The question whether replacement of machinery is a business expenditure / current repairs was remitted to the High Court for de novo reconsideration of assessee’s claim for deduction.

CIT vs. Hindustan Textiles (2010) 36 DTR 131 (SC)

After 1st April, 1989, it is not necessary for the assessee to establish that the debts in fact have became irrecoverable. It is sufficient if they are written off as irrecoverable in the accounts of the assessee.

T. R. F. Limited vs. CIT (2010) 35 DTR 156 (SC) / 230 CTR 14 (SC)

The Supreme Court on the facts of the case held that since the purpose of the loan was to finance the purchase of plant and machinery, the rollover premium charges would not be allowed as a deduction under section 36(1)(iii) and that Explanation 3 to section 43A, as it stood prior to the amendment in 2002, would be applicable.

ACIT vs. Elecon Engineering Co. Ltd. (2010) 322 ITR 20 (SC)

4. S. 36(1)(vii) – Business Expenditure – Provision for Npain Terms of RbiDirections

Provision for NPA made under NBFCs Prudential Norms (Reserve Bank) Directions, 1998 is not an "expense".

Provision for NPA made under NBFCs Prudential Norms (Reserve Bank) Directions, 1998 has to be added back in computing profits and gains and is not an "expense". Said provision is not deductible under section 36(1)(vii) and is expressly disallowed by section 36(1)(vii) Expln. (inserted by Act 14 of 2001 w.e.f. 1-4-1989). Having been so disallowed it cannot be allowed under section 37 either.

Scope and applicability of section 37 – It applies only to item not falling under sections 30 to 36. Hence, an item not falling under sections 30 to 36 but excluded by section 36(1)(vii) Expln. Cannot be covered by section 37. Therefore, the provision for doubtful debt made by NBFC having been kept outside the scope of "written off" by the said Expln. did not attract section 37.

Exclusion of NBFCs from the benefit of deductions available to banking companies does not violate articles 14 and 19 as it satisfies the test of "intelligible differentia" and the principle of "reasonable restriction", respectively.

Court’s acceptance of NBFCs’ plea to include NBFCs in section 36(1)(vii-a) would amount to judicial legislation, which is impermissible.

Southern Technologies Ltd. vs. Jt. CIT, Coimbatore (2010) 2 SCC 548 / (2010) 320 ITR 577 (SC) / (2010) 228 CTR 440 (SC) / (2010) 187 Taxman 346 (SC) / (2010) 34 DTR 11 (SC)

5. S. 37 – Depreciation on Account of Enhanced Cost

The Supreme Court relying on its earlier decision in the case of CIT vs. Woodward Governor India P. Ltd. 312 ITR 254 (SC) held that the claim for depreciation on account of enhanced cost due to fluctuation in the foreign exchange rate is admissible as a deduction under section 37 of the Act.

CIT vs. Maruti Udyog Ltd. (2010) 320 ITR 729 (SC)

The Supreme Court has held that the loss claimed by the appellant on account of fluctuation in the rate of foreign exchange as on the date of the balance sheet was allowable as expenditure under section 37(1). The Supreme Court further held that when the imported asset is acquired in foreign currency then fluctuation in the rate of foreign exchange pending actual payment has to adjusted against the cost under section 43A, prior to the amendment by the Finance Act, 2002.

Liberty India vs. CIT (2010) 28 DTR 73 (SC)

Matter is remitted to the High Court to carry out an indepth exercise to understand the actual expenses undertaken by the assessee in "duplication" of software provided by it by the American company and then answer the question as to whether the royalty paid by the assessee to the American Company is allowable in its entirety under section 37 or only one sixth thereof is allowable under section 35AB.

CIT vs. Mastek Ltd. (2010) 35 DTR 106 (SC)

Retrospective effect to be given to the deletion of the second proviso to section 43B brought about by the Finance Act, 2003.

Deletion of the second proviso and consequent amendment in the first proviso to section 43B by the Finance Act, 2003 w.e.f. 1-4-2004 equating tax, duty, cess and fee with contribution to welfare funds was to overcome implementation problems. Once this uniformity is brought about in first proviso, the Finance Act, 2003 would become curative in nature. Hence, the change brought about by the Finance Act, 2003 would apply retrospectively w.e.f. 1-4-1988 when the first proviso was inserted.

CIT vs. Alom Extrusions Ltd. (2010) 1 SCC 489 / (2009) 319 ITR 306 (SC)

Computation of gain / loss resulting from renunciation of option to subscribe to right shares.

