The interest on surplus invested in short-term deposits, not being attributable to the business of providing credit facilities to the members or marketing of agricultural produce of the members, is assessable as “other income” and not as “business profits”. The words “the whole of the amount of profits and gains of business” attributable to one of the activities specified in s. 80P (2)(a) mean that the source of income is relevant and that the income must be “operational income”.

While notice u/s 143 (2) is not necessary if the AO accepts the return as filed, the notice within the prescribed time is mandatory if the AO proposes to make an assessment u/s 158BC r.w.s143 (3). Omission to issue notice u/s 143(2) is not a procedural irregularity and the same is not curable and, the requirement of notice u/s 143(2) cannot be dispensed with. If the intention of the legislature was to exclude the provisions of s. 143 (2), the legislature would have indicated that.

Though the Court has repeatedly asked the department to examine the process applicable to the product in question and not to go only by dictionary meanings, the recommendation is not being followed. Even when the assessee gives an opinion on a given process, the Department does not submit any counter opinion. Applying the test laid down in Oracle Software India Ltd, as POY simplicitor is not fit for being used in the manufacture of a fabric and it becomes usable only after it undergoes the operation/process which is called as thermo mechanical process which converts POY into texturised yarn, the said process is “manufacture”.

The term “manufacture” implies a change, but, every change is not a manufacture, despite the fact that every change in an article is the result of a treatment of labour and manipulation. However, this test of manufacture needs to be seen in the context of the process adopted by the assessee for duplication of software. If an operation/ process renders a commodity or article fit for use for which it is otherwise not fit, the operation/ process falls within the meaning of the word “manufacture”. Applying this test, as the assessee has undertaken an operation which renders a blank CD fit for use for which it was otherwise not fit, the duplicating process constitutes ‘manufacture’ u/s 80IA(12)(b).

Though the power to reopen under the amended s. 147 is much wider, one needs to give a schematic interpretation to the words “reason to believe” failing which s. 147 would give arbitrary powers to the AO to re-open assessments on the basis of “mere change of opinion”, which cannot be per se reason to re-open. One must also keep in mind the conceptual difference between power to review and power to re-assess. The AO has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the AO. Hence, after 1.4.1989, the AO has power to re-open, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. This is supported by Circular No.549 dated 31.10.1989 which clarified that the words “reason to believe” did not mean a change of opinion.

The RBI Directions issued u/s 45JA of the RBI Act provide that anticipated losses must be taken into account but expected income need not be taken note of. This is for ensuring that NBFCs state true and correct profits without projecting inflated profits. These are prudential norms or disclosure norms but have nothing to do with the computation or taxability of the provisions for NPA under the IT Act. Further though the RBI Directions deviate from the accounting practice as provided in the Companies Act, they do not override the provisions of the IT Act. The RBI Directions 1998 and the IT Act operate in different fields. The “Provision for NPA” made in terms of the RBI Directions does not constitute expense for purposes of s. 36(1)(vii). The said Provision is for presentation purposes and in that sense it is notional.

The right to subscribe for additional offer of shares/debentures on Rights basis, on the strength of existing shareholding in the Company, comes into existence when the Company decides to come out with the Rights Offer. Prior to that, such right, though embedded in the original shareholding, remains inchoate. The same crystallizes only when the Rights Offer is announced by the Company. Therefore, in order to determine the nature of the gains/loss on renunciation of right to subscribe for additional shares/debentures, the crucial date is the date on which such right to subscribe for additional shares/debentures comes into existence and the date of transfer [renunciation] of such right. The said right to subscribe for additional shares/debentures is a distinct, independent and separate right, capable of being transferred independently of the existing shareholding, on the strength of which such Rights are offered.

The argument that the disclosure of assessment records under RTI would lead to unwarranted invasion of the privacy of the individual also does not apply for two reasons. Firstly, the information has been provided by the assessee to meet his legal obligations and the disclosure of the same to another person cannot be construed as being an unwarranted invasion of the privacy of the individual. The Citizen’s right to Information should be given greater primacy than privacy. Information provided by individuals in fulfillment of statutory requirements is not covered by the exemption u/s 8 (1) (j). Secondly, as there has been large evasion of taxes by the group, if citizens monitor assessments through RTI, it could be a major gain for public revenue and perhaps a good check on corrupt officials.

In a SLP filed against the judgement of the Karnataka High Court in CIT vs. Samsung Electronics, the Supreme Court, by an ad-interim order dated 18.12.2009 directed issue of notice to the Respondents and also directed “Stay of recovery till further orders”.

The word “production” is wider in its scope than the word “manufacture”. It means manufacture plus something in addition thereto. This ground reality is now noted in s. 2(29BA) inserted by Finance Act, 2009 w.e.f 1.4.2009. In Lucky Minmat 245 ITR 830 (SC), it was held that mere mining of limestone and marble and cutting the same before it was sold will not constitute “manufacture” or “production” but conversion into lime and lime dust could constitute the activity of manufacturing or production. In Aman Marble Industries 157 ELT 393 (SC) it was held that cutting of marble blocks into marble slabs was not “manufacture” but the Court was not concerned whether there was “production”.