SURESH KUMAR YOGINDER KUMAR, TIMBER MARKET 2692-1-2 ,AMBALA CANTT vs. NFAC DELHI JURISDITIONAL OFFICER ITO WARD 4 AMBALA, AMBALA

आयकर अपीलीय अिधकरण,चǷीगढ़ Ɋायपीठ “बी” , चǷीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH

HEARING THROUGH: PHYSICAL MODE

ŵी िवŢम िसंहयादव, लेखा सद˟ एवं ŵी परेश म. जोशी, Ɋाियक सद˟
BEFORE: SHRI. VIKRAM SINGH YADAV, AM &SHRI. PARESH M. JOSHI, JM

आयकरअपील सं./ ITA NO. 570/Chd/2024
िनधाŊरण वषŊ / Assessment Year : 2018-19

Suresh Kumar Yoginder Kumar
Timber Market 2692-1-2,
Ambala Cantt, Haryana-133001
बनाम

The ITO
Ward-4, Ambala
˕ायीलेखासं./PAN NO: AAVFS6177P
अपीलाथŎ/Appellant
ŮȑथŎ/Respondent

िनधाŊįरती की ओर से/Assessee by :
Shri Sudhir Sehgal, Advocate
राजˢ की ओर से/ Revenue by :
Shri Dharamvir, JCIT, Sr. DR

सुनवाई की तारीख/Date of Hearing :
26/11/2024
उदघोषणा की तारीख/Date of Pronouncement : 17/01/2025

आदेश/Order

PER PARESH M. JOSHI, J.M. :

This is an appeal filed by the Assessee under section 253 of the Income Tax Act,
1961 (hereinafter referred to as Act) before this Tribunal. The assessee is aggrieved by the order passed by CIT(A) bearing number ITBA/NFAC/S/250/2023-24/1062680709(1) dt.. 15/03/2024 under section 250 of the Act, which is hereinafter referred to as the “impugned order”. The relevant assessment year is 2018-19 and the corresponding previous year period is from 01/04/2017 to 31/03/2018. 2. Factual Matrix
Proceedings before Ld. AO
2.1
That the assessee “Shri Suresh Kumar Joginder Kumar” is a partnership firm and was engaged in the business of trading in wood and other plywood materials.

Rs. 6,67,852/-

That in respect of above notice(s) after notice(s) under section 142(1) were issued to the assessee from time to time wherein the assessee was requested to furnish the details of payment of above creditors since assessee failed to furnish any details, the addition of Rs. 3,39,744/- was made under section 41 as cessation of liability.
2.20
In ultimate analysis and in view of above total income of the assessee was computed as Rs. 39,50,197/- after making above additions(supra).
2.21
The order of assessment bears no. ITBA/AST/S/143(3)/2021-22/1032590010(1) and is dated 21/04/2021 under section 143(3) r.w.s 144B of the Act which is hereinafter referred to as ‘impugned assessment order’.
Proceedings before CIT(A)
2.22
That the assessee being aggrieved by the aforesaid ‘Impugned Assessment
Order’ prefers first appeal u/s 246A of the Act before Ld. CIT(A) who by the impugned order has partly allowed the appeal of the assessee to the extend as stated in the ‘impugned order’, in respect of additions made.
3. That the assessee being aggrieved by the “impugned order” has preferred this present appeal and has interalia raised following grounds of appeal in Form No. 36
against the “impugned order”:
1. That the Ld. CIT(A) has erred in confirming the part as made by the AssessingOfficer and allowing part relief.

Note: Ground at Serial No. 3 was not pressed during the hearing held on 26/11/2024 by Ld.AR.
4. Record of Hearing
4.1
The hearing in the matter took place on 26/11/2024 when both the parties appeared before us and were head patiently by the Tribunal. Equal opportunity alongwith equal treatment to both parties were accorded to by this Tribunal. The Ld. AR for and on behalf of the assessee at the outset and threshold brought to the notice of the Tribunal that he is not pressing addition of Rs. 11,274/- made u/s 40(a)(ia) made by Ld.AO, in the impugned assessment order. He made it clear that he is pressing only two additions as per ground no. 2 (a) & (b) supra.
4.2
The Ld. AR has placed on record of this Tribunal following documents & paper book:

