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Issues involved: Determination of whether a transaction described as a "hundi loan" qualifies as a hundi transaction u/s 69D of the Income-tax Act, 1961.
Summary: In the case, the assessee, a company, borrowed amounts totaling Rs. 2,10,000 during the assessment year 1980-81. The Income-tax Officer added the borrowed amount u/s 69D and interest to the income. The Commissioner partially deleted the additions, and further relief was granted in appeal. The Tribunal, upon examining the loan documents, found that the borrowings were in the nature of pro notes and not raised in the money market through hundis. The Tribunal remanded the case for further examination of loan genuineness. The Tribunal referred the case to the High Court, where arguments were presented by the Income-tax Department and the assessee's advocate. The provisions of section 69D were analyzed, emphasizing the absence of a definition for "hundi" in the Acts. The documents under scrutiny were in English and self-addressed, resembling promissory notes rather than traditional hundis. The Court referenced the characteristics of a hundi and concluded that the transactions were bilateral, lacking the tripartite nature of hundis. Therefore, the Court agreed with the Tribunal's finding that the transactions were not hundi transactions. The Court answered the reference affirmatively, stating that the second question posed did not apply in this case. No costs were awarded in this matter. This judgment clarifies the distinction between hundi transactions and other loan arrangements, emphasizing the essential characteristics of a hundi to determine the applicability of section 69D of the Income-tax Act.
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