DCIT, CIRCLE-7(1), DELHI V. FMI AUTOMOTIVE COMPONENTS PRIVATE LIMITED , HARYANA

ITA 3489/DEL/2024

AI Insights

The case involves the Deputy Commissioner of Income Tax (DCIT), Circle 7(1), as the appellant, and FMI Automotive Components Private Limited, as the respondent. The Revenue challenged the order of the CIT (A) which had allowed the appeal of the assessee by deleting several additions made by the Assessing Officer (AO) for the Assessment Year 2017-18. The main issues revolved around the disallowance of foreign exchange losses on plant and machinery, static balances of capital creditors, and certain capital expenditures debited to the profit & loss account. The Tribunal examined each ground of appeal, considering the submissions and the legal provisions applicable, and upheld the CIT (A)'s decision in favor of the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 793092 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Appeal Filed On: 29-07-2024
• Other Referred Cases: Precision Wires India Ltd. vs ACIT, CIT vs Asher Textiles Ltd, S.A Builders vs CIT, J.J. Enterprises vs CIT, Sayaji Engineering Works vs CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR DHANESTA
• Assessee Lawyers: S.K. AGARWAL
• Keywords: Capital asset; Revenue expenditure; Business expenditure; Corroborative evidences; Unexplained expenditure; Depreciation; Capital receipt; Capital expenditure
• Section: 142(1)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘B’: NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER and SHRIS.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.3489/DEL/2024 (Assessment Year: 2017-18) DCIT, Circle 7 (1), vs. FMI Automotive Components Private Limited, Delhi. Plot No.1, Subplot 4, 5, 8 and 9 MSIL, Supplier Park, Phase 3A, IMT Manesar, Gurgaon – 1222 050 (Haryana). (PAN :AABCF1682P) (APPELLANT) (RESPONDENT) ASSESSEE BY :Shri S.K. Agarwal, CA REVENUE BY :Shri Rajesh Kumar Dhanesta, Sr. DR Date of Hearing : 24.06.2025 Date of Order : 22.09.2025 O R D E R PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER : 1. The Revenue has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 30.05.2024 for the Assessment Year 2017-18 raising following grounds of appeal :- “1. Whether on the facts and circumstances of the case and in law, the Ld NFAC has erred in allowing the appeal of the assessee by deleting the addition made by the AO amounting to Rs.5,90,59,019/- on account of disallowance of foreign exchange loss on account of plant and machinery. Printed from counselvise.com 2 ITA No.3489/DEL/2024 2. Whether on the facts and circumstances of the case and in law, the Ld. NFAC has erred in allowing the appeal of the assessee by deleting the addition made by the AO amounting Rs.49,930/- u/s 41 of the Income Tax Act, 196l on account of disallowance of static balance of capital creditors. 3. Whether on the facts and circumstances of the case and in law, the Ld. NFAC has erred in allowing the appeal of the assessee by deleting the addition made by the AO amounting to Rs.11,35,806/- being disallowance of capital expenditure debited to the profit & loss account and not disallowed in the computation of income? 4. Whether on the facts and circumstances of the case and in law, the Ld. NFAC has erred in allowing the appeal of the assessee by deleting the addition made by the AO amounting to Rs.40,26,506/- being disallowance of 10% of the total unexplained expenditure incurred in relation to service fee and job work? 5. Whether on the facts and circumstances of the case and in law, the Ld. NFAC has erred in allowing the appeal of the assessee by deleting the addition made by the AO amounting to Rs.2.94,40,000/- being disallowance of 10% of the total disproportionately increased unexplained expenditure as compared to the previous year? 6. Whether on the facts and circumstances of the case and in law, the Ld. NFAC has erred in allowing the appeal of the assessee by deleting the addition made by the AO amounting to Rs.4,04,485/- being amount received on account of insurance claim which was considered as revenue receipt.” 