1st Puzzle

A candidate is participating in
Kaun Banega Crorepati known
as KBC and wins Rs. 50 Lakhs. At
that stage he gets a choice
whether to continue further or
not. He can go home with Rs. 50
lakhs. It means, income of Rs. 50
lakhs has already accrued to him
at that stage. Is it liable for tax
at that stage even if he
continues?
Suppose he continues and looses
and remains eligible for prize
only of Rs. 3,20,000/- while
contesting for Rs. One crore. In
this situation, he is not eligible
for deduction of earned income
of Rs. 50 lakhs in view of specific
provision of section 58(4) of I T
Act.
The question is : will he be liable

for tax on Rs. 3,20,000/- or on

Rs. 50 lakhs?
Puzzle 2
1. An assessee is having
agriculture as the only source of
income for which he maintains
regular books of accounts. In
such books of accounts, there is
a cash credit which is
undisputably unexplained.
(a) Whether such cash credit will
be agricultural income as per
agricultural income tax Act of
the relevant State.
(b) If not, under which head of
income it will be assessed under
Central Income Tax Act?.

(c) Whether such unexplained

cash credit would still be income
even if book results are rejected
u/s.145 of the I.T. Act.
(d)Suppose the assessee has
loss from some business,
whether such loss can be set off
against unexplained cash credit
income.
puzzle 3
3. An assessee has choice to
maintain accounts either on cash
or on mercantile basis if the
income is from business. Salary
and interest to partners are
assessable under the head
'income from business'. The
assessee argues that he
maintains his accounts on cash
basis and since he has not

withdrawn salary and interest

from the firm, they cannot be his
taxable income till he actually
receives them in cash. Thus he
postpones taxation of his
income. Is it legally correct.
Puzzle 4
C of Chennai deposited Rs. 50
lakhs in cash in his saving bank
account and gave a loan of Rs.
50 lakhs to D of Delhi. C could
not prove his source of Rs. 50
lakhs. D also could not prove the
capacity of C to give loan.
AO of D at Delhi made addition
of Rs. 50 lakhs u/s 68 in the
assmt of D which was confirmed
in first appeal.
AO of C also made addition of

Rs. 50 Lakhs u/s 69 in the hands

of C which was also confirmed in
first appeal.
Appeals of Both D and C are
pending respectively in ITAT
Delhi and Chennai.
Which appeal should be
confirmed?
In ITAT Delhi
in ITAT Chennai
Both
PUZZLE 5
An assessee had shown taxable
wealth of Rs. 50 lakhs in the
form of one piece of land. The
WTO has referred the same to
valuation officer for valuation.
The Valuation Officer however
valued the same at Rs. 30 lakhs
only. At what value the

assessment should be made?

6th puzzle:
As per some decisions of Honble
SC, additional claim can be
made by the assessee for the
first time before the ITAT?. If
such claim is so made and it is
found that the claim is false or
unsustainable or contains
inaccurate particulars, who will
levy penalty u/s 271(1) (c )?
AO
ITAT
None
Such claim cannot be made
hence question does not arise..
7th Puzzle

C of Chennai deposited Rs. One

crore in bank and gave a cheque
of the said amount to D of Delhi
for a loan. C had no capacity to
deposit money in the bank and
he could not prove the source of
money.
It was treated as unexplained
cash credit u/s 68 in the case of
D. addition and penalty u/s
271(1)(c ) were confirmed by
ITAT and HC.
Later on D repaid the amount to
C in Jan. 2011.
Will it be assessable in the hands
of C as gift u/s 56(2) of the I T
Act?
Answer: 7th puzzle ,
If finding of AO of D under

section 68 is that the money had

actually belonged to D and C
was only a name lender; then
repayment by D to C would
amount to gift assessable in the
hands of C u/s 56(2) in the year
of repayment.
If there is no such finding that is
if only finding is that C had failed
to prove his capacity to give
loan, then apart from D being
assessed u/s 68 of the IT Act, C
would also be assessed u/s 69 of
the IT Act for the year in which
amount was deposited in his
bank account.
If above view is not accepted, it
would amount to allowing C to
convert his black money into
white without paying any tax
and such interpretation would
suffer from absurdity. This is

settled rule of interpretation that

absurdity should be avoided. C
has Rs. One crore in white
through these transactions and
he must be subjected to tax
somewhere on that amount
irrespective of what has
happened to D.
Puzzle 8
There is absolutely no basis for
assessee to claim deduction
u/s.80IB. He has furnished entire
particulars regarding income and
deduction. No fact was
concealed. Still he had made the
claim. Whether penalty u/s
271(1)(c) can be levied for such
a claim which is patently
incorrect.
Puzzle9

