M/s. Mahavir Enterprises, Bareilly V. Income Tax Officer, Ward-1(3), Bareilly

ITA 495/LKW/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0488 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 05-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCHSMC, LUCKNOW [THROUGH VIRTUAL HEARING] BEFORE SHRI. T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO. 495/LKW/2019 ASSESSMENT YEAR: 2015 - 16 MAHAVIR ENTERPRISES 106/6, OPPOSITE MISSION HOSPITAL CIVIL LINES, BAREILLY V. ITO WARD 1(3) BAREILLY TAN/PAN: AAUFM2138B (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SANDEEP KUMAR, C.A. RESPONDENT BY: SHRI AJAY KUMAR, D.R. DATE OF HEARING: 07 0 7 202 1 DATE OF PRONOUNCEMENT: 14 0 7 202 1 O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A), BAREILLY, DATED 11.6.2019. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. BECAUSE THE LEARNED FIRST APPELLATE AUTHORITY OUGHT NOT TO HAVE CONFIRMED ADDITION OF RS.7,00,000/- MADE BY THE LEARNED ASSESSING OFFICER TO THE TOTAL INCOME (LOSS) RETURNED BY THE ASSESSEE. 2. BECAUSE THE LEARNED FIRST APPELLATE AUTHORITY ERRED IN CONFIRMING ADDITION OF RS.7,00,000/- ON ACCOUNT OF SALVAGE VALUE OF STOCK LOST BY FIRE ON THE BASIS OF SURVEY REPORT OF THE INSURANCE COMPANY DISREGARDING THE FACT THAT THE ASSESSEE HAD ALREADY CONTESTED THE FINDINGS OF THE INSURANCE COMPANY AS BEING MADE WITHOUT ANY BASIS. 3. BECAUSE THE LEARNED FIRST APPELLATE AUTHORITY FAILED TO APPRECIATE THAT THE SALVAGE VALUE OF RS.7,00,000/- PAGE 2 OF 5 DETERMINED BY THE INSURANCE COMPANY WAS ERRONEOUS SINCE NO AMOUNT WAS ACTUALLY RECOVERED AGAINST THE SALVAGED STOCK 4. BECAUSE THE LEARNED FIRST APPELLATE AUTHORITY FAILED TO APPRECIATE THAT THE SURVEY REPORT OF THE INSURANCE COMPANY CANNOT BE THE BASIS OF DETERMINING THE REALIZABLE VALUE OF STOCK. 5. BECAUSE THE LEARNED FIRST APPELLATE AUTHORITY OUGHT TO HAVE DIRECTED THE LEARNED ASSESSING OFFICER TO CONSIDER RETURNED LOSS (WHICH IS ALSO LOSS AS PER P&L ALE) OF RS.15,80,656/- FOR DETERMINING THE ASSESSED LOSS INSTEAD OF LOSS RS.8,96,282/- AS HAS BEEN DONE BY THE LEARNED ASSESSING OFFICER IN THE ASSESSMENT ORDER. 6. BECAUSE THE ORDER APPEALED AGAINST IS CONTRARY TO THE FACTS, LAW AND PRINCIPLES OF NATURAL JUSTICE. 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS A FIRE IN THE BUSINESS PREMISES OF THE ASSESSEE, DUE TO WHICH STOCK OF THE ASSESSEE WAS DAMAGED AND THE INSURANCE COMPANY PAID COMPENSATION TO THE ASSESSEE ON THE BASIS OF THE REPORT OF THE SURVEYOR WHO WAS APPOINTED BY THE ASSESSEE COMPANY TO DETERMINE THE LOSS. IT WAS SUBMITTED THAT THE INSURANCE SURVEYOR WORKED OUT THE TOTAL VALUE OF THE AFFECTED STOCK AT RS.56,80,294/- AND AFTER CONSIDERING THE SALVAGE VALUE OF THE AFFECTED STOCK TO THE EXTENT OF RS.7 LAKHS, HE DETERMINED THE NET VALUE OF DAMAGED STOCK AT RS.49,80,294/- AND AFTER REDUCING THE AMOUNT OF COMPENSATION FOR UNDER INSURANCE, ETC., THE INSURANCE COMPANY PAID THE COMPENSATION TO THE ASSESSEE TO THE TUNE OF RS.29,34,986/-. IT WAS SUBMITTED THAT THE ASSESSEE BOOKED WHOLE OF THE LOSS OF RS.56,80,294/- AS AFFECTED VALUE OF STOCK AND PASSED THE ENTRY IN THE TRADING ACCOUNT AND CREDIT THE TRADING ACCOUNT WITH RS.56,80,294/- AND DEBITED THE AMOUNT OF RS.16,80,294/-, IN THE PROFIT AND LOSS ACCOUNT, AS THE ASSESSEE PAGE 3 OF 5 WAS INSURED ONLY FOR RS.40 LAKHS AND AGAINST THE POLICY OF RS.40 LAKHS, THE