2. With regard to ground no.1, relevant facts are, the assessee company E-filed its return of income on 30.11.2017 declaring total income at Rs.23,76,33,990. The return was processed under section 143(1) of Income Tax Act, 1961 (for short ‘the Act’). The case of the assessee was selected for complete scrutiny through CASS with the reasons “Opening Written Down Value of fixed assets as per ITR of current year is greater than closing Written Down Value of fixed assets as per ITR of preceding year; Large “any other amount allowable as deduction” claimed in schedule BP of return; Reduction in profit because of Printed from counselvise.com application of Income Computation & Disclosure Standards; Custom Duty paid as shown in the ITR is less than the Duty Paid as which were communicated to the assessee. Accordingly, notices u/s 143(2) and 142(1) of the Act alongwith questionnaire were issued and served on the assessee. In response, the assessee filed the replies/documents, as sought for the ITBA portal from time to time. 3. The assessee company is a subsidiary of M/s Futaba Industrial Co. Ltd. and was incorporated on 1 Industrial Co. Ltd. and Maruti Suzuki India Ltd. The company was se the primary objective to carry on the business of manufacturing, selling and dealing in all kinds of automotive exhaust system components and related purposes. During the course of assessment proceedings, vide Question No. 2(a) of Notice dated 07/10/2019 issued u/s 142(1) of the Income Tax Act, 1961, the assessee was asked to explain the difference of Rs.591 Lakhs in the value of addition of Plant & Equipment as per Note 4 of Financial Statement (Rs.2522 Lakhs) and as per clause 18 of TAR of (Rs assessee vide reply dated 13.11.2019 has informed that the difference of Rs.591 Lakhs is on account of Foreign Exchange fluctuation which is preparing the Fixed Assets Schedule for Tax Audit report. also submitted the statement vide item No.25 of Plant & that this means that Rs.5,90,59,019/- to the 3 ITA No.3489/DEL/2024 application of Income Computation & Disclosure Standards; Custom Duty paid as shown in the ITR is less than the Duty Paid as per Export Import Data” which were communicated to the assessee. Accordingly, notices u/s 143(2) and 142(1) of the Act alongwith questionnaire were issued and served on the In response, the assessee filed the replies/documents, as sought for the ITBA portal from time to time. The assessee company is a subsidiary of M/s Futaba Industrial Co. Ltd. and was incorporated on 1st November, 2007 as a joint venture between M/s Futaba Ltd. and Maruti Suzuki India Ltd. The company was se primary objective to carry on the business of manufacturing, selling and dealing in all kinds of automotive exhaust system components and related During the course of assessment proceedings, vide Question No. 2(a) 07/10/2019 issued u/s 142(1) of the Income Tax Act, 1961, the assessee was asked to explain the difference of Rs.591 Lakhs in the value of addition of Plant & Equipment as per Note 4 of Financial Statement (Rs.2522 and as per clause 18 of TAR of (Rs.3113Lakhs). assessee vide reply dated 13.11.2019 has informed that the difference of Rs.591 Lakhs is on account of Foreign Exchange fluctuation which is preparing the Fixed Assets Schedule for Tax Audit report. statement vide Annexure-1, showing exchange & Machinery of Rs.5,90,59,019. Assessing Officer observed that the assessee has charged exchange the P&L A/c but has not added the same in the Computation .3489/DEL/2024 application of Income Computation & Disclosure Standards; Custom Duty per Export Import Data” which were communicated to the assessee. Accordingly, notices u/s 143(2) and 142(1) of the Act alongwith questionnaire were issued and served on the In response, the assessee filed the replies/documents, as sought for on The assessee company is a subsidiary of M/s Futaba Industrial Co. Ltd. and November, 2007 as a joint venture between M/s Futaba Ltd. and Maruti Suzuki India Ltd. The company was set up with primary objective to carry on the business of manufacturing, selling and dealing in all kinds of automotive exhaust system components and related During the course of assessment proceedings, vide Question No. 2(a) 07/10/2019 issued u/s 142(1) of the Income Tax Act, 1961, the assessee was asked to explain the difference of Rs.591 Lakhs in the value of addition of Plant & Equipment as per Note 4 of Financial Statement (Rs.2522 .3113Lakhs). In response, the assessee vide reply dated 13.11.2019 has informed that the difference of Rs.591 Lakhs is on account of Foreign Exchange fluctuation which is included while The assessee has exchange fluctuation in . Assessing Officer observed exchange fluctuation of but has not added the same in the Computation Printed from counselvise.com 4 ITA No.3489/DEL/2024 of Income. Therefore, Assessing Officer disallowed the same and added to the total income of the assessee. 