
and safety
D Free shuttle service to attract guests to stay IV Service
at the hotel
E Front desk activities handling complaints, V Outbound Logistics
customer support

Options
(a) A – I, B – III, C – IV, D – II, E – V
(b) A – III, B – I, C – V, D – II, E – IV
(c) A – I, B – IV, C – V, D – II, E – IV
(d) A – III, B – I, C – II, D – IV, E – V

9
2. As regards “HomeInn Comfort” resorts, the parameters relating to high quality cleanliness
and food service can be classified under which attribute of the following under the Kano
Model?
(a) Performance attribute
(b) Delight attribute
(c) Threshold attribute
(d) Indifferent attribute
3. Which of the following statements is true as regards to the resolution taken at the Board
Meeting to acquire the property in Goa?
(a) When all five directors of HomeInn Limited attending the meeting consent to the
acquisition of property

(b) When any four directors of HomeInn Limited out of the five attending the meeting
consent to the acquisition of property
(c) When any three directors of HomeInn Limited out of the five attending the meeting
consent to the acquisition of property
(d) When all six directors, representing the total strength of directors at HomeInn
Limited should consent to the acquisition of property
4. Calculate the Economic Value Added (EVA) of the “HomeInn Comfort” Goa.
(a) ` 1.60 crores
(b) ` 4.60 crores

(c) ` 0.40 crores

(d) ` 1.90 crores
5. Which of the following statements would most likely to be true?

(a) HomeInn Limited should outsource all its cleaning and food service operations in
all its properties ignoring the risks of outsourcing, if the cost of outsourcing is less
than the cost of providing this service in-house. This is because the Economic
Value Added (EVA) of the company will be positively impacted despite the risk of
outsourcing.

10
 (b) HomeInn Limited make an absolute comparison of Economic Value Added (EVA)
of one property with that of another irrespective of the difference in scale of their
respective operations.
(c) HomeInn Limited should reconsider the feasibility of operating properties
irrespective the Economic Value Added (EVA).

(d) Economic Value Added (EVA) as a measure takes into account the current
purchasing power and adjusts for inflationary trends. Hence, it is a more
appropriate measure to track as compared to book profit. (5 x 2 = 10 Marks)
Descriptive Questions
6. (a) Explain the risks of outsourcing cleaning and food services for the “HomeInn
Comfort” luxury resort properties.
(b) What would your suggestion be, if the management of HomeInn Limited
determines that guests experience (primarily influenced by cleanliness of facilities
and food service) is a very important critical success factor (CSF)?
(c) How is this risk different from outsourcing cleaning and food services for the
“HomeInn Budget” hotel properties with that for “HomeInn Comfort” resorts?

(d) What benefit does HomeInn Limited derive by operating different properties under
two separate brands? (4 Marks)
7. Identify the total costs to be capitalized under Ind AS 16, Property, Plant and Equipment
for the “HomeInn Comfort” resort being developed in Goa. (5 Marks)
8. Determine the place of supply and value of supply in respect of accommodation provided
to Mr. Vikash under the GST provisions. (6 Marks)

11
CASE STUDY 3
YayIn Airlines Limited (YIAL)
YayIn Airlines Limited (YIAL) is an Indian airline, headquartered in Mumbai. Until the year
2024 YIAL was full service airline offering full service (premium) flying experience to its
guests. It primarily focussed on tourist travel to exotic locations. Premium flying required YIAL
to focus on connectivity between tourist destinations like Srinagar, Gangtok, Lakshadweep
Islands, Andaman and Nicobar Islands and Darjeeling. The number of routes were limited,
primarily originating from Mumbai or Delhi. Passengers were mainly luxury travel guests, who
could afford exotic travel vacations but have limited time therefore preferring to fly to these
destinations. Premium flying service allowed YIAL the ability to charge premium (higher than
economy class market rates) to passengers.
Increased margin pressures – full service model
In the recent years, the number of players in the aviation sector has increased, thereby
increasing the competition including that on the routes to the destinations mentioned above.
Most of the rivals are offering economy seat travel. While there is a difference in the service
offering, high inflationary conditions in the country has lead air travel passengers to become
more price sensitive. Therefore, aircraft capacity was not getting utilized fully due to this price
sensitivity combined with intense competition. Profit margins were getting squeezed.
Route viability assessment
The network route development team, headed by Mr. Jithendra Singh develops route network
and assesses its financial and operational viability. The team collaborates with the finance
analysis team of YIAL, headed by CA Gopal Verma, to determine the financial viability of the
route. Both Jithendra Singh and Gopal Verma then present their analysis to the Mr. Ravi
Mehta, Director- Flight Operations, YIAL. Once a route is approved, the flight starts operating
on that route after due regulatory approval. Every 6 months, a detailed analysis is done to
look into the operational issues related to that route as well as consider whether the route
should continue to be operated on based on its financial viability.
In an effort to improve the company’s performance, consideration is being given to cancel
flight routes that appear unprofitable. YayIn airlines has the flexibility to cancel flight
operations on particular routes after following due operational and regulatory procedures. The
forthcoming meeting between Jithendra Singh, Gopal Verma and Ravi Mehta is scheduled to
be held next week. The agenda is to decide whether to continue operations of Flight 7J6622
between Mumbai and Srinagar. YIAL has the data to compute the income statement for each
flight that it operates. Please refer Annexure 1 for the income statement of flight 7J6622

12
operating on the Mumbai-Srinagar route. CA Gopal Verma would use this in the discussions
next week.
Change in business model into a low cost airline
Due to increased margin pressures, the management realized that growth opportunities in the
full service premium flying segment catering to tourist destinations alone, was not a
sustainable business model. Increased competition due to rivals offering newer routes to
passengers combined with price sensitive travellers, forced the senior management to rethink
its strategy.
Therefore, in March 2024, the senior management of the company took the decision to
become a low cost airline instead. The flying experience would be similar to economy class
travelled that is popular and being offered by other players in the market. The strategy to
sustain profits was to build cost efficiencies into the operations along with expanding market
reach. Mumbai and Delhi would serve as the main hub of operations, but there would be many
more routes developed to cover other cities, not just to tourist destinations. This will result in
Increase fleet size and expand the network of routes offered. The fleet will be of single type
of aircraft to reduce maintenance and operational costs. Any future acquisition of planes will
be leased rather than bought outright. In current market conditions, leasing was working out
cheaper. Airfare will be charged at market competitive rates, attracting enough customers to
ensure that flight capacity is fully utilized. In flight entertainment, food and beverage will be
charged extra and not included in the ticket cost. Digitalize processes to make them efficient,
error free and cost effective. Encouraging online booking and check in is one such process.
Premium flying will be phased out completely.
Operations as a low cost airline: New vision and mission of YIAL, increased scale of
operation
With the change in business model, the company had a new Vision and Mission statement as
outlined below.
Vision: “Yay! In for better connectivity at affordable rates!”
Mission: “Our large fleet will fly guests across to destinations, new and old, on time, in comfort
and at industry best fares.”
YIAL has based its success on three parameters using which it wishes to build a loyal
customer base – (1) affordable rates, (2) on time performance and (3) courteous and hassle
free service. These are reassurances that YIAL provides its customers (guests).