ASSESSEE WAS PAID ONLY RS.29,34,986/- ON ACCOUNT OF LOSS OF STOCK. IT WAS SUBMITTED THAT THE AUTHORITIES BELOW HAD ADDED BACK THE AMOUNT OF RS.7 LAKHS TO THE TOTAL INCOME OF THE ASSESSEE BEING THE SALVAGE VALUE OF AFFECTED GOODS WHICH IS NOT CORRECT, AS THE ASSESSEE HAD NOT EARNED OR SOLD ANYTHING OUT OF SALVAGE STOCK, WHICH WAS DETERMINED BY THE SURVEYOR OF THE INSURANCE COMPANY ONLY TO DETERMINE THE NET LIABILITY OF THE INSURANCE COMPANY. IT WAS SUBMITTED THAT EVEN IF THE AMOUNT OF RS.7 LAKHS IS TREATED AS PART OF COMPENSATION BEING SALVAGE VALUE OF AFFECTED GOODS, THE VALUE OF TOTAL COMPENSATION INCLUDING SALVAGE VALUE COMES OUT TO BE RS.36,34,987/-, WHEREAS THE ASSESSEE HAD SUFFERED A LOSS OF RS.56,80,294/-. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, IT WAS SUBMITTED THAT THE ADDITION SUSTAINED BY THE LD. CIT(A) IS NOT JUSTIFIED. 4. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE SALVAGE VALUE OF STOCK AFFECTED BY FIRE WAS WORKED OUT AT RS.7 LAKHS WHICH WAS DETERMINED BY THE TECHNICAL PERSON APPOINTED BY THE INSURANCE COMPANY AND THEREFORE, IT CANNOT BE SAID THAT THE SALVAGE VALUE OF THE AFFECTED STOCK DID NOT HAVE ANY MARKET VALUE, AND AUTHORITIES BELOW HAVE RIGHTLY MADE THE ADDITION. 5. I HAVE HEARD THE RIVAL PARTIES AND HAVE GONE THROUGH THE MATERIAL PLACED ON RECORD. I FIND THAT AS PER THE REPORT OF THE SURVEYOR, THE TOTAL LOSS SUFFERED BY THE ASSESSEE WORKED OUT AT RS.56,80,294/- WHICH IS APPARENT FROM THE COPY OF SURVEY REPORT PLACED AT PAGE 8 OF THE PAPER BOOK. AFTER REDUCING THE SALVAGE VALUE OF RS.7 LAKHS, THE LOSS OF STOCK WORKED OUT TO BE AT RS.49,80,294/-. OUT OF THAT, THE SURVEYOR AGAIN REDUCED 10% ON PAGE 4 OF 5 ACCOUNT OF OBSOLETE/DEAD STOCK AND WORKED OUT THE LOSS OF STOCK AT RS.44,82,264/-. THE ABOVE WORKING BY THE INSURANCE SURVEYOR WAS TO WORK OUT THE COMPENSATION TO BE PAID BY THE INSURANCE COMPANY TO THE ASSESSEE. EVEN AFTER ARRIVING AT THE FIGURE OF LOSS OF STOCK, THE INSURANCE SURVEYOR AGAIN APPLIED THE UNDER INSURANCE CLAUSES AND WORKED OUT NET LOSS PAYABLE BY THE INSURANCE COMPANY AT RS.29,34,986/-. EVEN IF THE SALVAGE VALUE OF RS.7 LAKHS IS ADDED BACK TO THE COMPENSATION RECEIVED BY THE ASSESSEE, THE TOTAL OF COMPENSATION BECOMES RS.36,34,986/- WHEREAS THE STOCK OF THE ASSESSEE WAS AFFECTED TO THE EXTENT OF RS.56,80,294/- AND WHICH AMOUNT WAS CREDITED TO THE TRADING ACCOUNT OF THE ASSESSEE PLACED IN THE PAPER BOOK PAGE 13. BY CREDITING THIS AMOUNT TO THE TRADING ACCOUNT, THE ASSESSEE HAS TREATED SUCH VALUE OF STOCK AS EQUIVALENT TO SALES THE PROFIT/LOSS OF WHICH IS ALREADY REFLECTED IN THE TRADING ACCOUNT. AGAINST THIS CREDIT, THE ASSESSEE DEBITED ONLY RS.16,80,294/- TO THE PROFIT AND LOSS ACCOUNT WHICH MEANS THAT ON A NET BASIS, THE ASSESSEE CREDITED RS.40 LAKHS IN THE TRADING AND PROFIT AND LOSS ACCOUNT . I FURTHER FIND THAT THE ASSESSEE SUFFERED LOSS OF RS.49,80,294/- AFTER REDUCING THE SALVAGE VALUE OF RS.7 LAKHS AGAINST WHICH IT RECEIVED ONLY RS.29,34,986/- ON ACCOUNT OF LOSS OF STOCK AND THEREFORE, THE ACTION OF THE AUTHORITIES BELOW IN ADDING BACK RS.7 LAKHS TO THE INCOME OF THE ASSESSEE IS NOT JUSTIFIED AND THEREFORE, THE GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/07/2021. SD/ - [T.S. KAPOOR] ACCOUNTANT MEMBER DATED:14/07/2021 JJ: PAGE 5 OF 5 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSISTANT REGISTRAR