TaxTMI 
TaxTMI 
2010 (7) TMI 662
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.... (207 ITR 729). 3. Whether on the facts and in the circumstances of the case, the Ld. CIT[A] is justified in deleting the disallowance of long term capital loss of Rs.37,04,987/- made by the AO and holding that conversion of UTI-64 units into UTI 6.75% Tax Free Bonds amounts to transfer within the meaning of Section 2[47] of the I.T.Act. In this connection it is submitted that definition of transfer u/s.2[47][iv] covers only conversion of asset into stock in trade of business which is not the case here. 2. Ground No.1: After hearing both the parties, we find that during assessment proceedings AO noticed that assessee had debited "manufacturing expenses" in profit & loss account amounting to Rs.7763.41 lakhs. Assessee was specifically asked to give details of these expenses and produce books of accounts and bills and vouchers for verification of these expenses. In response to the same, assessee filed only groupings of profit & loss account giving head-wise expenditures. Assessee was again asked to produce books of accounts, bills and vouchers. However, no compliance was made. In this background, AO observed that the burden was on the assessee to prove that expenses....
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....iled to do so. Merely because, accounts were audited, assessee cannot shy away from producing records. 5. On the other hand, the Ld.counsel of the assessee reiterated the submissions made before the CIT(A). She argued that in past no such additions have been made. Since the additions have been made on an adhoc basis, the same are not sustainable. She also emphasized that assessee was having voluminous records and, therefore, it was not possible to produce the same. She also pointed out that notice to produce books of accounts and bills and vouchers was given only on 26-10-006 and assessment has been finalized on 18-12-2006 and, thus, very little time was given to produce these voluminous records. While concluding, she submitted that if Bench is of the opinion that such records still need to be produced, then an opportunity may be given for the same. 6. We have considered the rival submissions carefully and agree with the submissions of the Ld.DR that once the AO wanted to verify the expenses, assessee was duty bound to produce the books of accounts and other bills and vouchers for his verification. Merely because, records are voluminous, that cannot be a reason for ....
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....bsp; 1,497,704 Net amount reduced from income computation as single item 7.207,735 Provision made in earlier year was not considered as allowance in respective years. The amounts claimed as bad debts have been written off in the books of account. The amount are in the nature of discounts, claims price difference etc. by customers." After considering the above, AO observed that instead of showing that how conditions have been fulfilled for claiming of bad debts, assessee has merely given calculation of bad debts. He further observed that the assessee has not been able to prove that debts had really become bad and, therefore, disallowed this claim. 8. Before the CIT(A), it was mainly argued that the assessee had made provision for debts in the earlier year, but the same was not claimed as bad debts. It was further explained that these amounts were now being claimed because some of the debts had become bad and some of the debts were disputed on account of quality issue, price difference etc. It was also explained that there was a fire in the chambers of the assessee company at Po....
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....have refused to pay mainly raising disputes regarding quality issues and price. In any case, there is no further condition in law that claiming bad debts except for writing off the bad debt and in this regard she relied on the decision of the Hon'ble Supreme Court in the case of CIT vs. TRF Ltd. [323 ITR 395]. 11. We have considered the rival submissions carefully and find force in the submissions of the Ld.counsel of the assessee. We find that assessee had created a provision for bad debts for various years as under: F.Y Provision amount Tr. To bad debts in F.Y. 03-04 1999-00 31,748 31,748 2000-01 1,922,718 1,922,718 2001-02 1,099,020 1,099,020 2002-03 7,199,688 5,651,953 16,173,174 8,705,440 Out of the above provision, a sum of Rs.14,97,704/- was still kept as a provision and balance of bad debts amounting to Rs.72,07,735/- was claimed. This shows that the claim was for the earlier years and, therefore, assessee has written off the same on bona fide basis. After the amendment in sec.36 w.e.f. 1-4-1989. The main requirement of law is that such debts should have been written off, which in the present case....
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....sfer", which means that first a transaction has to be "transfer" and only then the question of not treating the same as transfer would arise. She then referred to sec.2[47] which defines the term 'transfer', and submitted that assessee's case would be covered under exchange or relinquishment or in any case clause [ii] of sec.2[47] i.e. extinguishment. She explained that UTI was in financial difficulty in the year 2003 and, therefore, proposed a scheme by which unit holders were given two options i.e. [i] to surrender the units and obtain the cash or [ii] to surrender the units and obtain fresh tax free bonds which were to be issued to such unit holders. The unit holders of less than 5000 units were to be allotted tax free bonds @ Rs.12 per unit and the balance of the units were to be issued @ Rs.10/- per unit. She further submitted that since assessee exercised the second option that would practically mean that assessee surrendered the existing holding of the units against which a new instrument was issued by the UTI. According to her, this would mean 'exchange', because one instrument was exchanged for another or sale as UTI had brought the old units and issued the new units. In t....