As per incentive scheme of sales

tax department of govt. of
Maharashtra, Sales Tax payable
is deferred for about ten years
and is converted into sales tax
loan.
As per circular of CBDT, section
43B would not be invoked on
such sales tax if it is converted
into loan.
The question is whether such
amount still remaining payable
after conversion into loan is:
Sales tax payable and
therefore a trading liability, or
Loan payable and
therefore a capital liability;
For the purposes of IT Act 1961,
and
Also for the purposes of
presenting in B/S.
The following important facts are

to be kept in view:
Department of sales tax
is not basically a loan giving
department.
Even if sales tax is
converted into loan, it is still
recoverable as an arrear of
land revenue; as if it is sales
tax recoverable.
The amount of loan
liability automatically gets
reduced if sales tax liability is
reduced in appeal/ revision/
rectification/ review etc.
10th puzzle
There was a cash credit of Rs.
One crore in the books of Mr.
Ram on 1st july 07. In Aug. 07 ,
the AO made enquiries about

this cash credit and the assessee

stated it to be genuine cash
credit. The department
continuously pursued the
inquiries about this cash credit
and all the time the assessee
took the stand that the cash
credit was genuinely obtained.
The relevant assessment year is
08-09 and the assessee did not
pay any advance tax on this
amount of Rs. One crore;
obviously on the stand that the
cash credit was genuine. The
assessee made payment of self
assessment tax taking income
without including the income of
Rs. One crore, but had not filed
the return of income.
Then the matter was pursued by
investigation wing by way of
enquiry. The assessee then

surrendered and admitted cash

credit to be bogus. He paid self
assessment tax in respect of
cash credit and filed return of
income showing Rs. One crore as
income from unexplained
sources in addition to his normal
other income.
Whether the assessee is liable
for penalty u/s 271(1) (c ) of the
I T Act in respect of unexplained
cash credit.
PUZZLE NO.11
Mr Ram has got FD of Rs.50 lacs.
He earns annual interest
thereon. He had prematurely
encashed the FD and given as
interest free loan to his friend
Mohan and Mohan is now

earning the interest income. The

FD in the hands of Ram was out
of his own funds; and not out of
the borrowed funds.
Whether income earned by
Mohan of Rs.50 lacs can be
treated as income of Ram u/s 60
of the Income-tax Act, 1961.
Puzzle 12
In the case of a company
assessee, the assessing officer
found that the expenditure of Rs.
One crore shown in the books of
accounts were bogus. On
enquiry, the assessee
surrendered additional income of
Rs. One crore, admitting the
expenditure to be bogus. Can
this amount be added in the
book profit for the purpose of
computing MAT under section

115JB?
PUZZLE NO.13
One state government started a
housing scheme for its officers
and developed a colony. The
government offered residential
plots to its officers at the rate of
12 lacs. The market value of the
plot was Rs.20 lacs. Since
officers were to get the plots at a
much cheaper rate, a large
number of officers applied for
the plot. But the government
was not in a position to give
plots to all the applicants. The
government, therefore, decided
to allot the plots by lottery.
The question is whether winner
of lottery is liable to tax on Rs.8

lacs (being the difference

between the market value of the
plot and the rate at which the
plot was given) as income from
lottery.
PUZZLE NO.14
The assessee took a number of
adjournments before the CIT(A);
resulting in delay in disposal of
appeal for two years. This has
resulted in delayed refund to the
assessee; because the CIT(A)
had allowed the appeal.
Whether interest u/s.244A is
allowable to the assessee for the
period for which adjournment
was taken.
PUZZLE NO.15