4. Aggrieved, assessee preferred an appeal before the ld. CIT (A) and ld. CIT (A) deleted the addition by observing as under :- “Ground no 3 is against addition of Rs.5,90,59,019 being foreign exchange loss computed as per provisions of section 43A on account of Plant & Machinery. The appellant had obtained a foreign currency loan amounting to Rs.15,60,30,000 in the financial year 2009-10 and had applied the loan proceeds for the acquisition of the capital assets to be used in the business. The assessing officer held that the assessee has charged exchange fluctuation of Rs.5,90,59,019 on loan repayment to the P&L A/c but has not added the same in the Computation of Income. Therefore, the said amount was disallowed and added to the total income of the assessee. While submitting remand report, the AO reiterated the same stand, Appellant stated that it made an adjustment under section 43A of the Act relating to the foreign exchange fluctuation loss arising on account of repayment of foreign currency loan obtained with respect to capital items and it is not reflected in P&L account. 3.1 It is seen from detailed submissions of the appellant that the amount has been added in the block of assets under section 43A and reflected in audit report as shown below :- ………….. However, the Assessing Officer contending that the amount has not been added in the Plant and Machinery, erroneously concluded that the said amount has been debited to the profit & loss account. It is seen that Net Loss on foreign currency transactions and fluctuation during the subject assessment year amounts to Rs.1,01,99,091 was separately debited to the Profit & Loss account. The foreign exchange fluctuation Rs.5,90,59,019 arising out of settlement or translation of the loan was not debited to the profit & loss account of the Appellant. In this scenario the addition is held as unwarranted and ground no 3 is allowed.” 5. At the time of hearing, ld. DR of the Revenue submitted that assessee has informed vide reply dated 13.11.2019 that the difference of Rs.591 lakhs is on account of Foreign Exchange fluctuation which is included while preparing the Fixed Assets Schedule for Tax Audit report. He submitted that the assessee has Printed from counselvise.com 5 ITA No.3489/DEL/2024 also submitted the statement, showing exchange fluctuation in item no. 25 of Plant & Machinery of Rs.5,90,59,019/-, which means the assessee has charged exchange fluctuation of Rs.5,90,59,019/- to the P&L A/c but has not added the same in the computation of income. So, this amount is disallowed and added to the total income of the assessee but the Ld. NFAC has erred in deleting the addition made by the AO amounting to Rs.5,90,59,019/- on account of disallowance of foreign exchange loss on account of plant & machinery. 6. On the other hand, ld. AR of the assessee relied on the findings of the ld. CIT (A). 7. Considered the rival submissions and material placed on record. We observe that as per section 43A of the Act, when there is increase of liability due to exchange fluctuation in the case of capital assets, the same has to be capitalized by increasing the value of fixed assets. Accordingly, the assessee had capitalized the same. The same fact was appreciated by ld. CIT (A) and accordingly deleted the addition. We do not see any reason to disturb the same. Hence ground no.1 is dismissed. 8. With regard to ground no.2, Assessing Officer observed that during the course of assessment proceedings, vide Question No.12 of the notice dated 07.10.2019 issued u/s 142(1) of the Act, the assessee was asked to submit closing balance of capital creditors of the last 3 years and explain the static balances. In response to the same, the assessee vide reply dated 02/12/2019 has submitted the necessary details. After examining the same, Assessing Officer observed that a sum of Rs.49,930/- is static balance for which no explanation has been furnished, hence, Printed from counselvise.com 6 ITA No.3489/DEL/2024 the same is added u/s 41 of the Assessee company, as the assessee would have claimed depreciations on the same. 9. Aggrieved, assessee preferred an appeal before the ld. CIT (A) and ld. CIT (A) deleted the addition by observing as under :- “Ground no 4 is against addition of Rs.49,930 u/s.41 in relation to the static balance of the capital creditors, Assessing Officer examined closing balance of capital creditors of the last 3 years and found that Rs.49,930 is static balance for which no explanation has been furnished. Hence the same was added u/s 41.The appellant stated that liability towards the static creditors amounting to Rs.49,930 ceased to exist during the year 2018-19 and following the provisions of the aforesaid section, the appellant had appropriately offered the subject amount to tax in the tax return filed by the assessee for A Y 2019-20 (by way of deduction from miscellaneous expenses). The AO stated in the remand report that this is merely a post facto exercise by the assessee. The appellant has filed return for AY 2019-20 after auditing before the impugned assessment order was passed on 09.12.2019. Hence it cannot be a post facto exercise. As a result, ground no 4 is allowed.” 