2023 (12) TMI 1088 - AT - Income Tax

Deduction u/s. 80IB - compensation received by the assessee from the insurance company - CIT(A) upheld the addition made by the ld. A.O. on the ground that the insurance/compensation claimed cannot be considered for computing the eligible profit and gains derived from the industrial undertaking of the assessee - HELD THAT - The assessee in the present case has received compensation for destroyed and lost goods from the insurance company and from the franchisees which the Revenue claims to be not from the industrial undertaking and shall not be the profits and gains of the business of the assessee. The Hon ble Gujarat High Court in SHREE RAMA MULTI TECH LTD. 2013 (10) TMI 306 - GUJARAT HIGH COURT after duly considering the decision of Sportking India Ltd. 2009 (8) TMI 29 - DELHI HIGH COURT has held that such compensation received from insurance company for the damage incurred by the assessee would be the profit/loss from such industrial undertaking, for the reason that if not for such loss, the assessee would have earned income which is otherwise eligible for deduction u/. 80IB, It is evident that on identical facts, the Hon'ble High Court has held that the assessee is eligible for deduction u/s. 80IA/80IB of the Act on compensation received due to destruction of goods before sale had taken place. We find that on destruction of raw materials, the assessee was paid insurance claim, the cost of raw material is already considered as cost while working out the profit of eligible undertaking and the claim tantamount to sale of raw materials. As regards to loss of goods at franchisee and the amount paid by such franchisee would also be sale of goods. Thus, both the above sums are profits derived from industrial undertaking business eligible for deduction. Hence, we direct the ld. A.O. to allow deduction u/s. 80IB on both the amounts. We, therefore, allow the appeal filed by the assessee.

Summary

Issues:
The denial of deduction u/s. 80IB of the Act for compensation received from the insurance company.

Summary:
The appeal was filed by the assessee challenging the order passed by the Commissioner of Income Tax (Appeals) related to the Assessment Year 2001-02. The main issue raised was the denial of deduction u/s. 80IB of the Act for compensation received from the insurance company.

The assessee, a garment manufacturing company, received compensation for destroyed stocks and lost goods from the insurance company and franchisees. The Assessing Officer disallowed the claim made u/s. 80IB, adding 30% of the compensation amount to the total income of the assessee.

The CIT(A) upheld the addition made by the Assessing Officer, stating that the compensation claimed cannot be considered for computing the eligible profit and gains derived from the industrial undertaking of the assessee.

The Tribunal considered the arguments presented by both parties. The assessee contended that the compensation received should be considered as profits derived from the industrial undertaking eligible for deduction u/s. 80IB. The Departmental Representative argued that such receipts are not derived from the industrial undertaking as per the Act.

The Tribunal referred to a decision by the Hon'ble Gujarat High Court, which held that compensation received by an industrial undertaking from an insurance company due to loss suffered is eligible for deduction. Based on this precedent, the Tribunal directed the Assessing Officer to allow deduction u/s. 80IB on the compensation received for destroyed and lost goods.

Ultimately, the appeal filed by the assessee was allowed, and the Tribunal pronounced the order in favor of the assessee on 22.12.2023.