For the computation of gain / loss resulting from renunciation of option given to the existing shareholder’s a right to subscribe to offer additional shares / debentures, the crucial dates for determination of nature of capital gains / loss (short term / long term) are the date of coming into existence of such right and date of renunciation thereof. Said right comes into existence when the offer is made and it is distinct and separate capable of being transferred independently of the original shareholding. Hence, where the assessee renounced that right in favour of a third party for money in the AY and consequently suffered loss of a higher amount due to diminution in the value of original shares, the net loss so suffered was a short-term capital loss. Hence, the assessee rightly applied deduction under section 48(2) to amount of long-term capital gains earned during the year and then from the remainder deducted the said short-term capital loss. Department erred in deducting the said short-term loss from long-term gains and then applying section 48(2) to the remainder.

An important principle for computation of capital gains under section 48 is that computation is an integral part of chargeability.

Navin Jindal vs. ACIT (2010) 2 SCC 525 / (2010) 320 ITR 708 (SC) / (2010) 228 CTR 478 (SC) / 34 DTR 1 (SC)

The words "whole of the amounts of the profits and gains of business" must mean that the deduction would be allowed in respect of the operational income of the society and not other income which accrues to the society. Interest income earned from short-term deposit of the surplus money would not be eligible for deduction in case of co-operative society carrying on the business of providing credit facility to the members under section 80P(2)(a)(i) or marketing of agricultural produce of its members under section 80P(2)(a)(ii).

Totgar’s Co-operative sale society Ltd. vs. ITO (2010) 322 ITR 283 (SC)

"Manufacturing or processing of goods" u/s. 80-IA(12)(b) r.w.s. 33B.

Duplicating process carried out to prepare a recorded CD from the master media changes the basic character of a blank CD, dedicating it to a specific use and, therefore, the process by which a blank CD is transferred into software loaded disc constitutes "manufacturing or processing of goods" in terms of section 80-IA(12)(b) r.w.s. 33B.

Chapter VI-A and section 80-IA is a code by itself providing special deductions for setting up industrial undertakings in backward areas and for earning profits in foreign exchange. Unlimited deductions are not permissible. Hence, "manufacture or processing of goods" must be interpreted in that background. In present case, process undertaken by the assessee was duplication of master media software on to blank CDs. Said process of duplication may be done at home or for commercial duplication. Department, therefore, should study actual process undertaken and ground realities of business when new technology is involved in a process.

CIT vs. Oracle Software India Ltd. (2010) 320 ITR 546 (SC) / (2010) SCC 677 / (2010) 228 CTR 433 (SC) / 33 DTR 297 (SC)

Entitlement to deduction u/s. 80-IA without reducing amount of export incentive – a substantial question of law.

Question whether the assessee was entitled to deduction under section 80-IA on the amount of entire eligible income without reducing the amount of export incentive from the same is an important question of law and interpretation of section 80-IA arise for determination; High Court directed to decide the same.

ACIT vs. Neo Sack (P) Ltd. (2009) 319 ITR 124 (SC) / (2010) 228 CTR 351 (SC) / (2010) 33 DTR 233 (SC)

Conversion of raw marble blocks into polished marble slabs or tiles constitutes "manufacture or production" under section 80-IA.

The conversion of raw marble blocks into final product of polished marble slabs or tiles in a factory constitutes "manufacture or production" under section 80-IA(2)(iii) (prior to 1-4-2000) – AY 2001-02. The activity carried out in the present case is not only manufacture but also an activity beyond manufacture that brings about a new product into existence. If it were held not to be "manufacture", it would lead to disastrous consequences as the assessee would not be liable to pay other taxes like excise duty etc.

"Production" is wider in meaning compared to "manufacture". Word "production" means manufacture plus something in addition thereto. While every manufacture constitutes production, every production does not amount to manufacture of goods.

ITO, Udaipur vs. Arihant Tiles and Marbles (P) Ltd. (2010) 2 SCC 699 / (2010) 320 ITR 79 (SC) / (2009) 227 CTR 513 (SC)

Twisting and texturizing of partially oriented yarn (POY), when constitutes "manufacture".

Twisting and texturizing of partially oriented yarn (POY), held, applying test in Oracle case (2010) 2 SCC 677, POY simpliciter is not fit for being used in manufacture of fabric. It becomes usable only after undergoing thermo-mechanical process that converts POY into texturized yarn, which is used in manufacture of fabric. Hence, it constitutes "manufacture". Further clarified, however, texturizing or twisting per se in every matter does not amount to manufacture.

