NARESH VASWANI ,JAIPUR vs. INCOME TAX OFFICER, WARD- 2(2), JAIPUR

IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, “SMC” BENCH, JAIPUR BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI T. R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No.300/JPR/2026 (Assessment Year: 2014-15)

Naresh Vaswani Vs. ITO 519, Gali No.6, Raja Ward 2(2) Park, Jaipur Jaipur �थायीलेखासं./जीआइआरसं./PAN/GIR No: ADPPV 7774 E Appellant .. Respondent Assessee by : Sh. Tanuj Agarwal, Adv. (thru V.C.) Departmentby : Sh. Abhimanyu Singh Yadav, Addl. CIT Date of Hearing 28.07.2026 Date of Pronouncement 27.10.2026 O R D E R Per Annapurna Gupta, AM:- The present appeal has been filed by the assessee against the order passed by the Office of the Commissioner of Income Tax, Appeal CIT(A), Jaipur 04 (hereinafter referred to as “Ld. CIT(A)”), dated

P a g e | 2 ITA No.300/JPR/2026 Naresh Vaswani 27.11.2025 under Section 250of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). 2. The appeal is noted to be delayed for filing by 14 days. An application by the assessee seeking condonation of the delay has been filed before us, the contents of which are reproduced hereunder:- With reference to the above, it is most respectfully submitted as under: - 1. That for AY 2014-15 appellate order u/s 250 was passed by the CIT (Appeals)-4, Jaipur on 27.11.2025, however it came to the knowledge of the appellant in the last week of January, 2026. 2. That Shri Tanuj Agrawal, Advocate, was appointed to file the appeal against the said order who prepared the appeal and filed the appeal in the second week of February, 2026. He could not prepare and submit the appeal as he was suffering from viral fever in the first week of February, 2026. 3. This resulted in an unfortunate and unintentional minor delay of around 18 days in filing of the appeal. In the interest of justice, it is most respectfully requested to kindly condone the unfortunate and unintentional minor delay in filing of the appeal and oblige. 3. Ld. Counsel for the assessee stated before us that although the impugned appellate order was passed on 27.11.2025, the same came to the knowledge of the assessee only in the last week of January 2026. Thereafter, Shri Tanuj Agrawal, Advocate, was engaged to prepare and file the appeal before the Tribunal. It has further been submitted that the counsel was suffering from viral fever during the first week of February 2026 and, therefore, could not complete and file the appeal within the prescribed period. Consequently, the appeal was filed in the second week of February 2026, resulting in a delay of approximately 18 days.

P a g e | 3 ITA No.300/JPR/2026 Naresh Vaswani 4. Ld. DR, on the other hand, vehemently opposed the condonation of delay contending that the reason brought out by the assessee reflected laxity on his part in pursuing the remedy of filing appeal and therefore the delay ought not to be condoned. 5. We have heard both the parties. 6. The law governing condonation of delay is now well settled. The Hon'ble Supreme Court in Collector, Land Acquisition, Anantnag &Anr. v. Mst. Katiji & Ors.(1987) 167 ITR 471 (SC) laid down that the expression "sufficient cause" occurring in the Limitation Act should receive a liberal construction so as to advance substantial justice. The Court held that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. The Court further observed that there is no presumption that delay is deliberate or occasioned on account of culpable negligence or mala fides and that ordinarily a litigant does not stand to benefit by lodging an appeal belatedly. 7. We have considered the application for condonation of delay and the explanation furnished by the assessee. Having regard to the reasons stated in the application, particularly the date on which the assessee claims to have acquired knowledge of the impugned order and the illness of the counsel engaged for filing the appeal, we are of the view that the explanation deserves consideration in the interest of substantial justice.We accordingly condone the delay of 18 days in the filing of the present appeal before us. Order was pronounced in the Open Court. 8. Taking up the appeal for hearing.