i. Brief synopsis dated 25/09/2024
ii. Brief synopsis II which is undated.
iii. Paper book from pages 1 to 50. iv. Paper book II from pages 1 to 24. 4.3
The Ld. DR has filed written submission dated 26/11/2024 for and on behalf of revenue.
4.4
At the outset it was submitted by the Ld. AR that the case of the assessee pertains to A.Y. 2018-19 i.e the A.Y. in which GST law was enforced. Due to such enforcement of GST law, there was a necessity to change “accounting softwares” as the Tax Regime shifted from Excide Duty / Service Tax, VAT to GST and the said change brought in drastic change in the accounting software. It was then contended that on account of this change of software there was a technical glitch in the accounting software of the assessee as a result of which purchases of Rs. 19,98,744/- were erroneously debited in sale account as a result or consequence thereof, the sales as well as purchases were reduced by an amount of Rs. 19,98,744/- equally. However, as the amount of Rs. 19,98,744/- was reduced from both sales and purchases, hence there was no impact on the net profit declared by the assessee in profit and loss account for the year ending 31/03/2018. A comparative chart to this effect is as follows:
Particulars

Amount as per
Trading Account
Amount (Correct)
Particulars
Amount as per Trading
Account
Amount (Correct)
To Opening Stock
99,21,470.00
99,21,470.00
By Sales
1,06,93,497.00
1,26,92,241.00
To Purchases
75,39,534.95
95,38,278.95
By Closing Stock
82,15,645.00
82,15,645.00
To Freight & Cartage
31,250.00
31,250.00

To Gross Profit
1416887.05
1416887.05

Difference
18,21,299/-

31/03/2017 then, the Ld. AO should not treat the said liability as extinguished and invoke the provisions of Section 41 of the Act without considering that the assessee intends to pay such liability. Reliance was placed on the following judgments:
(a)
The Supreme Court in the case of Bombay Dyeing & Mfg. Co. Ltd. v. State of Bombay AIR 1958 SC 328 clearly held that even in cases where the remedy of a creditor is barred by limitation, the debt itself is not extinguish.

(b) Hon'ble Delhi High Court in case of Jain Exports (P.) Ltd. - T20131 35 taxmann.com 540 -
24.05.2013-Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability [Cessation of liability] - Assessment year 2008-09 - During scrutiny, Assessing Officer added amounts shown as credit balances of creditors, outstanding for several years under section 41(1) - Commissioner (Appeals) confirmed addition only in respect of creditor ‘E’as assessee could not prove genuineness of transaction, but deleted addition in respect of other creditors - Whether, as per section 41(1), cessation of liability may occur either by reason of it becoming unenforceable in law by creditor coupled with debtor's intention not to honour his liability, or by a contract between parties or by discharge of debt - Held, yes –
Whether, establishment of genuineness of transaction was required in year when liability had arisen and addition could not be made on such ground, treating it as cessation of trading liability, when assessee had acknowledged its liability successively over several years - Held, yes [Para 22] [In favour of assessee].

(c) Hon'ble Gujarat High Court in the case of - Nitin S. Garg - [2012] 22 taxmann.com 59 -
11.04.2012- Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability - Assessment years 2001-02 to 2003-04 and 2006-07 - In course of assessment,
Assessing Officer noticed from balance sheet that various creditors were very old and no interest had been paid on those loans - Assessing Officer gave various opportunities to assessee to furnish details of such creditors, viz., confirmation as well as creditworthiness but assessee failed to produce necessary information and details in that regard - Assessing
Officer thus made an addition under section 41(1) in respect of aforesaid liabilities -On further appeal, Tribunal deleted addition on ground that assessee had continued to show admitted amounts as liabilities in its balance sheet and thus it could not be treated as a case of cessation of liabilities - Whether merely because liabilities were outstanding for last many years, it could not be inferred that said liabilities had ceased to exist

-
Held, yes - Whether even otherwise, since assessee had continued to show admitted amounts as liabilities in its balance sheet, Tribunal was justified in deleting impugned addition made by Assessing Officer - Held, yes [In favour of assessee]
(d) Hon'ble Gujarat High Court in the case of Puiidevi Mahendrakumar Chaudhary - f2014]
41 taxamann.com 329 -19.11.2013-Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability [Time-barred liabilities] -Assessment year 2009-10 - Assessee had outstanding creditors for goods - Assessing Officer having noticed that with respect to 14
creditors certain amount was outstanding for more than three years added said amount in income of assessee under section 41(1) - Whether Assessing Officer was justified in his view -
Held, no [Para 5] [In favour of assessee]

