1999 (3) TMI 639 - AT - Income Tax

Summary

Issues Involved:
1. Validity of additions based on photocopies of hundies and related documents.
2. Taxability of interest on hundies.
3. Unexplained investment in undated original hundies.
4. Unaccounted investment in silver articles.
5. Unaccounted foreign currencies.

Summary:

1. Validity of Additions Based on Photocopies of Hundies and Related Documents:
The Assessing Officer conducted a search at the premises of the late Shri A. K. Patel, leading to the discovery of 34 hundies aggregating to Rs. 1,61,72,000. The search also uncovered documents indicating substantial unaccounted loans. The Assessing Officer concluded that the amount of Rs. 2,64,46,000 represented unaccounted principal and interest, adding it as income u/s 158BC(c) of the Income-tax Act. The Tribunal upheld the addition of Rs. 1,60,97,000, as it was corroborated by seized hundies and documents, rejecting the contention that no addition could be based on photocopies of hundies.

2. Taxability of Interest on Hundies:
The Tribunal held that the interest amount of Rs. 24,55,000, as reflected in Sheet No. 41, was taxable under the head "Business" since it represented interest on money lending. However, additional interest amounts of Rs. 28,97,000, Rs. 34,18,000, and Rs. 40,34,000, as well as Rs. 25,78,485 for the period 1-1-1996 to 15-7-1996, were deleted due to lack of corroborative evidence of receipt or accrual.

3. Unexplained Investment in Undated Original Hundies:
The search revealed original hundies aggregating to Rs. 10,50,000. The Assessing Officer included Rs. 2,00,000 as unexplained investment in undated hundies issued by M/s. Bhupendra Motors. The Tribunal sustained this addition, rejecting the appellant's claim that the party was untraceable, but deleted the interest addition of Rs. 24,75,072 due to lack of evidence.

4. Unaccounted Investment in Silver Articles:
During the search, silver articles weighing 102 kgs. were found, out of which 50.372 kgs. were disclosed in wealth-tax returns. The appellant explained that 11 kgs. were received as gifts. The Assessing Officer accepted only 5 kgs. as gifts and added Rs. 43,095 as unexplained investment. The Tribunal deleted this addition, accepting the appellant's explanation.

5. Unaccounted Foreign Currencies:
The search also uncovered foreign currencies valued at Rs. 15,000. The appellant claimed these were preserved as collector's items. The Tribunal accepted this explanation and deleted the addition.

Conclusion:
The Tribunal upheld additions totaling Rs. 1,62,97,000, comprising Rs. 1,36,42,000 for hundi loans, Rs. 24,55,000 for interest, and Rs. 2,00,000 for original hundies. The hundi loans were assessed under "Other sources" and the interest under "Business." The appeal was partly allowed.