The assessee had set up a wind

mill for Rs.10 crores and debited
80% of depreciation in the books
that is the rate at which IT Act
allows depreciation; and not the
rate as per the Companies Act.
The wind mill has a useful life of
20 years and, therefore,
reasonable amount of
depreciation can be 5% that is
only of Rs.50 lacs.
Can it be said that excess
depreciation debited in the
books than what is warranted as
per the fall in the value of the
asset, and supported by the rate
of companies Act be treated as
SECRET (Hidden) RESERVE as
per accounting concept?
Whether secret reserve can be
added in the book profit
u/s.115JB as any other reserve

debited in the P & L A/c.

Puzzle 16
The assessee incurred Rs. 50
lakhs which are eligible for
deduction u/s 35D. Out of this
Rs. 20 lakhs were incurred in
cash and section 40A(3) is
attracted. Whether deduction u/s
35D would be 20% of Rs. 50
lakhs; or 20% of Rs. 30 lakhs.
Puzzle 17
Rule 28 of ITAT Rules 1963 reads
as under:R. 28 Remand of the case by
the tribunal: Where the tribunal
is of the opinion that the case
should be remanded, it may
remand it to the authority from
whose order the appeal has

been preferred or to the income

tax officer with such directions
as the tribunal may think fit.
The learned authors Chaturvedi
and Pithisaria has in their book
INCOME TAX LAW Fifth edition
stated that the words Income
Tax Officer should have been
substituted for the words
Assessing Officer.
Section 254(1) which provides
for the powers of ITAT reads as
under:
The Appellate Tribunal may,
after giving both the parties to
the appeal an opportunity of
being heard, pass such orders
thereon as it thinks fit.
Thus section gives very wide
powers to the ITAT.
The question is whether the ITAT
can remand the case to assistant

/ deputy / Joint / Additional

commissioner of income tax; if
AC/DC/ JC/ Addl.CIT had passed
the order.
Puzzle 18
If the roof of building is let out
for microwave towers; whether
this is income from House
property, or income from other
sources.
Puzzle 19
Assessee is a jeweller. He
prepared inventory of gold
jewellery as on 31-3-09 and it
was 10 kg. The inventory was
duly signed by the assessee and
the stock was higher by one kg
than what was the balance as

per stock register.On 15th may

09, there was search and stock
found was more by one kg than
what was shown in the stock
register. This inventory was also
seized. Whether undisclosed
income of one kg gold jewellery
is assessable in AY 09-10 or AY
10-11
pavan ved
Puzzle 20
The assessee is a builder. He
sold all the flats at Rs. 25 lakhs
each. On each flat sold, he took
on-money of Rs. 10 lakhs. He
honestly entered on-money
taken, in the account books and
increased his profit accordingly.
He is claiming 100% deduction
u/s 80IB(10) on such on-money.

Whether such deduction is

allowable.
Puzzle 21
Document price of a residential
house is Rs. 25 lakhs. Stamp
authority valuation is Rs. 35
lakhs. The assessee has shown
Rs. 10 lakhs as on-money on
sale in the return. Whether this
on-money is assessable under
the head capital gain.
Puzzle 22
In course of search , excess cash
and stock found were of Rs. 20
crores. The assessee installed
wind mill of Rs. 25 crores and
claimed 80% depreciation. Can
undisclosed income by way of
excess stock and cash be set off
against depreciation?