(e) Hon'ble Kolkata Bench of ITAT'in the case of Marcopolo Products (P.) Ltd T20161 70
taxmann.com 320- IV. Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability (Condition precedent) - Assessment year 2009-10 - Whether there are two conditions to be fulfilled in order to attract provisions of section 41; firstly, there should be cessation or remission of liability and, secondly, it should be ceased to be so during previous year - Held, yes -Whether even where an amount remained unclaimed by sundry creditors for a considerable period of time, and said liability was carried forward for many years and, there was no cessation or remission during previous year, same could not be added to income - Held, yes [Paras 24 and 25] [In favour of assessee]
4.12 It was finally concluded in the closing argument by Ld. AR that the additions have been made by the Ld. AR for the purchases only on account of error that the amount of Rs. 18,21,299/- are not reflecting in the trading account for the year ending
31/03/2018 but the same have been recorded in the books of account of assessee.
However the said amount is duly reflecting in the copy of account of the creditors as submitted during the course of assessment proceedings. In so far as cessation of liability, it is hereby submitted that the assessee has due intention of paying the said amount to M/s Dewan Chand & Sons and thereby, the additions made by the Ld. AO deserves to be deleted.
4.13
Per contra, the Ld. DR has gone by the impugned order and has contended that it is legal and proper. It has to legal infirmity or otherwise. The Ld. DR has placed on record written submission dt. 26/11/2024 and we have perused the same.
5. Observations, Findings & Conclusions
5.1
We now have to adjudge and adjudicate this second appeal basis records of the case. We have to decide legality, validity and proprietary of the impugned order.
5.2
At the outset and threshold we observe that the impugned assessment order dt.
21/04/2021 is under section 143(3) read with section 144B of the Act.
5.3
We basis records of the case especially before the Ld. AO are of the considered view that in so far as addition of Rs. 18,21,299/- is concerned the observation of Ld. AO in the impugned assessment order can be summarized as that he had called for during the course of assessment proceedings month wise purchases & sales details for the year under consideration. Basis submission dt. 10/12/2020 assessee furnished month wise details of purchases and sale. The same was tabulated by him in para 3.2 of the impugned assessment order. For the month of April he noticed purchase of Rs.
30,37,17.91/- he then compared this purchases worth Rs. 303717.91 vis a vis ledger account of creditors which was also tabulated by him in para 3.2 he noticed that total purchases for the month of April was Rs. 21,25,016/- from two parties i.e. Shankar
International Pvt. Ltd. and M/s Sharda Timber Pvt. Ltd. and called upon assessee to state in the month wise purchase and sales submitted by the assessee as to why purchases for the month of April 2017 is shown at Rs. 3,03,717/- instead of Rs. 21,25,016/-.
Then a draft assessment order was sent to the assessee on 15/04/2021 ( as per due process contemplated by Section 144B) to file his reply latest by 19/04/2021 proposing above addition of Rs.. 18,21,299/- (Rs. 21,25,016/- - 303717/- supra figures). The assessee however failed to respond, consequently addition of Rs. 18,21,290/-.In first appeal assessee makes following submissions which is reproduced below:
"During the course of assessment proceedings month wise details of purchases and sales along with copy of account of creditors were submitted. The learned AO on the basis of copy of account of 2 creditors, found that purchases of Rs. 21,25,016/ were made against
RS. 3,03,717/- purchases shown by the assessee in the corresponding month of April, 2017 in the month wise details. In this regard, our submissions are as under:

i) That AO has to assess the income in such a manner that real income of the assessee is assessed and taxed accordingly. There can be errors in submitting month wise details. But that mistake should not be taken as the real income of the assessee. May I draw your goodself kind attention to the judgement of the Hon'ble Supreme Court in the case of CIT vs. Shoorji Vallabhdas & Co., (1962) 46 ITR 144 (SC) for the proposition that a mere book keeping entry cannot be assessed as income unless it can be shown that income has actually resulted.

fi) That during the course of assessment proceedings vide letter dated 16.03.2021 (Copy enclosed for ready reference at page no. 40 of the Paper Book) assessee has explained as under :-

"Purchases:-

As per your questionnaire regarding difference in total purchases given in the reply that the amount of total purchases as per your clarification includes the amount of VAT & GST also. During the F. Y 2017-18 there is a change of Law from Vat to GST on dated 01.07.2017. Due to this change the accounting packages also required changes w.e.f. 01.07.2017 but unfortunately at the time of this change some of the entries of purchases debited in the 13

account of sales. As result there is difference of Rs. 1998744.00 both in purchases and sales equally. All the entries are shown correctly on screen but at the back end this amount of difference comes in the total of purchases and sales.

