The Kolkata bench of Income Tax Appellate Tribunal (ITAT) has recently held that claim of insurance on account of loss by fire could not be disallowed.
Assesee Nishant Krishna engaged in the business of manufacturing and trading of paints and primer through its two proprietorship business. Assesee filed his return on 14.10.2010.
During the course of assessment proceedings, AO noted that the assessee has debited an amount in the Profit & Loss Account of Johnson Paints Industries on account of loss due to fire.
Assessee explained that a fire had broken out against which a claim on account of loss from fire was lodged with Oriental Insurance Co. Ltd. for an amount of Rs.6,08,450/-. The insurance company allowed an amount of Rs.70,558/- as claim to assessee for fire loss.
AO enquired about the claim of loss by issuing notice under Section 133(6) of the Income Tax Act from the insurance company after that disallowed an amount of Rs.4,86,699/- and added it to the total income.
Aggressive, the order assessee filed an appeal before the CIT(A), who confirmed the disallowance. Thus the assessee filed a second appeal before the tribunal.
When the matter came before the tribunal the main issue was that “whether the difference between what was claimed by the assessee and that which has been paid by the insurance company is allowable or not”.
AO to disallow the claim is solely on the basis of claim which has been paid by the insurance company. He has taken the amount of Rs.70,558/- as the actual loss which has been suffered by the assessee pursuant to the fire and, therefore, for the balance amount of loss which the assessee has claimed as its business expenditure has been disallowed.
The tribunal determined that claim entertained by the insurance company is pursuant to the terms and conditions of the insurance policy though the actual loss suffered by the assessee is much higher and need not be always fit in and meet the terms of the policy to get the recoupment of the entire loss which the assessee has actually suffered.
After considering the facts the two member bench of Rajpal Yadav, (Vice President) and Girish Agrawal, (Accountant Member) allowed the appeal and observed that claim of the assessee of Rs.5,37,892/ by debiting in the Profit & Loss Account was a bona fide claim.
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