By TIOL News Service

MUMBAI, DEC 01, 2015: THE issue is - Whether the difference between the sum claimed for repairs due to fire from the insurance company and the sum actually granted is allowable under Ss 31 or 32. YES is the answer.

Facts of the case

A) The assessee's chemical plant at Pithampur caught fire during the subject A.Y. Accordingly, the assessee debited an amount of Rs.21.68 lacs in its P&L A/c as loss due to fire. This was the difference between the amount claimed for repairs due to fire from the Insurance company and the amount that was granted. The AO however disallowed the loss claimed to the extent of Rs.10.82 lacs being attributable to fixed assets.

On appeal, the CIT(A) did not disturb the finding of the AO. On further appeal, the Tribunal accepted the assessee's contention that the amount returned as loss was revenue in nature as the amount claimed and not granted by the Insurance Company was expenditure for repair of factory Building and Plant & Machinery.

B) The assessee during the subject A.Y had debited an amount of Rs.14.25 lacs in the profit and loss account as devaluation of closing stock. This resulted in the closing stock being devalued from Rs.14.26 lacs to Rs.1. The AO did not accept the devaluation of the closing stock, holding that the same was contrary to Section 145A. On appeal, the CIT(A) did not disturb the findings of the AO on the ground that the details of subsequent sale of the stock were not furnished. On further appeal, the Tribunal held that on the basis of the record available that packing material which had been devalued had batch Nos. price etc., already printed thereon and these were not used and could not be used now due to lapse of time, thus making it of no value.

Having heard the parties, the High Court held that,

Loss by fire

++ this court is informed at the Bar that consequent to the impugned order of the Tribunal, the AO has now passed an order allowing the assessee's claim for revenue expenditure of Rs.10.82 lacs as being spent for repairs. The view taken by the Tribunal in principle that the amounts spent on repairs has to be allowed u/s 31 and 32 cannot be faulted;

Devaluation of closing stock

++ it is found that the entire exercise of devaluation of stocks is essentially a question of fact and before us the same is not urged as being perverse. The Revenue is contending that it is contrary to Section 145A, nowever nothing is shown to us in support of its contentions. Devaluation of stock due to obsolescence is a feature not unknown to business. In the above circumstances in the present facts the findings of the Tribunal that the stock of packing materials had become obsolete warranting a reduction in its value is a finding of fact not shown to be perverse. Accordingly, this question does not raise a substantial question of law.

(See 2015-TIOL-2692-HC-MUM-IT)