Further this is for your kind reference that the case of the said firm was selected under scrutiny form last four years and almostly the cases were assessed as per I. T return filed. We have no malafide attention to give under value of sales and purchase. This is only due to technical issues regarding change of software in the mid of the year. So your goodself is requested to take it politely and assessed the case.

On going through our above submission your goodself will realize that the assessee has admitted its mistake but this mistake was beyond his control, it was an inadvertent mistake and that had occurred due to computer/software problems which was the result of changes in VAT/GST laws within the same year. For First 3 months (from 01.04.2017 to 30.06.2017), assessee was to follow VAT Act and for balance 9 months (from 01.07.2017 to 31.03.2018), he had to follow absolutely new law under GST Act. GST Law was introduced in such a way that it was a surprise for every businessman as well as for tax authorities also.
It was very difficult for small businessmen to maintain the books of accounts as per newly applicable GST Act. Lot of chaos were there. More so lot of explanatory circulars/notifications/clarifications etc. were issued by Govt, from time to time. Resulting therein various mistakes had occurred. In the assessee's case also because of the same, a compensatory error had occurred. Which was duly explained to the learned Assessing
Officer. Sir, it was a compensatory error which has no impact upon income of the assessee firm. On one side purchases were shown at lesser figures and on another side, sales were also shown at lesser figures of equivalent amount of Rs. 19,98,744/. This compensatory error/mistake had no repercussion upon the income of the assessee firm. Profit had remained the same, though both purchases and sales have been increased by the equivalent amount. Moreover, the mistake was unintentional and was not deliberate.

The learned Assessing Officer did not agree to our explanation vide our cited letter dated
16.03.2021 and made the addition by stating in para 3.3 of his Order as:

"An addition of RS. 18,21,299/- is therefore made to his income as out of books purchases not recorded in month-wise purchase u/s 698."

That making this addition by stating that 'out of books purchases not recorded in month- wise purchases' is totally wrong and just based upon suspicion, conjectures and surmises.
Because copy of account of these 2 creditors were supplied by the assessee by taking print from his own books of accounts, Same copy of accounts are also enclosed herewith for your goodself kind ready reference and records (kindly refer to page no. 41 to 42 of Paper Book). Once, the learned AO has taken purchases by adding the figures from those copy of accounts (which are extracted from assessee's books of accounts maintained in the computer software) then how can these be treated as out of books purchases. These purchases were very much in books of accounts.

iii) That on the cost of repetition, it is once again reiterated that it was pointed out during the course of assessment proceedings also that during financial year 2017-18, there was a complete change of sales tax laws. In place of VAT laws, GST had taken place w.e.f.
01.07.2017. That means during financial year 2017-18, first three months were VAT laws and after that 9 months GST laws were applicable. This has resulted into lot of changes in the computer software. GST concept was absolutely new to every stakeholder. Whether for management or accountants or even Sales Tax authorities. Traders were having lot of confusions. Lot of explanatory circulars/ press releases were coming out, making the situation uncertain and worse. In the light of these confusions, software was also having glitches etc. As a result, while submitting the month wise details, due to certain mistakes, correct figures did not work out. But it is once again reiterated that the assessee had no mala fide intention to supply the wrong information. It was a mistake only which was an compensatory error having no impact upon the taxable income. Sir, it is very humbly submitted that income tax is applied on income not on the mistakes. The mistake should be ignored. May I draw your Honour's kind attention to Circular No. 14 (XI-35) of 1955, dated April 11, 1955. The relevant portion of the Circular reads as follows: -

"Officers of the department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way..." Real spirit of our Income Tax Act is that real income of the assessee should be taxed.

Similar view was taken by Hon'ble IT AT Banglore bench in the latest case of Armatic
Engineering (P) Ltd. vs. DCIT cited at (2021) 89 ITR (Trib) 0010 (Bangalore)/ (2021) 61 CCH
0176 BangTrib that it is incumbent upon revenue authorities to find out whether particular income was assessable in a particular year or not. CBDT Circular No. 14(XL-35) of 1955. dt
11.4.1955 as per which the lower authorities should have guided the assessee as to the correct proposition of the law. (Banglore Bench Order is enclosed herewith from pages 43
to 54 of our Paper Book.). We have also highlighted relevant portion at page 3 of the IT AT Order for your Honour's kind ready reference.

iv) That the learned Assessing Officer has wrongly made the addition u/s 69B of the Income
Tax Act, 1961. Section 69B reads as under :-

'where in any financial year the assessee is found be the owner of money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of accounts, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article or the explanation offered by his is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed' to be the income of the assessee for such financial year.