13
In April 2024, YIAL executed a 12 year lease agreement with Airway Inc. for the lease of 5
aircrafts. Refer to terms of the lease in Annexure 2. With increase in fleet size and
corresponding increase in passenger traffic, the scale of operations is slated to increase
manifold. The entire project of change in business model was completed in September 2024.
Hub-spoke model versus point to point model
YayIn now works on a hub-spoke model, where flights on different routes pass through either
Mumbai or Delhi and then onward to their destination. The passengers have to disembark
from their original flight when it reaches the hub and then reboard the next fight that will take
them to their final destination. The idea was to club together passengers travelling to a final
destination from different origins, to group together at the hub that will take them to their final
destination in a different aircraft. This will maximize the capacity utilization of the aircraft.
Fixed costs form a major portion of the cost structure of this business. Hence, if capacity
utilization is better, it enable YIAL to offer competitive ticket price to the passengers.
Therefore, the price sensitive passengers are satisfied due to cheaper airfare. On the other
hand, the hub-spoke travel model explained above increased the travel time by at least twice
as compared to a point-to-point model. This model results in longer queues at the check-in
counter, security check and results in a crowded airport. However, the price sensitive
passenger is willing to bear the wait and hassle since the ticket is available at a more
affordable rate. The hub-spoke model attracts huge crowd, due to which there is enormous
pressure on the limited infrastructure and staff resources at each of these airports (check-in-
counter staff, CISF security staff, ground crew handling luggage etc).
The point-to-point model involves the aircraft flying non-stop (directly) from its origin to its
destination. Many business travellers and some passengers who prefer hassle free travel,
prefer this model. Recently the feedback taken from such type of passengers showed that
they were dis-satisfied with inordinately long travel time under the hub-spoke model. With
increasing wealth and booming business environment, the chunk of such travellers in slowly
increasing. However, operating a point-to-point model from Mumbai or Delhi works out
costlier.
Streamlining operations:
Ever since the low cost airline operations have begun, Mr. Ravi Mehta has been insisting on
building cost efficiencies into the company’s operations. He has encouraged employees to
imbibe lean thinking strategies as part of their roles. He has approached the network route
development team and the financial analysis team to find a solution to the above problem.

14
Jithendra’s network development team has suggested that efficient management of queue
management at the check-in counter and boarding gates at the airport by allowing for online
web-check in. Bring uniformity to the size and type of luggage that can be carried by the
passengers. With proper regulatory approval from the authorities like DGCA, passengers must
carry check-in and hand luggage of specified dimensions. Else, the passengers have to bear
an extra cost for handling non-uniform luggage. Start point-to-point travel for travellers who
prefer convenient and faster travel. Since their numbers are smaller, use smaller aircrafts so
that (a) capacity utilization is faster and (b) the aircraft turnaround time due to maintenance
and repair work by the ground staff can be done faster. Due to lesser passengers the queues
will be shorter and there will be minimum disruption to travel time.
The team led by CA Gopal Verma has proposed that to have different pricing structures for
hub-spoke model travellers and the point-to-point model travellers. To maintain profitability in
operations resort periodic to across-the-board reduction of staff of ground staff in order to
reduce costs of operations.
Mr. Prem Chabbra, a director of YIAL was appointed as its Managing Director on 1 st April
2023. One of the terms of appointment was that in the absence of adequacy of profits or if the
company has no profits in a particular year, he will be paid remuneration in accordance with
the provisions contained in the Companies Act, 2013. As per the financial results for FY 2024-
25, YIAL has incurred a heavy loss of `55 crores. However, these losses are primarily due to
the extensive change in business model that was undertaken during the year. The company
was not in a position to pay any remuneration to Mr. Chabbra but he was paid `2 crore for
the year. This payment was approved by a special resolution passed by the shareholders.
The effective capital of the company is `215 crores.
Tax Deduction at Source (TDS) on passenger service fee (PSF):
Passenger service fee (PSF) is a charge that airlines collect from passengers to cover the
cost of airport security and passenger facilities. Facilities include security, baggage trolleys,
escalators, air-conditioning etc. All these contribute towards enhancing passenger experience
and makes flying comfortable and secure. The airport operators at Mumbai and Delhi, who
manage the airports and their infrastructure would collect this fee from the airline.
Mayank Saxena has joined the vendor payment team of the accounting department at YIAL
recently. He is making his very first payment to the airport operators at Mumbai and Delhi for
PSF. These payments are made along with rental payments to the airport operators that YIAL
pays for use of the airport space for operating its business. He is confused whether tax has

15
to be deducted for payments made for PSF to airport operators under the relevant sections
of the Income Tax Act, 1961.
Pursuing two business models simultaneously
YIAL has been successfully operating as a low cost airline for the past few years now. In the
recent years, the tourism travel industry has been promoting many locations within India as
vacation spots. Hence, YIAL’s original operating routes like Srinagar, Gangtok, Lakshadweep
Islands, Andaman and Nicobar Islands and Darjeeling are gradually becoming popular again.
Again, there are different customer segments, some preferring affordable travel while others
preferring comfortable premium experience.
Mr. Chabbra has been working with YIAL for the past 25 years. From his experience, he feels
that YIAL can re-start its full service premium flying to these locations again. The rest of the
management team is not convinced about this proposal. Their primary concern is that YIAL
has switched to low-cost, affordable travel model in the recent years. By restarting premium
flying, YIAL will be catering to different customer segments at the same time. While price
sensitive travel flyers will not be willing to pay higher ticket fare, the prospective premium
flying passengers will not be happy to experience the economy class flight experience
(affordable, but reduced service travel offering). Hence, there will be a lot of confusion about
YIAL’s brand offering. They feel that a single model namely the low cost affordable travel
model that YIAL is currently following should be maintained, there is no confusion in the minds
of passengers about the service to expect.
YayIn acquired an aircraft from Boeing (Boeing 767) on 1 st April, 2019 for `400 crore. Over
a period of four years, the aircraft was used in operations and depreciated accordingly. By
the end of this four-year period, the aircraft had a carrying amount of `255 crore, which
reflected its estimated value in use. This value was arrived at after charging cumulative
depreciation of `110 crore and an impairment loss of `35 crore.
On 1st April, 2023, the company decided to classify the aircraft as “held for sale” due to a
proposed transition towards acquiring new-generation aircraft (Boeing 787 Dreamliner). At
the time of classification, the carrying amount of the existing aircraft was `255 crore. However,
the fair value less costs to sell was assessed at `250 crore, indicating a shortfall in
recoverable value. At the next reporting date, 31st March, 2024, market conditions improved
and the fair value less costs to sell of the aircraft was reassessed at `265 crore. By 1st
October, 2024, the market for aircraft had continued to strengthen, and the fair value less
costs to sell rose further to `300 crore.

