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Facts
The assessee, a timber trading firm, filed a NIL income return for AY 2022-23. The Assessing Officer (AO) made additions based on unconfirmed creditors' liabilities and disallowance of freight expenses, which were partly confirmed by the CIT(A). The assessee appealed.
Held
The Tribunal restored the issue of disallowance of creditors' liability back to the AO for verification, allowing grounds 1 & 2 for statistical purposes. The ad-hoc disallowance of freight expenses was upheld, and ground 3 was dismissed.
Key Issues
Validity of additions on account of unconfirmed creditors and disallowance of freight expenses.
Sections Cited
250, 254(1), 133(6), 41(1)
AI-generated summary — verify with the full judgment below
PER PAWAN SINGH, JUDICIAL MEMBER:
This appeal by assessee is directed against the order dated 25th August 2025 passed by National Faceless Appeal Centre, (NFAC)
Delhi/ Commissioner of Income Tax (Appeals) [herein referred as “Ld. CIT(A)”] under section 250 of the Income-tax Act, 1961 (herein referred as “the Act”). The assessee has raised the following grounds of appeal:-
(1) The learned Commissioner of income tax (Appeals), NFAC, Delhi has erred in law in holding and confirming additionof 15.00 lakhs as a session of liability out of gross liability of ₹ 17,48,697/-a sum of Rs. 2,48,697/-deleted being partly allowed and balance of ₹15.00 lakhs confirmed. In view of the fact and circumstances and evidence placed on record the addition sustained is most arbitrary and uncalled for.
Omkar Nath Pradeep Kumar (2) in view of the facts and circumstances and complete evidence placed on record the landed CIT (A) is erred in law and otherwise on facts not justified in sustaining addition of ₹14,27,654+₹7,80,293 = ₹. 22,07,947 /-on the back of the same were not responded under section 133(6) at the stage of assessment proceeding though complete evidence were placed in the stage of appeal proceeding. (3) In view of the facts and circumstances the addition of ₹ 35,180/- toward freight expenses made by AO and confirmed by CIT a is most arbitrary and not called for. (4) The assessee craves leave to take additional grounds of appeal before or at the time of hearing of the appeal and /or modify any of the above grounds.
2. Brief facts of the case are that assessee is firm, and engaged in the business of timber trading, filed its return of income for assessment year (AY) 2022-23 on 24th September 2022 declaring Nill income.
The case was selected for scrutiny on the issue of low income from TCS receipts and timber not obtained from forest lease. During assessment, the assessing officer noted that assessee has shown liabilities from creditors of Rs. 51,0258/-. The assessing officer AO issued show cause notice to the assessee to substantiate such creditors/ liabilities. The AO recorded that in response to such notice, the assessee filed list of creditors, ledger account, and his bank account in support of his claim. The AO also issued notice under section 133(6) to creditors. The AO recorded that after receipt of reply was received creditors. The reply of assessee was not accepted by the AO. The AO recorded that assessee has not furnished confirmation, payment proof in subsequent year and Omkar Nath Pradeep Kumar 4 creditors/ liabilities, aggregating of Rs. 40,56,226/- in the following manner; Sr Name of the creditor Amount (Rs.000/-) No. Saavy Trade Link 17,48,697/- 1 Kanti Prasad Ashok Kumar 14,27,654/- 2 Saga Ply Industries LLP 99,718/- 3 Soft Wood Product 7,80,293/- 4 Total 40,56,226/-
The AO further recorded that assessee has debited freight expenses of ₹3,58,100/-. The AO recorded that on show cause, the assessee has not furnished sufficient supporting evidence in respect of such freight expenses. On the basis of his aforesaid view, the assessing officer treated disallowed 10% of such expenses. Thus, the assessing officer while passing the assessment order disallowed creditors liability of Rs. 40,56,226/- and Rs. 35,810/- being 10% of freight expenses while passing the assessment order on 22nd March 2024. Aggrieved by the additions in the assessment order, the assessee filed appeal before CIT(A). Before CIT(A), the assessee filed detailed written submission dated 24.07.2025, which are extracted in the impugned order. The ld CIT(A) after considering the submissions of assessee allowed part relief to the assessee, which is summarized below;
Omkar Nath Pradeep Kumar Sr Name of the creditor Amount (Rs.000/-) Deleted/ No. Added by AO confirmed by CIT(A) Saavy Trade Link 17,48,697/- Rs. 2,48,697/- 1 deleted/ Rs. 15,00,000/- confirmed Kanti Prasad Ashok 14,27,654/- Confirmed 2 Kumar Saga Ply Industries LLP 99,718/- Deleted 3 Soft Wood Product 7,80,293/- Confirmed 4
The ld CIT(A) confirmed the disallowance of Rs. 15.00 lakhs in respect of credit of Saavy Trade Link, Rs. 14,27,654/- of Kanti Prasad Ashok Kumar and Rs. 7,80,293/- of Soft Wood Product by taking view that these parties have not responded to notice under section 133(6) nor the assessee submitted any evidence at the time of assessment. The ld. CIT(A) confirmed the addition under section 41(1) of the Act. Further, aggrieved the assessee has filed present appeal before Tribunal.