10. At the time of hearing ld. DR submitted that the assessee was asked to submit closing balance of capital creditors of the last 3 years & explain the static balances, in response of which assessee submitted the details but no explanation has been furnished regarding the sum of Rs49,930/-, So, this amount was added u/s 41 of the Act, as the assessee would have claimed depreciations on the same but the Ld. NFAC has erred in allowing the appeal of the assessee by deleting this addition made by the AO amounting to Rs,49,930/- u/s 41 of Income Tax Act, 1961 on account of disallowance of static balance of capital creditors. 11. On the other hand, ld. AR of the assessee relied on the findings of the ld. CIT (A). Printed from counselvise.com 7 ITA No.3489/DEL/2024 12. Considered the rival submissions and material placed on record. We observe that the same amount was already offered to tax in AY 2019-20, the Assessing Officer has added the same as income u/s 41(1) of the Act. Since the assessee had already offered to tax, there is no requirement to disallow the same in this year. Therefore, ground no.2 is dismissed. 13. With regard to Ground No.3, the Assessing Officer observed that the assessee during the year had incurred expenditures amounting to Rs.1,95,771 on supply and installation of a motor part and Rs.9,39,535 on the purchase of a poly carbonate sheet and claimed them as business expenses. The AO disallowed the claim of deductions made by the assessee on account being capital in nature. With respect to the first expenditure amounting to Rs.195,771, the assessee submitted that such expenditure has been incurred on the supply and installation for replacement of a damaged part of a machinery used in the business. Assessing Officer observed that the part acquired by the assessee has no independent existence or utility unless worked with other machines and its function is ancillary. The poly carbonate sheet is used to keep proper sunlight as well as to prevent the entry of birds in the factory premises. He further observed that it was purchased in replacement of the previously discarded sheet and it does not lead to any increase in the production capacity of the appellant and the old sheet discarded during the captioned year was decades old and replacement of the same has become unavoidable and the only gain to the appellant by such replacement being the efficient conduct of the business activities. The Assessing Officer rejected the same. Before the ld. CIT (A), ld. Printed from counselvise.com 8 ITA No.3489/DEL/2024 AR made the detailed submissions and the ld. CIT (A) allowed the grounds by observing as under :- “5.1 From assessee's submissions it is apparent that the disputed expenditures were required to be incurred to keep the structure and machinery in the present condition. The replacement expenditure has not brought any new asset into existence. Gujarat High Court in the case of Precision Wires India Ltd. vs ACIT [2020] 116 taxmann.com 608 (Gujarat) held that, In that view of the matter, therefore, we do not think that the object of the assessee in incurring the expenses in replacement was with a view to bringing into existence a new asset or was with a view to have a substantial replacement or renovation, but it appears that the assessee was motivated in making the expenses by the object of preserving and maintaining the asset for the purpose of use in the business. We are, therefore, of the opinion that, in the facts and circumstances of the case, the Tribunal was right in holding that the expenditure incurred for replacing the petrol engine by diesel engine was in the nature of revenue expenditure for current repairs to the machinery of the assessee. 