CIT, Mumbai vs. Emptee Poly-Yarn (P) Ltd. (2010) 2 SCC 720 / (2010) 320 ITR 665 (SC) / (2010) 229 CTR 1 (SC)

Competent Authority has been directed to decide the matter, notwithstanding the pendency of the appeal before CIT(A).

Addl. CIT vs. HCL Technologies Ltd. (2010) 188 Taxman 72 (SC)

Advance against Depreciation is timing difference, it is not a reserve, it is not carried through Profit & Loss Account, and it is "income received in advance" subject to adjustment in future and therefore clause (b) of Explanation 1 to section 115JB is not applicable.

National Hydroelectric Power Corpn. Ltd vs. CIT (2010) 34 DTR 65 (SC) 320 ITR 374 (SC)

Whether for the purposes of computation of minimum alternate tax under section 115J, depreciation could be allowed as per income-tax rules has been referred to the larger bench by the Supreme Court doubting the earlier decision of the Supreme Court in the case of Malayala Manorma Co. Ltd. vs. CIT 300 ITR 251 (SC).

Dynamic Orthopedics P. Ltd. vs. CIT (2010) 321 ITR 300 (SC)

Guidelines issued by CBDT dated November 18, 2009, to be followed by AIR Intelligence Units or Investigation Units dealing with air passengers with valuables at the airport of embarkation or destination, to avoid any harassment and undue inconvenience to them, keeping confidential any premature disclosure to the media and dropping the passenger at the place he wanted to go, etc.

Air passengers should accept with grace, patience and discipline search and seizure by the authorities.

Rajendran Chingaravelu vs. R. K. Mishra, Addl. CIT (2010) 320 ITR 1 (SC) (2010) I SCC 457

If an assessment is to be completed under section 143(3) r.w. section 158BC, issue of notice under section 143(2) is mandatory and that the non issue of the notice is not a procedural irregularity and cannot be cured.

ACIT vs. Hotel Blue Moon (2010) 321 ITR 362 (SC)

Closing stock of earlier year has to be treated as opening stock of current year and therefore where the opening stock of current year shows a lower value than the value of closing stock of earlier year as finally determined by the Assessing Officer, the same is amenable to rectification under section 154.

V. K. J. Builders & Contractors (P) Ltd. vs. CIT (2010) 228 CTR 143 (SC)

Under Circular No. 549 dated 31-10-1989, the Assessing Officer has no power to review but only to reassess. After amendment of 1989, the Assessing Officer can reopen assessment provided he has "reason to believe" that income has escaped assessment, based on tangible material. Mere "change of opinion" does not empower the Assessing Officer to review assessment in the garb of reassessment.

CIT, Delhi vs. Kelvinator of India Ltd. (2010) 2 SCC 723 / (2010) 320 ITR 561 / (2010) 228 CTR 488 (SC)

Any material or evidence unrelated to search could not form the basis of the computation of undisclosed income especially when the income had been disclosed by the assessee in regular assessment and had been assessed by Dept. SLP of the Revenue dismissed.

CIT vs. Krishna Kumar R. Parmar (2010) 322 ITR (St.) 2 (SC)

Limitation starts from date of Last Panchanama and not from date till prohibitory order is in operation.

CIT vs. Abolf Patric Pinto. SLP (C) No. 26625 of 2009, (2010) 322 ITR (St.) 3 (SC)

Editorial Note:– Tribunal order reported in 284 ITR (AT) 207 affirmed by Bombay H. C. Order ITA No. 856/2008 dated 5-9-2008

CIT vs. Ranjana Katyal SLP (Civil) No. 683 of 2010, (2010) 322 ITR 4 (St.) (SC)

CIT vs. White & White Minerals (P) Ltd. SLP (C) No. 4356/2010, (2010) 322 ITR 4 (St.) (SC)

Interest, which accrued to the assessee for non-refund of TDS, partook the character of the "amount due" under section 244A and became an integral part of the principal amount which was not refunded after it became due and payable and therefore assessee was entitled to interest on delayed refund of TDS.

CIT vs. H.E.G. Ltd. (2010) 33 DTR 304 (SC) / (2010) 228 CTR 495 (SC)

Mere making of a claim not maintainable in law, will not amount to furnishing of inaccurate particulars.

Merely because the assessee claimed deduction of interest expenditure which has not been accepted by the Revenue, penalty under section 271(1)(c) is not attracted; mere making of the claim, which is not maintainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee.

CIT vs. Reliance Petroproducts (P) Ltd. (2010) 36 DTR 449 (SC) / (2010) 322 ITR 158 (SC)