16
Annexure 1:
Income statement of Flight 7J6622 operating from Mumbai to Srinagar (per flight)
Particulars ` `
Ticket Revenue (200 seats * 40% occupancy * ` 22,500 ticket
price) 18,00,000
Less:
Variable expenses per person (200 Seats * 40% Occupancy *
`15,000 Variable expense) (12,00,000)
Contribution margin (Ticket revenue less variable expense) 6,00,000
Flight expenses:
Salaries, Flight crew 2,00,000
Salaries, Flight Assistants 80,000
Baggage Loading and Flight Preparation 70,000
Overnight costs for flight crew and assistants at destination 80,000
Fuel for aircraft 2,50,000
Depreciation of aircraft * 75,000
Liability insurance 1,50,000
Flight promotion 50,000
Hanger parking fee for aircraft at destination 25,000
Total flight expenses (9,80,000)
Net Gain/ (Loss) (380,000)
* Based on obsolescence
The following additional information is available about flight 7J6622 from Mumbai to
Srinagar.
1. Members of the flight crew are paid fixed annual salaries, whereas the flight assistants
are paid by the flight.
2. The baggage loading and flight preparation expense is an allocation of ground crew’s
salaries and depreciation of ground equipment.
3. One third of the liability insurance is a special charge assessed against flight 7J6622
because in the opinion of insurance company, the destination of the flight is in a “high-
risk” area.
4. Flight promotion expense is specific to the route, in this case relate only to flight 7J6622.
5. The hanger parking fee is a standard fee charged for aircraft at all airports.
6. If flight 7J6622 is dropped, YIAL Airlines has no authorization at present to replace it
with another flight.

17
Annexure 2: Lease agreement terms for 5 aircrafts
Lease Agreement

This Lease Agreement is made and entered into as of 01/10/2024, by and between YIAL
(YayIn Airlines Limited) and Airway Inc. for five aircrafts.
The following were the terms of the lease:
• Lease commencement date for each of the aircraft would be October 1,2024.
• YIAL must pay Airway Inc. the first monthly rental payment of ` 10 lakh per aircraft
upon execution of the lease.
• Airway Inc. will pay YIAL ` 50 lakh per aircraft cash incentive to enter into lease
payable upon execution.
YIAL incurs an initial direct cost of ` 1 lakh per aircraft, which is payable on October 1, 2024.
YIAL has calculated the initial lease liability as the present value of the lease payments
discounted using incremental borrowing rate because the rate implicit in the lease could not
be readily determined. Thus, the initial lease liability is arrived at as ` 8.50 crores per aircraft.
YIAL has to undertake a planned check after every 100,000 flight hours for each aircraft. At
the end of lease period, that is 12 years YIAL must have a check performed (or refund the
costs to Airway Inc.), irrespective of the actual number of flight hours.

Multiple Choice Questions

1. What will be the carrying amount of an aircraft and gain or loss to be recognised on
subsequent remeasurement as on 1st Oct 2024, for an aircraft purchased in Apr 2019, as
per relevant Ind AS?
(a) On subsequent remeasurement as on 1st Oct 2024, aircraft shall be carried at
` 300 crore and there will be gain of ` 35 crore to be recognised in the books as
per Ind AS.
(b) On subsequent remeasurement as on 1st Oct 2024, aircraft shall be carried at
` 290 crore and there will be gain of ` 25 crore to be recognised in the books as
per Ind AS.
(c) On subsequent remeasurement as on 1st Oct 2024, aircraft shall be carried at
` 265 crore and there will be loss of ` 15 crore to be recognised in the books as
per Ind AS.

18
 (d) On subsequent remeasurement as on 1st Oct 2024, aircraft shall be carried at
` 255 crore and there will be loss of ` 35 crore to be recognised in the books as
per Ind AS.
2. Which of the following would reflect the spirt of employees adopting lean thinking while
working for the organization?
(i) Efficient management of queue management at the check-in counter and boarding
gates at the airport by allowing for online web-check in.
(ii) Across the board reduction of staff of ground staff in order to reduce costs of
operations.
(iii) Streamlining processes to allow for faster baggage drop and pick up at the
departure and arrival lounge by bringing uniformity in the luggage type and size.
(iv) Streamlining flight operations and use of smaller aircraft types to allow for
minimum disruption of travel time.
Options
(a) (i), (ii) and (iii)
(b) (ii), (iii) and (iv)
(c) (i), (iii) and (iv)
(d) (i), (ii) and (iv)
3. YIAL is using the Kano Model to assess the impact switching to low-cost airline model
have on customer satisfaction. Under which attribute of Kano Model would YIAL’s ability
to provide extensive connectivity at affordable rates fall under:
(a) Performance attribute
(b) Threshold attribute
(c) Delight attribute
(d) Questionable attribute
4. Referring to the provisions contained in the Companies Act, 2013, assess the validity of
payment of ` 2 crore made to Mr. Chabbra for FY 2024-25:
(a) As per the provisions of Companies Act, 2013, Mr. Chabbra is not entitled to any
remuneration since YIAL incurred heavy losses in FY 2024-25.

19
 (b) As per the provisions of Companies Act, 2013, Mr. Chabbra is entitled to only
`120 Lakh as remuneration in FY 2024-25 and it cannot be increased in any
circumstances.
(c) As per the provisions of Companies Act, 2013, Mr. Chabbra is entitled to only
` 24 Lakh as remuneration in FY 2024-25.
(d) As per the provisions of Companies Act, 2013, Mr. Chabbra is entitled to ` 2
crores as remuneration in FY 2024-25.
5. Which of the following strategies can possibly support Mr.Chabbra’s proposal to operate
both affordable low cost model and the premium full service model simultaneously?
(a) Operate affordable low cost model and premium full service model under different
brands of YIAL. Pricing of tickets can be differentiated based on which model that
particular flight is offering, higher price for premium full service tickets and lower
price for affordable tickets.
(b) Operate affordable low cost model and premium full service model under the a
single brand of YIAL. Pricing of tickets can be differentiated based on which model
that particular flight is offering, higher price for premium full service tickets and
lower price for affordable tickets.
(c) Increase marketing and advertising spend to spread awareness of which route
offers full service flying and which offers low cost affordable flying.
(d) It is not possible to operate both models simultaneously. (5 x 2 = 10 Marks)
Descriptive Questions
6. Prepare an ANALYSIS showing what impact dropping flight 7J6622 would have on the
airline’s profit. CA Gopal Verma would be using this analysis in his forthcoming meeting.
(3 Marks)
7. In respect of lease Agreement with Airway Inc. :
(i) How should YIAL record and measure the lease with Airway Inc.?
(ii) How should YIAL account for the cost of planned checks and check to be
performed at the end of the lease term? (6 Marks)
8. ADVISE Mayank Saxena about whether tax has to be deducted for payment of PSF to
airport operators in Mumbai and Delhi? (6 Marks)

20
CASE STUDY 4
CA. Manisha is an audit partner in BS & K LLP, a firm of Chartered Accountants. The Firm was
founded by CA. Lata Subramanian in 1960. With a strong legacy of spanning over multiple
decades and its humble origins in the steel city of Jamshedpur, the Firm has established offices
across key cities in India. The firm caters to clients across diverse market segments including
industrial markets, infrastructure, consumer products, financial services, technology and
telecommunications.