On going through the Section, it is amply clear that this section is not applicable upon the assessee. Because copy of accounts based upon which the learned AO has made the additions, have been extracted from the assessee's own books of accounts only. This is not a case where purchases were not accounted in the books of accounts. Also, this is not a case, where loose documents were found which resulted into the addition u/s 698, because whereby it is established that out of books purchases were not recorded in the books of accounts. It is merely a case of compensatory error only, whereby purchases have wrongly been debited to sales account. And as explained in the preceding paragraphs that due to this compensatory error there is no repercussion upon income of the assessee firm nor upon the closing stock of the firm. The learned AO has accepted books results of the assessee and income is assessed based upon net profit arrived out from the trading account and profit & loss account filed with the return of income only.
The learned AO has not rejected the books and accepted closing stock of the assessee also.

Considering the above circumstances, provision of section 69B is not applicable upon the assessee. As such there is no question of addition u/s 69B.

Trust; your Honour will be satisfied with our submissions and going through the facts and circumstances of the case and grant us relief by deleting this addition."

the ledger account of the creditors at Rs. 21,25,016/-. The AO called for explanations for the mismatch, however, the appellant has failed in doing so, nor did it make any response till the finalization of the assessment proceedings. In view of this, the differential amount of Rs. 18,21,299/- (Rs. 21,25,016/- minus Rs. 3,03,717/-) was treated as unaccounted purchases u/s 69B of the Act and was subsequently added to the total income. On perusal of the written arguments, it appears that the appellant itself has admitted its mistake of the mismatch and casts upon the error on the software due to the migration of VAT to GST
Act. It is the appellant who has made declaration and accepted the books of accounts are true and the AO relying on the books of accounts, has completed the scrutiny proceedings. Once the mismatch was pointed out by the AO, it was the onus of the appellant to cure the discrepancies, however, the same has not been done. Furthermore, the case laws relied upon by the appellant differ in the facts of the case of the instant case, therefore, the same are respectfully rejected. The AO has also forwarded the draft assessment order proposing the addition, however, the same has not been objected by the appellant. In view of the very facts, I am inclined to agree with the AO to treat the differential amount as unaccounted purchases. Hence the same is sustained and the respective ground is dismissed.

Rule 46A for placing fresh material on record in support of their contentions now sought to be canvassed before us, if so advised.
5.6
In so far as second addition of Rs. 30,824/- is concerned we hold that the assessee before Ld. CIT(A) in their submission dated 05/05/2022 page 46 of paper book has stated as under “………as regards on party M/s Diwan Chand &Sons amounting to Rs. 30,824/- though we have submitted statement from our books of accounts, but since we do not have any business relation since long with this party, hence statement of this party could not be procured. However, we confirm that this amount of Rs. 30,824/- is payable to M/s Diwanchand& Sons.” We hold that Ld. CIT(A) in the impugned order in para 7 has rightly held that “ During the appeal proceedings, the appellant has submitted copies of the ledger accounts of the parties to whom the liabilities were reflected in the books of accounts, however, it had further expressed that it had no business relation with M/s Dewan Chand & Sons. Thus, considering the very fact, liabilities to the extent of the said party is considered to be ceased u/s 41 of the Act and addition to the extent of Rs. 30,824/- is sustained. Thus, ground no. 4 is partly allowed”.
The authorities cited at Bar by Ld. AR are not applicable to the facts of the present case as in this case the assessee themselves have stated (supra) that there is no business relation with party and Ld. CIT(A) has rightly held that in view thereof this liability is ceased within the meaning of section 41. Hence we sustain this addition of Rs. 30,824/- as admittedly assessee has stated that since long they have no dealing with this party; meaning thereby that liability has ceased u/s 41 consequently addition made by Ld.
AO and sustained by CIT(A) is further sustained by us too.
6. Order

परेश म. जोशी
( VIKRAM SINGH YADAV)

(PARESH M. JOSHI)
लेखासद˟/ ACCOUNTANT MEMBER

Ɋाियक सद˟ / JUDICIAL MEMBER

AG

आदेश कᳱ ᮧितिलिप अᮕेिषत/ Copy of the order forwarded to :

आदेशानुसार/ By order,
सहायकपंजीकार/