2014 (5) TMI 469 - AT - Income Tax

Assessee's Appeal Partially Allowed: Deduction for Insurance Claim on Material & Goods

Vraj Packaging Pvt. Ltd. Versus ACIT, Vapi Circle-Vapi

Vraj Packaging Pvt. Ltd. Versus ACIT, Vapi Circle-Vapi - TMI Issues:1. Disallowance of deduction u/s. 80IB on Insurance Claims.Analysis:The appeal was filed by the Assessee against the order of the CIT(A) confirming the disallowance made by the assessing officer of Rs.61,25,513/- on account of deduction u/s.80IB. The AO held that the Insurance Claim was not a revenue receipt but was received on the loss of a capital asset. The assessee company was engaged in manufacturing activities, and the AO disallowed the deduction u/s.80IB as the Insurance Claim was not considered to be 'derived from' the manufacturing activity.The CIT(A) considered the legal position and various judicial decisions related to the treatment of Insurance Claims. The CIT(A) analyzed the case law, including CIT vs. Sportking India Ltd., and the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT v/s. Khemka Containers Pvt. Ltd. The CIT(A) observed that the deduction u/s. 80IB is not available on the gross amount received from the insurance company but on the net receipts. The CIT(A) agreed with the AO that the Insurance Claim related to Plant & Machinery was for capital assets and not eligible for deduction u/s. 80IB. However, for Raw Materials, Work-in-Progress, and Finished goods, the net amount after deducting the cost was considered. The CIT(A) concluded that no profits or gains arose to the appellant from the Insurance Receipts, and therefore, the deduction u/s.80IB was not applicable in this case.Both parties presented their arguments citing relevant judgments. The Revenue contended that the Insurance Claim in respect of loss of machinery was of a capital nature, while the Assessee relied on case law related to loss of raw material/finished goods. After considering the submissions, the Tribunal decided the issue in light of the precedent cited. Referring to judgments like CIT Vs. Shree Rama Multi Tech Ltd. and CIT vs. Sportking India Ltd., the Tribunal held that the Assessee was entitled to claim deduction u/s. 80IB only for the Insurance Claim related to raw material, work in progress, and finished goods. However, the claim for loss of machinery was considered a capital loss recouped by the Insurance Company and deemed capital in nature. The Tribunal directed the re-computation of the deduction u/s. 80IB accordingly, partially allowing the appeal of the Assessee.In conclusion, the Tribunal partially allowed the Assessee's appeal, permitting the deduction u/s. 80IB only for the Insurance Claim related to raw material, work in progress, and finished goods, while disallowing the claim for loss of machinery as a capital receipt.