CA. Manisha was waiting at the Mumbai office to meet CA. Jyoti Batra, a Fellow Chartered
Accountant. CA. Jyoti Batra had been appointed by a competent authority to inspect and
evaluate adherence to SQC-1 and review selected audit documentations in relation to statutory
audit of the financial statements for the year ended 31 March 2024, conducted by BS & K LLP
for a listed entity. The review focused on three significant audit areas—Revenue, Trade
Receivables, and Investments—due to their inherent higher risk of material misstatement in the
audit engagement.
The receptionist informed CA. Manisha about the arrival of CA. Jyoti. Both of them exchanged
pleasantries and CA. Jyoti was guided into a pre-booked meeting room. CA. Jyoti requested for
the audit files for initiating audit inspection. CA. Manisha explained that the audit documents are
maintained electronically. For ease of review, the archived version of the audit file has been
hosted on the laptop of the firm. CA. Jyoti explained that she would need some time to
understand the policies of L & V and discuss her initial observations. At the end of the day,
following discussions took place:
CA. Jyoti: Can you tell me about the service offerings of the firm? Does it also provide advisory
services?
CA. Manisha: We are a multidisciplinary firm providing a wide array of services. Our service
offerings can be bifurcated between:

Audits are the fundamental building blocks of effective capital markets.

Auditors use their knowledge, skills and experience to deliver high-quality
audits with independence, integrity, objectivity and professional skepticism.
In doing so, they help to support sustainable, long-term value creation. High-
quality audits facilitate economic growth and enhance trust and confidence
in business and the capital markets. More than 1,500 audit professionals
Audit and
support the delivery of data-driven audits, powered by leading-edge
Assurance
technology, including foundational audit technologies.

21
 The firm provide consistent audits by assembling the right multidisciplinary
teams to address the most complex issues, using a proven audit
methodology and deploying the latest, high-quality auditing tools and
technologies. The Firm understands that to achieve the desired potential a
tailored assurance service as much as a consistent methodology, clients
benefit from sector and subject-matter knowledge is provided.

Market Cap Audited (₹ lakh-

crore)
100 54 52 45
50 20
0
Catergy 1 - Category 2 Category 3 Category 4
including L & V… Firm Firm Firm

Market Cap Audited (₹ lakh crore)

The Firm’s tax professionals offer services across all tax disciplines to help
thrive in this era of rapid change. The coordinated tax professionals offer
connected services across all tax disciplines to help the entities thrive in an
era of rapid change. The Firm combine its exceptional knowledge and
experience with the people and technology platforms that make us an ideal
Tax services
partner for tax-related needs. The Firm has competencies in business tax,
international tax, transaction tax and tax-related issues, compliance and
reporting as well as legal matters.
Complying with the tax laws and regulations that are constantly changing is
a challenge. The Firm provides services from tax filing to tax planning. For
global businesses, accurate tax compliance is an instrumental piece of the
tax puzzle. Getting this piece right is increasingly complicated because of
the rapid pace of legislative and regulatory change, and the increasing
digitalization of revenue authorities. Additionally, staying current on tax
developments at the local and national level, while meeting the demands
needed for more transparency and financial information, strains the
resources of tax departments and further complicates tax compliance.
Advisory at the Firm helps in realizing business transformation through the
power of people, technology and innovation. Faced with an increasingly
complex and uncertain operating environment, organizations — and the
people within them — are under pressure to make decisions better, faster,
Advisory and smarter. Yet, as stakeholder expectations shift, and as technology
services advances, new ways of working and regulatory change are making it harder
for people to make the right decisions.

22
 To further support clients, the Firm provides business strategy consulting,
utilizing frameworks such as the Boston Consulting Group (BCG) Matrix and
McKinsey’s 7S model. Our diversified services in business strategy help
organizations assess market positions, allocate resources efficiently, and
devise competitive strategies for sustained growth. By leveraging strategic
tools like these, the Firm enables businesses to build resilient, scalable
models that adapt to changing environments while driving long-term value
creation.
In addition, the firm offers bookkeeping service as well. Our bookkeeping
services ensures the integrity of transactions and company data. Hence, it
requires experienced and skilled professionals, who hold deep knowledge
of the subject. Our services help businesses streamline activities, make
better business decisions, decrease execution costs, reduce time spend,
and manage budget whenever necessary.

CA. Jyoti: That’s interesting. But how do you ensure that no independence conflict arise while
accepting/ performing an audit engagement? If there is an independence policy, can you please
share a copy of such policy?
CA. Manisha: If you browse to the client acceptance section of the electronic audit file, we have
documented our independence policy. In a nutshell, our independence policy is based on the
requirements of SQC 1 as issued by the ICAI. As per SQC 1, the firm has established policies
and procedures designed to provide it with reasonable assurance that the firm, its personnel
and, where applicable, others subject to independence requirements, maintain independence
where required by the ICAI’s Code of Conduct. Accordingly, the firm is able to identify and
evaluate circumstances and relationships that create threats to independence, and to take
appropriate action to eliminate those threats or reduce them to an acceptable level by applying
safeguards, or, if considered appropriate, to withdraw from the engagement. The Code also
require us to consider the requirements of applicable laws and regulations e.g. the Companies
Act, 2013.
CA. Jyoti: Great. I would go through the independence policy in detail. Was any breach of
independence requirements were observed for the engagement under inspection?
CA. Manisha: No breach of independence was observed. We have a close relationship with the
audit client. During the last year due to high level of attrition the client approached us to help in
preparing the financial statements– which the Firm decided to support. A team (separate from
the audit team) was formed to avoid any independence threat.