P a g e | 4 ITA No.300/JPR/2026 Naresh Vaswani 9. The grounds raised by the assessee read as under:- 1. That on the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) grossly erred in sustaining an addition of Rs.1,36,183/-u/s 41(1) of the Income-tax Act, 1961 on account of difference in balances of sundry creditors as per the books of account of the appellant confirmations from sundry and received creditors directly u/s 133(6). 2.That on the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) grossly erred in sustaining disallowance of entire transport expenditure of Rs.4,50,468/- in respect of purchases of goods by wrongly holding that norule 46A application was filed whereas the entire books of account and documents/vouchers were before the Assessing Officer during assessment. 3. That the appellant craves leave to add, amend, alter, modify, substitute or delete any ground or grounds of appeal on or before the hearing of the appeal. 10. Brief facts of the case are that, the assessee is doing wholesale and retail trading in two proprietorship concerns M/s Dress Line and M/s Kala Creation. For the impugned year, return declaring income of Rs.6,89,160/- was filed, which was taken up for scrutiny assessment and assessment framed u/s 143(3) of the Act making addition of Rs.1,36,183/- u/s 41(1) of the Act on account of remission/cessation of liability, Rs.4,50,468/- by disallowing transportation expenses and Rs.41,578/- by disallowing car running, repair and maintenance charges. The income accordingly was assessed by the AO at Rs.13,17,840/- after making the above additions. 11. The assessee carried the matter in appeal before the Ld. CIT(A) challenging the additions made by the AO, who confirmed the addition made u/s 41(1) of the Act and the disallowance of transport expenses, but however deleted the disallowance of car running, repair and maintenance expenses.

P a g e | 5 ITA No.300/JPR/2026 Naresh Vaswani 12. Aggrieved by the same, the assessee has come up in appeal before us. 13. Ground No.1 is in the relation of the addition made to the income of the assessee on account of remission/cessation liabilities as per Section 41(1) of the Act. 14. The facts relating to the issue are that the sundry creditors reflected in the balance sheet of the assessee were verified by the AO by issuing letters u/s 133(6) of the Act to the creditors. Confirmations received from the creditors revealed differences in the balances of a few creditors which is listed at page 2 of the assessment order as under:-

P a g e | 6 ITA No.300/JPR/2026 Naresh Vaswani amount or a wrong bill posted in the account. The Ld. CIT(A) after considering the submissions made by the assessee held that the explanation was general in nature, not substantiated with reconciliations or 3rd party confirmation and further, the fact that the assessee had agreed principally to the addition being made u/s 41(1) of the Act ,accordingly he dismissed the explanation of the assessee and upheld the addition made by the AO. Noting. 17. Before us, ld. Counsel for the assessee relied on his submissions made before the Ld. CIT(A) explaining the nature of the differences and as to how they did not qualify as remission or cessation of liability u/s 41(1) of the Act, while the Ld. DR relied on the findings of the Ld. CIT(A). 18. We have heard both the parties. The addition of Rs.1,36,186/- disputed before us has been made by the AO u/s 41(1) of the Act which pertains to loss, expenditure of trading liabilities which have been allowed as deduction or allowance in earlier years but for the impugned year some benefit has been obtained in cash or any other manner in respect of the loss or expenditure or by way of remission or cessation of trading liability. Such amounts are treated as profits chargeable to tax u/s 41(1) of the Act. The provision of Section 41(1) of the Act is reproduced hereunder:- ……. Profits chargeable to tax. 41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,—

P a g e | 7 ITA No.300/JPR/2026 Naresh Vaswani (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. Explanation 1.—For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first-mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts. Explanation 2.—For the purposes of this sub-section, "successor in business" means,— (i) where there has been an amalgamation of a company with another company, the amalgamated company; (ii) where the first-mentioned person is succeeded by any other person in that business or profession, the other person; (iii) where a firm carrying on a business or profession is succeeded by another firm, the other firm; (iv) where there has been a demerger, the resulting company. ……. 19. In the present case, we are seized with the issue of trading liabilities charged to tax u/s 41(1) of the Act and as per the provisions of Section 41(1) of the Act, it is only when some benefit accrues to the assessee by way of remission or cessation of liability, that the provisions of Section 41(1) of the Act are attracted and the profits are treated as chargeable to tax in the hands of the assessee. The trading liabilities in respect of which, the provision has been invoked in the present case are in relation to the differences in the amount of the outstanding balances of sundry creditors

P a g e | 8 ITA No.300/JPR/2026 Naresh Vaswani in the books of the assessee and the balance as confirmed by the sundry creditors to the AO in response to notices issued u/s 133(6) of the Act. The details of the differences are reproduced above. 20. The assessee had explained both in tabular form and in writing the nature of the differences ,which is reproduced at page 6 to 9 of the order as under, to contend that the balances do not tantamount to cessation/remission of liability for invoking section 41(1) of the Act:-

P a g e | 9 ITA No.300/JPR/2026 Naresh Vaswani

As per the provisions of section 41(1) addition can be made towards remission or cessation of liability, if the following conditions are fulfilled

(i) In the assessment of an assessee, an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by him

(ii) (a) Any amount is obtained in respect of such loss or expenditure, or

(b) Any benefit is obtained in respect of such trading liability by way of remission or cessation thereof

(iii) Such amount or benefit is obtained by the assessee; and

(iv) Such amount or benefit is obtained in a subsequent year.

