Deduction for Special Economic Zone – CA Final DT Question Bank

Deduction for Special Economic Zone – CA Final DT Question Bank is designed strictly as per the latest syllabus and exam pattern.

Deduction for Special Economic Zone – CA Final DT Question Bank

Taxation of Co-operative Societies

Question 1.
Chennai Co-operative Society derives income during financial year 2020-21 from the following sources:

  1. Income from processing with the aid of power – ₹ 20,000
  2. Income from collective disposal of labour of its members – ₹ 30,000
  3.  Interest from another co-operative society – ₹ 15,000
  4. Income from House property – ₹ 90,000
  5. Income from other business – ₹ 60,000
  6. Income by way of dividend from another co-operative society – ₹ 25,000

Determine its total income (without considering Sec. 115BAD) for A.Y. 2021-22. [CA Final Nov. 2016] [5 Marks]
Answer:
Computation of Total income for Chennai Co-operative Society A.Y. 2021 -22
Deduction for Special Economic Zone – CA Final DT Question Bank 1

Deduction for Special Economic Zone – CA Final DT Question Bank

Deduction for Special Economic Zone

Question 2.
X Ltd. has an undertaking (Unit X) in Special Economic Zone (SEZ) and another undertaking (Unit Y) in Free Trade Zone (FTZ) for manufacturing of computer software. It furnishes the following particulars of its 2nd year of operations ending 31st March, 2021:

Unit X (₹ in lakhs) Unit Y (₹ in lakhs)
Total sales 360 240
Export sales (inclusive of ₹ 20 lakh onsite develop­ment of software outside India by Unit X) 240 20
Profit earned (after claim of bad debts u/s 36(l)(vii) in Unit X) 126 72

Plant and machinery used in the business has been depreciated at 15% on straight line method (SLM) basis and depreciation of ₹ 18 lakh was charged to Profit and Loss Account in the proportion of sales during the previous year. ₹ 200 lakh were realized out of export sales in time and balance of ₹ 40 lakh becomes irrecoverable due to bankruptcy of one of the foreign buyers in Unit X. [CA Final May 2012] [10 Marks]
Answer:
Depreciation of the second year on straight line method at the rate of 15% is ₹ 18 lakh.
Actual cost of plant and machinery is ₹ 120 lakh (i.e. ₹ 18 lakh + 0.15).
Depreciation under section 32 will be calculated as follows:
Deduction for Special Economic Zone – CA Final DT Question Bank 2
Deduction for Special Economic Zone – CA Final DT Question Bank 3

Deduction for Special Economic Zone – CA Final DT Question Bank

Question 3.
X Company engaged in developing and exporting software is having two units, namely Unit A and Unit-B, Unit A is setup in Special Economic Zone (SEZ) and Unit B does not fall under section 10AA of the Act. Company furnishes the following information relating to its 3rd year of operation ended on 31.03.2021:
(₹ in lacs)

Items Unit-A Unit-B
Export Sales 600 780
Domestic Sales 100 220
Duty Draw Back 19 35
Profit on sale of Import Entitlement 12 NIL
Salaries Paid 270 160
Other Expenses 210 260
Net Profit of the year 251 615

Additional Information:
Unit A: Expenses of 12 lakhs are disallowable u/s 43B and sales proceeds in convertible foreign exchange received in India by 30.09.2021 amounted to ₹ 520 lakhs. Export sales of ₹ 600 lakhs include freight of ₹ 100 lakhs and realization of ₹ 520 lakhs includes amount of insurance and freight charges of ₹ 70 lakhs.

Unit B: Realisation of export sales in convertible foreign exchange received in India by 30.09.2021 was of ₹ 690 lakhs. Expenses charged and are to be disallowed as per section 40A(3) of Act are of ₹ 60 lakhs.

Compute the total income of X Company for the A.Y. 2021 -22 after claiming deduction under section 10AA. [CA Final Nov. 2017] [4 Marks]
Answer:
Deduction for Special Economic Zone – CA Final DT Question Bank 4
Note: Computation of Deduction under section 10AA

Deduction for Special Economic Zone – CA Final DT Question Bank

Export Turnover includes only the F.O.13. value of exports realization and therefore, insurance and freight shall be excluded.
Expoil Turnover = ₹ 520 Lakhs (Realization) – ₹ 70 Lakhs (Insurance & Freight)
= ₹ 450 lakhs
Total Turnover F.O.B. value of Export + Domestic Sales
= ₹ 500 lakhs (₹ 600 lakhs – ₹ 100 lakhs) + ₹ 100 lakhs
= ₹ 600 Lakhs
As per Supreme Court in Liberty India; Dut Drawback and profit on sales of import entitlement license is not eligible for deduction under section 10AA.
∴ Profits of Business From Unit A for the purpose of deduction u/s 10AA
= ₹ 263 lakhs – ₹ 19 lakhs – ₹ 12 lakhs
= ₹ 232 lakhs
Deduction under section 10AA = ₹ 232 Lakhs × ₹ 450/₹ 600
= ₹ 174 Lakhs

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