5.2 Madras High Court in the case of CIT vs Asher Textiles Ltd [1999] 240 ITR 483 held that, the expenditure incurred in bringing a building into existence is undoubtedly capital in nature, the repairs and replacements to portions of the building for the continued enjoyment of that building is not capital expenditure. The fact that new material has to be used while replacing a worn out or damaged part of portion of a building does not result in a new asset being created. Every part of the building is not to be regarded as a separate asset. It is the structure as a whole which has utility and repairs and replacements to that structure for the continued utility of the structure as a whole, cannot be regarded as capital expenditure. Replacement of hardboard set on wooden frames with thermostat wood insulation boards set in aluminium frames was undoubtedly revenue expenditure and did not constitute capital expenditure. Therefore, the expenditure in question incurred by the assessee was to be allowed as a revenue expenditure. In the present case also expenditures incurred by the appellant were part of maintenance of machinery and building in its existing state. No capacity addition was made and accordingly, the expenditure incurred should be treated as revenue expenditure and is thus allowable under section the Act. As a result, ground no 5 is allowed.” 14. At the time of hearing ld. DR submitted that assessee showed a sum of Rs.1,95,771/- which has been debited under Repair & Maintenance (Machinery) on 01.02.2017 and the payment is made to 'Eagle Eye Enterprises', the perusal of which reveals that it is towards supply & installation of some Printed from counselvise.com 9 ITA No.3489/DEL/2024 machine, which shows that this expenditure is capital in nature & thus AO is justified in disallowing this amount and added back to the total income of the assessee. He further submitted that another sum of Rs.9,39,535/- has been debited on 20.08.2016 under the head Repair & Maintenance (Machinery). The perusal of the bill indicates that the same is towards purchase of Poly carbonate sheet, which shows that this expenditure is capital in nature, thus AO is justified in disallowing this amount and added back to the total income of the assessee. He submitted that thus, the Assessing officer is justified in adding the amount of Rs.11,35,306 [Rs,1,95,771 + Rs.9,39,535] being disallowance of capital expenditure debited to the profit & loss account and not disallowed in the computation of income. 15. On the other hand, ld. AR of the assessee relied on the findings of the ld. CIT (A). 16. Considered the rival submissions and material placed on record. We observe that expenditure incurred by the assessee relates the repairs and maintenance of machinery of Rs.1,95,771/-. The amount of Rs.9,39,535/- relates to repair of the factory shed roof. The replacement with carbonated sheet does not raise the value of the existing assets. The repairs and replacement expenditure does not create new asset or enhances the value of the existing assets. Therefore, the expenses are only revenue in nature. Therefore, this ground is also dismissed. 17. With regard to Ground No.4, Assessing Officer observed that the assessee has not furnished any bill towards service fee of Rs.3,19,57,933/- and job-work of Rs.83,07,130/-. He held that in absence of the bills/supporting evidence, 10% of Printed from counselvise.com 10 ITA No.3489/DEL/2024 the total expenses i.e. Rs.40,26,506/- (10% x 4,02,65,063/-) is disallowed and added back to the total income of the assessee. 18. With regard to ground no.5, the Assessing Officer observed that the assessee has not submitted any details nor has explained the disproportionate increase in the following expenses:- AY 2016-17 (Rs.in Lakhs) AY 2015-16 (Rs. in Lakhs) a Consumption of Consumables 1620 1355 b Wages 829 566 c Repair & Maintenance(Building) 54 40 d Rates & Taxes 32 15 e Selling & Distribution 320 290 f Miscellaneous Expenses 89 62 Total 2944Lakhs Assessing Officer held that in the absence of any details and explanation/supporting evidences 10% of the total expenditure i.e. Rs.2,94,40,000/- (10% x 2944 Lakhs) is disallowed and added back to the total income of the assessee. 19. Aggrieved, assessee preferred an appeal before the ld. CIT (A) and ld. CIT (A) deleted the addition by observing as under :- Printed from counselvise.com 11 ITA No.3489/DEL/2024 “Ground no 6 is against addition of an amount of Rs.40,26,506 being disallowance of 10% of the service fee and job work, due to non availability of the corresponding bills/ supporting evidence and ground no 7 is against addition of an amount of Rs.2,94,40,000 being disallowance of 10% of other expenses on adhoc basis. The appellant submitted that the transactions of service fee and job work are of small amounts but very high in volume. Considering the voluminous transactions during the year, it may not be practical for the assessee to present all the supporting evidences or corresponding invoices. Further, on account of disruptions caused by the global pandemic Covid 19, the appellant is working with the limited capacity of employees and thus it may not be practicable to sort, collate and arrange the high volume of invoices at this point of time. Sample invoices in this regard were uploaded during appeal proceedings which were forwarded to the AO who stated in the remand report that the assessee has furnished bills amounting to Rs.8,36,98,010. 