Perusal of the assessment order reveals that the above mentioned conditions are not fulfilled in the instant case. The A.O. had not brought anything on record to prove that any amount or benefit had been obtained by the appellant during the year under consideration against liabilities which is allegedly ceased to exist. It is also an established proposition of law that onus is on the A.O. to establish that any benefit has accrued to the appellant against alleged liabilities during the year under consideration. Since the Id. A.O. had not discharged his onus, the addition is illegal and unjustified and deserves to be deleted.

In this regard, reliance is being placed on the judgment of Hon'ble ITAT, Ahmedabad Bench, in the case of ITO Vs. Shri Jagmohansingh G Dhiman in ITA No. 1959/Ahd/2012 (paper book page no. 46 to 52) (para 9) wherein the addition was deleted under similar circumstances.

In this regard, it is further submitted as under :-

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1) That the amount of difference in many cases is petty and the volume and amount of transactions involved is very huge (eg. 0.09% in case of Tara Chand Padam Kumar. Minor differences may arise between the balances of parties in business due to various reasons which are reconciled over a period of time but this does not mean at all that the party whose outstanding is less has forgone or remitted his claim. The difference may be due to an error on its part or due to any other valid reason. Section 41(1) applies only when the AO establishes that there was a remission or cessation of liability during the year under consideration. In the present case, the Id. A.O. grossly failed in doing so.

2) In some cases, petty difference is old and pertains to earlier years and has not arisen in the year under consideration.

3) In one case difference is due to freight charged by party which was not incorporated by assessee. Had the freight expenditure being incorporated by the assessee, then there would not have been any difference but simultaneously the profit of the assessee would have reduced to that extent. Hence in this situation, there would have not have been any difference on the income of the assessee.

4) Differences are there due to clerical/typographical mistake on the part of the accountant as submitted in the table above and also before the Id. A.O. during the assessment proceedings vide letter dated 27.12.2016 (paper book page no. 3 to 4).

5) Difference is also there due to posting of bill in other party having similar name i.e. Ganpati Art and Ganpati Creation.

6) In case of Shri Maru Silk Mills Pvt. Ltd. Surat Gujarat opening difference on other side is there (more liability shown by creditor) and other difference is due to the fact that bill of 25.03.2013 (paper book page no. 36) was entered by the appellant on 01.04.2013 may be due to the reason of receipt of goods and bill on that date. It is humbly submitted that it is a settled business practice that goods/bills are entered in the books of account of the purchasing party when they are received by him whereas the seller enters the same in his respective books of account when the sales invoice/bill is made. In case, the date of close of financial year is nearby i.e. 31st March, it may be possiblethat supplier books the sale at March end whereas purchaser books the purchase in April beginning. Moreover, this practice has also been recognized in the law. In the present GST regime, the supplier has to take input tax credit of the tax only when goods are received and not on the date of bill issued by the supplier. In case they fall in different months, there is a mismatch which the GST laws provides for carry forward in the monthly GST returns for set-off in the subsequent period.

Hence in view of the above, it is humbly requested that the impugned addition, being illegal and unjustified, may kindly be deleted.

