Treatment of Insurance Claim

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rohini rao (Querist)
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27 April 2009 We started a New Company in India. We Import Dairy Machinery From Japan. We Capitalize the Machinery in Plant & Machinery, But during the Transit Some portion of MAchinery got Damaged, We Filled Claimed from the INsurance Co.in the Mean Time We Capitalized all the Amount of Machinery. After a long period of time & we received Claim of Rs 32 Lacs from Insurance Co.Now where the Amount is to be adjusted, if we not Want to Settle the AMount in Plant then where is to adjust ?

CA Tilak Raj Sharma

CA Tilak Raj Sharma (Expert)
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27 April 2009 In your case section 45(1A) is not applicable. The receipt is a capital receipt. It will not be taxable in your hand. Just credit the amount received into Machinery Account.

Manmohan ACA, CS

Manmohan ACA, CS (Expert)
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27 April 2009 I agree with Mr. Tilak that Sec. 45(1A) shall not be applicable as there is no transfer of capital asset(only compensation is received )
Such Compensation received for damage of machinery shall be treated u/s 41(1) to the extent expenditure incurred on repair and renovation of damaged machinery and such repair and renovation expenditure shall be allowed u/s 31. However, compensation in excess of repair & renovation expenditure shall be treated as capital receipt and shall not be liable to tax. [CIT vs Sirpur Paper Mills Ltd. 112 ITR 776 (SC)]

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