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Issues Involved:
The issues involved in this case are: 1. Whether the Appellate Tribunal was correct in deleting the addition of Rs. 30,972 assessed as income u/s 69D of the Income-tax Act, 1961, for the assessment year 1978-79? 2. Whether the documents executed by the borrowers in favor of the assessee should be treated as hundis within the meaning of section 69D of the Income-tax Act, 1961? Issue 1: Addition of Income u/s 69D: The assessee, a registered firm, had borrowed Rs. 30,972 from creditors. The Income-tax Officer treated these borrowals as hundis and added the amount to the assessee's income as per section 69D of the Act. The Tribunal, however, found that the borrowals were not on hundis but were collateral security. The Tribunal also noted that the documents were not hundis as they did not meet the essential characteristics of a hundi. The Tribunal further observed that most transactions were done through cheques, satisfying the requirements of section 69D. Consequently, the Tribunal deleted the addition of Rs. 30,972, and the High Court affirmed this decision. Issue 2: Treatment of Documents as Hundis: The documents executed by the assessee, though on hundi papers, did not meet the essential characteristics of a hundi. They lacked an unconditional order directing payment to a specific person or bearer. The documents contained promises to repay the amounts borrowed with interest, which did not align with hundi requirements. The High Court held that regardless of the language used in the documents, they could not be considered hundis for the purposes of section 69D. The Court emphasized that the documents' contents were crucial, and the mere use of hundi papers did not make them hundis. The Court answered the second question in the affirmative, against the Revenue. In conclusion, the High Court ruled in favor of the assessee on both issues. Since the documents were not hundis, there was no basis for deeming the amounts as income u/s 69D. The Tribunal's findings of genuine borrowings and repayments through a running account with creditors, including cheque payments, supported the decision to delete the addition of Rs. 30,972. Therefore, both questions were answered in the affirmative, against the Revenue, with no order as to costs.
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