Puzzle 23
Revenue audit objection was not
accepted by the AO. Can he
reopen the assessment as a
precautionary measure?
Puzzle 24
The AO passed assessment
order as under:
The assessee filed return
showing income of Rs. Ten
Lakhs. In response to notice, the
assessee appeared and
produced books of accounts.
After examining the books, I find
it fair and reasonable to assess
the total income at Rs. 25
lakhs.
In response to such assessment

order, the assessee filed

rectification application before
the AO u/s 154 of the I T Act and
argued that it is settled law that
burden of proving the income is
on AO and the AO has not
discharged the burden; the
addition was without any basis
and that the assessee was not
given opportunity to explain as
to on what basis addition has
been made.
The question is; whether the
addition is liable to be deleted in
rectification proceedings.
Puzzle 25:
The AO passed assessment
order as under:
The assessee filed return
showing income of Rs. Ten
Lakhs. In response to notice, the

assessee appeared and

produced books of accounts.
After examining the books, I find
it fair and reasonable to assess
the total income at Rs. 25
lakhs.
The assessee filed appeal
against such order. The question
is; whether CIT(A) can sustain
the addition after examining the
accounts in detail and detecting
justification for making the
addition.
Puzzle 26:
Under section 154(7) of I T Act,
any order can be rectified within
four years. u/s 154(1), intimation
is not an order. Does it mean
that there is no time limit for

rectification of intimation?
Puzzle 27:
ITAT can rectify its order within
four years. The relevant section
is as under:
Section 254(2): The appellate
tribunal may, at any time within
four years from the date of the
order, with a view to rectifying
any mistake from the record ,
amend any order passed by it
under sub-section (1), and shall
make such amendment if the
mistake is brought to its notice
by the assess or assessing
officer"
Does it mean that time limit of
four years is applicable to ITAT

only for suo moto rectification

and not on rectification
requested by any of the parties?
puzzle 28
The AO passed assessment
order as under:
"The assessee filed return
showing income of Rs. Ten
Lakhs. In response to notice, the
assessee appeared and
produced books of accounts.
After examining the books, I find
it fair and reasonable to assess
the total income at Rs. 25
lakhs.
Against this order, the CIT(A) is
to decide appeal. what would be
his decision if the appeal is to be
decided ex-parte?

Puzzle 29
As per section 372A of
Companies Act, the loan can be
given by a company to certain
other companies at a minimum
particular rate of interest. Can
income from interest be
assessed at such interest rate if
the loan is interest free in
violation of Companies Act ?
puzzle 30
As per apex court's decision in
the case of ITO Vs. ch. Atchaiah
218 ITR 239, the AO is to
assess income in the right hand
and assessment made in wrong

hands is immaterial. Does it

mean that concept of
protective assessment is
irrelevant after this decision?
puzzle 31
X Ltd. is a newly promoted
company. It issued both equity
and preference shares. It issued
50 lakh irredeemable
preference shares of Rs. one at
a premium of Rs. one thousand
by private placement by one
single party for which there was
absolutely no justification for so
much premium. The fair
valuation of such share is Rs.
one only. Therefore the AO held
that the nature of credit by way
of premium in books is not
correct. He invoked section 68

and made addition of premium.

Is AO right?
Puzzle 32
CIT(A) rejected AO's request for
enhancement of assessed
income and AO is in appeal
before ITAT. Can ITAT enhance
income in such situation?
Puzzle 33
Premium of Rs. 1000/- on
preference shares of Rs. 1/- was
added by AO in the hands of
company issuing shares. on the
ground that the assessee failed
to offer explanation for such
high premium. This share
premium was added as income
u/s 68 of IT Act and confirmed

by ITAT. In penalty proceeding

u/s 271(1)(c ) also; the
assessee could not offer
explanation / justification for
such premium. Whether
penalty justified.
Puzzle 34
X holds one lakh equity share
of face value of Rs.10/- each in
ABC Ltd. In view of heavy
losses, the company reduced
its share capital. Accordingly
the face value of share was
reduced to Rs. 5/-. X argues
that his right in share has
partially extinguished and
therefore it is transfer within
the meaning of section 2(47) of
IT Act. He is claiming loss under

the head capital gain. Is X

right? answer should be with
reason/s.
puzzle 35
Mr. Ram incurred loss of Rs. 50
lakhs in F&O of shares in AY 0405 and it was speculation loss
as per law of AY 04-05. He
earned profit of Rs. 50 Lakhs in
share F&O in AY 07-08; in which
year it was not speculation
profit, but business profit,
because of amendment in IT
Act. Since nature of business is
exactly same, Mr. Ram claimed
set off of loss of AY 04-05 from
profit of AY 07-08. Is such set
off allowable? Answer should be
with reasons.

