Navkar International Private Limited, Ludhiana V. DCIT, Ludhiana

ITA 273/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5401 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 17-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Assessee Lawyers: ANUP KUMAR JAIN
• Keywords: Assessment record

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: B BENCH: CH ANDIGARH BEFORE SHRI D K SRIVASTAVA, AM AND MS. SUSHMA CHOWL A, JM ITA NO. 273/CHANDI/2011 ASSESSMENT YEAR: 2006-07 NAVKAR INTERNATIONAL PVT. LTD V D.C.I.T. C-II, L UDHIANA LUDHIANA PAN: AAACN 6253 B APPELLANT BY: SHRI ANUP KUMAR JAIN RESPONDENT BY: SMT. JAISHREE SHARMA ORDER D K SRIVASTAVA: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A) ON 1.2.11, ON THE FOLLOWIN G GROUND: THAT THE LD. CIT(A) HAS ERRED IN LAW IN CONFIRMIN G THE ADDITION OF RS. 19,68,620/- MADE BY THE AO ON ACCOUNT OF DISALLOWAN CE OF LOSS CAUSED TO STOCK DUE TO FIRE. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE-COMPANY, WHICH WAS ENGAGED IN THE BUSINESS OF HOSIERY GOODS SUFFERED L OSS ON ACCOUNT OF FIRE AT ITS FACTORY PREMISES ON 16/17 DEC. 2005, I.E., IN THE YEAR UNDE R APPEAL. THE ASSESSEE FURNISHED CALCULATIONS OF ITS LOSS BEFORE THE AO, WHICH READS AS UNDER: THE ASSESSEE HAS GIVEN CALCULATION AS TO HOW THE S URVEYOR HAS ESTIMATED THE LOSS OF RS. 19.68 LACS CLAIMED BY THE ASSESSEE I.E. TOTAL STOCK AS ON DATE OF FIRE RS. 1,34,15,820/- UNAFFECTED STOCK RS. 21,82,264/- STOCK AFFECTED RS. 1,12,33,556/- CLAIM FILED WITH INSURANCE CO. RS. 112.33 LACS LESS CLAIM OF LOSS EXPECTED TO BE RECEIVED RS. 92 .65 LACS SHORT CLAIM TO BE RECEIVED RS. 19.68 LACS TOTAL LOSS PROVIDED IN THE BOOKS RS. 19.68 LACS 3. THE AO, HOWEVER, DID NOT ALLOW THE AFORESAID LOS S AMOUNTING TO RS. 19.68 LACS CLAIMED BY THEE ASSESSEE AS THE CLAIM OF THE ASSESS EE WAS NOT SETTLED BY THE INSURANCE COMPANY IN THE YEAR UNDER APPEAL. 4. AGGRIEVED BY THE ORDER PASSED BY THE AO, THE ASS ESSEE FIELD APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) ALSO DID NOT ALLOW THE I MPUGNED LOSS WITH THE FOLLOWING OBSERVATIONS: NAVKAR INTERNATIONAL P. LTD. LUDHIANA V. D.C.I.T ITA NO.273/CHD/2011 5 I HAVE GONE THROUGH THE CONTENTION OF THE APPELL ANTS COUNSEL AND ALSO PERUSED THE RELEVANT ASSESSMENT RECORD AS WELL AS W RITTEN SUBMISSION FILED BY THE COUNSEL IN THIS REGARD. THE AO HAS DISALLOWED T HE CLAIM OF LOSS OF STOCK DUE TO FIRE BROKE OUT AT APPELLANTS BUSINESS PREMISES IN THE YEAR UNDER APPEAL ON THE ACCOUNT THAT THE ESTIMATED LOSS BASED ON THE SU RVEYORS REPORT CANNOT BE ALLOWED. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM ALSO OF THE VIEW THAT THE ESTIMATED LOSS CLAIMED BY THE APPELLANT IN THE YEAR UNDER CONSIDERATION IS NOT ALLOWABLE AS THERE IS NO PROVISION OF LAW UNDER WHICH SUCH PROVISIONAL CLAIM IS ALLOWABLE. FURTHER , THE CLAIM WAS SETTLED AFTER 31.3.2006. KEEPING IN VIEW THE ABOVE FACTUAL POSITI ON OF THE CASE, THE DISALLOWANCE MADE BY THE AO IN VIEW OF THE CLAIM OF LOSS IS HEREBY CONFIRMED AND THE APPELLANT FAILS ON THIS GROUND. 5. AGGRIEVED BY THE ORDER PASSED BY THE LD. CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE THIS TRIBUNAL. IN SUPPORT OF APPEAL, THE LD . AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE MADE THREE-FOLD SUBMISSIONS BEFORE US. HIS FIRST SUBMISSION WAS THAT THE FACT THAT THE LOSS BY FIRE WAS CAUSED IN THE YEAR UNDER APPEAL, WAS NOT DISPUTED BY THE DEPARTMENT AND THEREFORE SUCH OUGHT TO HAVE BEEN CO NSIDERED FOR DEDUCTION IN THE YEAR UNDER APPEAL. HIS SECOND SUBMISSION WAS THAT M ERE DIFFICULTY IN ESTIMATION OF LOSS OR SETTLEMENT OF CLAIM BY THE INSURANCE COMPAN Y IN SUBSEQUENT YEARS, WOULD NOT CONVERT ACCRUED LIABILITY IN THE YEAR UNDER APPEAL AS CONTINGENT LIABILITY OR CONDITIONAL LIABILITY. HIS THIRD SUBMISSION WAS THAT THE CASE O F THE ASSESSEE WAS SQUARELY COVERED BY THE PRINCIPLES LAID DOWN IN CALCUTTA COMPANY LTD V. CIT, 37 ITR 1 (SC). 6. IN REPLY THE LD. DR SUPPORTED THE ORDER PASSED B Y THE AO AND THE LD. CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CON SIDERED THEIR SUBMISSIONS. THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS TH EREFORE REQUIRED TO MAINTAIN ITS ACCOUNTS ON MERCANTILE BASIS. IT IS STATED IN THE A SSESSMENT ORDER THAT THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. AS HELD IN CALCUTTA COMPANY LTD. V. CIT, 37 ITR 1 (SC) {FOLLOWED IN CIT V. BURHWAL SUGAR MILLS C. LTD., 82 ITR 784 (ALL.)}, IT IS SETTLED LAW THAT WHEN AN ASSESSEE MAINTAINS HIS ACC OUNTS ON MERCANTILE BASIS OF ACCOUNTING, THE DATE ON WHICH THE LIABILITY ACCRUES IS THE DATE TO BE CONSIDERED FOR THE PURPOSE OF ENTERING THAT LIABILITY IN THE ACCOUNTS. THAT IS SO EVEN THOUGH THE LIABILITY IS CAPABLE OF ESTIMATE ONLY. THE DIFFICULTY IN MAKING THE ESTIMATE DOES NOT CONVERT THE ACCRUED LIABILITY INTO A CONDITIONAL OR CONTINGENT ONE, BECAUSE IT IS ALWAYS OPEN TO THE AO TO ARRIVE AT A PROPER ESTIMATE THEREOF HAVING RE GARD TO ALL THE CIRCUMSTANCES OF THE CASE. NAVKAR INTERNATIONAL P. LTD. LUDHIANA V. D.C.I.T ITA NO.273/CHD/2011 8. IN THE PRESENT CASE, THE ASSESSEE HAS SUFFERED L OSS ON ACCOUNT OF DAMAGE/DESTRUCTION OF