23
CA. Jyoti: Considering the engagement under discussion is in industrial equipment segment,
did you involve an engagement control quality reviewer (‘EQCR’) for this engagement?
CA. Manisha: It is essential that the quality of our work is of the highest standard. One of the
ways in which we seek to achieve this high standard is through engagement quality control
reviews. The objective of such review is to provide an objective evaluation, on or before the
date of the engagement report, of the significant judgments the engagement team made, and
the conclusions reached thereon. Pursuant to our quality management and risk management
policies, we have appointed Mr. Qureshi as the EQCR for this engagement.
CA. Jyoti: I am not too sure about the skill and experience of the EQCR. Could you please
elaborate about his experience?
CA. Manisha: Please be rest assured, the EQCR involved in this engagement is very
experienced in accounting and audit. He leads the banking and financial services audit practice.
He is a member of the ICAI and have over 30 years of experience in statutory audits, financial
accounting advisory and accounting due diligence services relating to financial service sector.
We have extensively leveraged his vast experience in all aspects of audit. He has also made
decisions for the engagement team.
CA. Jyoti: Could you please elaborate about the revenue recognition policy of the entity under
discussion?
CA. Manisha: Revenue is recognised as per the relevant Ind AS when control of the goods or
services are transferred to the customer at an amount that reflects the consideration to which
the company expects to be entitled in exchange for those goods or services. For example,
revenue from sale of equipment is recognised at the point in time when control of the asset is
transferred to the customer, generally on delivery of the equipment. The company has generally
concluded that it is the principal in its revenue arrangements, because it typically controls the
goods or services before transferring them to the customer. The normal credit term is 30 to 90
days upon delivery. The company considers whether there are other promises in the contract
that are separate performance obligations to which a portion of the transaction price needs to
be allocated (e.g., warranties, customer loyalty points). In determining the transaction price for
the sale of equipment, the company considers the effects of variable consideration, the
existence of significant financing components, non-cash consideration, and consideration
payable to the customer (if any).

24
CA. Jyoti: I was inclined to ask you about the revenue transaction with Customer P. I could see
you concluded that the revenue recognition was appropriate, but it required exercise of
significant judgement. Please explain this transaction.
CA. Manisha: The company had a Customer P which was undergoing restructuring due to
issues related to liquidity. The company has decided not to do any further business with
Customer P. The customer has informed that it will provide Letter of Credit from a nationalised
bank against which the company can despatch goods. Company has manufactured the goods
exclusively for Customer P, but the Letter of Credit was not yet arranged because it was in
process till the date of our audit report. However, basis the past experience of no default by
Customer P, the company recognised revenue.
CA. Jyoti: A qualified audit opinion was issued in the current year due to the inability to
comment recoverability of the company’s investment in subsidiaries. Could you please explain
the rational for the same?
CA. Manisha: The qualification was limited only to the investments of the company in one
subsidiary. It does not have an impact on the recoverability of the outstanding loans given to
the subsidiary. Since the undetected misstatements were limited to specific investments, in
absence of sufficient appropriate audit evidence, there is no pervasive impact as per the
requirements of the SA 705 and accordingly a qualified opinion was appropriate.
CA. Jyoti: In how many days was the electronic audit file assembled?
CA. Manisha: The firm has established policies and procedures for engagement teams to
complete the assembly of final engagement files on a timely basis after the engagement reports
have been finalized. In the case of an audit the time limit is ordinarily not more than 65 days
after the date of the auditor’s report.
Post completion of discussion, CA. Jyoti continued to review the electronic file till next week.
Multiple rounds of discussions were held between CA. Manisha and CA. Jyoti. On the last
working day, CA. Jyoti set up a meeting to discuss the findings of the draft inspection report.
Excerpt of the draft inspection report is enclosed as Annexure.
Simultaneously, a business review meeting was held by the firm’s partners to evaluate the firm's
operations and to assess the potential implications if the firm were to cease providing
bookkeeping services, given the concerns highlighted in the draft inspection report. The
bookkeeping division (under advisory services), launched in November 2014, initially expanded

25
rapidly, growing to about 50 locations within three years, primarily in metro cities. However, this
rapid expansion exposed weaknesses in the division’s systems and infrastructure, which were
unable to support such growth. As a result, the Firm encountered operational difficulties.
The bookkeeping services offer low-margin services while facing high operational costs,
including rent and payroll. These challenges were further exacerbated by issues like high staff
attrition, supply-chain inefficiencies, and infrastructure limitations. Consequently, the division
was forced to close nearly 10 offices within two years of its launch. In response to these
challenges, the bookkeeping division has since standardized its operations, streamlined
processes, and centralized its supply chain to improve efficiency.
Despite providing a comprehensive range of boutique services under one roof—offering a
broader portfolio than many local advisory firms—BS & K LLP struggles to compete effectively
with smaller, politically connected local advisory firms – who are not a firm of Chartered
Accountants. These local advisory firms often offer limited but highly competitive services,
particularly in terms of pricing. In 2016, BS & K LLP faced significant setbacks when it was
forced out of several profitable regions due to intense opposition from small, locally connected
firms, highlighting the challenges posed by local competition.
One of the key issues BS & K LLP faces is the uneven pricing structure among local advisory
firms. Although BS & K LLP offers its services at comparable prices, and provides a superior
quality of service, local businesses frequently prefer to work with local firms, valuing proximity
and political ties over service quality.
Moreover, the bookkeeping division requires continuous investment, yet it lacks strategic
synergy with the firm’s broader activities. The division continues to incur losses despite the
improvements in operations. For the firm to achieve its expansion goals and maintain profitability
across all offices, it must rethink its strategy. The aim is to ensure that every office not only
sustains itself but also contributes to the overall profitability of the firm, which is crucial for
scaling the business in a sustainable way. The firm is contemplating various strategic measures
including establishment of a Centre of Excellence.

