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

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ITA 1103/JPR/2018Status: DisposedITAT Jaipur29 January 2019AY 2013-14171 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal noted that for assessment years where the assessment was not pending on the date of search, the addition under Section 153A requires incriminating material. The Tribunal also considered the assessee's plea regarding the denial of cross-examination. The decision on the merits of the additions varied based on the evidence presented.

What were the facts?

The assessee, M/s Multimetals Limited, was subjected to a search and seizure action. The Assessing Officer made additions under Section 68 on account of unsecured loans and special deposits, treating them as accommodation entries. The assessee contended that no incriminating material was found during the search and that they were denied the opportunity to cross-examine the alleged entry providers.

What were the issues?

Whether additions under Section 153A are valid without incriminating material found during search, and whether the denial of cross-examination violates principles of natural justice.

Which sections of the Income-tax Act were involved?

Section 68,Section 153A,Section 132

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Cases cited in this judgment(24)Show list

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Income Tax Appellate Tribunal, JAIPUR BENCHES “A”, JAIPUR

Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 1024/JP/2018

For Appellant: Shri Vijay Goyal (CA) &, Shri Gulshan Agarwal (CA) jktLo dh vksj ls@
Hearing: 17/01/2019Pronounced: 29/01/2019

Heard together (11 matters)

ITA No. 1024/JP/2018
ITA No. 1100/JP/2018
ITA No. 1101/JP/2018
C.O. No. 38/JP/2018
ITA No. 1102/JP/2018
C.O. No. 39/JP/2018
ITA No. 1025/JP/2018
ITA No. 1103/JP/2018
ITA No. 1026/JP/2018
ITA No. 1104/JP/2018
ITA No. 1230/JP/2018

Read from the judgment's own cause title. This page is filed under one of them.

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 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.

81.

We have considered the rival submissions as well as relevant material on record. There is no dispute that the assessee has made payments for purchase of electricity from open access through IEX. The 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:

1.

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 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 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 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 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.

15.

The facts in the year under dispute are analogous to that in the earlier years and since no change in a .v or facts could be pointed out by the revenue so respectfully following the order of the Tribunal (supra), we

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.

82.

Ground No. 2 of the appeal is regarding the disallowance made by 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.

83.

Ground No. 3 of the appeal is regarding the disallowance of higher 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.

84.

Ground No. 4 of the appeal is regarding the disallowance on account 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.

85.

Ground No. 05 of the appeal is regarding disallowance on account of 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.

86.

Ground No. 6 of the appeal is regarding the disallowance of prior 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.

87.

Ground No. 7 of the appeal is regarding the disallowance of telephone and mobile phone charges.

88.

The Assessing Officer has not discussed this issue in the assessment 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.

89.

We have heard the ld. CIT-DR as well as the ld AR of the assessee 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.

90.

In the result all the appeals of the assessee are partly allowed, cross objections of the assessee are allowed and all the appeal of the revenue are dismissed. Order pronounced in the open court on 29th January, 2019.

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,

सहायक पंजीकार@Aेेज. त्महपेजतंत

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