I have heard the submissions of both the parties and order of lower authorities and have gone through the recordcarefully. The learned authorized representative (ld AR) of the assessee submits that a show cause notice dated 09.03.2024 was issued by assessing officer who filed reply on or before 14.03.2024. The assessee filed reply on 14.03.2024. In the reply, the assessee furnished complete details of sundry creditors along with their copy of account in assessee’s books of account. Copy of purchase bills were aloredy on record.
The assessing officer sent notice to creditors and their reply was received by assessing officer. The AO has not informed about the 4
Omkar Nath Pradeep Kumar contents of reply of various creditors. The assessing officer has not given any opportunity to explain if any, adverse reply was received by him and passed the assessment order on 22.03.2024. The assessee furnished complete details about the outstanding creditors / liabilities. Before ld. CIT(A), the assessee again filed complete details with the creditors. With regard to addition/disallowance of Rs. 15 lakhs in respect of Saavy Trade Link, the ld. AR submits that there was opening credit balance of this party as on 01.04.2021 of Rs. 1.50 lakh in Gandhi Dham Unit and Rs. 98697/- in Hapur Unit.
During the year, the assessee also received Rs. 15 lakh on 07.12.2021 in HDFC Bank. Copy of accounts of the party in the assesse’s book and copy of bank statement was filed before ld. CIT(A). The ld. CIT(A) disregarded the explanation of assessee and confirmed the action of assessing officer by holding that no evidence was filed before assessing officer. Similarly for other disallowances of Rs. 14,27,654/- with regard to Kanti Prasad Ashok Kumar and Rs. 7,80,293/- with regard to Soft Woods Products. The ld. AR of the assessee submits that AO has not given reasonable opportunity to explain, however, complete details were furnished before ld. CIT(A). The ld. CIT(A) ignored all such submissions. The ld. AR submits that complete details are placed on record in the form of ledger account of the parties and corresponding account in the books of account in the current year and in the subsequent year. The ld. AR submits that once the assessee has discharged his
Omkar Nath Pradeep Kumar onus and furnished sufficient evidence, the lower authorities were not justified in making such addition. Merely, the creditors have not confirmed, the assessing officer cannot treat the credit liability as cessation of liability. To support his submission, the ld. AR of the assessee relied upon the decision of Allahabad High Court in CIT vs Jagdish Prasad Tiwari (2013) 40 taxmann.com 265 (Allhabad), CIT vs Pancham Dass Jain (2006) 205 CTR 444 (All.), ACIT vs Real Impact P. Ltd. (2024) 109 ITR (Trib.) (S.N) 29 (Delhi) and Rameshwar Shaw vs ITO (2024) 110 ITR (Trib.) 33 (Kolkata).
On the on ground no. 3 that is second addition of adhoc 10.00% disallowance of freight expenses, the ld. AR of the assessee submits that no specific reason was given by assessing officer to make adhoc disallowance of 10.00% of the freight expenses. All the expenses incurred by assessee are genuine. The ld. AR prayed for deleting all the additions/disallowances.
On the other hand, the learned Senior Departmental Representative (ld. Sr. DR) for the Revenue supported the order of lower authorities. On the disallowance of creditors / liabilities, the ld. Sr.
DR submits that the parties in response to notice under section 133(6) has not confirmed about the trade liability towards assessee.
No evidence was furnished by assessee to substantiate such creditors / liability either before assessing officer of before ld. CIT(A). There is clear finding of both the lower authorities that of evidence was furnished to substantiate such liabilities. On the Omkar Nath Pradeep Kumar 10.00% of total expenses, the ld. Sr. DR submits that assessee failed to substantiate the expenses and furnish necessary evidence. The assessing officer reasonably disallowed only 10.00% of the expenses. Still, the assessee has not placed any evidence on record to substantiate as to why 10.00% adhoc disallowance is not justified.
I have considered the submissions of both the have gone through the orders of lower authorities carefully. I find that assessing officer made additions / disallowances of creditors / liabilities by taking view that the parties have not confirmed the transaction with assessee. Before ld. CIT(A), the assessee filed detailed written submission along with ledger account of respective parties along with certain bank accounts and ledger account of subsequent year. I find that such details furnished by assessee has not been verified by the lower authorities, therefore, the issue of disallowance of creditors liability is restored back to the jurisdictional assessing officer to verify the fact and allow appropriate relief of the assessee in accordance with law. In the result, ground no 1 & 2 of appeal is allowed for statistical purpose.
So far as adhoc disallowance of freight expense is concerned, I find that the assessee has not given details of such expenses except making submission that no cogent reason is given by assessing officer. In my considered view, in absence of any details or evidence, the adhoc disallowance @ 10.00% of total freight
In the result, the appeal is partly allowed.
Order pronounced in the open court on 22.01.2026 as per Rule 34of Income Tax (Appellate Tribunal) Rules-1963.