P a g e | 11 ITA No.300/JPR/2026 Naresh Vaswani 21. The Ld. CIT(A) however has held that the assessee has given only a general explanation, which is not substantiated with the third party confirmation etc. His findings in this regard are contained at page 15 of his order as under:- …… I have gone through the facts of the case, observation of the assessing officer and the submission made by the appellant. The assessee has acknowledged the differences and offered explanations; however, these explanations are general in nature and not substantiated with reconciliations or third-party confirmations rectifying the discrepancies. The fact remains that when confirmations were obtained directly from the creditors, the balances did not match the assessee's books, and the assessee failed to reconcile these differences conclusively during assessment as well as appellate proceedings. Further, during assessment the authorised representative had agreed "in principle" to the addition as mentioned at page 2 of the assessment order. In such circumstances, the absence of reconciliation indicates that the liabilities to the extent of the difference are not enforceable, thereby amounting to cessation of liability within the meaning of section 41(1). The AO has therefore rightly invoked section 41(1), as the discrepancies reflect a benefit to the assessee arising in the year under consideration. …… 22. Considering the explanation furnished by the assessee, we find, that his case was that the differences in the balances of sundry creditors are largely petty balances; that the Creditors are old creditors with whom huge transactions were undertaken during the year and these small differences arose on account of posting errors, wrong bills being posted etc. Undoubtedly, most of the differences in the balances of sundry creditors are small differences and running in thousands only, when the outstanding balances are in lakhs of rupees. This explanation of the assessee surely does not qualify as a general. the explanation is supported with facts, like in the case of Deepti Textiles whose outstanding balance was approximately 9.9 lakhs, the difference in account was only Rs.2,000/-, similarly in the case of K.T. Handprint while the outstanding

P a g e | 12 ITA No.300/JPR/2026 Naresh Vaswani balance was Rs.8 lakhs, the difference was only Rs.6,000/-, the same is the case of R.B. Collection whose outstanding balance is Rs.30 lakhs while the difference is only Rs.8,000/-. Therefore most of the differences in the balance of sundry creditors are undoubtedly petty differences in the accounts of sundry creditors with whom the assessee had huge outstanding balances. 23. The Ld. CIT(A), we therefore hold, has grossly erred in holding that the explanation of the assessee was just a general explanation. We are completely in agreement with the contention of the ld. Counsel for the assessee that the differences were largely petty differences and they surely do not qualify as remission or cessation of liability at all. As long as the differences are accepted by the assessee and have not have been written off as such and are in any case petty differences it is definitely not a case of remission or cessation of liability to qualify for addition to be made u/s 41(1) of the Act. The mere fact that the assessee reflected the amounts as outstanding for payment, even if small petty differences ,shows that the liability has not ceased to exist and the assessee is acknowledging the payment thereof or settlement thereof whichever ways. 24. The order of the Ld. CIT(A) therefore we hold is grossly unjustified in holding that the balances of sundry creditors amounting to Rs.1,36,183/- tantamounted to cessation or remission of liability for adding to the income of the assessee u/s 41(1) of the Act. We accordingly direct the AO to delete the said addition. 25. Ground of appeal No.1 is allowed.

P a g e | 13 ITA No.300/JPR/2026 Naresh Vaswani 26. Ground of appeal No.2 relates to the disallowance of transportation expenses made amounting to Rs.4,50,468/-. 27. The assessee was noted to have debited the impugned amount on account of transportation expenses to its profit and loss account. From the details furnished of the said expenses during the assessment proceedings, the AO noted that the same related to the sales made by the assessee and in the absence of any evidences of having incurred the said expenses furnished to the AO, he held the entire expenses to be not allowable and accordingly disallowed the entire transportation expenses incurred by the assessee of Rs.4,50,468/-. 28. Before the Ld. CIT(A), the assessee explained that the expenses were on not on account of sales but were on account of purchases made and that is why they are debited to trading account and not to the profit and loss account. He contended that all the bills and vouchers are available with the assessee and he produced sample of the few bills to the Ld. CIT(A). Further the assessee expressed his willingness to file complete bills, around 500 in number to the ld. CIT(A), if directed for verification. He contended that the bills contained the transporters addresses, contact numbers, service tax registration and transport details and were therefore was not bogus. 29. The Ld. CIT(A) examined the transport bills and noted that they contained details of transport and other details, he did not admit the same for consideration stating that they were additional evidences and the assessee had made no request for admission of the additional evidences as prescribed under Rule 46A of the Income Tax Rules,1962, nor did the

