Insurance compensation for destroyed goods qualifies for Section 80IB deduction as industrial undertaking profit

ITAT Mumbai allowed the assessee's appeal regarding Section 80IB deduction on insurance compensation for destroyed goods. The Revenue contended that insurance compensation and franchisee payments for lost goods were not profits from industrial undertaking. ITAT held that compensation received from insurance company for damaged goods constitutes profit from industrial undertaking, following Gujarat HC precedent in Shree Rama Multi Tech Ltd. The tribunal reasoned that such compensation represents income the assessee would have earned if goods weren't destroyed, making it eligible for Section 80IB deduction.

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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.

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