M/S. MULTI METAL PRIVATE LTD.,KOTA vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, KOTA

per the process of buying energy from open access the intended buyer

and seller shall have to go through an entity who has been admitted by

the Power Exchange as a registered member. The assessee was a

registered "Grid Connect Client" of Indian Energy Exchange" and its

transaction were executed on exchange through exchange registered

member M/s Parshavath Power Projects P Ltd. The power will flow through

the existing STU/CTU network depending on the location of the entity's

injection / drawl point. In the case of assessee, the existing STU as "Jaipur

Vidyut Vitran Nigam Limited". The assessee used to inform its daily

requirement for a day in advance to M/s Parshavath Power Projects P Ltd.

who in turn was buying energy from IEX on assessee's behalf for the next

day’s requirement. The assessee has been paying advance money for the

ITA Nos. 1024 to 1026, 1100 to 1104 & 1230/JP/2018 & 163 CO 38 & 39/JP/2018 Multimetals Ltd, Vs DCIT

electricity purchased for the next date, therefore, the purchases were

made on estimated requirement while actual consumption was not always

same and consequently some units remained underutilized. As the seller

was injecting all sold energy on the grid point of JVVNL, therefore, the

charges for underutilized energy was to be refunded by the JVVNL. It was

also responsibility of the exchange registered member M/s Parshavath

Power Projects P Ltd. to arrange the refund of underutilized energy but

despite the best efforts of the assessee it could not get the refund of

excess charges in respect of underutilized energy. The assessee has made

all possible efforts and prolonged follow up with JVVNL but could not

succeed in getting the refund of the amount and finally the said amount

was written off during the year under consideration. The ld AR has further

submitted that the expenditure was incurred for the purpose of business is

not in dispute but the Assessing Officer has disallowed only on the ground

that it was incurred for the earlier years and not for the year under

consideration. In support of his contention, he has relied upon the decision

of Kolkata Benches of the Tribunal dated 26/4/2018 in the case of

Kesoram Industries Limited Vs Addl.CIT 2018 (5) TMI 420 –ITAT, Kolkata.

material on record. There is no dispute that the assessee has made

payments for purchase of electricity from open access through IEX. The

ITA Nos. 1024 to 1026, 1100 to 1104 & 1230/JP/2018 & 164 CO 38 & 39/JP/2018 Multimetals Ltd, Vs DCIT

details of payment made by the assessee for purchase of electricity and

actual consumption of the electricity during the F.Y. 2011-12and 2012-13

are as under:

Financial Year Payment made Transferred in Balance due for IEX Trading Electrical Expenses 2011 - 12 1,56,53,576/- 1,30,47,104/- 26,06,472/- 2012-13 1,74,18,236/- 1,35,05,889/- 39,12,347/- Total 3,30,71,812/- 2,65,52,993/- 65,18,819/- Thus, it is clear that the payment made by the assessee for the A.Y. 2011-

12 and 2012-13 is not in dispute that a total amount of Rs. 3,30,71,812/-

was made against which the assessee has consumed the electricity of Rs.

2,65,52,993/- and the actual consumption in amounts were claimed in the

P&L account for the A.Y. 2012-13 and 2013-14 respectively. There is under

utilization of the electricity by the assessee for these two years to the

extent of total amount of Rs. 65,18,819/-. The assessee was under the

believe that the payment towards the underutilized energy will be

refunded but finally it was learnt by the assessee that the said amount

would not be refunded to the assessee. Therefore, the assessee has finally

written off the said amount during the year under consideration. We note

that the payment made by the assessee for purchase of electricity from

open access is otherwise an allowable expenditure being laid out for the

purpose of business of the assessee. The only dispute is whether the

excess payment made by the assessee over and above the consumption of

ITA Nos. 1024 to 1026, 1100 to 1104 & 1230/JP/2018 & 165 CO 38 & 39/JP/2018 Multimetals Ltd, Vs DCIT

electricity can be allowed for the year under consideration as written off

amount. Once the said expenditure is an allowable claim for the respective

years during which the payment was made for purchase of electricity then

there is no bar for allowing the said excess amount paid by the assessee

which could not be recovered due to the complications involved in the

process of purchase of energy from open source and transmission of the

same through various intermediaries and written off. Even otherwise the

claim of the assessee is revenue neutral as the assessee has also paid

maximum marginal rate of tax for the assessment year 2012-13 and 2013-

14 during which the payment was made. Once the expenditure is

otherwise an allowable business expenditure then the non-recoverable

amount was finally written off by the assessee is allowable as business loss

incurred during the course of business of the assessee. The electricity is an

essential requirement of the assessee for carrying out the manufacturing

activity and therefore, the expenditure incurred for purchase of electricity

cannot be disallowed merely on technical grounds. The ld. CIT(A) has

decided this issue in para 3.3 as under:

"3.3 I have considered the rival submission and material placed on record. It is seen that in the written off of Non recoverable IEX expenses is actually the advance payment made to JVVL in previous years for purchases of electricity from open access. There is no dispute that the payments were made in relation to business expenditure and the genuineness of the payment is also not in doubt. There is also no doubt that the written off amount was not recoverable to the appellant company. Since the advance

ITA Nos. 1024 to 1026, 1100 to 1104 & 1230/JP/2018 & 166 CO 38 & 39/JP/2018 Multimetals Ltd, Vs DCIT

payment it not constitute any expenses at the time of its payment and the same constitute and charged to expenses as and when the service or goods against such payment is received and the same is also charged to expenses in the year in which such service or goods is received. Therefore the written off of such advance in case of non-recovery or non-adjustment in subsequent year cannot be linked from the year in which the payment of the same was made. The written off of such advances cannot be treated as pertaining to previous years merely on the ground that the payment of the same was made in previous years and the same is not pertaining for the year under consideration. In the case of the applicant the advance payment was to be recovered back from JVVNL which could not be received, therefore the same written off during the year. No person can expect that the advance given to someone will not recovered and for recovery of the same some efforts are to be made, therefore generally the advance/debts cannot be written off in the same year. The same are written off in the year when the applicant after all its efforts feels that the same cannot be recovered. Therefore it is not justify to hold that since the advances were given in previous years, therefore the same pertain to earlier year and company would have claimed it in relevant assessment year more so when in the relevant assessment year the applicant company was expecting the recovery or such advance. Further in the case of written off of debts/business advance the written off the same in books of accounts is sufficient and the same is treated as loss for the applicant company in the year in which the same is written off. In view of above the addition of Rs. 65,18,820/- made is hereby deleted. Therefore the ground No. 2 of appeal is allowed."

The Kolkata Benches of the Tribunal in the case of Kesoram Industries Ltd.

Vs. Addl.CIT (supra) while considering the issue of non-recoverable

advance written off as held in paras 13 to 15 as under:

“13. Now we take up revenue's appeal in ITA 1722/Kol/2012 preferred by the revenue. Ground No. 1 is against the action of the Ld. CIT(A) in deleting the disallowance of Rs. 1,65,748/- made on account of advances written off. Briefly stated the facts of the case are that the assessee company had written off certain debit balances from its balance sheet aggregating to

ITA Nos. 1024 to 1026, 1100 to 1104 & 1230/JP/2018 & 167 CO 38 & 39/JP/2018 Multimetals Ltd, Vs DCIT

Rs. 1,65,748/- and debited it to its profit and loss account being no longer recoverable. The advances written off comprised of the unadjusted balances of supplies of raw materials and stores which had remained outstanding over a long period of time which were raw materials/items of stores and the amount due from excise authorities and according to the assessee, which was also no longer recoverable to it. Before the A.O. the break-up of advances written off as aforesaid was furnished. The A.O. observed that the amounts in question were not receivable as trading debts but were outstanding advances and deposits therefore, the claim of the assessee was untenable and these sums did not satisfy the conditions prescribed in section 36(2) read with section 36(l)(vii) of the Act. On appeal, the Ld. CIT(A)-VI, Kolkata following the order of his predecessor for A.Y. 2006-07, deleted the disallowance made by the A.O. Aggrieved the Revenue is before us. 14. We have heard both the parties and perused the records. We note that the issue under dispute is squarely covered by the decision of this Tribunal in assessee's own case in ITA No. 931/Kol/2012 dated 29.02.2016 for A.Y. 2005-06 wherein on identical facts and circumstances held as under:

"8.3 We have heard the rival submissions and perused the materials available on record. We find from the facts of the case that the deposits and advances were given in the ordinary course of business and were lying in the books of the assessee company for quite a long time. The some were considered irrecoverable by the assessee and had written off the same in Asst Year 2005-06 and hence the same is to be considered as a trading loss u/s 28 of the Act. We hold that the Learned CITA) had rightly deleted the addition made in this regard. Accordingly, the ground no. 1 raised by the revenue is dismissed.

ITA Nos. 1024 to 1026, 1100 to 1104 & 1230/JP/2018 & 168 CO 38 & 39/JP/2018 Multimetals Ltd, Vs DCIT

find no infirmity in the impugned order of Ld. CIT(A), in this regard. Accordingly Ground No.1 raised by the Revenue is dismissed.”

