The Tax Publishers2020 TaxPub(DT) 4958 (Del-Trib)


Section 28

Where AO disallowed claim of assessee towards loss of stock caused by fire on allegation that same was covered by insurance and it was a contingent loss because claim was not received, merely because goods of assessee were insured against the accident of fire, it could not be said that assessee did not lose goods due to fire, thus, disallowance made by AO was invalid.

Business loss - Loss of stock caused due to fire - Stock insured against damages by fire - Loss whether contingent loss liable to be disallowed

Assessee company was engaged in trading of goods in manufacturing and exports of home furnishing articles along with trading business of mobile phones and electronic goods. Assessee challenged order of CIT(A) confirming action of AO in making disallowance of loss of stock caused due to fire by invoking section 29. Allegation of AO was that stocks of goods were insured against damages by fire, therefore loss was recoverable under a contract of indemnity. According to AO, as claim of assessee was not decided till date by insurance company, therefore, loss claimed by assessee was a contingent loss. Held: Merely because assessee had an insurance, it did not mean that assessee did not incur the loss during year. Moment insurance company determines loss in terms of the insurance policy obtained by the assessee from the insurance company, naturally assessee would be reimbursed or compensated for the same. It does not mean that assessee has not incurred the losses. Accident of fire at the premises of the assessee in which it lost goods due to the fire was one incident. The action of assessee of obtaining the insurance was altogether a different act to mitigate the loss incurred by the assessee. Claim of insurance would also be subject to many conditions. Merely because goods of assessee were insured against the accident of fire, it could not be said that assessee did not lose goods due to fire and loss of assessee would be compensated in subsequent year later on, at that particular time such insurance claim received would be chargeable to tax under section 41(1) as it is against the traded goods. Even otherwise, trading loss incurred by assessee was allowable to assessee in the year in which it is incurred.

Followed: Motamal Jethumal v. CIT (1947) 15 ITR 155 (Pat) : 1947 TaxPub(DT) 0028 (Pat-HC)


FAVOUR : In assessee's favour.

A.Y. : 2015-16



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