ASHOK LEYLAND LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The question referred is, " As to whether the Tribunal was right in law in holding that there is no justification to interfere with the order of the C.I.T. ?" The assessment year is 1986-87.

(2.) The assessee company is engaged in the manufacture of trucks. For the assessment year 1986-87 it filed a revised return admitting a loss of Rs. 3,03,19,667/-. The assessing officer framed the assessment determining the business loss at Rs.86,86,547/-. The Commissioner of Income-tax while going through the assessment record found that a sum of Rs. 4.87 crores received by the assessee from the insurance company had been allowed by the Income-tax Officer without proper scrutiny and verification, as a capital receipt not subject to tax even though that sum had been accounted for by the assessee in its Profit & Loss Account as an item of revenue. The Commissioner, therefore, initiated action under Section 263 of the Income-tax Act.

(3.) The assessee in its reply submitted to the Commissioner stated that there was a severe cyclone in Madras on 11th and 12th of November1984 and that as a consequence the assessee's factory was totally inundated, the building, stocks and machinery suffered damage. The assessee claimed compensation from its insurer. The compensation it received in respect of the stock, work in progress and repairs to machinery were treated by the assessee as revenue receipts in its Profit and Loss Account and as also for the purpose of income tax. However, the sum received by it for the damage caused to the machinery, which continued to be used even after the damage suffered, was though treated as income in the Profit & Loss account and also used for the purpose of distributing dividend, was however, not treated as an item of revenue for the purpose of income tax as in the view of the assessee that receipt was in the capital field. It was also the case of the assessee that it had treated that sum as falling within the capital field by relying upon the opinion furnished to it by a firm of chartered accountants.