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....To add value to your redemption, your are being given the option of converting the units into Tax-free tradeable bonds. Those bonds have a 5-year tenure with a coupon rate of 6.75% p.a. payable half-yearly. Interest and the principal at maturity carry sovereign guarantee of the Government of India. Liquidity is of highest order since these bonds are transferable and are tradeable in the market. This offer backed by Government of India provides superior returns as compared to returns currently available in the market. The three requirements of safely, liquidity and superior returns have been incorporated in the bond. The offer for converting the US 64 units into Bonds is available only to those unit holders whose repurchase value of their units under their investor identification number (id) as on 31st May 2003 is Rs 5,000 or above. The Bond can be held by Banks, PSUs, Corporates etc., in addition to individuals i.e. all categories of investors that may result in higher demand of the instrument in due course. The salient features of the tax tree bonds are as under: • The rate of interest is 6.75% per annum payable half yea....
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....investment in the form of 6.75% Tax-free US 64 Bonds guaranteed by Government of India." The above scheme clearly shows that every investor who was holding units of Unit Trust of India had two options i.e. [i] either to take the money back from Unit Trust of India by surrendering the units or [ii] receive 6.75% tax free US-64 bonds guaranteed by the Government of India. Thus, this is a clear cut case of conversion in a case where assessee chooses to replace one type of security i.e. US-64 units with another type of security i.e. Tax Free Bonds, as has happened in the case of the assessee before us. We, further find that the assessee had computed the capital gain [loss] during the year as under: ABC BEARING LTD ASSESSMENT YEAR : 2004-2005 STATEMENT SHOWING LONG TERM CAPITAL GAINS/(LOSS) ON SALE OF SHARES/UNITS OF MF Sr. No. Name of the Co No of shares Dt of Purchase Cost Infl. Index Cost (Rs) Dt of Sale Sale Proceeds Index Cost Indexed Loss LTCG Without Index 1 Conversion of UTI US 64 Units to UTI 6.75% Tax Free Bonds Bonus 25,100 8,300 32,200 26,300 18,380 11,208 1981-82 1982-83 1983-84 1993-94....
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....eme announced by the Unit Trust of India and got the new tax free bonds. The ld. counsel of the assessee had strongly relied on the decision of the Hon'ble Supreme Court in the case of Anarkali Sarabhai vs. CIT [supra]. However, in that case the facts are quite different. In that case the individual assessee was holding 297 redeemable preference shares of Universal Corporation Pvt. Ltd. The company decided to redeem the preference shares and assessee received a sum of Rs.2,97,000/- which was more than the amount assessee had paid for acquiring these shares. It was urged that no capital gain tax is attracted u/s.45 because redemption of shares does not amount to transfer. However, the Hon'ble Supreme Court referred to the definition of 'transfer' and held that in this case redemption would amount to transfer. It is pertinent to note that at page 426 of the report, the Hon'ble Supreme Court has give the reasoning which is as under: "Clause (47) of section 2 gives an inclusive definition to "transfer". This is not an exhaustive definition. Clause [i] of sub-section [47] of section 2 speaks of "sale, exchange or relinquishment of the asset". This implies parting with any capit....
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....g for the ownership of another. A "relinquishment" takes place when the owner withdraws himself from the property and abandons his rights thereto. It presumes that the property continues to exist after the relinquishment. Where, upon amalgamation, the company in which the assessee holds shares stand dissolved, there is no "relinquishment" by the assessee." The apex court had also observed that in case of exchange that one person transfers a property to another person in exchange of another property, the property continues to be in existence. In that case, shares of S. company had ceased to be in existence and therefore the transaction did not involve any transfer. Similarly, in the case before us, the units of US-64 of Unit Trust of India ceased to be in existence after the assessee opted for conversion of the units into tax free bonds and therefore no exchange can said to have taken place which can be construed as transfer. Similarly, in the case of relinquishment also, the owner withdraws himself from the property and abandon his rights, but the property continues to be in existence. In the case before us, first of all, the assessee has not abandoned his rights because asse....