TMI Blog2010 (7) TMI 662X X X X Extracts X X X X X X X X Extracts X X X X ..... he scheme of the Unit Trust of India which was guaranteed by the Government of India, would not amount to transfer - In the result, revenue’s appeal is partly allowed for statistical purposes - ITA NO. 6430/Mum/2007 - - - Dated:- 16-7-2010 - BEFORE SHRI R.V. EASWAR [PRESIDENT] J. AND SHRI T.R.SOOD, ACCOUNTANT MEMBER J. Revenue by : Shri S.K.Pahad [CIT] Assessee by : Smt. Aarti Vissanji. ORDER Per T.R.SOOD, AM: In this appeal, the revenue has raised the following three grounds:. 1. Whether on the facts and in the circumstances of the case, the Ld. CIT[A] is justified in deleting the disallowance of Rs.3.88 crores even though the assessee failed to produce relevant account books, bills and vouchers before the AO. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT[A] is justified in deleting the disallowance of Rs.87,05,400/- even though the AO had given a finding that the said debt had not become bad during the relevant accounting year. In support of this ground, reliance is placed upon Madras High Court decision in the case of South India Surgical (153 Taxman 491) and Gujarat High Court decision in the case of Dhall En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied in disallowing 5% of the expenditure debited to P L a/c simply on the ground that they are not for the business. The AR has already made his point that the expenses are only for the business and not personal in nature. All these expenses are duly audited by Commissioner of Income Tax (Appeals) and they have not pointed out any expenditure which is not related to the business. Hence the disallowance is unwarranted and need to be deleted. I agree with the view of the AR that the disallowance of 5% of the total manufacturing and other expenses are not warranted unless it is proved that any of the expenditure are not for the business of the assessee. The AO is directed to delete this addition. This ground of appeal is allowed. 4. Before us, the Ld.DR submitted that the AO had specifically asked to produce bills and vouchers for verification as well as books of accounts which were not submitted before the AO or even before the CIT(A), still, CIT(A) has allowed the relief. He argued that the onus is always on the assessee to prove the expenditure for which assessee was duty bound to produce the books of accounts and other supporting documents, which it failed to do so. Merely beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,651,953 As per list 1,467,735 16,173,174 8,705,440 1,467,735 Balance in books of account as on 31.03.04 2,965,439 Computation of income attached with return of income for F.Y 2003-04 Less: from income for bad debts w/o Rs. 8,705,440 Add: for provision for Bad debts Rs. 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 mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made and the amount was being written off by debiting the provision for doubtful debts because parties accounts have already been closed when provision for doubtful debts was claimed. She further submitted that all these debts are old and the claims were being written off because few of the concerns from whom debts were recoverable have been closed in many other cases, the debtors 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of conversion of bonds or debentures and provides that such conversion of units is not to be treated as transfer. 15. On the other hand, the Ld.counsel of the assessee submitted that there seems to be a conflict in the argument of the Ld.DR when he refers to the provisions of sec.2[47] and section 47[x] because, sec.47 itself starts with the phrase that nothing contained in sec.45 shall apply to following transfer , 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Recognising the continued and valuable support extended by you in remaining invested in the scheme till now, the Government of India backed 6.75% Tax-free Bond in lieu of US 64 units is being offered to you. It has been decided to terminate Unit Scheme 64 in its present form, with effect from June 1, 2003. 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, PS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave the option of repurchasing US64 units till 31 May 2003 by surre3ndering Bond certificate duly discharged. I am sure you have reasons enough for continuing your 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 Proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sale. Because what has happened is that, the assessee has surrendered the old units of US-64 in line with the scheme 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 [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty by that other to the first person. There must be a mutual transfer of ownership of one thing 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 existen ..... 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