Accordingly, in view of the facts and circumstances of the case, we do not

find any reason to interfere with the order of the ld. CIT(A) in allowing the

claim of the assessee. Hence, this ground of the revenue’s appeal is

dismissed.

the Assessing Officer on account of depreciation on guest house which

was deleted by the ld. CIT(A). This issue is common to the issue raised by

the revenue for the A.Y. 2013-14 and 2015-16. We have considered the

decided this issue in favour of the assessee and against the revenue in the

A.Y. 2013-14 and 2015-16. Accordingly this ground of revenue’s appeal

stands disposed off in favour of the assessee and against the revenue.

depreciation on UPS. This issue is common to the issue raised by the

revenue for the A.Y. 2013-14 and 2015-16. We have considered the

decided this issue in favour of the assessee and against the revenue in the

A.Y. 2013-14 and 2015-16. Accordingly this ground of revenue’s appeal

stands disposed off in favour of the assessee and against the revenue.

ITA Nos. 1024 to 1026, 1100 to 1104 & 1230/JP/2018 & 169 CO 38 & 39/JP/2018 Multimetals Ltd, Vs DCIT

of foreign travel expenses. This issue is common to the issue raised by the

revenue for the A.Y. 2013-14 and 2015-16. We have considered the

decided this issue in favour of the assessee and against the revenue in the

A.Y. 2013-14 and 2015-16. Accordingly this ground of revenue’s appeal

stands disposed off in favour of the assessee and against the revenue.

professional service charges. This issue is common to the issue raised by

the revenue for the A.Y. 2013-14 and 2015-16. We have considered the

decided this issue in favour of the assessee and against the revenue in the

A.Y. 2013-14 and 2015-16. Accordingly this ground of revenue’s appeal

stands disposed off in favour of the assessee and against the revenue.

period expenses. This issue is common to the issue raised by the revenue

for the 2015-16. We have considered the decided this issue in favour of

the assessee and against the revenue in the A.Y. 2015-16. Accordingly this

ground of revenue’s appeal stands disposed off in favour of the assessee

and against the revenue.

telephone and mobile phone charges.

ITA Nos. 1024 to 1026, 1100 to 1104 & 1230/JP/2018 & 170 CO 38 & 39/JP/2018 Multimetals Ltd, Vs DCIT

order, however, in computation of income, the Assessing Officer has made

the disallowance of Rs. 1,64,836/- on account of telephone and mobile

charges. On appeal, the ld. CIT(A) has deleted the said disallowance by

holding that it is not justified.

and considered the relevant material on record. It appears that the

Assessing Officer has made partial disallowance of telephone and mobile

expenditure on the ground of personal use. However, the assessee being a

public limited company, the expenditure cannot be held as personal in

nature. The ld. CIT(A) has considered this issue in para 9.3 as under:

"9.3 I have considered the rival submission and material placed on record. It is seen that there is no discussion/finding in the assessment order regarding the addition so made. In view of any finding in the assessment order regarding addition so made the impugned addition is not justifiable. Therefore the addition of Rs. 1,64,836/- is deleted. Therefore the ground No. 8 and 9 of appeal is allowed."

Even otherwise in case of a company if any employee is enjoying the

facility of telephone of the company, the same would be treated as

perquisite which is subject to fringe benefit tax. Therefore, no disallowance

can be made on account of personal element of expenditure. Hence, we

do not find any error or illegality in the order of the ld. CIT(A) qua this

issue.

ITA Nos. 1024 to 1026, 1100 to 1104 & 1230/JP/2018 & 171 CO 38 & 39/JP/2018 Multimetals Ltd, Vs DCIT

Sd/- Sd/- ¼foØe flag ;kno½ ¼fot; iky jko½ (VIKRAM SINGH YADAV) (VIJAY PAL RAO) ys[kk lnL;@ ys[kk lnL;@Accountant Member ys[kk lnL;@ ys[kk lnL;@ U;kf;d lnL;@ U;kf;d lnL;@ U;kf;d lnL;@Judicial Member U;kf;d lnL;@ Tk;iqj@Jaipur fnukad@Dated:- 29th January, 2019. *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- M/s Multimetals Limited, Kota. 1. izR;FkhZ@ The Respondent- The D.C.I.T., Central Circle, Kota. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA Nos. 1024 to 1026, 1100 to 1004 & 6. 1230/JP/2018 & CO 38 & 39/JP/2018) vkns'kkuqlkj@ By order,

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