26
 ANNEXURE
Excerpt of the Draft Inspection Report
Review of Firm-vide Audit Quality Control System
 The firm has formulated an EQCR policy which inter-alia requires EQCR in audit of listed entities. Such review
was conducted in a timely manner at appropriate stages during the engagement so that significant matters
may be promptly resolved to the reviewer’s satisfaction before the report is issued. However, the firm’s
policies and procedures on appointment of engagement quality control reviewers and their eligibility
conditions are not in line with SQC 1. In the extant case, EQCR has experience in audit of banking and
financial services entities and did not possess experience in the sector where the entity belongs (i.e. industrial
equipment sector). Also, the EQCR’s involvement in making decisions for the engagement team is also not
in line with SQC 1.
 The firm has established policies and procedures for engagement teams to complete the assembly of final
engagement files on a timely basis after the engagement reports have been finalized. The audit report
was signed on 15 May 2024. At present the assembly period is maximum of 65 days from the date of the
audit report and accordingly the electronic audit file was assembled on 19 July 2024. The extant archival
policy of the firm is not aligned with the requirements of SQC 1.
Independence threat
 The firm’s independence policy does not restrict rendition of non-audit services that are prohibited under
ICAI’s Code of Ethics. For instance, the independence policy of the firm does not prohibit the rendering of
bookkeeping services to the audit client. We observe that the firm has prepared the financial statements
of the audit client by forming a separate team of professionals (other than the audit team professional).
This tantamount to providing bookkeeping services to the listed company. However, such service cannot
be provided to the listed company as per ICAI’ Code of Ethics. The firm is advised to create a negative
list, which should, at a minimum, cover the services prohibited under the ICAI’s Code of Ethics, and appoint
an Independence and Ethics Partner.
Failure to consider ‘Material and Pervasive’ impacts of misstatements while expressing audit opinion
on the financial statements
 The firm expressed a qualified audit opinion due to its inability to comment upon recoverability of the
company’s investments in the subsidiary. However, the audit firm did not consider other financial
exposures - which were in the form of the loans. It is quite obvious that a doubt on recoverability of
investment equally creates doubt on recovery of loans given to subsidiary. Accordingly, the basic premise
of focusing solely on investments and not considering the total financial exposure to the subsidiary is
fundamentally flawed. The total financial exposure, including investments in the subsidiary, represented
60% of the company's total net worth at the year-end. A very high-level estimate performed indicated a
possible reduction in profit before tax by 70% as impairment indicators exist as at the year end.
 The rational documented by the engagement partner is inappropriate since the engagement partner failed
to consider the total exposure of the company in its subsidiary, while evaluating the possible effects of
undetected misstatements on the financial statements. There is no explanation for how the engagement
concluded that there was no impact on the recoverability of the loans given to the subsidiary. The firm’s
contention that since such undetected misstatements were limited to specific investments, there is no
pervasive impact (as per the requirements of SA 705), is not satisfactory.
Unapproved related party transactions not considered while forming the audit opinion
During the year the listed company purchased goods amounting to `150 crores from related parties as defined
under the Companies Act, 2013. Turnover for the year amount to `1,300 crores. Under Section 188 of the
Companies Act, 2013, shareholders’ approval is required if purchases of goods from related party exceeds 10%
of the turnover of the year – in the extant case it amounts to 12%. The electronic audit file simply states that
the transactions are at arm’s length and in the ordinary course of business. No detailed assessment is included.
Considering non-compliance of the Companies Act, 2013, the audit opinion should have been modified in
respect of this matter.

27
Multiple Choice Questions
1. Do you agree with CA. Jyoti’s findings related to the EQCR? Choose the correct
statement.
(a) No. The observation is incorrect, as an EQCR is not required to be assigned for
audits of listed entities unless specifically mandated by the engagement’s
complexity or regulatory body.
(b) Yes. Mr. Qureshi does not possess the necessary sectoral experience and
knowledge to perform the EQCR role effectively, and under SQC 1, he cannot
make decisions for the engagement team.
(c) Yes. Mr. Qureshi does not possess sectoral experience and technical knowledge,
which disqualifies him from being an EQCR as per SQC 1, but he may still support
the engagement in a limited capacity.
(d) No. An individual can be appointed as an EQCR for multiple audit engagements,
even in cases where they do not possess specific sectoral knowledge, as long as
they fulfil other technical qualifications under SQC 1.
2. In accordance with SQC 1 and SA 230, the audit firm should have completed the
assembly of final audit files by-
(a) 13 August 2024 – The firm is allowed total 90 days from the audit report date
(including extended time (of 30 days) to accommodate additional reviews and
documentation for complex audits, in line with regulatory flexibility for listed
entities as permitted under SQC 1.
(b) 24 July 2024 – SQC 1 and SA 230 set a standard time limit of 60 days but allow
for a flexibility of up to 10 additional days for firms auditing multiple subsidiaries,
provided that sufficient documentation justifies the extension.
(c) 3 August 2024 – Certain international regulatory frameworks permit an additional
20 days beyond the standard time limit of 60 days prescribed under SQC 1 to
address complexities arising from cross-border audit engagements.
(d) 14 July 2024 – SQC 1 requires audit firms to establish policies for the timely
completion of audit files, and as per SA 230, this should ordinarily be no more
than 60 days after the auditor’s report date.
3. The threat to auditors independence identified in the inspection report
represents_______.
(a) Self-review threat. The Firm will not appropriately evaluate the results of an
activity performed by an individual within the firm as part of a non-audit service on
which the audit team will rely when forming a judgment as part of an audit.
(b) Self-interest threat. Financial interest will inappropriately influence auditor’s
judgment or behaviour.

28
 (c) Advocacy threat. Auditor will promote the Company’s position to the point that
his/ her objectivity is compromised.
(d) Familiarity threat. Due to a long or close relationship with the Company, the auditor will
be too sympathetic to their interests or too accepting of their work.
4. Considering non-availability of audit evidence, CA. Manisha should have issued
________________?
(a) Adverse audit opinion
(b) Disclaimer of audit opinion
(c) Unmodified audit opinion with an emphasis of matter paragraph
(d) Adverse audit opinion on the investment and disclaimer of audit opinion on the
remaining portion of the financial statements
5. Do you agree with CA. Manisha's observation relating to related party transactions?
(a) No. Companies Act, 2013 requirements do not apply to an listed entity if they are
conflict with SEBI Listing Regulations. SEBI Listing Regulations do not mandate
shareholder approval.
(b) No. Section 188 do not cover routine transactions like purchase of goods
(c) No. Shareholders’ approval under section 188 is not triggered if the transaction is
at arm’s length.
(d) No. Shareholders’ approval under section 188 is not required if the transaction is
at arm’s length and at ordinary course of business. (5 x 2 = 10 Marks)
Descriptive Questions
6. When should revenue from the Customer P be recognised by the Company? (5 Marks)
7. RECOMMEND the strategic measures BS & K LLP can implement to enhance the
profitability and competitiveness of its bookkeeping division, considering internal
inefficiencies, external market challenges, and the establishment of a Centre of
Excellence. (Any two points) (2 Marks)
8 In light of the Ms. Jyoti’s observation RE-DRAFT a policy to identify and evaluate possible
threats to independence considering SQC 1? (8 Marks)

29
CASE STUDY 5
Agriculture and allied industries have been one of the vital sectors of the Indian economy. The
crop protection industry refers to companies that manufacture fertilizers, pesticides, fungicides
etc. This has a direct connection with agriculture. Allied industries of the agricultural sector
include the animal husbandry industry, which is a branch of agriculture. It includes dairy farming,
poultry farming, apiculture, aquaculture among others.
Mr. Karnal Singh, the founder of VEN Private Limited, founded the company in Hoshiarpur,
Punjab in the year 1965. During the 1960s, the “Green Revolution” development program in
India enhanced the productivity of crops. VEN Private Limited became one of the many
companies manufacturing crop protection solutions. It focused on the manufacture of pesticides
and insecticides.
During 1970s, “White Revolution”, another landmark development program, transformed India
from a milk deficient nation into the world’s largest producer of milk. This popular movement
prompted Mr. Karnal Singh to branch out into dairy farming, focusing on milk production and
other dairy products. The crop protection business and dairy farm business turned out to be
profitable ventures. Over the years, the need for animal feed products especially for livestock
increased multifold. Animal feed refers to fodder like compressed and pelleted feed, grains and
legumes made specifically to feed livestock cattle. Seeking this opportunity, Mr. Karnal Singh
established the animal feed business in the 1990s.
Thus, VEN Private Limited became a diversified agri-business company having three different
business verticals - Dairy, Animal Feed and Crop Protection.
Their vision statement reads: “Providing sustained value that nourish people and the planet”
Over the years, each of these divisions has operated with the above vision in mind, aligned with
what the company aspires to achieve. Although operations have been wholly contained within
Punjab, the business has thrived and become profitable over the years. Management of the
company in recent years has been handled by the family members, headed by Mr. Karnal
Singh’s son Mr. Kunal Singh.
The current management is exploring various opportunities to expand its business across
different verticals. As a first step, it intends to assess the performance of each of its divisions
as they currently stand in FY 2024–25 within Hoshiarpur, Punjab.
Divisional performance evaluation (Hoshiarpur, Punjab):
At VEN, the performance of each division is assessed independently, and staff members are
rewarded based on the division’s outcomes. For the financial year ending 31st March 2025, the
financial performance of each division is as follows:
 The Dairy Division (DD) reported revenue of ` 6,80,00,000 and a profit before interest
and tax (PBIT) of ` 60,10,000. The netbook value of plant and equipment stood at
` 5,65,25,000, and net current assets amounted to ` 1,04,75,000.

30
 The Animal Feed Division (AFD) achieved the highest revenue of ` 10,62,50,000 and
the highest PBIT of `63,77,500. The netbook value of its plant and equipment was
` 7,43,75,000, and net current assets totaled ` 1,51,25,000.
 The Crop Protection Division (CPD) generated revenue of ` ,00,00,000, with a PBIT of
` 57,66,000. The netbook value of plant and equipment stood at ` 2,62,50,000, while
the net current assets were `60,00,000.
It is noted that the PBIT for each division includes a deduction for head office expenses, which
have been allocated 2% of the respective division’s revenue. The company’s cost of capital is
9% per annum, and depreciation on plant and equipment is charged at 15% per annum on cost.
VEN evaluates divisional performance using both Return on Investment (ROI) and Residual
Income (RI), calculated based on the controllable profits and using the net book value of plant
and equipment at the reporting date as the investment base. These metrics also serve as the
basis for the company’s performance-linked reward system. In this context, the manager of the
Animal Feed Division has claimed that his division is the best-performing unit in the company.
It is proposed to expand the operations of the Dairy Division by venturing into the manufacturing
of frozen desserts, as part of the strategic growth initiatives led by the management. For further
details, refer to Annexure 1.
Operational efficiency and integration of supply chain management
In its effort to enhance operational efficiency and integrate supply chain management across its
verticals, VEN has obtained consultancy services from an entity based in the USA. These
consultancy services are aimed at developing a customised enterprise resource planning (ERP)
software solution to optimise procurement, production, logistics, and distribution processes. The
service is expected to be completed within three months from now. The consideration of USD
1,000,000 for such consultancy services is required to be paid in foreign currency. It is
anticipated that the exchange rate will decline by 4% over the three months period and in order
to protect the dollar payments after three months, finance manager has decided to hedge the
risk involved in foreign currency transaction. He is looking forward to two options to hedge the
transaction risk i.e. either Forward cover or Money market cover. The relevant spot and forward
rates are:
Spot 3 Month's Forward
`/ $ 85.60/ 85.90 87.60/ 87.90
The borrowing rates in India and USA are 8% and 5.5% respectively and deposit rates are 6.5%
and 4% respectively.
This ERP implementation has also supported the Crop Protection Division in resolving its
warehousing and shipping constraints and enabled integration with Reachme, the e-commerce
platform, as further explained in the Annexure 2.

31
Annexure 1
Diversification Strategy: The Dairy Farm operations for FY 2025–26 at Dhagwar, Kangra district, Himachal Pradesh
VEN perceives that there is an opportunity to grow in the premium
milk and dairy product segment. For this it wants to follow a different
business operating model than the current one at Hoshiarpur. At
Hoshiarpur, raw milk is procured from farmers, which is then used to
produce different dairy products. The quality of milk that is used
cannot be directly controlled by VEN. The dairy products at the
Hoshiarpur unit caters to the wide strata of customers ranging from
those preferring economy range products to those wanting premium
range products. For premium range products, VEN wants to have
complete control over the quality of milk that is the main ingredient of
its diary operations. For this reason, it wants to own the breed of cows
from which the milk will be procured that will be used to make premium range products. In order to have access to
open pastures, where the required conditions can be given to the cows. VEN plans to start a new unit of dairy farm
operations at Dhagwar town in Kangra district, Himachal Pradesh. VEN wants to procure high milk-yielding breeds of
cows that will provide high quality milk to be used to make premium range products. They will be bred, raised, fed and
managed in order to produce milk and other dairy products. Cows will be milked every day. Milk thus obtained will be
stored in cold storage and sold to retail distributors on a weekly basis. The milk will be fresh milk and concentrated or
sweetened or otherwise altered in any way. Milk production will be the primary focus of this newly developed milk
farm. Work for this new dairy farm began in FY 2025-26.
On April 1st, 2025, VEN purchased land for `3 crores at Dhagwar town for this new dairy farm. On this day, it also
purchased 100 cows which had an average age of 3 years. VEN received a non-refundable grant of `10,00,000 for
the acquisition of the cows.
During the financial year 2025-26, VEN incurred the following costs:
(i) `12,00,000 to raise and feed the animals in terms of taking care of their foods requirements and managing
their upkeep to maintain them in healthy condition.
(ii) `5,00,000 as breeding fee to a local farmer.
On 1st October 2025, 20 calves were born. There were no other changes in the number of animals during the year
ended 31st March 2026.
On March 31st, 2026, VEN had 10,000 litres of milk in cold storage, which had not been sold to retail distributors. The
milk was sold shortly after the year end at the same market price, which had not changed since the year end.
Information relating to fair value
As of April 1st, 2025, the fair value less cost to sell of the land was `3 crores. Over the next two valuation dates, the
value appreciated to `3.10 crores on October 1st, 2025, and further to `3.15 crores by March 31st, 2026. For milk, the
fair value per litre stood at `40 on April 1st, 2025, increasing to `42 by October 1st, 2025, and further to `45 as of
March 31st, 2026. Regarding livestock, the fair value of a newborn calf rose from `30,000 per calf on April 1st, 2025,
to `35,000 on October 1st, 2025, and reached `40,000 by March 31st, 2026. A 6-month-old calf was valued at `32,000
on April 1st, 2025, `38,000 on October 1st, 2025, and `44,000 by March 31st, 2026. The fair value of a 3-year-old cow
increased from `42,000 per cow on April 1st, 2025, to `47,000 on October 1st, 2025, and reached `50,000 by the end
of the financial year. Similarly, a 4-year-old cow was valued at `42,000 per cow on April 1st, 2025, `48,000 on October
1st, 2025, and `52,000 on March 31st, 2026.
Product Development Strategy: Introduction of frozen dessert products at Hoshiarpur, Punjab within the Dairy
Division
It has been proposed to expand the business of Dairy Division at Hoshiarpur, Punjab by venturing into manufacture
of frozen desserts. This would require additional investment in plant and equipment of `1,75,00,000 which will
generate a contribution of `95,00,000 per annum. The annual fixed cost of the division will increase by `8,50,000
(excluding depreciation). Net current assets of this division will increase by `25,00,000 due to the acceptance of this
proposal.