Puzzle 36
Whether provisions of section
143(2) are applicable in
proceedings u/s 153A. Give
reasons also.
Puzzle 37
The assessee aged 50 years
left India on 25 May 2008 for
Dubai. He had never been
abroad earlier in his life. On
12 June 2008, he died in Dubai.
Thus he did not satisfy
mandatory condition of being in
India for 60 days. Was he nonresident for FY 08-09?
Puzzle 38

An Ex-minister of state govt.

was treated at the cost of Govt.
and govt. spent gratuitously Rs.
30 lakhs. Whether this is
taxable as perk /under the head
salary from ex-employer.
whether it is taxable as gift u/s
56?
Puzzle 39
Whether assessment is liable to
be annulled if notice u/s 143(2)
is not issued but assessment is
completed within the time upto
which notice u/s 143(2) could
be issued, by issuing notice u/s
142(1).
Puzzle 40
Whether provisions of limitation

given in section 143(2) would

be applicable if return of
income in response to notice
u/s 148 is furnished after the
time allowed in the notice.
Puzzle 41
Whether depreciation can be
disallowed u/s 40A(3) ; if
payment for purchase of asset
is made in cash and not by
cheque.
Puzzle 42
Whether return filed in
response to notice u/s 153A
can be revised.
Puzzle 43

The AO made addition on point

'X'. The assessee filed appeal.
Later on, AO deleted addition
u/s 154. The assessee therefore
requested to withdraw the
appeal. The CIT(A) wants to
make enhancement because in
his opinion order u/s 154
passed by AO was incorrect.
Can he make enhancement?
Puzzle44
Whether, in view of the specific
wordings of section, provisions
of section 40(a)(ia) are
applicable only to those
expenditure which are 'payable'
and are not applicable to
expenditure which are 'paid'.
Puzzle 45

U/s 40(a)(ia), certain expenditure

are not allowable, if TDS is not
made; and are allowable in any
subsequent year in which TDS is
made. If TDS is made after two
years, how the payee would get
credit?
puzzle 46
U/s 40(a)(ia), certain expenditure
are not allowable, if TDS is not
made; and are allowable in any
subsequent year in which TDS is
made. Whether disallowance is
not to be made if the payee has
paid his part of tax in time as
advance tax or as self
assessment tax; before the due
date of filing return by the payer
assessee.
puzzle 47

U/s 40(a)(ia), certain expenditure

are not allowable, if TDS is not
made; and are allowable in any
subsequent year in which TDS is
made. In subsequent year, the
payee is not alive. How the
assessee would get deduction.
Puzzle 48
The assessee owns a flat with
carpet area of 1000 sq. ft. in an
old building. In a scheme of
reconstruction, one builder
reconstructed the building and
gave the assessee a
reconstructed new flat with
carpet area of 1300 square ft.
and cash amount of Rs. 10
lakhs; in exchange for the old
flat on the same land. In return,
the builder availed extra FSI for

self. whether the assessee would

be liable for capital gain because
the arrangement amounts to
exchange of old flat and FSI
benefit; with new flat and cash.
Puzzle 49
Rate of depreciation on Plant in
AY 04-05 was say 25% and the
assessee purchased plant of Rs.
100 Crores. However rate of
depreciation was reduced to
15% in AY say 06-07. Assessee
claims that 15% rate of
depreciation would be applicable
only in respect of those plants
which are purchased in AY 06-07
and not for the plants which
were already purchased in AY
04-05. Is assessee right. Does
assessee have vested right in
25% rate of depreciation in the

plant which were purchased in

the year when the depreciation
rate was 25%?
Puzzle 50
On a company assessee, the AO
raised additional demand of tax
and interest of Rs. 20 crores in
respect of income under the
head capital gain on sale of land.
The CA, who is not very eminent,
charged a fee of Rs. two cores
for contesting before CIT(A). He
won the case. The CA spent
about 20 hours in preparation
and two hours for appearing.
Whether fee of Rs. two crore is
allowable in the hands of
company.