STOCK BY FIRE IN THE YEAR UND ER APPEAL AND THEREFORE THE LIABILITY IN THIS BEHALF HAS ACCRUED IN THE YEAR UNDER APPEAL . THE ASSESSEE HAS ALSO ENTERED LIABILITY TO THE AFORESAID EFFECT IN ITS ACCOUNTS F OR THE YEAR UNDER APPEAL. BESIDES, THE FACT THAT THE ASSESSEE HAS SUFFERED LOSS IS NOT DIS PUTED. THUS THE LOSS SUFFERED BY THE ASSESSEE IS REAL. IT CANNOT BE SAID THAT THE LIABIL ITY ARISING ON ACCOUNT OF DAMAGE/DESTRUCTION OF STOCK IN THE YEAR UNDER APPEA L IS A CONTINGENT OR CONDITIONAL ONE. THEREFORE THE LIABILITY IS REQUIRED TO BE CONS IDERED FOR ALLOWANCE IN THE YEAR UNDER APPEAL AND IN NO OTHER YEAR. THE MERE FACT TH AT THE INSURANCE COMPANY HAS SETTLED THE CLAIM IN SUBSEQUENT YEAR IS IRRELEVANT AS THE LOSS HAS BEEN SUFFERED AND THEREFORE ARISEN IN THE YEAR UNDER APPEAL. THE AFOR ESAID VIEW IS WELL SUPPORTED BY THE JUDGMENT OF THE HONBLE PUNJAB HIGH COURT IN CIT V. TULSI RAM KARAM CHAND, 51 ITR 180 (PUN.) IN WHICH IT HAS BEEN HELD THAT THE CLAIM OF LOSS OF GOODS HAS TO BE CONSIDERED IN THE YEAR IN WHICH LOSS OCCURS AND NOT IN THE YEAR IN WHICH CLAIM IS SETTLED. IN THIS VIEW OF THE MATTER, THE FINDING RE CORDED BY BOTH THE AUTHORITIES BELOW THAT THE LOSS TO STOCK CAUSED BY FIRE WOULD BE CONS IDERED IN THE YEAR IN WHICH THE INSURANCE COMPANY HAS SETTLED THE CLAIM IS VACATED. THE ASSESSING OFFICER IS DIRECTED TO CONSIDER THE CLAIM OF THE ASSESSEE IN THIS BEHAL F IN THE YEAR UNDER APPEAL. 9. WE FIND THAT BOTH THE AUTHORITIES BELOW HAVE DEC IDED THE ISSUE ON THE SHORT GROUND THAT THE LOSS CLAIMED BY THE ASSESSEE WAS NO T LIABLE TO BE ALLOWED IN THE YEAR UNDER APPEAL BUT IN THE YEAR IN WHICH ITS CLAIM IS SETTLED BY THE INSURANCE COMPANY. THEY HAVE HOWEVER NOT ADJUDICATED UPON THE CORRECTN ESS OF THE COMPUTATION OF LOSS/CLAIM AS SUBMITTED BY THE ASSESSEE BEFORE THEM . WE THEREFORE DIRECT THE ASSESSING OFFICER TO CONSIDER AND ADJUDICATE UPON T HE CLAIM OF THE ASSESSEE ON MERITS IN THE YEAR UNDER APPEAL, AFTER GIVING REASONABLE O PPORTUNITY OF HEARING TO THE ASSESSEE. 10. APPEAL FILED BY THE ASSESSEE IS ALLOWED IN TERM S OF THE DIRECTIONS GIVEN ABOVE. ORDER PRONOUNCED ON JUNE 2011 (SUSHMA CHOWLA) (D K SRIV ASTAVA) JUDICIAL MEMBER ACCOUNTANT MEM BER CHANDIGARH: THE JUNE 2011 SURESH NAVKAR INTERNATIONAL P. LTD. LUDHIANA V. D.C.I.T ITA NO.273/CHD/2011 COPY TO: 1. THE APPELLANT, NAVKAR INTERNATIONAL P. LTD, LUDH IANA 2. THE RESPONDENT, D.C.I.T. C-II, LUDHIANA 3. THE CIT(A), LUDHIANA 4. THE LD. CIT,LUDHIANA 5. THE D.R, INCOME-TAX DEPARTMENT, CHANDIGARH BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH