ORDER
George George K., Vice President.– These appeals filed by the assessee are directed against two orders of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi both dated 15.01.2026 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2015-16.
ITA No.1374/CHNY/2026
2. Brief facts of the case are as follows: The assessee is a company engaged in manufacturing men’s garments. For the assessment year 2015-16 filed its return of income on 30.09.2015 declaring total income as ‘nil’. The case was selected for scrutiny under CASS and the assessment was completed u/s.143(3) of the Act on 30.06.2017 accepting the returned income. Subsequently, it has been noticed that the assessee company has received a sum of Rs.14,05,456/- on 28.11.2014 from Royal Sundaram Alliance Insurance Company Ltd., on account of full and final settlement of Fire Insurance claim. On verification of the P&L account for the year ended 31.03.2015, the assessee company had debited the sum of Rs.13,72,954/- towards loss due to fire damage to stocks and interiors in its commercial set up at Velachery, Chennai. A notice u/s.148 of the Act was issued on 20.08.2019 for the reason that the assessee company did not offer the said compensation received for tax thereby leaving the income chargeable to tax to escape assessment. The assessee company did not comply to the notices issued and hence, the AO passed order u/s.147 r.w.s.144 r.w.s.144B of the Act by making addition of Rs.14,05,456/- towards the amount received from insurance company u/s.45(1A) of the Act.
3. Aggrieved by the order of the AO, assessee filed appeal before the First Appellate Authority (FAA), who sustained the addition by treating it as taxable u/s.28 of the Act
4. Aggrieved by the order of the FAA, the assessee is in appeal before the Tribunal. The assessee has raised various grounds with regard to legal issues and on merits. The grounds raised by the assessee read as under:-
“1. The impugned order passed u/s.147 r.w.s. 144 and 144B, as confirmed by the Ld. CIT(A), is contrary to law and vitiated by serious legal infirmities and liable to be quashed in limine.
2. The Ld. CIT(A) has grossly erred in law in failing to adjudicate the specific ground that the reassessment is void ab initio for non-issuance of mandatory notice u/s. 143(2), thereby rendering the entire reassessment proceedings unsustainable.
3. The Ld. CIT(A) erred in upholding the assumption of jurisdiction u/s.
147 on an issue which was already part of the books of account and Profit & Loss Account examined during the original assessment u/s. 143(3), amounting to a clear and impermissible change of opinion.
4. The Ld. CIT(A) failed to adjudicate the legal contention that the notice u/s. 148 was issued beyond the permissible period as contemplated under the first proviso to S. 147 and is therefore barred by limitation.
5. Having accepted that the original scrutiny did not specifically pertain to the issue raised in reassessment, the Ld. CIT(A) nevertheless erred in treating the same as escaped income, overlooking that the material was already on record and reopening in such circumstances amounts to nothing but a review of the concluded assessment.
6. The Ld. CIT(A) failed to consider that the notice u/s. 148 is invalid for want of proper sanction u/s. 151 from the competent authority, rendering the very assumption of jurisdiction void.
7. The Ld. CIT(A) gravely erred in sustaining the addition of the insurance claim receipt as income despite the fact that the corresponding loss had already been debited in the books of accounts (as the value of loss was more than the receipt of insurance claim received) and the net effect stood reflected in the computation, resulting in manifest and impermissible double taxation.
8. The addition is wholly arbitrary and unsustainable as no material whatsoever has been brought on record to disprove the explanation of the appellant or to establish that the compensation received was not duly accounted for and offered to tax.
9. The Ld. CIT(A) erred in law and on facts in failing to grant set off of eligible brought forward business losses against the assessed income, in clear disregard of the statutory mandate.
10. The Ld. CIT(A) committed a fundamental error in upholding invocation of section 45(1A) in respect of insurance compensation relating to stock-in-trade and business assets, which cannot in law be brought to tax under the head “Capital Gains”.
For the above reasons and such other grounds that may be adduced at the time of hearing, the appellant prays that the order passed by the Assessment Unit be cancelled and render justice,”
5. We shall first adjudicate the issue on merits. The Ld. AR submitted that the assessee had suffered a fire loss aggregating to Rs.27,76,609/- during the relevant previous year. Against the said loss, insurance compensation of Rs.14,05,456/- was received from the insurance company. The assessee had adjusted the insurance compensation against the actual loss suffered and debited only the net loss of Rs.13,72,954 to the Profit & Loss Account. Therefore, the insurance receipt had already been duly accounted for and no excess deduction had been claimed by the assessee. The Ld. AR contended that the AO erred in separately adding the insurance compensation of Rs.14,05,456, resulting in taxation of the same amount twice. It was submitted that the Department had never disputed the occurrence of the fire accident, the quantum of loss suffered, the insurance settlement received, or the accounting treatment adopted by the assessee. By taxing the insurance compensation independently while ignoring the corresponding loss, the AO had distorted the true computation of business income. Without prejudice, the Ld. AR further submitted that the AO had invoked section 45(1A) of the Act for making the addition, whereas the FAA sustained the addition by treating the receipt as taxable u/s.28 of the Act. The Ld.AR submitted that the FAA had sustained the addition on an altogether different basis from that adopted by the AO. The validity of the addition must be examined on the basis of the reasons and provisions invoked by the AO and not on a new case made out at the appellate stage. Accordingly, the addition sustained by the FAA was liable to be deleted.
6. The Ld.DR supported the order of the AO and the FAA.
7. We have heard the rival submissions and perused the material available on record. It is an undisputed fact that the assessee suffered a fire loss of Rs.27,76,609/- during the relevant previous year and received insurance compensation of Rs.14,05,456/- against such loss. The records further reveal that the assessee adjusted the insurance compensation against the actual loss suffered and debited only the net loss of Rs.13,72,954/- to the Profit & Loss Account. Neither the AO nor the FAA has disputed the occurrence of the fire accident, the quantum of loss suffered for the stock, the insurance settlement received, or the accounting treatment adopted by the assessee. Once the insurance compensation has already been adjusted against the loss suffered, a separate addition of the compensation amount would result in taxing the same receipt twice while ignoring the corresponding loss. Such an approach is contrary to the settled principles governing computation of business income.
8. We also find merit in the contention of the assessee that while the Assessing Officer sought to tax the receipt by invoking section 45(1A) of the Act, the FAA sustained the addition by treating it as taxable u/s.28 of the Act. We find that loss is on account of damages to the stock and interiors in assessee’s commercial premises. It is not a compensation that is received for loss of asset to bring it to tax u/s.45(1A) of the Act. When the assessee debited in the net loss after receipt of the compensation amount in its P&L account adding the fire compensation received of Rs.14,05,456/- as business income u/s.28 of the Act is not warranted. Therefore, the appellate authority cannot sustain an addition on a completely different basis without properly addressing the foundation on which the assessment was made. Considering the facts and circumstances of the case, we hold that the addition of Rs.14,05,456 made on account of insurance compensation is unsustainable. Accordingly, the addition is directed to be deleted and the ground Nos.7 to 10 raised by the assessee are allowed.
9. Since, we have decided the issue on merits in favour of assessee, the legal grounds raised by the assessee are not adjudicated and are left open.
ITA No.1375/CHNY/2026
10. The assessee has filed this appeal against the appellate order confirming the penalty levied by the AO u/s.271(1)(c) of the Act. Since, we have already allowed the quantum appeal by deleting the addition made by the AO in ITA No.1375/CHNY/2026, the very foundation for the levy of penalty ceases to exist. Accordingly, the penalty levied by the AO and sustained by the FAA is directed to be deleted. It is ordered accordingly.
11. In the result, the appeals filed by the assessee in ITA No.1374/CHNY/2026 is partly-allowed and ITA No.1375/CHNY/2026 is allowed.
