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Colorplus Realty Limited, Mumbai vs. Dy. Commissioner Of Income Tax - (Income Tax Appellate Tribunal) (22 Dec 2023)

Assessee is eligible for deduction under Section 80IA/80IB of the IT Act on compensation received due to destruction of goods before sale had taken place


Direct Taxation

Present appeal has been filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals).The solitary issue raised by the assessee in present appeal is the denial of deduction under Section 80IB of the Income Tax Act, 1961 (IT Act) amounting to Rs.4,88,493 being the compensation received by the assessee from the insurance company. The assessee company is engaged in the manufacturing of garments which are sold through franchisees in various locations all over India.

It is observed that, the assessee has received compensation from the insurance company and the franchisee for stocks destroyed and lost aggregating to Rs.16,28,311 for which the assessee had claimed deduction under Section 80IB of the Act. The lower authorities have rejected the assessee's claim amounting to Rs.4,88,493 being 30% on the aggregate compensation received from the insurance company on the ground that the same is not attributable to the industrial undertaking of the assessee for claiming deduction under Section 80IB of the Act.

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 Gujarat High Court after duly considering the decision of the Division Bench of Delhi High Court in the case of CIT vs. Sportking India Ltd. 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 under Section 80IB of the Act.

On identical facts, the Hon'ble High Court has held that, the assessee is eligible for deduction under Section 80IA/80IB of the Act on compensation received due to destruction of goods before sale had taken place. 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, A.O. is directed to allow deduction u/s. 80IB on both the amounts. Appeal filed by the assessee is allowed.


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