Shiva Pvt. Ltd. files its return of income for the P.Y. 2024-25 on 30th September 2025 declaring loss of 14,00,000. The rate of income-tax…

CA Final · Direct Tax Laws and International Taxation · MTP · September 2025
Shiva Pvt. Ltd. files its return of income for the P.Y. 2024-25 on 30th September 2025 declaring loss of 14,00,000. The rate of income-tax applicable to the company is 30%. The tax auditor of Shiva Pvt. Ltd., in his audit report submitted under section 44AB, has reported a disallowance of 50,000 towards personal expenditure of directors as no evidence was produced by Shiva Pvt. Ltd. in support of this expenditure. However, Shiva Pvt. Ltd. did not disallow the same in its computation and return of income. The return of income was processed by the Centralised Processing Centre making an addition of 50,000 towards personal expenditure and the loss u/s 143(1) was computed at 13,50,000. The return of income was selected for scrutiny assessment and by order passed u/s 143(3), the loss as per normal provisions was reduced to 10,50,000 by making an addition of 3,00,000. The assessment was reopened u/s 147 and by order passed u/s 147, the loss as per preceding order u/s 143(3) was converted into income of 2,00,000. From the information given above, choose the most appropriate answer to MCQ.9 to 12 below: (Ignore MAT) -
(A) (i) Since Shiva Pvt. Ltd. has claimed deduction of amount incurred towards personal expenditure of directors, Shiva Pvt. Ltd. shall be considered to have under-reported its income.
(B) (ii) The under-reporting on account of claiming personal expenditure of directors as deduction can be construed as misreporting of income as it is a claim of expenditure not substantiated by any evidence.
(C) (iii) Since, addition of 50,000 is an adjustment referred to in section 143(1)(a), no penalty is leviable in respect of this addition.
(D) (iv) No penalty is leviable if Shiva Pvt. Ltd. offers an explanation and the Assessing Officer is satisfied that the explanation is bona fide and Shiva Pvt. Ltd. has disclosed all the material facts to substantiate the explanation offered.

Suggested Answer and Working Notes:

Correct Answer: Option (C)

(iii) Since, addition of 50,000 is an adjustment referred to in section 143(1)(a), no penalty is leviable in respect of this addition.

Topics: Double Taxation Relief, Non-Resident Taxation

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