P a g e | 14 ITA No.300/JPR/2026 Naresh Vaswani assessee furnish any explanation as to why the evidences could not be produced before the AO. 30. The findings of the Ld. CIT(A) are contained at page 21 of the order as under:- …… I have gone through the facts of the case, observation of the assessing officer and the submission made by the appellant. The appellant has furnished copy of trading and profit and loss account. On perusal of same, it is seen that appellant has debited an amount of Rs.4,50,468/- on account of transport expenses. Therefore, the appellant's contention that transportation expenses pertain to purchases of goods and not sales, which is why they were debited to the Trading Account rather than the Profit & Loss Account is found acceptable. The appellant derives income from business of sarees and textile under the name and style of M/s Dress Line and M/s Kala Creation. The appellant has furnished sample bills [PB 42- 45]. On perusal of these bills, it is seen that these bills are issued in name of Dress Line containing details of transporters and other details. However, the assessment order clearly indicate that despite opportunity, the appellant did not furnish any bills or vouchers before the AO. The sample bills produced for the first time at the appellate stage constitute fresh evidence within the meaning of Rule 46A of the Income-tax Rules, 1962. However, the appellant has not made any request, either oral or written for admission of additional evidence under Rule 46A, nor has any explanation been furnished as to why the evidence could not be produced before the AO. In absence of compliance with Rule 46A, the sample bills filed cannot be admitted or relied upon at the appellate stage. Once the bills produced are excluded from consideration, there remains no material to controvert the AO's finding that the expenditure was unverifiable. The AO, therefore, justified in disallowing an expenditure for which the appellant failed to produce supporting evidence during assessment. In view of the above, the disallowance of Rs. 4,50,468/- made by the Assessing Officer is hereby confirmed. Accordingly, this ground of appeal is dismissed. ……. 31. Before us, ld. Counsel for the assessee contended that the AO had given no show cause notice before making the impugned disallowance and therefore the complete vouchers were not produced before the AO.

P a g e | 15 ITA No.300/JPR/2026 Naresh Vaswani That this fact was pointed out to the Ld. CIT(A) also. In this regard, he drew our attention to the submissions made reproduced at page 17 of the Ld. CIT(A) order stating that the AO did not issue any show cause notice for verification of transport expenses. The Ld. Counsel for the assessee pleaded that the evidences furnished by the assessee be entertained and the issue be reconsidered after verification of the vouchers produced by the assessee, which he contended contained all details relation to transport expenses incurred by the assessee including the transporters addresses, contact numbers, service tax registration and transport details, which fact he contended was also acknowledged by the ld. CIT(A) in his order when he noted that on perusal of the bills he found the same to contain details of transporters and other details. The ld. Counsel for the assessee pleaded that in the interest of justice, the evidence filed by the assessee be entertained. 32. Ld. DR however supported the order of the Ld. CIT(A). 33. We have considered the rival submissions. The solely plea of the Ld. Counsel for the assessee is that the Ld. CIT(A) has wrongly refused to admit the additional evidences furnished by the assessee being the vouchers of transportation expenses in support of his contention that the expenses incurred were genuine in relation to the business of the assessee. We are in agreement with the ld. Counsel for the assessee. The Ld. CIT(A) has refused to admit the evidences stating that the assessee had not given any reason for not furnishing them before the

P a g e | 16 ITA No.300/JPR/2026 Naresh Vaswani AO nor has the assessee filed an application seeking admission of additional evidences. 34. However, we find that the assessee had pleaded before the Ld. CIT(A) that the AO had made the addition without even giving a show cause notice to the assessee. This, we find, constitutes sufficient reason for not producing the vouchers before the AO and the Ld. CIT(A) ought to have admitted the additional evidences furnished by the assessee. 35. Even otherwise, we have noted that the Ld. CIT(A) himself has acknowledged the fact that the vouchers furnished by the assessee contained the details of the transporters and the assessee’s claim of the expenses being genuine was easily verifiable. Interest of justice also demands that the additional evidences therefore be admitted, since the failure to admit these additional evidences will and has unjustifiably resulted in an addition/disallowance being made without due exercise of verification of the claim of the assessee being carried out, which was easily possible to carry out, since all details and information were being furnished by the assessee by way of additional evidences. 36. In the light of the same, we therefore direct the Ld. CIT(A) to admit the additional evidences furnished by the assessee and thereafter adjudicate the issue afresh after carrying out necessary verification exercise if required. 37. Ground of appeal No.2 is allowed for statistical purposes.

P a g e | 17 ITA No.300/JPR/2026 Naresh Vaswani 38. In effect, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the Open Court on 27.10.2026

Sd/- Sd/- (T.R. Senthil Kumar) (Annapurna Gupta) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated 27.10.2026 Mittali, Sr. PS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT By Order, Mittali Digitally signed by: Mittali DN: CN = Mittali email = Asst. Registrar mittaligupta34671@gmail.com C = ITAT, Jaipur IN O = Personal Date: 2026.10.30 12:38:32 +05'30'