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TMI Blog2021 (7) TMI 1151X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year as well. There is consistency in the pattern followed by the assessee and considering the nature of business the assessee has been doing, the bonds are rightly treated as current assets in the facts and circumstances of the case. The finding of fact recorded by the Tribunal is proper and correct The option of treating the receivables converted as bonds realisable at a future point of time is tenable. In the facts of the case running out of cash reserves, the decision to treat bonds also as receivable has been taken. As correctly observed by the Tribunal, the treatment of an entry in a particular method needs to be appreciated in the peculiar facts of the case. In view of the above consideration, the questions of law cannot be decided in isolation to the circumstances of the case - Decided in favour of assessee. - ITA No. 301 of 2009 - - - Dated:- 5-7-2021 - S. V. Bhatti And Bechu Kurian Thomas, JJ. For the Appellant : P.K.R. Menon, Sr. Counsel, Jose Joseph, SC and Christopher Abraham, Adv. For the Respondents : P. Anitha, R.S. Geetha, Advs., T.M. Sreedharan, Sr. Adv. and V.B. Unniraj, Adv. JUDGMENT S.V. Bhatti, J. The Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee that the assessee entered into supplemental agreement with Ircon which facilitated deferred payment of receivable towards work executed by the assessee in Iraq. Towards the receivables in the works executed in Iraq in the previous year ending 31.03.1996, the assessee has received RBI and ECGC bonds amounting to ₹ 27,67,95,395/-, including interest. The said recovery represents ₹ 22,10,00,000/- as RBI bond and ECGC bond of ₹ 5,57,95,595/-. The assessee for the Assessment Year claimed ₹ 6,04,75,315/- as loss on revaluation and sale of RBI bonds of ₹ 43,30,000/-. 2.2 The assessee treated the RBI/ECGC bonds as deferred realization and treated them as current asset, claimed loss on actual sale of bonds and loss on revaluation of bonds. The two items form subject matter of appeal before the Income Tax Officer, as noted above, made the order under Section 143(3) of the Act. The assessee filed I.T.A. No. 21/JC/Ekm/CIT-II/99-2000 before CIT (Appeals) Kochi. The Commissioner upheld the addition made by the Assessing Officer. On appeal to the ITAT in I.T.A. No. 47/Coch/2000, the Tribunal accepted the claim of assessee that, in the facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or payable at a future date. Had the assessee received straight transfer of consideration to its bank account, then receivable in assessee's account is transferred into cash balance in account. But the assessee has received bonds payable in future i.e., after five years. Therefore, in the books of accounts one form of receivable is substituted by another form of receivable. The sale of a few bonds at the current rate, firstly suffered actual loss, and secondly, the other receivables at hand as on the last date of accounting year are to be revalued according to the present market rate. The assessee has revalued the bonds retained by it and notional loss has been booked. 5.1 He argues that receivables can be treated under the head 'current asset'. The bond substituted the receivable and the bonds are realizable at a future point of time. Therefore, the bonds substitute the existing entry and the assessee has not included it in stock-in-trade and did not treat it as a capital asset. The case of the Department is not that the assessee is not entitled to claim revaluation and book notional loss thereon. But, the objection is that bonds are to be treated as capital assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edly, the bonds were sold to augment the working capital requirements and not to purchase further securities. These bonds are in lieu of realisation of debts and would constitute capital asset within the meaning of section 2(14) of the IT Act. Its subsequent conversion into money another current asset would give rise to capital gains/loss only. Under the circumstances, the action of the Assessing Officer in disallowing ₹ 6,04,75,315/- being the notional loss on revaluation of bonds is upheld. In this connection, it may be pointed out that even the so-called revaluation loss has not been currently worked out by the appellant, as the bonds have been sold at the rate of ₹ 89/- to ₹ 90/-, as per letter dated 9.2.96 of LIC of India filed by the appellant. In this connection, reliance is placed on the decision of the Hon'ble Supreme Court in the case of Vijaya Bank Limited, reported in 187 ITR 541. Similarly, the action of the Assessing Officer in treating a sum of ₹ 43,30,000/- as short term capital loss is upheld. Accordingly, ground Nos. 2 and 3 of the appellant are rejected. Aggrieved, the assessee is in appeal before the Tribunal. 6. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase of any specified asset, such asset would be classified as investment. It may be appreciated that in the appellant's case, money was due by way of business receivables from Iraqi Government through IRCON and that money was not paid by the said Government. On the basis of an Indo-Iraqi Government Agreement, the dues to Indian contractors were deferred and acknowledging their responsibility the Government of India issued the said bonds to M/s. IRCON who in turn transferred the bonds at a face value of ₹ 27.68 crores to the appellant. Thus it is clear that the bonds came to the appellant in substitution to the receivables. The appellant had no choice, option or freedom to take money and thereafter invest, in Government of India Bonds. The bonds were accepted in lieu of the receipts. It therefore, cannot be comprehended as to how the said Bonds can be treated as investment. Accepting the RBI/ECGC bond by the appellant, as in the present case became obligatory on the part of the appellant since there were no options to realise the receivables in any other form or manner. This is not a case where the assessee opted for settlement of his receivables in the form of bon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of the bonds. Till such time the bonds cannot be treated as capital asset, and as rightly held by the Tribunal, not even stock-in-trade. The assessee is recording notional loss or profit on revaluation of the earlier years as well. The same procedure is followed in the subject assessment year as well. There is consistency in the pattern followed by the assessee and considering the nature of business the assessee has been doing, the bonds are rightly treated as current assets in the facts and circumstances of the case. The finding of fact recorded by the Tribunal is proper and correct. In the totality of circumstances the assessee enjoyed consensus ad idem when entering into contract with Ircon. Thereafter, the assessee has no option except to accept circumstances unfurling before it and accept the offer of Government of India/Ircon. The option exercised is to treat the receivable as a current asset. The option of treating the receivables converted as bonds realisable at a future point of time is tenable. In the facts of the case running out of cash reserves, the decision to treat bonds also as receivable has been taken. As correctly observed by the Tribunal, the treatment of an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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