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Issues involved: Appeal against the order confirming the addition of Rs. 19,68,620/- u/s disallowance of loss due to fire.
Facts of the case: The assessee, engaged in hosiery goods business, suffered a loss due to fire at its factory premises. The assessee claimed a loss of Rs. 19.68 lacs, which was not allowed by the AO as the claim was not settled by the Insurance Company in the relevant year. Decision of CIT(A): The CIT(A) upheld the AO's decision, stating that the estimated loss claimed by the appellant was not allowable as there is no provision of law for such provisional claims. The claim was settled after the relevant year, and hence, the disallowance made by the AO was confirmed. Arguments before the Tribunal: The assessee argued that the loss by fire occurred in the relevant year and should be considered for deduction. They contended that the difficulty in estimating the loss or settling the claim in subsequent years does not convert the accrued liability into a contingent one. The principles laid down in Calcutta Company Ltd v. CIT were cited in support. Tribunal's decision: The Tribunal noted that the assessee maintained accounts on a mercantile basis and the liability accrued in the relevant year. Referring to legal precedents, the Tribunal held that the difficulty in estimating the loss does not make the liability contingent. The loss suffered was real, and the liability needed to be considered for allowance in the relevant year. The fact that the claim was settled in a subsequent year was deemed irrelevant. The Tribunal directed the AO to consider the claim of the assessee in the relevant year and not in the year of claim settlement. Conclusion: The Tribunal allowed the appeal, directing the AO to adjudicate upon the claim of the assessee on merits in the relevant year after providing a reasonable opportunity for hearing. Judges: Sushma Chowla (Judicial Member) and D. K. Srivastava (Accountant Member) Date of Order: June 2011
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