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Annexure 2: Expansion plans for Crop Protection Division for FY 2025-26

Crop Protection Division primarily sells pesticides and insecticides.

The main market for the company has been Punjab. Recently, Mrs.
Gunjan Wadhwa, the head of the CPD informed the management
at VEN that there is a growing demand for these products from the
nearby states of Haryana and Uttar Pradesh. These are from small
pockets of rural towns, comprising farmers who have small
landholdings and do not have direct access to VEN’s distributors
in Punjab. Therefore, they buy these products from agents, who
charge a hefty commission, which reduces their profit margins. The CPD in the meantime is looking to expand its
market presence outside Punjab. Mrs. Wadhwa sees an opportunity to expand in rural towns rather than in larger
semi-urban cities where competition is stiff. An additional hurdle that the company faces is the lack of warehousing
and shipping facilities, since VEN has had its operations only within Punjab. While VEN’s newly implemented ERP
system has significantly improved internal efficiencies across procurement, production, logistics, and distribution, it
does not substitute for the physical infrastructure and external network required to penetrate new rural markets. Since
the project is still at a nascent stage, Mrs. Wadhwa does not recommend investing in warehousing and shipping
facilities in these newer markets yet. Hence, she approaches Reachme, an e-commerce company who are willing to
connect sellers like VEN with buyers like small farmers in rural areas. The company earns a seller fee for the sales
made through the website. Buyers pay a yearly subscription fee in order to access the website services. Further the
company is willing to provide VEN warehousing and shipping services for an additional fee.

Multiple Choice Questions

1. The land on which VEN has its dairy farm operations at Dhagwar, Himachal Pradesh is
classified as agricultural land. Which of the following statements is true?
(a) Income from dairy farming can be considered agricultural income and is therefore
exempt from tax.
(b) Income from dairy farming can be considered agricultural income as like traditional
agricultural activities, it is related to agricultural land.
(c) Income from dairy farming can be considered business income and is non-
agricultural income
(d) Income from dairy farming performed on agricultural land can be apportioned
between business income and agricultural income based on certain pre-defined
ratios.

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2. The Animal Feed Division, at Hoshiarpur is headed by Gurwinder Singh. He wants to
improve the division’s Economic Value Added (EVA). Which of the following can help the
division achieve this?
(a) Operating profits can be improved without investing more capital
(b) Choose projects where an additional infusion of capital gives a return that is less
than the cost of obtaining this additional capital
(c) Discontinue projects where the return on investments yields more than the cost of
capital
(d) Change the cost of capital to reflect EVA that is favourable
3. What type of business model does Reachme follow?
(a) Hypermarket model
(b) Digital Platform model
(c) Freemium model
(d) Service Ecosystem model
4. Suppose if after 3 months `/ $ Spot Rate happens to be 89.00/ 89.34 the expected loss
of……………..is likely to be avoided by company if it takes forward cover.
(a) ` 11,00,000
(b) ` 14,00,000
(c) ` 14,40,000
(d) ` 17,40,000
Note: Consider all calculations up to 2 decimal points for accuracy.
5. The compliance officer of VEN Private Limited, Mrs. Nikita, is unsure whether prior RBI
approval is applicable for the foreign exchange remittance for the purpose of obtaining
such consultancy services from abroad.
Advise Mrs. Nikita on whether prior approval from the Reserve Bank of India (RBI) is
required for remitting foreign exchange:
(a) Yes, prior RBI approval is required because the amount exceeds the permissible
limit under FEMA regulations.
(b) No, prior RBI approval is not required because the amount is within the
permissible limit under FEMA regulations.

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 (c) Yes, RBI approval is mandatory for all payments to foreign entities irrespective of
the amount involved.
(d) No, prior RBI approval is not required since the company is engaged in agricultural
activities. (5 x 2 = 10 Marks)
Descriptive Question
6. To EVALUATE divisional performance and support strategic decisions on expansion and
performance measurement, answer the following:
(i) Compute the Return on Investment (ROI) and Residual Income (RI) for each
division. Assess the validity of the claim made by the manager of the Animal Feed
Division based on these performance measures.
(ii) Evaluate the proposal to expand the Dairy Division for a one-year period. Based
on ROI and RI analysis, advise management on whether the project should be
accepted.
(iii) Analyse, with the help of calculations from the Dairy Division’s proposal, how
ROI can improve over time with the aging of assets.

(iv) Recognizing the limitations of purely financial metrics, the management of VEN
Ltd. intends to incorporate Non-Financial Performance Indicators (NFPIs) for the
following functional areas:
(a) Human Resource Management
(b) Product and Service Quality
(c) Brand Awareness and Company Profile

Explain the relevance and scope of NFPIs in evaluating performance in each of

these areas.
Note- Compute ROI and RI by considering “Net Current Assets” along with “Net
Book Value of Plant and Equipment”. (4 Marks)
7. Hari Singh, the head of the Dairy Division at Dhagwar, Himachal Pradesh. He has done
his masters in dairy farming (specialization). Financial performance will be one of the
metrics that is used to assess his performance for the year. Since he does not have a
background in finance or commerce, he wishes to understand the impact of the above

35
 transactions on the financial reports that are being prepared for his division for the year
2025-26.
As the Chief Accountant, guide him about how the above information has been accounted
for in the financial reports prepared as per Indian Accounting Standards for the year
ended March 31st, 2026.
PREPARE an extract of the profit and loss account and the Balance Sheet to show how
these transactions will be reflected for FY 2025-26.
Note: VEN uses the cost model to account for land acquisitions. (5 Marks)
8. Advise the VEN whether it should adopt Forward Cover or Money Market Cover?
Consider all calculations up to 2 decimal points for accuracy. (6 Marks)

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