6.1 From the submissions of appellant it is clear that expenses have been incurred wholly and exclusively for the purpose of business and the AO has made adhoc disallowance of 10%. Courts have regularly held that revenue authorities do not have the authority to step into the shoes of the assessee and decide whether or not a transaction should have been entered or the quantum of expenditure to be incurred to run the business. It is for the assessee to take commercial decisions and decide how to conduct and carryon its business. [S.A Builders [2007] 288 ITR 1, SC]. It is also settled law that ad-hoc disallowance of expenditure is not maintainable unless the Assessing Officer is able to provide specific defects in the claim of expenditure made by the assessee. There is no dispute that the accounts have been tax audited and the auditors have not given any adverse comments. It is also clear that the assessee had filed details of the expenses under various heads and the AO has not pointed out any specific defects in the details filed. The AO has failed to bring any material on record to demonstrate that the expenses have not been incurred and are not verifiable. Mere statement that the parts of the expenses have been higher than earlier years would not be suffice enough to call for any addition. No disallowance can be made on mere suspicion. Keeping in view, the ratio laid down by the Hon'ble Apex Court in the case of J.J. Enterprises vs. CIT 254 ITR 216 (SC), the disallowances made by the AO cannot be sustained. Furthermore, no disallowance on account of various heads can be made in the case of limited company as held in the case of Sayaji Engineering Works, 253 ITR 749, Guj. This has become a settled law. Considering the facts and circumstances of the case and keeping in view the judicial pronouncements, percentage disallowances of expenses made by the AO are hereby deleted. As a result, grounds 6 and 7 are allowed.” 20. At the time of hearing ld. DR submitted with regard to ground no.4 that the Assessing officer is justified in adding the amount of Rs.40,26,506/- being disallowance of 10% of the total unexplained expenditure incurred in relation Printed from counselvise.com 12 ITA No.3489/DEL/2024 to service fee and job work, as the assessee has not furnished any bill towards service fee of Rs.3,19,57,933/- and job work of Rs.83,07,130/- in absence of the bills/supporting evidence, 10% of the total expenses i.e. Rs.40,26,506/- (10% x 4,02,65,063/-) was disallowed and added back to the total income of the assessee. 21. Further with regard to ground no.5, ld. DR of the Revenue submitted that the Assessing officer is justified in adding the amount of Rs.2,94,40,000/- being disallowance of 10% of the total disproportionately increased unexplained expenditure as compared to the previous year as the assessee has not submitted any details nor explained the disproportionate increase in the following expenses:- A.Y. 2016- 2017 (Rs. in lakhs) A.Y. 2015- 2016 (Rs. in lakhs) a Consumption of Consumables 1620 1355 b Wages 829 566 c Repair & Maintenance (Building) 54 40 d Rates & Taxes 32 15 e Selling & Distribution 320 290 f Miscellaneous Expenses 89 62 Total 2944 lakhs He submitted that in absence of any details & explanation/supporting evidences 10% of the total expenditure i.e. Rs.2,94,40,000/- (10% x 2944 Lakhs) is disallowed and added back to the total income of the assessee. 22. On the other hand, ld. AR of the assessee relied on the findings of the ld. CIT (A). Printed from counselvise.com 13 ITA No.3489/DEL/2024 23. Considered the rival submissions and material placed on record. We have taken up ground nos.4 & 5 together regarding adhoc disallowance issue. We observe that Assessing Officer has disallowed the service fee, job-work and other expenditure as the basis of non-submission of bills/vouchers and disproportionate increase in the expenses compared to previous year. We observe that the expenses are in the nature of manufacturing, selling and distribution and misc. expenses. In our view, the Assessing Officer cannot disallow expenses without pointing out the specific defects and also the courts have held that Assessing Officer cannot resort to adhoc disallowance. Further the books of the assessee are already audited and certified by the third party. The same cannot be rejected without bringing on record the specific reason for resorting to adhoc disallowance or how Assessing Officer was prevented from making verification of the relevant expenses. Therefore, we do not see any reason to disturb the findings of ld. CIT (A). Accordingly, ground nos.4 & 5 raised by the Revenue are dismissed. 24. With regard to ground no.6, Assessing Officer observed that during the course of assessment proceedings, vide Question No. 4 of the notice dated 07.10.2019 issued u/s 142(1) of the Act, the assessee was asked to justify why insurance claim received of Rs.4,04,485/- has been reduced from the income. In response to the same, the assessee vide reply dated 22.10.2019 has submitted that the insurance claim received is capital receipt and therefore is not taxable. The Assessing Officer observed that the assessee has not submitted any explanation or documentary evidence as to why and how the amount received is a capital receipt. Printed from counselvise.com 14 ITA No.3489/DEL/2024 He observed that in the ordinary course of business, insurance is a business expense and any receipt from claim of Insurance is a revenue receipt, hence, he added the amount of Rs.4,04,485/- to the total income of the assessee 25. Aggrieved, assessee preferred an appeal before the ld. CIT (A) and ld. CIT (A) deleted the addition by observing as under :- “Ground no 8 is against addition of an amount of Rs.4,04,485 received on account of insurance claim considering the same as revenue in nature. Assessing Officer held that insurance is a business expense and any receipt from claim of Insurance is a revenue receipt. Appellant submitted that the insurance claim received by the appellant is not in the routine and ordinary course of business. The same has been received on account of loss incurred to the assessee as a onetime occurrence. The appellant submitted details of insurance claim towards damage to servo motor which was part of block of assets as Plant and Machinery. As per section 45(1 A) any profit arising on receipt of claim from Insurance company on account of damage or destruction of capital asset would be treated as Capital Gain of the year in which such claim is received. As the capital receipt shall be adjusted via relevant asset account, the addition of such claim to the revenue receipt is unwarranted. As a result, ground no 8 is allowed.” 26. At the time of hearing ld. DR of the Revenue submitted that the Assessing officer is justified in adding the amount of Rs.4,04,485/- being amount received on account of insurance claim which was considered as revenue receipt. As per the assessee the insurance claim received is a Capital receipt & is not taxable but the assessee has not submitted any explanation or documentary evidence as to why and how the amount received is a capital receipt. In the ordinary course of business, insurance is a business expense and any receipt from claim of insurance is a revenue receipt, hence, AO is justified in adding the amount of Rs.4,04,485/- to the total income of the assessee. 27. On the other hand, ld. AR of the assessee relied on the findings of the ld. CIT (A). Printed from counselvise.com 15 ITA No.3489/DEL/2024 28. Considered the rival submissions and material placed on record. We observe that the insurance claim received by the assessee is against the loss claimed by the assessee based on the damages suffered by the assessee. The damages were and must have claimed by the assessee as revenue only irrespective of the fact that the damages is for capital or revenue. In case, the insurance claim is more than the actual loss to the assessee, then the same has to be charged to the revenue/capital depending upon the claim. In this case, the assessee has not submitted any details regarding the nature of the claim. If the assessee claimed the insurance which was reimbursed to the extent of damages claimed by the assessee, the same cannot be treated as income of the assessee. The amount involved is being small, we also inclined to sustain the findings of the ld. CIT (A). Accordingly, the ground raised by the Revenue is dismissed. 29. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on this 22nd day of September, 2025. Sd/- sd/- (SATBEER SINGH GODARA) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 22.09.2025 TS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals). 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com "